COMMISSIONER OF INCOME TAX, COMPANY ZONE, ISLAMABAD VS MUSLIM COMMERCIAL BANK LTD., 2015 PTD-SUPREME-COURT 1635 (2015)

(Against the judgment dated 12-1-2007 of the Sindh High Court, Karachi, passed in Income Tax Appeals Nos.269/99, 270/99 and judgment dated 24-1-2007 passed in Income Tax Appeal No. 272 of 1999)

(a) Income Tax Ordinance (XXXI of 1979)---

----S. 65(2)---Constitution of Pakistan, Art. 185(3)---Leave to appeal was granted by Supreme Court to consider, whether on the facts and circumstances of the case, Income Tax Appellate Tribunal was justified in holding that requirement of S. 65(2) of Income Tax Ordinance, 1979, could not be fulfilled if administrative and legal approval for reopening of such assessment was obtained from Commissioner of Income Tax for assessment order passed by Inspecting Additional Commissioner Income Tax as Chairman of panel when IAC's consent for reopening was also there.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss. 15, 17, 32 & 65(2)---Computation of income---Exceptions---Income from securities and business or profession of assessee, a Bank---Income Tax Appellate Tribunal had held that interest on securities was assessable as ordinary business income and not as a separate head of income under S. 17 of Income Tax Ordinance, 1979---Order passed by Income Tax Appellate Tribunal was maintained by High Court---Validity---Exception was provided under S. 32 of Income Tax Ordinance, 1979, for computation of income set out in S. 17 of Income Tax Ordinance, 1979, which included S. 17(1)(a) of Income Tax Ordinance, 1979---High Court had correctly held that Banks were justified in adopting method of accounting which was hybrid and had been consistently used by Banks---Various heads of income were enumerated in S. 15 of Income Tax Ordinance, 1979, for the purpose of charge of tax and computation of total income---Interest on securities and income from business were classified as separate heads, respectively under S.15(b) & (d) of Income Tax Ordinance, 1979---Charging section for interest on securities was S. 17 of Income Tax Ordinance, 1979, and on income from business or profession was S.22 of Income Tax Ordinance, 1979---Income from the two heads were to be separately assessed regardless of whether the interest on securities was earned as a part of business of assessee---Appeal dismissed.

Commissioner Income Tax v. Habib Bank Ltd. 2014 SCMR 1557 fol.

M. Bilal, Senior Advocate Supreme Court, Babar Bilal, Advocate Supreme Court and M.S. Khattak, Advocate-on-Record for appellant.

Shahid Hamid, Senior Advocate Supreme Court for Respondent.

Date of hearing: 24th March, 2015.

ORDER

JAWWAD S. KHAWAJA, J.---Civil Appeals Nos.1319-1320 of 2007:- The appellant-revenue impugns the judgment of the High Court dated 12-1-2007 whereby Income Tax Appeals Nos.269-270 of 1999 were decided. In these appeals the following question had been proposed for the opinion of the Court:-

"Whether on the facts and circumstances of the case, the learned Income Tax Appellate Tribunal was justified in holding that requirement of subsection (2) of section 65 of the Income Tax Ordinance, 1979 cannot be fulfilled if the administrative and legal approval for reopening of such assessment is obtained from the Commissioner of Income Tax for the assessment order passed by the Inspecting Additional Commissioner of Income Tax as Chairman of Panel when the IACs consent for reopening was also there vide letter No.IAC/R-11/Cos-1/1993-94/1169 dated 21-3-1994?"

At the very outset, learned counsel for the respondent-Bank drew our attention to the case titled Commissioner Income Tax v. Habib Bank Ltd. (2014 SCMR 1557) and stated that the issue which arises in this case has already been settled through the said precedent. This indeed appears to be the case which is why we had asked learned counsel for the revenue to ascertain if the ratio of the cited precedent was applicable in these appeals also. He states that the principle of law which has been enunciated in the aforesaid case is attracted in the facts of the present case also. We may reproduce below the relevant part of the cited judgment, for ease of reference:--

"(4)(sic.) Considering the provisions of sections 17 and 32 of the Ordinance, reproduced above, we cannot help but notice that section 32 provides an exception to the computation of income set out in section 17, which obviously includes section 17(1)(a). In these circumstances, the impugned judgments rendered by the High Court have in our opinion correctly held that the respondent-Banks were justified in adopting the method of accounting which was hybrid and had been consistently used by the respondent-Banks since long.

(5)Learned counsel for the appellant, however, made reference to a decision of the Income Tax Appellate Tribunal, dated 18-9-1993, wherein it had been held that profits etc. on government securities were to be accounted for in accordance with section 17(1)(a) of the Ordinance. On this basis, it was contended that the Assessing Officer was obliged to follow the said ruling of the Income Tax Appellate Tribunal. The implication of this argument seems to be that the respondent-Banks were therefore, estopped from urging a different point of view because they had not challenged the said ruling. This contention in our opinion cannot be accepted firstly because there is no estoppel against the law and secondly because the High Court has even through the impugned judgments interpreted the law laid down in sections 17 and 32, ibid.

(6)Having heard learned counsel for the parties and having gone through the law also, we are clear that the interpretation of law made by the High Court is correct. We may also advert to the provisions of Articles 201 and 189 of the Constitution of the Islamic Republic of Pakistan, 1973 which stipulate that the law which is enunciated by the High Court under Article 201 becomes binding precedent for all forums within the Province and the law which is enunciated by the Supreme Court under Article 189 becomes binding precedent for all forums in the country."

2.There is an additional issue but the same is merely of academic or peripheral interest in these cases. This issue arises on the basis of section 65(2) of the erstwhile Income Ordinance, 1979. The said provision is as under:--

"No proceedings under subsection (1) shall be initiated unless definite information has come into the possession of the [Deputy Commissioner] [and] he has obtained the previous approval of the Inspecting [Additional Commissioner] of Income Tax in writing to do so."

The issue which arose in these cases was that the DCIT had sought permission from the Commissioner Income Tax instead of the Inspecting Additional Commissioner Income Tax. It was contended on behalf of the respondent-Bank that it was only the Inspecting Additional Commissioner who could have granted the permission under the afore-cited provision and not the Commissioner. Learned counsel for the revenue contended that the Commissioner was a higher functionary and therefore, the permission sought from him was sufficient compliance of the law. However, as noted above, this is an academic issue because after the repeal of the Income Tax Ordinance, 1979, the present legislation i.e. Income Tax Ordinance, 2001 does not contain any provision for an Income Tax Panel. Furthermore we are also of the view that in the light of the precedent cited by learned counsel for the respondent, the main issue in contention has already been decided in terms of paras 4 to 6 of the cited precedent, reproduced above. These two appeals are therefore decided in the same terms particularly because nothing has been urged before us to persuade us to revisit the law enunciated in the cited case.

3.In this view of the matter, these two appeals are dismissed.

Civil Appeal No. 1321 of 2007:- The petitioner revenue impugns the judgment of a learned Division Bench of the High Court dated 24-1-2007 and the judgment of the Income Tax Appellate Tribunal (ITAT) dated 20-2-1998. The High Court dismissed the Income Tax Appeal No.272 of 1999 and affirmed the judgment of the Income Tax Appellate Tribunal (ITAT) wherein it had been held that interest on securities was assessable as ordinary business income and not as a separate head of income under section 17 of the Income Tax Ordinance, 1979.

2.We note that both before the ITAT and before the High Court the revenue had in fact conceded that the two types of Income were to be treated separately one under section 17 and the other under section 22 of the Income Tax Ordinance, 1979. Before us, however, the revenue has had a change of heart and has urged that even interest on securities is to be treated as the business Income of the respondent-Bank under section 22 of the Income Tax Ordinance. There appears to be no justification for this change of stance. Furthermore, the issue before us has been resolved by a judgment dated 17-9-2007 against the same assessee i.e. MCB, which is before us in this matter. The said judgment which has been rendered by a learned four Member Bench of this Court has held as under:--

"After hearing the arguments of the counsel for the parties and going through the impugned judgment of the High Court, we are inclined to agree with the findings of the Division Bench of the High Court as well as the view taken by the Income Tax Appellate Tribunal. Section 15 of the Ordinance enumerates the various heads of income for the purpose of charge of tax and computation of total income. Interest on securities and income from business are classified as separate heads, respectively under Clauses (b) and (d) of the section. The charging section for interest on securities is section 17 and on income from business or profession is section 22. Thus the income under the two heads are to be separately assessed regardless of whether the interest on securities is earned as a part of the business of the assessee."

3.We are not only in agreement with but are bound by the said judgment and the ratio pronounced therein. The same is applicable to the present appeal as well. In this view of the matter, this appeal is dismissed.

MH/C-3/SCAppeal dismissed.