Deductions not admissible

Assessing Authority declined to allow deduction of expenditure incurred by respondent on the provision of perquisites to its employees

Commissioner (Appeals) dismissed the appeal

Appellate Tribunal allowed the appeals by holding that the law did not permit making of ad hoc addition under S. 24(i) of the Income Tax Ordinance, 1979

Validity

Section 24(i) of the Income Tax Ordinance, 1979, had empowered the Assessing Authority to add to the income of a company any perquisite, allowance or other benefit given to an employee which was in excess of the 50% of his salary

No power was vested with the Assessing Authority to make any ad hoc additions to the income of the assessee in a slip shod manner or without properly working out the excess perquisites claimed by the assessee, in a shortcut manner

Assessing Authority being a quasi judicial authority was supposed to make the additions to the income of the assessee by giving cogent reasons and the justification for making such additions, if any

Assessing Authority though had opined that excess perquisites were given to the employees, but instead of adding those amounts, which were to be calculated after working out the excess perquisites, rather adopted a shortcut method of making ad hoc additions to the income of the assessee, in both the years under consideration, which was not in accordance with law

Reference applications were decided against the department.

Question before the High Court was whether the exemption contained in clause 3 of Part IV of the Second Schedule to the Income Tax Ordinance, 1979 applied only to banking companies and Financial Institutions owned and controlled by the Federal Government and in particular whether the word "or" contained therein, was used conjunctively or disjunctively

Held, that upon holistic reading of said clause it was clear that the said clause applied only to a banking company which was owned and controlled by the Federal Government only and not to any other banking company

High Court observed that it was not necessary to see whether the term "or" in the said clause was to be read disjunctively or conjunctively as the intention of the Legislature was clear that the clause should apply to banking companies owned and controlled by Federal Government only

When Clause 3 of Part IV of the Second Schedule to the Income Tax Ordinance, 1979 was enacted, only banking companies which were wholly owned and controlled by the Federal Government existed, as a result of the nationalization of banking companies

Privatization process of banking companies commenced at a much later stage and thus only banking companies in contemplation of the Legislature while enacting said clause, were banking companies owned and controlled by the Federal Government

Use of the term "or" merely accentuated and emphasized the separate nature of the two entities, that were, banking companies and financial institutions and must not be confused to lay a distinction between "or" as categorizing banking companies on the one hand and financial institutions wholly owned and controlled by the Federal Government on the other

Words "owned and controlled by the Federal Government" were intended to attach to both the terms and the word "or" has been used in a disjunctive sense for the limited purpose of bringing home the legislative intent that one juristic person may not include the other, and there could be no doubt that the legislative intent was clear and did not require the Court to read "or" as "and" in the said clause

Reference was answered accordingly.

Interest and rent expenses were disallowed on the ground that bank (taxpayer) failed to prove that tax was deducted thereon

First Appellate Authority observed that these payments had already been subject to tax under S.52 of the Income Tax Ordinance, 1979 and deleted the addition

Validity

Once the department exercised the option to charge amounts of certain payment to tax under S.52 of the Income Tax Ordinance, 1979 by holding the assessee-in-default then the said sum could not be disallowed under S.24(c) of the Income Tax Ordinance, 1979

Order of First Appellate Authority was confirmed by the Appellate Tribunal and departmental appeal was dismissed.