' CH. ANWAAR UL HAQ, (JUDICIAL MEMBER).---The titled appeals pertaining to tax years 2009 and 2010, have been preferred at the instance of taxpayer, calling in question the consolidated order Nos. 4316 and 4317 dated 27-5-2012, passed by the learned CIR(A), Faisalabad.
2. The facts of case in brief are that taxpayer received compensation under section 171 of Income Tax Ordinance, 2001 at Rs.69,251 and Rs.58,710 on account of delayed issuance of Income Tax refunds for the preceding years on 8-4-2009 and 20-10-2009. The ACIR observed that receipt being an income from 'Other Sources' chargeable to tax under section 39 of the Income Tax Ordinance, 2001 was required to be included in the declared income. But the taxpayer failed to declare the same while filing its Income Tax returns for the tax years 2009 and 2010 even in revised return for the tax year 2009 filed on 28- 12-2010. Hence, the deemed assessments were found erroneous in so far as prejudicial to the interest of revenue. Necessary statutory notices were issued, which were duly complied with and the reply of the taxpayer was rejected being untenable. Accordingly amendments were made under section 122(5A) of the Income Tax Ordinance, 2001 by including the amount of compensation received on delayed payment of refund in total income of the taxpayer for the years under appeal.
3. Feeling aggrieved with the treatment meted by the Assessing Officer the taxpayer filed appeal before the first appellate authority, who feeling agreed with the orders of Assessing Officer for both the years upheld the same and rejected the tax payers's appeals.
4. Being not satisfied with the findings of both the authorities, taxpayer preferred further appeal before this forum by agitating the same as per grounds set forth in the memo. Of appeal.
5. The learned AR appearing on behalf of the taxpayer argued the case at length. He contended that the CIRCA) is not justified to observe that compensation on delayed refund is of revenue nature and is assessable under section 39 of the Income Tax Ordinance, 2001. He further submitted that the outstanding refunds are balance sheet items appearing on asset side and the compensation received from the department on delayed payment of refund is capital receipt, hence, not eaxable. He placed reliance on 1978 PTD 328 (Sindh High Court and Circular No. 21 of 1975. Learned AR also argued that the impugned additions made under clause (CC) of subsection
(1) of section 39 of the Income Tax Ordinance, 2001 is not applicable for the tax years 2009 and 2010 as the said clause was inserted through Finance Act, 2012. On the other hand learned DR opposed the submissions made by the learned AR and placed reliance on the judgment reported as 2006 PTD 2456 (S.C. Pak) and stated that the compensation on account of delayed refund are not capital receipts instead the same are revenue receipts and constitute income of the taxpayer liable to be included in the taxpayer's income in the view of the ratio decidendi in the reported case cited supra.
6. I have looked into the matter and after due consideration, I am of the opinion find that the compensation paid by the department on the delayed payment of refund to the taxpayer is just like the interest or mark up which is paid to compensate a person for raising inflation/ interest and such compensation is in the revenue nature and, therefore, liable to be assessed under the amended provisions of section 39 of the Income Tax Ordinance, 2001. However, since the clause
(CC) of subsection (1) of section 39 was inserted in the Income Tax Ordinance, 2001, through Finance Act, 2012, therefore, being charging provision the same is not applicable retrospectively to the tax years 2009 and 2010. Under such circumstances, I hold that the assessing authority was not justified to charge tax under the said provision of law for the tax years 2009 and 2010. Accordingly, on legal premises the appeals of the taxpayer are accepted for both the years and orders passed by the authorities below are vacated.
7. Order accordingly