1968 PLP 570 (PTD)

In order to find out the taxable profits, we refer to subsec tion (17) of section 2 of the Act which reads as follows:‑ "Taxable profits" means the amount by which the profits during a chargeable accounting period exceed the abatement in respect of that period." It would be of advantage to refer to subsection (3) of section 2 of the Act at this stage. Subsection (3) defines business in the following terms:‑ "Business" includes any trade, commerce or any adventure in the nature of trade, commerce or manufacture, or any profes sion or vocation the profits of which are chargeable according to the provisions of section 10 of the Income‑tax Act, 1922 (XI of 1922); It will, therefore, be seen that subsection (3) of section 2 refers us to section 10(1) of the Income‑tax Act material part of which reads as follows: "(Subject to the provisions of this Act, the tax) shall be payable by an assessee under the head (Profits and gains of business, profession or vocation) in respect of the profits or gains of any (business, profession or vocation) carried on by him. " It is not necessary to go into detailed examination of provisions of section

10. Suffice it to say that it provides for computation of the profits and gains. Thereafter in subsection (2) of section 10 of the Income‑tax Act certain allowances are permitted. Rule 24 of the Income‑tax Rules which has been made applic able by Rule 4 of, the Business Profits Tax Rules is necessary to be considered in this connection of computation of profits and gains of a tea growing company. That Rule is as follows: "Income derived from the sale of tea grown and manufactured by the seller in Pakistan shall be computed as if it were income derived from business, and 40 percent. of such income shall be deemed to be income, profits and gains liable to tax:" It will, therefore, appear that the whole of the income dervied by sale of tea, grown and manufactured will not be computed as income but only 40% of such income will be deemed to be income. In other words, 60% of the said income will be excluded from the income computed in respect of a tea growing company. It will now be necessary to refer to liability to Rule 2‑A of Schedule II of the Business Profits Tax Act, is as follows: "Notwithstanding anything contained in rule 2, where only a part of the profits of a company is chargeable under the provi sions of this Act, its capital shall be the sum ascertained in accordance with the said rule diminished by an amount which bears to that sum the same proportion as the amount of its profits not so chargeable bears to its total profits." It will, therefore; appear that Rule 2 provides that where only a part of the profits of a company is chargeable under the, provi sions of this Act, its capital shall be the sum ascertained in accor dance with rule by which amount is diminished and that it will be to the same proportion as the amount of its profits which would not be chargeable as total profits. We have referred to rule 24 of the Income‑tax Rules and we have seen therein that the income liable to tax has been diminished by 60 percent. Rule 4, framed under section 24 of the Business Profits Tax Act is as follows: "Adaptation of Income‑tax Rules, 1922.‑Rules 8, 23, 24, 33, 34, 42, 43, and 44 of the Income‑tax Rules, 1922, shall apply subject to the modification that all references therein to `income‑tax' shall be construed as references to `Business Profits Tax'." This Rule 4, therefore, makes it clear that rule 24 of the Income-tax Rules; is deemed to be Rule 24 of the Business Profits Rules and it is applicable to this Act as well. It is accordingly found that wherever only part of a profit of such a company is chargeable, the capital so ascertained shall also be diminished proportionately and in the case before us; the Assessing Officer has given effect to rule 24, although he has not expressly stated so in allowing 40% of the total amount computed was, as already stated, Rs. 2,92,

522. The Income‑tax Officer in our opinion, has rightly done so. The Tribunal to which a direct appeal was preferred observed as follows :‑ "The appellant is a tea company. The Assessing Officer worked out capital abatement at Rs. 7,31,306 and allowed as deduction Rs. 2,92,522 i.e., 40 percent. of the gross abatement of Rs. 7,31,

306. The learned pleader contended that the law did not allow apportionment of deductible abatement on the basis of 40 percent. of Rs. 7,31,

306. In his opinion the gross amount of Rs. 7,31,306 should have been allowed' as abatement. We have looked into the provisions of section 2 (i) (a) of the Business Profits Tax Act and Adaptation of Rules and Rule 2(a) of Schedule 2 of the Business Profits Tax Act. Apportion ment, i.e. allowance of 40% of the gross abatement in the case of a tea company appears to us to be correct. The appellant's contention in this matter, therefore, fails." We are, therefore, of the opinion that the view of the provision of section 2(1)(a) of Business Profits Tax Act read with Rule 2‑A of Schedule II of the said Act and Rule 4 (Adaptation of the Income‑tax Rules, 1922) of the Business Profits Tax Act, the Tribunal was justified‑in rejecting the assessee's claim for abate ment computed according to Schedule II referred to above and we accordingly answer the question in the affirmative and leave the parties to bear their costs. A. H. KHAN, J. ‑I agree. S. Q. Reference answered in the affirmative.