Allowable deduction

2019 PTD 1811 LAHORE-HIGH-COURT-LAHORE Judicial Precedent

Ss. 21(e), 34(3) & 67Allowable deductionScopeGratuity, payment ofDisallowance of deductionsMethods of accountingApplicabilityExpression 'subject to Ordinance' as appearing in S. 24(3) of Income Tax Ordinance, 2001

Taxpayer, a business entity, had created gratuity fund and was aggrieved of act of tax authorities for not recognizing the same as expenditure

Appellate Tribunal Inland Revenue allowed payment of gratuity as expenditure and deleted additions made to gratuity payment and disallowance of deductions

Validity

Mere adoption of mercantile method of accounting would neither dilute nor nullify effect and applicability of S. 21(e) of Income Tax Ordinance, 2001

No exception could be claimed regarding provision of gratuity under mercantile method of accounting alleged to have been adopted by taxpayer

Allowable deductions could be claimed against gratuity payments only when contribution were made towards an approved gratuity fund

No allowable deduction in lieu of gratuity payments could be claimed on pretext of adopting mercantile/accrual method of accounting under Income Tax Ordinance, 2001 which legislative intent was reaffirmed by use of expression 'subject to Ordinance' in S. 34(3) of Income Tax Ordinance, 2001

Mere provision of gratuity payments, payable in future subject to happening of contingency, under mercantile method of accounting did not constitute compliance of S. 21(e) of Income Tax Ordinance, 2001 and allowed deductions claimed in such behalf

Appellate Tribunal Inland Revenue, therefore, was not justified to hold that mere provisioning for gratuity payments constituted allowable/admissible deduction according to S. 21(e) of Income Tax Ordinance, 2001.

2016 PTD 786 LAHORE-HIGH-COURT-LAHORE Judicial Precedent

Ss. 21(g) & 133Sales Tax Act (VII of 1990), S. 34Allowable deductionScope

Authorities were aggrieved of the decision made by Income Tax Appellate Tribunal whereby it was held that additional tax under S. 34 of Sales Tax Act, 1990, for late payment of sales tax was not in the nature of "fine" therefore, it was not hit by statutory disallowance of S. 21(g) Income Tax Ordinance, 2001

Validity

Any expense incurred by assessee by way of payment of fine/penalty, late payment charges etc. in breach of some law, then such an expense was not allowable deduction within the scope of provision of S. 21(g) of Income Tax Ordinance, 2001

No equity about tax and no presumption as to a tax

Nothing was to be read in and nothing was to be implied

Court had only to look fairly at the language used

If a person sought to be taxed came within the letter of the law, he must be taxed, however great hardship could thereby be involved

If the State could not bring subject within the letter of law he was free, howsoever, apparent it might be that his case was within what might be called the spirit of law

Even if two views were possible from reading of any provision of law even then the view which favored citizen/assessee had to be given preference over the second view for the reason, firstly that charge upon the subject were to be imposed by clear and unambiguous words, secondly, fiscal provision of a statute was to be construed liberally in favour of taxpayer

In case of any substantial doubt, the same was to be resolved in favour of citizen

Statutory principle of law was that the things should be done as they were required to be done in law or not at all

High Court declined to interfere in the findings passed by Income Tax Appellate Tribunal and question of law was answered in affirmative against authorities

Reference was dismissed in circumstances.

2014 PTD 397 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

S.20(1)Oil and Gas Regulatory Authority Ordinance (XVII of 2002), Ss.8(5) & 43Allowable deductionGas Development Surcharge

Since Oil and Gas Regulatory Authority Ordinance, 2002 made a reference to Income Tax Ordinance, 2001 vis-à-vis the allowability of the amount, the intention was manifestly clear

Legislature, while drafting the Oil and Gas Regulatory Authority Ordinance, 2002, had in its mind the provisions of Income Tax Ordinance, 2001 so by prescribing the allowability the confusion regarding allowability, if any, had been removed

Provisions of S.43 of the Oil and Gas Regulatory Authority Ordinance, 2002 assigned overriding status to the provisions of the Oil and Gas Regulatory Authority Ordinance, 2002 in totality vis-à-vis any other statute

Revenue was blowing hot and cold together, while the receipt i.e. negative Gas Development Surcharge/ differential margin was treated as income, the denial of deduction of Gas Development Surcharge to the taxpayer defeated the principles of consistency and all norms of justice and fair play.