2005 PLP (Trib (PTD)

We have heard the learned representatives of both the parties and have also perused the impugned order of the learned CIT(A) and the assessment order. We have also gone through the order of this Tribunal reported as 1991 PTD (Trib.) 531 placed before us by the learned counsel for the assessee. The assessee in this case is a Private Limited Company derives income from dividends, providing lift services, security services and maintenance of premises (common passages, stairs etc.) of N.H. Holding, Bank Square, Lahore owned by H.M. Investment Pvt. Ltd. The assessment for the year under appeal was finalized by the Assessing Officer on 27-2-1999 under section 62 of the repealed Ordinance, 1979 at an income of Rs. 3,07,588 accepting the declared receipts. However, certain add-backs out of expenses claimed in the Profit and Loss A/c were made and set off financial expenses against dividend income against which the assessee filed appeal before the learned CIT (A) and vide impugned order, dated 4-2-2002, the appeal was partly accepted directing the Assessing Officer to allow financial expenses against total receipts as claimed by the assessee The department is now before this Tribunal against the impugned order of the learned CIT(A) We have found that the assessee claimed financial expenses amounting to Rs.14,09,845 against total receipts for the year under consideration. The Assessing Officer while making assessment set off financial expenses against only dividend income with the following observations:-- "Financial expenses have been claimed at Rs.14,09,845 which have been claimed against receipts from all sources. The assessee borrowed money from different banks for making investment in shares. These financial expenses relate to dividend income and capital gains/loss declared by the assessee in respect of purchases and sale of shares. These expenses have been nothing to do with the receipts shown in respect of lift and premises maintenance". The learned CIT(A) in his impugned order has accepted version of the assessee regarding set off financial expenses against total receipt with the' following observations:-- "The Assessing Officer did not establish that loan obtained was actually utilized for the purchase of shares to earn dividend income. Further he ignored that the dividend income of the company is not assessable under section 80-B. He also ignored the provisions of section 34 according to which loss under one head of income is to be set off against income under other head of income. Under the circumstances, it is held that financial expenses are liable to be set off against total receipts and not only against dividend income. The Assessing Officer is directed to allow financial expenses against total receipts". We are of the view that the learned CIT(A) has rightly directed to allow financial expenses against total receipts, as financial expenses were incurred wholly and exclusively for the purpose of business and were not to be separated from other business expenses. These expenses must be set off against total receipts of the assessee instead of dividend income. While holding so, we have obtained support from the case referred by the learned counsel for the assessee reported as 1991 PTD (Trib.) 531 wherein it has been held that "financial expenses should be allowed under section 23(1)(vii) of the repealed Ordinance, 1979". Under sub-clause (vii) of subsection (1) of section 23, it has been provided that for computing the income under the head "income from business or profession", any interest paid in respect of capital borrowed for the purposes of business or profession shall be deducted which shows intention of the Legislature that for allowances and deductions in this respect, there should be a capital borrowed, the borrowed capital should be for the purpose of business or profession and the interest has been paid in respect of capital borrowed. If these three conditions are fulfilled, the assessee is entitled to the allowance to the extent of interest paid by him. In the present case, the Assessing Officer has not disputed that these conditions have not been fulfilled. The Assessing Officer set off the financial expenses against the dividend income. If for the sake of arguments, it is assumed that financial expenses are to be set off against dividend income, then the resultant loss was to be set off against other business income under section 22 of the repealed Ordinance as provided under section 34 of the Ordinance which says that "where an assessee sustains a loss (not being a loss to which section 36 or section 37 applies) in any assessment year under and head of income specified in section 15, he shall subject to clause (v) of subsection (1) of section 23 be entitled to have the amount of the loss set off against his income (other than income to which subsection (7) or (9) of section 12 applies), if any, under any other head assessable for that assessment year". We are of the view that resultant loss should be set off against the income from business or profession and the learned CIT(A) has rightly directed the Assessing Officer to allow financial expenses against total receipts. We, therefore, find no warrant for interference in the impugned order which is upheld and the appeal filed by the department is dismissed. H. B. T./320/Tax (Trib.) Appeal dismissed.