1989 PTD (Trib) 254 (PLP)

2. The brief facts of the case are that the assessee/Respondent which is a Co-operative Society, filed its return for the assessment year 1984-85 wherein the amount of Rs.9,966 was shown as income from interest. The Respondent /assessee claimed exemption of the total amount. However, the ITO by his assessment order dated 24-11-1985 assessed the entire income. Being aggrieved-by aforesaid order the assessee/Respondent filed an appeal before the learned A. A C who set aside the order of the ITO and directed him to proceed do novo and to allow proportionate expenses to the appellant. The Income-Tax Department felt aggrieved by the aforesaid order and preferred this appeal.

3. I have heard the arguments of Mr. Yusuf Sharih, the learned D.R, appearing on behalf of the Department and Mr. Ramzan Dossa, C.A. the learned A.R. of the Respondent/assessee. I have also perused the material on record and the case law cited before me.

4. Mr. Yusuf Sharih, the learned DR. vehemently attacked the order of the learned A.A.C. and submitted that the Respondent which is a Cooperative Society was not primarily engaged in earning interest by making deposits in bank and its main function and business was the welfare of its members and, therefore, the Respondent would not be allowed to take benefit of the expenses or the monies which were expended or laid out by it on earning of income which was outside the primary function and duties of the Respondent/assessee. He further submitted that the Respondent, as a matter of fact, was not required to make any expenditure for the purpose of earning income from interest as it was already maintaining its office, establishment, staff and office equipment and nothing special was done by it nor any extra expenditure was incurred in earning income from interest and, therefore, the question of claiming deductions under section 31 (1) (b) of the Income-Tax. Ordinance did nit arise. He also relied upon the case reported as (1975) 101 I T R153 in support of his above contention

5. Mr. Ramzan Dossa, the learned A.R. appearing on behalf of Respondent submitted that the income of Respondent by way of interest .was taxed by the I.T.O. under section 30 of the Income-tax Ordinance, and section 31 of the Income-Tax Ordinance entitled the Respondent to claim deduction 'of certain sums/monies laid out or expended by Respondent in earning the said income, and that the order of the I.T.O. in refusing to grant the relief to the Respondent was not in accordance with the provisions of law and his order was rightly set aside by the learned A. A C in (he appeal filed before him. He further submitted that the arguments advanced by the learned D.R. were -not supported by any provision of law and that the case law-cited and relied upon by him was also not applicable to the facts of this case and the pint in issue in that ease, was absolutely different than the one faced by this Tribunal in the above appeal. He further submitted that as a matter of fact there is no controversy or dispute with regard to the- above point in issue inasmuch as this Tribunal in several decisions has held that all expenditure laid out or expended wholly or exclusively for the purpose of earning an income would be deducted in computing the said income. He referred me to the following cases: (i) I T A No.2440/KB of .1986-87; (ii) I T A Nos. 3961 to 3966/KB of 1987-88, and (iii) I T A No. 2291 /KB of 1986-87.

6. The Respondent/assessee had disclosed it income for the assessment year 1984-85 by way of income from interest and the same was taxed by the I.T.O. under section 30-of the Income-Tax Ordinance, under the head "income from other sources". Section 31 of the Income tax Ordinance entitled-the Respondent/assessee to Claim certain reliefs/deductions and subsection (1) clause (b) thereof provided that any expenditure laid out or expended wholly and' exclusively for the purpose of earning income from other sources was liable to be deducted from such income. In the circumstances, the expenses incurred by Respondent in earning the above income from interest and the deduction of, which was claimed by him before the I.T.O. were liable to be allowed by the Income. Tax Officer under the provisions of section 31 (h) (b) of the Income-Tax Ordinance, and his refusal to do so was in contravention of the above provision. The learned D.R was not able to advance any convincing argument in support of his contention that the Respondent was not entitled to claim deduction of the expenditure laid out or expended by it wholly or exclusively for the purpose of earning the above income on the ground that it being a Cooperative Society was already maintaining an office establishment, staff, office equipment and other paraphernalia and that no extra expenditure was incurred by it on earning the said income. It will not be out of place to mention here that Mr. Yusuf Sharih, the learned D.R. while submitting arguments in I T A No. 2437/KB of 1986-87, wherein a similar point was involved, had conceded deduction of the expenditure incurred by way of Zakat deduction and Bank charges. The law laid down in the case relied upon by him is not at all applicable in. view of the facts of the two cases being absolutely different. It will be useful to reproduce the relevant 'portion from the afore-cited case which is as under: "It could not be said that the result of the borrowing was saving of dividend income from shares because by borrowing loans the assessee had saved her income not only from one source namely, the shareholding but from all other sources as well from which she must be receiving income. Saving of income from shares was an incidental result of borrowing loans and that incident did not supply any evidence of "purpose". Even if it were conceded that the assessee was required to take loans with a view to save her investment in shares it could not be said that the interest in question was expenditure incurred "wholly and exclusively" for the purpose of earning income from investments. The immediate purpose of taking the loan on interest was to pay taxes, etc. It could be that the other purpose was to save one of her sources of income but this would show that the purpose was a dual one and would pot be covered by section 57 (iii). At the relevant time it was obligatory to make annuity deposit and the earning of interest through such deposit vas merely incidental. The interest on the borrowed amount was, therefore, not deductible under section 5 (iii):

7. Reverting to the above case, the learned D.R. has not been able to establish as to what was the dual purpose of the investment made by the Respondent on which he had received the above interest except to earn income by way of interest. The law laid down in this case has no application to the facts and circumstances of the present case and no reliance can be placed on it. The learned D.R. has failed to submit cogent arguments in support of his contention, and has also not been able to give a convincing reply as to how his point of view has undergone a change and he now holds the view that the respondent is not entitled to claim deduction of the expenditure incurred in earning the above income on the ground that the purpose of investment of the' money on which the above interest is being received is dual and not merely to receive interest. The learned D.R. has not been able to point out as to what was or is the other object or purpose for making the deposit by the Respondent except for earning interest.

8. The appeal filed by the Department is without any force and merits no consideration. The order of the learned A. A C is in accordance with the provisions of law and does not require any interference. The appeal accordingly stands rejected and the order of learned A.A.C. is confirmed. M.B.A/566/T Appeal dismissed.