Law: Income Tax Ordinance, 1979

Section: 18,136

Law: Zakat and Ushr Ordinance, 1980

Section: 25(1)(a)

Income Tax Ordinance (XXXI of 1979)--- ----Ss. 18 & 136---Zakat and Ushr Ordinance (XVIII of 1980), S.25---Reference to the High Court ---Asset---Khas Deposit Certificates are an asset ---Zakat is a charge on the assets and not an expenditure for earning interest---Payment of Zakat on Khas Deposit Certificates---Allowable deduction---Provision of S.25(1)(a), Zakat and Ushr Ordinance; 1980 allows special concession regarding deduction of Zakat from taxable income while determining the liability of an assessee--Income Tax Appellate Tribunal thus was justified in allowing deduction of Zakat attributable to the exempt, income towards the taxable income-Principles. JUDGMENT MUHAMMAD MUJEEBULLAH SIDDIQUI, J.---The learned Income Tax Appellate Tribunal Karachi has referred following question of law for our opinion, at the instance of Commissioner of Income Tax Companies-III Karachi:--- "Whether on the facts and in the circumstances of the case, the learned Tribunal is justified in allowing deduction of Zakat attributable to the exempt income towards the taxable income? The facts giving rise to the above question as stated by the learned Income Tax Appellate Tribunal (hereinafter referred to as the ITAT) are that, respondent/assessee is a Private Limited Company enjoying income from business of providing bulk storage facilities for industrial Alcohol and other products. During the assessment year 1988-89, the assessee earned income from K.D.C. amounting to Rs.10,31,500 out of which an amount of Rs.1,71,710 was deducted as Zakat. The amount of Zakat was claimed as deduction. The Income Tax Officer while framing the assessment on the principle that expenditure incurred for earning exempt income cannot be allowed as deduction, disallowed the whole amount of Zakat. The order was confirmed in appeal by the learned Commissioner of Income Tax (Appeals). Respondent/assessee preferred second appeal before the ITAT, who vide-their order, dated 30-3-1991, reversed the (Wings and allowed the claim. We have heard Mr. Arif Moton, learned counsel for the applicant/department and Mr. Z.H. Jafri, learned counsel for the respondent. We have gone through the order of learned ITAT…

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