COMMISSIONER INLAND REVENUE, LTU, KARACHI VS KARACHI SHIPPING (PVT.) LTD., KARACHI
2013 PTD 1592
2013 PTD 1592
[Sindh High Court]
Before Ghulam Sarwar Korai and Munib Akhtar, JJ
COMMISSIONER INLAND REVENUE, LTU, KARACHI
Versus
KARACHI SHIPPING (PVT.) LTD., KARACHI
I.T.R.A. No.29 of 2011, decided on 13/02/2013.
(a) Income Tax Ordinance (XLIX of 2001)---
----S.133---Reference to High Court-Scope-Reference application involving question not raised by applicant before any forum below---Jurisdiction of High Court to entertain such question---Scope---Such question could not be said to be a question of law arising from impugned order---Neither High Court could ,entertain nor could , applicant be allowed to raise such question at belated stage---High Court declined to accept such question in circumstances.
(b) Income Tax Ordinance (XLIX of 2001)---
----S.133---Reference application---Concurrent finding of facts by lower Appellate forums---Effect---Such findings would be binding on High Court.
(c) Income Tax Ordinance (XLIX of 2001)---
----Ss.18 & 56---Deduction of business expenditure or loss from business income of taxpayer---Scope---Business expenditures were admissible---Absence of receipts of income during relevant tax period would be considered a business loss incurred by taxpayer, which could be set off against income earned under other heads provided under . S.56 of Income Tax Ordinance, 2001.
Genertech Pakistan Limited v. ITAT of Pakistan 2004 PTD 2255; AES Pakgen (Pvt.) Limited v. CIR in Civil Petitions Nos.2211-L and 2212-L of 2005 heard on 16-6-2006; 1999 PTD (Trib.) 708 and Khairatul Amin v. CIT, Karachi 2000 PTD 363 ref.
Kafeel Ahmed Abbasi for Petitioner.
Lubna Pervez for Respondent.
Dates of hearing: 16th January and 13th February, 2013
JUDGMENT
MUNIB AKHTAR, J.---Being aggrieved by the order of the Appellate Tribunal dated 6-10-2012, the Inland Revenue Department has filed the present Reference Application stating therein that the following questions of law arise out of the impugned order requiring consideration by this Court:
(1) Whether under the facts and circumstances of the case, the learned Tribunal was justified to uphold the order of Commissioner Inland Revenue (Appeals) allowing administrative and general expenses for the tax year and their adjustment against interest and rental income when the taxpayer had not carried on any business during the year?
(2) Whether under the facts and circumstances of the case, the learned Tribunal was justified to uphold the order of Commissioner Inland Revenue (Appeals) allowing administrative and general expenses for the tax year and their adjustment against interest and rental income when the basic business structure was lost with the sale of the only ship owned by the taxpayer, and it was not a temporary loss?
(3) Whether under the facts and circumstances of the case, the learned Tribunal was justified to uphold the order of Commissioner Inland Revenue (Appeals) allowing administrative and general expenses for the tax year and their adjustment against interest and rental income, although income earned from these later sources was not part of the business income of taxpayer, in light of the principle enunciated by the honourable Supreme Court of Pakistan in Ease of Genertech Pakistan Limited v. ITAT of Pakistan, reported as 2004 PTD 2255 (S.C, Pak.) and un-reported judgment in case of AES Pakgen (Pvt.) Limited v. CIR in Civil Petitions Nos.2211-L and 2212-L of 2005 heard on 16-6-2006?
These proposed questions arise in the following circumstances.
2. In respect of the Tax Year, 2004, the concerned Taxation Officer served a notice upon the respondent seeking to amend its assessment for the reasons as therein stated. In so far as presently relevant, the notice stated as follows:-
"It has been observed that upto Tax Year 2004, you were engaged in the business of shipping, however you closed this business and during the period relevant to tax year 2004 you have shown NIL receipts on this account and loss declared was due to the expenses claimed against NIL receipts. Besides, record shows that during the year, you have also earned interest income amounting to Rs.4,359,770 and rental income of Rs.81,247 but instead of offering for tax these two incomes @ 39% and section 15 respectively, you have offered only turnover tax thereon. Please note that you have closed your shipping business and such incomes earned through other sources and rental income are taxable under section 39 and section 15 respectively and only expenses qualified under these separate heads are allowable.
Since none of the expenses claimed have been incurred for earning interest income or* rental income hence no business expense will be allowed against these two heads of income as per full bench judgment of the learned ITAT reported as 1999 PTD (Trib.) 708 and the judgment of the Honourable Sindh High Court reported as (2000) PTD 363 in the case of Khairatul Amin v. CIT, Karachi."
3. The respondent filed a reply to the notice and its representative appeared before the Taxation Officer and gave a detailed explanation. However, by means of the assessment order dated 28-5-2007, the Taxation Officer rejected the explanation and held that the losses incurred by the respondent in respect of its shipping business under the head 'Business Income' could not be set off against the income earned by it under the other heads of income and accordingly brought the same to tax.
4. Being aggrieved by the aforesaid amendment, the respondent filed an appeal before the CIT(Appeals). By means of order dated 19-9-2007, the CIT (Appeals) was pleased to allow the same. In so far as presently relevant, the CIT (Appeals) held as follows:
"On the issue of admissibility, assessment and adjustment of business expenses, I have noted that the Taxation Officer has not made any discussion nor have recorded his findings in the impugned orders, although a detailed explanation in respect of business expenditure and its admissibility was put forth before him and was duly recorded by him in the bodies of the impugned orders. The learned AR in his written submissions has stated that the business of the appellant is not closed but in fact the appellant has sold out the only vessel owing to its commercial unworthiness. It is also argued that the appellant is in the process of purchasing a substitute vessel to resume , its commercial activity. For the period in between the sale of old vessel and until purchase of a substitute vessel, the company had to incur certain expenses relevant to Administrative and General expenditure. The Taxation Officer did not dispute the incurrence of expenditure nor rejected the version of the Appellant Company on this score. Since the incurrence of the expenses has not been disputed nor amount of expenditure has been rejected, the appellant in my view is entitled for assessment of those expenses incurred by him wholly and exclusively for the purposes of business and assessment of resultant loss assessable under section 18 of the Income Tax Ordinance, 2001.
Accordingly the assessed business loss if any shall also be entitled for set off against the-income assessed under sections 15 and 39 in accordance with section 56 of the Income Tax Ordinance, 2001. The Taxation Officer is therefore, directed to give consequential effect to the above directions."
5. Being aggrieved by the decision of the appellate authority, the department preferred an appeal before the Appellate Tribunal However, by means of the impugned order dated 6-10-2010, the Appellate Tribunal dismissed the appeal in the following terms:--
"7. We have given anxious consideration to the arguments of both the learned A.R. and the learned D.R. We have also gone through the case-law placed before us in support of the respective contentions so also the impugned orders. We note that the Additional Commissioner in his impugned orders has not disputed the incurrence and veracity of the expenses as claimed by the respondent Company nor has disallowed the same. He has also not rejected the contention that the respondent is still in business and that it is incurring the expenses as claimed in the returns of income. As a matter of fact the earning of property income and interest income support the contention of the learned A.R. that the respondent is still in existence and has not closed down its business. The learned A.R. also invited our attention to Note 20 of the audited financial statements which strengthen the argument of the learned A.R. that the Company is still in existence....
8. We are also not in favour of the argument that since the Company has not earned any income, it is not entitled to the expenses it has incurred for the purposes of business for the simple reason that the Ordinance does not lay down any such conditions nor this contention is supported by any case-law. We are in agreement with the arguments of the learned A.R. that the case-law relied upon by the Additional Commissioner is not relevant to the issue in hand and that the same does not support the stand taken by him...."
The Appellate Tribunal then referred to and considered various decisions of the High Courts as well as of the Tribunal and thereafter, citing section 56 of the Ordinance, concluded as follows:-
"15. In our view, the provisions of section 56 of the Ordinance clearly allow adjustment of loss incurred in a tax year under any head of income (excluding capital loss and speculation loss) against the person's income under any other head of income for the year."
6. Before us, learned counsel for applicant department went through the relevant portions of the orders below which have been noted above. While submitting that the views adopted by the CIT(Appeals) and the Appellate Tribunal were not correct, learned counsel also shifted the focus of the department's case and sought to contend that the respondent taxpayer was liable to the payment of tax by way of presumptive income tax regime as provided in clause (21) of Part 2 of the Second Schedule to the Ordinance. When learned counsel was asked as to how he could seek to base his case on the aforesaid clause (21) since the amendment of the assessment had not been made on the basis thereof nor had this point been taken by the department at any stage at all, learned counsel sought to reframe the proposed questions so as to introduce the element of clause (21). On further query as to how this was possible since on the face of the record no such question appeared to at all arise out of the impugned order of the Tribunal, learned counsel referred to various sections of the Ordinance to contend that the same could be done. He therefore prayed that the questions as originally proposed, or the reframed question sought now to be introduced with reference to the aforesaid clause (21), may be answered in favour of the department and against the respondent.
7. Learned counsel for the respondent submitted that the conclusions arrived at by the Appellate Tribunal and the CIT (Appeals) were correct and in accordance with law. Learned counsel submitted that it had been found as a fact that the respondent had not abandoned or discontinued the business of shipping during the tax year in question. Therefore, any losses incurred by it in carrying out such business could be set off against income earned under other heads as clearly provided by section 56 of the Ordinance. Learned counsel submitted that the fact that the respondent did not have any receipts by way of business income in the tax year did not at all make the expenditure incurred inadmissible. Since there were no receipts but only expenditures, it necessarily followed that the respondent made a business loss during the tax year in question and it was this loss that could be set off against the other heads of income as rightly concluded by the CIT (Appeals) and upheld by the Appellate Tribunal. Insofar as the Department's attempt to rely on theaforesaid. clause (21) was concerned, learned counsel submitted that this was impermissible since no such plea had at all been taken by the department at any stage, and in any case not before the Appellate Tribunal. She submitted that it was well established that in a reference application, it was only questions of law as arose out of the impugned order that could be taken up by the High Court and the attempt to refer to and rely upon clause (21) did not meet the standard that had been imposed by the case-law in this regard. Learned counsel further submitted that the reframed question sought to be introduced by the department was likewise equally impermissible. Learned counsel also referred to certain case-law.
8. We have heard learned counsel, as above, and considered the record with their assistance and examined the case-law relied upon. We agree with learned counsel for respondent that the issue of the aforesaid clause (21) was never raised by the department before any of the forums below and could not therefore in any manner be said to be a question of law arising out of the impugned order. Therefore, the belated attempt by the department to rely upon this provision before this Court and to introduce it before us whether by reframing the questions already proposed or otherwise formulating a question based squarely on the said clause (21) cannot be allowed or entertained. Hence the case sought to be made out by learned counsel for the department in this regard and on such basis cannot be accepted.
9. Insofar as the actual case that was made out by the Taxation Officer and which proceeded before the appellate forums below is concerned, we are satisfied that the correct conclusions have been arrived at in the impugned order. The crucial question of fact which needed to be taken into consideration was whether the respondent had discontinued or abandoned the business of shipping during the tax year in question. To this a negative answer was given both by the CIT (Appeals) and the Appellate Tribunal and being a question of fact on which concurrent findings have been recorded is binding upon us as such. It was also found as a fact that the respondent had incurred certain business expenditures during the tax year in question. It followed that those expenditures were admissible under the head 'Income from Business' and if there were no receipts of income during the said period, this necessarily meant that the respondent incurred a business loss. The case law cited by learned counsel for respondent clearly establishes this position which in our view is even otherwise unexceptionable and follows axiomatically from the basic principles of income tax law. Hence it is not necessary to consider the cited case-law in any detail. Furthermore, once it is accepted, as it had to be, that a business loss had been incurred under the relevant head of income that loss could be set off against income earned under other heads as expressly and categorically provided by section 56. Again, this conclusion is quite clear on the face of it and hence the CIT (Appeals) and the Appellate Tribunal reached the correct conclusions in setting aside the order of the Taxation Officer.
10. In view of the foregoing position, we answer the questions made out by the applicant department against it and in favour of the respondent. As a result the present Reference Application fails and is hereby dismissed.
SAK/C-6/K???????????????????????????????????????????????????????????????????????????????????????? Reference dismissed.