PLJ 2001 Lahore 36 (DB)
Present: nasim sikandar & JAWWAD S. khawaja, JJ.
M/s. NIDA-I-MILLAT (PVT.) LIMITED, LAHORE-Petitioner
versus COMMISSIONER OF INCOME TAX, ZONE-I, LAHORE-Respondent
C.T.R. No. 24 of 1989, heard on 2.10.2000.
(i) Income Tax Ordinance, 1979--
—S. 136(l)~-Tribunal--Decision of-Refernece against-Whether gratuity calculated by assessee from year to year and provided for in its books of accounts is a deductible business expense, even if a factual payment thereof depended on a future event and it had not actually become payable to an employee in relevant income year-Held : Amount of gratuity payable to employees was admissible as an expense.
[P. 37] A & D
(1992)-65-Tax-254 rel.
(ii) Income Tax Ordinance, 1979-
—S. 136(l)--Whether liability for payment of gratuity is a property charge against income of assessee and as such admissible as expense against the income of relevant years on "incremental value basis—Question of-held: Amount of gratuity payable to employees was a proper charge on the income of assessee and as such was admissible as an expense.
[P. 37] B & D
(iii) Income Tax Ordinance, 1979-
—S. 136(l)-Whether all expenses vouched by Directors of limited company for telephone, traveling, entertainment etc. are deemed to have been incurred and paid for purposes of business of the company and allowable on accunt of commercial expendience-Question of-Held : An expense whether vouched by Director or otherwise must satisfy two statutory requirements : firstly, that it was actually incurred and secondly that it was incurred wholly and exclusively for the purpose of business of assessee-Verification of Director would not dispense with statutory requirements for allowing of an expense.
[Pp. 37 & 38] C & E
Sh. Maqbool Ahmed, Advocate for Petitioner.
Mr. Muhammad Ilyas Khan, Advocate for Respondent.
Date of hearing : 2.10.2000.
judgment
Nasim Sikandar, J.-The Lahore Bench of the Income Tax Appellate Tribunal at the instance of the assessee a private limited company deriving income from publication of newspapers has referred the following questions of law said to have arisen out of a consolidated order recorded on 31.7.1998 by the Tribunal for the assessment years 1977-78 to 1986-87 :--
(1) "Whether in the facts and circumstances of the case the gratuity calculated by the assessee from year to year and provided for in its books of accounts was a deductible business expense even if actual payment of the gratuity depended on a future event and it had not actually become payable to any employee in the relevant income year ?
(2) Whether the liability for payment of gratuity is a proper charge against the income of the assessee and as such admissible as expense against the income of relevant years on "incremental value basis ?
(3) Whether the assessee being a limited company is a person not capable of incurring expenses on its travelling, telephone and the like and disallowance as such is liable to be deleted in computing the taxable income of the assessee ?
(4) Whether all expenses vouched by the Directors of limited company for telephone, travelling entertainment and the like
are deemed to have been incurred and paid for the purposes of the businesses of the company and allowable on account of
commercial expedience ?
2. While framing assessments in the years under review, the assessing officer disallowed in toto the claimed expense on account of gratuity. Also part of the expense claimed in various heads under the main head of administration and general expenses were disallowed on the ground of their being unverifiable. The assessee failed before the learned First Appellate Authority as well as the Tribunal.
3. Heard the learned counsel for the parties. Both of them agree that the issue if gratuity payable to employees is an allowable expense has finally been settled in affirmative by the Hon'ble Supreme Court of Pakistan in re : Commissioner of Income tax v. Oriental Dyes & Chemical Co, Ltd. (1992) 66 Tax 254. Accordingly, the Srst two questions must be answered in the affirmative to hold that the amount of gratuities payable to employees is a proper charge on the Income of the assessee and as such is admissible as an
expense.
4. Question No. 3 as framed does not arise out of the order of the Tribunal. Neither this issue was raised before the Tribunal nor it was discussed by them. The question as framed even otherwise does not arise out of the order of the Tribunal. Therefore, we will refuse to answer the same!
5. Also we entertain no doubt that an expense whether it is vouched by a Director or otherwise must satisfy two statutory requirements. Firstly that it was actually incurred and secondly that it was incurred wholly and exclusively for the purpose of business of the assessee. The issue that petty expenses having been certified by the Directors must be deemed to have been actually incurred for the business of the assessee cannot be accepted on any principal of law. The verification of a Director will not dispense with the tatutory requirements for allowing of an expense. In the case of the assessee dis-allowances of small amounts were made by the Assessing Officer under the heads general repairs, general charges, entertainment, medical expense, car expense and travelling etc. The ground being that these expenses were not fully vouched. These observations by the Assessing Officer were never challenged before the forums below. Also, as we have stated earlier, both the verifiability as well as the admissibility of an expense is to be seen in the
light of the relevant provisions of the Ordinance irrespective of the amount of the expense claimed. Secondly verification of a director per se cannot be accepted as a proof of actual incurring of the expense. To be allowed as an expense it must stand the aforesaid test which obviously the assessee failed as far as disallowed amounts of expenses are concerned. Therefore, our janswer to Question No. 4 is in the negative.
6. To sum up, Questions Nos. 1 and 2 are answered in the light of the said judgment of the Hon'ble Supreme Court of Pakistan. Question No. 3 does not arise out of the order of the Tribunal and therefore we will refuse to answer the same while Question No. 4 is answered in the negative.
7. The Registrar shall send a copy of this judgment under the seal of the Court and his signature to the concerned Bench of the Income Tax
Appellate Tribunal.
(SA.K.M.) Reference Answered Accordingly.
Present: nasim sikandar & JAWWAD S. khawaja, JJ.
M/s. NIDA-I-MILLAT (PVT.) LIMITED, LAHORE-Petitioner
versus COMMISSIONER OF INCOME TAX, ZONE-I, LAHORE-Respondent
C.T.R. No. 24 of 1989, heard on 2.10.2000.
(i) Income Tax Ordinance, 1979--
—S. 136(l)~-Tribunal--Decision of-Refernece against-Whether gratuity calculated by assessee from year to year and provided for in its books of accounts is a deductible business expense, even if a factual payment thereof depended on a future event and it had not actually become payable to an employee in relevant income year-Held : Amount of gratuity payable to employees was admissible as an expense.
[P. 37] A & D
(1992)-65-Tax-254 rel.
(ii) Income Tax Ordinance, 1979-
—S. 136(l)--Whether liability for payment of gratuity is a property charge against income of assessee and as such admissible as expense against the income of relevant years on "incremental value basis—Question of-held: Amount of gratuity payable to employees was a proper charge on the income of assessee and as such was admissible as an expense.
[P. 37] B & D
(iii) Income Tax Ordinance, 1979-
—S. 136(l)-Whether all expenses vouched by Directors of limited company for telephone, traveling, entertainment etc. are deemed to have been incurred and paid for purposes of business of the company and allowable on accunt of commercial expendience-Question of-Held : An expense whether vouched by Director or otherwise must satisfy two statutory requirements : firstly, that it was actually incurred and secondly that it was incurred wholly and exclusively for the purpose of business of assessee-Verification of Director would not dispense with statutory requirements for allowing of an expense.
[Pp. 37 & 38] C & E
Sh. Maqbool Ahmed, Advocate for Petitioner.
Mr. Muhammad Ilyas Khan, Advocate for Respondent.
Date of hearing : 2.10.2000.
judgment
Nasim Sikandar, J.-The Lahore Bench of the Income Tax Appellate Tribunal at the instance of the assessee a private limited company deriving income from publication of newspapers has referred the following questions of law said to have arisen out of a consolidated order recorded on 31.7.1998 by the Tribunal for the assessment years 1977-78 to 1986-87 :--
(1) "Whether in the facts and circumstances of the case the gratuity calculated by the assessee from year to year and provided for in its books of accounts was a deductible business expense even if actual payment of the gratuity depended on a future event and it had not actually become payable to any employee in the relevant income year ?
(2) Whether the liability for payment of gratuity is a proper charge against the income of the assessee and as such admissible as expense against the income of relevant years on "incremental value basis ?
(3) Whether the assessee being a limited company is a person not capable of incurring expenses on its travelling, telephone and the like and disallowance as such is liable to be deleted in computing the taxable income of the assessee ?
(4) Whether all expenses vouched by the Directors of limited company for telephone, travelling entertainment and the like
are deemed to have been incurred and paid for the purposes of the businesses of the company and allowable on account of
commercial expedience ?
2. While framing assessments in the years under review, the assessing officer disallowed in toto the claimed expense on account of gratuity. Also part of the expense claimed in various heads under the main head of administration and general expenses were disallowed on the ground of their being unverifiable. The assessee failed before the learned First Appellate Authority as well as the Tribunal.
3. Heard the learned counsel for the parties. Both of them agree that the issue if gratuity payable to employees is an allowable expense has finally been settled in affirmative by the Hon'ble Supreme Court of Pakistan in re : Commissioner of Income tax v. Oriental Dyes & Chemical Co, Ltd. (1992) 66 Tax 254. Accordingly, the Srst two questions must be answered in the affirmative to hold that the amount of gratuities payable to employees is a proper charge on the Income of the assessee and as such is admissible as an
expense.
4. Question No. 3 as framed does not arise out of the order of the Tribunal. Neither this issue was raised before the Tribunal nor it was discussed by them. The question as framed even otherwise does not arise out of the order of the Tribunal. Therefore, we will refuse to answer the same!
5. Also we entertain no doubt that an expense whether it is vouched by a Director or otherwise must satisfy two statutory requirements. Firstly that it was actually incurred and secondly that it was incurred wholly and exclusively for the purpose of business of the assessee. The issue that petty expenses having been certified by the Directors must be deemed to have been actually incurred for the business of the assessee cannot be accepted on any principal of law. The verification of a Director will not dispense with the tatutory requirements for allowing of an expense. In the case of the assessee dis-allowances of small amounts were made by the Assessing Officer under the heads general repairs, general charges, entertainment, medical expense, car expense and travelling etc. The ground being that these expenses were not fully vouched. These observations by the Assessing Officer were never challenged before the forums below. Also, as we have stated earlier, both the verifiability as well as the admissibility of an expense is to be seen in the
light of the relevant provisions of the Ordinance irrespective of the amount of the expense claimed. Secondly verification of a director per se cannot be accepted as a proof of actual incurring of the expense. To be allowed as an expense it must stand the aforesaid test which obviously the assessee failed as far as disallowed amounts of expenses are concerned. Therefore, our janswer to Question No. 4 is in the negative.
6. To sum up, Questions Nos. 1 and 2 are answered in the light of the said judgment of the Hon'ble Supreme Court of Pakistan. Question No. 3 does not arise out of the order of the Tribunal and therefore we will refuse to answer the same while Question No. 4 is answered in the negative.
7. The Registrar shall send a copy of this judgment under the seal of the Court and his signature to the concerned Bench of the Income Tax
Appellate Tribunal.
(SA.K.M.) Reference Answered Accordingly.
No comments:
Post a Comment