1989 PLP (Trib (PTD)

Except for ground No.2 all other grounds have already been discussed and disposed of in the order for earlier years and we adopt same here also. Ground No.2 is in respect of tax deducted at source. It was stated before, the assessing officer that the entire amount of Rs.157,19,043 was deducted by the State Bank of Pakistan from the interest income earned by the Corporation on its investment in Government securities. It was further argued that section 50 (8) (a) of the Income-Tax Ordinance,. 1979, is not applicable in the case of Life Insurance business. This amount cannot be deemed as income. The learned C I T- (A) in appeal, relied on Tribunal's judgment recorded in I T A. No. 1181/KB of 1972-73 and I T A No.1180/KB of 1972-73 and I T A No.121 of 1972-73 in which, reversing their earlier order, the Tribunal held that even in the case of Life Insurance business deduction of tax at source from interest and securities and dividend income has to be treated as part of the surplus and confirmed the addition made by the assessing officer. The learned D.R. supporting the findings of the two officers below, stated if the amount of income tax deducted at source did not belong to the assessee, how could they be allowed benefit of the same against the demand created on assessment. The learned counsel, however, argued that section 10 (7) ousts the provisions of section 18 (4). Section 10 (7) reads as under: "notwithstanding anything to the contrary contained in section 8,9,10.12 or 18, the profits and gains of any business of insurance and the tax payable thereon shall be computed in accordance with the rules contained in the 1st Schedule of this Act." After the amendment in Rules 1 & 2 of the 1st Schedule, argued the D.R., the profits and gains of life insurance business of an assessee "from whatever source derived" shall be chargeable as income from business and, therefore, provisions of section 18 (4) of the repealed Act are not ousted by section 10 (7) as claimed by the learned A.R.

18. We have heard the learned representatives. We however fully subscribe to the views of this Tribunal contained in its decision quoted above.

19. We, therefore, uphold the findings of the learned C I T (A). 1981-82 & 1982-83:

20. For the above two years except for the add backs on account of excess, perquisites under section 24 (1) at Rs.33,70,150 for 1981-82 and 1982-83 and the ground that the learned C I T (A) erred in holding the action of the I T 0 in allowing relief at 97 1/2% of the surplus under rule 3 (a) of the Fourth Schedule to the Income-tax Ordinance, 1979, before the add .backs whereas it should be allowed including the add backs all other grounds taken are similar to those already discussed in the preceding paragraphs. They are, therefore, disposed of accordingly.

21. Now coming to the ground of "excess perquisites" it is stated that by the amendment brought about by Finance Ordinance 1980 perquisites under section J 24 (i) were allowable to the extent of 50% of the salary. The relevant provision reads as under: "any expenditure incurred by an assessee on the provision of perquisites (allowance or other benefit) to any employee in excess of (50%) of his salary excluding perquisites (allowances or other benefits)." The word "50" has been substituted for "30". The learned counsel argued that the appellant had worked out the excess perquisite at 30% whereas it was admissible upto 50% which ought to have been allowed by the assessing officer. The learned D.R. conceded and we find merit in the contention of the learned counsel. The addition is, therefore, set aside with direction that it should be done according to the provisions of law obtaining during the relevant years.

22. As regards allowing relief under rule 3 (a) of the Fourth Schedule the learned counsel stated that actuarial valuation includes add backs but the I T O allowed 97-1/2 % relief before the add backs. Rule 3 (a) of the Fourth Schedule says: "3 (a) in keeping the surplus for purposes of rule 2: the amount paid to or reserve for, or expended on behalf of policy holder shall be allowed as a deduction: Provided that in the first, such computation made under this rule, of any such surplus, no account shall be taken of any such amount to the extent to which they are paid out or in respect of any of the surplus brought' forward from the previous inter valuation period:" From the, computation of income as appearing in the assessment order we find that this has been done strictly according to the provisions of rule 3 (a) of the Fourth Schedule. It was also held by the learned C I T (A) that "when the I T O did not accept actuarial valuation as the surplus for working out the total income he could not go back to the actuarial valuation surplus for allowing the said relief." It was further observed that the addition under different heads were made on their own merit and do not in any way nullify the position of calculation of surplus. The ground taken is found to be devoid of merit and is, therefore, rejected.

23. The next ground taken for 1981-82 is in respect of charging additional tax under section 18 (8). Since we have already upheld the action of the I T O, no relief is called for. This ground too is, therefore rejected. 1983-84 & 1984-85

24. Grounds taken for these two years are in respect of .the following add backs: (1) Staff gratuity Rs.64,82,878. (2) Tax deducted at source Rs.70,14,830 (3) Excess perquisite Rs.47,50,397 (4) Tax on dividend income for 1983-84 Rs.662,60,489 for 1984-85 Rs.754,50,819 allowing relief under section 3-A of the Fourth Schedule and addition of Rs.127,173 under section 25 (c) is 1983-84 and 1984-85 are also agitated. Except for the last ground we have already given our findings in respect of other grounds while disposing of the appeal for the earlier years. Directions contained therein should be followed for these years also.

25. It is argued by the learned counsel that section 25-C does not apply to insurance company as it is not the section incorporated in the schedule. The learned counsel relied on decision given in the case of Alpha Insurance Co. P L D 1981 SC 293 which lays down that rules contained in the First Schedule govern computation of profits and gains of insurance business to the exclusion of every other provision not expressly incorporated.

26. Rule 2 of the Fourth Schedule to the Income Tax Ordinance, 1979 reads as under: (2) Computation of profits and gains of life insurance business: The profits and gains of life insurance business shall be taken to be the annual average of the surplus arrived at by adjusting the surplus or deficit disclosed by the actuarial valuation made for the last inter-valuation period ending before the year for which assessment is to be made, so as to exclude from it any surplus or deficit included therein which was made in any earlier inter valuation period and any expenditure other than expenditure which may, under the provisions of Section 23 of this Ordinance, be allowed for computing the profits and gains of a business:' The above rule lays down what expenses are to be allowed for computing the profits.. It also says that expenditure as provided under the provisions of section 23 of the Ordinance may be allowed for computing the profit.

27. Trading liability not paid within three years is not an admissible deduction under section 23 for the computation of appellant's income under the 1st Schedule. As regards argument of the learned counsel that section 25 (c) is not applicable, as the income from instance business is to be computed, notwithstanding 25 (C) of the Income Tax Ordinance, under the provision of the Fourth Schedule to the Ordinance, let as examine rule 3 of the Fourth Schedule which reads as under: "

3. In computing. the, surplus fur purposes of rule 2,-- (a) the amounts paid to, or reserved for, or expended on behalf of, policy holders shall be allowed as a deduction: Provided that in the first computation made under this rule of any such surplus, no account shall be taken of any such amounts to the extent to which they are paid out, or in respect, of any surplus brought forward from a previous inter valuation period: Provided further that if any amount so reserved for policy-holders ceases to be so reserved, and is not paid to, or expended on behalf of, policy holders, the sums previously allowed as a deduction under this Ordinance or under the repealed Act shall he treated as part of the surplus for the period in which the said amount ceased to be so reserved; (b) any amount either written off or reserved in the accounts or through the actuarial valuation balance-sheet to meet ,depreciation, or loss on the realisation, of investments, shall be allowed-as a deduction, and any sums taken credit for in the accounts or actuarial valuation balance-sheet on account of appreciation or gains on the realisation, of investments shall be included in the surplus: Provided that if it appears to the Income-Tax Officer after consultation with the Controller of Insurance that the rate of interest or other factors employed in determining the liability in respect of outstanding policies is inconsistent with the valuation of investments so as artificially to reduce the surplus, he may make such adjustment to the allowance for depreciation, or in respect of appreciation, of such investment as he thinks reasonable;" Sub-rule (a) above clearly lays down that "if any amount so reserved fol policy-holders ceases to be so reserved, and is not paid to, or expended on behalf of, policy-holders the sums previously allowed as a deduction under this Ordinance or under the repealed Act shall be treated as part of the surplus for, the period in which the said amount to be so reserved." Then in sub-rule (b) it specifies the nature of reserves in respect of . (a) any amount, written off or reserved in the balance sheet to meet depreciation; and (b) loss on the realisation of investments.

28. It further goes on to say that if the I T O after consulting the Controller of Insurance finds that the rate of interest or other factors employed in determining the liability in respect of outstanding policies is inconsistent with the i valuation of investments so as artificially to reduce the surplus, he may make adjustments in respect of allowance for depreciation or appreciation for investments.

29. No other situation has been visualised. Even section 40-C of the Insurance Act provides limitation of expenses on management in general insurance business. It reads as under: . "40.C. (1) No insurer shall, in respect of any class of general insurance business transacted by him in Pakistan, spend in any calendar year as expenses of management including commission of remuneration for procuring business, an amount in excess of the prescribed limits and in prescribing any such limits regard shall be had to the size and age of the insurer." "Expenses of management" is explained to include charges wherever incurred whether directly or indirectly, including commission payment of all kinds and, proper share of head office expenses". The assessing officer in his order had added an amount of Rs.127,173 under section 25 (C) of the Income-Tax Ordinance, 1979, and the learned CIT (A) confirmed the addition by saying that the addition was correctly made out of expenses outstanding for more than three years. The learned D.R. however, supported the two officers below and relied on I T A No. 256/KB of 1962-63 dated 28-7-1972 (The Premier Insurance Co of Pakistan Limited)

30. In the case cited above the learned A.R. had taken the same plea that the provision of section 25 (C), then 10 (2A) are themselves not applicable as the income from Insurance business is to be computed, notwithstanding section 10 of the Income-Tax Act under the provisions of the First Schedule to the Income-Tax Act. In his opinion Rule 6 clearly ousted the application of section 10 except to a very limited extent and consequently the I T O had no jurisdiction to assess this income under the provision of section 10 (2-A).

31. The Tribunal had however, vacated the' orders of the assessing officer without expressing its opinion on its legal proposition.

32. Thus both from the Schedule as well as the Insurance Act it is not established that provisions of section 25 (C) are ousted by the Fourth Schedule to the Ordinance. As a result we hold that the assessing officer had rightly made the addition of Rs.127,173 under section 25 (C) of the Ordinance. Departmental Appeals 1974-75

33. Deletions of addition made by the I T O under heads provision for taxation and tax deducted at source are contested by the learned D.R., Mr. Dawood. The I T O had added provision for taxation at Rs.45,00,

000. The learned C I T (A) in his impugned order, without discussing the facts in detail deleted the above amount. Similarly tax deducted at source amounting to Rs.91.62.984 was added by the I T O and the same was deleted by the learned C I T (A) relying on Tribunal's decision bearing Nos. I T A 777 & 778/KB of 1975-76 dated 10-1-1978. In view of our discussion on this issue in the earlier paragraphs. we dispose of this ground relying on the judgment of the Tribunal I T A No.1180 and 1181/KB of 1972-73 dated 31-7-1980.

34. As regards provision for taxation the learned D.R stated that although reliance has been placed on P L D 1982-Kar. 684 (New Jubilee insurance Co. v, C I T) and I T C No.321 of 1974 dated 30-8-1982, the decision given by the Hon'ble High Court, with utmost respect, were not on the basis .of correct appreciation of facts. Giving elaborate meaning of the word 'expenditure' from the Chambers' Twentieth Century Dictionary and the Concise Oxford Dictionary, the learned D.R. argued that expenditure is one which is irretrievably gone and provision for reserve cannot be termed as expenditure as laid down in section 10 and 24 of the Income-Tax Act. Tax paid is an amount spent irretrievably. It is, therefore, an expenditure not allowable either under the Act or the Income-Tax Ordinance, 1979. He argued that a provision for tax cannot be allowed as business expenditure. Our attention was also drawn to section 3 (b) of the Fourth Schedule. It reads as under: (b) any amount either written off or reserved in the accounts or through the actuarial valuation, balance-sheet to meet depreciation, or loss on the realisation of investment shall be allowed as deduction, and any sums taken credit for in the accounts or actuarial valuation balance sheet on account of appreciation or gains on the realisation of investment shall be included in the surplus." There is thus provision for creating two reserves only; namely, reserve for depreciation and reserve for loss on the realisation of investment. There is no room for any other provision.

35. The amount written off or reserved in the accounts for depreciation, or loss on sale of securities and other assets is to be allowed as deduction. This is a mandatory provision. The option is of the assessee either to write off or to carry it to reserve. The reserve created must be equivalent to the amount of depreciation or loss but not more. This is a peculiar provision of law. Ordinarily, in computing business profit for tax purposes, sums placed in reserve are not permissible deductions. It may be justified on the ground that a life insurance company is bound by law to invest a certain portion of its life fund in a specified securities, whereas in other business no such restriction prevails.

36. Mr. Muktada Karim, the learned counsel conceded that provision is a charge on the profit and he invited our attention to rule 2 of the Fourth Schedule of the Ordinance, 1979: "

2. Computation of profits and gains of life insurance business: The profits and gains of life insurance business shall be taken to be the annual average of the surplus arrived at by adjusting the surplus or deficit disclosed by the actuarial valuation made for the last inter valuation period ending before the year for which the assessment is to be made, so as to exclude from it any surplus or deficit included therein which was made in any earlier inter-valuation period and any expenditure other than expenditure which may, under the provisions of section 23 of this Ordinance, be allowed for computing the profits and gains of a business:" The above clause clearly brings out the point of view held by the department so as to exclude from it any surplus or deficit included therein which was made in any earlier inter-valuation period and any expenditure other than expenditure which may, under the provisions of section 23 of the Ordinance, be allowed for computing the profit and gains of a business. Thus alongwith the surplus or deficit, expenditure not allowable is also to be excluded while computing the profits or gains of a life insurance business. We therefore, do find ourselves in agreement. with the argument of the learned D.R. that such expenditure should not be allowed irrespective of its nature.

37. Before commenting on the various Court decisions in respect of the treatment given to 'provisions' or `reserves', it seems worthwhile to examine these two words from Accountancy point of view. `Reserve' is chargeable to Appropriation account. A portion of profit in a particular year may be transferred to a reserve designed to meet any unforeseen contingency in future, such as, trading losses or financial stringency to be utilised for expansion of business. It means amounts set aside out of profits (as ascertained by the profit and loss accounts) or other surpluses which are not meant to cover any liability, contingency, commitment, or depreciation in the value of assets. Reserve or Reserve Funds mean, therefore, amounts which belong to the proprietors over T and above capital contributed by them. The amount to be transferred to a Reserve or Reserve Funds, is debited to Profit and Loss Appropriation Account. Examples of Reserves are, General Reserve; Capital Reserve, Dividend Equalisation Reserve, Contingency Reserve etc. The purpose of all these reserves is to enable the firm /Co. to tide over a difficult financial period and to meet any particular contingency. Reserves are shown on the liability side of a balance sheet. This is so because reserves belong to the proprietors just as capital does. This sum is owed by the business to the proprietors. Hence it is proper to show it as a liability.

38. Provision means amounts set aside as a charge against profits or other surpluses to meet (a) depreciation, renewals or diminution in the value of assets, such as, investments; and (b) any known liability the amount of which cannot be ascertained yet. If the amount of any liability is known, a definite liability should be created e.g. liability or outstanding interest. Examples of provisions are Provision for bad and doubtful debts, provision for repairs and renewals, etc. Provisions are generally created by debiting Profit and Loss Account. Provision for bad debt and doubtful debts: Suppose a person owes Rs.500 and is doubtful regarding his ability or intention to pay but also does not want to write it off yet. Next year the amount actually turns out to be bad or has to be written off. Is the loss next year's or this year's ? Obviously this year's. Loss on this year's debtors is this year's loss even if the actual writing off is done next year. One should provide for the loss this year. Not knowing the actual amount that will have .to be written off next year, one can only make a guess and fix an arbitrary figure. This year's profits are reduced by this figure and the amount is treated as a provision. Any amount that may have to be written off next year will be met out of the provision thus created.

39. The provision for Bad and Doubtful Debts will appear in the balance sheet. Next year, the actual amount of bad debts will be debited not to the Profit and Loss Account but to the provision for Bad and Doubtful Debts Account which will then stand reduced. The provision can be brought up to the required amount by again debiting the P & L Account and crediting the provision for Bad and Doubtful Debt Accounts. Similarly, the purpose of Provision for Repairs and Renewal is to provide for a uniform charge to Profit and Loss Account in respect of machinery. This is desirable because the usefulness of the machinery is also uniform from year to year. The method is to estimate total Repairs over the life of the asset and then find out the average. This amount is debited every year to the Profit and Loss Account and credited to Provision for Repairs and Renewal Account. Actual amount spent on Repairs and renewals is debited to the provision for repairs and Renewals Account: the balance of the account appears in the Balance Sheet. Over the life of the asset, the account will tend to balance itself out. '

40. It would thus appear that provision are treated as realised losses thus reducing amounts available for distribution as dividends. The basic principle is that all items of a revenue or expense nature should be included in the Profit and Loss Account unless this conflicts with legislation or standard accounting practice.

41. In the case cited above I T C 321 of 1974; their Lordships observed: "In our view, provision for taxation or taxation reserve cannot be equaled with "expenditure" which is something which has already been incurred or something which has already been paid out and which has gone irretrievably. In essence provision for taxation or taxation reserve remains a reserve and not an expenditure." It may be seen that their Lordships have used alternatively the word i provision for taxation with the "taxation reserve". Throughout the judgment the word provision for taxation has been used alternatively with the word `taxation reserve'. But as explained in -the preceding paragraphs they are different, concepts: one is a definite charge on the Profit and Loss Account which has the effect of reducing the net profit while the other, a `reserve', is not a charge and, therefore not an item of expenditure. 42. "Reserve' and `Provision' are two different terms of accountancy. Former, is charged to Appropriation Account which does not have the effect of reducing the net profit; but it does effect the amount which ultimately goes to the shareholders in the shape of dividend. Examples of `Reserves' are: Dividend Equalisation Fund, General Reserve, Capital Reserve etc. The entire profit (after tax) is not distributed but a part is kept for meeting contingencies when there is no dividend to declare of there is less to declare.

43. Provision is chargeable to Profit and Loss Account and thus it has the effect of reducing the tax liability. In other words it is claimed as any other expenditure such as, salary, rent, conveyance etc. the expenditure termed as provision cannot be allowed as deduction under, the Income-Tax Ordinance, unless it is spent, irretrievably gone: or at least it is ascertainable and a determined liability to be allowed as held in a number of cases by the Tribunal. Seen in this light any provision for expenses to meet contingent liability is not an allowable expenditure. Viewed from this angle observations of their Lordships in the case of C I T v. New Jubilee Insurance Corporation Ltd. is correct that taxation reserve cannot be equated with expenditure which is something which has already been incurred. Reserve is not expenditure. But provision is, if it is charged to the Profit and Loss Account as allowable expenditure. A similar view was expressed by their Lordships of the Supreme Court of India in Indian Molases Co. (Pvt.) Ltd. v. The C I T, West Bengal A I R 1959 S.C. 1049 Dated 5-5-1959. "Side by side with these principles, there are others which are also fundamental. The Income-Tax Law does not allow as expenses all the deductions a prudent trader would make in computing his profits. The money may be expended on grounds of commercial expediency but not of necessity. The test of necessity is whether the intention was to earn trading receipts or to avoid future recurring payments of a revenue character. Expenditure in this sense is equal to disbursement which, to use a homely phrase, means something which comes out of the trader's pocket. Thus, in finding out what profits there be, the normal accountancy practice may be to allow as expense any sum in respect of liabilities which have accrued over the accounting period and to deduct such sums from profits. But Income-Tax laws do not take every such allowance as legitimate for purposes of tax. A distinction is made between an actual liability in praesenti' and a liability' do futuro which, for the time being, is only contingent. The former is deductible but not the latter, what a prudent trader sets apart to meet a liability not actually present but only contingent cannot bear the character of expense till the liability becomes real: "To be a payment which is made irrevocably there should be no possibility of the money forming, once again, a part of the funds of the assessee Company. If this condition be not fulfilled and there is a possibility of there being a resulting trust in favour of the Company, then the money has not been spent, i.e. paid out or away but the amount must be treated as set apart to meet a contingency. There is a distinction between a contingent liability and a payment depending upon a contingency. The question to be considered by the Court is whether in the years of account, one can describe the assessee Company's liability as contingent or merely depending upon a contingency. Expenditure which is deductible for income-tax purposes is one which is towards a liability actually existing at the time, but the putting aside of money which may become expenditure on the happening of an event is not expenditure." "(29) To be an allowance within cl. (xv), the money paid out or away must be (a) paid out wholly and exclusively for the purpose of the business and further (b) must not be (i) capital expenditure, (ii) personal expense or.(iii) an allowance of the character described in cis. (i) to (xiv). But whatever the character of the expenditure, it must be a paying out or away, and we are not concerned with the other qualifying aspects of such expenditure stated in the clause either affirmatively or negatively."

44. The contention of the learned D.R. that since the amount for taxation reserve was not actually spent, it was wrongly charged to the Profit and Loss Account. Since Income-Tax is not an allowable expenditure it cannot be claimed in the Profit and Loss Account. Thus, in view of discussion made above the contention of the learned D.R. apparently carries much weight and requires further consideration. However, since the Hon'ble High Court of Sind at Karachi, in the case cited as I T C. 321 of 1974 dt. 30-8-1982 has already given decision that taxation reserve is an allowable expenditure, we arc left with no alternative but to follow it. The departmental appeal therefore, stands rejected on this issue.

45. As regards tax deducted at source the learned D.R. relied on I.T. A, No.1180/KB of 1972-73 dated 31-7-1980. The above case was decided in favour of the department and it was held therein that tax deducted at source cannot be claimed as deduction. It is argued that the assessee first deducted the tax from the gross receipts and the net is offered for taxation; and secondly clamed credit for the tax deducted. This amounts to double relief. He invited our attention to section 50 (8) of the Income-Tax Ordinance, that; "any sum deducted or collected or purported to be deducted or collected under this section shall be; (a) deemed in case of, to which subsections (1), (2) and (3) apply to be the income received by the assessee; (b) treated it as payment of tax on behalf of the assessee: and (c) paid within the prescribed time and in the prescribed manner to the person making deduction or collection to, the credit of the Federal Government." The learned A.R. explained that it is correct that the net amount is taken of for computing the income and also claim the tax credit. This is done under law to get double benefit as per section 18 (4) and (5) of the Income-Tax Ordinance, 1979. Section 26 (a) of the Income-Tax Ordinance, 1979, which says: "the profits and gains to any business of insurance and the tax payable thereon shall be computed in accordance with the rules contained in the Fourth Schedule:"

46. Mr. Dawood, the learned D.R., pointed out that the rules in the Fourth schedule speak only about the calculation of tax and computation of income; they do not affect the machinery section. We agree with the interpretation of the learned D.R. and uphold the addition made by the Income-Tax Officer. 1975-76 to 1978-79 The following deletions made by the learned Commissioner of Income-tax (Appeals) are contested (i)Additions made from provision for doubtful debts. (ii) Additions made from the head provision for income-tax. (iii) Addition made from the head tax deducted at source; and (iv) Addition made from the head provision for depreciation on investment. It is argued that additions made from the head, provision for doubtful debts were deleted by the learned C I T (A) on the basis of "judicial decisions" in this regard. The assessing officer were making addition observed that these "are not the actual expenses but created for making further liabilities and as such not covered under section 10 as allowable expenditure. Rule 2 of the First Schedule to the Act lays down that profits and gain of Life Insurance business other than pension and annuity business have to be computed after adjusting such balance so as to exclude from it any expenditure other than the expenditure which may under the provisions of section 10 of this Act be allowed for computing profits and gains of the business."

47. In view of our discussion already given supra under the head provision for taxation, we uphold the addition made by the I T O.

48. As regards provision for depreciation on investment the learned D.R. stated that this is an expenditure and rightly added by the I T O for reasons recorded therein. However, we find that this is an allowable expenditure under Rule 3 (b) of the Fourth Schedule of the Ordinance. C I T's finding on this issue is upheld.

49. As regards No. (ii) & (iii) we have already given our findings in the preceding paragraphs. 1979-80 to 1982-83 . For these years the only ground is in respect of surcharge which has been disposed of in earlier years. 1974-75 Appeal under section 35(156 of the Income-Tax Act/ Ordinance

50. The learned counsel argued that the appellant is a statutory corporation and 1974-75 is the first year of assessment. Provisional return was filed disclosing income of Rs.1,39,75,000 but subsequently a revised return was filed disclosing nil income as the income of the corporation was considered exempt from tax, on the basis of judgment of the Supreme Court of Pakistan in the case of S.I.T.E. Karachi. The relevant. passage reads as under: "But as stated earlier the facts found by the High Court and its conclusions on the questions raised by learned counsel are unexceptionable. The respondent Company was carrying on the function of Industrial Development and the trade and business connected therewith for and on behalf of the Government. The truth is that the lifting of veil has revealed that for the relevant purposes in this case it was doing so just like a department of the Government, notwithstanding the incorporation, which as explained earlier will not make any difference regarding the relevant Constitutional Provisions on exemption from Federal Taxation. Page 58 B. Secondly there was no inter valuation for the period ending 31-12-1973. There could be no assessment according to the 1st Schedule of the Act. These two points, it is stated, were raised before the learned C I T (A) who failed to give any finding on these issues.

51. We have examined the grounds of appeal filed by the learned counsel ,and have also gone through the orders of the learned C I T (A) dated 6-5-1987, wherein she has clearly stated: "The scrutiny of record shows that the written arguments were filed twice in this case; once by Mr. Mohammad Farid, Assistant General Manager, Corporate claim and taxes vide his letter dated 13-02-1979 and subsequently by Mr. Nasim Ahmed Khan on the date of hearing consisting of six pages on the letter head of M/s. M.T. Siddiqui & Nasim Ahmed Khan covering the assessment years 1974-75 to 1980-81, similarly written arguments were also filed by Mr. Nasim Alibied Khan in the appeals for the assessment years 1975-76 to 1978-79 under section

156. In none of these arguments even a single word has been mentioned as arguments for the two grounds of appeal. It therefore clearly shows that in view of the clear legal position all government Corporations are liable to tax, Mr. Mohammad Farid, representative of the Appellant as well as your representative of the Appellant Mr. Nasim Ahmed Khan, have given up these grounds and did not press them as such. Consequently your representation to the effect that these two were not adjudicated upon is misconceived. As such there being no mistake apparent from record needing rectification under section 156 the question of invocation of section 156(3) does not arise. I may also inform you that the assessments involved were framed under the Old Act and there was no parallel provision under section 35 of the Old Act. Your contention, therefore, is incompetent in law also. This disposes of the entire correspondence resting with your letter dated April 21, 1987." On the basis of above as well as the fact that no affidavit to the effect that these grounds were taken before the earned C I T (A) has been filed, we reject the appeal for being without any merit: 1975-76 to 1978-79: under section 35/156

52. It is argued that the assessing officer wrongly pressed. section 35 into service to revision debatable issue or change of opinion arrived at after due deliberation. His action falls outside the purview of section 35/156 of the Income Tax Act Ordinance, 1979. The I T 0 was not competent to rectify them.

53. Mr. Dawood, the learned D.R. on the other hand argued that the I T O had not given any finding on the issue. He simply made calculations according to rule as the earlier calculations made in the assessment orders were wrong. This was a mistake apparent from the record which has rightly been corrected.

54. The learned C I T (A) was also of the view that the orders passed by the I T O for the assessment years 1975-76 to 1978-79 under section 35/156 of the income-Tax Act Ordinance were not based on change of opinion but due to mistake which was apparent from the records. Therefore, they were very rightly corrected by the assessing officer for all the four years under appeal. The original assessments were finalised allowing deduction on account of reserves for the benefit of policy holders on the bass of 97.5% of the sum arrived at after making the adjustment envisaged in rules 2 and 3 of the Schedule to the surplus as per actuarial valuation. Whereas 97.5% of the surplus as per actuarial valuation was to be calculated. Since this was a mistake apparent from the record he issued a notice on 14-5-1981 to the appellant. Since no satisfactory explanation was filed, the I T O rectified the mistake and added the additional amount for each year as under: 1975-76 & 1976-77 As originally assessed Rs.2,07,35,824 Amount added on revised calculation under section 156 of the Income-Tax Ordinance, Rs.2, 21,50,775 Revised total income: Rs.4,28,86,559 1977-78 & 1978-79 Rs.2,04,09 512 Added: Rs.1,09,93,333 Revised income: Rs.3,14,02,845 We find that the above calculation under section 35/156 of the Income Tax Act Ordinance, are in order and need no interference. The order of the C I T (A) is confirmed

55. All the appeals are disposed of to the extent and in the manner indicated above. M.BA./565/T Order accordingly.