Law: Income Tax Ordinance, 2001

Section: 18,120,121,122

INCOME TAX ORDINANCE, 2001 (XLIX OF 2001) Section 18 The amount deposited with the Pakistan Mercantile Exchange Ltd., by its members as security deposit, cannot be treated as its income and is refundable.-The sole question framed by the Court for determination herein was recorded vide the Order dated 13.10.2014 in the following terms: "Whether the amount deposited by its Members with the Applicant, as security deposit can be treated as its income?" The controversy for us to address has been distilled to constitute the question framed herein, as reflected by the Order dated 13.10.2014, being whether the amount deposited by the members with the Exchange, as security deposit, could be treated as its income. Vide the Resolution the Board had designated that security deposit is refundable to a member upon resignation subject to receipt of a replacement security deposit from the incoming/replacing member. However, it is also clear that the said Resolution stood superseded by the prescriptions of the Regulations 2007 wherein it was provided that the security deposit is to be refunded to a person when he ceases to be a member even if he does not transfer his membership; the refundable security deposit becomes part of the Fund and this Fund is used to meet any loss or liability arising out of default of a member/broker; that whenever a broker defaults the Exchange may utilize any monies lying to the credit of the broker to fulfill these obligations; the Exchange shall have a lien over all amounts deposited by a broker towards the security deposit. Therefore, it becomes apparent that the entire premise of the respondent, justifying the treatment of the security deposit as income, fails post Regulations 2007. Hence, security deposit may not be considered income. The Resolution and the Regulations 2007 were/are the internal systems of the applicant and a subsequent change, as took place in 2007 vide the Regulations 2007, could not impact a decision arrived at in respect of the assessment of a tax year previous to the Regulations 2007 having come into effect. It is apparent that the security deposit was treated as an asset of the member, per Rules 2002. Rule 94(b) of the…

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