ORDER This appeal has been filed by the department against the order of learned CIR (Appeals-ll) passed vide Order Nos. 28, 29, dated 9.8.2010. The grounds of appeal filed by the department are reproduced as under:- "(1) That the Order passed by the learned Commissioner Inland Revenue, (Appeals-ll) is bad in law and facts of the case.
(2) That the learned Commissioner Inland Revenue, (Appeals-ll) is not justified in directing that addition made at Rs. 13,20,000/-- be accepted as rental income as a separate block of income instead of income from other sources despite the fact that the properties in question are not owned by the appellant/tax- payer but by Mr. Tanveer Jamshed who is the owner of the immoveable properties against which such income has arisen.
(3) That the learned Commissioner, Inland Revenue (Appeals-ll) is not justified in deleting 50% disallowance out of operating and admin expenses by observing that sub-clause of Sections 21 and 174 has not been mentioned by the Officer, Inland Revenue whereas it has been clearly mentioned in the order u/S. 122(1) of the Income Tax Ordinance, 2001, that the amounts are to be added back to the income of the tax-payer in accordance with provisions of Sections 21 and 174 of the Income Tax Ordinance, 2001. Moreover, the learned Commissioner, Inland Revenue, (Appeals-ll) has also erred in observing that the Taxation Officer has not mentioned any specific unverifiability or inadmissibility whereas the tax-payer failed to produce requisite details/evidences before the OIR inspite of ample opportunity to do so.
(4) That the learned Commissioner, Inland Revenue (Appeals-ll) is not justified in deleting add backs under the head director's remuneration to the tune of Rs. 9,60,000/- accepting the contention of the appellant/tax- payer that out of Rs.9,60,000/-, Rs. 8,36,164/- is still payable. It is a matter of record that such an explanation does not find any mention before the OIR which is the original forum of adjudication.
(5) That the order passed by the learned Commissioner, Inland Revenue (Appeals-ll) may be vacated and the order passed by the Taxation Officer may be restored.
(6) That the appellant craves permission to add, amend, alter or substitute all or any grounds of appeal on or before the date of hearing."
2. On the date of hearing, the department was represented by Dr. Naveedul Hasan as D.R. While the taxpayer was represented by Mr. Muhammad Ameen, Advocate.
3. Brief facts of the case as transpired from the record are that the tax-payer is a private limited company and engaged in the business of "manufacturing of wearing apparel". Tax-payer, had filed return declaring income at Rs. 1,35,655/-. The case was selected for audit u/S. 177(4)(d) of the Income Tax Ordinance, 2001 by the Commissioner of Income Tax, Audit Division-1, RTO, Karachi vide letter No. Jud-l/A.D.I/RTO/2008-2009/2092, dated 11.4.2009 and the tax-payer was duly intimated of the, risk areas on the basis of which the case was selected for audit. The audit proceedings were conducted and the outcome of the audit report was confronted to the tax-payer through notice u/S. 122(9) of the Income Tax Ordinance, 2001 vide letter No. 58/2009, dated 24.10.2009.
4. After conducting the proceedings, the Officer, Inland Revenue made certain additions in the income of the tax-payer. Not satisfied with the treatment meted out by the Officer, Inland Revenue, tax-payer preferred appeal before the learned CIR(A) who vide his impugned order adjudicated on the issues as under:-- "Now adverting to the facts of the case, I am inclined to agree with the submissions Of the learned A.R. Of the appellant put forth before the undersigned in respect of treating the rental income declared at Rs. 12,30,000/- as income from other sources u/S. 39 of the Income Tax Ordinance, 2001.
The ownership of the shops were duly declared as fixed assets of the company as per Depreciation schedule as available on record, since the year ended to 30.6.2000 and these shops were let out to Mrs. Rukhsana Jamshed through rent agreement executed on 23.6.2007 with effect from 1.7.2007, who is separately assessed to tax vide NTO 0584162. In view of the evidence produced before the undersigned which was also furnished to the Taxation Officer, in the shape of rent agreement, the addition made at Rs. 13,20,000/- under the head income from other sources is totally uncalled for and unwarranted. The Officer Inland Revenue is directed to accept this income as rental income as a separate block of income instead of income from other sources.
The 50% disallowance out of operating and admin. Expenses on adhoc basis is also against the expenses provision of law. Section 21 of the Income Tax Ordinance; 2001 caters to the eventualities that no deduction shall be allowed to the tax-payer provided that payments made are otherwise the banking channel. Whereas, sub-section (2) of Section 174 of the Income Tax Ordinance, 2001, provides that unless otherwise authorized by the Commissioner every taxpayer shall maintain in Pakistan such accounts, documents and records as may be prescribed Here while disallowing the expenses claimed under the heads operating and admin, expenses, the Officer Inland Revenue has not mentioned the sub-clause of Sections 21 and 174, rendering the action illegal. Moreover, it has been pointed out that appellant claimed operating expenses at Rs.
25,74,752/- and has been discussed in the impugned order under appeal but no reasons whatsoever has been assigned for disallowing 50% of the total expenses as per financial statements. To disallow any expense the Taxation Officer has to especially pinpoint the unverifiability or inadmissibility of such expenses and to such extent. Whereas, in the case of appellant, the Taxation Officer has not mentioned any such specific unverifiability or inadmissibility.
Therefore, the addition made under this head cannot be allowed to sustain and is hereby deleted.
The addback under the head director's remuneration to the tune of Rs. 9,60,000/- has been made on the ground that the details filed show that the same have been paid in cash and attracts action u/S. 21 (m) of .The Income Tax Ordinance, 2001. The submission of the learned A.R. Of the appellant are that out of Rs. 9,60,000/-, Rs. 8,36,164/- is still payable and has not been paid, is found correct.
Further the Officer, Inland Revenue has added the amount twice. One while making addition u/S. 111 (1)(a) of the Income Tax Ordinance, 2001 and secondly by invoking the provisions of Section 21(m) of the Income Tax Ordinance, 2001. Such an action cannot be endorsed. Since the addition made u/S. 111 (1 )(a) already stands deleted, it is not sustainable for the reasons discussed above. Hence the same is hereby deleted."
5. Not satisfied with the above order of learned CIR(A) on the issues discussed above, now the department has come in appeal before this Tribunal.
6. During proceedings before this Court, learned D.R. Contended that the rental income claimed at Rs. 13,20,000/- by the tax-payer from immovable properties was treated as income from other sources assessable u/S. 39 of the Income Tax Ordinance, 2001 because these properties were admittedly not owned by the Company but the ownership was in the name of Mr. Tanveer Jamshed, the Director of the Company. The learned D.R. Further contended that the learned CIT(A) was not justified to observe that relevant clauses of Section 21 and Section 174 have not been mentioned by the Officer Inland Revenue while making addition from Operating and Admin.
Expenses. It was further contended that the Taxation Officer had duly mentioned the relevant section on page No. 5 of his Order dated 31.12.2009. It was contended that the Taxation Officer made above addition on the ground that the tax-payer did not file complete details of the expenses and books of account specifically ledgers, bills, vouchers, complete address of the recipients, mode and- nature of payments were not produced despite ample opportunity.
7. The learned D.R. Further contended that the tax-payer did not explain the position regarding the fact that out of remuneration of Rs. 9,60,000/- remuneration to the extent of Rs. 8,38,164/- was still payable and therefore, the Taxation Officer has rightly made the additions.
8. The learned A.R. Of the tax-payer on the other hand, argued that the rental income has been earned from the properties which are duly reflected in the balance sheet of the tax-payer therefore, it will be wrong to conclude that it is not rental income of the company but income from other sources. The learned counsel for the tax-payer contended that while making addition from operating and admin, expenses, the Taxation Officer has not quoted instance of unverifiability or inadmissibility and even clauses of Section 21 under which additions were made have not been mentioned and therefore, the learned CIT(A) was justified to delete the same. Regarding remunerations, the learned counsel for the tax-payer presented before this Court copy of the statement of accounts to show that out of total remuneration of Rs. 9,60,000/- an amount of Rs.
8,36,164/- was payable on the closing date.
9. We have heard to the arguments of both the parties, have perused the available case record.
Our findings are as under:-
10. Regarding the income from immovable properties, the Taxation Officer has reproduced the details of properties, rent receipt and name of the owners of the properties on page No. 2 of his order dated 31.12.2009 which are reproduced as under:-- Sr.
No. Name of Owner Address of Property Rent paid to Co. Rent Received Excess rent received (D .. Tanveer Jamshed S/o. Major (R) Jamshed Alam Khan Shops Nos. 1 and 2 Ground Floor, 46 to 51 Mezzanine-ne Floor, Kekhash-an Shopping Mall, PECHS, Block-2, Karachi 2,40,000/- 2,40,000/-
(2) Shop No. FL- 1, Nadir Shah Apartment, Block-G, Hydri, North 90,000/- Nine months 90,000/- Karachi (3) Tanveer Jamshed S/o. Major (R) Jamshed Alam Khan Block-7 and 8 KDA, Scheme No. 5, Clifton, Karachi. (4) Tanveer Jamshed S/o. Major (R) Jamshed Alam Khan Shop No. 1649/5, at Multan 91 Cantonment, Multan 1,20,000/ 2,40,000/- 1,20,000/-
(5) Tanveer Jamshed S/o. Major (R) Jamshed Alam Khan Shop No. 327/7, Kirshan Mansion, Inveradary Road, Saddar, Karachi 24,000/- 1,80,000/- 1,56,000/-
11. Perusal of the above details reveals that the title of the properties is in the name of Tanveer Jamshed son of Major (R) Jamshed Alam Khan except one property mentioned at Sr. No. 2 where title has not been shown. But the learned counsel for the tax-payer did not deny the fact that all the properties are in the name of Mr. Tanveer Jamshed, but his argument was that the Company has declared all the properties as its assets duly reflected in the balance sheet, therefore, the income from such properties should be treated as rental income of the Company and not income from other sources.
12. In this regard, attention of the learned counsel for the tax-payer was drawn to provisions of sub- section (2) of Section 15 of the Income Tax Ordinance, 2001 which reads as under: ~ Sub-section (2) of Section 15 "Subject to sub-section (3), "rent" means any amount received or receivable by the owner of land or a building as consideration for the use or occupation of, or the right to use or occupy, the land or building, and includes any forfeited deposit paid under a contract for the sale of land or a building."
(underlined for emphasis)
13. Perusal of the above provisions of law would reveal that the law provides for exclusive definition of rent which means any amount received or receivable by owner of land or building (underlined for emphasis). Therefore, in our considered view the income to be classified as rental income, the person receiving rent must be the owner of the land or building according to the provisions of law.
Admittedly in the case of the tax-payer the Company is not the owner of properties let out therefore, the receipts from these properties would fall under 'income from other source' of the tax- payer assessable under provisions of Section 39 of the Income Tax Ordinance, 2001.
14. Keeping in view of above discussion and provisions of law, we vacate the impugned order of the learned CIR(A) on this issue and restore the order of the Officer, Inland Revenue accordingly.
15. So far disallowance out of Operating and Admin. Expenses are concerned, the complaint of the department is that the relevant details and necessary evidence were not provided by the tax- payer inspite of sufficient opportunity. Learned counsel for the tax-payer has contended that the relevant clauses of Sections 21 and 174 have not been mentioned and instances of unverifiability or inadmissibility have not been quoted by the Officer Inland Revenue while making the above additions. During proceedings both the parties agreed to the conclusion that the case on this score may be remanded back to the Taxation Officer concerned for do novo proceedings.
16. We hereby set aside the impugned orders of the two officers below on this issue and remanded back the case to the Taxation Officer concerned for de novo proceedings after affording reasonable, opportunity of being heard to the tax-payer.
17. So. Far the payment of remuneration is concerned, learned counsel for the tax-payer has proved from statement of accounts that out of total remuneration at Rs. 9,60,000/- an amount of Rs.
8,36/164/- was payable as on closing dates. The statement of accounts were also shown to the learned D. The order of the learned CIR(A) on this score is maintained. Accordingly, the departmental appeal on this score fails.
18. The appeal is disposed of as indicated above.