1988 PLP 195 (PTD)

AJMAL MIAN, J.- This is an application under section 136(2) of the Income-tax Ordinance, 1979 (hereinafter referred to as the Ordinance) read with section 66(2) of the Income-tax Act, 1922 (hereinafter referred to as the Act) raising the following question of law for the opinion of this Court; "Whether in the facts and circumstances, the Tribunal was right in holding that the loss in respect of depreciable Fixed Assets of the applicant in East Pakistan was not allowable as a deduction under clause (vii) of subsection (2) of section 10 of the Income-tax Act?"

2. The brief facts leading to the filing of the above application are that the applicant in the assessment year 1973-74 claimed a sum of Rs.34,62,405 as a loss under section 10(2)(vii) of the Act sustained by them on account of fall of East Pakistan in respect of East Pakistani assests. The Income-tax Officer by his order dated 22-2-1975 disallowed the above item on the ground that the same was not covered by the Central Board of Revenue's Notification No. C.No.4(88)-1-T, 3/72, dated 28-11-1972. The applicant being aggrieved by the above order filed an appeal which was disposed off by an order, dated 18-6-1978 by the Appellate Assistant Commissioner of Income-tax 'A' Range, Karachi, whereby the order of the Income-tax Officer was maintained in view of an order, dated 30-6-1976 passed by the Income-tax Tribunal in I.T.A. No. 4593/KB of 1973-74, in which it was held that the real literal meaning of the word 'discard' to be 'abandonment', and that the word used in section 10(2)(vii) is discard and unless one discards, abandonment does not take place; and that the word 'discard' means a voluntary abandonment. Against the above order the applicant filed an appeal before the Income-tax Appellate Tribunal (I.T.A. No. 188(KR-) of 1978-79), which was also dismissed by an order, dated 22-11-1978, in which also the reliance was placed on the aforesaid order of the Income-tax Tribunal referred to by the Appellate Assistant Commissioner in his afore-mentioned order. Thereupon, the applicant filed an application under section 66(1) of the Act before the Income-tax Appellate Tribunal for getting the above quoted question referred to this Court for opinion, which application was declined by an order, dated 31-3-1981. After that the applicant filed the above application to this Court.

3. In support of the above application Mr. Ali Athar learned counsel for the applicant has invited our attention to an unreported judgment of this Court, dated 4-11-1987 given in I.T.R. No. 18 of 1979 and 10 others connected Income-tax References in which the above quoted question has been answered in the negative as it has been held that the property acquired by Bangladesh Government under the Bangladesh Abandoned Property (Control, Management and Disposal) Order, 1972 was competently acquired and was covered by above section 10(2)(vii) of the Act.

4. On the other hand Mr. Shaikh Haider, learned counsel for the respondent/ Department has submitted that before the Income-tax Officer, the Appellate Assistant Commissioner and also before the Income-tax Tribunal, the case proceeded, only on the question, whether the case was covered by the word discard', used it the above sub-clause (vii) of subsection (2) of section. 10 of the Act and not on the question, whether the property was acquired by a competent authority. He has further submitted that there is a judgment of a Division Bench of this Court on the question what constituted discard, namely,' in the case Pakistan Services Ltd. v. Commissioner of Income-tax 1986 P T D 461 in which while construing the word 'discard', it is held that the abandonment of business by an assessee owing to the happenings over which it had no control and was compelled to abandon of its assets and equipments could not be considered as discarding within the ambit of the above clause (vii) of subsection (2) of section 10 of the Act. .

5. In furtherance of the above submission Mr. Ali Athar, inter alia, has referred to the above unreported judgment, the operative portion is contained in paras 21-23, which read as follows:- "

21. The learned counsel for the parties placed reliance on the case of Pakistan Services Ltd. v. C. I. T. 1986 P T D 461 wherein a Division Bench of this Court interpreted the term 'discard. The learned Bench observed that 'abandonment of assets by the petitioner cannot be construed as their discarding and as such the same cannot fall within the purview of clause (vii) of section 10(2) of the Act so as to entitle the petitioner to claim deduction as aforesaid. It is, therefore, clear that the petitioner did not discard its assets in Dacca within the meaning of clause (vii) of section 10(2) and as such it is not entitled to claim any deduction thereunder. In our opinion, this represent the correct position in law. We are in respectful agreement with the proposition of law.

22. Under the circumstances, it must be held that the finding made by the Tribunal in regard to disallowance of losses claimed by the assessee under section 10(2)(vii) was not correct. The language of section 10(2)(vii) supports the view that the expression acquired by competent authority in the sense where it was intended to convey that the properties were acquired by competent authority under any law and the properties have ceased to exist, so far the assessees were concerned or the assessees have completely divested themselves of all interests and rights in the properties concerned. The words used are discarded or acquired. This shows that the assessees in order to claim allowance under this subsection were required to show that they had served all connections between themselves and the properties concerned which were either discarded or acquired by competent authority.

23. In the result, it can be said that the properties were acquired by the competent authority within the meaning of section 10(2)(vii) of the Act. It was, therefore, entitled to claim under that section the deduction of the loss from the income. Answer to the questions as framed, therefore, must be in the negative, in favour of the assessees and against the Revenue. There shall, however, be no order as to costs."

6. It has been contended by him that though the Income-tax Officer, Appellate Assistant Commissioner and the Income-tax Appellate Tribunal have not dilated upon the above question, whether the loss was on account of the fact that the applicant's assets were acquired by a competent authority, namely, the Bangladesh Government but this point was agitated by the applicant before the Income-tax Tribunal which fact is reflected in the above order of Income-tax Tribunal, dated 31-3-1981 declining the applicant's application under section 66(1) of the Act. The reliance has been placed by him on the following portion of the above order: "When appeal for the year now under consideration (i.e. 1973-74) came up for hearing 'before this Tribunal the circumstances were found to be similar to those in the preceding year of 1972-73 although an attempt was made to distinguish Tribunal's decision, dated 30-6-1976 (supra) by contending that Bangladesh which had came into existence on 16-12-1971 become a 'competent authority' after de jure recognition by Pakistan in February, 1974 and hence the recognition is to be interpreted as retrospective from the date on which Government of Bangladesh assumed effective control of the territory which was previously known as East Pakistan. It was further pleaded that me because the Assessee had abandoned the fixed assests in Chittagong it cannot be said that they did not exercise volition necessary for abandonment. Moreover, the assessee felt compelled to voluntarily abandon their assests in Bangladesh because of the risk involved to their personnel and the difficulties created by the tense political situation prevailing after 16-12-1971. It was thus emphasised that loss occasioned by discarding the fixed assets was duly covered by section 10(2)(vii). This Tribunal, however, did not deal with all the above submissions, but relying on its earlier decision in I. T. A. No. 4593(KB) of 1973-74, dated 30-6-1976, rejected the Assessee's claim. This is evident from the order of the Tribunal out of which the present question is said to arise. It is significant that the Tribunal did not think it necessary to go over the new stand taken by the Assessee in 1973-74 assessment as there was other material on record (e.g. the Tribunal's own decision in respect of proceeding year) to dispose of the appeal hence it was unnecessary to discuss those for adjudication."

7. We by an order, dated 1st December, 1987 directed the applicant to furnish a copy of the memo. of appeal filed before the Tribunal, to find out, whether factually the above point was raised in the appeal before the Income-tax Appellate Tribunal and the case was also reserved for orders.

8. Mr. Ali Athar, learned counsel for the applicant has submitted a photostat copy of the form of appeal in which the following grounds were raised: "The learned Appellate Assistant Commissioner of Income-tax 'A' Range, Karachi, was not justified in upholding the disallowance made by the Income-tax Officer of Rs.34,62,045 being the amount claimed in respect of loss of East Pakistan fixed assets. Your petitioner craves leave to add to, amend or alter the above ground of appeal."

9. A perusal of the above quoted ground of the applicant's appeal before the Income-tax Tribunal indicates that there was no specific ground raised by the applicant on the question which has now been urged before us and which has also been referred to in the Income-tax Tribunal's Order declining the applicant's application under section 66(1) of the Act. Mr. Ali Athar on query from the Court has candidly submitted that since he was not appearing before the income-tax Tribunal, he cannot say whether this point was urged but according to him this must have been urged otherwise the Income-tax Tribunal while declining the applicant's application under section 66(1) of the Act would not have made reference in its order to the above point.

10. We may observe that under subsection (1) of section 136 of the Ordinance which corresponds to section 66(1) of the Act an application for reference can be made before the Appellate Tribunal by an assessee or a Commissioner for getting a question of law arising out of the Appellate Tribunal's order referred to the High Court. Upon refusal of the Appellate Tribunal to refer the question to the High Court an assessee or a Commissioner may file an application under subsection (2) of section 136 of the Ordinance which correspond to subsection (2) of section 66 of the Act for framing a question of law.

11. In the instant case the ground of appeal before the Income-tax Appellate Tribunal reproduced hereinabove though does not contain the specific reference to acquisition but the same are wide enough to cover all the grounds on which loss could have been claimed under section 10(2)(vii) of the Act. However, in the order of the Income-tax Appellate Tribunal the finding is only in relation to discard. Mr. Shaikh Haider has referred to the case of C.V. Mathukutty v. Commissioner of Income-tax, Kirala 1981 P T D 30, in which a Division Bench of the Kirala High Court held that the factum that the Tribunal did not consider necessary to deal with certain contention for decision did not give rise to a question of law under section 256 of the Indian Income-tax Act, 1961. In our view, the above judgment is not applicable as the question framed in the present case is not as to the failure, namely, whether the Tribunal had failed to deal with certain contentions but the question in issue is, whether in the facts and circumstances the Tribunal was right in holding that the loss in respect of the depreciable fixed assests of the applicant in East Pakistan was not allowable as a deduction under clause (vii) of subsection (2) of section 10 of the Act. We may also point out that oh the contrary in the above cited case reference has been made to a decision of the Indian Supreme Court given in the case of Commissioner of Income-tax v. Scindia Steamship Navigation Co. Ltd. (1961) 42 I T R 589 (SC) and the following observation has been quoted there from page 611 of the judgment:

"When a question of law is raised before the Tribunal but the Tribunal fails to deal with, it must be deemed to have been dealt with by it, and is, therefore, one arising out of its order." The above quoted observation of the Indian Supreme Court in fact supports the contention of the learned counsel for the applicant as the grounds of appeal before the Income-tax Tribunal reproduced hereinabove in para. 8 were wide enough to include the question of loss in terms of clause (vii) of subsection (2) of section 10 including the ground of acquisition by a competent authority. From the order of the Income-tax Tribunal declining the applicant's application under section 66(1) of the Act relevant. portion of which is reproduced hereinabove in parao5, it seems that the other grounds in addition to discard covered by above clause were agitated before the Income-tax Tribunal as the above order apparently was written by Mr. A.A. Zuberi, Accountant Member of the Appellate Tribunal who had also written the aforesaid earlier order, dated 22-11-1978 disallowing the above loss as discard. We are, therefore, of the view that since the ground of acquisition by a competent authority has been raised before us and was also apparently raised before the Income-tax Tribunal the applicant cannot be denied the relief merely on the ground that the Income-tax Officer or the Appellate Assistant Commissioner have not referred to the above other ground in their orders. A reference under section 66 of the Act or section 136(2) of the Ordinance arises out of an order passed by the Appellate Tribunal and not out of the orders of an Income-tax Officer or of an Appellate Assistant Commissioner. As pointed out hereinabove that since the point in question was apparently raised before the Appellate Tribunal though not dilated upon by it, the question whether the applicant's East Pakistan assets in question were competently acquired by the Bangladesh Government arises out of the order of the Appellate Tribunal. We are inclined to hold that if an assessee raises a point before the Income-tax Appellate Tribunal alongwith other points and if the former is not decided or dilated upon by the Tribunal, it will be deemed to have been dealt with by it and, therefore, will arise out of its order.

12. In the aforesaid unreported judgment, dated 4-11-1987 (of which pares 21 to 23 have been quoted hereinabove in para. 5) the question in issue has been dealt with exhaustively and the same is answered in favour of the assessee. We see no reason to take a different view in the matter, and, therefore, for the reasons recorded in the above judgment, we answer the above-quoted question in negative. However, there will be no order as to costs. M. B. A./L-11/K Order accordingly.