' These appeals were partly heard, on 19-10-2012 and were adjourned to 21-12-2012 on the request of the 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 from time to time. Earlier, it was working with the name of Prime Commercial Bank Limited.
Subsequently, Pakistan branches of a non-resident bank namely ABN AMRO Bank N. V. Were merged in Prime Commercial Bank and its name was changed to ABN AMR Bank (Pakistan) Limited vide State Bank of Pakistan Notification No,BPRD(LCGD-04)/625-75/2007/9865 dated 31-8-2007.
Later on, ownership of parent company ABN AMR Bank N.V. Was acquired by The Royal Bank of Scotland Group Plc. Consequently, the management changed the name of bank to The Royal Bank of Scotland Limited.
' 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(5A) of Income Tax Ordinance, 2001 [hereinafter "the Ordinance"] for tax years 2004 to 2007, 2009 and 2010 and section 122(5) for tax year, 2003 and 2008. 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.
' Before deciding appeals on merits, we deem it necessary to decide legal grounds first having impact for most of the years under appeal: ' ASSUMPTION OF JURISDICTION UNDER SECTION 122(5A) OF INCOME TAX ORDINANCE, 2001 (TAX YEARS 2004 TO 2007, 2009 AND 2010)
' This has been a controversial issue as many conflicting judgments were in the field. On this issue, Five Member Bench of this Tribunal was constituted in I.T.A. No,1209/LB/2006 (tax year 2005) dated 22-3-2007=2007 PTR 279 (Trib.) wherein issue was decided against the taxpayer. A Miscellaneous Application for recalling of said order was also filed which was rejected vide order in M. A. No,67(LB) of 2008 dated 9-3-2010. 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], I.T.A. No,625/IB/2010 dated 16-3-2012 and I.T.As. Nos.691 to 694/LB/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 as was done earlier by a Division Bench of this Tribunal in a case of another bank reported as 2013 PTD (Trib.) 246.
' ASSUMPTION OF JURISDICTION UNDER SECTION 122(5) OF INCOME TAX ORDINANCE, 2001 [TAX YEARS 2003 AND 2008] ' Tax year 2003 ' Department selected the case for audit under section 177 and invoked section 122(5) of the Ordinance which was declared unlawful by Commissioner (Appeals). Department has contested the order of Commissioner (Appeals). Learned DR supported the order of Taxation Officer and argued that invoking of section 122(5) was lawful as taxpayer failed to substantiate its case before the department.
' The learned AR advanced the same arguments that were taken before the Commissioner (Appeals). He submitted that pre-requisite of invoking section 122(5) of the Ordinance was existence of definite information with regard to escapement or under-assessment of income or assessm ent at too low a rate or subjection of excessive relief or refund. Moreover, this definite information should have been fresh and must come into possession from a source after completion of assessm ent as held by Supreme Court of Pakistan in CIT v. Eli Lilly Pakistan (Pvt.) Ltd.
2009 SCMR 1279 = 2009 PTD 1392 and Central Insurance Co. And others v. CBR, Islamabad and others 1993 PTD 766 = 1993 SCMR 1232. He submitted that amendment under section 122(5) was made merely on certain disagreements on interpretation of statute on which judicial pronouncements were in the field. The AR pointed out that though many favourable judgments on the issues were announced after amended assessment, but even at the time of invoking section 122(5), the following decisions of higher courts and FBR's instructions were in field:-- S. No. Additions Favourable judgments/provision of law
1. Disallowance of provision for non- performing loans(i) 2002 PTD (Trib.) 1898
(ii) 2002 PT.D (Trib.) 2185
(iii) 2003 PTD (Trib.) 1189
(iv) R.A No,349/LB//2002
(v) (2004) 90 TAX 116 (Trib.)
2. Allocation of expenses to dividend and capital gain(i) 1993 PTD (Trib.) 472
(ii) 2005 PTD (Trib.) 344
(iii) I.T.A. No,106/LB/2000
(iv) (2004) 90 TAX 116 (Trib.)
3. Concessional loan Interpretation of section 21(k)
4. Membership paid to Stock of Pakistan Expense is of capital or revenue in nature
5. Expenses on publicity of new branches I.T.A. No,93/LB/2001 dated 14-6-2002
6. Disallowance of 50% depreciation on vehicles used by Directors and ExecutivesI.T.As. Nos. 36 to 38/LB/2003
7. Disallowance of 50% travelling and motor vehicle expenses on vehicles used by Directors and ExecutivesI.T.As. Nos. 23 to 25/LB/2003 dated 13-12-2003
8. Amortization of intangibles Estimation of life of computer software ' The learned AR argued that legal disagreements over issues narrated above were lingering on for a long time and department had filed appeals with appellate authorities. The Tribunal had already adjudicated these issues in the favour of appellant bank. In view of this fact, he argued, the act of department of invoking section 122(5) was totally unjustified as no "definite information" was confronted as required under the law. He showed from record that information on the basis of which assumption of jurisdiction under section 122 was assumed was available on record, it was neither acquired through audit nor otherwise came to the knowledge of the Taxation Officer.
According to AR since no definite information came in the possession of department, as a result of audit or otherwise, resort to section 122(5) was unlawful and proceeding were coram non judice.
The AR also pointed out that for subsequent years, the Additional Commissioner invoked section 122(5A) on the same issues asserting that acceptance of declared version on these issues was "erroneous" as well as "prejudicial to the revenue". The Department by its own conduct, he argued, admitted that the issues involved were not subject matter of section 122(5).
' The AR further claimed that department did not issue prescribed notices. According to him, non- issuance of mandatory notice rendered the whole proceedings nullity in the eye of law. The law prescribed a specific notice to be issued for assumption of jurisdiction under section 122. As held by honourable Supreme Court in Collector, Sahiwal and 2 others v. Muhammad Akhtar 1971 SCMR 681 and followed in Baby-own v. Income Tax Officer 1997 PTD 47, failure to comply with such a mandatory requirement of the statute renders the act void ab initio as being an act performed disregard of the provisions of the statute. Hence, any further proceedings taken on the basis of such a void act are also vitiated and not maintainable in the eye of law.
' The learned DR argued that additions were made on factual basis too and this constituted definite information for the purpose of section 122(5).
Arguments and case-law cited of both sides have been considered. We are persuaded to agree with the opinion of Commissioner (Appeals). He rightly mentioned that pre-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 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 Lilly Pakistan (Pvt.) Ltd. 2009 PTD 1392 = 2009 SCMR 1279 and Central Insurance Co. And others v. CBR, Islamabad and others 1993 SCMR 1232 = 1993 PTD 766. We are also in agreement with the observation of Commissioner of Appeals that there were favourable judgments of higher courts on the issues on which department invoked section 122(5) and this act was against the law. Mere disagreement with the decisions of higher courts cannot be termed as definite information. We want to cite the judgment of Lahore High Court reported as Saitax Spinning Mills Ltd. v.
Commissioner of Income Tax 2003 PTD 808 (Lahore High Court) wherein the honourable High Court disapproved amendment/reopening of a completed assessment for want of definite information.
We are also in agreement with the AR that non-issuance of mandatory notice rendered the proceedings untenable in the eye of law as held by the honourable apex court in Collector, Sahiwal and 2 others v. Muhammad Akhtar 1971 SCMR 681. We, therefore, uphold decision of Commissioner (Appeal) and dismiss departmental appeal on this issue.
' 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:-- "To state that obvious the appeal before me has not been filed against order passed under section 177 by the Commissioner. The order under section 177 issued by the Commissioner is a separate order and distinct from the order under section 122 that has been passed by the DCIR.
Obviously, two authorities cannot pass one order sitting in proceedings separately. The selection order under section 177 may be legal or illegal and the audit proceedings may again be legal or illegal that is not relevant for this appeal that has not been filed against the order under section
177. The appeal has been filed, to state the obvious, against order under section 122. Therefore, I have to see whether the requirements of section 122 were fulfilled in this case or not? The more important condition to pass an order under section 122 is the availability of definite information.
Subsection (5) provides that the definite information may be obtained through audit or otherwise.
If this condition of definite information is satisfied in this case, though the audit may be improper, it will not affect the legal effect of the impugned order. In other words, audit is a means through which definite information may be obtained. In other words, the information itself is never illegal, though it may be definite or otherwise in the context of this appeal. Therefore, the prerequisite to pass an order under section 122, inter alia, is availability of definite information and not the audit itself this ground therefore, is repelled in limine."
' The learned AR argued that issue was decided against the taxpayer on the basis of observation that appeal against selection of case for audit under section 177 by Commissioner was not filed.
According to the learned Commissioner (Appeals), order under section 177 issued by the Commissioner was a separate order and distinct from the order under section 122 that was passed by the Deputy Commissioner and appeal was filed against order under section 122 only. The learned AR argued that Commissioner (Appeals) failed to appreciate that in Income Tax Ordinance, 2001 all proceedings are taken up by Commissioner. Even order under section 122 is passed by Deputy Commissioner by using delegated powers of Commissioner Inland Revenue. The learned AR further argued that for this year too, additions were made on the issues on which 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
1. Disallowance of provision for non- performing loans. Bad debts written off(i) 2002 PTD (Trib.) 1898
(ii) (2002) 85 Tax 245 (Trib.)
(iii) 2003 PTD (Trib.) 1189
2. Bad debts written off (iv) 2006 PTD (Trib.) 1292
(v) R.A. No,349/LB of 2002
(vi) (2004) 90 Tax 116 (Trib.)
(vii) 2006 PTD (Trib.) 356
3. Reversal of provision against non- performing advances/ loansMisreading of fact. Double taxation as reversal has already been taxed when provision was claimed in P&L account after reducing it.
4. Loss on sale of securities/shares Estimation of loss
5. Other provisions (i) 2006 PTD (Trib.) 356
(ii) ITAs Nos.1012 and 1014/IB/1995 dated 18-7-2006
6. Depreciation on building Admissibility of an expense
7. Disallowance of 50% depreciation on vehicles used by Directors and ExecutivesI.T.As. Nos. 36 to 38/LB of 2003
8. Charge of Defined Benefit Plan (Gratuity)CIT v. Oriental Dyes and Chemicals Ltd. 1992 SCMR 763
9. Markup charged under repurchase agreementInterpretation of section 151(1)
(d)---Department in another case (The Bank of Punjab) for the same year has interpreted provision in favour of taxpayer and allowed deduction.
10. Amortization on intangibles Estimation of life of computer software
11. Advertisement and publicity Expense is of capital or revenue in nature
12. Expenses related to Dividend (i) 2006 PTD 2678
(iii) 2005 PTD (Trib.) 2041 ' The learned AR argued that legal disagreements over issues narrated above were in 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 taxation of reversal was a case of misreading of fact. It was a case of double taxation as reversal had already been offered for tax when provision for the year was charged to profit and loss accounts after its netting off. He submitted that S. No. Issue Year Appellant
1. Non-issuance of notice under section 128(1)2003 and 2004 Department
2. Relief under section 124A 2006 to 2008 Department/bank
3. Provision for bad debts 2003 to 2008 Department/bank
4. Bad debts written off directly 2008 Department
5. Deletion of "amount written off"2010 Department
6. Reversal of provision for non- performing loans2004, 2008 to 2010 Department/bank
7. Adoption of wrong figure for the purpose of allowability of provision for non-performing advances2009 Bank
8. Charge for Defined Benefit Plan (Gratuity)2009 Bank
9. Diminution in value of investment20032009,2004,2009 and 2010Department/bank
10. Unrealized loss on revaluation of investment2008 Bank
11. Reversal of provision for diminution in value of investment2005 Department
12. Allocation of expenses to dividend and exempt capital gain2003 to 2010 Department/bank
13. Concessionary loans 2003 Departmentestimation of life of computer software or whether an expense is of capital or revenue in nature 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 conceded 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 year too.
' We have considered arguments and case-law given by both sides. We do not want to go in detail for this year as this issue has been discussed in detail in tax year 2003. We are in agreement, with the AR that on above issues, there were judgments of higher courts in favour of taxpayer and mere disagreement with those judgments on the part of Department could not constitute any definite information that was a prerequisite for invoking section 122(5). Moreover, mere disagreement of legal interpretation, estimation of life of computer software or having a view that expenditure is of capital in nature is not definite information. We therefore, decide the appeal for this year in favour of taxpayer by declaring invoking of section 122(5) of above issues as unlawful.
MERITS ' Summary of issues pending for adjudication in departmental and cross appeals for tax years 2003 to Tax year 2010 are tabulated as under:-- ' Issue- wise and
14. Membership paid to Stock Exchange2003 Department
15. Expenses on publicity of new branches2003 Department
16. Renovation of leasehold branches2005 to 2008 Department
17. Advertisement and publicity expenses2008 Department
18. 50% disallowance of depreciation on vehicles used by directors and executives2003 to 2008 Department
19. 50% disallowance of travelling and motor vehicle expenses on2003 Department vehicles used by directors and executives
20. Amortization of intangibles 2003 to 2005 and 2008Department
21. Intangibles written off 2003 Department
22. Provision against other assets and balance sheet items/other provisions2004,2007 to 2010 Department/bank
23. Amortization of premium on investment2006 and 2007 Department
24. Compensation on delayed refunds2004 and 2005 Department
25. Taxation of compensation on delayed refunds2005 Department
26. Loss on sale of securities 2008 Department
27. Depreciation on building 2008 Department
28. Profit charged on account of repurchase agreement2008 Bank
29. Confirmation of computation of income in violation of section 100A read with Seventh Schedule to the Ordinance2009 and 2010 Bank
30. Allowance of provision for non- performing advances @ 1% of gross advances instead of net advance2009 and 2010 Department
31. Tax credits - Calendar year v. financial year2003 and 2004 Department
32. Chargeability of WWF 2010 Bankyear-wise adjudication is made as under:--
1. NON-ISSUANCE OF NOTICE UNDER SECTION 128(1)-TAX YEAR 2003 & 2004: ' The learned DR argued that appeals for these years were decided by learned CIR(A) without issuing notice to the department. The AR said that CIT(A) issued notices to both the parties and Department opted not . To appear. In this respect learned AR produced letter No,128/A-L dated 30- 11-2005 from Commissioner (Appeals) confirming this position.
' Since the Department did not provide any evidence in support of its claim, we dismiss the appeals.
2. RELIEF UNDER SECTION 124A OF THE ORDINANCE-TAX YEAR 2006, 2007 On the following legal issues, there were favourable judgments of this Tribunal decided in bank's own case after first day of July, 2002:-- S. No.Issue involve 2006 PTD (Trib.) 1292 Page No, and Para No,
1. Provision for bad debt Pages 1299, 1305 Paras A & B
2. Expenses incurred on renovation of lease hold branchesPage 1311, Paras L & M
3. Allocation of expenses to exempt capital gain Pages 1309, 1310 Paras I & J ' The appellant-bank argued before the department that in view of section 124A the department should have followed the judgment. 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) in appeal for tax year 2006 accepted appeal with the following observation: "I have analyzed the language of section 124A and it is my view that it is binding on the Commissioner as it is well-established principle of law that if the statute authorize a person for exercise of discretion to advance the cause of justice, the power is not merely optional but it is the duty of such person to act in the manner it is intended - 2004 PTD 2187 (S. C. Pak) [Para D & F, pages 2196, 2197]. The word "may" in section 124A is to be construed as mandatory in view of dictum laid down by the honourable apex court in 2004 PTD 2187 (S. C. Pak.) [para E, page 2197].
Section 24A of General Clauses Act also requires that powers under section 124A shall be exercised for the advancement of the purpose of the enactment that is to avoid repletion of appeals on the same question of law. The point of view of Taxation in this regard is not maintainable under the law in the light of dictum laid down by the honourable apex court as discussed above."
' For tax year 2007, Commissioner (Appeals) accepted appeal on this issue by following her earlier decision. However, for tax year 2008, Commissioner (Appeals) did not follow decision of his predecessor and observed "the learned DCIR has rightly observed that this section is directory and not mandatory. It is up to the Commissioner to accept the earlier decision or not."
' The learned DR supported the observations of authorities below and argued that relief under section 124A is directory and not mandatory.
' First of all, we would like to show our concern about the conduct of the important office like Commissioner (Appeals). For tax year 2006 and 2007, by relying on well-established principle of law that if the statute authorize a person for exercise of discretion to advance the cause of justice, the power is not merely optional but it is the duty of such person to act in the manner it is intended and in the light of judgment of honourable Supreme Court of Pakistan in 2004 PTD 2187 (S. C. Pak.) it was observed that section 124A was mandatory whereas for tax year 2008 without giving any reason for distinguishing earlier decision it has been observed that this section is not mandatory.
We do not expect such contradictory observations from an appellate office and that too without giving any cogent reasons. It needs to be pointed out that word "may" as used in section 124A of the Income Tax Ordinance, 2001 was rightly interpreted on the basis of judgment of Supreme Court cited supra as binding while adjudicating appeals for tax year, 2006 and 2007. The contrary finding for tax year 2008 by the Commissioner (Appeals) is against the clear violation of rule of consistency and judicial propriety.
' Before adjudicating this issue, we would like to ~reproduce section 124A of the Ordinance as under:-- 124A. 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 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 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 was 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 of the Ordinance has been repeating the same additions every year which are not maintainable in the law. The right course for the department was to get the orders reversed from the courts where the matter is, presently sub judice. This alone can help the department.
' In view of above discussion, the issue is decided, in favour of the taxpayer and against the department.
3. PROVISION FOR BAD DEBTS-TAX YEARS 2003 TO 2008
4. BAD DEBTS WRITTEN OFF DIRECTLY - TAX YEAR 2008 ' 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. 565 of 2000 dated 1-3-2006 I.T.R.A. 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 = 2011 PTR 165 (Trib.) 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 id 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 departmental appeals relate to this case: I. T. A . No, Tax year I . T. A. No,4997/LB/2005 2003 I.T.A. No,5000/LB/2005 2004 I. T. A . No . 1209/LB/2006 2005 ' Judgment of five-member bench dated 10-2-2011 covers the above appeals. By following this judgment, the issue is decided in favour of taxpayer in all other appeals which were not put before five-member bench. These appeals are listed as under:-- I.T.A. No,1213/LB/2007 2006 I. T . A . No . 1154/LB/2008 2007 I. T . A . No . 806/LB/20 11 2008 ' In view of above, all the departmental appeals fail and that of taxpayer for tax year 2008 succeed following the binding judgment reported as 2012 PTD (Trib) 1139.
5. AMOUNT WRITTEN OFF - TAX YEAR 2010 ' The Additional Commissioner made addition of Rs,569,974,000 under this head as admiss ility of these writes offs was not proved in terms of section 29 of the Ordinance. Learned Commissioner (Appeals) deleted this addition on the ground that these write offs were only for disclosure purposes. Income for the year was not reduced by that amount. Learned AR argued that amount charged to P & L account under provision for non-performing advances is Rs,2,388,452,000 which does not include write off of Rs, 569,974,000. Since no amount was claimed as "written off", learned Commissioner (Appeals) rightly deleted this addition. He further submitted that this issue has been decided favourably by this Tribunal 2013 PTD (Trib.) 246.
' Learned DR defended the order of Additional Commissioner and argued that since admissibility of these write offs were not proved, these cannot be allowed.
' We have examined arguments of both sides. We are in agreement with learned AR that expense can only be disallowed if deduction of the same is claimed in the return. These write offs were charged to the provision and not to P&L account. Keeping in view the factual position and following our earlier judgement reported as 2013 PTD (Trib.) 246, we decide the issue in favour of the taxpayer and against the Department.
6. REVERSAL OF PROVISION FOR NON-PERFORMING LOANS - TAX YEARS 2004, 2008 TO 2010 ' Department taxed reversal of provisions for non-performing loans treating it as income. Learned Commissioner (Appeals) remanded the case back to department for tax year 2008 whereas dismissed bank's appeals for tax years for tax years 2009 and 2010. The learned AR argued that appellant-bank already offered reversals for tax when it reduced the charge for the year by that amount, The AR pointed out that this issue was adjudicated in favour of the another bank by this Tribunal in I.T.A. No,306/LB/09 dated 8-8-2009 wherein it was observed that taxation of reversals amounted to double taxation. The Department he pointed out, did not file reference against the said order which had attained finality as provided in section 133(10) of Ordinance. He farther submitted that this issue was also decided in favour of another bank in 2012 PTD 1055 and 2013 PTD (Trib.) 246 ' The learned DR argued that addition was justified for which detailed reasons were given by the Additional Commissioner.
We have examined the arguments of both sides and cases relied upon. Once reversal is offered for tax by reducing the charge of the year for the same amount, it cannot be taxed again--for the obvious reason that it will amount to double taxation. This issue has already been decided by this Tribunal in I.T.A. No,306/LB/09 dated 8-8-2009, 2012 PTD 1055 = 2011 PTD 222 (Trib.) and 2013 PTD (Trib.) 246 in favour of banks. Thus, by following our earlier judgments and reasons recorded therein; we direct that additions should be deleted.
7. ADOPTION OF WRONG FIGURE FOR THE PURPOSE OF ALLOWABILITY OF PROVISION FOR NON- PERFORMING ADVANCES - TAX YEAR 2009 ' Facts of the case are that the bank claimed deduction of provision for non-performing advances at Rs,1,705,486,000 as detailed below:-- Charge for the year 2,079,875,000 Less reversal 374,389,000 Net charge 1,705,486,000 ' In order under section 122(5A) for tax year 2009 dated 30-4-2010 addition under Rule 1(c) of Seventh Schedule was worked out as under: Total advances 72,053,391,000 Provision claimed in Profit and Loss account 2,079,875,000 Provision allowable @ 1% of total advances 720,533,910 Addition 1,359,341,090 ' The bank, contested the figure of provision adopted for the purpose of rule 1(c) of Seventh Schedule at Rs,2,079,875,000 instead of claim of Rs, 1,705,486,000 in rectification application dated 19-5-2010 which was rejected vide order under section 221 dated 30-6-2011. The bank came in appeal against rejection of rectification application. Learned Commissioner rejected the appeal vide combined Order No,05 dated 24-4-2012.
' The learned AR argued that provision charged to Profit and Loss account is Rs,1,705,486,000.
Therefore, this figure should have been taken for the purpose of rule 1(c) of Seventh Schedule.
According to him, by taking figure of Rs,2,079,875,000, the department taxed reversal of Rs,374,389,000 which had already been taxed when income was reduced by only Rs,1,705,486,000 instead of charge for the year at Rs,2,079,875,000. The learned AR argued that this issue has already been decided by this Tribunal in I.T.A. No,774/LB/2011 (tax year 2009) dated 19-12-2011 reported as 2012 PTD 1055 = 2011 PTR 222 (Trib.) relevant para of which is reproduced below:-- "We have examined the facts and case-law cited. In this case, reversal has been taxed without any justification. The appellant-Bank undisputedly claimed total provision of Rs,23,301,591,000 but reduced it to Rs,18,893,580,000 meaning by difference representing reversals and recoveries was offered for tax, The Department by disallowing amount of Rs,23,301,591,000 (which included reversal of Rs,4,438,011,000) taxed it not only twice but thrice as it added back an amount of Rs,4,438,01,000 in total income. Following our judgment in I.T.A, No,306/LB/2009 dated 8-8-2009, we delete this addition."
' The learned DR supported the orders of Deputy Commissioner arguing that charge for the year was Rs,2,079,875,000. Therefore, department has rightly worked out addition.
' We have examined arguments of both sides. The issue in hand has already been decided by this Tribunal in I.T.A. No,774/LB/2011 (tax year 2009) dated 19-12-2011 reported as 2012 PTD 1055. The Bank undisputedly claimed total provision of Rs,2,079,875,000 but reduced it to Rs, 1,705,486,000 meaning by that difference representing reversals and recoveries was offered for tax. The Department by taking amount of Rs,2,079,875,000 for the purpose of rule 1(c) of Seventh Schedule which included reversal of Rs,374,389,000 taxed the reversal not only twice but thrice as it added back an amount of Rs,374,389,000 in total income. In view of this position, department is directed to work out addition under rule 1(c) of Seventh Schedule by taking figure of Rs,1,705,486,000 instead of Rs,2,079,875,000.
8. CHARGE FOR DEFINED BENEFIT PLAN (GRATUITY) - TAX YEAR 2009 ' Disallowance of Defined Benefit Plan (Gratuity) vide order under section, 122(5A) was remanded by learned CIR(A) for verification. The department did not adjudicate this issue in appeal effect order. Rectification application was rejected on the ground that this issue has already been adjudicated in order under section 122(5A). According to the AR, these are contributions to the approved funds and department erred in holding that these were inadmissible. He cited the following case in support of his contention:- Commissioner of Income Tax, Companies Zone I, Karachi v. M.M. Silk Mills Ltd. 2006 PTD 460 "A perusal of above provisions shows that a well-designed mechanism has been devised under law in respect of approved gratuity fund. If any assessee claims a deduction on account of gratuity without establishing an approved gratuity fund he defies the law and consequently, cannot be allowed the benefit. "
' He said in respect of approved funds, the Department could not make additions as it was possible in respect of un-approved funds. He argued that this issue has recently been decided in favour of banks in 2012 PTD 1055 and 2013 PTD (Trib.) 246.
' The learned DR could not produce any judgment overriding the above judgments of this Tribunal by any High Court.
' We have examined the impugned orders and cases cited by the AR. It is undisputed that payments were made to approved funds and law recognizes their allowability. The issue has been decided in favour of banks in 2012 PTD 1055 and 2013 PTD (Trib.) 246. We, thus, order allowance of the deduction.
9. PROVISION FOR DIMINUTION IN VALUE OF INVESTMENT - TAX YEARS 2003, 2004, 2009 AND 2010
10. UNREALIZED LOSS ON REVALUATION OF INVESTMENT -- TAX YEAR 2008 ' The taxpayer claim is that these provisions were made as per prudential Regulations of State Bank of Pakistan which override Income Tax law vide section 91A read with section 35 of Banking Companies Ordinance, 1962 and sections 46B and 54A of State Bank of Pakistan Act, 1956. The learned AR argued that the Prudential Regulations are issued by the State Bank of Pakistan pursuance of powers vested in it under a special law. Sections 46B and 54A of State Bank of Pakistan Act, 1956. He further argued that a cumulative reading of above sections shows that they override any conflicting -provision of the Income Tax Ordinance, 1979. The banks are bound to prepare their accounts according to International Accounting Standards and Regulations issued by the State Bank. These accounts represent their regularly employed method of accounting as envisaged in section 32 of the repealed Ordinance. The department could not reject this method.
The department did not show any flow in this method of account. According to him, there is no prohibition in income tax law not to record closing stock at lower of cost or market price. The .
Learned AR also pointed out that this issue has been decided by full bench of this Tribunal in 2010 PTD (Trib.) 679. The learned AR also argued that department in this case for tax year 2010 has allowed impairment loss.
' The learned DR argued that this issue was decided in favour of the department in the following cases:--
(i) 2006 PTD 354
(ii) 2002 PTD 925
(iii) 2000 PTD (Trib.) 2668
(iv) (2002) 85 TAX 245
(v) I.T.A. No,3819/LB/1997 dated 7-12-1999
(vi) I.T.A. No,400/LB/2000 dated 10-12-2001 ' We have examined the arguments of both sides and also perused case-law cited by them. We are not persuaded to agree with the learned AR that provisions referred by him from the State Bank of Pakistan Act vis-a-vis Companies Ordinance, 1962 are of any help to the taxpayer. This issue has been dealt in detail in our judgment in 2006 PTD (Trib.) 356. As regards judgment of full bench of this Tribunal in 2010 PTD (Trib.) 679, that was passed with reference to Fourth Schedule to the repealed Ordinance is distinguishable as far as all the years before the enforcement of the Seventh Schedule to the Ordinance that made the assessments in the case of banks at par with insurance companies as held in 2012 PTD1055 = 2011 PTR 222 (Trib.). The additions made by the department for tax years 2003, 2004 and 2008 are upheld. The department is, however, directed to allow impairment loss, if any, at the time of actual sale as held in 2013 PTD (Trib.) 246.
' For tax years 2009 and 2010, the learned AR contended that disallowance of provision for diminution in the value of investment for these years was against Rule 1 of the Seventh Schedule to the Ordinance as held in 2012 PTD 1055 = 2011 PTR 222 (Trib.) and 2013 PTD (Trib.) 246. He reiterated that from tax year 2009, the Seventh Schedule to the Income Tax Ordinance, 2001 read with section 100A overrides all other provisions as far as computation of income and tax payable in the case of banks were concerned. According to AR, the department could make adjustments and additions in net profit as per books of account that were specifically mentioned in Rule 1(a) to Rule 1(h) of the Schedule.
The learned DR contended that this provision was inadmissible as per Rule 1(g) of the Seventh Schedule. The AR refuted this claim saying that International Accounting Standards 39 and 40 mentioned in Rule 1(g) was still not implemented in Pakistan and therefore reliance on the said Rule was irrelevant.
' We have examined the record and found that in the impugned orders there is no mention of any Rule of the Seventh Schedule or section of the Ordinance under which this disallowance was made.
Before the Commissioner of Appeals, the appellant-bank relied on the Full Bench judgment of this Tribunal reported as 2010 PTD (Trib.) 679. This judgment was adjudged by Commissioner of Appeals as irrelevant being related to insurance companies. It is obvious that Commissioner of Appeals had not appreciated the fact that assessment of banks with effect from tax year 2009 had become at par with the assessm ents of insurance companies. The language of section 100A read with Seventh Schedule is exactly the same as section 99 read with the Fourth Schedule to the Income Tax Ordinance, 2001. This issue has already been decided in favour of taxpayer in 2012 PTD 1055 = 2011 PTR 222 (Trib.) and 2013 PTD (Trib.) 246. By following our earlier judgment, we order deletion of this addition for tax years 2009 and 2010.
11. REVERSAL OF PROVISION FOR DIMINUTION IN VALUE OF INVESTMENT - TAX YEAR 2005 ' The department taxed reversal of provision for diminution in value of investment on the ground that in appeal taxation of said provision has been disapproved. Learned Commissioner (Appeals) disapproved this addition. Since, addition of provision for diminution in value of investment above has been up held, there is no justification of taxation of its reversal as it will amount to double taxation. Accordingly, order of Commissioner (Appeals) is confirmed.
12. ALLOCATION OF EXPENSES TO DIVIDEND AND EXEMPT CAPITAL GAIN - TAX YEARS 2003 TO 2010 ' Department disallowed expenses by allocating expenses to dividend and exempt capital gain.
Commissioner (Appeals) disapproved this allocation for tax years 2003 to 2007 with the observation that this issue has already been decided by this Tribunal in favour of taxpayer and invoking of section 122(5A) on this issue means declaring judgment of court as erroneous. For tax year 2008, the case was remanded back for verification whereas for tax years 2009 and 2010, learned Commissioner (Appeals) disapproved allocation against administrative expenses and upheld allocation again financial expenses.
' The learned DR while supporting the order of department argued that rule 13 read with section 67 specifically provide proration of expenses if income is derived from more than one head of income.
He relied on the cases of 2005 PTD 2161 (Trib.) and 2005 PTD 2599 (H. C. Lah.).
' The learned AR argued that this issue has already been decided in favour of the banks in the cases of 2006 PTD 2678 (H. C. Lah.), 1993 PTD (Trib,) 472, 2006 PTD (Trib.) 1292, 2006 PTD (Trib.) 356 and 2005 PTD (Trib.) 2041. He argued that cases referred by learned DR are distinguishable on facts as in those cases taxpayers failed to provide details. In the present case, the Department has failed to bring on record any evidence that certain expenses were allocable to capital gains and dividends earned.
' We have considered arguments of both sides and examined the case-law cited. In view of factual position and reasons already recorded in detail in judgments cited as 2006 PTD 2678 (H. C. Lah.)
1993 PTD (Trib.) 472, 2006 PTD (Trib.) 1292, 2006 PTD (Trib.) 356, 2005 PTD (Trib.) 2041, 2012 PTD 1055 = 2011 PTR 222 (Trib.) and 2013 PTD (Trib.) 246 we disapprove allocation of expenses against dividend and exempt capital gain.
13. CONCESSIONARY LOANS - TAX YEAR 2003 ' The department made addition treating concessionary loans as excess perquisites under section 21(k) of the Ordinance. Learned Commissioner (Appeals) deleted addition in the light of decision of this Tribunal in 2006 PTD (Trib.) 356. The AR submitted that this issue has also been decided favourably by honourable Sindh High Court in I.T.R. No,90 of 1983 dated 12-1-2007 as under:-- "It is clear that only those perquisites and benefits will fall within the ambit of this section for the provision of which the taxpayer has incurred any expense under clause (ix) or clause (xv) of subsection (2) of section 10 of the Income Tax Act, 1922 and the effect of this sections is that such expenditure which has been incurred on the provisions of perquisite or other benefits in excess of thirty percent of the salaries of employees, shall be disallowed under these clauses and since it is an admitted fact that no such expenditure has been incurred, therefore in our view, the provision of section 10(4) (d) are not applicable to the deemed interest computed by the Income Tax Officer on the basis, of difference between bank rate and rate of interest on which such loans were provided to the taxpayer."
' The learned DR argued that in Income Tax Ordinance, 1979 no parallel provision was available, but in Income Tax Ordinance, 2001, section 13(7) brings such loans within the purview of taxation.
' We have considered arguments of both sides and above case-law. The argument of DR is not valid as section 13(7) deals with income in the hands of employees whereas here the issue is treatment of concessional loans in the hands of the employers. The Bank did not claim any expenses hence issue of disallowance could not arise and this aspect was comprehensively decided by this Tribunal in 2006 PTD (Trib.) 356 and by the honourable Sindh High Court in I.T.R.
No,90 of 1983. By following these judgments, we decide the issue in favour of taxpayer and dismiss departmental appeal.
14. MEMBERSHIP PAID TO STOCK EXCHANGE - TAX YEAR 2003 ' Membership fee paid to Stock Exchange of Pakistan under the Securities and Exchange Commissioner Regulations was disallowed with the observation that this expense related to enhancing of share capital of the bank and any expense incurred in respect of share capital is capital in nature. In this respect judgments of Supreme Court of India reported as (1972) $6 I.T.R. 38 (S. C. Ind.) and (1975) 101 I.T.R. 221 (S. C. Ind.) were referred.
' The learned Commissioner (Appeals) deleted this addition with the observation that this is an expense wholly and exclusively for the business of bank and is not capital in nature.
' Learned DR, while supporting order of the department, argued that this expenditure is capital in nature and has rightly been disallowed. We considered arguments of both sides and case-law. We are of the opinion that fee paid to SECP has no nexus with enhancement of share capital of the bank and department misconstrued the facts and misapplied the law. The case-law referred by the department is not relevant facts are different from that of the bank. Accordingly, order of learned Commissioner (Appeals) deleting the addition is confirmed.
15. EXPENSES ON PUBLICITIY OF NEW BRANCHES - TAX YEAR 2003 ' The bank incurred expenses for publicity of opening of new branches. The department disallowed this expense treating them as capital in nature in the light of (1999) 79 TAX 538 (S.C. Ind.). The learned Commissioner (Appeals) deleted this addition by relying on judgment of this Tribunal in I.T.A. No,93/LB/2001 dated 14-6-2002.
' The learned DR while supporting order of department argued that this expense is capital in nature and has rightly been disallowed. The learned AR argued that these expenses were incurred for promotion of business. According to him, it has been held in a number of cases that where banks open branches for furtherance of business by taking building on lease/rent, expenses incurred are to be allowed. He further submitted that decision referred by the department is irrelevant as issue discussed in those decisions was whether payment of fee to registrar for enhancement of authorized capital is revenue or capital in nature. He also referred 137 I.T.R. 652 and 168 I.T.R. 731 in support of his contention. He also submitted that in 1998 PTD (Trib.) 1935 (Page 1939, Para 7), this Tribunal held that such expenses are even allowable in full and not as amortized expense. It also submitted that this controversy stood already resolved by this Tribunal in I.T.A. No,93/LB/2001 dated 14-6-2002.
' We have examined the arguments and .Case-law. We are persuaded to agree with the learned AR that these expenses were incurred for promotion of business. By following our earlier judgment, we confirm the order of learned Commissioner (Appeals).
16. RENOVATION OF LEASEHOLD BRANCHES - TAX YEARS 2005 TO 2008 ' The department disallowed this expense on the ground that this is capital in nature.
Commissioner (Appeals) deleted the addition in the light of decision of this Tribunal in bank's own case in I.T.A. No,93/LB/2001 dated 14-6-2002.
' The learned DR, while supporting the order of department, argued that addition was rightly made.
The learned AR explained that these expenses were incurred on new branches where buildings are not owned by the Bank.
We have examined the arguments of both sides. We are of the opinion that expenses incurred on new branches where buildings are not owned by the bank are revenue in nature and are allowable deduction. By following our earlier judgment in I.T.A. No,93/LB/2001 dated 14-6-2002 we dismiss departmental appeal.
17. ADVERTISEMENT AND PUBLICITY EXPENSES - TAX YEAR 2008 ' Expenses under this head were disallowed on the ground that these are capital in nature. Learned Commissioner (Appeals) deleted this addition with the observation that these expenses are not of enduring nature. The learned DR while supporting order of department argued that this expense is capital in nature and has rightly been disallowed. The learned AR argued that in the present world where there is tough competition, these expenses cannot be of any enduring nature. We have heard arguments of both sides. We are of the view that these expenses are not of enduring nature.
Accordingly, order of learned Commissioner (Appeals) is confirmed.
18.50% DISALLOWANCE OF DEPRECIATION ON VEHICLES USED BY DIRECTORS AND EXECUTIVES - TAX YEARS 2003 TO 2008 19.50% DISALLOWANCE OF TRAVELLING & MOTOR VEHICLE EXPENSES ON VEHICLES USED BY DIRECTORS AND EXECUTIVES - TAX YEAR 2003 ' The department disallowed 50% depreciation and travelling and motor vehicle expenses on vehicles used by directors and Executives for their personal use on the ground vehicles to that extent were not used for derived income of business, Learned Commissioner (Appeals) in the light of judgment of this Tribunal in I.T.As. Nos.36 to 38/LE/2003 dated 25-10-2003 and I,T.As. Nos. 23 to 25/LE/2003 dated 13-12-2003 accepted appeal. The learned AR submitted that this issue has also been decided in favour of the banks in 2005 PTD (Trib.) 2041 and recently in 2013 PTD (Trib.) 246.
' The learned DR argued that honourable Sindh High Court in 1984 PTD 4 had disapproved finding of Tribunal that depreciation is to be allowed irrespective of extent of use of the vehicle.
' We have examined above case-law. In the case relied by learned DR, the facts were that vehicle was used by the taxpayer itself for its personal use whereas in the present case, vehicles were provided to the employees. Case relied by learned DR is distinguishable from present case. In this case vehicles were provided to employees in terms and condition of the service. If vehicle were used by the employees partly for their personal use, addition could have been made in employees' cases under Income Tax Rules and not in taxpayer's case. Accordingly, by following earlier judgments, orders of learned Commissioner (Appeals) are upheld and departmental appeals fail.
20. AMORTIZATION OF INTANGIBLES - 2003 TO 2005 AND 2008 ' The bank claimed amortization of computer software. The Additional Commissioner adopted life as 10 years as he was of the view that life of computer software could not be determined. The learned CIR(A) vacated the additions on the ground that estimation of the life of the intangible asset was to be determined by the taxpayer. The learned AR argued that section 24(3) uses the terms "normal useful life in whole years". According to him, application of ten years comes into play where a normal life of an intangible is more than ten years or where the same is not ascertainable.
In those conditions, it will be restricted to ten years as per section 24(5) of the Ordinance. The learned DR supported the, order of Additional Commissioner and argued that the intangible asset was rightly amortization to ten years.
' We have considered the argument of both sides, The leaned AR is right in saying that application of 10 years comes into play where a normal life of an intangible is more than ten years or where the same is not ascertainable. In the present world technological advances are so fast that even such a program becomes outdated within one year In view of this fact, the additions made are not maintainable. We, therefore, confirm the order of learned CIR(A) for these years,
21. INTANGIBLES WRITTEN OFF - TAX YEAR 2003 The bank wrote off intangible at Rs,7,160,000, The department allowed 10% amortization and disallowed Rs,6,444,000. The learned Commissioner (Appeals) after considering case-law on the issue disapproved the addition. The learned DR supporting the order of department argued that addition is in accordance with section 24 of the Ordinance. Learned AR made the same submission as argued before Commissioner (Appeals). We have examined the order of Commissioner (Appeals) and arguments of both sides. We find that order of learned Commissioner (Appeals) is based on correct interpretation of law and case-law. We find no infirmity in order of Commissioner (Appeals) which is hereby confirmed.
22. PROVISION AGAINST OTHER ASSETS AND BALANCE SHEET ITEMS/OTHER PROVISIONS - TAX YEARS 2004, 2007 TO 2010 ' The claim of taxpayer is that these are ascertainable liabilities and not mere provisions. It is the substance that matters and not the mere nomenclature given to any transaction. In 2001 PTD 1427 and 2001 PTD 744 it has been elaborated that any ascertainable accrued liability is deductible under the mercantile system of accounts. According to him, even disputed liabilities are allowable under mercantile system of accounting as held in 2001 PTD 3326. The legislature's intention is also very clear as it has provided that any subsequent recovery thereof would be offered for tax as per section 25(a) of the repealed Ordinance. He also pointed that this issue was authoritatively decided by this Tribunal in 2006 PTD (Trib.) 356; I.T.As. Nos.1012 and 1014/IB/1995 dated 18-7-2006, 2012 PTD 1055 = 2011 PTR 222 [Tribunal] and 2013 PTD (Trib.) 246 ' The learned DR argued that in I.T.A. No, 565 of 2000 in the case of Grindlays Bank, the honourable Sindh High Court held that provisions were not allowable deductions. The learned AR, in reply argued that the said judgment was passed with reference to provision for bad debts and that too on the basis of distinguishable facts as held by the five-member bench in 2011 PTR 165 (Trib.). He further argued that in a recent judgment in I.T.R.A. No,219 of 2009 re CIT v. Security Leasing Corporation, the honourable Sindh High Court allowed provision for bad debt and this case was followed by the larger bench in 2012 PTD 1139.
We have examined the arguments of both sides and case-law cited by them. We agree with the learned AR that it is substance that matters and not the nomenclature given to any transaction. A liability cannot become unascertainable if it is named as provision. This was explained by the honourable Sindh High Court in Habib Bank v. CIT reported as 2009 PTD 443. The case-law cited by learned AR applies on all fours. The department is, therefore, directed to allow this deduction.
23. AMORTIZATION OF PREMIUM ON INVESTMENT TAX YEARS 2006 AND 2007 ' The department disallowed amortization of premium paid on purchase of FIBs on the ground that it is a capital expenditure. Commissioner (Appeals) has decided the issue in favour of bank in the light of decision of this Tribunal in I.T.A. No,1658/LB/2003 = (2004) 90 TAX 116 (Trib.). The learned AR argued that this issue has also been decided in favour of banks in a recent judgment in 2013 PTD (Trib.) 246. No contrary judgment of this Tribunal or higher court has been presented by learned DR. Accordingly, order of learned Commissioner is upheld and departmental appeal fails.
24. COMPENSATION ON DEVALED REFUND - TAX YEARS 2004 AND 2005 ' Facts of the case are that assessments completed under section 120 of the Ordinance were subsequently amended under section 122(5A) of the Ordinance. The demand created as a result of these amendments was adjusted against refund for other years. In appeal, the amendthent was disapproved. After receipt of appeal effect order, the bank applied for compensation of delayed refunds for the following period:
(i) For the period during which order under section 120 prevailed.
(ii) For the period starting from three months after the receipt of appeal order by Commissioner (Appeals) till the time refunds were adjusted.
' The department allowed compensation for the period starting from three months after the receipt of appellate order but rejected the claim for the period during which order under section 120(1) was in field. In appeal, Commissioner (Appeals) allowed compensation for this year against department has preferred appeal before this Tribunal.
' The learned AR argued same arguments as were taken before learned Commissioner (Appeals) whereas learned DR supported the order of department.
' We have examined the arguments of both sides. This issue has already been adjudicated by this Tribunal in favour of taxable in 2010 PTD (Trib.) 519 wherein it has been held that for the purpose of section 171(1) of the Ordinance, the refund becomes due on the date of order treated to have been made under section 120(1) of the Ordinance.
' In view of above discussion, we find no infirmity in the order of learned Commissioner (Appeals) which is hereby confirmed.
25. TAXATION OF COMPENSATION ON DELAYED REFUNDS - TAX YEAR 2005 ' Compensation on delayed refund was taxed by the department on the ground that such receipts are revenue in nature. Learned Commissioner (Appeals) by following judgment of this Tribunal in (2005) 92 TAX 162 (Trib.) deleted the addition.
' The learned DR supported. The order of Taxation Officer and argued that this is revenue receipt and has rightly been taxed. The learned AR argued that this issue has already been decided in favour of bank by this Tribunal vide order in 2006 PTD 1800 (Trib.). He further argued these receipts have become taxable by insertion of clause (cc) in subsection (1) of section 39 by Finance Act, 2012 meaning by that it was not taxable earlier.
' We have examined the judgment reported as 2006 PTD 1800 (Trib.) wherein this issue has been decided in favour of the bank. By following our earlier judgment, the issue is decided in favour of the taxpayer and against the department.
26. LOSS ON SALE OF SECURITIES -- TAX YEAR 2008 ' Loss on sale of securities was not accepted by the department with the observation that no evidence was provided. Further, no company sells to incur loss. Learned Commissioner (Appeals) disapproved the addition with the observation no instance of non-verifiability was quoted by the department. Moreover, how to conduct the business is the sole domain of the bank. Learned DR supported the order. We have examined arguments of both sides. We are persuaded to agree with the observation of learned Commissioner (Appeals) that no disallowance can be made on whims.
Moreover, department cannot dictate a taxpayer how to conduct a business. The order of learned Commissioner (Appeals) is unexceptional which is hereby confirmed.
27. DEPRECIAITON ON BUILDING - TAX YEAR 2008 ' Department disallowed depreciation on building at Rs, 3,074,631 on the ground that the same related to rented properties. Learned Commissioner (Appeals) disapproved disallowed with the observation that depreciation was claimed on owned assets and reason given to disallowance is not valid. The learned DR supported the order of department. We have examined arguments of both sides and do not find any infirmity in the order of learned Commissioner (Appeals) which is hereby confirmed.
28. PROFIT CHARGED ON ACCOUNT OF REPURCHASE AGREEMENT - TAX YEAR 2008 ' The bank did not deduct tax on profit charged on account of re-purchase agreement claiming exemption under section 151(1)(d) of the Ordinance. Department disallowed it. Learned Commissioner (Appeals) confirmed this addition with the observation that repurchase agreement is not a loan agreement but a sale/purchase agreement therefore it is not covered under section 151(1)(d) that exempts loan agreement between a borrower and a bank. The learned AR argued that both authorities below failed to appreciate the nature of transaction. In this respect, he referred an extract from book "GLOSSARY Banking and Finance" published by State Bank of Pakistan collaboration with Institute of Bankers Pakistan, National Institute of Banking and Finance, Lahore School of Economics and Institute of Management Sciences, Hamdard University wherein nature of this transaction has been explained as under:-- Repurchase Agreement (Repo).--- a contract of sale of securities with a simultaneous commitment to repurchase the same at a specified date and price; offer an arrangement or a technique to raise short term liquidity from the money market; also provide a means to maximize earnings on treasury bills and government securities if the banks and financial institutions enter into Repo with the central bank or other players of money market; for the counterparty, investment in a Repo transaction enables short placement of excess liquidity for earning a return.
' It is clear from above that repurchase agreements (repo) are in fact short term loans obtained by a bank from another bank/money market by offering securities as collateral by entering into contact of sale of securities with a simultaneous commitment to repurchase the same. The arrangement in its essence is substitute of a similar other method of getting finance, wherein, the borrower provides security by pledging government securities against such loan arrangement. The arrangement is nothing more than production of collateral to the bank. We are of the considered view that this transaction does fall with the ambit of section 151(1)(d) that exempts loan agreement between a borrower and a bank. The learned also pointed out that department in the case of another bank (The Bank of Punjab) drew no adverse inference for the same year after due deliberation.
' In view of above discussion, appeal of the taxpayer is allowed and addition is deleted.
29. CONFIRMATION OF COMPUTATION OF INCOME IN VIOLATION OF SECTION 100A READ WITH SEVENTH SCHEDULE TO THE ORDINANCE -TAX YEARS 2009 AND 2010 ' The learned AR contended that from tax year 2009 onwards, the banks are to be taxed in terms of section 100A read with the provisions of Seventh Schedule to the Ordinance, 2001. According to him, the scheduler assessm ent in the case of banks from tax year 2009 came at par with insurance companies taxed under the Fourth Schedule to the Ordinance. He further contended that Seventh Schedule did not permit re-computation of income as done by the department in view of explicit language of section 100A read with Rule 1 of the Seventh Schedule. The learned AR argued that the Department could made only permissible additions and adjustments as provided in the Seventh Schedule itself. Relying on CIT Central Zone 'A' Karachi v. Phoenix Assurance Co. Ltd. 1991 PTD 1028, he argued under the scheduler assessments, the acceptance of accounts was a fait accompli for tax authorities. The learned DR contested this position and argued that provisions of section 100A are not overriding and in view of Rule 9 of the Schedule, all the provisions of the Ordinance were applicable and both the authorities below rightly interpret the law.
' The learned AR further argued that this issue has already been decided in 2012 PTD 1055 and 2013 PTD (Trib.) 246.
' The DR advanced following arguments: "Provisions of the Seventh Schedule cannot be rendered redundant by buying arguments of the taxpayer as its clause (1) envisages computation of income of banks according to provisions of income tax law, clause (2) provides allow ability or disallowance of liabilities and losses, ' Clause (3) gives treatment for sharia complaint banking Clause (4) delineates head office expenditures, ' Clause (5) mentions method of payment of advance tax, 'Clauses (6) & (7A) tell about tax calculation, Clause (8) describes effect of exemptions, adjustment of loss, allow ability of group relief taxation of subsidiaries, ' Clause (8A) gives transitional details and clause (9) says vividly that the provisions of the Ordinance not specifically dealt with in the aforesaid rules shall apply, mutatis mutandis, to the banking company."
' We have examined arguments of both sides and cases cited. This is a settled issue as evident from our earlier judgment reported as 2012 PTD (Trib.) 1055 and 2013 PTD (Trib.) 246, we, therefore, allow ground of appellant-bank following the reasoning mentioned in these orders.
30. ALLOWANCE OF PROVISION FOR NON-PERFORMING ADVANCES 1% OF GROSS ADVANCES INSTEAD OF NET ADVANCES - TAX YEARS 2009 AND 2010 ' The bank worked out addition under rule 1(c) of Seventh Schedule taking gross advances whereas department enhanced the addition by taking net advances. Learned Commissioner (Appeals) deleted the addition made by the department by directing to take figure of gross advances. The learned AR argued that this issue has already been adjudicated by this Tribunal in favour of banks in 2013 PTD (Trib.) 246. Learned DR could not produce any contrary judgment on this issue. We, therefore by following our earlier judgment confirm the order of Commissioner (Appeals).
31. TAX CREDITS - CALENDAR YEAR V. FINANCIAL YEAR - TAX YEARS 2003 AND 2004 ' Brief facts of the case are that appellant-bank closes its accounts on 31st December each year. In its returns, the bank took credit of advance tax on the basis of installments paid during financial year i,e, from.1-7-2002 to 30-6-2003 for tax year 2003 and 1-7-2003 to 30-6-2004 for tax year 2004.
The department was of the view that since account of the bank closes on 31st December, the installments paid for March and June quarter relate to next tax year. According to department, bank incorrectly claimed credit of advance tax on the basis of financial year. The department, after issuing show cause notice under section 221(2) of the Ordinance, passed combined order under section 221 dated 24-1-2005 allowing credit of advance tax on the basis of calendar year. For tax year 2003, the department allowed credit of six months only i,e, advance tax payment made during 1-7-2002 to 31-12-2002 against income for twelve months. Learned Commissioner (Appeals) observed that department entered into legal controversy and on the basis of different interpretation than what it originally adopted while giving credit under section 147 formed an opinion different from the one in the order he sought to rectify. He also observed that interpretation of department is against the explicit language of section 147(8) of the Ordinance. He, therefore, vacated order under section 221 dated 24-1-2005 for both years.
' The learned DR supported the orders of taxation officer arguing that credit of advance tax is allowable only on calendar year basis as calendar year is the tax year of the bank.
' The learned AR made same submissions as were made before learned Commissioner (Appeals), He also pointed out that same treatment was given for tax year 2005 and Commissioner (Appeals) decided the issue in favour of bank in the light of his appellate order for tax years 2003 and 2004, The department did not contest this issue before this Tribunal. Even, no such treatment was adopted for subsequent years meaning by that it has conceded the issue and no longer wants litigation on this issue, ' We have considered arguments of both sides. Relevant para of Commissioner (Appeals)'s order is reproduced below:-- "12. The Taxation Officer has failed to show the provision of law under which for tax year 2003 the taxpayer was to take tax credit for 6 months against taxable income for 12 month. If the plea of the Taxation Officer is accepted then in each financial year, the bank will pay two installments for the next tax year meaning by that during one financial year he is making advance payment for two tax years. This interpretation is against the explicit language of section 147(8) which says that "a taxpayer who has paid advance under this section for a tax year shall be allowed a tax credit for that tax in computing tax due by the taxpayer on the taxable income of the taxpayer for that year". The reliance on the said provision of law by AR is apt. As per established principles of interpretation fiscal statutes should be strictly construed and plain language should be adhered to unless it leads to manifest absurdity. There is no ambiguity in section 147(8). I have no doubt in my mind that a fiscal statute has to be construed in its true perspective. - 2002 PTD 1 (S. C. Pak) and there is no room for any intendment.
13. In the matter of taxation, literal approach is to be applied unless it leads to manifest absurdity - CIT/WT Sialkot Zone v. Messrs Thapur (Pvt) Limited Sialkot 2002 PTD .2112 (High Court Lahore). In the presence of unambiguous language of law i,e, section 147(8) of the Ordinance as discussed above, there remains no reason of applying even any rule of interpretation which is necessitated only when plain language does not convey the clear meanings. It is well established rule that fiscal statutes should be strictly construed and no addition or omission or implied meaning therefrom are permissible - Taimur Shah v. CIT PLD 1976 Kar. 1030 = 1976 PTD 246.
14. In the present case there is no ambiguity or doubt regarding the language of section 147, which if read as a whole, clearly provides that advance tax paid for a tax year is to be taken credit of for the said tax year and not for two broken periods as was wrongly interpreted by the Taxation Officer and by CBR in Papa 4 of its Circular No, 2 of 2004. It is established position that CBR's circulars and instructions are not binding on appellate authorities under section 206(2) of Income Tax Ordinance, 2001 and as held by the honourable apex court in' 1992 SCMR 1232 re central Insurance case they do not constitute legal interpretation of law. It is worthwhile to mention that the CBR in the said Circular used the words "in case of taxpayers having special income years" without realizing that the concept of special income year is substituted in the new Ordinance with special tax year which falls within the closing date of the normal tax year. The position of law is explicit, unambiguous and unequivocal that for tax year comprising 12 months period whether normal or special tax year credit for advance tax paid for a tax year as per schedule given in section 147 by the legislature itself is to be allowed while computing the taxable income for the said tax year.
15. I am bound to follow the plain, unambiguous language of law, judgment of learned ITAT (2002 PTD 1898). I am also of the opinion that issue raised in the impugned orders does not constitute "mistake apparent from record" within the ambit of section 221 of the Ordinance. As elaborated by Honourable Supreme Court of Pakistan in the case of CIT v. National Foods Laboratories 1992 SCMR 687 = 1992 PTD 570, mistake sought to be rectified should be floating on the face of the order and does not be conceived as a result of long drawn reasoning and/or fresh reorientation of law by applying different interpretation. The Taxation Officer as apparent form the impugned orders entered into the legal controversy and on the basis of different interpretation than what he originally adopted while giving credit under section 147 formed an opinion different from the one in the order he sought to rectify. This process cannot be called 'rectification' of the order as held in 2004 PTD (Trib.) 452 and many other judgment's of superior courts, which is have nor quoted as the dictum from the highest court is available on the subject as discussed above. Any mistake which is not patent and obvious on the record cannot be corrected by exercising power under section 221 of the Ordinance. I am convinced that impugned orders are violative of law as elucidated by the honourable apex court in CIT v. National Foods Laboratories 1992 SCMR 687 = 1992 PTD 570.
In view of above, orders passed under section 221 for Tax Years 2003 and 2004 are not maintainable for the following:
(i) They fall outside, the scope of section 221.
(ii) Section 147(8) explicitly provides that credit of advance tax has to be taken for a tax year which cannot be construed to be two tax years as was done by Taxation Officer.
In view of above and to meet norms of justice and fair play, I hereby vacate the orders under section 221 of Income Tax Ordinance for tax years 2003 and 2004."
' Learned Commissioner (Appeals) has decided this issue elaborately and we are in agreement with his reasoning and confirm the above decision. Accordingly, departmental appeals for both the years are dismissed.
32. CHARGEABILITY OF WWF - TAX YEARS 2009 AND 2010 ' The appellant has contested charge of WWF in the light of judgment of honourable Lahore High Court, Lahore in E.P.C.T (Pvt.) Ltd v. Federation of Pakistan 2011 PTD 2643. The learned AR submitted that in the light of said judgment of honourable Lahore High Court, this Tribunal in its decision in I.T.A. No,625/IB/2010 dated 16-3-2012 deleted the charge in the case of another bank.
' The DR argued that issue does not arise from order as the taxpayer itself has paid WWF in accordance with amendment made by Finance Act, 2008. The AR mentioned that the said amendment was declared unconstitutional by the honourable Lahore High Court and judgment in E. P. C. T. (Pvt.) Ltd. v. Federation of Pakistan 2011 PTD 2643 is now judgment in rem and binding on all forums under Article 201 of the Constitution, subject to final adjudication, if any, by the Supreme Court.
We have examined these judgments. Honourable Lahore High Court has declared amendment made in Workers' Welfare Fund Ordinance, 1970 by Finance Act, 2006 and 2008 unconstitutional in E.P.C.T (Pvt.) Ltd. v. Federation of Pakistan 2011 PTD 2643. This is now judgment in rem and binding on all forums under Article 201 of the Constitution as held by this Tribunal in I.T.A. No,625/IB/2010 dated 16-3-2012 as under:-- "we have examined the judgement of the honourable Lahore High Court in E.P.C.T (Pvt.) Ltd. v.
Federation of Pakistan reported as 2011 PTD 2643 which squarely applies to the present case. We agree with the AR that this judgment is no longer in persona but in rem and applicable to all persons similarly place and during the pendency of appeal we have to consider it as held by honourable Supreme Court of Pakistan in 1995 SCMR 387 at page 411 as under: "All persons, placed in a similar situation, affected by any law, statutory rule, regulation, notification or policy are to be treated even handedly and in the like manner. It is regrettably noted that public functionaries, invariably derive and force every person affected by law, statutory rules etc. To approach the Court of law to obtain similar relief rather than extending similar relief by itself on the basis of principle of law that has been earlier set at rest, which conduct is neither desirable nor could be approved as it negates, even handed dispensation of justice and meting out equal treatment as mandated per Articles 25 and 10--A of the Constitution of Pakistan, 1973".
' Following the judgment of Lahore High Court (supra) and dictum laid down by the honourable Supreme Court cited above, the levy of WWF is ordered to be deleted with the observation that Department can levy it if the judgment cited above is reversed by the larger bench of the High Court in intra court appeal or by the Supreme Court of Pakistan, as the case may be."
' By Following above judgments, we order deletion of the charge of WWF for both the years as order of the honourable Lahore High Court in E.P.C.T (Pvt.) Ltd v. Federation of Pakistan 2011 PTD 2643 is binding on us under Article 201 of the Constitution.