Law: Constitution of Pakistan, 1973

Section: 185(3)

(a) Income-tax Act (XI of 1922)--S. 10(2) (xvi)--Constitution of Pakistan (1973), Art. 185(3)--Leave to appeal granted to consider a question of law namely whether the amount of interest paid by the purchaser of an industrial concern to the vendor on the unpaid price is "Capital expenditure" or an amount allowable under S.10(2)(xvi) as an expenditure laid down or spent wholly or exclusively for the purpose of business. (b) Income-tax Act (XI of 1922)-- ---Ss. 10(2) (iii) & (xvi)--Amount of interest paid by the purchaser of an industrial concern to the vendor on the unpaid price being an integral part of the profit earning process as it was related to the carrying or conduct of business satisfies the test laid down for bringing the case within the fold of S. 10(2)(xvi). The Khairpur Textile Mills was owned by Khairpur State. The assessee was incorporated as a Joint Stock Company in the State of Khairpur under the Companies Act, 1913, with the object, amongst others, to purchase the said Mills from the State of Khairpur which it did as by a deed of sale dated 3rd of March, 1955, for a total consideration of Rs.1,53,87,293 out of which Rs.1,00,00,000 was paid to Khairpur State and as for the balance of Rs.53,87,293 it was stipulated to be paid in instalments with 3t interest on the unpaid balance. During the charge years 1956-57, 1957-58, 1958-59 and 1960-61, the assessee paid interest on the outstanding balance of the purchase price amounting to Rs. 1,27,703, 1,50,844, 1,28,941 and 47,905 respectively, and claimed deduction of the amount paid during these charge years as an allowance under section 10(2)(iii) as being interest on capital borrowed for the purpose of the business of the Company and also under section 10(2)(xvi) as expenditure incurred wholly and exclusively for the purpose of its business. What is now to be seen is whether the requisite conditions as provided in section 10(2)(xvi) of the Income-tax Act are satisfied in this case to permit the deduction claimed by the assessee. The expenditure claimed as a deduction under this provision was incurred after the commencement of the business. It is also beyond doubt that it was not for any private or…

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