Law: Income Tax Ordinance, 1979

Section: 17,32,32(1)

Income Tax Ordinance (XXXI of 1979) [since repealed]--- ----Ss. 17 & 32(1)---Interest earned by financial institutions on Government securities---Whether the same was liable to be taxed on accrual or on receipt basis---'Hybrid system' of accounting---Scope---Bank/assessee in the present case maintained its accounts on the accrual system but accounted for interest on Government securities on receipt basis, also known as the "hybrid" system---As a matter of law, an assessee was not limited to using either the accrual or the receipt basis of accounting---In law it was permissible to use the "hybrid" system of accounting by mixing and merging elements from the two systems, which was a question of law, and must be regarded as having been answered and settled accordingly---Secondly, if such question arose, then it had to be shown as a matter of fact in respect of the income year corresponding to the given assessment year that the assessee had, in fact, regularly employed the "hybrid" system of accounting (requirement under S. 32 of the Income Tax Ordinance, 1979), which was a question of fact, and therefore had to be dealt with and answered accordingly---Department was wrong in refusing to accept interest income offered on receipt basis in respect of the assessment years at hand, and the Appellate Tribunal erred materially in dismissing the bank's appeals in such regard---High Court reached the correct conclusion in law by finding that the interest earned by the Bank on Government securities was liable to be taxed on receipt basis---Appeals were dismissed accordingly. Pakistan Industrial Credit and Investment Corporation Ltd. v. Commissioner of Income Tax and others 2006 PTD 1400; State Bank of Travancore v. Commissioner of Income tax (1986) 158 ITR 102; UCO Bank v. Commissioner of Income 1999 PTD 3752 and Commissioner of Income Tax v. Askari Commercial Bank Ltd. 2018 PTD 1089 ref. Muslim Commercial Bank Ltd. v. Deputy Commissioner of Income Tax and others 2004 PTD 1901 approved. Habib Bank Ltd. v. Commissioner of Income Tax 2009 PTD 443 distinguished. THIS JUDGMENT DELIVERED BY: MUNIB AKHTAR, J.--- These appeals arise under the Income Tax Ordinance, 1979 ("1979…

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