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Petitioner: BANK AL-HABIB LIMITED, MULTAN VS Respondent: COMMISSIONER INLAND REVENUE, R.T.O., MULTAN,
Court Name: Appellate Tribunal Inland Revenue Judge(s): Jawaid Masood Tahir Bhatti, Sohail Afzal Title:BANK AL-HABIB LIMITED, MULTAN vs COMMISSIONER INLAND REVENUE, R.T.O.,
MULTAN, Case No.:I.T.As. Nos.914/LB to 916/LB, 1121/LB to 1123/LB of 2009, 893/LB, 1052/LB to 1054/LB, 1090/LB to 1092/LB, 930/LB, of 2010; 3292/LB of 2004, 1328/LB, 5510/LB, 7141/LB, 7142/LB of 2005, M.A. No,146/LB of 2011 and M.A. (Con.) No,1/LB of 2012 Date of Judgment:2013-01-07 Reported As: 2013 PTD (Trib.) 1083 Result: Order accordingly Judgment ORDER ' These appeals were partly heard on 19-10-2012 and were adjourned to 21-12-2012 on the request of learned D.R. Both the parties have argued the matter at length. Brief facts of the case are, that the, taxpayer, a scheduled banking company registered under the Banking Companies Ordinance, 1962, is working under the rules and regulation framed by the State Bank of Pakistan time to time. ' Cross appeals have been filed, which are being disposed of through this consolidated order. These appeals arise from orders of Commissioner (Appeals) adjudicating orders, passed under section 122 of Income Tax Ordinance, 2001 [hereinafter "the Ordinance' for assessment, years 1999- 2000, 2000-2001, under, section 122(5A) for tax years 2004 to 2007, under section 122(5) for tax year 2003 and 2008 and orders under section 171 for tax years 2003 to 2005. These appeals were partly heard on 19-10,2012 and were adjourned to 21-12-2012 on the request of learned DR. Both the parties have argued the matter at length. The Authorized Representative (AR) of appellant-bank on previous dates of hearing provided a detailed chart showing issues involved and copies of relevant case-law for comments by the learned Departmental Representative (DR). The learned DR also, submitted Department's point of view on, all issues in writing and provided copies of case-law relied upon by him. After examining the impugned orders, written averments of both the sides and case-law cited, the titled appeals are adjudicated as under:--
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' Before deciding appeals on ,merits, we, deem it necessary to decide the following legal grounds first, having impact for most of the years under appeal:- , ' ASSUMPTION OF JURISDICTION UNDER SECTION 122 FOR YEARS PRIOR TO PROMULGATION OF INCOME TAX ORDINANCE,2001 [ASSESSMENT YEAR'S 1999-2000 AND 2000-2001] Department invoked section 122 of Income-Tax Ordinance, 2001 for assessment years 1999-2000 and 2000-2001 learned Commissioner (Appeals) annulled the orders by holding that section 122 could not be invoked in respect of any order passed prior to 1-7-2003 Department has filed appeals against this decisions. This controversy has finally been set at rest by honourable Supreme Court of Pakistan in CIT v.. Eli Pakistan (Pvt.) and others (2009) 100 TAX 91 (S.C. Pak,) wherein it has been held that section 122 has no application for any year prior to tax year 2003 In view of this legal position, departmental appeals are dismissed. ' ASSUMPTION OF JURISDICTION UNDER SECTION 122(5A) OF INCOME TAX ORDINANCE, 2001 [TAX YEARS 2005 TO 2007] ' This has been a controversial issue, as many conflicting judgments were in the field. The honourable Islamabad High Court in a recent judgment has decided the issue in favour of the department in Writ Petition No,2412 of 2009 dated 27-4-2012. No contrary decision 'of Lahore High Court or any other High Court is available at the moment. It was conveyed by the learned AR that the honourable Sindh High Court also decided the matter in favour of the Department through a short order, but detailed order is yet not, released. The AR argued that on the basis of latest order by Islamabad High Court, the Tribunal has to decide the matter accordingly but arguments advanced and adjudicated against assumption of jurisdiction by the Additional Commissioner in 2010 ,PTD 705 (Trib), ITA. No,625/IB, of 2010 dated 16-3-2012 and ITAs Nos.69,1 to 694/LB of 2011 dated 26-3-2012 should be considered as integral part of this order so that appellant. Bank could agitate the matter in Lahore High Court where many writs and appeals on the same issue were pending. We have no objection to this proposition and thus following the judgment of honourable Islamabad High Court (supra), we dismiss all the appeals of the appellant-bank on this issue and allow that of Department c as way, done earlier by a division bench of this Tribunal in a case of another bank reported as 2913 PTD (Trib.) 246 2012 (PTR 124 (Trib.). ' ASSUMPTION OF JURISDICTION UNDER SECTION 122(5) OF INCOME TAX ORDINANCE, 2001 TAX YEAR 2008 ' Department selected the case for audit under section 177 and made additions by invoking section 122(5)' of the Ordinance. Invoking of sections 177 and 122(5) was upheld 'by Commissioner (Appeals) with the following observation:- 1 "it has been contended that the Taxation Officer has assumed the jurisdiction unlawfully under section 122 as no definite, information was acquired as a result of audit is also not convincing. The assessing officer collected information from the document produced and audited accounts of the appellant, and after pointing out and confronting to the appellant element of suppression of income made additions under different heads. It is further observed that additions made under different heads for tax year under appeal were also made in previous year which were mostly maintained by the appellate forum., Hence it concluded that this ground of appellant is also wit/tout any legal support. ' The learned AR argued that additions were made on'the issues on which either disagreement on interpretation of provisions of law were in existence or favourable decisions of higher courts were available at the time of amendments. In this respect, he furnished the following details::- S. No. Additions Favourable judgments/provision of law
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1. Disallowance of provision for non- performing loans.(i) 2002 PTD (Trib.) 1898 (ii) (2002) 85 Tax 245 (Trib.) (iii) 2003 PTD (Trib.) 1189 (iv) (2006) PTD (Trib.) 1292 (v) R.A. No,349/LB of 2002 (vi) (2004)'90 Tax 116 (Trib.) (vii) 2006 PTD (Trib.) 356 2. Taxation of compensation on delayed refund2006 PTD 1888 (Trib.) 3. Leasehold improvement ITA No:93/LB of 2001 dated 14- 6-2002 4. Allocation of expenses against exempt capital gain and dividend(i) 1993 PTD (Trib.) 472
(ii) 2005 PTD (Trib.) 344
(iii) ITA No,106/LB of 2000
(iv) ITA No,1658/LB of 2003 dated 23-2-2004 = (2004) 90 - Tax 116 (Trib.) 5. Allocation of tax credit under section. 61 to PTR incomeInterpretation of section 67 6. Allocation of expenses to ijara financing businessInterpretation of section 67 7. Amortization of software Estimation of life, of computer software ' The learned AR argued that legal disagreements over issues narrated above were ill existence and department had filed appeals with appellate authorities. The courts had adjudicated these issues in the favour of appellant bank. The resort to section 122(5) by Taxation Officer was not based on acquisition of definite information. He further submitted that information on.' the basis of which jurisdiction under section 122 was assumed was already available on record it was neither acquired through audit nor otherwise came to the knowledge of the department as contemplated in section 122(5). The learned AR further argued that bona fide disagreement over legal interpretation of section 67 and estimation of life of computer software is 'not definite information. The learned AR also pointed' out that for other years, the department invoked section 122(5A) on the same issues holding that acceptance of declared version on these issues is "erroneous" as well as "prejudicial to the revenue". The Department by its own conduct admitted that the issues involved were 'subject matter of section 122(5A) and not that of section 122(5). The learned DR supported orders of authorities below and argued that these additions were made on factual basis too and therefore provisions of section 122(5) of the Ordinance have rightly been invoked for this years too. We are persuaded to agree with the arguments of learned AR that, are-requisite for invoking section 122(5) of the Ordinance was definite information with, regard to escapement or under assessm ent of income or assessm ent at too low a rate or subjection of excessive relief D or, refund. Further, the definite information must have come in the possession of Department after completion of assessm ent---this dictum is elaborated in detail by the honourable Supreme Court in CIT v. Eli
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Lilly Pakistan (Pvt,) Ltd 2009 SCMR 1279 = 2009 PTD 1392 and Central Insurance Co. And others v. CBR, Islamabad and others 1993 SCMR 1232 = 1993 PTD 766. We are also in agreement with the arguments of learned AR that in the presence of favourable judgments of higher' courts E on the issues the department could not invoke section 122(5) as mere disagreement with the decisions of higher courts did not constitute definite information. The honourable Lahore High Court in Saitax Spinning Mills Ltd. v. Commissioner of Income Tax 2003 PTD 808 disapproved reopening of a completed assessm ent, for want of definite information. Moreover, mere disagreement over legal interpretation of section 67 and estimation of life of computer software was not definite information as vvrongly assumed by the Department. We therefore, decide the appear for this year in favour of taxpayer by declaring invoking of section 122(5) of above issues as unlawful. ON MERITS' ' Summary of issues pending for adjudication in departmental and cross appeals for assessment years 1995-96 to tax year 2008 are tabulated as under:-- S. No.Issue Year Appellant 1. Miscellaneous application for condonation of delay in filing of appeal2008 Department 2. Miscellaneous application for entertainment of amended memorandum of appeal2008 Department 3. Expenses against income of AJK branches1995-96 Department 4. Initial depreciation on building 1995-96 Department 5. Relief under section 124A 2005 to 2008 Bank 6. Provision for non-performing loans2003 to 2008 Department/Bank 7. Bad debts written off directly 2005 Bank 8. Bad debts against provision 2003 and 2004 Department 9. Allocation of expenses against 2003. To Department/dividend and exempt capital gain2003 to 2008 Department/Bank 10. Allocation of expenses to Ijara financing income2008 Bank 11. Allocation of those expenses against dividend and exempt capital gain which have been disallowed2008 Bank 12. Allocation of tax credit under section 61 to PTR income2008 Bank 13. Excess perquisites 2003 Department 14. Concessional loans 2003 and 2004 Department 15. Amortization of intangibles 2003 to 2008 Department/Bank 16. 50% disallowance of depreciation on vehicles used by directors and executives2003 to 2007 Department/Bank 17. 50% disallowance of traveling and motor vehicle expenses on2003 to 2007 Department/Bank
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vehicles used by directors and executives 18. Branch renovation/improvement of leasehold premises2003, 2005 to 2008 Department/Bank 19. Diminution in value of investment2006 to 2008 Bank 20. Taxation of compensation on delayed refund2008 Bank 21. Compensation on delayed refund2003 to 2005 Department/Bank ' Issue-wise and year-wise adjudication is made as under:-- (1) MISCELLANEOUS APPLICATION FOR CONDONATION OF DELAY IN FILING OF APPEAL - 2008 (2) MISCELLANEOUS APPLICATION FOR ENTERTAINMENT OF AMENDED MEMORANDUM OF APPEAL 2008 ' The department filed appeal vide ITA No,930/LB/2010 wherein tax year 2003 was mentioned in memorandum and grounds of appeal. On the date of hearing, respondent-bank objected that no order for tax year 2003 was passed in 2010 against which this appeal has been filed. The learned DR sought time for seeking instructions. On next date of hearing, the learned DR pointed out that department inadvertently mentioned tax year as '2003' in appeal whereas the same in fact related to tax year 2008. Department filed Miscellaneous Applications for entertainment of amended memorandum of appeal and condonation of delay. The learned AR said he had no objection if these miscellaneous applications were accepted and adjudicated on merit. Accordingly, these applications are accepted. (3) EXPENSES AGAINST INCOME OF AJK BRANCHES ASSESSMENT YEAR 1995-96 ' In original order under section 62 of Income Tax Ordinance, 1979 hereinafter "the repealed Ordinance"], income from Azad Kashmir operations was not taxed. Therefore, department did not allow expenses against said income. While passing order under sections 62/135 of the repealed Ordinance dated 26-6-2003 on the directions of this Tribunal, the department taxed bank's global income but expenses relating Azad Kashmir operations were not allowed. In appeal, the learned Commissioner (Appeals) directed to allow said expenses. Department has G filed appeal against, said decision. In our view, since bank's global income, including income from Azad Kashmir operation, was taxed, there was no justification for not allowing expenses relating thereto. We find no legal infirmity in order of learned Commissioner Appeals), which is hereby confirmed. (4) INITIAL DEPRECIATION ON BUILDING - ASSESSMENT YEAR 1995-96 ' The bank claimed initial depreciation on building which was disallowed by the department. In first appeal, AR of the bank argued that in accordance with Rule 5(1) of Third Schedule to the repealed Ordinance, in order to claim initial depreciation, the appellant Bank was required to fulfill following conditions:- (1) Building should was erected between, 1,-7-1976 and 30-6-2000 (both dates inclusive). (2) Initial depreciation allowance was available in the year of erection of building or in the year in which it is used for' the first time by the assessee for the purpose of his business. ' In this case, building was newly erected and it was used for the first time for the purpose of appellant's business in the period relevant to assessment year 1995-1996. There was no condition in the law that the Person who erected the building should be the same who used it for his town business for the first time. The two requirements are that building should be newly erected within the specified dates and that it should be used for the first time for the purpose of taxpayer's business. This is an undisputed fact that the Bank used it for the first time in its business and the building was also newly erected by the seller in the period between 1-7-1976 to 30-6-2000. In Rule 5(2)(b); the legislature clearly mentioned that initial depreciation would not be available to "any machinery or plant which has previously been used in Pakistan'. This negative condition was not
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extended to buildings meaning by that a taxpayer was entitled to initial depreciation even if he acquired a newly erected building from the owner but used it for its own business for the first time. Since no negative provision exists in respect of buildings that were previously used, such a taxpayer will not be disentitled for initial depreciation under Rule 5(1). Had it been the intention of legislature to restrict initial depreciation in the case of a building which has been previously used, it could have added it in the negative list provided in Rule 5(2). The AR of bank also argued that the expression "written down value" on which both normal and initial depreciation is to be allowed is defined in Rule 8(7) of the Third Schedule to the Income Tax Ordinance, 1979: For the purpose of this rule, the legislature has clearly provided in Rule 8(8)(c) that:-- "where, before the date of acquisition by the assessee, any such asset had at any time been used by any person for the purposes of his business or profession, the actual cost to the assessee shall, except in any case where sub-clause (d) applies, be deemed not to exceed the fair market value thereof". ' According to him, it also proves that unless there is a case of succession, on second hand purchase of any asset, the actual cost to the buyer should be the amount paid for acquisition of the said asset but in no way should it exceed the market value thereof. He also argued that Rule 5(1) explicitly provides that initial depreciation on a newly erected building (built within 1-7-1976 to 30-6-2000) cannot be denied it' a person acquires it from the owner and uses it for its own business for the first time. After considering above arguments, learned Commissioner accepted the appeal and allowed initial depreciation. The learned DR argued that initial depreciation was rightly disallowed as the bank did not furnish any proof showing that the building was newly constructed and was not used by any one before coming into the ownership of the bank. ' We have examined arguments of both sides. The controversy is of legal nature as nowhere in the order the allegation of use of building, after its completion, by a person other than by a bank is mentioned. The objection of DR is factually incorrect. The Commissioner has dealt with the issue comprehensively both on factual. And legal grounds. We find no infirmity in the order of learned Commissioner (Appeals), which is hereby confirmed:-- (5) RELIEF UNDER SECTION 124A OF THE ORDINANCE-TAX YEARS 2005 to 2008 ' The AR argued that on the following legal issues, there were favourable judgments of this Tribunal in bank's own case after first day of July, 2002 and in benefit of section 124A was unjustifiably denied:--
S. No. Issue involved Judgment 1. Provision for bad debt (2004) 90 Tax 116 (Trib.) 2. Allocation of expenses to exempt income(2004) 90 Tax 116 (Trib.) The appellant-bank argued that in view of section 124A of the Ordinance, the department should have followed these judgments. The department rejected this argument on the ground that legislature has used words "may" which gives option to Commissioner to invoke or not to invoke said section. Commissioner (Appeals) rejected the appeal endorsing the point of view of the department. ' The learned DR supported the observations of authorities below and argued that relief under section 124A is directory and not mandatory. ' Before adjudicating this issue, we would like to reproduce section 124A of the Ordinance as under:- - 124 A. Powers of tax authorities to modify orders, etc.---(1) Where a question of law has been decided by a High Court or the Appellate Tribunal in the case of an assessee, on or after first day of
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July 2002, the Commissioner may, notwithstanding that he has preferred an appeal against the decision of the High Court or made an application for reference against the order of the Appellate Tribunal, as the case may be, follow the said decision in the case of the said assessee in so far as it applies to said question of law arising in any assessment pending before the Commissioner until the decision of the High Court or of the Appellate Tribunal is reversed or modified. (2) In case the decision of High Court or the Appellate Tribunal, referred to in subsection (1), is reversed or modified, the Commissioner may, notwithstanding the expiry of period of limitation prescribed for making any assessme nt or order, within a period of one year from the date of receipt of decision, modify the assessment or order in which the said decision was applied so that it conforms to the final decision. ' The usage of word "may" in a statute has been interpreted by honourable Supreme Court of Pakistan in Abu Bakar Siddique and others v. Collector of Customs 2004 PTD 2187 (S.C. Pak.),as under:- "It is well-settled that word 'may' is discretionary and an enabling word and unless the subject- matter shows that the exercise of power given by the provision using the word 'may' was intended to be imperative for the person to whom the power. Is given, it might not put him under an obligation to necessarily exercise such power but if it is capable of being construed as referring to a statutory duty, it will not be entirely for such person to exercise or not to exercise the power given to him under the law. The use of word 'may' in the statute in the plain meaning is to given discretion to the public authority to act in their option in the manner in which such authorities deem proper but if the public authorities are authorized to discharge their functions in their option in a positive sense, the word 'may' used in the provision would be suggestive of conveying the intention . Of Legislature of imposing an obligation. The word 'may' usually, , and generally does not mean 'must' or 'shall' but it is always capable of meaning 'must' if the discretionary power is conferred upon a public authority with an obligation under the law. The word 'may' is not always used in the statute with the intention and purpose to give uncontrolled powers' tO' an authority rather oftenly it is used to maintain the status of the authority on whom the discretionary power is conferred as an obligation and thus the legislative expression the permissive form, sometime is construed mandatory. It is, however, only in exceptional circumstances in which a power is conferred on a person by saying that he may do a certain thing in his discretion but from the indication of the relevant provisions and the nature of the duty to be done, it appears that exercise of power is obligatory. This is an accepted principle of law that in a case in which the statute authorizes a person for exercise of discretion to advance the case of justice, the power is not merely optional but it is the duty, of the such person to act in the manner it is intended." Bear reading of section 124A reveals that this section is aimed at avoiding repetitive appeals on any legal issue on which Tribunal or Higher Courts had already given a judgment in the case of a taxpayer. In this section no discretion has been given to Commissioner, rater an obligation is imposed. The very purpose of insertion of this section has been to avoid repetitive order/appeals on an issue which is sub judice before a court. It is strange to see that department despite clear verdict of honourable Supreme Court of Pakistan On word 'may' and remedy already provided by the legislature itself under section 124A(2) of the Ordinance has been repeating the same additions every year Which are not maintainable in the law. The right course for the department to implement section '124A and get the orders reversed from the court where the matter is sub judice as remedy is available to the Department under section 124A(2) which says: "In case the decision of High Court or the Appellate Tribunal, referred to in subsection (1), is reserved or modified, the Commissioner may, notwithstanding the expiry of period of limitation prescribed for making any assessm ent or order, within a period of one year from the date of receipt of decision, modify the
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assessm ent or order in which the said decision was applied so that it conforms to the final decision". ' In view of above discussion, the issue is decided in favour of the taxpayer and against the department:-- (6) PROVISION FOR NON-PERFORMING LOANS - TAX YEARS 2003 TO 2008 (7) BAD DEBTS WRITTEN OFF DIRECTLY - TAX YEAR 2005 ' This has been a controversial issue in the cases of ;banks as many conflicting judgments were in the field. In order to resolve the conflict, a five-member bench of this. Tribunal was constituted wherein the following question was taken up for adjudication: "Whether on facts and in the circumstances of the case receivable amount could be written off by debiting it in the Profit and loss account as .Expenditure with the nomenclature.. "provision for bad debts' or not." ' The larger bench after examining various judgments of this Tribunal and higher courts including judgments of honourable Sindh High Court in I.T.A. No,565 of 2000 dated 1-3-2006 ITRA 291 of 2008 dated 13-10-2010, decided the issue in favour of banks with the majority of'4-1 vide its order dated 10-2-2011, reported as 2012 'PTD (Trib.) 1139 with the following observation:-- " We have no doubt in our mind that there is .No reason for disallowance of the claim of bad debt for the banks under discussion. The only criterion is adoption of rules fixed by the State Bank. If there is no deviation of the Prudential Bank Regulation, the claim of bad debt cannot be disallowed. Since it is not, the case of the department that there is deviation, the claim of bad debt of the banks are hereby allowed in full." ' A large number of appeals of various banks were taken upon for adjudication by five-member bench out of which the following appeals relate to this appellant-bank: ITA No. Tax year Appellant ITA No,7141/LB/2005 2003 Department ITA No,7142/LB/2005 2004 Department ITA No,914/LB/2009 2005 Bank ITA No,915/LB/2009 2006 Bank ITA No,916/LB/2009 2007 Bank
' Judgment of five-member bench dated 10-2-2011 covers the above appeals. By following this judgment, the issue is also decided in…
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