2013 PLP (Trib (PTD)

JAWAID MASOOD TAHIR BHATTI, CHAIRMAN.

These appeals were partly heard on 19-10-2012 and were adjourned to 21-12-2012 on the request of the learned D.R. Both the parties have argued the matter at length. Brief facts of the case are that the taxpayer is a scheduled banking company registered under the Banking Companies Ordinance, 1962 and working under the rules and regulation framed by the State Bank of Pakistan from time to time. Cross appeals have been filed, which are being disposed of through this consolidated order. These appeals arise from orders of Commissioner (Appeals) adjudicating orders passed under section 122(5A) of Income Tax Ordinance, 2001 [hereinafter "the Ordinance"] for tax years 2004 to 2007, 2009 and 2010 and section 122(5) for tax years 2003 and 2008. The Authorised Representative (AR) of appellant-bank on previous dates of hearing provided a detailed chart showing issues involved and copies of relevant case-law for comments by the learned Departmental Representative (DR). The learned DR also submitted Department's point of view on all issues in writing and provided copies of case-law relied upon by him. After examining the impugned orders, written averments of both the sides and case-law cited, the titled appeals are adjudicated as under: Before deciding appeals on merits, we deem it necessary to decide legal grounds first having impact for most of the years under appeal:-- ASSUMPTION OF JURISDICTION UNDER SECTION 122(5A) OF INCOME TAX ORDINANCE, 2001 [TAX YEARS 2004 TO 2007, 2009 AND 2010] This has been a controversial issue as many conflicting judgments were in the field. The honourable Islamabad High Court in a recent judgment has decided the issue in favour of the department in Writ Petition No.2412 of 2009 dated 27-4-2012. No contrary decision of Lahore High Court or any other High Court is available at the moment. It was conveyed by the learned AR that the honourable Sindh High Court also decided the matter in favour of the Department through a short order, but detailed order is yet not released. The AR argued that on the basis of latest order by Islamabad High Court, the Tribunal has to decide the matter accordingly but arguments advanced and adjudicated against assumption of jurisdiction by the Additional Commissioner in 2010 PTD (Trib.) 705, I.T.A. No.625/IB/2010 dated 16-3-2012 and I.T.A. Nos.691 to 694/LB/2011 dated 26-3-2012 should be considered as integral part of this order so that appellant-Bank could agitate the matter in Lahore High Court where many writs and appeals on the same issue were pending. We have no objection to this proposition and thus following the judgment of honourable Islamabad High Court (supra), we dismiss all the appeals of the appellant-bank on this issue and allow that of Department as was done earlier by a Division Bench of this Tribunal in a case of another bank reported as 2013 PTD (Trib.)

246. ASSUMPTION OF JURISDICTION UNDER SECTION 122(5) OF INCOME TAX ORDINANCE, 2001 [TAX YEARS 2003 AND 2008] Tax year 2003 Department selected the case for audit under section 177 and invoked section 122(5) of the Ordinance which was declared unlawful by Commissioner (Appeals). Department has contested the order of Commissioner (Appeals). Learned DR supported the order of Taxation Officer and argued that invoking of section 122(5) was lawful as taxpayer failed to substantiate its case before the department. The learned AR advanced the same arguments that were taken before the Commissioner (Appeals). He submitted that pre requisite of invoking section 122(5) of the Ordinance was existence of definite information with regard to escapement or under-assessment of income or assessment at too low a rate or subjection of excessive relief or refund. Moreover, this definite information should have been fresh and must come into possession from a source after completion of assessment as held by Supreme Court of Pakistan in CIT v. Eli Lilly Pakistan (Pvt.) Ltd. 2009 SCMR 1279 = 2009 PTD 1392 and Central Insurance Co. and others v. CBR, Islamabad and others 1993 PTD 766 = 1993 SCMR 1232. He submitted that amendment under section 122(5) was made merely on certain disagreements on interpretation of statute on which judicial pronouncements were in the field. The AR pointed out that though many favourable judgments on the issues were announced after amended assessments, but even at the time of invoking section 122(5), following favourable decisions of higher courts and FBR's instructions were in field:-- S. No. Additions Favourable judgments/FBR's instructions

1. Disallowance of initial depreciation Circular No.7 of 2003

2. Disallowance of provision for non-performing loans (i) 2002 PTD (Trib.) 1898 (ii) (2002) 85 TAX 245 (Trib.) (iii) 2003 PTD (Trib.) 1189 (iv) R.A No.349/LB//2002 (v) I.T.A. No.1658/LB of 2003 dated 23-2-2004. (vi) I.T.A. No.1066 to 1073/LB of 2004 dated 22-12-2004

3. Excess perquisites under section 21(k) 2005 PTD (Trib.) 2041

4. Disallowance of assets written of 2006 PTD (Trib.) 356

5. Disallowance of amortization of premium on FIBs I.T.A. No.1658/LB of 2003 dated 23-2-2004 = (2004) 90 Tax 116 (Trib.)

6. Compensated absence CIT v. Oriental Dyes and Chemicals Ltd. 1992 SCMR 763

6. Disallowance of 50% depreciation on vehicles used by Directors and Executives I.T.As. Nos. 36 to 38/LB/2003 The learned AR argued that legal disagreements over issues narrated above were lingering on for a long time and department had filed appeals with appellate authorities. The Tribunal had already adjudicated these issues in the favour of appellant bank. In view of this fact, he argued, the act of department of invoking section 122(5) was totally unjustified as no "definite information" was confronted as required under the law. He showed from record that information on the basis of which assumption of jurisdiction under section 122 was assumed was available on record, it was neither acquired through audit nor otherwise came to the Knowledge of the Taxation Officer. According to AR since no definite information came in the possession of department, as a result of audit or otherwise, resort to section 122(5) was unlawful and proceeding were coram non judice. The AR also pointed out that for subsequent years, the Additional Commissioner invoked section 122(5A) on the same issues asserting that acceptance of declared version on these issues was "erroneous" as well as "prejudicial to the revenue". The Department by its own conduct, he argued, admitted that the issues involved were not subject matter of section 122(5). The AR further claimed that department did not issue prescribed notices. According to him, non-issuance of mandatory notice rendered the whole proceedings nullity in the eye of law. The law prescribed a specific notice to be issued for assumption of jurisdiction under section

122. As held by honourable Supreme Court in Collector, Sahiwal and 2 others v. Muhammad Akhtar 1971 SCMR 681 and followed in Baby-own v. Income Tax Officer 1997 PTD 47, failure to comply with such a mandatory requirement of the statute renders the act void ab initio as being an act performed disregard of the provisions of the statute. Hence, any further proceedings taken on the basis of such a void act are also vitiated and not maintainable in the eye of law. The learned DR argued that additions were made on factual basis too and this constituted definite information for the purpose of section 122(5). Arguments and case-law cited of both sides have been considered. We are persuaded to agree with the opinion of Commissioner (Appeals). He rightly mentioned that pre-requisite for invoking section 122(5) of the Ordinance was definite information with regard to escapement or under-assessment of income or assessment at too low a rate or subjection of excessive relief or refund. Further, the definite information must have come in the possession of Department after completion of assessment-this dictum is elaborated in detail by the honourable Supreme Court in CIT v. Eli Lilly Pakistan (Pvt.) Ltd. 2009 SCMR 1279 = 2009 PTD 1392 and Central Insurance Co. and others v. CBR, Islamabad and others (1993) 68 Tax 86 (S.C. Pak.). We are also in agreement with the observation of Commissioner of Appeals that there were favourable judgments of higher courts on the issues on which department invoked section 122(5) and this act was against the law. Mere disagreement with the decisions of higher courts cannot be termed as definite information. We want to cite the judgment of Lahore High Court reported as Saitax Spinning Mills Ltd. v. Commissioner of Income Tax 2003 PTD 808 (Lahore High Court) wherein the honourable High Court disapproved amendment/reopening of as completed assessment for want of definite information. We are also in agreement with the AR that non-issuance of mandatory notice rendered the proceedings untenable in the eye of law as held by the honourable apex court in Collector, Sahiwal and 2 others v. Muhammad Akhtar 1971 SCMR

681. We, therefore, uphold decision of Commissioner (Appeal) and dismiss departmental appeal on this issue. Tax year 2008 Department selected the case for audit under section 177 and made additions by invoking section 122(5) of the Ordinance. Invoking of sections 177 and 122(5) was upheld by Commissioner (Appeals) with the following observation:-- "In the written arguments the learned AR has assailed the selection of case for audit under section 177 by the Commissioner on legal ground. I do not want to go into the details on this issue as the appeal before me has not been filed against order passed under section 177 by the Commissioner. The order under section 177 issued by the Commissioner is a separate order and distinct from the order under section 122 that has been passed by the DCIR. Obviously, two authorities cannot pass one order sitting in proceedings separately. The selection order under section 177 may be legal or illegal and the audit proceedings may again be legal or illegal that is not relevant for this appeal that has not been filed against the order under section

177. The appeal has been filed, to state the obvious, against order under section

122. Therefore, I have to see whether the requirements of section 122 were fulfilled in this case or note? The more important condition to pass an order under section 122 is the availability of definite information. Subsection (5) provides that the definite information may be obtained through audit or otherwise. If this condition of definite information is satisfied in this case, though the audit may be improper, it will not affect the legal effect of the impugned order. In other words, the information itself is never illegal, though it may be definite or otherwise in the context of this appeal. Therefore, the pre requisite to pass an order under section 122, inter-alia, is availability of definite information and not the audit itself. This ground therefore, is repelled in limine." The learned AR argued that issue was decided against the taxpayer on the basis of observation that appeal against selection of case for audit under section 177 by Commissioner was not filed. According to the learned Commissioner (Appeals), order under section 177 issued by the Commissioner was a separate order and distinct from the order under section 122 that was passed by the Deputy Commissioner and appeal was filed against order under section 122 only. The learned AR argued that Commissioner (Appeals) failed to appreciate that in Income Tax Ordinance, 2001 all proceedings are taken up by Commissioner. Even order under section 122 is passed by Deputy Commissioner by using delegated powers of Commissioner Inland Revenue. The learned AR further argued that for this year too, additions were made on the issues on which favourable decisions of higher courts were available at the time of amendments. In this respect, he furnished the following details:-- S. No. Additions Favourable judgments/provision of law

1. Disallowance of provision for non-performing loans. (i) 2002 PTD (Trib.) 1898 (ii) (2002) 85 Tax 245 (Trib.) (iii) 2003 PTD (Trib.) 1189 (iv) R.A. No.349/LB of 2002 (v) I.T.A. No.1658/LB of 2003 dated 23-2-2004 (vi) I.T.A. No.1066 to 1073/LB of 2004 dated 22-12-2004

2. Reversal of provision against non-performing advances/ loans Misreading of fact. Double taxation as reversal has already been taxed when provision was claimed in P&L account after reducing it.

3. Provision against other assets (i) 2006 PTD (Trib.) 356 (ii) I.T.A. No.1012 and 1014/IB/1995 dated 18-7-2006

4. Disallowance of 50% depreciation on vehicles used by Directors and Executives I.T.As. Nos. 36 to 38/LB of 2003

5. Expenses allocable to dividend income and exempt capital gain (i) 2006 PTD 2678 (ii) 2005 PTD (Trib.) 2041

6. Provision for Compensated absence CIT v. Oriental Dyes and Chemicals Ltd. 1992 SCMR 763

7. Contribution to Defined Benefit Plan (Gratuity) CIT v. Oriental Dyes and Chemicals Ltd. 1992 SCMR 763

8. Financial charges - profit charged on account of re-purchase agreement Interpretation of section 151(1)(d)

Department in another case (The Bank of Punjab) for the same year has interpreted provision in favour of taxpayer and allowed deduction.

9. Taxation of rebate allowed by NIT under FTR Misreading of fact - It is not a commission but a rebate which is taxable under Normal tax regime The learned AR argued that legal disagreements over issues narrated above were in existence and department had filed appeals with appellate authorities. The courts had adjudicated these issues in favour of appellant bank. The resort to section 122(5) by Taxation Officer was not based on acquisition of definite information. He further submitted that information on the basis of which jurisdiction under section 122 was assumed was already available on record, it was neither acquired through audit nor otherwise came to the knowledge of the department as contemplated in section 122(5). The learned AR further argued that taxation of reversal was a case of misreading of fact. It was a case of double taxation as reversal had already been offered for tax when provision was charged after its netting off. He further pointed that rebate allowed by NIT was offered for tax under Normal Tax Regime (NTR) i.e. @ 35% whereas department has taxed it under Final Tax Regime (FTR) @ 10%. According to learned AR, without going into merit whether it was taxable under NTR or FTR, any information as a result of which tax as reduced could not be term as definite information for the purpose of amendment under section

122. The learned AR also pointed out that for other years, the department invoked section 122(5A) on the same issues holding that acceptance of declared version on these issues is "erroneous" as well as "prejudicial to the revenue". The Department by its own conduct admitted that the issues involved were subject matter of section 122(5A) and not that of section 122(5). The learned DR supported orders of authorities below and argued that these additions were made on factual basis too and therefore provisions of section 122(5) of the Ordinance have rightly been invoked for this year too. We have considered arguments and case-law given by both sides. We do not want to go in detail for this year as this issue has been discussed in detail in tax year 2003. We are in agreement with the AR that on above issues, there were judgments of higher courts in favour of taxpayer and mere disagreement with those judgments on the part of Department could not constitute any definite information that was a prerequisite for invoking section 122(5). We therefore, decide the appeal for this year in favour of taxpayer by declaring invoking of section 122(5) of above issues as unlawful. MERITS Summary of issues pending for adjudication in departmental and cross appeals for tax years 2003 to 2010 are tabulated as under:-- S. No. Issue Year Appellant

1. Non-issuance of notice under section 128(1) 2003 and 2004 Department

2. Relief under section 124A 2006, 2007 and 2008 Department/Bank

3. Provision for bad debts 2003 to 2005, 2008 and 2009 Department/Bank

4. Initial depreciation on building 2003 Department

5. Excess perquisites 2003 Department

6. Assets written off 2003 Department

7. Amortization of premium on purchase of FIBs 2003 Department

8. Provision for compensated absences 2003 to 2005, 2007, 2008 and 2010 Department 9. 50% disallowance of depre-ciation vehicles used by directors and executives 2003 & 2004, 2008 to 2010 Department

10. Provision against other assets 2004, 2008 to 2010 Department/bank

11. Disallowance of depreciation 2007 Department

12. Allocation of expenses to dividend and exempt capital gain 2004 to 2010 Department/Bank

13. Concessionary loans to employees 2004 Department

14. Reversal of provisions for non-performing loans 2008 to 2010 Department/bank

15. Disallowance of depreciation misclassification of assets 2008 Bank

16. Profit charged on account of re-purchase agreements 2008 Bank

17. Taxation of rebate allowed by NIT on purchase of units 2008 Bank

18. Diminution in value of investment 2009 and 2010 Bank

19. Confirmation of computation of income in violation of section 100A read with seventh Schedule to the Ordinance 2010 Bank

20. Deletion of amount "written off" 2010 Department

21. Allowance of provision for non-performing advances @ 1% of gross advances instead of net advance 2010 Department

22. Chargeability of WWF 2009 and 2010 Bank Issue-wise and year-wise adjudication is made as under:-

1. NON-ISSUANCE OF NOTICE UNDER SECTION 128(1)

TAX YEARS 2003 & 2004 The learned DR argued that appeals for these years were decided by learned CIR(A) without issuing notice to the department. The AR said that CIT(A) issued notices to both the parties and Department opted not to appear. In this respect learned AR produced letter No.129/A-L dated 30-11-2005 from Commissioner (Appeals) confirming this position. Since the Department did not provide any evidence in support of its claim, we dismiss the appeals.

2. RELIEF UNDER SECTION 124A OF THE ORDINANCE-TAX YEARS 2006, 2007 & 2008 On the following legal issues, there were favourable judgments of this Tribunal decided in bank's own case after first day of July, 2002:-- S. No. Issue involved 2005 PTD (Trib.) 2041 Page No. & Para NO.

1. Provision for bad debt Pages 2050 Para 9

2. Depreciation on vehicles Page 2052 para 18

3. Allocation of expenses to exempt income Pages 2053 Para 20 The appellant-bank argued before the department that in view of section 124A the department should have followed these judgments. The department rejected this argument on the ground that legislature has used words "may" which gives option to Commissioner to invoke or not to invoke said section. Commissioner (Appeals) in appeal for tax year 2006 accepted appeal with the following observation: "I have analyzed the language of section 124A and it is my view that it is binding on the Commissioner as it is well-established principle of law that if the statute authorize a person for exercise of discretion to advance the cause of justice, the power is not merely optional but it is the duty of such person to act in the manner it is intended - 2004 PTD 2187 (S. C. Pak.) (Paras D & F, pages 2196, 2197). The word "may" in section 124A is to be construed as mandatory in view of dictum laid down by the honourable apex court in 2004 PTD 2187 (S. C. Pak.) (para E, page 2197). Section 24A of General Clauses Act also requires that powers under section 124A shall be exercised for the advancement of the purpose of the enactment that is to avoid repletion of appeals on the same question of law. The point of view of Taxation in this regard is not maintainable under the law in the light of dictum laid down by the honourable apex court as discussed above." For tax year 2007, Commissioner (Appeals) accepted appeal on this issue by following her earlier decision. However, for tax year 2008, Commissioner (Appeals) did not follow decision of his predecessor and observed "the learned DCIR has rightly observed that this section is directory and not mandatory. It is up to the Commissioner to accept the earlier decision or not." The learned DR supported the observations of authorities below and argued that relief under section 124A is directory and not mandatory. First of all, we would like to show our concern about the conduct of the important office like Commissioner (Appeals). For tax years 2006 and 2007, by relying on well-established principle of law that if the statute authorize a person for exercise of discretion to advance the cause of justice, the power is not merely optional but it is the duty of such person to act in the manner it is intended and in the light of judgment of honourable Supreme Court of Pakistan in 2004 PTD 2187 (S.C. Pak.) it was observed that section 124A was mandatory whereas for tax year 2008 without giving any reason for distinguishing earlier decision it has been observed that this section is not mandatory. We do not expect such contradictory observations from an appellate office and that too without giving any cogent reasons. It needs to be pointed out that word "may" as used in section 124A of the Income Tax Ordinance, 2001 was rightly interpreted on the basis of judgment of Supreme Court cited supra as binding while adjudicating appeals for tax years 2006 and 2007. The contrary finding for tax year 2008 by the Commissioner (Appeals) is against the law and clear violation of rule of consistency and judicial propriety. Before adjudicating this issue, we would like to reproduce section 124A of the Ordinance as under:-- 124A. Powers of tax authorities to modify orders, etc.

(1) Where a question of law has been decided by a High Court or the Appellate Tribunal in the case of an assessee, on or after first day of July 2002, the Commissioner may, notwithstanding that he has preferred an appeal against the decision of the High Court or made an application for reference against the order of the Appellate Tribunal, as the case may be, follow the said decision in the case of the said assessee in so far as it applies to said question of law arising in any assessment pending before the Commissioner until the decision of the High Court or of the Appellate Tribunal is reversed or modified (2) In case the decision of High Court or the Appellate Tribunal, referred to in subsection (1), is reversed or modified, the Commissioner may, notwithstanding the expiry of period of limitation prescribed for making any assessment or order, within a period of one year from the date of receipt of decision, modify the assessment or order in which the said decision was applied so that it conforms to the final decision. The usage of word "may" in a statute has been interpreted by honourable Supreme Court of Pakistan in Abu Bakar Siddique and others v. Collector of Customs 2004 PTD 2187 (S. C. Pak.) as under:-- "It is well-settled that word 'may' is discretionary and an enabling word and unless the subject-matter shows that the exercise of power given by the provision using the word 'may' was intended to be imperative for the person to whom the power is given, it might not put him under an obligation to necessarily exercise such power but if it is capable of being construed as referring to a statutory duty, it will not be entirely for such person to exercise or not to exercise the power given to him under the law. The use of word 'may' in the statute in the plain meaning is to given discretion to the public authority to act in their option in the manner in which such authorities deem proper but if the public authorities are authorized to discharge their functions in their option in a positive sense, the word 'may' used in the provision would be suggestive of conveying the intention of Legislature of imposing an obligation. The word 'may' usually and generally does not mean 'must' or 'shall' but it is always capable of meaning 'must' if the discretionary power is conferred upon a public authority with an obligation under the law. The word 'may' is not always used in the statute with the intention and purpose to give uncontrolled powers to an authority rather oftenly it is used to maintain the status of the authority on whom the discretionary power is conferred as an obligation and thus the legislative expression the permissive form, sometime is construed mandatory. It is, however, only in exceptional circumstances in which a power is conferred on a person by saying that he may do a certain thing in his discretion but from the indication of the relevant provisions and the nature of the duty to be done, it appears that exercise of power is obligatory. This is an accepted principle of law that in a case in which the statute authorizes a person for exercise of discretion to advance the case of justice, the power is not merely optional but it is the duty of the such to act in the manner it is intended." Bare reading of section 124A reveals that this section is aimed at avoiding repetitive appeals on any legal issue on which Tribunal or Higher Courts had already given a judgment in the case of a taxpayer. In this section no discretion has been given to Commissioner, rather an obligation is imposed. The very purpose of insertion of this section was to avoid repetitive order/appeals on an issue which is sub judice before a court. It is strange to see that department despite clear verdict of honourable Supreme Court of Pakistan on word 'may' and remedy already provided by the legislature itself under section 124A of the Ordinance has been repeating the same additions every year which are not maintainable in the law. The right course for the department was to get the orders reversed from the courts where the matter is presently sub judice. This alone can help the department. In view of above discussion, the issue is decided in favour of the taxpayer and against the department.

3. PROVISION FOR BAD DEBTS - TAX YEARS 2003 TO 2005, 2008 & 2009 This has been a controversial issue in the cases of banks as many conflicting judgments were in the field. In order to resolve the conflict, a five-member bench of this Tribunal was constituted wherein the following question was taken up for adjudication:-- "Whether on facts and in the circumstances of the case receivable amount could be written off by debiting it in the Profit and loss account as expenditure with the nomenclature "provision for bad debts' or not." The larger bench after examining various judgments of this Tribunal and higher courts including judgments of honourable Sindh High Court in I.T.A. 565 of 2000 dated 1-3-2006 I.T.R.A. 291 of 2008 dated 13-10-2010, decided the issue in favour of banks with the majority of 4-1 vide its order dated 10-2-2011, reported as 2012 PTD (Trib.) 1139, with the following observation:-- ".... We have no doubt in our mind that there is no reason for disallowance of the claim of bad debt for the banks under discussion. The only criterion is adoption of rules fixed by the State Bank. If there is no deviation of the Prudential Bank Regulation, the claim of bad debt-cannot be disallowed. Since it is not the case of the department that there is deviation, the claim of bad debt of the banks are hereby allowed in full." A large number of appeals of various banks were taken upon for adjudication by five-member bench out of which the following departmental appeals relate to this case:-- I.T.A. No. Tax year I.T.A. No.5001/LB/2005 2003 I.T.A. No.5002/LB/2005 2004 I.T.A. No.1292/LB/2006 2005 Judgment of five-member bench dated 10-2-2011 covers the above appeals. By following this judgment, the issue is decided in favour of taxpayer in all other appeals which were not put before five-member bench. These appeals are listed as under: I.T.A. No. Tax year I.T.A. No.901/LB/2011 2008 I.T.A. No.902/LB/2011 2009 In view of above, all the departmental appeals fail and that of taxpayer for tax years 2008 and 2009 succeed following the binding judgment reported as 2012 PTD (Trib.) 1139.

4. INITIAL DEPRECIATION ON BUILDING - TAX YEAR 2003 The bank claimed initial depreciation on factory building. The department disallowed it on the ground that year of the appellant ended on 31-12-2002 whereas amendment in subsection (5) of section 23 whereby initial depreciation on building was allowed was made through Finance Act, 2003. The learned Commissioner (Appeals) observed that FBR clarified in its Circular No.7 of 2003 that this amendment is applicable for tax year 2003. Since this clarification of CBR was beneficial to the taxpayer, he disapproved the disallowed. The learned DR argued that taxpayer claimed initial allowance on factory building whereas it is allowable on plant and machinery. According to him, Circular No.7 of 2003 related to initial allowance on second hand machinery and plant used for first time in Pakistan. In order to resolve the controversy, subsection (5) of section 23 of the Ordinance, before amendment made by Finance Act, 2003, is reproduced as under:-- (5) In this section, "eligible depreciable asset" means a depreciable asset that is plant or machinery other than

(a) any road transport vehicle unless the vehicle is plying for hire; (b) any furniture, including fittings; (c) any plant or machinery that is acquired second hand; or (d) any plant or machinery in relation to which a deduction has been allowed under another section of this Ordinance for the entire cost of the asset in the tax year in which the asset is acquired. Finance Act, 2003 omitted words "that is plant or machinery". This clearly shows that earlier initial depreciation was eligible only for plant and machinery whereas after omission of those words, initial depreciation has been extended to all assets except exclusions provided in clauses (a) to (d) of subsection (5) of section

23. In view of this position of law, the argument of learned DR that initial depreciation was eligible only for plant and machinery and not for other assets is not correct. Therefore, there is no reason for interference in order of learned Commissioner (Appeals) which is hereby maintained and appeal of department is dismissed.

5. EXCESS PERQUISITES - TAX YEAR 2003 The department made addition under section 21(k) of the Ordinance. The bank argued before Commissioner (Appeals) that value of perquisites for the purposes of section 21(k) had to be taken as computed under section 13 and not on gross value. Moreover, allowances within the exempt limited will fall outside the ambit of section 21(k) of the Ordinance. The learned Commissioner on the basis of these arguments accepted appeal. We have gone through the provision of section 2(k) and agree with the observation of learned Commissioner (Appeal). Accordingly, appeal of the department fails.

6. ASSETS WRITTEN OFF -- TAX YEAR 2003 The department disallowed claim of assets written off for want of proper proof. The learned Commissioner (Appeals) accepted appeal with the observation that Note 26 of Annual Report specifically mentions the nature of claim. We have examined the order and arguments of learned AR and do not find any reason for interference. Accordingly, order of learned Commissioner (Appeals) is upheld.

7. AMORTIZATION OF PREMIUM ON PURCHASE OF FIBS - TAX YEAR 2003 The department disallowed amortization of premium paid on purchase of FIBs on the ground that it is a capital expenditure. Commissioner (Appeals) has decided the issue in favour of bank in the light of decision of this Tribunal in I.T.A. No.1658/LB/2003 = (2004) 90 Tax 116 (Trib.). The learned AR argued that this issue has also been decided in favour of banks in a recent judgment in 2013 PTD (Trib.)

246. No contrary juaament of this Tribunal or higher court has been presented by learned DR. Accordingly, order of learned Commissioner is upheld and departmental appeal fails.

8. PROVISION FOR COMPENSATED ABSENCES

TAX YEARS 2003 TO 2005, 2008 & 2010 The department disallowed this deduction on the ground that this only a provision and not an actual expense. Learned Commissioner Inland Revenue (Appeals) in the light of judgment of honourable Supreme Court of Pakistan in CIT v. Oriental Dyes and Chemicals Co. Ltd. 1992 SCMR 763 decided the issue in favour of the bank. The learned AR submitted that by following the above judgment of honourable Supreme Court, Sindh High Court in CIT v. Civil Aviation Authority 2008 PTD 647 and this Tribunal in 2011 PTR 222 (Trib.) and 2013 PTD (Trib.) 246 have decided the issue in favour of banks. No contrary judgment has been presented by learned DR. Accordingly, order of learned Commissioner is upheld and departmental appeal fails. 9. 50% DISALLOWANCE OF DEPRECIATION VEHICLES USED BY DIRECTORS AND EXECUTIVES - TAX YEARS 2003 & 2004-2008 TO 2010 The department disallowed 50% depreciation on vehicles used by directors and Executives for their personal use on the ground vehicles to that extent were not used for derived income of business. Learned Commissioner (Appeals) in the light of judgment of this Tribunal in I.T.As. Nos. 36 to 38/LB/2003 dated 25-10-2003 accepted appeal. The learned, AR submitted that this issue has also been decided in favour of the banks in bank's own case in 2005 PTD (Trib.) 2041 and recently in 2013 PTD (Trib.)

246. The learned DR argued that honourable Sindh High Court in (1984) 49 Tax 118 had disapproved find of Tribunal that depreciation is to be allowed irrespective of extent of use of the vehicle. We have examined above case-law. In the case relied by learned DR, the facts were that vehicle was used by the taxpayer itself for its personal use whereas in the present case, vehicles were provided to the employees. Case relied by learned DR is distinguishable from present case. In this case vehicles were provided to employees in terms and condition of the service. If vehicle were used by the employees partly for their personal use, addition could have been made in employees' cases under Income Tax Rules and not in taxpayer's case. Accordingly, by following earlier judgments, order of learned Commissioner is upheld and departmental appeals fail.

10. PROVISION AGAINST OTHER ASSETS - TAX YEARS 2004, 2008 TO 2010 The department disallowed this deduction on the ground that this is only a provision and not an actual expense. Learned Commissioner (Appeals) by following judgments in 2001 PTD 1427, 2001 PTD 744 and 2001 PTD 3326 accepted the appeal for tax year 2004. However, for tax years 2008 to 2010 he declined to interfere. The learned AR submitted that this issue has also been decided in favour of banks by this Tribunal in 2006 PTD (Trib.) 356, I.T.As. Nos.1012 and 1014/IB/1995 dated 18-7-2006 and recently in 2013 PTD (Trib.)

246. The DR repeated the arguments recorded by the Taxation Officer and observations of Commissioner of Appeals for Tax Years 2008 to 2010. We have examined the case-law cited by the AR. These cases mentioned by him squarely apply to controversy in hand. Accordingly, by following our earlier judgments and reasons contained therein in detail, we adjudicate this issue in favour of the bank.

11. DISALLOWANCE OF DEPRECIATION - TAX YEAR 2007 The Additional Commissioner made an addition of Rs.18,106,195 on account of difference of depreciation on addition in building. It was argued before Commissioner (Appeals) that firstly this issue was not confronted in notice under section 122(9) of the notice, secondly on merit it was explained that total addition in building of Rs.183,758,074 consisted of building at Rs.167,543,000 and leased hold improvement at Rs.16,216,

000. Copy of audited accounts was produced wherein at Note 11.2 both the figures were appearing. Learned Commissioner (Appeals) disapproved this addition. Learned DR supported the order. The learned AR argued that no show cause notice was issued on this issue by Additional Commissioner. Had he confronted the bank, it would have been certified that total addition in building of Rs.183,758,074 consisted of building at Rs.167,543,000 and leased hold improvement at Rs.16,216,000 which is verifiable from audited accounts. We have examined arguments of both sides. We find no reason for interference in order of Commissioner (Appeals) which is hereby approved.

12. ALLOCATION OF EXPENSES TO DIVIDEND AND EXEMPT CAPITAL GAIN - TAX YEARS 2004 to 2010 Department disallowed expenses by allocating expenses to dividend and exempt capital gain. Commissioner (Appeals) disapproved this allocation for tax years 2004 and 2005 with the observation that this issue has already been decided by this Tribunal in favour of taxpayer and invoking of section 122(5A) on this issue means declaring judgment of court as erroneous. For tax years 2008 to 2010, allocation of expenses against administrative expenses was disapproved by Commissioner (Appeals) where allocation against financial expenses was confirmed. Department has contested order of Commissioner (Appeals) for tax years 2004 and 2005 whereas cross appeals for tax years 2008 to 2010 have been filed. The AR argued that this issue was already decided in favour of the banks in the cases of 2006 PTD 2678 (H.C. Lah.), 2006 PTD (Trib.) 356 and 2005 PTD (Trib.) 2041 in bank's own case. The learned AR further argued that Rule 6 of the Seventh Schedule specifically provides that income should be taxed in the cases of banks under the head 'income from business'. In the presence of this unambiguous provision of law, resort to section 67 read with Rule-9 of the Seventh Schedule is legally untenable as held in (2011) PTR 222 (Trib.) and 2013 PTD (Trib.)

246. The learned DR while supporting the order of department relied on the cases of 2005 PTD 2161 (Trib.) and 2005 PTD 2599 (H. C. Lah.). These cases are distinguishable on facts as taxpayers failed to provide details. In the present case, the Department has failed to provide any evidence that certain expenses were allocable to capital gains and dividends earned. We have considered arguments of both sides and examined the case-law cited. In view of factual position and reasons already recorded in detail in earlier judgments cited supra that were decided in favour of the banks, we disapprove allocation of expenses against dividend and exempt capital gain.

13. CONCESSIONARY LOANS TO EMPLOYEES -- TAX YEAR 2004 The department made addition treating concessionary loans as excess perquisites under section 21(k) of the Ordinance. Learned Commissioner (Appeals) deleted addition in the light of decision of this Tribunal in 2006 PTD (Trib.)

356. The AR submitted that this issue has also been decided favourably by honourable Sindh High Court in I.T.R. No.90 of 1983 dated 12-1-2007 as under:-- "It is clear that only those perquisites and benefits will fall within the ambit of this section for the provision of which the taxpayer has incurred any expense under clause (ix) or clause (xv) of subsection (2) of section 10 of the Income Tax Act, 1922 and the effect of this section is that such expenditure which has been incurred on the provisions of perquisite or other benefits in excess of thirty percent of the salaries of employees, shall be disallowed under these clauses and since it is an admitted fact that no such expenditure has been incurred, therefore in our view, the provision of section 10(4)(d) are not applicable to the deemed interest computed by the Income Tax Officer on the basis of difference between bank rate and rate of interest on which such loans were provided to the taxpayer." The learned DR argued that in Income Tax Ordinance, 1979 no parallel provision was available, but in Income Tax Ordinance, 2001, section 13(7) brings such loans within the purview of taxation. We have considered arguments of both sides and above case-law. The argument of DR is not valid as section 13(7) deals with income in the hands of employees whereas here the issue is treatment of concessional loans in the hands of the employers. The Bank did not claim any expenses hence issue of disallowance could not arise and this aspect was comprehensively decided by this Tribunal in 2006 PTD (Trib.) 356 and by the honourable Sindh High Court in I.T.R. No.90 of 1983. By following these judgments, we decide the issue in favour of taxpayer and dismiss departmental appeal.

14. REVERSAL OF PROVISIONS FOR NON-PERFORMING LOANS - TAX YEARS 2008 TO 2010 Department taxed reversal of provisions for non-performing loans treating it as income. Learned Commissioner (Appeals) remanded the case back to department for tax year 2008 whereas dismissed bank's appeals for tax years for tax years 2009 and 2010. The learned AR argued that appellant-bank already offered reversals for tax when it reduced the charge for the year by that amount. The AR pointed out that this issue was adjudicated in favour of the appellant-bank by this Tribunal in I.T.A. No. 306/LB/09 dated 8-8-2009 wherein it was observed that taxation of reversals amounted to double taxation. The Department, he pointed out, did not file reference against the said order which had attained finality as provided in section 133(10) of Ordinance. He further submitted that this issue was also decided in favour of another bank in 2011 PTR 222 (Trib.) and 2013 PTD (Trib.)

246. The learned DR argued that addition was justified for which detailed reasons were given by the Additional Commissioner. We have examined the arguments of both sides and cases relied upon. This issue has already been decided by this Tribunal in I.T.A. No.306/LB/09 dated 8-8-2009, 2011 PTR 222 (Trib.) and 2012 PTR 124 (Trib.) in favour of banks. Thus, by following our earlier judgments and reasons recorded therein, we direct that additions should be deleted.

15. Disallowance of depreciation misclassification of assets - Tax Year 2008 Department disallowed depreciation as certain assets such as UPS, furniture and fittings were classified as building and computers on which initial depreciation and higher depreciation was claimed. Learned Commissioner (Appeals) confirmed additions. The learned AR argued that certain fittings were installed at the time of construction of building and were part of the building. He further argued that UPS and furniture connected with the computer were in fact computer accessories thereof, therefore, depreciation on these assets were rightly claimed. The learned DR argued that building, fittings, computers and furniture etc. are separately classified in third schedule for application of tax depreciation hence these are to be treated accordingly. We have considered arguments of both sides. We are in agreement with the argument of learned DR that each asset classified in-third Schedule is to be treated accordingly. We therefore dismiss appeal of the taxpayer and confirm order of learned Commissioner (Appeals).

16. PROFIT CHARGED ON ACCOUNT OF RE-PURCHASE AGREEMENTS - TAX YEAR 2008 The bank did not deduct tax on profit charged on account of re-purchase agreement claiming exemption under section 151(1)(d) of the Ordinance. Department disallowed it. Learned Commissioner (Appeals) confirmed this addition with the observation that repurchase agreement is not a loan agreement but a sale/purchase agreement therefore it is not covered under section 151(1)(d) that exempts loan agreement between a borrower and a bank. The learned AR argued that both authorities below failed to appreciate the nature of transaction. In this respect, he referred an extract from book "GLOSSARY Banking and Finance" published by State Bank of Pakistan in collaboration with Institute of Bankers Pakistan, National Institute of Banking and Finance, Lahore School of Economics and Institute of Management Sciences, Hamdard University wherein nature of this transaction has been explained as under:-- Repurchase Agreement (Repo).

a contract of sale of securities with a simultaneous commitment to repurchase the same at a specified date and price; offer an arrangement or a technique to raise short term liquidity from the money market; also provide a means to maximize earnings on treasury bills and government securities if the banks and financial institutions enter into Repo with the central bank or other players of money market; for the counterparty, investment in a Repo transaction enables short placement of excess liquidity for earning a return. It is clear from above that repurchase agreements (repo) are in fact short term loans obtained by a bank from another bank/money market by offering securities as collateral by entering into contact of sale of securities with a simultaneous commitment to repurchase the same. The arrangement in its essence is substitute of a similar other method of getting finance, wherein, the borrower provides security by pledging government securities against such loan arrangement. The arrangement is nothing more than production of a collateral to the bank. We are of the considered view that this transaction does fall with the ambit of section 151(1)(d) that exempts loan agreement between a borrower and a bank. The learned AR also pointed out that department in the case of another bank (The Bank of Punjab) drew no adverse inference for the same year after due deliberation. In view of above discussion, appeal of the taxpayer is allowed and addition is deleted.

17. TAXATION OF REBATE ALLOWED BY NIT ON PURCHASE OF UNITS - Tax Year 2008 NIT Limited paid rebate of Rs.7,567,500 to the bank on purchase of its units and deducted tax of Rs.756,

750. The Taxation Officer treated this rebate as 'commission' and excluded this income from ambit of Normal Tax Regime and taxed it @ 10%. Learned Commissioner (Appeals) confirmed this treatment. The learned AR explained that units were purchased by the bank for its own investment and there was no relation of principal and agent, therefore, provisions of section 233 are not applicable. According to him, had this been in the nature of commission, it would be more beneficial for the bank to offer it for tax @ 10% instead of normal rate of 35%. We have considered arguments of both sides. It is strange for us that bank offered this income under normal tax regime and offered it @ 35% whereas department taxed it under Final Tax Regime @ 10% under section 122(5) incurring loss to the revenue. We are afraid that this kind of treatment does not fall within the ambit of section 122(5) which resulted in loss of revenue. On merit, we are in agreement with the learned AR that there is no relation of principal and agent in this transaction. The transaction is simple that bank purchased units/shares and NIT allowed rebate on this purchase. In view of above discussion, we accept the appeal and direct that this income may be taxed under normal tax regime.

18. CONFIRMATION OF COMPUTATION OF INCOME IN VIOLATION OF SECTION 100A READ WITH SEVENTH SCHEDULE TO THE ORDINANCE TAX YEAR 2010 The learned AR contended that from tax year 2009 onwards, the banks are to be taxed in terms of section 100A read with the provisions of Seventh Schedule to the Ordinance, 2001. According to him, the scheduler assessment in the case of banks from tax year 2009 came at par with insurance companies taxed under the Fourth Schedule to the Ordinance. He further contended that Seventh Schedule did not permit re-computation of income as done by the department in view of explicit language of section 100A read with Rule 1 of the Seventh Schedule. The learned AR argued that the Department could made only permissible additions and adjustments as provided in the Seventh Schedule itself. Relying on CIT Central Zone 'A' Karachi v. Phoenix Assurance Co. Ltd. 1991 PTD 1028, he argued under the scheduler assessments, the acceptance of accounts was a fait accompli for tax authorities. The learned DR contested this position and argued that provisions of section 100A are not overriding and in view of Rule 9 of the Schedule, all the provisions of the Ordinance were applicable and both the authorities below rightly interpret the law. The learned AR further argued that this issue has already been decided in 2011 PTR 222 (Trib.) and 2013 PTD (Trib.)

246. The DR advanced following arguments:-- "Provisions of the Seventh Schedule cannot be rendered redundant by buying arguments of the taxpayer as its clause (1) envisages computation of income of banks according to provisions of income tax law, clause (2) provides allowability or disallowance of liabilities and losses, Clause (3) gives treatment for sharia complaint banking, Clause (4) delineates head office expenditures, Clause (5) mentions method of payment of advance tax, Clauses (6) and (7A) tell about tax calculation, Clause (8) describes effect of exemptions, adjustment of loss, allowability of group relief taxation of subsidiaries, Clause (8A) gives transitional details and clause (9) says vividly that the provisions of the Ordinance not specifically dealt with in the aforesaid rules shall apply, mutatis mutandis, to the banking company." We have examined arguments of both sides and cases cited. This is a settled issue as is evident from our earlier judgments reported as 2012 PTD (Trib.) 1055 and 2013 PTD (Trib.) 246, we, therefore, allow ground of appellant-bank following the reasoning mentioned in these orders.

19. PROVISION FOR DIMINUTION IN VALUE OF INVESTMENT - TAX YEARS 2009 and 2010 Deductions claimed under this head were disallowed by the department and were confirmed by learned Commissioner (Appeals). Learned AR submitted that this issue, with reference to Seventh Schedule to the Ordinance, has already been decided by this Tribunal in its judgments reported as 2012 PTD (Trib.) 1055 and 2013 PTD (Trib.)

246. The learned AR argued that this issue has been decided in favour of the revenue in the following cases:-- (i) 2006 PTD 354 (ii) 2002 PTD 925 (iii) 2000 PTD (Trib.) 2668 (iv) (2002) 85 TAX 245 (v) I.T.A. No.3819/LB/1997 dated 7-12-1999 (vi) I.T.A. No.400/LB/2000 dated 10-12-2001 We have examined the case-law and arguments of both sides. Case-law relied by learned DR relates to position of law prior to insertion of Seventh Schedule to the Ordinance. This Tribunal in (2012) 106 Tax 317 (Trib.) = 2012 PTR 124 (Trib.) confirmed addition under this head for the years prior to insertion of the Seventh Schedule, but allowed impairment losses. However, in earlier judgments reported as 2012 PTD (Trib.) 1055 and 2013 PTD (Trib.) 246 detailed has been made with reference to admissibility of this deduction under the Seventh Schedule to the Ordinance. By following our earlier judgments, we order deletion of these additions as years involved are after amendment in law rendering the decisions relied by the Department as no longer applicable.

20. DELETION OF AMOUNT "WRITTEN OFF" - TAX YEAR 2010 The Additional Commissioner made addition of Rs. 20,002,000 under this head as admissibility of these writes offs was not proved in terms of section 29 of the Ordinance. Learned Commissioner (Appeals) deleted this addition on the ground that these write offs were only for disclosure purposes. Income for the year was not reduced by that amount. Learned AR argued that amount charged to P & L account under provision for non-performing advances is Rs.1,312,121,000 which does not include write off of Rs.20,002,

000. Since no amount was claimed as "written off", learned Commissioner (Appeals) rightly deleted this addition. He further submitted that this issue has been decided favourably by this Tribunal in 2013 PTD (Trib.)

246. Learned DR defended the order of Additional Commissioner and argued that since admissibility of these write offs were not proved, these cannot be allowed. We have examined arguments of both sides. We are in agreement with learned AR that expense can only be disallowed if deduction of the same is claimed in the return. These write offs were charged to the provision and not to P&L account. Keeping in view the factual position explained and following earlier reported judgment 2013 PTD (Trib.) 246 we decide the issue in favour of the taxpayer and against the Department.

21. ALLOWANCE OF PROVISION FOR NON-PERFORMING ADVANCES @ 1% OF GROSS ADVANCES INSTEAD OF NET ADVANCE - TAX YEAR 2010 The bank worked out addition under rule 1(c) of Seventh Schedule taking gross advances whereas department enhanced the addition by taking net advances. Learned Commissioner (Appeals) deleted the addition made by the department by directing to take figure of gross advances. The learned AR argued that this issue has already been adjudicated by this Tribunal in favour of banks in 2013 PTD (Trib.)

246. Learned DR could not produce any contrary judgment on this issue. We, therefore by following our earlier judgment confirm the order of Commissioner (Appeals).

22. CHARGEABILITY OF WWF - TAX YEARS 2009 AND 2010 The appellant has contested disallowance of deduction of Workers' Welfare Fund (WWF) for tax year 2009. It also contested charge of WWF in the light of judgment of honourable Lahore High Court, Lahore in E.P.C.T (Pvt.) Ltd. v. Federation of Pakistan 2011 PTD 2643. The learned AR submitted that in the light of said judgment of honourable Lahore High Court, this Tribunal in its decision in I.T.A. No.625/IB/2010 dated 16-3-2012 deleted the charge in the case of another bank. The DR argued that issue does not arise from order as the taxpayer itself has paid WWF in accordance with amendment made by Finance Act, 2008. He further argued that bank for tax year 2009 claimed deduction of WWF on provisional basis whereas it should have been added back this provision and then calculate WWF deduction on actual basis. The AR mentioned that the said amendment was declared unconstitutional by the honourable Lahore High Court and judgment in E.P.C.T (Pvt.) Ltd. v. Federation of Pakistan 2011 PTD 2643 is now judgment in rem and binding on all forums under Article 201 of the Constitution, subject to final adjudication, if any, by the Supreme Court. We have examined these judgments. Honourable Lahore High Court has declared amendment made in Workers' Welfare Fund Ordinance, 1970 by Finance Act, 2006 and 2008 unconstitutional in E.P.C.T (Pvt.) Ltd. v. Federation of Pakistan 2011 PTD 2643. This is now judgment in rem and binding on all forums under Article 201 of the Constitution as held by this Tribunal in I.T.A. No.625/IB/2010 dated 16-3-2012 as under:-- "we have examined the judgment of the honourable Lahore High Court in E.P.C.T (Pvt.) Ltd. v. Federation of Pakistan reported as 2011 PTD 2643 which squarely applies to the present case. We agree with the AR that this judgment is no longer in persona but in rem and applicable to all persons similarly place and during the pendency of appeal we have to consider it as held by honourable Supreme Court of Pakistan in 1995 SCMR 387 at page 411 as under: "All persons, placed in a similar situation, affected by any law, statutory rule, regulation, notification or policy are to be treated even handedly and in the like manner. It is regrettably noted that public functionaries, invariably derive and force every person affected by law, statutory rules etc. to approach the Court of law to obtain similar relief rather than extending similar relief by itself on the basis of principle of law that has been earlier set at rest, which conduct is neither desirable nor could be approved as it negates, even handed dispensation of justice and meting out equal treatment as mandated per Articles 25 and 10-A of the Constitution of Pakistan, 1973". Following the judgment of Lahore High Court (supra) and dictum laid down by the honourable Supreme Court cited above, the levy of WWF is ordered to be deleted with the observation that Department can levy it if the judgment cited above is reversed by the larger bench of the High Court in intra court appeal or by the Supreme Court of Pakistan, as the case may be." By following above judgments, we order deletion of the charge of WWF for both the years as order of the honourable Lahore High Court in E.P.C.T. (Pvt.) Ltd. v. Federation of Pakistan 2011 PTD 2643 is binding on use under Article 201 of the Constitution. As regards ground of the bank regarding disallowance of deduction, the same is not adjudicated as the charge of WWF itself has been deleted. HBT/74/Tax(Trib.) Order accordingl