The COMMISSIONER OF INLAND REVENUE, LEGAL DIVISION, RTO, LAHORE vs WIRE PRODUCTS (PVT

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The COMMISSIONER OF INLAND REVENUE, LEGAL DIVISION, RTO, LAHORE VS WIRE PRODUCTS (PVT.) LIMITED, LAHORE Ss.22, 23 & 30(2), Cls. (b)---Set-off of losses---Pre-commencement expenses---Income for the purpose of adjustment of loss, classification of---Scope---Contention of the applicant / department was that no commercial business was conducted by the taxpayer during the Income year 2001-2002, therefore, and no question for assessment of gains and profits arose for determining income from business as trial production and expenses incurred thereupon were pre-commencement expenses, and classifiable as capital expense and were required to be capitalized as cost of the project, so interest income was 'Income from other sources' in terms of clause (b) of subsection (2) of S. 30 of the Income Tax Ordinance, 1979 ('the Ordinance, 1979')---Plea of the taxpayer/respondent was that the project was established, and trial-production had commenced, and the expense incurred for payment of electricity and gas consumed was operating expense - coming in the ambit of revenue expense - and had to be accounted for the purposes of assessing income, and the consequent loss had to be adjusted against the interest income, with balance loss to be carried forward to next year, as in terms of section 34 of the Ordinance, 1979, income from one head could be employed for adjusting loss, accrued under other head of income---Validity---It was not the case of the taxpayer that commercial production was carried out - it was noted by the CIR (Appeals) that no business was conducted during period under consideration and the expenses incurred were of pre-commencement nature and had to be capitalized---No income / loss under the head Income from business was declared---Mere carrying out of trial production would not be construed to the effect that business was established, for the purposes of Ss. 22 & 23 of the Ordinance, 1979 - gains and profits to be earned from the income of the business, whereby no commercial production was carried out, was distinct from the interest income in the present case---In present case, there was no evidence that commercial production was carried out or any business, for the purposes of computing any income/loss---Expenses so incurred were pre-commencement expenses - and not construable as loss for allowing adjustment against interest income---Thus, the Appellate Tribunal erred in law while allowing adjustment of alleged pre-operative expenses, guised / claimed as loss - not otherwise covered within the ambit of S. 22 or 23 of the Ordinance, 1979 - against interest income, which for all intent and purposes, in the context of the facts of the case, was the income from other sources---Thus, S. 34 of the Ordinance, 1979 had no relevance and applicability---It was evident that for attracting S. 34, ibid, taxpayer must sustain a loss - as consequence of business undertaken for gains and profits - and no such loss was calculable in present case---Expenses incurred for trial production being in the nature of pre-operative expenditure, were not classifiable as loss--- No question of adjustment of income from one head against another head of income arose in present case---Question of law was answered in the negative i.e. decided in favour of the department and against the taxpayer declaring impugned order passed by the Appellate Tribunal as illegal and erroneous---Reference Application, filed by the Department, was allowed.

The COMMISSIONER OF INLAND REVENUE, LEGAL DIVISION, RTO, LAHORE vs WIRE PRODUCTS (PVT — 2025 PTD 386 LAHORE-HIGH-COURT-LAHORE

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