1998 PLP (Trib (PTD)

0.47 1988-89 24,930,955 95,000 0.38 1989-90 27,201,954 100,000 0.37 1990-91 28,400,013 100,000 0.35 1991-92 28,407,973 250,000 0.88 Deleted by I.T.O. in Reassessment order 1992-93 26,908,104 1,457,000 5.42% reduced by C.I.T.(A) to 2.78% With the help of above chart, the learned A. R. has demonstrated that main reason for add back i.e. history or past treatment is misconceived because there was no add back in 1985-86 and 1991-92. In 1986-87, 1987-88, 1988-89, 1989-90 and 1990-91 the add back was at 0.51 % , 0.47 % , 0.38 % , 0.37 % and 0.35 % of the claim. Hence add back confirmed by the learned CIT (A) at 2.78% of the claim is arbitrary, excessive and unprecedented.

7. The learned A.R. has vehemently argued that; (1) assessee is one of the concerns of well known 'Atlas Group of Companies' of Karachi; (2) It is run entirely and exclusively by professional managers and not by majority shareholder directors and. that even the Chief Executive Officer of the Company. Mr. S. C. Subjally, a man of high integrity, is a professional insurer; (3) Because of professional management (a) there is strict financial discipline and expenditure of not a single paisa is disbursed without support of a proper voucher sanctioned by a competent officer of the company; (b) the accounts of the Company are subjected to rigorous internal as well as external audit by a firm of auditors of repute; (5) none of the majority shareholder directors reside at Lahore and they live at Karachi. Consequently they do not use cars, hence there is, whatsoever, no non-business or personal element expenditure on car maintenance, petrol, conveyance, telephone or entertainment. All the expenses claimed in the accounts have been incurred wholly, exclusively and necessarily for the purposes of the business of the company. Since assessee kept full particulars of the expenses in the vouchers, and the ITO did not detect or pinpoint a single instance of personal non business or unvouched expenses, he was not justified to make any add back. In this behalf Mr.Hashmey has placed reliance on (1964) 53 ITR 186; 1989 PTD (Trib.) 39; 1991 PLD (Trib.) 643; 1991 PTD (Trib.) 817; (5) Because of factors set out above assessee company achieved very high return on equity, by declaring net accounting profit of Rs.7,21 1 ,228 on a paid up capital of Rs.15,870,

000. Mr. Hashmey went on to argue further that in his capacity as the tax consultant of all the companies of the 'Atlas Group at Karachi, he can say that declared results are more or less being accepted by the Income Tax Department in the cases of all the Companies of the Group.

8. We have given active consideration to the above arguments of the A.R. and have also perused the record and vouchers. We directed the learned DR to examine the vouchers produced by the assessee at the time of hearing of this appeal. He could not identify any non-business on unvouched expenses. We find the declared income. to be fair and reasonable viz-a-viz the capital employed. Profit and loss A/c expenses have been claimed this year at Rs.26,908,104 as against claimed last year at Rs.28,407,973 when no add back was made. Insurance receipts have been declared this year at Rs.10,358,116 as against receipt declared last year at Rs.9,621,

555. Thus assessee enforced financial discipline and economy in expenditure. In a nutshell there is not one good reason to deviate from the established history of the case since last many years.

9. Next issue in appeal is the disallowance out of management expenses. Particulars of expenses claimed, add back made and reduction allowed by the learned CIT (A) are reproduced as follows: -- Description Claimed Add back by the ITO Add back % age of claim Reduction by CIT(A) %age Salary of Field Development 2,060,311 1,500,000 73% 500,000 24% Salary of H.O. & Br. Office. 9,311,028 2,500,000 27% 10,00,000 11% Gratuity to staff 250,059 174,813 70% 174,813 70% Total 11,621,398 4,174,813 1,674,813 The Assessing Officer made the add back on the plea that details and records of development officers and monthly production, business reports were not provided and social security, EOBI etc were not maintained and functions and duties performed were also not provided.

10. The learned CIT (A) upheld the rejection accounts but reduced the add backs from Rs.4,174,813 to Rs.1,674,813 because he found the add back excessive.

11. The learned A.R. has submitted before us a chart showing history of the declared receipts, management expenses claimed and allowed as follows:- Assessment year Declared Receipts Salaries H.O.Br. Office and Field Staff Remarks 1987-88 32,732,933 12,491,696 No add back 1988-89 36,734,034 14,891,392 -do - 1989-90 38,463,335 15,118,192 -do - 1990-91 40,691,414 15,187,192 -do - 1992-93 41,948,210 11,621,398 Add back of Rs. 4,174,813 1993-94 42,870.018

No add back 1994-95 48,919,983

do - 1995-96 35,159,165

do- Over and above the arguments recorded by us in Para 6 above, the additional arguments of the A.R. are (1) no add back has ever been made either in the past or in future years under this head; (2) claim of expenses is reduced as compared to last year despite increase in insurance receipts, therefore even if there was a minor technical fault, the claim ought to have been accepted; (3) there is no change in facts or law justifying departure from past.

12. We have carefully considered in the above arguments of the A.R. and we find considerable merit and force in them. The Assessing Officer has not brought any material on record to justify departure from past. It is also true that there is increase in the receipts and decrease in expenses. Disallowance has been made on conjectures, surmises, suspicion and other extraneous remarks. Remunerations of Field Development Staff is an integral part of the business of insurance which is highly competitive. Permanent and regular executives at head office and at branches of a company run by professional management cannot be rejected on flimsy grounds. Especially when the audited accounts of the company have been accepted by the Controller of Insurances. In a nutshell we find no justification or merit in the order of learned CIT (A) wherein he confirmed the add back of Rs.1,674,813.

13. After taking into consideration all the facts and circumstances of the case, add back in profit and loss A/c at Rs.100,000 in 1990-91, calls for no interference because it is in line with addition made for assessment years 1986-87, 1987-88, 1988-89 and 1989-90. Addition totalling at Rs. 7,47,00. in 1992-93 being excessive viz-a-viz history of the case is likewise reduced to Rs.100,

000. Addition at Rs.1,674,813 in 1992-93 in the management expenses being uncalled for is hereby deleted in toto.

14. Next ground of appeal is the rate of tax charged at 44 % on income from dividend. In the return of income, assessee paid fax at the rate of 5 % as laid down under Para A(2)(a) of Part-II of the First Schedule on income from dividend of listed public companies at Rs.3,476,

369. The Assessing Officer, however, charged tax at the standard rate of 44 % and the learned CIT (A) upheld the order of assessment. Karachi High Court in the case of Adamiee Insurance Company Limited v. ITO., reported in 1995 PTD 761 has already held that in the case of an insurance company entire income including income from dividend is liable to be assessed as a single unit by virtue of provisions contained in section 26 and Fourth Schedule of the Income Tax Ordinance, 1979. In respectful agreement with the judgment of the Honourable High Court, we uphold the order of authorities below and dismiss assessee's appeal on this issue.

15. Last ground of appeal pertains to the assessment of capital gain on sale of shares of listed public companies at Rs.3,052,762 which was claimed exempt under clause (116) part-I of the Second Schedule but was assessed on normal rate of tax as a part of the income from business of insurance. The learned CIT (A) confirmed the order of assessment. Since this issue has already been decided by the Supreme Court of Pakistan in the case of Central Insurance Company v. CIT reported in 1993 PTD 776 in favour of the revenue, therefore, assessee's appeal on this ground is hereby dismissed.

16. Now we take up the Departmental cross appeals for assessment years 1991-92 and 1992-93.

17. In 1991-92, Zakat deducted and paid into a Zakat Fund at Rs.301,907 was clime dash reduction against income from insurance. The Assessing Officer disallowed the claim on the plea that since assessment is made under Rule 8 of the Fourth' Schedule, therefore assessee is not entitled to the reduction. On assessee's appeal, the learned CIT (A) vide his first order for 1991-92 dated 29-8-1992, set aside the assessment with the remarks that this expense should be allowed after verifying the amount of the claim The Department has come in appeal against the said order. For reasons recorded in para. 4 above, Departmental appeal is hereby dismissed.

18. In 1992-93, the Assessing Officer curtailed a sum of Rs.4,000,000 out claim of salaries of field development, head office and branch office staff out of total claim of Rs.11,371,

419. The learned CIT (A) reduced the add back to Rs.1,500,

000. Likewise in the profit and loss account the Assessing Officer made disallowances under 9 heads totalling to Rs.1,457,

000. The learned CIT (A) reduced the add backs under 5 heads by Rs.710,

000. Department has come in appeals against this reduction in add back. For reasons recorded in aforegoing paragraphs where we have already deleted even the balance disallowance addition of Rs.1,500,000 in salaries and Rs.610,000 in profit and loss account expenses, consequently Departmental appeal is hereby dismissed on both the grounds.

19. As a result, the assessee's appeals for the four years succeed to the extent as indicated in above paragraphs and Departmental appeals are dismissed for both the years. C.M.S,/383/Trib. Order accordingly.