2004 PLP 1400 (PTD)

10. The department further pleaded that clause (c) of Rule 5 of 4th Schedule will, therefore, govern the computation of profits and gains of insurance business irrespective of condonation of excess management expenses by the Controller of Insurance. The two decisions of the Tribunal in ITA No. 1320/KB of 2000, dated 29‑11‑2001 and I.T.A. No. 825/KB of 2000‑2001 had also been cited in support of the contention by the applicant/Department.

11. The D.R. submitted before the Tribunal that since the order of Tribunal, dated 5‑9‑2001 was in conflict with the other decisions of the Tribunal referred by the Department in its miscellaneous application and that the department was empowered to restrict any expenses not exclusively incurred for the business, as provided under section 23 as well as Rule 5(c) of 4th Schedule, the Tribunal may either recall the order or rectify the same accordingly.

12. The counsel for the applicant argued before the Tribunal that under Rule 5(c) the restriction of any expenditure is subject to the limits laid down in the Insurance Act, 1938 and that the Controller of Insurance has the authority under the same Act to condone any management expenses in excess of limits prescribed under Rule 40 of Insurance Rules, 1958 read with section 40(c) of Insurance Act, 1938. Hence, if the Controller of Insurance condones ay excess management expenses the Department has no authority to disallow the same.

13. The Tribunal held on the forgoing facts and circumstances that: "Clause (c) of Rule 5 was inserted by Finance Act, 1999 and would be applicable for. the assessment year 2000‑2001 onwards, whereas this appeal pertains to the assessment year 1999‑2000 and thus the said clause would not be applicable to this case. Even if it is construed that certain limits have been laid down in the Insurance Act, 1938, the Controller of Insurance has the power to condone the same under the same Act and thus any violation of any Rule, if condoned by the competent authority, would be in existence. For the computation of Income on profits of any business of general insurance, the. Legislature has provided rules as per 4th Schedule read with section 26(a) of the Income Tax Ordinance, 1979. Under Rule 5 of 4th Schedule such profits and gains shall be taken as per annual accounts as required to be furnished to the Controller of Insurance under the Insurance Act, 1938, subject to some adjustments enumerated in sub‑rules (a) (b) and (c) of Rule

5. The case law referred by the department in I.T.A. No. 1320/KB of 2000‑2001, dated 29‑11‑2001 is not relevant as in the said judgment it was held that the Supreme Court's judgment was not applicable to that case after insertion of rule 5(c) of 4th Schedule by [of] Finance Act, 1999. The other decision cited as I.T.A. No. 825/KB of 2000‑2001 is also not relevant as in the said order the Tribunal has rejected the assessee's appeal with the finding that the Controller had not condoned the contravention of section 40 (c) and that no such orders were presented before the Bench, whereas, in the present case, the assessee has claimed that the Insurance Company had applied vide letter, dated 23‑8‑1999 to Controller of Insurance for condonation of excess management expenses and that the Controller of Insurance vide letter, dated 30‑8‑1999 condoned the same, but since there was no mention of the actual amount of excess management expenses nor its ratio against gross premium receipts, nor any record was made available before the Bench, the case was set aside with certain directions. Finally, the reference application filed by the Department that the question framed on the similar issue vide R.A. No. 25/KB of 2002 on 15‑2‑2002 has been rejected by the Tribunal vide, its order, dated 21‑2‑2002. In view of the above observations, we do not find any substance in the department appeal [application of the Department] to recall our order which would tantamount to review for which this forum has no jurisdiction. The application is disposed of in the manner indicated above."

14. The respondent submitted in response to the notice under section 10(4) of the Ordinance XXXV of 2000, that appeals/reference under the Income Tax Ordinance are pending in the complainant's case therefore, no complaint lies before this forum as envisaged under section 9(2) of the Establishment of the Office of the Federal Tax Ombudsman Ordinance, 2000. Notice of demand, dated 25‑4‑2003 for the assessment year 2000‑2001 was served in the complainant's case on 5‑5‑2003. The complainant's application for rectification vide letter, dated 20‑5‑2003 was disposed of by the Taxation Officer vide his letter No. TO/Cir A‑1/Cos‑III/2002‑2003/545, dated 4‑6‑2003. The complainant was requested to pay the tax by 15‑5‑2003 as per demand notice already served. Since reasonable time from 5‑5‑2003 to 4‑6‑2003 had already been availed by the complainant, the taxation Officer resorted to proceed under section 92 of the Income Tax Ordinance, 1979 on 16‑6‑2003.

15. The department in order to facilitate the taxpayer had already allowed payment of arrear demand of assessment years 1994‑95 to 1999‑2000 in installments of Rs.150,000 per month. However, in the month of June department had to achieve given targets. Hence; action for recovery under the law had to be taken against the defaulting tax payers. Still complainant's request, dated 19‑6‑2003 for installments to pay the demand for 2000‑2001 had been granted by the Additional Commissioner. Notices under section 92 had been withdrawn by the Taxation Officer on the same day.

16. It is found that the rejection by the DCIT of complainant's application made under section 62C ibid, requesting to follow the decision of the Tribunal in assessment year 1999‑2000 and so far as it applies to the identical question arising in the assessment year 1998‑99 pending before him until the decision of the Tribunal is reversed or modified subsequently, is contrary to law.

17. The DCIT is bound to follow the decision of ITAT in the appeal relating to assessment year 1999‑2000 as required under section 62C of the Income Tax Ordinance, 1979 (Repealed Ordinance); notwithstanding pendency of any appeal under section 129 of the Repealed Ordinance or under section 221 of the Income Tax Ordinance, 2001 on the subject.

18. However, the decision of the Tribunal ibid is not applicable to assessment year 2000‑2001 and the years subsequent thereto because the implications of clause (c) of Rule 5 of the 4th Schedule added by Finance Act 1999 are yet to be adjudicated upon by a competent Court.

19. It is now recommended that:‑‑ (a) the Taxation Officer proceeds in accordance with the provisions of section 124A of the Income Tax Ordinance, 2001 corresponding to provisions of section 62C of the repealed Ordinance so far as the orders for assessment years 1998‑99 and 1999‑2000 are concerned. (b) Compliance is reported within 30 days. C.M A /1001/FTO Order accordingly.