Law: Income Tax Ordinance, 1979

Section: SecondSched.cl.(199),Ss.14&35,14(1)(a)

(a) Precedent--- ---- Decisions of Income-tax Appellate Tribunal are binding on Income-tax Authorities unless they are varied or reversed by superior Courts. Per Nasim Sabir Syed Accountant Member; S.M. Sibtain Accountant Member, agreeing--- (b) Income Tax Ordinance (XXXI of 1979)---Second Sched. cl. (199), Ss.14 & 35---Loss, carried forward ---Exemption--¬When the income of a business unit is exempted under Second Sched. of Income Tax Ordinance, 1979 then the loss determined cannot be carried forward for adjustment in subsequent years when the income becomes taxable after the expiry of the time limit laid down in the exemption granted in the Second Sched. The carrying forward of business losses relates only to such cases where the income is assessable under the Income Tax Ordinance and is not exempt under Second Schedule to it. This can be rationally understood by supplementing it with the argument that loss determined in the case of a taxable unit is negative income and it is to be set off against the income of the subsequent years if the income for the year against which it is to be adjusted is taxable under the Ordinance. The carrying forward loss of the preceding years to be adjusted in subsequent years when the income is exempted under the Second Schedule of the Ordinance is not called for in any way. The carry forward loss does not stand in vacuum. It involves the motion of set off. Its sole purpose is to set off the loss against the profits of a subsequent year. Set off implies that the tax is leviable and the assessee wants to adjust the loss against profits to reduce the tax demand. It follows that if such set off is not permissible owing to the income or profits of the subsequent year being from a non-taxable source, there would be no-point in allowing the loss to- be carried forward. Even if the carried forward losses of an exempted case are carried forward in the years for which the income is still exempt the accumulated loss so arrived at will not be adjustable against the income of a year, which becomes taxable. One cannot blow hot and cold at the same time by saying that even when the income of a business concern is exempt under Second…

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