2009 PLP 1791 (PTD)

The Income Tax Appellate Tribunal had vide its order dated 11-1-1995 in R.A. No. 21/KB of 1994-95 to R.A. No.30/KB of 1994-95 pertaining to assessment years 1976-77 to assessment years 1984-85 and 1989-90 referred the following questions for the opinion of this Court:-- (1) "Whether on the facts and in the circumstances of this case the Tribunal was justified in holding that income derived from Sale and maturity of the Government Securities was regular banking income of the Bank and not capital gains? (2) "Whether on the facts and in the circumstances of this case the Tribunal had any relevant material to hold that the Government Securities were stock in trade of the Bank and not investments and capital assets"? (3) "Whether on the facts and in the circumstances of this case the Tribunal was justified in holding the Head Office Administration and supervision expenses were correctly allowed under the Rule 20 (1) (a) instead of Rule (1)(b) of the Income Tax Rules, 1982"? (4) Whether on the facts and in the circumstances of the case the Tribunal was justified in holding that the penal interest charged by the State Bank for bursting the credit ceilings under section 25 of the Banking Companies Ordinance, 1962 was not admissible"?

2. As far as question No.3 is concerned the learned counsel submitted that the matter stands settled by the unreported judgment of this Court in the case of Messrs N.C.R. Corporation v. Deputy Commissioner of Income Tax and others in I.T.A. No.191 of 1997 dated 24-2-1999.

3. We have examined the above judgment and we find that this Court has held that as far as the allowance of Head Office expense is concerned the provision of the treaty between the Pakistan and U.S.A. will prevail over the provision contained in the Income Tax Ordinance under rules and this is in accordance with the settled law that a special law prevails over the general law. However, when we examined question No.3 in the light of this judgment we found that the question does not pertain to the proposal settled by the Court in this case but our opinion only been sought on Rule 20 (1) (b) of the Income Tax Rules, 1982.

4. Dr. Farogh Naseem has taken us through the finding of the Tribunal on this point and we find that the Tribunal has ignored the provision of treaty and held that the Head Office expenses were to be dealt with in accordance with Rule 20(1) (a). Despite the fact that it was pleaded before them that the provisions of the treaty should be applied.

5. When confronted with this position Dr. Farogh Naseem submitted that where the facts are very clear and the question has not been properly framed by the Tribunal, this Court has got the powers to reframe the question in accordance with the facts emanating from the order of the Tribunal. On this point he relied on the following judgments: (1) Commissioner of Income Tax, Central Zone "A" Karachi v. Messrs Karachi Electric Supply Corporation Ltd. reported in 1991 PTD 869. (2) The Commissioner of Income Tax Karachi v. Messrs Pakistan Refinery Ltd., Karachi reported in 1984 PTD 337.

6. Mr. Jawed Farooqui learned counsel for the respondent had initially opposed the reframing of the question but unfortunately he is not present in Court today to substantiate his contention that this Court cannot reframe the question as pointed out by Dr. Farogh Naseem.

7. We have seen that the applicant had asked the Tribunal to refer a question on the point of applicability of the Tribunal but the Tribunal has failed to refer that question, after examining the judgments relied on by learned counsel for the applicant we are of the considered opinion this Court has the power to reframe the question, which has not been properly framed and we would therefore, reframe the question to read as under:-- "Whether the Tribunal correctly held that the question of Head Office expenses will be dealt with under the provisions of the Income Tax Ordinance and not under the provisions of the treaty." and respectfully following the judgments of this Court in NCR case quoted supra we will answer this question in negative in favour of the applicant and against the respondent.

9. Coming to question No.4 at the very outset Dr. Farogh Naseem has conceded that this question stands covered against him by the judgment of the Honourable Apex Court in the case of C.I.T. v. Premier Bank Ltd. reported in 1999 SCMR 1213.

10. Respectfully following the above judgment, we answer this question in negative against the applicant and in favour of the respondent.

11. Coming to questions Nos.1 and 2, we must concede that after concluding his arguments on the first day and listening to the observations and queries of this Court the learned counsel within a period of less than, 24 hours very ably prepared his case and has relied on a number of judgments in support of his contention that the discount received on the redemption of securities can be treated only as capital gain and not as business income. We appreciate the efforts and competence of the learned counsel but unfortunately we regret that we have not been able to agree to his views, therefore, for reasons to follow both these questions are answered against the appellant and in favour of the respondent. M.B.A./A-101/K Order accordingly.