Law: Income Tax Ordinance, 2001

Section: 18(1)(d),21(c),122(5A)

Law: Income Tax Ordinance, 2001

Section: 18(1)(d),21(c),122(5A)

(a) Income Tax Ordinance (XLIX of 2001)-------Ss. 18(1) (d) & 122(5A)---Income from business---Interest free cash loan from directors---Taxation of the benefit availed by the company---Taxation Officer as well as First Appellate Authority based their orders on that if the taxpayer would have obtained loan from unrelated parties, it would have required to bear the brunt of financial cost by payment of mark-up at market rates; and creditors who had advanced loans to the taxpayer would have received mark up/profit which would have been included in their taxable income and would have been an engine for increase in their tax liability; that provisions deal with benefit in an economic sense and not from point of view of tax benefit; and that addition made by the Taxation Officer was upheld by the First Appellate Authority being patently in accordance with provisions of law---Taxpayer contended that it was mandatorily required under the principles of accounting and law to charge interest on borrowed money, the interest would have paid being allowable/admissible expense will resultantly reduce the taxable income as well as tax liability of the taxpayer; and the treatment given by the assessing officer to the transactions was against the principles of basic accountancy and provisions of law---Validity---Clause (d) of Sub-S.(1) of S.18 of the Income Tax Ordinance, 2001 provided that the fair market value of any benefit or perquisite, whether convertible into money or not arising in the course of, or by virtue of a past, present or prospective business relationship shall be income from business and was chargeable to tax in the Income Tax Ordinance, 2001---Both the officers below fell in grave error in misconceiving the accounting principles and relevant law on the issue and as such "deemed income" was wrongly charged to tax by invoking provision of S.18(1)(d) of the Income Tax Ordinance, 2001---Observations made by the Taxation Officer reflected lack of understanding on the facts as well as law "the provisions dealt with benefit in an economic sense and not from the point of view of tax benefit"---Interest/mark-up if not paid by the taxpayer was a financial benefit at…

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