2004 PLP (Trib (PTD)

Add: WWF 940,515 Total 17,966,320 Less: Paid under section 50 13,787,387 Under section 54 845,679 14,633,066 Less: Refunds issued 1,400,894 Ref. Adjusted under 10,272,961 4,360,105 section 53 8,872,067 Balance Tax payable 13,606.215

6. We have heard the learned representatives of the two parties. During the course of arguments, the learned A.R. furnished complete description of profit before taxation, taxation, profit after taxation, and dividend at the rate of 5 % per share. The details thereof, are hereunder: Description As per printed account As per return Profit before taxation 48,658,000. 4,30,67,624 Taxation 1,55,76,000 1,57,36,163 Profit after taxation 3,30,82,000 2,73,31,461 Dividend @ Rs.5 per share (1999 Rs. 2.50) 1,54,7,000 154,17,000 Percentage 46.60% 56.40% Note: Tax deductions under section 50 Rs.1,47,21.679

1. Tax paid under section 54 alongwith return Rs.8,45,679

2. Tax charged on assessment under section 62 due to brought forward loss. Rs.34,19,590.

7. The learned A.R. argued that the learned IAC has erred in imposing tax under section 12(9A) of the Income Tax Ordinance, 1979 working out tax at 10 % on amount of reserves exceeding 50 % of paid-up capital i.e. Rs. 129,583,000 under the provisions of section 12(9A) of the Income Tax Ordinance, 1979 which is to be worked out on the basis of annual printed account of the company and not as per the assessment order of the relevant period. He urged that the meaning of the term, "after tax profit" for the purpose of clause (59) of Part IV of the Second Schedule to the Income Tax Ordinance, 1979 has been discussed in detail in C.B.R. letter, dated 8-6-2001 and letter/directive, dated 16-6-2001 that for the purpose of tax under section 12(9A), 40% after tax deposits are to be computed on the basis of assessee's declared final account and not on the basis of assessed profit. The- details thereof are hereunder:-- "Government of Pakistan Ministry of Finance, Economic Affairs, Statistics and Revenue Division, (Revenue Division) No. F. 12(9A) ITP. 99 Islamabad June 8, 2001 Messrs .M. Yousuf Adil Saleem & Co., Chartered Accounts. 1st Floor, Rasheed Plaza, 24-D Blue Area, Islamabad. SUBJECT: CLAUSE (59) OF PART IV OF SECOND SCHEDULE TO THE INCOME TAX ORDINANCE, 1979 DEFINITION OF "AFTER TAX PROFITS" Please refer to your Letter No.557 of 2001, dated May 29, 2001 on the above subject. The Board has issued necessary instructions clarifying that for the purposes of tax under section 12(9A) 40% after tax deposits are to be computed on the basis of assessee's declared final accounts and not on the basis of assessed profits. (Sd.) (Abdul Hamid) Secretary (IT Policy) Tel: 9203993 "Government of Pakistan Ministry of Finance, Economic Affairs, Statistics and Revenue Division, (Revenue Division) No. F. 12(9A) ITP. 99 Islamabad June 16, 2001 To. Regional Commissioners of Income Tax Corporate/ Southern Central Eastern Northern Regions, Karachi/ Multan/Lahore/ Islamabad. The undersigned is directed to draw your attention to clarification bearing even number, dated June 8,2001 and to that it has beets brought to the Board's notice that the said clarification is being misinterpreted by some assessee's with a view to obtain an unfair advantage. As the said clarification was obtained without disclosing the actual facts of .the case, the matter has been reconsidered and it is clarified that Board's clarification under reference, did not allow, in any way, any reduction on profits through charging inadmissible expenses provisioning.

2. It is further clarified that the expression `after tax profit' as used in clause (59) of Part-IV of Second, Schedule to the Income Tax Ordinance, 1979 refers to profits computed in accordance with the generally accepted and understood accounting audit principles and standards and the Income Tax Ordinance. The instructions referred to above, also do not permit or endorse any scheme or arrangement or presentation or declaration intended to manipulate profit which ought to be declared under the Income Tax Ordinance either by deduction expenses or making provision of deductions inadmissible under the said Ordinance, either by deducting expenses or making provision for deduction inadmissible under the said Ordinance. The ultimate purpose of which is to avoid company's obligations under section 12(9A). The above clarification may please be brought to the notice-of all concerned. (Sd.) (Abdul Hamid) Secretary (IT Policy) Tel: 9203993"

8. The learned counsel for the assessee also relied upon an unreported judgment passed in I.T.As. Nos. 2256 and 223/KB, wherein it is clarified that the expression "after-tax profits" as used in clause (59) of Part IV of the Second Schedule to the Income Tax Ordinance, 1979 refers to profits computed in accordance with the generally accepted and understood accounting of audit principles and standards.

9. In the circumstances supra, and in view of the order already passed by the learned Bench in the above referred cases and clarification issued by the Ministry of Finance. Economics Affairs, and circulation of direction by the learned RCIT, there remains no other course except to maintain the position that/for the purpose of section 12(9A), 40% of "after-tax profits" are to be computed on-the basis of assessee's after tax profit as declared in its final accounts and not on the basis of its assessed profits as the term after tax profits refers to profits computed, in accordance with the generally accepted and understood accounting audit principles and standards of Income Tax Ordinance, 1979.

10. We, therefore, find that the learned IAC has jurisdiction to examine and verify the genuineness of the assessment order to arrive at "after tax profits" of assessee, however, order under section 66A imposing tax under section 12(9A) of the Income Tax Ordinance, 1979 on the basis of assessment order of the relevant period, is apparently unjustified and contrary to the findings recorded above. In the circumstances supra, the learned IAC is directed to compute the after tax profits in accordance with the generally accepted and understood accounting, audit principles and standards of Income Tax Ordinance, after verifying the genuineness of the various deductions claimed by the assessee to arrive at its "after tax profits".

11. The remaining issues are outcome of main issue discussed and decided above, besides remedy is also available in this context by way of rectification, hence the appeal in respect of remaining issues, charging surcharge on increased tax demand, and not allowing tax credit for tax paid, stands dismissed being infructuous. C.M.A./1009/Tax (Trib.) Order accordingly