Law: Income Tax Ordinance, 1979

Section: 23(1)(x)

INCOME TAX ORDINANCE, 1979 (XXXI OF 1979)---Section: 23(1)(x) - Deductions - Assumption by the Appellate Tribunal that creation of provision for bad debts and written off debts are synonymous - Allowing the provision of bad debts - Directions by the Appellate Tribunal that dividend income earned by the assesse bank should be taxed as a separate block of income - Validity - FACTS The parties agree that the following questions of law arise out of the Tribunal’s order and are required to be answered by this Court in this appeal: i. Whether under the facts and circumstances of the case the learned ITAT was justified to allow the provision of bad debts in contravention to the provision of section 23(1)(x) of the Income Tax Ordinance, 1979, wrongly assuming that creation of provision for bad debts and written off debts are synonymous and failing to appreciate that even in case of written off bad debts, the condition of irrecoverability is a pre-requisite for any allowance u/s 23(1)(x) of the Income Tax Ordinance. ii. Whether under the facts and circumstances of the case the learned ITAT was justified to direct that dividend income earned by the assesse bank should be taxed as separate block of income i.e. on reduced rate whereas the earning of such income was an object of the banking company and should have been considered as its business income. DECISION (A.) Supreme Court has conclusively put construction on the precise scope and sweep of section 23(1)(x) of the Ordinance, 1979 - The first issue of law relates to provision for bad debts which has been held on the basis of the standard accounting principles that a debt becomes irrecoverable when it is written off and so the entitlement regarding deduction for bad debts was to the extent of irrecoverable loans determined as such under the regulatory framework governing financial institution. The question of law is decided in the same terms and the instant appeal to this extent is disposed of. (BC.) Supreme Court of Pakistan, concluded that in case of dividend income, the rates mentioned in Paragraph A of part V of the First Schedule, would not be applicable - The next question of law relates to dividend income earned…

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