2012 PLP 785 (PTD)

EJAZ AFZAL KHAN, C.J.

The Commissioner Income Tax has filed Tax References Nos. 151 of 2003 and 57 of 2004 by urging the question whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal, Peshawar was legally justified to confirm the order of the Commissioner Income Tax (Appeals), Peshawar by holding that interest being a business income could not be subjected to tax?.

2. As both the references mentioned above involve alike question, we would like to dispose them of by this single judgment.

3. The learned counsel appearing on behalf of the petitioner contended that when the respondents were engaged in manufacture and sale of textile products and detonators, any interest earned by them through an investment made in a bank or financial institution shall be income-from other sources and hence liable to tax and that the learned Appellate Tribunal by failing to appreciate this essential aspect of the case has acted against the declared law of the land. The learned counsel in support of his contentions placed reliance on the cases of Commissioner of Income Tax East Pakistan Dacca v. The Liquidator, Khulna Bagerhat Railway Company Ltd., Ahmadabad (PLD 1962 SC 128) and Messrs Lakki Cement Ltd., v. Commissioner Income Tax, rendered in Tax Reference No. 117 of 2003, decided on 22-11-2005.

4. The learned counsel appearing on behalf of the respondents contended that any interest accruing on a deposit earned out of the business income would be income from business within the terms of section 22 of the Ordinance, therefore, it is not liable to income tax and that the judgment of the learned Appellate Tribunal being in accordance with the letter and spirit of the aforesaid provision is not open to any interference. The learned counsel next contended that where an income is exempt from tax under clause 118(C) of the Second Schedule, so would be the interest earned thereon if and when deposited in view of the provision contained in section 14(1) of the Ordinance, notwithstanding, such an income shall be included in the total income. The learned counsel, in support of his contentions, placed reliance on the cases of The Commissioner of Income Tax, Sales Tax, North Zone (West Pakistan) Lahore v. Messrs Agha Textile Mills, Gujranwala [PLD 1962 (W.P) Lahore 816] and The Commissioner of Income Tax, East Pakistan v. Messrs Ayurvedic Pharmacy (Dacca), Ltd. (PLD 1970 SC 93).

5. We have gone through the record carefully and considered the submissions made by the learned counsel for the parties.

6. Before we deal with question urged before us, it is worthwhile to see what do the expressions " business" and "interest" mean. The one according to section 2(11) of the Ordinance, includes any, trade, commerce or manufacture or any adventure or concern of alike nature whereas latter according to section 2(29) of the Ordinance means interest payable in any manner in respect of any money borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of money borrowed or debt incurred in respect of any credit facility, which has not been utilized.

7. The following heads of income have been listed in section 15 of the Ordinance in the sequence running as under:-- (a) Salary; (b) Interest on securities; (c) Income from house property; (d) Income from business or profession: (e) Capital gains: and (f) Income from other sources..

8. Income from business or profession according to section 22 of the Ordinance chargeable under the heads of income from business or profession is detailed as under:-- (a) Profits and gains of any business or profession carried on, or deemed to be carried on, by the assessee at any time during the income year; (b) Income derived by any trade, profession and similar association from specific services performed for its members; and (c) Value of any benefit or perquisite whether convertible into money or not, arising from business or the exercise of a profession.

9. Other sources have been dealt with by section 30 of the Ordinance which read as under:-- (30) Income from other sources.

(1) Income from every kind which may be included in the total income of an assessee under this Ordinance shall be chargeable under the head 'income from other sources', if it not included in his total income under any other head. (2) In particular, and without prejudice to the generality of the provisions of subsection (1) the following income shall, save as otherwise provided in this Ordinance, be chargeable under head income from other sources' namely:-- (a) Dividend,-- (b) Interest, royalties and fees for technical services: (c) Ground rent: (d) Income from the hire of machinery, plant or furniture belonging to the assessee and also of buildings belonging to him if the letting of the buildings is inseparable from the letting of the said machinery, plant or furniture: and (e) Any income to which subsection (12) of section 12 or section 13 applies.

10. Now, we are to see, in light of the, above quoted provisions, whether income received by the respondents from deposits in bank can be termed as income from other sources, notwithstanding, the amount so deposited was earned out of the business? Our answer to the question would be in the affirmative because the interest earned on deposits would essentially be income from other sources. Section 30 of the Ordinance when read closely and comprehensively no where makes any distinction whether investment in a bank or financial institution was made out of an income earned through business or any other source. Such income by no canons of interpretation can be termed as income from business, especially when accrual of interest has no nexus with manufacture or sale of textile products and detonators. It is, thus, income from other sources. The cases of Commissioner of Income Tax, East Pakistan Dacca v. The Liquidator, Khulna Bagerhat Railway Company Ltd., Ahmadabad and Messrs Lakki Cement Ltd. v. Commissioner Income Tax, rendered in Tax Supra) may well be referred in this behalf.

11. The argument that where an income is exempt from tax under clause 118(C) of the Second Schedule so would be the interest earned thereon if and when deposited, in view of the provision contained in section 14(1) of the Ordinance, hasn't impressed us because the cases before us relate to the assessment years, 1998-1999 and 2000-2001, whereas, clause 118(C) of the Second Schedule no more adorned the Ordinance during such period on account of its being deleted by Finance Act of 1995. Even otherwise it is irrelevant when the interest earned by the respondents can't be termed as profits and gains derived by them from an industrial undertaking. It is perhaps in this context that the learned Appellate Tribunal couldn't record any reason in support of its conclusions. The cases of The Commissioner of Income Tax, Sales Tax, North Zone (West Pakistan) Lahore v. Messrs Agha Textile Mills, Gujranwala and The Commissioner of Income Tax, East Pakistan v. Messrs Ayurvedic Pharmacy (Dacca), Ltd. (Supra) referred to above being distinguishable are not germane to the cases in hand. We, therefore, are of the firm and considered view that the interest earned on deposit being covered by section 30 of the Ordinance is liable to be taxed. The question, thus, raised is answered accordingly in both the references mentioned above. H.B.T./33/P Order accordingly.