1985 PLP 659 (PTD)

Z. C. VALIANI, J.‑Applicant above named, being aggrieved by order, dated 1‑2‑1973 of the Income‑tax Appellate Tribunal, in respect of Appeal No. ITA‑2636/71‑72, relating to the assessment year 1966‑67, has filed the above reference by which under‑mentioned two legal questions arising out of impugned judgment of the learned Income‑tax Appellate Tribunal, have been referred to this Court for its opinion:‑ (1) Whether in the facts and circumstances of the case, the Tribunal was justified in holding that the amount of Rs. 1,00,000 being donation to the National Defence Fund was not exempted from tax in view or Notification S. R. O. 233(R)/65, dated 20th September, 1965. (2) Whether in the facts and circumstances of the case, the Tribunal was justified in holding that the amount of Rs. 5,100 being law expenses was an expenditure of capital nature. The facts out of which the above reference arises are as follows:‑ The applicant is the branch of a company incorporated in Bahama Islands. Admittedly, it is taxed as a company in Pakistan. The Income‑tax assessment for the assessment year 1966‑67 of the applicant was completed by the Income‑tax Officer, Central Circle III, Karachi. During this year the applicant had paid an amount of Rs. 1,00,000 to National Defence Fund, which was claimed as exempt from Income‑tax under section 60 of the income‑tax Act, 1922. A letter, dated 23rd June, 1971, addressed to the Income‑tax Officer was also filed in which it was emphasised, that an amount of Rs. 1,00,000 out of the total income of the assessee should be exempted from tax. The Notification issued by the Central Government under subsection (1) of section 60 of the Income‑tax Act, 1922, granting exemption in respect of the donations to the National Defence Fund is in the following manner:‑ "S. R. O. 233(R)/65, dated 20‑9‑1965.‑‑In exercise of the power conferred by subsection (1) of section 60 of the Income‑tax Act, 1922 (XI of 1922) the Central Government is pleased to exempt from tax payable under the Act, such portion of the total income of an assessee as is donated towards the National Defence Fund: Provided that the amount so donated shall be included in computing the total income of the assessee: Provided further that in case of ate assessee not being a company, the amount by which the tax payable by an assessee is reduced on account of the exemption under this notification shall be equal to the sum of which bears the same proportion to the sum exempted from tax under this notification as the tax payable on the total income of the assessee bears to the said total income." In spite of the above notification the Income‑tax Officer did not grant deduc?tion of the entire amount as contemplated by the above‑mentioned notifica?tion. In addition to this the Income‑tax Officer in his order disallowed an amount of Rs. 5,100 out of law expenses, which were paid by the applicant for the preparation of documents in respect of lease of sites for petrol pumps. According to the Income‑tax Officer it was capital expenditure. It was argued before the income‑tax Officer, that by paying these law expenses the applicant company did not acquire any assets of permanent character, as the sites obtained for petrol pumps were only taken on lease for five or ten years, and no ownership rights were obtained and therefore the expense should be considered as revenue. The applicants filed an appeal against the order of the Income‑tax Officer, before the learned Appellate Tribunal, which appeal was rejected by the Income‑tax Appellate Tribunal, and consequently the applicants filed the above application under section 66(1) of the Income‑tax Act, 1922, and have referred the abovementioned two legal questions arising out of the impugned judgment of the Income‑tax Appellate Tribunal, by above reference to this Court. The learned Advocate appearing for the applicants submitted, that in spite of clear wordings of the above‑mentioned Notification No. S. R. O 233(R)/65, dated 20‑9‑1965 and in spite of the fact that the applicants are company. To as well as Appellate Tribunal did not grant full deduction of the donated amount, by treating the said donation as donation under section 15‑D of the Income‑tax Act, 1922, and as such the impugned order of the Appellate Tribunal as well as I. T. O. in this connection cannot legally be sustained. As far as disallowance of Rs. 3,100 out of law expenses, which were paid by applicants for preparation of documents in respect of leases of sites for petrol pumps, the learned Advocate for the applicants submitted, that applicants did not acquire any asset of permanent character and as such the said expenses ought to have been allowed. as revenue expenses, but both the I.‑T. O. as well as Income‑tax Appellate Tribunal failed to appreciate this fact. The learned Advocate appearing for the respondent on the other hand submitted, that as far as the donation of Rs. 1,00,000 to the National Defence Fund is concerned. the contention of the learned Advocate for the applicants cannot be disputed, in view of the clear wording of the Notification No. S. R. O. 233(R)/65, dated 20‑9‑1965, specially as applicants are company and not individual. As far as disallowance of Rs. 5,100 on account of law expenses were concerned, the learned Advocate for the respondent submitted, that by leases in question applicants acquired leases for long period with an option of renewal, for setting up petrol pumps on said plots and consequently the said expenses could not be considered as revenue expenses and were rightly treated as capital expenses. We have carefully considered the above submissions made by the learned Advocates before us and have gone through the impugned order of the I. T. O. as well as Income‑tax Appellate Tribunal. It is very clear from the Notification No. S. R. O. 233(R)/65, dated 20‑9‑1965, that donation made by the applicants to National Defence Fund, was under section 60 of the Income‑tax Act, 1922 and since the applicants are company they were entitled to full deduction of the said amount from the income, as contemplated by the said notification and consequently I. T. O as well as Appellate 'Tribunal was not justified in coming to the conclusion, in applying several proviso of the said notification to the said donation. As far as disallowance of Rs. 5,100 on account of legal expenses we find, that the said legal expenses were incurred for preparation of the‑lease deeds, which were for long duration, with the right of renewal to the applicants and the said plots were acquired for setting up petrol pumps and thereafter to lease out the said petrol pumps to other parties. In view of this said expenses cannot considered to be a revenue expenses and consequently the I: T. O. had rightly disallowed the said expenses as revenue expenses and the Appellate Tribunal bad rightly rejected the applicant's appeal in this connection. Therefore, in view of our above conclusions, we answer question No. 1 in the negative and question No. 2 in affirmative. M. B. A ????????????????????????????????????????????????????????????????????? Reference answered accordingly.