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[Karachi High Court]

-- S. 10 (2-A)-Amount in order to be made computable as profit or -gain of a company, held, should have been first allowed to be deducted in any year as loss expenditure, or trading liability and assessee in any subsequent year having received either in cash or in any other manner any amount in respect of such loss or expenditure or have obtained some benefit in respect of such trading liabilities by way of remission or cessation thereof Amount under consideration never claimed by company, nor deemed to be deducted by Department, by way of loss, expenditure, nor referring to any benefit in respect of any trading liability obtained by company--Tribunal, held, rightly excluded such amount from being treated as profits of assessee company.

Nasrullah A wan for Applicant. Ali Athar for Respondent.

Date of hearing : 15th September, 1982.

The following two questions were directed to be referred by order of the erstwhile High Court of West Pakistan, Karachi Bench, dated 29.11.1968 in I. T. C. No. 3 to the High Court for decision under section 66 (2) of the Income tax Act, 1922 and in consequence thereof the Tribunal has referred to us these questions for decisions :-

(1) Whether on the facts and in the circumstances of the case there was cessation of the trading liability within the meaning of section 10 (2A) of the Income-tax Act, specially when the creditors are not known and traceable to the assesses himself.

(2) If the answer to the first question is in the affirmative, whether the income-tax officer was right in taxing the said trading liability under section 10 (2.A) during the year under consideration."

We have heard Mr. Nasrullah Awan, the learned counsel for the Department and Mr. Athar, the learned counsel for the respondent-Company. The only question which requires determination in the case is whether a sum of Rs. 26,873 which was received by the company towards certain claims in respect of fire which took place in the year 1944 in Bombay and which the company had kept in a suspense account on the ground that this amount does not belong to the company but is payable to certain unascertained creditors on receiving claim from them, could be appropriated and treated as profits or gains of the company as provided under section 10 (2A) of the Income-tax Act. The learned counsel for the Department, contends that since the assessee himself admittedly is not aware of the exact particular and nature of the claims of creditors the I. T. O. was justified in treating the above amount as a gain/profit of the company and rightly assessed it as such during the year 1960-61. In order to appreciate the contention of the learned counsel we think it necessary to reproduce here the relevant provision of law which s follows ;-

"(2A). Where for the purpose of computing profits or gains under this section, an allowance or deduction has been made in the assessment for any year in respect of any loss, expenditure or trading liability incurred by the assesses and, subsequently during any previous year, the assessee has received, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or has obtained some benefit in respect of such trading liable by way of remission or cessation thereof, the amount received by him, or the value of the benefit accruing to him, shall be deemed to be profits and gains of business, profession or vocation and to have accrued or arisen during that previous year."

A bare reading of the above provision of law will show that in order to make a sum computable as profits or gains of a company under section 10 (2A) of the Act such amount should have been first allowed to be deducted in any year as loss, expenditure or trading liability under section 10 (2A) of the Act and the assessee in any subsequent year load received either in cash or in any other manner whatsoever any amount in respect of such loss or expenditure or has obtained some benefit in respect of such tracing liability way of remission or cessation thereof. We accordingly enquired from Mr. Nasrullah Awan, the learned counsel for the Department if the sum of Rs. 26,873 was ever allowed to be deducted in any assessment year by the department to the respondent as a loss, expenditure or this amount represented the benefit in respect of any trading liability which was obtained by the assesses by way of remission or cessation thereof. The learned counsel very frankly stated before us that the record of the Department does not show that the sum of Rs. 26,873 was ever claimed by the Respondent or was allowed to be deducted by the Department, by way of loss, expenditure that it refers to any benefit in respect of any trading liability which the assessee had obtained. In the absence of these circumstances, in our view the I. T. O. could not treat the sure of Rs. 26,873 as profits or gain of the company for the year 1960-61 and therefore the Tribunal was right in allowing the appeal of respondent and excluding the sum of Rs. 26,873 from being treated as profits of the company for the year 1960-61.

In view of our above conclusions we feel that the question referred to us is not properly framed. The learned counsel for the parties did not dispute the power of this Court to reframe a question referred to us for consideration if after hearing the parties it is of the view that the question required refraining. We accordingly reframe the questions referred to us as follows :-

"Whether on the facts and circumstances of the case the Income-tax Officer was justified in treating the sum of Rs. 26,873 as profits or gain of the company under section 10 (2-A) of the Income-tax Act an assessing it as such during the year under consideration."

The answer to the above question is in the negative and we accordingly reject the Reference but leave the parties to bear their respective costs.

Reference rejected.

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