Law: Income Tax Act, 1922

Section: 10(2)(xvi)&10(1),10(2)(viii)

Law: State Bank of Pakistan Act, 1956

Section: 36,36(1)

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)---Allowable deduction---Leave to appeal was granted by Supreme Court to examine the question as to whether the liabilities incurred by the assessee on account of payment of penal interest could be claimed as deductions in terms of S.10(2) (xvi), Income-tax Act, 1922. (b) Income-tax Act (XI of 1922)--- ----S. 10(2)(viii)---Allowable deductions---Expenditure incurred as penalty or fine paid on account of infraction of law cannot be permitted as expenditure laid wholly or exclusively for the purpose of the business of assessee--¬Principles---Penalty. Revenue expenses incurred by the assessee wholly and exclusively for the purpose of his business can legitimately be claimed by him as an allowable deduction under section 10(2) (xvi), Income-tax Act, 1922 but expenditure incurred as penalty or fine paid on account of infraction of law cannot be permitted as expenditure laid out wholly or exclusively for the purpose of the business of the assessee. However, in case of expenditure which, although has been incurred by the assessee on account of infringement of a provision of a statute, but is not in the nature of penalty, the question whether such expenditure is admissible under section 10(2)(xvi), or not, would depend upon the circumstances of each case. Messrs General Tyre and Rubber Co. v. Commissioner of Income¬tax 1986 PTD 52; Commissioner of Income-tax, Lahore Zone, Lahore v. Punjab Oil Expeller Co., Lahore 1979 PTD 437; The Commissioner of Income-tax, Companies, II v. Messrs General Tyre and Rubber Company of Pakistan Ltd. 1993 PTD 383; Radio Picture Limited v. Commissioner of Inland Revenue 22 Tax Cas. 106; Commissioner of Income-tax v. Messrs Alfa Insurance Co, Ltd,. PLD 1981 SC 293; Beecham Pakistan Ltd. v. Commissioner of Income-tax 1995 PTD 577; Commissioner of Income-tax, Bombay City v. Jagannath Kissonlal (1961) 41 ITR 360; Triveni Engineering Works Ltd v. Commissioner of Income-tax, Delhi (1983) 144 ITR 732 and Govind Choudhry & Sons v. Commissioner of Income-tax (1971) 79 ITR 493 ref. (c) Income-tax Act (XI of 1922)--- ----Ss.10 (2)(xvi) & 10(1)---State…

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