Income

Argument raised by the Taxpayer (M/s. Cotton Export Corporation of Pakistan (Pvt.) Ltd.) was that the order under S.62 of the Income Tax Ordinance, 1979 ('the Ordinance, 1979'), may have been erroneous at best, but was not prejudicial to the interest of the Revenue inasmuch as the assessment order was an order showing losses in its return; hence, S.66-A of the Ordinance, 1979 could not have been invoked

Validity

For invoking the provisions of S.66-A of the Ordinance, 1979 (section 122 of the Income Tax Ordinance, 2001), it is a must that both the ingredients i.e. an assessment order being erroneous and prejudicial to the interest of the Revenue, are fulfilled

Mere erroneous order of an Income Tax Officer without causing prejudice to the interest of the Revenue will not authorize Inspecting Additional Commissioner (IAC) to exercise powers under S. 66-A of the Ordinance, 1979 and these ingredients must be satisfied before invoking S.66-A of the Ordinance, 1979

In terms of S. 2(24) (b) of the Ordinance, 1979, the income includes any loss of such income and profits or gains, and therefore, even if a Return is showing losses, assessment can still be prejudicial to the interests of the Revenue and once it is not denied that the original assessment order was erroneous, then by merely arguing that the second condition (to the effect that it was not prejudicial to the interests of the Revenue) is not fulfilled, cannot be sustained

In the present case, both the preconditions for invoking the provision of S.66-A of the Ordinance, 1979 are fulfilled

Furthermore, as the loss, if any, in one income year is carried forward to the next income year, and while computing the income of the subsequent year(s), these losses are permitted to be deducted

Therefore, any such carry forward loss pursuant to some erroneous assessment order will always remain prejudicial to the interest of the Revenue: being liable to correction amendment of the original assessment order after reopening of the same

Therefore, the objection as to the original assessment order not being prejudicial to the interest of Revenue pursuant to a return of loss, and short of meeting the requirement of S.66-A of the Ordinance, 1979 is misconceived

Thus, in the present case, the IAC had jurisdiction to exercise powers under S.66-A of the Ordinance, 1979

Thus, the relevant question of law was answered against the Taxpayer and in favour of the Department

All the cases/References filed by the Taxpayer (M/s Cotton Export Corporation of Pakistan (Pvt.) Ltd.) stood dismissed, whereas, the reference filed by the department was allowed.

Burden to prove that an assessees' receipts fell within the scope of 'income' and were liable to be taxed, laid on the department, and if the latter managed to establish the same, then the burden shifted onto the former to show that such receipts were exempt from tax.

Definition in sub-S. (29) of S.2 of the Income Tax Ordinance, 2001 was inclusive and not exhaustive wherein it includes all kinds of profits and gains or receipt that were chargeable to tax under the Income Tax Ordinance, 2001.

Income need not necessarily but the recurrent return from -a definite course, though it is generally of that character; it may consist of a series of separate receipts as for instance happens in the case of professional earnings

Question whether a particular kind of receipt is income or not would depend for its answer on the peculiar facts and circumstances of the case.

Term income not only includes those things which are included in S.2(24) of the Income Tax Ordinance, 1979, but also covers all such things which the term signifies according to its general and natural meaning.

Assessee contended that voluntary contribution was not received under any statute or contractual obligation; that payment was benevolent and constituted a gesture of goodwill on the part of foreign company to help assessee to improve its financial position and receipt was in the nature of a mere windfall; that it could not be said that voluntary contribution had a character of a revenue receipt; that Taxation Officer was not justified in treating the voluntarily contribution as income and that all receipts could not be income for the purposes of income tax statutes

Validity

Word "income" was not exhaustive but was merely inclusive having wide significance

Any sum which may be deemed to be income or income accruing or arising or received in Pakistan may be construed as income

Term "income" could not be construed in a narrow and pedantic sense

Voluntarily contribution from associated undertaking was declared as income in the audited accounts whereas it was excluded by the assessee from the income in the computation of income

Such conduct of assessee could not be approved

Assesee could not take hot and cold in same breath

Further, such voluntary contribution was only supported by a photo copy of credit advice of bank and it was not supported by audited statement of accounts of foreign donor

There was a nexus between the receipt and the trading of foreign donor, as such "contribution" was liable to tax under the Income Tax Ordinance, 1979

Order of the First Appellate Authority was vacated and that of Taxation Officer was restored by the Appellate Tribunal.

Accounting entries as a result of adoption of a certain method of accounting system by taxpayer was not the determining factor alone for certain transactions to become income but each case had to be distinguished by its own facts and circumstances.

Sole selling agent-Commission on sales - Reserve, account created to pay compensation to outgoing agents-Finding of Tribunal that there wad no evidence or proof of agreement Reference-Scope of High Court's Jurisdiction to reject fining-Amount transferred to reserve account

Whether allowable deduction-Whether diverted by, overriding title-Indian Income-tax Act, 1922, Ss. 10(2)(xv) & 66(1)

[Imperial Chemical Industries India (Pvt.) Ltd. v. Commissioner of Income-tax (1965) 58 I T R 649 reversed].

Income-Accrual-Company - Managing agency firm-Commission of 15 per cent. on net profits with minimum of Rs. 25,000 in case of inadequacy of profits-Income of managed company less than Rs. 25,000-Commission whether accrues to managing agency firm-Waiver of commission-Question of fact.

General principles - Doctrine of mutuality - Race club - Members entitled to free entrance to enclosure by virtue of membership - Members enjoying club amenities and facilities-Subscriptions and entrance fees whether taxable.

Income-tax-Income -Collection for charity at specified percentage of sale price-Shown separately in bills and collected No part spent for charity -Collections whether part of income of collector-Guiding principles.The assessee collected from his customers half a per cent. of the sale price of the goods sold by him, showing them separately in the bills as for charity, though no portion of the said collection appeared to have been actually spent by the assessee toward, charity. The officer held that the collections were part of the income of the assessee brat the Tribunal held otherwise. On a reference:

Income-tax -Income-Diversion by overriding title-Assessee partner in J firm and B firm -J firm advancing monies to B farm Amount advanced treated as assessee's capital in B firm-Agreement between partners of J firm to share profits from B firm-Whether entire share of profit received by assessee from B firm is income Whether income diverted by overruling title.

Income-Date of accrual-Sale of movables and immovables-When title to movables passes-Agreement on March 4, 1957, for sale of business to C-Management of business deemed to, be in C as from January 1, 1957-Sale deeds, one for movables and one for immovables, executed and balance of price received on August 30, 1957-When profits on movables accrue-Whether the profits on sale of movables assessable in 1958-59-Sale of Goody Act, 1930, Ss. 20 to 24

Contract Act, 1872, S. 85.

Income-tax-Income -Suit for dissolution of marriage between assessee and his wife-Compromise decree-Liability to pay monthly sums to daughters-Tripartite agreement between assessee, daughters and partners of firm in which assessee is a partner to pay the daughters out of the assessee's share of profits

Whether payment to daughters diverted by overriding title.

Formation of limited company to carry on assessee's business-All shares in company held by assessee-Difference between cost price and sale price-Whether assessable as profits-Doctrine that no one can make profit out of himself-Applicability-Company, whether separate entity - Duty to look to economic realities-Income-tax Act, 1922, S. 10(2)(vii), second proviso-Commissioner of Income-tax v. Sir Homi Menta's Executors (1955) 28 I T R 928 dissented from].

Income Undisclosed income-"Previous year" for assessment-Direction in appeal to include it in another year's assessment Validity - New law point raised before Tribunal -Refusal to hear-Legality-Indian Income-tax Act, 1922, Ss. 31 & 34(3).

Accrual-Mercantile system-Transport contractor-Amount due for work done-Bills accepted by Government-Claim by Government for damages for breach of contract-Effect.

Foreign income-Inclusion in total income of person ordinarily resident-Business profits tax paid in foreign country-Whether deductible-Income-tax Act, 1922, Ss. 4(1) (b)(ii) & 10(2)(xv).

Income Income-Income from undisclosed source - Credit entries not explained-Whether income can be presumed to be business income for purposes of excess profits tax.

Purchase of goods at cost by one partner and agreement of dissolution between two partners-Sale later by that partner at profit-Suit by third partner-Consent order appointing Commissioner to take account treating sale as sale by firm-Award declaring other partners entitled to part of profits-Profits whether accrue at time of sale of goods or later.

Income Income-When accrues or arises-Income relating back to year of transaction whether permissible-Indian Income-tax Act, 1922, S. 4 (1) (b) (i)-[Gajapathi Naidu v. Commissioner of Income-tax (1960) I T R 282 reversed].

Income Income-Compensation paid on termination of employment before expiry of term-Whether compensation is in lieu of past services or for loss of employment-Question of law-Reference.

Assessment at flat rate-Computation of total turnover of branch-Goods sent to other branches on commission.

Assessment at flat rate-Computation of total turnover of branch-Goods sent to other branches on commission.

Mining lease Amounts paid by lessee to lessor towards "local fund cess" Whole amount not payable as cess Whether amount collected is income of lessor.

Diversion to overriding charge-Rule in Bejoy Singh Dudhuria's case-Maintenance paid to wife and children under decree of Court-Payment of maintenance not made charge on property-Amount whether could be deducted from income of assessee : [(1958) 33 I T R 90 reversed.]

­Decision-Existence of material-Inferences-Duty of Court.

Question of law -Whether assessee carried on business of banking"-Mixed question of law and fact-Test for " business of banking"-(Income Tax Ordinance of Ceylon and Rules). The question whether the Ceylon branch carried on the business of banking at the relevant time is a question of mixed fact and law, involving the construction of the Ordinance and Rules. The words " banking " and "banker" may bear different shades of meaning at different periods of history, and their meaning may not be uniform today in countries of different habits of life and different degrees of civilization.