MUHAMMAD AFZAL LONE, J.--The petitioner is a private limited Company and is operating a Restaurant known as "Sallos Restaurant" in the basement of WAPDA House, Lahore, which has been obtained by it on lease from WAPDA. In the return for the year 1980-81, the petitioner claimed a sum of Rs. 1,78,668 as expenditure on account of rent payable to WAPDA. This deduction was allowed by the Income-tax Officer who was of the view that even though the amount had not been actually paid during the assessm ent year but still as the quantum of rent had been settled during the year under consideration and the rent had been paid to the WAPDA in the subsequent year, the claim was justified. On appeal, however, the Commissioner of Income-tax took the view that no deduction could be allowed to the petitioner for this amount as no rent was actually paid by the petitioner to WAPDA during the year in question. Further, appeal was taken by the petitioner to the Income-tax Appellate Tribunal which rejected the claim by observing:--- "This brings me to the assessee's last grievance in the assessment year 1980-81 on the issue of payment of rent. The first appellate authority held that payment was made by the assessee only in the charge year 1981-82 and as such no liability accrued to the assessee for this year. The assessee's claimed deduction on account of rent payable to WAPDA as well as the I.T.O's. Action in allowing the claim was held to be illegal. For this year no payment having been made to the WAPDA, no deduction was allowable. The first appellate authority rightly held that claim was wrongly allowed by the I.T.O. This year. No interference is called for therein."
Still feeling dissatisfied, an application under section 136(1) of the Income Tax Ordinance, 1979 was filed, for referring the following question for answer to this Court.
"Whether in the circumstances and on the facts of the case the expenditure on account of admitted rent payale was an accrued liability for 1980-81 and should have been allowed as an expense under the Mercantile system of accounting followed by the applicant."
By its order dated 13th October, 1988, the Income-tax Appellate Tribunal declined this request by observing:-- "The question now posed by the applicant does not contain proposition of law as it is just based on assumption of facts regarding litigation and final payment of rent. There is nothing to be referred to the High Court for interpretation as issue of allowance of rent for the year under dispute as well as the preceding years has been modified by the learned CIT (A) and the applicant has accepted the treatment given in appeal for the earlier two years. Grievance on facts if any can be agitated by the applicant before the I.T.O. By filing a miscellaneous application after decision of the dispute with the WAPDA Authorities. As a result, the Reference Application being devoid of any merits is dismissed."
2. Mr. A.I Bin Abdul Kadir, learned counsel for the petitioner contended that originally the rate of rent fixed between the lessor and the lessee was Re. 1 per sq. Ft. But on the expiry of the lease, a dispute arose between the parties as regards the actual rate of rent which was subsequently settled at Rs.
3.50 per sq. Ft. And as the liability to pay the rent on this rate had accrued during the assessment year 1980-81, the petitioner should have been allowed to deduct this amount as expenditure notwithstanding the non-payment during this period. The contention was based on the premises that the petitioner was following Mercantile system of accounts.
3. We regret our inability to agree with the learned counsel. At no stage before any of the Authorities below, was it claimed that the petitioner was following the Mercantile system and not the cash system of accounts. The learned counsel was unable to point out as to whether such a plea was raised either before the Income-tax Officer, the Commissioner of Income-tax or the Tribunal in the second appeal. It appears that the claim of Mercantile system of accounts being followed was for the first time made in the application under section 136(2) of the Ordinance. In these circumstances, no valid exception can be taken to the view of the Tribunal that the question did not arise out of its appellate order. It is also to be noticed that while declining the request of the petitioner to refer the question to the High Court, it was observed by the Tribunal that "grievance on facts, if any can be agitated by the applicant before the I.T.O. By filing a miscellaneous application after decision of the dispute with the WAPDA Authorities".
For the foregoing reasons, we find no merit in this petition. It is dismissed in limine.