Deduction

2025 PTD 1777 KARACHI-HIGH-COURT-SINDH Judicial Precedent

S. 133 (1) & Fifth Schedule, Part-1, R.3Income Tax Ordinance (XXXI of 1979), [since repealed] Fifth Schedule, Part-1, R. 4(2)

Regulation of Mines and Oil-fields and Mineral Development (Government Control) Act (XXIV of 1948), S. 3B & Schedule, Part-2

Reference

Amount of royalty

Deduction

Rate of tax

Applicability

Petroleum Concession Agreement

Dispute was with regard to rate of tax and deduction of amount of royalty

Held: Rate of royalty and tax on income were clearly provided in Part-2 to the Schedule to Regulation of Mines and Oil-fields and Mineral Development (Government Control) Act, 1948 according to which it was not to be more than 55% nor less than 50% of the profits and gains before deduction of payments to Government

As and when calculation was being made for the purposes of calculating any tax on any income [either @ 50% or 55% or any other agreed rate]it had to be arrived at before deduction of payments to Government

Only protection on the basis of Petroleum Concession Agreement available to applicants / taxpayers was in respect of aggregate of the tax on income and other payments to Government

In terms of R. 4 (2) of Part-I of Fifth Schedule to Income Tax Ordinance, 1979, it was also provided that if aggregates of taxes on income and payments to government was greater or less than the amount provided for in the Agreement, an automatic adjustment in the form of further payment or an abatement of tax could be availed of

Protection in Petroleum Concession Agreement was dependent on the applicable laws

If something had not been provided in it then it could not have been incorporated in Petroleum Concession Agreement, whereas even otherwise wording of Regulation of Mines and Oil-fields and Mineral Development (Government Control) Act, 1948 would be the law and should prevail which catered for this clearly

All rates provided in Petroleum Concession Agreements (i.e. 50% to 55%) were applicable on profits and gains before deduction of royalty

Reference was disposed of accordingly.

2018 PTD 1344 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Fifth Schedule, Part-I, R.3Expenditure incurred on account of royaltyDeductionAdditionAssessing Officer made addition in tax on account of "depletion allowance"

While making the impugned addition, the Assessing Officer observed that for the purpose of computing depletion allowance under R.3 of Part I of Fifth Schedule to the Income Tax Ordinance, 2001, the expenditures incurred on account of royalty, was to be deducted from "Gross receipts"

Such treatment was confirmed, in first appeal

Validity

Held, that depletion allowance had to be worked out after deduction of royalty from the well head value of the product

Departmental action was confirmed and taxpayer's appeals were rejected.

2015 PTD 2059 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Ss. 21(c)(h), (N), 22(13)(a), 122(5-A) & 131, Second Sched., Part III, Clause (8)DeductionDepreciationAmendment of assessmentRespondent/taxpayer company, was distributor of electrical home appliances, manufactured by a manufacturing company

Taxpayer by applying provisions of Cl.(8) of Part III of Second Schedule to Income Tax Ordinance, 2001, claimed rebate of 80% towards minimum tax, which was refused by the department

Appellate authority found that the taxpayer being distributor of consumer's goods, was entitled for 80% rebate towards minimum tax

Validity

Taxpayer as per agreement with manufacturing company, had to bear entire distributory costs, which included "Depreciation", "Advertisement", "Sale Promotion" "FOC brand promotion", "Product business expenses" etc.

No one could go beyond the express words given by the legislature

When legislature, had not linked the consumer's rebate with the gross profit or net profit, there was no justification to allow the rebate only to the consumers enjoying low margin of gross profit

Intention of legislature, was to grant rebate to distributors, as they had heavy turnover, but lesser income so as to pay 1% of turnover as minimum tax

80% distributory rebate was available to the taxpayer company, departmental appeal was rejected on that issue

Taxpayer had claimed depreciation on trucks with value of each truck at Rs.28,43,085, Adjudicating authority restricted the value of trucks at Rs.15,00,000 for allowance of depreciation, resulted into addition of Rs.60,4839 towards income

Appellate Authority, deleted the addition on the ground that as per S.22(13)(a) of Income Tax Ordinance, 2001, restriction of value of vehicles was for passenger transport vehicles, not plying for hire

No reason existed for interference with order of Appellate Authority on that issue

Taxpayer had claimed advertisement and sale promotion expenses at Rs.245,121,888, adjudicating authority concluded that claim of expense was not in accordance with increase in turnover, and made addition of Rs.98,73,4967 under S.21(N) of Income Tax Ordinance, 2001

Appellate Authority found the said addition as unlawful and deleted the same in toto

Amendment of assessment under S.122(5-A) of Income Tax Ordinance, 2001, could not be made on the basis of assumption and guesswork

Taxpayer claimed "FOC brand promotion expenses" at Rs.460,533,868 which had been amortized by Adjudicating Authority over a period of ten years, which resulted into addition of Rs.414,480481 towards declared income

Appellate Authority, deleted said addition

No reason existed to interfere with the treatment given by Appellate Authority

Claim of taxpayer was upheld and departmental appeal was rejected

Taxpayer submitted details, which included initial cost, accumulated depreciation, written down value and sale proceeds to establish that there was no gain on sale of vehicles

Adjudicating authority, calculated depreciation on the basis of unsold vehicles, which resulted addition towards gain on sale of vehicles and depreciation respectively

Such additions, had been upheld by Appellate Authority

Taxpayer claimed expenses under the Head 'Product Manager Business Expenses"

Adjudicating Authority disallowed said claim under S.21(h) of the Income Tax Ordinance, 2001, holding that no product was being manufactured by the company

Addition under S.21(h) of the Income Tax Ordinance, 2001, had been made on the basis of assumption, conjectures and without appreciating the facts of the case

No reason existed for the invocation of S.21(h) of the Income Tax Ordinance, 2001, in rejection of claim

Appellate Tribunal, having already deleted the addition made under S.21(h) of the Income Tax Ordinance, 2001 for tax year 2011, addition under S.21(h) of the Income Tax Ordinance, 2001, was also deleted.

2013 PTD 1429 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

S. 20, Seventh ScheduleProvisions for diminution in value of investmentDeduction

Deductions under head 'provision for diminution in value of investment', were disallowed, and confirmed by Commissioner (Appeals)

Tribunal had confirmed addition under said head for the years prior to insertion of Seventh Schedule, but allowed impairment losses

Deletion of addition was ordered by the Tribunal as years involved, were after the amendment in law rendering the decision relied by the department as "no longer applicable".

2007 PTD 2237 INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN Judicial Precedent

S.23(xxi)DeductionAssessee, a BankDeletion of additional mark-up in suspense account

Appeal on the issue had no merit as the provisions of S.23(xxi) of the Income Tax Ordinance, 1979 stood amended w.e.f. 1-7-2000 by which a banking company was entitled for claiming such allowance as deduction.

2007 PTD 2237 INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN Judicial Precedent

S.23DeductionAssessee, a BankMark-up in suspense account (Non-performing loans)Addition of

Outcome of amendment in S.23 of the Income Tax Ordinance, 1979 was realization by the legislature to provide relief to such legitimate claims of hardship, where actually no income had arisen to the assessee

Amount of mark-up in suspense account was liable to taxation merely on the basis of accounting +.entries

Addition made to assessee's income of the amount of mark-up placed in suspense account was ordered by the Appellate Tribunal to be deleted.