' SYED MUHAMMAD JAMIL RAZA ZAIDI (JUDICIAL MEMBER).---Through this appeal the appellant/taxpayer has challenged the validity of the Order dated 15-10-2010 passed by the learned Commissioner Inland Revenue (Appeals-I), Karachi on the following grounds:- " -2. That the learned CIR(A) erred in confirming the amendment of assessment, carried out in an ex parte manner, under section 122(5A) of the Income Tax Ordinance, 2001. It is submitted that CIR(A) erred in understanding the facts relating to dates of filing of extension application of assessm ent proceedings and of the subsequent actions of the Taxation Officer (TO) on such request. It is submitted that such amendment of assessment was required to be completed by giving the appellant opportunity of being heard as under subsection (9) of section 122 of the Income Tax Ordinance, 2001 which was not given and hence assessment is required to be annulled.
(3) That the learned CIR(A), failed to consider the Ground of Appeal No,4, contesting the legibility of action taken for the assessm ent proceedings under section 122(5A) of the Ordinance.
(4) That learned CIR(A) was not justified in confirming the action of the TO of disallowing claim of lease rentals paid of Rs,1,682,263 on the ground that the payment was not made to an approved Modaraba.
(5) That the statement Of the CIR(A) erred in not appreciating the fact that approval already given to the Modaraba/lessor met the requirement of law and hence there was no need to furnish evidence for a new approval.
(6) That the learned CIR(A) erred in not considering and consequently not giving decision on the following Ground of Appeal No,6 a was contested during the appeal, extract of ground is reproduced as under: "Without prejudice to the above ground, the Additional Commissioner of Income Tax erred adding to the income financial charges of Rs,268,468 related to the lease rentals disallowed. It is submitted that such action has resulted in adding the same amount twice to the appellant's income."
(7) That the learned CIR(A) erred in confirming the action of the TO regarding allocating expenses among exempt income, income under Final Tax Regime (FTR) and income under normal tax regime and consequently disallowing the expenses allocated to income under FTR and exempt income, without considering the arguments submitted by the appellant. It is submitted that action adopted by TO was not in consonance of section 67 of the Ordinance read with Rule 13 of the Income Tax Rules, 2002.
(8) That the learned CIR(A) erred in understanding the issue related to taxation of dividend income and hence erred in confirming the action of the TO levying tax on dividend at Rs,1,106,250 at the rate of 35% under normal tax regime rather than at 5% under the final taxation regime which was applicable to corporate taxpayer in the tax year under reference."
2. Mr. Arshad Mehmood, FCA appeared on behalf of the taxpayer/ assessee while Mr. Shafqat Hussain Kehar, D.R. Represented the Department.
3. Mr. Arshad Mehmood the learned counsel for the appellant appeared and argued the case on all the grounds mentioned above. He firstly argued that the ex parte amendment of assessment tinder section 122(5A) of the Income Tax Ordinance, 2001 was carried out by the Additional Commissioner as no opportunity of being heard was provided to the taxpayer as envisaged under section 122(9) of the Income Tax Ordinance, 2001. The learned CIR(A) ignoring this legal ground of the taxpayer/assessee has confirmed the treatment of the Additional Commissioner, who passed an illegal order.
4. On the other factual grounds i,e, disallowing claim of lease rental paid amounting to Rs,16,82,263.
He submitted that the. Same was disallowed by the Additional Commissioner on the ground that the payment was not made to an approved Modarba. He submitted that the Modarba should be approved by F.B.R. Is no more valid for the reason that the same was required under clauses "aa" and "cc" of Sub-Rule of Rule 5 of the 3rd schedule of the repealed Ordinance, 1979 which has not been brought in the Income Tax Ordinance, 2001 hence it is not applicable in the case under reference. However, the learned counsel submitted that for the satisfaction of the Taxation Officer the approval of Regional Commissioner of Income Tax (RCIT) obtained under the said law and was produced before him. Such approval by then RCIT Office was granted under the powers delegated to it by the F.B.R. Based on the above explanation, it is quite clear that the claim of lease rentals is as per law.
5. As regards disallowance of financial charges of Rs,2,68,468 related to the lease rental it was argued by the learned counsel that this ground of appeal was not adjudicated by the learned CIR(A). He further argued that the disallowance of the same amounts to double taxation.
6. As regards allocation of expense among exempt income and normal income he submitted that the treatment of the Additional Commissioner was not in consonance with section 67 of the Ordinance read with Rule 13 of the Income Tax Rules, 2002. He submitted that no expenses were incurred- on earning exempt income, therefore, the question of allocation of the expenses between exempt income and normal income does not arise.
7. He further submitted that the Additional Commissioner was not justified in levying tax on dividend at Rs, 11,06,250 @ 35% under NTR rather than @ 5% under FTR Which was applicable to corporate taxpayer. He submitted that the learned CIR(A) was not justified in maintaining the treatment of the Additional Commissioner.
8. On the other hand, the learned DR supported the orders of the officers below.
9. Rival parties heard and the case record has been examined. Perusal of the record reveals that the several opportunities were provided to the taxpayer/assesse to appear before the Additional Commissioner but each time he sought adjournment. Several adjournments were granted to the taxpayer as is evident from the order of the Additional Commissioner. A show-cause notice dated 24-1-2009 was issued and served on the taxpayer for compliance by 30-1-2009. No one attended' before the Additional Commissioner but only application for adjournment was filed by the AR of the taxpayer seeking adjournment till 15-2-2009. As 15th of February, 2009 was Sunday and therefore, adjournment was allowed by the Additional Commissioner till 16-2-2009. Again no one attended but the AR of the taxpayer furnished the reply which was incorporated by the Additional Commissioner at page 3 of his order. The AR further requested for time till 21-2-2009 which was allowed. On this date again no one attended. However, again the learned AR requested for extension in adjournment till 28-2-2009 which was not granted by the Additional Commissioner. As several opportunities were provided to the taxpayer and the taxpayer has also furnished his explanation, therefore, the assertion made by the taxpayer that no opportunity was provided to the taxpayer is devoid of any merit and the taxpayer himself has furnished the reply which was examined and incorporated in the order. Due to this lethargy the Additional Commissioner was fully justified in passing ex parte order. Therefore, the ground pertaining to confirmation of proceedings under section 122(5A) of the Income Tax Ordinance, 2001 are held to be within the parameters of law and therefore, no interference is required to be made with the order of the learned CIR(A).
10. The ground pertaining to confirmation of disallowance of lease rental paid at Rs,1682263.On the ground that the payment was not made to an approved Modarba and further disallowance of financial charges of Rs,268468 related to the lease rentals is remanded back to the CIR(A) for passing judicious and speaking order as the ground relating to financial charges amounting to Rs,268468 was duly taken by the taxpayer before the CIR(A) vide ground No,6 which has not been adjudicated by him. It was also argued by the learned counsel that it suffered incidence of tax twice, therefore, learned CIR(A) should pass the order keeping in view this assertion made by the learned counsel as well as keeping in view the relevant provisions of law regarding expenses incurred by the taxpayer/assessee to an approved Modarba.
11. As regards ground pertaining to allocation of expenses among exempt income, income under Final Tax Regime (FTR) and income under Normal Tax Regime (NTR), I do not find any force in the arguments of learned counsel for the appellant/taxpayer. It may be observed that no income can be earned without incurring any expenses. Therefore, any expenses attributable to an activity which generated income from business or capital gain were required to be allocated accordingly on proportionate basis. The treatment meted out by the Taxation Officer being in accordance with the provisions of section 67 of the Income Tax Ordinance, 2001 read with Rule 13 of the Income Tax Rules, 2002 and its confirmation by the learned CIR(A) is hereby confirmed the last ground agitated by the appellant pertains to taxation of dividend income. It is the contention of the learned counsel that the Taxation Officer Levied tax on dividend at Rs,11,6250 @ 35% under normal Tax Regime rather than @ 5% under the Final Tax Regime (FTR) which is applicable to corporate taxpayer in the tax year under reference. However, in support of his arguments the learned counsel neither quoted any case-law nor relevant provision of law. In this very case, the relevant section 5 of the Income Tax Ordinance, 2001 read with clause under Division III of Part I of the 1st Schedule prescribing rate of tax on dividend, is applicable. However, the learned counsel for the appellant has not brought the same to the knowledge of the Court. It is the primarily duty of the courts and other adjudicating forum to decide the issue before them in accordance with law. The courts and the adjudicating forum are not relieved of this duty on account of an act or omission of a litigant or a lawyer. The courts are required to do justice though the heaven may fall. The relevant clause is reproduced as under:-- "(a) in the case of dividend received by a public company or an insurance company or any other resident company, 5% of the gross amount of the dividend; or"
"(b) in any other case, 10% of the gross amount of the dividend."
The taxpayer in this case is a public limited company and as per above quoted clause (a) the dividend received by the taxpayer which is a public company the rate applicable is 5% of the gross amount of the dividend. The orders of the officers below are vacated and the Additional Commissioner is directed to levy tax @ 5% on dividend received by the taxpayer. The appeal on this ground succeeds.
13. The appeal stands disposed of to the extent and in the manner indicated above.