Law: Income Tax Ordinance, 1979

Section: 2(10),24(l)

Law: Income Tax Appellate Tribunal Procedure Rules, 1981

Section: 24

Law: Banking Companies Ordinance, 1962

Section: 5(b)

(a) Income Tax Ordinance (XXXI of 1979)----S.2(10)---Banking Companies Ordinance (LVII of 1962), S.5(b)--¬"Banking company"---Definition---Interpretation and scope---Principles. The definition of the 'banking company' as contained in section 2(10) of the Income Tax Ordinance read with clause (b) of section 5 of the Banking Companies Ordinance, is fairly wide. A company accepting deposits for investment or lending falls within its ambit if other indicators are also present. The second portion of the definition contains the test which in turn refers to the actual practice of a company by prescribing as to how and when these deposits are demanded and paid back. Thus, certain modes of re-payment or withdrawals are considered as relevant for consideration of banking business. Mere fact that a company is not effecting withdrawals by cheques, drafts or orders will not by itself take it outside the mischief of the definition clause. However, whether a company is engaged in banking is predominantly a question of fact to be answered in the light of the parameters given in the definition clause. The burden of such proof will ordinarily rest upon the Revenue. Treatment extended to company by various official agencies including State Bank of Pakistan does not, per se, mean that for income-tax purposes the same treatment must be extended to such a company. If a company is actually conducting the business of banking no legal bar exists to hold it so. However, burden of proof to establish this fact will be even heavier on the Revenue in cases where other official agencies treat the assessee as a non-banking company. The definition of banking as contained in section 5(b) of the Banking Companies Ordinance, 1962 can be better understood if it is divided in the parts in which it has been framed. The first part of the definition "accepting, for the purpose of lending or investment, of deposits of money" gives the substance and real nature of this business. It is accepting monies from public and then lending it or investing it in the ventures considered suitable. An account-holder or a depositor with a bank is its creditor, which literally means "he trusts". It is the trust of the…

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