Law: Income Tax Ordinance, 1979

Section: 22,27(2)(i),27(2)(ii),Rule7 oftheThird Schedule

THIS ORDER PASSED BY: Muhammad Munir Qureshi, Accountant Member:------------------ This appeal by Revenue arises out of order of the CIT(A), Multan, dated 10-8-2002. 2. It is the departmental contention that the First Appellate Authority has unjustifiably vacated the order of the Assessing officer. 3. According to the DR, in this case, the assessee had realized a clear business gain arising out of sale of share in AOP and the same has rightly been brought to tax as business income of the assessee. It is explained that on leaving the AOP in which he was a member, the assessee received an amount of Rs.316,173 which is the assessee's share in the capital AOP and so reflected in the relevant balance sheet of the AOP. After his departure as member of the AOP, the assessee sold his 10% share in AOP to Messrs Jabir Ahmad, Zakir Ahmad, Muhammad Usman, Abdul Manan, Ch. Muhammad Hanif and Ch. Muhammad Riaz and in return received an amount of Rs.550,000 from them thereby realizing a gain of Rs.233,827. The Assessing officer held this gain to be taxable and framed assessment accordingly. 4. Before the CIT(A), the assessee argued that depreciation as statutory had been allowed on the assets held by the AOP and the profits earned on sale of such (depreciable) assets of the AOP should have been assessed in the AOP's hands and the members of the AOP were not liable to any tax on such profit. Thus, according to the assessee the share disbursed to him on his departure from the AOP is also akin to sale of assets by the AOP. So far as the members are concerned, it was pointed out to the CIT(A) that as depreciation under the Third Schedule is not allowable on the capital investment of the members of the AOP, rule 7 of the Third Schedule is not applicable so far as the gain in the hands of the member is concerned. The assessee's contention found favour with the CIT(A) who held that the order passed by the Assessing officer determining business income under section 22 of the (repealed) Ordinance, 1979 in the hands of the assessee was not tenable as "neither the appellant claimed depreciation on capital investment nor had the department allowed the same to the assessee". 5. Before the…

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