The learned counsel for the respondent department invites this Court to read the word income used in this clause as net income which would be arrived at by first reducing such income by taking other allowances under section 23(1) and to carryforward the balance for adjustment against income from lease rentals in subsequent years.

DECISION

(A.) Provisions of bad debts by the assessee Bank has been decided in PTR No. 184 of 2002 - The ITA No.218 of 2000 relates to the provisions of bad debts by the assessee banks and which has been decided by us in PTR No.184 of 2002 [(2022) 126 TAX 575 (H.C. Lah.)] in the following terms:

5. Thus, the Supreme Court of Pakistan has conclusively put construction on the precise scope and sweep of section 23(i)(x) of the Ordinance, 1979 and held on the basis of the standard accounting principles that a debt becomes irrecoverable when it is written off and so the entitlement regarding deduction for bad debts was to the extent of irrecoverable loans determined as such under the regulatory framework governing financial institution. It would thus be a matter to be determined on a case to case basis whether the deduction for bad debts was allowable to a particular taxpayer/financial institution or not.

This question of law is decided in terms of the above .

(B,CD.) Expression Income from lease rental only has to be taken in its ordinary connotation it cannot be agreed that depreciation must be calculated after reducing income from lease rentals by deducting other allowances - We are not inclined to read the word income as net income as this would he adding words to a provision which is not permissible as there is no intendment in taxation laws.

In fact, the expression income from lease rentals only has to be taken in its ordinary connotation and it signifies simply that depreciation on assets given on lease shall be allowed against any income from lease rentals.

Thus, we are not inclined to agree with the counsel for the respondent department that the depreciation must be calculated after reducing the income from lease rentals by deducting other allowances. The question of law to this extent is decided in favour of the appellant and against the respondents.

(E.) Question of Law at Serial No. 2 relates to interest credited to suspense account and this issue has already been decided in PTR No. 407 of 2003 - The question of law at serial No. 2 relates to interest credited to suspense account and this issue has already been decided in PTR No.407 of 2003 in which while relying upon the letter of the then CBR dated 23.11.2005, the number of appeals were directed to be withdrawn. Consequently in PTR No.407 of 2003, a Division Bench of this Court declined to answer the question of law and the reference application was dismissed. This appeal too on the instant question of law is decided in favour of the appellants and the appeal is allowed. The impugned order of the tribunal is set aside. In view of the above, I.T.A. Nos.215 and 216 of 2000 under section 136 of the Income Tax Ordinance, 1979 are decided in the above terms and are allowed and the impugned order of the Tribunal is set aside.

Cases Referred to:

Commissioner of Income Tax v. Prime Bank Limited (2022) 126 TAX 575 (H.C. Lah.) and Department v. Assessee (2000) 81 TAX 29).

JUDGMENT:
SHAHID KARIM, JUSTICE:---.---

This order will decide Income Tax Appeals No.215, 216 and 218 of 2000 as these arise out of a common judgment of the Income Tax Appellate Tribunal, Lahore dated 27.12.1999.

2. The ITA No.218 of 2000 relates to the provisions of bad debts by the assessee banks and which has been decided by us in PTR No.184 of 2002 [(2022) 126 TAX 575 (H.C. Lah.)] in the following terms:

5. Thus, the Supreme Court of Pakistan has conclusively put construction the precise scope and sweep of section 23(1)(x) of the Ordinance, 1979 and held on the basis of the standard accounting principles that a debt becomes irrecoverable when it is written off and so the entitlement regarding deduction for bad debts was to the extent of irrecoverable loans determined as such under the regulatory framework governing financial institution. It would thus be a matter to be determined on a case to case basis whether the deduction for bad debts was allowable to a particular taxpayer/financial institution or not. This issue was required to be determined under the repealed Ordinance, 1979 by the Deputy Commissioner concerned. We, therefore, deem it proper to remit this case for the necessary determination regarding irrecoverability of a loan to the competent officer concerned under the present dispensation. This will be done by the competent officer in the light of the judgment of the Supreme Court of Pakistan set out above and to determine whether deduction for bad debts was to be allowed to a particular taxpayer individually on the basis of the treatment that has been given by the taxpayer/financial institution in its books of account.

3. This question of law is decided in terms of the above judgment.

4. Now we take up the questions of law which have been raised in ITAs No.215 and 216 of 2000. The first question of law that we intend to deal with has been framed in the following terms:

(a) Whether the Tribunal was justified in applying the Tribunals full bench decision reported in (2000) 81 Tax 29 holding that the allowance for depreciation in relation to assets given on lease should be allowed to the extent of profits and gains arising from lease rentals after first deducting other allowances under section 23(1) of the Ordinance.

5. The Income Tax Appellate Tribunal decided this question in the following manner:

9. As already said above, the common feature in the order U/S 66A of the Ordinance in both the years are the addition on account of depreciation of leased assets and the interest credited to suspense accounts. In fact in the assessment year 1995-96, these are the only two issues where the IAC has revised the assessment and we proposed to deal with these two issues before deciding the other issues. Both the parties have argued elaborately on the issue of depreciation on the leased assets. However, this issue has been put at rest by a full Bench of the Tribunal at Karachi while deciding the departmental appeal bearing ITA No.2070/KB of 1998-99 in the case of leasing company. By that order the full Bench of the Tribunal unanimously upheld the departmental point of view on this issue. Hence without going in to further deliberations, we confirm the action of the IAC with regard to the allowance of depreciation on the assets leased out by the Bank in both the years.

6. It can be seen from the above that the issue relates to depreciation on the leased assets. The Tribunal did not give its independent finding on the issue but relied upon an earlier order passed by a Full Bench of the Tribunal at Karachi and reported as, Department v. Assessee [(2000) 81 Tax 29] and thus did not make any further observations on the issue. The judgment of the Tribunal relied upon in the impugned order has been analyzed by us and we do not tend to agree with the holding of that judgment. The provision which is at the heart of this question of law is section 23(1)(V) of the Income Tax Ordinance, 1979, which provides that:

23(1)(V) in respect of depreciation of any such building, machinery, plant, furniture or fittings, being the property of the assesse, the allowance admissible under the Third Schedule: [except depreciation on assets given on lease shall be allowed against income from lease rentals only].

7. Section 23 relates to computation of allowance and deductions while computing the income under the head income from business or profession. The first part of clause-V of section 23 subsection (1) generally relates to depreciation of any building, machinery plant etc. being the property of the assessee and in respect of which the allowance is admissible under the Third Schedule. However, depreciation on assets given on lease has been treated as a distinct category in the second part of clause-V of subsection (1) of section 23 of the Ordinance, 2001 to state that except depreciation on assets given on lease shall be allowed against income from lease rentals only. The learned counsel for the respondent department invites this Court to read the word income used in this clause as net income which would he arrived at by first reducing such income by taking other allowances under section 23(1) and to carryforward the balance for adjustment against income from lease rentals in subsequent years. We are not inclined to read the word income as net income as this would he adding words to a provision which is not permissible as there is no intendment in taxation laws. If the legislature has used the word income simply in clause-V, then no further construction is required to be put by this Court upon the term by expanding or contracting it. In fact, the expression income from lease rentals only has to be taken in its ordinary connotation and it signifies simply that depreciation on assets given on lease shall be allowed against any income from lease rentals. The term income in this clause has not been used in the isolated sense that it has been defined in the Ordinance 1979 but has to be read in its ordinary dictionary meaning and must be read as a whole in tandem with the following words. Thus, we are not inclined to agree with the counsel for the respondent department that the depreciation must be calculated after reducing the income from lease rentals by deducting other allowances. The question of law to this extent is decided in favour of the appellant and against the respondents.

8. The third question relates to the provision of bad debts which has already been decided in PTR No.218 of 2000.

9. The question of law at serial No. 2 relates to interest credited to suspense account and this issue has already been decided in PTR No.407 of 2003 in which while relying upon the letter of the then CBR dated 23.11.2005, the number of appeals were directed to be withdrawn. Consequently in PTR No.407 of 2003, a Division Bench of this Court declined to answer the question of law and the reference application was dismissed. This appeal too on the instant question of law is decided in favour of the appellants and the appeal is allowed. The impugned order of the tribunal is set aside.

10. In view of the above, 1.T.A. Nos.215 and 216 of 2000 under section 136 of the Income Tax Ordinance, 1979 are decided in the above terms and are allowed and the impugned order of the Tribunal is set aside.

A copy of this order shall be sent to the Tribunal under the Seal of the Court.

Order accordingly.