1. JUDGMENT Syed Muhammad Husain, J.-This is an application at the instance of the House Building Finance Corporation under Section 66 of the Income Tax Act for a decision of this Court on the question whether the ITO, the Appellate Commissioner and the Tribunal were justified in assessing the income as a profit and gains from business as contemplated under Section 10(1) of the Income-tax Act relying upon the method of Mercantile Accounting under Section 13 of the Income- tax Act.
2. Two questions have been raised for the decision of this Court, namely whether the Income-tax Department could refuse the cash method of accounting and instead could proceed upon the mercantile method of accounting and further whether the Income-tax Department were justified in assessing the income only under one head being the profit gained from business of the assessee.
3. So far as the first question relating to the method of accounting is concerned before answering this question it is necessary to ascertain the nature of the organisation of the assessee in question for the purpose of relevant assessm ent years 1963-64 and 1964-65. The then House Building Finance Corporation was established under the Central Act No. XVIH of 1952 for The purpose of providing financial facilities for the construction of houses in the towns and cities in Pakistan as is evident from the pre-emble to the act itself. Under Section 3(2) of the Act such Corporation was instead to be a body corporate having perpetual succession and common seal with power to acquire, held and dispose of properties as such. Under Section 4(1) the Corporation had an authorise capital, shares whereof could be issued and allotted by the Corporation from time to time with the sanction of the Government. Under Section 6(1) the General Direction and Administration of the Corporation had vested in a Board of Directors. Under Section 19 of the Act the Corporation could open deposit account in Bank and under Section 20 of the Act the Corporation could invest its funds in security and could sale and mortgage such securities. Under Section 21(1) the Corporation with prior approval of the Government could raise funds for raising its capital by issuing bonds and debenture carrying interest. Under Section 22 of the Act the Corporation could accept deposits from others. Under Section 23 of the Act the Corporation could grant loan to borrowers for the purpose of constructing houses. Under Section 3 of the Act the Corporation was deemed to be a Bank for the purpose of the Bankers Evidence Act. Under Section 3 of the Act the Corporation may establish a reserve funds and declare dividend out of its net annual profit after making provision for bad debts, depreciation, assets etc. Which are usually provided for by the Bankers. Under Section 34(1) of the Act the account of the Corporation shall be audited by not less than two auditors. Under Section 3 of the Act the Corporation was deemed to be a company under the Income Tax Act and was liable to income-tax and super-tax on its income, profits and gains.
4. Considering the foregoing provisions of Central Act XVIH of 1952 it clearly appears that the Assessee House Building Finance Corporation though a statutory Corporation created by the Government is for all practical purposes is run on commercial basis with a business proposition intending to make gains and profits therefrom. In such circumstances the assessee was required to maintain its account in Mercantile methods, so that from the audited balance sheet of the Corporation the net gains and profit being the income of the Corporation could be ascertained, it is an admitted position in fact that the assessee has always maintained his account in mercantile methods but for the assessm ent years in question the assessee took out certain items of income from the balance sheet and separately produced the same for the purpose of ascertaining the income of the assessee. The ITO, Appellate Commissioner and the Tribunal having rejected such special method of picking certain items from the items of income from the balance sheet of the Corporation held that since the assessee had always depended upon Mercantile method of accounting could not deviate therefrom suddenly by introducing a new cash method of accounting as it is called.
5. The assessee has tried to rely upon the Section 13 of the Income Tax Act to show that the assessee has the option to deviate from the regular methods of accounting employed by the assessee earlier. The permanent provision of Section 13 of the Income Tax Act clearly provides that income, profits and gains shall be computed for the purpose interalia of Section 10 in accordance with the methods of accounting regularly employed by the assessee, wherefrom it is quite clear that income, profits and gains shall be computed with the methods of accounting regularly employed by the assessee.
6. In the present case admittedly the assessee had employed the Mercan-| tile method of accounting regularly and there was no occasion for the assessee to change such method abruptly into cash method of accounting as it has been called. It has been provided therein that if no method of accounting has been regularly employed then the computation could be made upon such basis as the Income Tax Officer may determine. In the present case Mercantile method of accounting having been regularly employed there was no occasion for the Income Tax Officer to determine any other basis for the purpose of computation as such. In the further proviso to Section 13 the Board of Revenue may require a person or class of persons to prescribe a particular method of accounting to be employed by such person or class of persons. In the present case there is nothing to show that the Board of Revenue ever required the assessee to maintain its accounts in the method other than regularly employed by it from time to time. Be that as it may from the foregoing consideration of Section 13 of the Income Tax Act it would clearly appear that once it was found that the assessee had employed the Mercantile method of accounting regularly, the Income Tax Department had no option but to rely upon such method in computing the profits and gains of the assessee for the purpose interalia of Section 10 of the Income Tax Act, The ITO, the Appellate Commissioner and the Tribunal therefore rightly computed the income of the assessee on the basis of the balance sheet furnished by the assessee before the Income^ Tax Officer. There is no illegality in such assessm ent at all.
7. With regard to the question whether the assessment could only be made under Section 10 of the Income Tax Act it may be observed that if' the operation of Section 10 of the Income Tax Act is excluded in that circumstances the assessee could not invoke the provisions of Section 13 of the Income Tax Act because of the simple fact that Section 13 of the Income Tax Act was applicable with regard to the computation of income, profits and gains for the purpose of Sections 10 and 12 of the Income Tax Act and not for any other section. So with the invocation of Section 13 of the Income Tax Act by the assessee the operation of Section 10 thereof comes in automatically. So far as Section 10 of the Income Tax Act is concerned this is an amplifying provision of Section 6 of the Income Tax Act has laid down various heads of income chargeable to income-tax, there being six such heads of income, one of them being item No. 4 therein, profits and gains of business. Section 10 of the Income Tax Act as amplified such provision regarding income from a head like profit and gains of business. Under Section 10(1) of the Income Tax Act, the tax shall be payable by an assessee under the head of profits and gains of business in respect of profits and gains of any business carried by an assessee. In the present case as has been already held herein the assessee has been found though to be a statutory corporation but run on business proposition has definitely earned profits and gains out of its business. That being so there was no illegality on the part of the Income Tax Department to assess the House Building Finance Corporation under the head of profits and gains made by it through business carried on by it as contemplated under Section 10 of the Income Tax Act. It has been urged herein that since Section 6 of the Income Tax Act has provided for these heads the various sources of income of the assessee could be brought under various heads mentioned in Section 6 of the Income-tax Act. Section 6 of the Income Tax Act merely laid down the various heads of income, profits and gains to be chargeable to income-tax.
8. Nothing therein appears to show that the various sources of income is required to be compulsorily distributed amongst the various heads of income as such. For the purpose of charging an assessee to income-tax any of the heads mentioned in Section 6 of the Income Tax Act can very well be determined by the Income Tax Department for charging an assessment as such. In this connection it may be mentioned that Section 6 of the Income Tax Act is not the charging provision, but merely laid down the heads under which income-tax can be charged. The charging provision being the Section 3 of the Income Tax Act, the Department can charge an assessee to pay income-tax under any of the heads mentioned in Section 6 of the Income Tax Act in the context of the main source of such income.
9. Before concluding reference may be made to a decision of this Lordships of the Privy Council in a case between Commissioner of Income Tax of Bombay vs. Sarangpur Cotton Manufacturing Co., reported in VI Income Tax Reports, 1938 at page 36. For convenience it would be apt to quote from the judgment of their Lordships as follows:- "Their Lordships desire to add that the view of the Assistant Commissioner that the Income Tax Officer is prima facie entitled to accept the profits shown by the accounts, where there is a method of accounting regularly employed by the assessee, is not a correct view. It is the duty of the Income Tax Officer, where there is such a method of accounting to consider whether income, profits and gains can properly be deduced therefrom, and to proceed according to his judgment on this question".
10. In the present case the Income Tax Officer proceeded according to his judgment on the question after being satisfied that there was a method of accounting regularly employed by the assessee wherefrom income, profits and gains could be properly deduced. In that view of the matter the Taxing authority did not commit any illegality on the question raised herein. The answers to the questions are made in the affirmative and this application is rejected.
11. The prayer for leave to appeal is also refused.
12. Sultan Hossain Khan, J.-I agree.