Law: Income Tax Ordinance, 2001

Section: 29

Law: Income Tax Ordinance, 1979

Section: 23(1)(x)

Income Tax Ordinance (XLIX of 2001)--- ----S. 29---Income Tax Ordinance (XXXI of 1979) [since repealed[, S. 23(1)(x)---Bad debts---Writing off---Circumstances when debts claimed by an assessee may reasonably be believed as irrecoverable and therefore be classified as bad debts---Reasonableness test---Scope---Held, that it was not a matter of discretion for the assessee to decide what a bad debt was; rather the assessee had to establish reasonable grounds showing that having taken the requisite lawful steps for recovery of the outstanding debts, the same were not recoverable in the foreseeable future---Classification of a bad debt was not left to the discretion of the taxpayer; it must be demonstrated by the securities and the bona fide measures taken by the taxpayer to secure repayment of the outstanding debt---If in a subsequent tax year recovery of a bad debt was effected then the same was taxable as income. Commissioner of Income Tax v. National Bank of Pakistan, Karachi PLD 1976 Kar. 1025 ref. ORDER UMAR ATA BANDIAL, J.--- The impugned judgment of the learned High Court dated 06.12.2012 has reproduced the two questions that were subject to determination in Income Tax References Nos.517 and 518/2010 pending before it. Speaking generally, these questions require determination of the circumstances when bad debts may be written off by an assessee. The first Tax Reference concerns the assessment year 2001-02 which pertains to the income year ending 31.12.2000. The relevant statutory provision regarding debt write off in that assessment year is section 23(1)(x) of the Income Tax Ordinance, 1979 (repealed Ordinance). The second Tax Reference pertains to the tax year 2003 which covers the income year ending 31.12.2002 and involves the interpretation of section 29 of the Income Tax Ordinance, 2001 (Ordinance). In these matters, the view of the learned Appellate Tribunal was affirmed by the impugned judgment of the learned High Court which held that the bad debts claimed by the respondent-bank fell within the ambit of the afore-noted sections of the two Ordinances to qualify for their write off. 2. Learned counsel for the appellant has made two submissions. First,…

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