1. ' AJMAL MIAN, CJ.--By this common judgment we intend to dispose of the above three Income Tax References. It may be pertinent to observe that I.T,C. No,107/79 referred to the Assessment year 1973-74, I.T.C. No,105/1979 pertains to the assessment year 1974-75 and I.T.C. No,108/1979 relates to the assessm ent year 1975-76. In all the above references the following question has been raised:- "Whether on the facts and in the circumstances of the case there was only material before the Income Tax Appellate Tribunal to allow the London Head Office expenses in full contrary to the past history and on the fact of the assessee's admission vide its letter dated 20th April 1971."
2. ' It may be pointed out that the above Income Tax References have been filed under Section 66 (2) of the Income Tax Act, 1922 (hereinafter referred to as the Act) directly as the learned Income Tax Tribunal declined to state the case to this Court in sub-section (1) of Section 66 of the Act.
3. ' In support of the above references Mr.Shaikh Hyder, learned counsel for the applicant/department, has referred to the order of the Income Tax Officer dated 4-4-.1977 and of the Assistant Income Tax Appellate Commissioner and of the Tribunal. It has been urged by Mr. Shaikh Hyder that the learned Income Tax Tribunal was not justified in holding that the respondent/assessee was entitled to claim the entire amount of the expenses claimed by them in respect of their Head Office. It seems to be an admitted position that prior to the year 1973-74, the Income-tax Department has been allowing a portion of the Head Office expenses to the respondent/assessee as an item admissible under section 10 (2) (xvi) of the Act. In the instant case, first time the Income Tax Officer declined to admit the amount of expenses in respect of the Head Office for the above three assessment years. However, upon appeal, the learned Assistant Appellate Commissioner allowed to the extent of 3,000 sterling pounds, which according to his finding was the amount allowed in the past on the basis of some alleged understanding between the applicant/department and the respondent/assessee. However, the learned Income Tax Tribunal has allowed the entire amount which was claimed by the respondent/assessee. At this stage, it may be pertinent to give the break up of the amount of expenses claimed by the respondent assessee in respect of their Head office.
(1) Assessm ent year 1973-74 Rs,86, 134
(2) Assessm ent year 1974-75 Rs,1,85,318
(3) Assessm ent year 1975-76 Rs,1,69,737 ' In furtherance of his above submission, Mr. Shaikh Hyder, has referred to Rule 40 of the Income Tax Rules, 1982 (hereinafter referred to as the Rules of 1982) which reads as follows:- "40. In any case in which the Income Tax Officer is of opinion that the actual amount of the income, profits or gains accruing or arising to any person residing out of the taxable territories whether directly or indirectly through or from any property in the taxable territories, or through or from any asset or source of income in the taxable territories, or through or from any money lent to interest and brought into the taxable territories in cash or in kind cannot be ascertained, the amount of such income profits or gains for the purposes of assessment to income-tax'may be calculated on such percentage of the turnover so accruing or arising as the Income Tax Officer may consider to be reasonable, or on an amount which bears the same proportion to the total profits of the business of (such profits being computed in accordance with the provisions of the Income tax Act) as the receipts so accruing or arising bear to the total receipts of the business, or in such other manner as the Income Tax Officer may deem suitable" On the other hand, Mr. AA. Sharif, learned counsel for the respondent/assessee, has vehemently urged that above Rule 40 has no application to the instant cases and that at no point of time the reliance was placed on the above Rule. It has been further urged by him that the learned Income Tax Tribunal was competent in law to decide as a question of fact whether a particular sum claimed by the respondent/assessee in respect of the Head Office expenses was a reasonable amount and the above question of fact decided by the competent forum cannot be disturbed by this Court while exercising its advisory jurisdiction under section 66 of the Act."
4. ' Mr. A.A. Sharif, has also referred to Rule 20 of the Income Tax Rules 1982 (hereinafter referred to as the Rules of 1982) in order to substantiate his contention that Rule 40 of Rules 1982, has no application in this regard. It may be pertinent to reproduce the above Rule 20, which reads as follows:- "20. Deduction of Head Office expenditure.-- In the case of non/Residents (1) In the case of an assessee, being a non-resident, no allowance shall be made in computing the income chargeable under the head `Income from business or profession', in respect of so much of the expenditure in the nature of Head Office expenditure referred to in clause (e) of section 24 as is in excess of the amount computed as hereunder namely:-
(a) an amount equal to the average Head Office expenditure; or
(b) the amount of so much of the expenditure in the nature of Head Office expenditure incurred by the assessee as is attributable to the business or profession of the assessee in Pakistan, whichever is lower.
(2) For the purpose of sub-rule (1) 'average Head Office expenditure means--
(a) in a case where any expenditure in the nature of Head Office expenditure has been allowed as a deduction in computing the income of the assessee chargeable under the head 'Income from business or profession' in respect of the income years relevant to each of the three assessment years immediately preceding the relevant assessment year, one-third of the aggregate amount of the expenditure so allowed; and
(h) in case where such expenditure has been so allowed only in respect of the two of the aforesaid three assessm ent years, one-half of the aggregate amount of the expenditure so allowed; and
(c) in a case where such expenditure has been so allowed only in respect of one of the aforesaid three assessm ent years, the amount of the expenditure so allowed: ' Provided that where any one of the years involved in working the average Head Office expenditure constitutes a period of either more than or less than twelve months the expenses for that year shall be pro-rated"
5. ' A comparison of the above two quoted Rules indicates that while the former Rule speaks of income profits or gains, whereas the latter Rule deals specifically with the deduction of Head Office expenditure in the case of nonresidents. We are inclined to hold that the Rule 40 is not directly applicable to the question, whether a particular portion of the amount of Head Office expenses is to be allowed or is not to be allowed. However, we are inclined to agree with Mr. Shaikh Hyder that the question whether a particular sum claimed by a nonresident assessee in respect of its Head Office expenses is reasonable or not is a question which has to be adjudicated upon by the Income Tax Officer, by the Assistant Appellate Commissioner and by the Income Tax Appellate Tribunal as a question of fact. There is no such thing as a fixed amount of expenses allowable in respect of the Head Office expenses. In (he instant case, in our view, the learned Income Tax Tribunal was competent to adjudicate upon the question whether the above sums claimed by the respondent/assessee were admissible or not as expenses in terms of section 10 (2) (xvi) of the Act, and therefore, this Court while exercising advisory jurisdiction cannot set aside the above finding of fact unless it is found to be perverse.
6. With the above observations our answer to the above question is that the respondent assessee was entitled to a reasonable amount of Head Office expenses as non-resident assessee, which question has been decided by the Income Tax Tribunal for the relevant years in question as a question of fact.