IRFAN SAADA T KHAN, J.----The instant Income Tax Appeal (ITA) has been filed by raising the following questions of law , which were admitted for regular hearing vide order dated 06.04.2001:- "(a) Whether crediting of interest on "classified debts" to "suspense account" could be equated with credit of "real income".
(b) Whether the learned Income Tax Appellate Tribunal misdirected itself in law by ignoring from consideration provisions of Section 41; Section 83(5) and Section 91-A of the Banking Companies Ordinance, 1962 which were of a mandatory and overriding nature,
(c) Whether the learned Income Tax Appellate Tribunal acted legally in refusing to accept the method of accounting regularly employed by the appellant whereby interest accrued on "debts" not likely to be received was placed in "suspense account" in accordance with the provisions of Prudential Regulation 8 issued by the State Bank of Pakistan.
(d) Whether the learned Income Tax Appellate Tribunal misdirected itself in law by holding that the Deputy Commissioner of Income Tax while passing the orders under section 62 of Income Tax Ordinance, 1979 was justified in rejecting the correct method of accounting regularly followed and adding to the income of the appellant Rs.24,193,448/- representing amount of interest on "classified debts" credited to "suspense account" in respect of the assessment year 1998-99.
(e) Whether the learned Income Tax Appellate Tribunal misdirected itself in law by confirming the order of the learned Commissioner of Income Tax (Appeals) whereby he had in principle confirmed the order of the learned Deputy Commissioner of Income Tax to the effect that "concessional loans" to employees tantamounted to "perquisites".
(f) Whether the learned Income Tax Appellate Tribunal erred by confining depreciation allowance on capital expenditure in respect of movable assets only ."
2. Mr. Iqbal Salman Pasha, learned counsel appearing on behalf of the appellant, at the very outset submitted, that so far as the first four questions are concerned the same stood covered/ decided in Income Tax Appeal No.821 of 1999 (The Hong Kong Shanghai Banking Corporation Ltd. v. The Inspecting Additional Commissioner of Income Tax, Range-1, Companies-1) by a learned Division Bench of this Court vide order dated 30.09.2010 and in this regard he has also placed on record a copy of the said judgment. The counsel appearing for the respondent has conceded to such situation. Hence, so far as the first four questions are concerned the same are decided and disposed of in the same manner as decided in the above referred decision, by answering the Questions Nos.(a) and (c) in negative while answer to Questions Nos.(b) and (d) in affirmative i.e. all in favour of the appellant/taxpayer and against the respondent/department.
3. So far as the Question No.(f) is concerned, the learned counsel for the appella nt does not press this question, hence the answer to this question is given in negative i.e. against the appellant and in favour of the respondent/department.
4. Mr. Iqbal Salman Pasha, learned counsel for the appellant, has only pressed and advanced his arguments so far as Question No.(e) is concerned.
5. Briefly stated, the facts of the case are that the appellant was a non-resident banking company , which filed its return of total income by declaring a loss of Rs.2,67,98,274/-. Statutory notices under Sections 61 and 62 of the Income Tax Ordinance, 1979 (now repea led) were issued. During the course of the assessment it was found that the bank had given loans to its employees at concessional rates, which according to the Assessing Officer (AO) was perquisite and is liable to be taxed in the hands of the taxpayer . He, therefore, added an amount of Rs.5.00 million to the income of the taxpayer , vide Order under Section 62 of the repealed Ordinance dated 1 1.5.1999.
6. Being aggrieved with the said order an appeal thereafter' was filed before the Commissioner of Income Tax Appeals [CIT(A)] bearing Appeal No.400 of 1999. The matter proceeded before the learned CIT(A), who upheld the order of the AO. Being aggrieved with the order of the CIT(A) an appeal thereafter was preferred before the Income Tax Appellate Tribunal (ITAT), who also vide its decision given in I.T.A. No.652/KB of 1999-2000 dated 24.4.2000 upheld the orders of the two authorities below . It is against this order of the ITAT, that the present ITA has been filed.
7. Mr. Iqbal Salman Pasha Advocate has appeared on behalf of the appellant-company and stated that the - addition made by the AO under Section 24(i) of the Repealed Ordinance, as confirmed by CIT(A) and ITAT, was incorrect and the addition so made is liable to be deleted. He read out the provision of Section 24(i) of the Repealed Ordinance and claimed that no expenditure was incurred by the assesse, which is a mandatory requirement for invoking the provision of Section 24(i) of the Repealed Ordinance. He submitted that for invoking Section 24(i) of the Repealed Ordinance it is necessary that the expenditure should be incurred whereas in the instant matter the appellant had incurred no expenditure for providing concessio nary loans to its employees as according to him loans were provided to the employees out of non-interest bearing funds. He further stated that no cost or expense was incurred by the bank for providing these concessionary loans to its employees, which could fall under the definition of perquisite as given under Section 16(2)(b)(iv) of the Repealed Ordinance.
8. The learned counsel submitted that Section 24(i) of the Repealed Ordinance was paramateria to Section 10(4)
(d) of the Repealed Income Tax Act, 1922 (the repealed Act) and stated that under similar circumstances a Division Bench of ITAT has held that perquisite or other benefits to the employees could not be added under Section 10(4)
(d) of the Repealed Act. He further invited our attention to an unreported decision given by this Court in I.T.R. No.90 of 1983 (The Commissioner of Income Tax v. Messrs Muslim Commercial Bank) wherein, according to him, under identical circumstances the addition made under Section 10(4)(d) of the Repealed Act was found to be unjustified. He further stated that under similar circumstances the addition made under Section 21(k) of the Income Tax Ordinance, 2001 (the new Ordinance ), which is paramateria to Section 10(4)(d) of the Repealed Act, 1922 and Section 24(i) of the Repealed Ordinance, was deleted by a learned Division Bench of this Court in I.T.R. No.307 of 2010, which order , according to him, was upheld by the Hon'ble Supreme Court of Pakistan in Civil Petitions Nos.503-K and 504-K of 201 1 dated 18.7.201 1.
9. The learned counsel further stated that similar issue came-up for hearing before the Islamabad High Court in the case of Commissioner of Income Tax (Legal), Islamabad v. Messrs Askari Commercial Bank Limited, Rawalpindi reported as 2018 PTD 1089 wherein the addition made under Section 24(i) of the Repealed Ordinance was deleted by the said Division Bench. He finally stated that since the issue with regard to making addition under Section 24(i) of the Repealed Ordinance already stood settled at various stages by this Court, Islamabad High Court as well as by the Hon'ble Apex Court directly or indirectl y, therefore, the answer to this question may be given in af firmative i.e. in favour of the appellant and against the department.
10. Mr. Muhammad Aqeel Qureshi Advocate has appeared on behalf of the respondent/department and stated that none of the decisions relied upon by the learned counsel for the appellant are applicable to the present case in hand. He stated that the wordings of Section 10(4)(d) of the Repealed Act and that of Section 21(k) of the new Ordinance, 2001 are materially different from that of Section 24(i) of the Repealed Ordinance, hence according to him all the decisions relied upon by the learned counsel for the appellant are not applicable to the present case and are quite distinguishable from the facts obtaining in the instant matter . He further explained that it has categorically been provided under Section 16(2)(b)(iv) of the Repealed Ordinance that value of any benefit provided free of cost or at a concessionary rate would be considered as a perquisite to an employee and as per Section 24(i) of the Repealed: Ordinance and the expenditure incurred by an employer on the provision of perquisite exceeding 50% of his salary would be disallowed in the hands of the employer and would be added to its income, as an inadmissible expenditure.
11. The learned counsel stated that from the perusal of the orders of the three authorities below it is evident that the said concession provided by the appellant to its employees was liable to be added in its income since, admittedly , the perquisites given to the employees were over and above 50% of their salaries and, hence were not allowable since these were specifically barred under Section 24(i) of the Repealed Ordinance. He further stated that the assertion of the learned counsel for the appellant with regard to the fact that no amount was paid/incurred is immaterial since, admittedly ,' the appellant is maintaining Mercantile System of -Accountancy , according to which any amount, which even is payable and not paid, is considered to be a paid amount, as per the accountancy principles and methods employed by the appellant. Hence, as per the learned counsel even if the said amount is not paid but provided in the accounts it is to be considered, for all practical purposes as per the accountancy system followed by the appellant, to have paid the amount to its employees, hence, not admissible for deduction under Section 24(i) of the Repealed Ordinance. He finally submitted that the amount was rightly added by the AO and quite rightly confirmed by the CIT(A) and the ITAT in this behalf. Hence, according to the learned counsel the question raised in the instant ITA may be decided in negative i.e. in favour of the department and against the appellant.
12. We have heard both the learned coun sel at considerable length and have also perused the record, the law and the decisions relied upon by the learned counsel for the appellant.
13. Before proceedings any further , we deem it appropriate to reproduce the relevant sections of the Income Tax Act (now repealed), Income Tax Ordinance, 1979 (now repealed) and that of new Ordinance; 2001 as under:- SECTION 10(4) (d) OF INCOME T AX ACT, 1922 "10(4) Nothing in clause (ix) or clause (xvi) of subsection (2) shall be deemed to authorize the allowance of any sum paid on account of any cess, rate or tax levied on the profits or gains of any business, profession or vocation or assessed at a proportion of or otherwi se on the basis of any such profit or gain; and nothing in clause (xiv) of subsection (2) shall be deemed to authorize;
(d) any allowance in respect of so much of the expenditure incurred by an assessee on the provision of perquisites or other benefits to any employee as exceeds thirty per cent of the salary of such employee: Provided that in the case of an employee whose contract of service has been approved under clause (xiii) of subsection (3) of section 4, this cause shall not apply for a period of five years commencing next after the expiry of three years since the date of his arrival in Pakistan.
Explanation- 1- The expression "salary" as used in this clause, means remuneration or compensation for services rendered paid or to be paid at regular intervals and includes dearness, grain compensation or cost of living allowance and bonus and commission which are payable to an employee in accordance with the terms of his employment as remuneration or compensation for services but does not include the employer's contribution to a recognized provident or superannuation fund or any other sum which does not enter into the computations for pensionery or retirement benefits.
Explanation 2- The expression "employee"; where the assesse is a company , incudes a director thereof; or Explanation 3- The expression "perquisites or other benefits" as used in this clause, does not include employer's contribution to a recognized provident fund or to an approved superannuation fund"
SECTION 16(2) (b) (iv) OF THE REPEALED ORDINANCE "16. Salary .- (1) The following income shall be chargeable under the head "Salary:, namely- (2)
(a)
(b)
(iv) the value of any benefit provided free of cost concessional rate."
SECTION 24(i) OF THE REPEALED ORDINANCE "24. Deductions not admissible: -- Nothing contained in Section 23 shall be so construed as to authorize the allowance or deduction of- 24(i) any expenditure incurred by an assesse on the provision of perquisites, allowances or other benefits to any employee, in excess of fifty percent of his salary excluding perquisites allowance or other benefits.
Explanation - As used in this cause- Ii) "Salary" means remuneration or compensation for services rendered paid, or to be paid at regular Intervals, and includes dearness or cost of living allowance and bonus or commission payable to an employee in accordance with the terms of his employment as remuneration or compensation for services but does not include the employer's contribution to a recognised provident fund or an approved superannuation or gratuity fund or any other sum which does not enter into the computation for pensionary or retirement benefits; Perquisite" "employee", and "employer" have the same meaning as in subsection (2) of section 16; and
(ii) "other benefits" does not include employer's contribution to a recognized provident fund or an approved superannuation or gratuity fund."
SECTION 21(k) OF INCOME T AX ORDINANCE, 2001 "21. Deduction not allowed- Except as otherwise provided in this Ordinance, no deduction shall be allowed in computing the income of a person under the head "Income from Business" for -
(k) any expenditure paid or payable by an employer on the provision of perquisites and allowances to an employee where the sum of the value of the perquisites computed under section 13 and the amount of the allowances exceeds fifty per cent of the employee's salary for a tax year (excluding the value of the perquisites or amount of the allowance.
(This clause was omitted by Finance Act, 2006 dated 01 July 2006) Board explain ed this removal in their Circular No.1 of 2006 dated 01.07.2006- "Expenditure on provision of perquisites and allowances to an employee in excess of 50% of his salary (excluding the value of perquisites or amount of allowances) was not deductible in the hands of the employer .
The restriction on admissibility of full expense on account of perquisites and allowances paid to an employee in the hands of the employer , as has been removed by omitting clause (k) of section 21. This amendment will be applicable where expense is incurred on July 1, 2006 and onward"
14. A reading of the above three sections i.e. 10(4)(d) of the Act, 24(i) of the Repealed Ordinance and 21(k) of the new Ordinance reveals that these three sections are paramateria to each other . In these sections it has been provided that any allowance or benefit claimed as an expenditure by the employer for payment to its employees, which exceeds a threshold of either 30%, which subsequently was enhanced to 50%, would be disallowed in the hands of the said employer as an inadmis sible expenditure. At present we are not saddled with the responsibility to dilate with regard to the taxability of the amount so received by, the employee as in the instant matter we are only dealing with regard to taxability or otherwise of an allowance or benefit given to an employee by the employer , which exceeds 50% of the salary , if any, whether could be disallowed as an inadmis sible expenditure under Section 24(i) of the Repealed Ordinance in the hands of the said employer . It has clear ly been provided under Section 16(2)(b)(iv) of the repealed Ordinance, as reproduced above, that the Value of any benefit provided free of cost or at a concessional rate would be considered as perquisite to an employee and in case the employer provides any perquisite or allowance to an employee that excess amount over and above fifty percent would be disallowed in the hands of the employer as an inadmissible deduction.
15. It may be noted that the ITAT or this Court while dealing with Section 10(4)(d) of the Act has categorically observed that this provision is not applicable to deemed interest computed by the ITC on the basis of difference between bank rate and the rate of intere st on which such loans were provided by the employer/taxpayer . In the unreported case bearing ITR No.307 of 2010 (Commissioner (Legal) Inland Revenue, Large Taxpayers Unit v.
Messrs English Biscuit Manufacturer (Pvt.) Limited) about Section 21(k) of the new Ordinanc e, it was observed by the Bench (in which one of us: Irfan Saadat Khan, J. was the member) as under:- "4. A perusal of the impugned order reveals that the Tribunal had not considered the implication of Section 21(k) of the Income Tax Ordinance, 2001. A further perusal of the assessment order also reveals that the Taxation Officer while making the addition did not consider the implication of Section 21(k) but made the addition under Section 39 by computing deemed interest on the interest free loans to the employees. Even otherwise Section 21(k) has been deleted by Finance Ordinance, 2006 and therefore, we are of the considered view that all the three questions, which have been proposed for the opinion of this Court, do not arise from the impugned order of the Tribunal and therefore; this Court in its advisory jurisdiction under Section 131 does not have the jurisdiction to give its opinion on the questions which do not arise out of the order of the Tribunal. However , without prejudice to the above, a perusal of the order reveals that the mark up on the basis of benchmark has been computed under the provisions of Section 13(7) of the Ordinance and sections 13(7) and 13(4) of the Ordinance relate only to the taxability of the employees and not to the taxability of the employer and therefore they have been wrongly applied by the Taxation Officer . We have also seen that the Taxation Officer has not discharged his onus in restricting the claim of interest paid on borrowed capital as the onus was on him to prove that the borrowed capital has been utilized for the purpose of advancing interest free loans and in absence of any such finding, the CIT(A) and the Tribunal were justified in deleting the addition made on account of deemed interest and to this extent their orders are unexceptionable and no interference is called for by this Court"
Against the above order department preferred appeal before the Hon'ble Apex Court in Civil Petitions Nos.503-K and 504-K of 2011 wherein leave to appeal was refused and the petitions were dismissed vide order dated 18.7.201 1.
16. The issue of granting concessional loans to the employees also came-up for hearing before the Islamabad High Court in the case of Askri Commercial Bank Limited and the Court affirmed the order of the Tribunal, which deleted the addition made by the department under Section 24(1) of the Repealed Ordinance, by categorically observing that the Tribunal's order does not stiffer from any legal infirmity . It may also be observed that in the case of ITRAs Nos.879 and 881 of 2008 the question regarding 24(i) of the Repealed Ordinance raised by the department was rejected on the ground that the department has failed to prove that the bank has incurred any expenditure in providing interest free loan to the employees.
17. In our view, under Section 24(i) of the Repealed Ordinance the main aspec t, which is to be considered is incurring of the expenditure. In the instant case, it may be seen and observed that the ITAT while giving the decision in favour of the department has observed that there is no parallel provision under the Income Tax Act, 1922 with regard to Section 16(2)(b)(iv) of the new Ordinance, hence the addition made by the department was affirmed without considering the fact that emphasis of the present appellant was on section 24(i) of the Repealed Ordinance, which they claimed to be paramateria to Section 10(4)(d) and not on Section 16(2)(b)(iv) of the Repealed Ordinance, as observed by the learned ITAT. The important aspect which perhaps has been ignored by the ITAT in the instant matter was examination of the factual aspect that whether any expenditure was incurred by the assesse/appellant or not in providing ban to its employees at concessional rate as it has been claimed by the appellant that the amounts so given to the employees were from the non-interest bearing account or current account or reserve account, which required a factual examination of the matter .
18. We are afraid, we do not see any such exercise being made in this behalf as until and unless it is shown or proved that the amounts of concessional loans given to the employees have any nexus with the diversions of the expenditure, it could not be claimed that a benefit has been provided either at concessional rate or free of cost to the employee; when it has categorically been claimed by the appellant that the amount so advanced to the employees was from separate identifiable funds either from current account or reserve account. Since the above matter pertains to ascertainment of a factual controversy , we in the circumstances deem it appropriate to remand this case to the ITAT, being the last finding authority , to dilate upon, this issue by providing an opportunity of hearing to the present appellant to show from their accounts, since the onus lies upon them , that the amounts so, advanced to the empIoyees/executives at concessional rates were not from the normal funds available with the bank but these were from separate identifiable funds either from current account or reserve account, as the case may be, as only after such determination and identification of this aspect it could factually be decided whether provision of Section 24(i) could be attracted in the instant matter or not.
19. In the circumstances, we remand this case to the extent of Question No.(e) only to the Tribunal for ascertainment of these facts and, hence, give no answer to the Question No.(e) referred in the instant IT A.
20. Let a copy of this judgment be sent to the Registrar , Income Tax Appellate Tribunal, for doing the needful in accordance with law .