Salim Khan, J.--Kurram Wood Factory (Private) Limited, incorporated under the Companies Ordinance, 1984, alleged that it had filed return for the assessment year 1989-90, but could not conduct any business during the period of assessment years, 1990-91 and 1991-92, that the appellant filed return of income-tax for the assessment year 1992-93 and declared the loss of Rs, 39,480/-, but the same was rejected and income of Rs, 3,57,791/- was assessed and an addition of Rs, 3,10,904/- was also made under clause (c) of Section 25 of the Income Tax Ordinance, 1979; that the . request of the appellant for deletion of the above-mentioned amount was not accepted and the matter was taken to Income Tax Appellate Tribunal, Peshawar, where the appeal of the present appellant was dismissed vide judgment and order dated 31.10.1997. The appellant further contended that the order was communicated to the appellant on 13.11.1997. Hence, the appeal in, hand was filed on 11.12.1997. We heard Mr. Abdur Rauf Rohaila, Advocate, for the appellant as well as Mr. Eid Muhammad Khattak, Advocate, for the respondent, and perused the record.
2. The learned counsel for the respondents took up the preliminary objection that questions of law were not framed and the appeal in hand was bad in its present form. The Finance Act, 1997, however, changed the legal position. For the words "reference made or any question of law framed" the words "an appeal filed" were substituted with effect from 1.7.1997. In fact the whole Section 136 of the Income Tax Ordinance, 1979, as it existed before 1.7.1997, was substituted as mentioned below:-- "136. Appeal to the High Court.--(1) An appeal shall lie to High Court in respect of any question of law arising out of an order under Section 135.
(2) The appeal under this section shall be filed within sixty days of the date upon which an assessee or the Commissioner is served with notice of an order under Section 135.
(3)Where an appeal under sub-section (1) is filed by the assessee, it shall be accompanied by a f e of one hundred rupees.
(4) An appeal filed under this section shall be heard by a Bench of not less than two Judges of the High-Court.
(5) The High Court upon the hearing of an appeal under this section shall decide the question of law raised therein and shall deliver its judgment thereon containing the grounds on which such decision is founded and shall send a copy of such judgment under the seal of the Court and the signature of the Registrar to the Appellate Tribunal, which shall pass such orders as are necessary to dispose of the case conformably to such judgment.
(6) Subject to sub-section (7), notwithstanding that an appeal has been filed under this section, tax shall, unless recovery thereof has been stayed by the High Court, be payable in accordance with the assessm ent made in the case as modified by the order of the Appellate Additional Commissioner or, as the case may be, the Appellate Tribunal.
(7)Where recovery of tax has been stayed by the High Court by an order, such order shall cease to have effect on the expiration of a period of six months following the day on which it is made, unless the appeal is decided, or such order is withdrawn, by the High Court earlier.
(8)The costs of the appeal shall be in the discretion of the Court."
3. As the present appeal was filed on 11.12.1997, long before the promulgation of the Finance Ordinance, 2000, an appeal, and not a reference, was to be filed to the High Court. The question of law arising out of an order under section 135 of the Income Tax Ordinance, 1979, was to be raised in the appeal. The assessee was also given a right of such appeal.
4. The objection of the learned counsel for the respondents regarding non-framing of the question of law, therefore, does not hold ground because the question regarding clause (c) of Section 25 of the Income Tax Ordinance, 1979, has been taken up in the appeal itself.
3. The learned counsel for the appellant contended that intention of the legislature was to be seen while interpreting the provisions of Section 25 of the Income Tax Ordinance, 1979, and that intention was to be so interpreted that the assessee is not prejudiced by such an interpretation. He further clarified his point of view by arguing that the amount of trading liability or a portion thereof was not to be declared as income from business for the period when the assessee had not conducted business. He was of the view that the first three years are to be counted only as the years in which the business had been conducted while the years in which the business had not been conducted are to be excluded from counting for the said period of three years. He was further of the view that during the remaining five years, the trading liability or portion thereof could only be considered as income after such liability had not been paid during three years in which the business was practically conducted, after the exclusion of non-business period. The learned counsel for the respondents opposed such contention of the learned counsel for the appellant.
4. In order to properly appreciate the relevant legal position, clause (c) of Section 25 of the Income Tax Ordinance, 1979, is reproduced hereunder: "25. Amounts subsequently recovered in respect of deductions, etc: Notwithstanding anything contained in this Ordinance, where an allowance or deduction has been made under Section 23 for any year in respect of any loss, bad debt, interest credited to suspense account, expenditure or trading liability incurred by the assessee, and subsequently:--
(a) ......................................
(aa) ......................................
(i) ......................................
(ii) ......................................
(ab) ......................................
(b) ......................................
(c) such trading liability or a portion thereof is found not to have been paid within three years of the expiration of the income year in which it was allowed, such liability or portion thereof; as the case may be, shall be deemed to be income from business or profession of the year in which such finding is made or any other year (not being a year commencing after the expiration of five years from the end of the said three years) as the Deputy Commissioner may think fit.
(d) and the business or professir-i in respect of which such allowance or deduction was made shall, for the purposes of Section 22, be deemed to be carried on by the assessee in that year: Provided that where a trading liability referred to in clause (c) is paid in a subsequent year, the amount so paid shall be deducted in computing the income in respect of that year."
The effect of clause (c) of Section 25 of the Income Tax Ordinance, 1979, mentioned above, was taken into consideration by the learned Income Tax Appellate Tribunal; Peshawar, in the light of the grounds of appeal. The said provision does not provide for the conduct or otherwise of business during the first three years. The only condition precedent for declaring the trading liability or portion thereof as income is that such liability has not been paid within the first three years, irrespective of the fact whether the business was or was not conducted during that period. The business or profession in respect of which allowance or deduction was made, is to be deemed to had been carried on by the assessee in that year. The law was not for the purposes of allowing the assessee to first make gain from business or profession and, then, pay the liability, rather, it was a concession for the assessee to pay the liability within three years. On the other hand, a concession was given to the concerned authority to declare it as income of any year after the passage of first three years. Such order could be made during any of the five years, keeping the circumstances of each case in view, and exercising the discretion fairly.
5. There is nothing on record to show that either the circumstances of the case were not kept in view, or the discretion was not exercised fairly, when, on failure of the appellant to pay the trading liability or portion thereof within first three years, the amount of that liability was declared as income of the appellant. We have come to the conclusion that the first three years, irrespective of the conduct of business or otherwise of assessee during that period, is a concession for assessee while the last five years are left to the discretion of the concerned authority for declaring the liability as income of assessee.
6. In these circumstances, we do not find any merit in the present appeal, which is hereby dismissed.