Disputes relating to income determination: Facts have to be duly considered: SC

ISLAMABAD: The Supreme Court has declared that in cases where the dispute relates to determining whether its business income or income from other sources, the facts have to be duly considered so as to determine the objects of the assessee company, its functions, and its memorandum of association or foundation documents.

A three-judge bench of the SC, authored by Justice Ayesha A Malik said: once the primary business and functions are verified, the business activities need to be assessed to see it in the perspective of the declared objects and functions.

She wrote, hence, the actual work of the assessee, its tax returns and how it treats its income has to be considered, to determine whether its income is business income or income from other sources.

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The judgment pointed out that in this case, the facts clearly demonstrate that the income from interest on bank account is in fact business income used in furtherance of its objectives. The business activities of the Fauji Foundation and the decision given by the Tribunal have not been challenged by the petitioner, hence, there appears to be no justification in re-arguing the entire matter again with reference to a subsequent tax year, especially when a decision has been given on the issue in law and fact.

It noted that where a decision has been given on the same set of facts, it is binding on the department and they cannot re-agitate the same issue on the same facts in a subsequent tax year. It follows that the rule of consistency must be followed by the tax authorities, as it inspires confidence and safeguards the interest of the assessee from arbitrary decisions.

Commissioner of Income Tax, Islamabad had filed a petition against the Islamabad High Court verdict before the Supreme Court.

The basic issue was whether the income of the assessee Fauji Foundation, from interest on bank deposits should be considered and taxed as income from other sources or as income from business.

The Court noted that Appellate Tribunal in its order dated 30-06-2000 with reference to the tax years 1992-98 had decided that interest from bank accounts was in fact business income as the assessee Foundation was in the business of investing its surplus income to generate income for welfare projects.

The Commissioner Income Tax (petitioner) did not deny the findings of the order dated 30-06-2000 and in fact admitted that no appeal was filed against the said order.

Consequently, to the extent of the findings in law on the question, “Whether income from interest on bank deposit was taxable under Section 30 of the Income Tax Ordinance as income from other sources or whether it was income from the business which was exempt under clause 62 of the Second Schedule of the ITO”, operates as res judicata on the petitioner.

The judgment noted that the issue before the Court is exactly the same but with reference to the assessment year 1999-2002, wherein, the IHC has referred to the order of the Appellate Tribunal dated 30-06-2000 and held that the matter in issue was decided by the Appellate Tribunal which order had not been challenged by the department, thus, has attained finality.

The apex court, therefore, under the circumstance, said there appears no justification to raise the matter in issue again in the subsequent tax years, 1999-2002.

It upheld the IHC judgment and dismissed the petition.

Copyright Business Recorder, 2023