2002 PLP (Trib (PTD)

Shabbar Zaidi, F.C.A. and Abid Ali Huda, A.C.A. for Respondent. Date of hearing: 9th December, 2000. MUHAMMAD DAUD KHAN (ACCOUNTANT MEMBER).-- This departmental appeal is directed against CIT(A) order, dated 9-9-1999 on the issues set-forth in the grounds of appeal. Mr. Muhammad Umer "Farooq D.R. represented the appellant-department while Messrs Shabbar Zaidi, F.C.A. and Abid Ali Huda, A.C.A. represented the respondent-assessee. We have heard the arguments of both the sides in the matter and perused the assessment and appellate orders. The issue involved is taxability of interest earned on moneys temporarily kept in Bank deposits under section 30 as income from other sources or otherwise and set-off of the interest paid against the same. The department had taxed the amount of Rs. 2,502,000 earned by the assessee on the temporary deposits and did not allow any deduction for Rs. 6,678,000 under section 23(l)(vii) as claimed in the return. The assessee is a public company putting up PVC reisin manufacturing plant at Port Qasim with capacity of 100,000 metric tones and had borrowed found for the purpose. However, as the whole amount of the loans obtained could not be immediately invested into business assets, the surplus funds available were, by way of commercial expediency, deposited with the Banks on which the interest amounting to Rs. 2,502,000 was earned. The assessee also incurred liability of Rs. 6,678,000 by way of interest on the borrowed funds. The amount of interest earned was reduced from the amount of interest payable/paid on borrowed funds and the remaining amount was capitalized as it pertained to pre-production period. The Assessing Officer, however, taxed the amount of interest as income under section 30 and did not allow any deduction for the interest paid. Assessee's appeal was accepted by the CIT(A).in view of the judgment of this Tribunal quoted on page 2 of the appellate order against which the department have come in appeal to us. D.R. referred to combined Full Bench Judgment of this Tribunal in I.T.A. No. 2863/KB of 1991-92 (Assessment year 1984-85, 1986-87 and I. T. A. Nos. I14/KB/ of 1991-92 (Assessment year 1990-91) and I. T. As. Nos. 1301 and 1302/KB of 1997-98 (Assessment years 1995-96 and 1996-97) decided on 19-10-1998 in which contrary view has been held. The judgment is reported as 1999 PTD (Trib.) 708 Mr. Shabbar Zaidi argued that the surplus funds were kept in Japan and that the amounts were reduced from the capitalized interest, and therefore, the Revenue did not suffer since assessee will be getting depreciation for lesser amounts to this extent. However, he could not elaborate as to how this argument helped him in the context of matter before us. The Full Bench judgment .had considered the issue in detail. Para. 36 on (page 16) a is reproduced as under. "Thus in our considered opinion, income earned by way of interest without engaging in an activity falling under the meaning of business or, say where money is not utilized as stock in trade, is income from other sources under section 30 of the Income Tax Ordinance. Neither the assessee's personal status nor the nature of business, profession or occupation, one is engaged in, would change the nature of such income. Similarly, neither the source of the funds generating such interest income nor the purpose for which such funds are obtained by the depositor would have any bearing on the nature of such income. "

2. Thus as is apparent from the above, no exception can be taken to the tax of amount of Rs. 2,502,000 under section 30 of the Income Tax Ordinance. Also the assessee is not entitled to deduction of any expenditure against it: Departmental appeal is, therefore, accepted and the order of the CIT(A) is vacated and that of the Assessing Officer restored on the issue. However, we may by way of clarification add that once the amount is taxed under section 30 the assessee will be entitled to capitalize the full amount of Rs. 6,678,000 and claim depreciation on the total costs as per law.

3. Department's appeal succeeds as above C.M.A./M.A.K./139/Tax(Trib.) Appeal succeeded.