C.I.T. CO., ZONE-I, LAHORE VS GULISTAN POWER GENERATION LTD., LAHORE, 2017 PTD-LAHORE-HIGH-COURT-LAHORE 844 (2017)

Income Tax Ordinance (XXXI of 1979)---

----Ss.30, 136 & Second Sched.---Reference to High Court---Income from other sources---Interest income---Applicability of S.30 of the Income Tax Ordinance, 1979 to "interest income on business activities"---Scope---Question before the High Court was whether "interest income earned by taxpayer on security deposit which was held with a Bank for purpose of obtaining Bank guarantees was part of the business income and exempt from tax and accordingly not taxable under S.30 of Income Tax Ordinance, 1979"---Held, that S.30(2)(b) of the Income Tax Ordinance, 1979 dealt with "income from the sources" and was only applicable where investment of money by a company had not been made as part of its business activity but where such money had been invested by a company in its business, as in the present case, profit generated on such investment, for all intents and purposes, would be considered to be profit earned from business and not from any other source---Reference was answered, accordingly.

Luck Cement Ltd. v. Commissioner Income Tax 2015 SCMR 1494 rel.

Ms. Foziya Baksh for Applicant.

Suhail Raza for Respondent.

ORDER

This is a Reference under section 136(1) of the Income Tax Ordinance, 1979 ("the Ordinance").

2.Following questions of law are pressed for our opinion, which are asserted to have arisen out of order dated 20.11.2003 passed by the Income Tax Appellate Tribunal, Lahore Bench, Lahore ("Appellate Tribunal"):

QUESTIONS OF LAW

1."Whether on the facts and circumstances of the case, the learned ITAT was justified to hold the interest income earned by Appellant in question on security deposit held with bank for obtaining guarantee is part of assessee's business income and exempt from tax whereas interest income is the income under the head income from other source assessable under section 30 of the Income Tax Ordinance, 1979?"

2.Whether on the facts and circumstances of the case, the learned ITAT was justified to delete the charge of Worker Welfare Fund on interest income as well as presumptive whereas the same is chargeable on the total income as per section 2(f) of WWF Act, 1971?"

3.Notice was issued to the Respondents and in pursuance of which they are being represented through their counsel.

4.We have heard the learned counsel for the parties at length and have gone through the order dated 20.11.2003 passed by the learned Appellate Tribunal and find that no questions of law arose in the instant Reference. The questions of law that have been framed in the Reference do not raise any substantive questions of law arising out of the order of the Appellate Tribunal. The Applicant disputes the order of the learned Appellate Tribunal which allowed the appeal of the Respondent on the ground that the assessee's income from interest is exempted from tax and the levy of the WWF imposed by the assessing Officer is not sustainable.

5.We agree with the findings of the learned Appellate Tribunal regarding question No.1 which in the impugned order, in detail, has held that the interest income earned by the Respondent in question on security deposits held with Askari Bank for obtaining bank guarantee as part of assessee's business income and is exempt from tax under Clause (176) of the Second Schedule to the Ordinance as it is not an income from other source under section 30 of the Ordinance. So far as the question No.2 is concerned, the Appellate Tribunal has rightly held that as since the assessee's income from the interest has been exempted from tax, levy of WWF cannot be sustained. The Hon'ble apex Court has held that the income exempt from tax under any clause of the Second Schedule to the Ordinance does not attract the levy of WWF. Furthermore, recently the Honourable Supreme Court of Pakistan in Luck Cement Limited v. Commissioner Income Tax, (2015 SCMR 1494) held that the section 30(2)(b) of the Income Tax Ordinance, 1979 [since repealed] which dealt with 'income from other sources' was only applicable where the investment of money by a company had not been made as part of its business activities. But where money had been invested by a company in its business, as in the present case, and profit was generated on such an investment, that profit shall, for all intents and purposes, be considered to be the profit earned from business and not from other sources.

6.In view of above, the impugned order does not suffer from any factual or legal infirmity as the same has been passed after scrutinizing the relevant record as well as on the basis of valid reasons.

7.Therefore, Reference application is decided against the Applicant.

KMZ/C-5/L Order accordingl