2014 PLP (Trib (PTD)

The appeal bearing I.T.A. No. 194/KB/2011, pertaining to tax year 2004, has been filed by above named taxpayer against Order No.109 dated 4-12-2010, passed by Ld. CIR (Appeals-III), Karachi. While the appeals pertaining to tax year 2005, bearing I.T.A. No. 793/KB of 2011 and I.T.A. No. 800/KB/2011, are cross appeals filed by the taxpayer and the department respectively, against the single order No. 6-7 dated 26-6-2011, passed by Ld. CIR (Appeals-III), Karachi. These appeals involved certain common grounds and therefore, these appeals were heard together. The grounds raised by both the parties in their respective appeals are reproduced separately as under:-- I.T.A. No. 194/KB/2011 Tax Year 2004, filed by taxpayer (1) The order of the CIR(A) is bad in law and on facts. (2) The CIR(A) has erred in holding that the Additional Commissioner Inland Revenue, being an officer of a lower rank, can amend the assessment which was earlier deemed to have been made by the Commissioner (and not by the Taxation Officer) pursuant to section 120(1)(b), being an officer of a higher rank. (3) Without prejudice to the grounds of Appeal No. 2 above, the Commissioner Inland Revenue (Appeals) has erred in holding that the Additional Commissioner Inland Revenue being an officer of a lower rank has passed the amended assessment with proper delegation of powers from the Commissioner. (4) Without prejudice to the above grounds, the Additional Commissioner Inland Revenue has erred in assuming the jurisdiction to amend the assessment under section 122(5A) which section envisages exercise of mental faculty and independent mind by the Commissioner which cannot be delegated or entrusted to the Officer Inland Revenue which has been upheld by the Commissioner Inland Revenue (Appeals). (5) The Commissioner Inland Revenue (Appeals) has erred in maintaining the action of the Additional Commissioner Inland Revenue of invoking the provisions of section 67 of the Income Tax Ordinance, 2001 read with Rule 13 of the Income Tax Rules, 2002 (6) The Commissioner Inland Revenue (Appeals) has erred in maintaining the action of the Additional Commissioner Inland Revenue in allocating administration expenses against dividends without considering the fact that dividends were earned on investments made in prior years and no administration expenses incurred during the year can be related to earning of dividends as it only involved depositing dividend warrants received in the bank account. (7) The Commissioner Inland Revenue (Appeals) has erred in maintaining the action of the Additional Commissioner Inland Revenue in allocating administration expenses against fee for technical services rendered outside Pakistan especially when all the expenses related thereto were to be borne by the service recipient company in Syria under the relevant agreement for technical services. (8) The Commissioner Inland Revenue (Appeals) has erred in maintaining the action of the Additional Commissioner Inland Revenue in holding that administration expenses are allocable against insurance commission as the same is allegedly covered under the Final Tax Regime. The Commissioner Inland Revenue (Appeals) thereby ignored the relevant provisions of section 233 as were applicable during the period January 1, 2003 to December 31, 2003 (relevant to appellant's tax year 2004) whereby such commission was not liable for Final Tax Regime. (9) The Commissioner Inland Revenue (Appeals) has erred in observing that the appellant is actively involved in stock (investment in shares) related activities to hold that administrative expenses were properly attributable to the earning of dividend income. (10) Without prejudice to the above grounds of appeal and without conceding to his stance, the Commissioner Inland Revenue (Appeals) has also erred in maintaining the action of the Additional Commissioner Inland Revenue in allocating alleged common expenses against the gross receipts of dividend, technical fee and commission with reference to gross profit instead of gross receipts of the appellant by erroneously applying provisions of rule 13(3)(b) of the Income Tax Rules, 2002. (11) Your appellant craves leave to add, amend or alter the above grounds of appeal. I.T.A. No. 793/KB/2011 TAX YEAR 2005, filed by taxpayer (1) The order of the CIR(A) is bad in law and on facts. (2) The Commissioner Inland Revenue (Appeals) has erred in holding that the Additional Commissioner Inland Revenue, being an officer of a lower rank, can amend the assessment which was earlier deemed to have been made by the Commissioner (and not by the Taxation Officer) pursuant to section 120(1)(b), being an officer of a higher rank. (3) Without prejudice to the grounds of Appeal No. 2 above, the Commissioner Inland Revenue (Appeals) has erred in holding that the Additional Commissioner Inland Revenue being an officer of a lower rank has passed the amended assessment with proper delegation of powers from the Commissioner. (4) Without prejudice to the above grounds, the Additional Commissioner Inland Revenue has erred in assuming the jurisdiction to amend the assessment under section 122(5A) which section envisages exercise of mental faculty and independent mind by the Commissioner which cannot be delegated or entrusted to the Officer Inland Revenue which has been upheld by the Commissioner Inland Revenue (Appeals). (5) The Commissioner Inland Revenue (Appeals) has erred in maintaining the action of the Additional Commissioner Inland Revenue of invoking the provisions of section 67 of the Income Tax Ordinance, 2001 read with Rule 13 of the Income Tax Rules, 2002 inspite of the fact that the amounts treated as common expenses have no nexus with the receipts of dividend, insurance commission and fee for technical services rendered outside Pakistan. (6) The Commissioner Inland Revenue (Appeals) has erred in maintaining the action of the Additional Commissioner Inland Revenue in allocating administration expenses against insurance commission. (7) The Commissioner Inland Revenue (Appeals) has erred in maintaining the action of the Additional Commissioner Inland Revenue in allocating administration expenses against fee for technical services rendered outside Pakistan especially when all the expenses related thereto were to be borne by the service recipient company in Syria under the relevant agreement for technical services. (8) The Commissioner Inland Revenue (Appeals) has also erred in not giving his decision on the following ground of appeal: "

9. Without prejudice to the above grounds of appeal and without conceding to his stance, the ACIR has also erred in allocating alleged common expenses against the gross receipts of dividend, technical fee and commission with reference to gross profit instead of gross receipts of the appellant" (9) Without prejudice to ground No.8 above, the Commissioner Inland Revenue (Appeals) has erred in maintaining the action of the Additional Commissioner Inland Revenue in allocating alleged common expenses against the gross receipts of dividends, technical fee and insurance commission with reference to the gross profit earned by the appellant instead of gross receipts of the appellant. (10) The Commissioner Inland Revenue (Appeals) has erred in maintaining the action of the Additional Commissioner Inland Revenue in disallowing claim of initial allowance of Rs.1,776,000 under the provisions of section 23 of the Income Tax Ordinance, 2001 on heavy vehicles added during the year. (11) Your appellant craves leave to add, amend or alter the above grounds of appeal. I.T.A. No, 800/KB/2011 TAX YEAR 2005, filed by department (1) That the order of Ld. CIR (A-III) is bad in law and on facts of the case. (2) That the learned Commissioner of Inland Revenue (Appeal-III) has erred in not prorating expenses in respect of dividend income on the basis that no new investment is made in this year. (3) That the appellant craves permission to add, amend or bring fresh grounds of appeal on or at any time before the hearing.

2. Briefly; the stated facts of the case are that the taxpayer is a public limited company and principally engaged in the manufacture and sale of paper, paper board, packaging materials and tissue products. It filed return of income under section 114(1) of the Income Tax Ordinance, 2001, for tax years 2004, thereby declaring income at Rs.691.242 (M). The return was deemed as an assessment order under section 120(1) of the Ordinance, 2001. This deemed assessment order was considered erroneous insofar as prejudicial to the interest of revenue and thus requiring amendment under section 122(5A) of the Ordinance. Subsequently, the taxpayer filed his revised return under section 114(6) of the Ordinance, claiming the amortization on computer soft wares. The revised taxable income was declared at Rs.687.926 (M). This revised return of the taxpayer was taken to be as deemed amended assessment order under section 122(3) of the Ordinance. In continuation of the proceedings under section 122(5A) of the Ordinance, the taxation authority also considered this deemed amended assessment order passed on revised return of the taxpayer as to be erroneous insofar as prejudicial to the interest of revenue and thus considering it also to require amendment under section 122(5A) of the Ordinance, ultimately the taxation/Assessing Officer passed the order in original vide D/C. No.12/71 dated 29-10-2009, purported to be an order under section 122(5A) of the Ordinance, thereby amending an amended assessment order. Like wise, the taxpayer is stated to have filed return of income under section 114(1) of the Ordinance, for tax year 2005, declaring its normal income at Rs.785.310 (M), which return was taken as deemed assessment order under section 120(1) of Income Tax Ordinance, 2001 (being referred to as the Ordinance). The taxation Officer/ACIR considered the deemed assessment order as erroneous insofar as prejudicial to the interest of revenue, therefore, he amended the deemed assessment order under section 122(5A) of the Ordinance and made amendments in the income and tax thereon through an Order-in-Original No. D/C. No.04/161, dated 21-2-2011. The taxpayer feeling dissatisfied with the orders of the respective taxation officer, filed appeals before learned CIR(A-III), Karachi, who vide impugned order dated December 4, 2010 (Tax Year 2004) maintained the order of OIR/ACIR/TO and vide the order dated June 26, 2011(Tax year 2005) partly maintained the order passed by learned ACIR/TO. Being aggrieved of these orders, the taxpayer/appellant has impugned the orders in present appeals before this Tribunal on the above stated grounds. The department has also filed an appeal against the order for tax year 2005 agitating therein the deletion of expenses prorated against dividend as per the grounds mentioned herein above.

3. We have heard and considered the arguments of learned Representatives of the parties at length and have also perused the record. The appeal bearing I.T.A. No. 194/KB/2011, pertaining to tax year 2004, however, has a peculiar feature of involving an act of filing revised return under section 114(6) by the taxpayer and therefore, we in the first instance will decide this appeal with reference to the question concerning section 114(6) of the Ordinance. Then after, if the need so arises, we will address the grounds of this appeal also along with two other appeals captioned above.

4. From the perusal of above facts, as far as pertaining to the tax year 2004, the following admitted points of fact are emerged:-- (a) The Order-in-Original bearing No. D/C. No. 12/71 dated 29-10-2009, pertaining to tax year 2004, is purported to have been passed under section 122(5A) of the Income Tax Ordinance, 2001. (b) The Order-in-Original bearing No. D/C. No. 12/71 dated 29-10-2009, pertaining to tax year 2004, is purported to have been passed on the revised return of the taxpayer filed under section 114(6) of the Income Tax Ordinance, 2001, taken to have had treated as deemed amended assessment order passed under section 122(3) ibid. (c) The Order-in-Original bearing No. D/C. No. 12/71 dated 29-10-2009, pertaining to tax year 2004, purported to be passed under section 22(5A) of the Ordinance, is taken to mean an amending assessment order, thereby further amending the deemed amended assessment order passed under section 122(3) ibid. (d) The claim of the amortization on computer soft wares in the revised return and different taxable income at Rs.687.926 (M) as compared to Rs.691.242 (M), in the original return; was subsequently raised in the 'revised return' filed under section 114(6) ibid after commencement of proceedings under section 122(5A) ibid concerning the original return/deemed assessment order.

5. As per order of Ld. ACIR, the taxpayer also filed 'Revised Return' of income in terms of section 114(6) ibid claiming the amortization on computer soft wares. The revised taxable income was declared at Rs.687.926 (M) as compared to Rs.691.242 (M), claimed in the original return. Ld.ACIR considered the revised return of the taxpayer as deemed to have been assessed under section 122(3) of ITO, 2001 and such deemed assessment order under section 122(3) was considered by Ld.ACIR as being erroneous insofar as prejudicial to the interest of revenue, requiring amendment under section 122(5A) ibid. The fresh notice under section 122(9) ibid, dated 14-3-2009, was issued to the taxpayer with intention to amend its revised return under section 122(5A), or the revised assessment order. The taxpayer having been confronted with the issues raised, filed his reply/explanation dated 7-4-2009 and 27-10-2009. Ultimately, Ld. ACIR passed the order dated 29-10-2009, by exercising powers under section 122(5A) of Income Tax Ordinance, 2001.

6. The taxpayer is believed to have filed its revised return on the ground of inadvertent mistakes which they, in the original return had omitted to claim. While visiting through above facts, we come across with certain points requiring us to interfere for finding out their correct answers. In our humble view, the proceedings in the above stated manner and form are inconsistent with law for the following reasons:-- (a) The 'revised return' filed by taxpayer/respondent does not show that the same was filed in conformity and compliance with the notice under section 122(9) r/w S. 122(5A); (b) The 'revised return' filed by taxpayer/respondent is not in conformity with the condition (c) of subsection (6) of section 114 of the Ordinance, 2001. (c) The 'revised return' filed by taxpayer/respondent is not in conformity with subsection (6A) of section 114 of the Ordinance, 2001 and the provisions thereof have not been complied with.

7. The concept of 'revised return' as laid down under section 114(6) or 114(6A) of ITO, 2001, is provided to facilitate a taxpayer to cater a situation anticipating default surcharge and penalties, arising from and after a determination is made or intended to be made against the taxpayer; in effect that the taxpayer has paid less tax than due or has omitted to pay correct amount of tax due, which is determined as being greater than the amount of tax paid and such situation is believed to culminate in entailing upon the taxpayer greater amount of default surcharge and penalties.

8. The 'revised return' filed by taxpayer under subsection (6) or (6A) of section 114 of the Ordinance, 2001, is required always, to be treated as deemed amended assessment order in terms of section 122(3) ibid. The 'revised return' treated as deemed amended assessment order cannot be amended under section 122(5A) ibid and it is amendable under section 122(4) ibid.

9. In the given set of circumstances, we feel satisfied in holding that Ld. ACIR has acted with material irregularity by diverting the proceedings from original return to revised return and conducting the proceedings upon legally defective revised return filed by the taxpayer under section 114(6) ibid after the commencement of proceedings under section 122(5A) ibid, which to law was required to treated as non existing for being inconsistent with law. Ld. ACIR acted with material irregularity by amending a deemed amended assessment order by exercising powers under section 122(5A) instead of exercising powers under section 122(4) ibid. Ld.CIR(A) has also failed to exercise the jurisdiction vested in him under sections 127 to 129 ibid for not taking the notice of such material irregularity.

10. In our humble opinion, the officers below have not applied their mind properly in line with facts, substantive law and the decisions of legal/judicial forums. We however, in all the fairness of things, deem it inappropriate to dilate upon or decide the disputed issues raised in the grounds of appeal for tax year 2004 and deem it appropriate to vacate both the orders below [{the order dated 29-10-2009 passed by Ld. ACIR and order No. 109 dated 4-12-2010 passed by Ld. CIR (Appeals-III), Karachi}] and remand back this case/appeal to assessing authority for conducting de novo proceedings and determining all the issues afresh and pass fresh amended assessment order in accordance with law, within the time limit provided under section 124(2) of Income Tax Ordinance, 2001, of course; by affording adequate opportunity of being heard to the taxpayer/assessee. The appeal bearing I.T.A. No. 194/KB/2011, pertaining to tax year 2004, stands disposed of in the above terms and manner.

11. We are now taking up to decide the cross appeals of the taxpayer and the department pertaining to tax year 2005. We in the first instance decide the appeal of taxpayer issue-wise as contained in the grounds of appeal bearing I.T.A. No. 793/KB/2011.

12. The ground No. 1 in the appeal of taxpayer is of general nature. It is deferred for the time being to be dealt at later stage. The grounds Nos. 2 to 4, and the issues raised therein, are interlinked therefore, the same are jointly dealt with herein below. GROUNDS Nos. 2 TO 4, TAX YEAR 2005

13. Grounds Nos. 2 to 4, are regarding the invocation of provisions of section 122(5A) of the Ordinance by learned ACIR. Ld. Counsel/AR has contended that learned CIR(A) has erroneously maintained the action of learned ACIR to amend the assessment under section 122(5A) of the Ordinance. Learned AR contended that learned ACIR being junior and subordinate to the Commissioner cannot amend the assessment order taken to have been made by the Commissioner. It is only the Commissioner who can pass an amended order under section 122(5A) as the provisions of section 122(5A) envisage application of mental faculty and independent mind by the Commissioner which cannot be delegated. Ld. AR further contended that there is no finding in effect that the deemed assessment order was erroneous and prejudicial to the interest of revenue. As per learned AR, the issues raised cannot be considered as prejudicial to the interest of revenue.

14. On the other hand learned DR has supported the impugned order on this issue and contended that the issue of deemed order taken to be amended by an ACIR under delegated authority is now an established reality as has been upheld by superior courts including Hon'ble Sindh High Court in the judgment reported as 2013 PTD 1012 and Hon'ble Islamabad High Court's judgment reported as 2013 PTD

747. In line with these judgments, this Hon'ble Tribunal has also decided this issue in favour of the department.

15. After considering the submissions made by both parties we are inclined to agree with the submissions of learned DR. An ACIR under delegated authority is empowered to amend the deemed assessment order by invoking the provisions of subsections (1), (5) and (5A) of section 122 of the Ordinance. Section 210 of the Ordinance visualizes the delegation of any or all powers vested in and exercisable by a Commissioner under the Ordinance except the power to delegate further. This issue has already been settled by Hon'ble Superior Courts of our country. Ld.CIR(A) has exhaustively discussed this issue in proper manner, therefore, we see no reason to interfere with the finding of learned CIR(A) in the impugned order on this issue. The impugned order to the corresponding extent is maintained. The appeal filed by the taxpayer to the extent of this issue/Grounds Nos. 2 to 4, accordingly fails.

16. The subsequent grounds in the appeal pertain to various deductions claimed by the taxpayer in its return filed under section 114 of the Ordinance. These grounds/issues in almost similar state, were also raised before Ld. CIR(A), who vide impugned order has not conceded to the contentions of the taxpayer, except for the dividend income. GROUNDS Nos. 5 - 7, TAX YEAR 2005

17. The issues contained in the aforesaid grounds are regarding the invocation of section 67 of the Ordinance, read with Rule 13 of the Income Tax Rules, 2002, and thereby making allocation of administration expenses against dividend income, fee for technical services and insurance commission. The Taxation Officer confronted the taxpayer that the administrative expenses amounting to Rs.347,030,000 were intended to be allocated between dividend income, fee for technical services and insurance commission within the meaning of section 67 read with Rule 13 of the Income Tax Rules, 2002 in the following manner: (a) The dividend is a separate class of income against which the common expenses can be prorated. (b) Technical fee is an exempt income and also the regular source of income. This income also can not be earned without incurring of the expenses. (c) Commission income also requires proration of expenses under the above provisions of law as the said income is covered under section 169 of the Ordinance.

18. The finding of ACIR on these issues has been maintained by learned CIR(A) in his impugned order except for alleged common administrative expenses against dividend, which learned CIR(A) deleted by considering that dividends were received on investments in shares made in prior years.

19. The learned AR contended that section 67 of the Ordinance provides that expenditure should be apportioned on any reasonable basis taking account of the relative nature and size of the activities to which the amount relates. Only expenditure which is related to more than one activity would be regarded as common expenditure for allocation under the provisions for section 67 read with rule 13 of the Ordinance. Any expenditure which has no nexus to the activity or is exclusively related to a particular class of income can not be regarded as common expenses for allocation under section 67 and rule 13 of the Income Tax Rules, 2002. It further pointed out that there were only nine transactions of receipt and deposit of dividend warrant during the two tax years for which the expenses of Rs.347,030,000 can not be regarded to have incurred by any stretch of imagination. He further denied the allegation that the appellant was actively engaged in investment in shares and referred to the audited accounts. The dividend on shares has been earned in respect of old investments with no movement in such investments which is evident from the accounts. The learned AR has relied on the judgment of the Appellate Tribunal reported as 2010 PTD (Trib.) 1568.

20. In respect of allocation of administrative expenses against exempt technical fee earned outside Pakistan, the learned AR argued that fee earned by the company from rendering of technical services outside Pakistan to Vimpex through its personnel which is exempt under clause (131) of Part I of the Second Schedule to the Ordinance. AR further argued that the related expenses, in respect of rendering of technical services by appellant, are borne by Vimpex as per Clause 5.03 at page No.11 of the agreement between the appellant and Vimpex. Administrative expenses can not be attributed to technical services as the personnel through which such services are rendered are stationed outside Pakistan and that all expenses incurred therefore are to be borne by the service recipient in view of specific clause in the agreement.

21. In respect of insurance commission earned, learned AR argued that insurance premium is paid by the company on insurance of its assets. However, at the time of payment of annual insurance premium to the insurance company; a percentage of the premium is paid back which is recorded as insurance commission. Thus no expenditure is incurred by the appellant company to earn commission income. Further it is argued that according to the provisions of section 233 of the Ordinance as were applicable to the tax year 2004 there was no provision available whereby tax deducted on commission income could be considered as final tax. Consequently, allocation made by the Additional Commissioner is uncalled for on factual as well as legal ground.

22. The learned DR contented that the expenses (administration) are common in nature and required proration within the meaning of section 67 read with Rule 13 of the Income Tax Rules, 2002. The learned DR relied upon the case reported as (2005 PTD (Trib.) 2586 wherein it has been held that no income can be earned without incurring of expenses. He further argued that when the FBR has prescribed the formula in Rule 13(3)(a) of the Income Tax Rules, 2002, there is no discretion available to the ACIR for apportioning common administrative expenses on any other basis.

23. We have considered the arguments of both sides on the issues and have also perused the finding of Ld.CIR(A) recorded in the impugned order. Ld.CIR(A), while disagreeing with the contentions raised by Ld.AR, has observed in the impugned order as under: "There is no force in the arguments of the learned counsel that the Officer Inland Revenue has wrongly allocated the common expenses under section 67 of Income Tax Ordinance, 2001, read with Rule 13 of Income Tax Rules, 2002, because where the appellant drives both final tax regime (FTR) income and NTR income or taxable income and exempt income, then the same has to be allowed on pro rata basis between income covered under FTR & NTR & similarly between taxable income and exempt income. It is a settled principle of law that wherein allowance/deduction/expenditure (by whatever name it is called) is common, the same has to be prorated between the income assessable under normal tax regime (NTR) and final tax regime (FTR) on the basis of their ratio of turnover. This principle is applicable to all types of expenditures where these expenses are common. In this case the expenses prorated by the Officer Inland Revenue are common in terms of section 67 read with Rule 13 of Income Tax Rules, 2002. These expenses are to be prorated on the basis of the principle of apportionment as envisaged in section 67 read with Rule 13 of the Income Tax Rules, 2002. Such transaction has always been upheld by Hon'ble Sindh High Court in the case of Messrs Atlas Investment Bank Ltd. v. CIT reported as 2005 PTD (H.C. Kar) 2586, by the Hon'ble Lahore High Court in the case of Messrs Crescent Investment Bank Ltd. v. ITAT reported as 2005 PTD (Lah, H.C.) 2599 as well as the learned Income Tax Appellate Tribunal in cases reported as 2005 PTD 1881 (Full Bench Trib.) and 1999 PTD (Trib.) 3880. In all these judgments a fundamental principle has been laid down that where an expenditure/allowance/deduction is exclusively related to any particular head/source of income the same has to be allocated to that Head/Source of income by wherein deduction/allowance/ expenditure is common and it is inseparable the same has to be apportioned/allocated on pro rata basis which exactly has been done by the Officer Inland Revenue, while allocating common expenses/deductions in the case of appellant I, therefore, have no hesitation to uphold the action of the Officer Inland Revenue with regard to the apportionment of common expenditures/ deduction in the case of the appellant as the same is in accordance with the provisions of law and Rules as contained in section 67 of the Income Tax Ordinance, 2001, rule 13 of Income Tax Rules, 2002 and as also endorsed by the superior appellate for a in their judgments as quoted supra. Therefore, the Officer Inland Revenue was justified in prorating the expenses on fee for technical services and commission income and is hereby maintained."

24. Ld.CIR(A) has maintained the order of Ld. ACIR to the extent of apportionment of the expenses against the fee for technical services and commission income. The income attributed to dividends is vaguely represented by the taxpayer and CIR(A) has also not made any attempt to explore any such details thereof. However, in his further findings, Ld. CIR(A) has conceded to the plea of Ld. AR regarding his contention that apportioning expenditure on dividend income in terms of section 67 of the Ordinance read with Rule 13 (3) of the Income Tax Rules, 2002, is not appropriate as no investment was made during the particular tax year in subject assessment. Ld.CIR(A) has observed that the expenditure under this Head was incurred by the organisation, which allowed such dividend. The apportionment of expense equally to the ratio of dividend income would not be justified under the attaining circumstances. Ld.CIR(A) has thus directed the OIR to exclude the dividend income and modify the order by revising the proration of expenses under Section 67 of the Ordinance read with Rule 13 (3) of the Income Tax Rules, 2002.

25. In our humble opinion, above findings of Ld.CIR(A) shows that he has logically and rationally upheld the act and decision of Ld. ACIR on the issues of apportionment of expenses by prorating the expenses on fee for technical services and commission income. We do not see any reason to upset this finding of Ld. CIR(A), which is accordingly maintained. The appeal is held to be failed to the corresponding extent of issues raised in grounds Nos.5 to

7. GROUNDS Nos. 8 AND 9 TAX YEAR 2005.

26. These two grounds are virtually same and Ld. AR has alleged that this ground has not been addressed by Ld.CIR(A) in the impugned order and as such the same has been agitated in the instant appeal before this Tribunal. Ld. AR contended that in the present case administration expenses are not allocable as it do not relate to the aforesaid receipt of technical fee and insurance commission. Ld. AR argued that the administration expenses if held to be allocable then these should be prorated by taking into account gross receipts from sale of products instead of gross profit from sale of products (representing sales minus cost of sales) as mentioned in the rule 13(3)(a) of the Income Tax Rules, 2002. Section 67 of the Ordinance specifically requires that the expenditure shall be apportioned on any reasonable basis taking into account the relative nature and size of activity to which the amount may relate. Ld. AR contended that the plea taken by Ld. ACIR, that he could not adopt any other basis when formula for proration has been prescribed in rule 13(3)(a), is also contrary to the provision of section 67 and rule 13(4) of the Income Tax Rules, 2002 which requires proration of common expenses in any manner considering the nature and size of activity to which such income relates. Therefore, the formula provided in Rule 13(3)(a) cannot be applied blindly. This issue has been settled by the Tribunal in many cases including (2010) 101 Tax 422 (Trib.) relied upon by the appellant taxpayer. Ld. AR argued further that the provisions of Rule 13(3)(b) are an exception to rule 13(3)(a) which is of general and wide application. In other words rule 13(3)(b) can only be invoked in specific situations where common expenditures are also to be apportioned against net gains (gross receipts minus direct expenditure) declared by the taxpayer. Consequently, it is envisaged in the aforesaid rule 13(3)(b) that in case of net gains the ratio for apportionment should be of "relevant net gains" and "total net gains and gross profit". The learned DR has supported the orders of the Taxation Officer as well as learned CIR(A), by saying that there is no illegality pointed out by the appellant in the order passed below.

27. We have given due consideration to the arguments of Ld. AR. Ld. CIR(A) has not given his finding on this issue. However, as the same issue has been raised in this appeal before us, therefore, we deem it apt to address in view of the arguments advanced by the parties on this issue. In this regard we find weight in the arguments of Ld. AR that technical fees and insurance commission represent gross receipts without deduction of expenses and as such can only be compared with total gross receipts of the taxpayer for the purpose of allocation of common expenses (administration expenses) there against. As no net gain is involved therefore Rule 13(3)(b) of the Income Tax Rules, 2002 is not applicable in the instant case. It is settled principle that like should be compared with like e.g. apple should be compared with apple and not with a pineapple. Therefore the gross receipts from business (i.e. sales receipts) should be compared with receipts of insurance commission and exempt technical fees which are also gross receipts. We therefore, hold that dividend, fee for technical services and insurance commission are gross receipt which can only be compared with total gross receipts and not the gross profit. The OIR is directed accordingly to make the calculations afresh. The appeal succeeds to this extent corresponding to the ground No.9. GROUND NO. 10 TAX YEAR 2005

28. The learned AR contended that initial allowance is allowable on heavy vehicles used for the purpose of business. In this regard Ld. AR has placed reliance on the Central Board of Revenue's Circular No.4 of 1963 dated November 15, 1963. The relevant extract of the Circular is reproduced below:-- "Consequently, initial depreciation allowance, at the rate of 25 per cent would cease to be admissible with effect from the assessment year 1963-64 in the case of motor vehicles not plying for hire. For this purposes, cars and jeeps in general should be treated as motor vehicles not plying for hire unless they actually do so. Initial depreciation allowance should however, continue to be given in the case of buses, omni-buses and station wagons used for the transport of employees to and from the place of their work or the transport of passengers (as in the case of P.I.A.) oil-tankers on wheels and trucks used for purposes of business, profession or vocation of the assessee."

29. Ld. AR further argued that heavy vehicles added by the appellant during the year included the following:-- Suzuki van Rs. 432,600 Fork lifter Rs.3,119,099 Total= Rs.3,551,698 Ld. AR during arguments pointed out that fork lifter is otherwise an item of the category of 'plant and machinery' and therefore, the same is eligible for initial allowance under section 23 of the Income Tax Ordinance, 2001.

30. Ld. DR in turn contended that the Circular referred to by the taxpayer is an old one and obsolete in view of the clear provision of law in the Ordinance. Ld. DR further argued that section 23, provides for the allowance on placing a depreciable asset into service for business purpose only once at the time of commencement of commercial production. The present case of the taxpayer does not qualify for the allowance provided under section 23 ibid. Ld. DR supported the order of Ld.CIR(A) on this issue.

31. We have given due consideration to the arguments of Ld. AR and the contention of the learned DR. In our view the said Circular No.4 of 1963 had been issued under the repealed Income Tax Act, 1966 and was protected under the repealed Income, Tax Ordinance, 1979. We have noted that no such protection is available under the Income Tax Ordinance, 2001. We therefore hold that initial depreciation is not allowable on Suzuki Van. However, Ld. AR's contention that fork lifter is not a road transport vehicle but is plant and machinery directly plied and used for business purpose of the taxpayer, carries weight and the allowance as provided under section 23 of the Ordinance is applicable to this case. We therefore direct the OIR/ACIR to allow initial depreciation on fork lifter.

32. Resultantly all the issues raised in the grounds of appeal in hand including the grounds Nos.1 and 11 stand addressed and appeal stands disposed of in the manner as indicated above.

33. We now advert to the department's appeal wherein only one material ground has been raised as to that the learned Commissioner Inland Revenue (Appeal-III) has erred in not prorating expenses in respect of dividend income on the basis that no new investment is made in this year.

34. Referring back to our findings recorded under Paragraphs Nos.24 and 25, herein above, we have maintained the findings of Ld.CIR(A), which includes his findings on the question of apportionment of expenses against the income head of dividends as well. We therefore, deem it appropriate to apply our same findings in reply to the present issue raised by the department in its appeal. The consequent out come and result that would naturally emerge there from is the dismissal of the appeal of the department. Accordingly, the above captioned appeals bearing I.T.A. No.194/KB of 2011 (Tax Year 2004) and I.T.A. No. 793/KB of 2011 (Tax Year 2005); filed by the taxpayer and the appeal bearing I.T.A. No.800/KB of 2011 (Tax Year 2005) filed by the department, are disposed of in the manner and terms as stated herein above. CMA/55/Tax(Trib.) Order accordingly.