COMMISSIONER INLAND REVENUE, ZONE-I, RTO, FAISALABAD vs FAISALABAD ELECTRIC SUPPLY COMPANY (FESCO) LTD

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COMMISSIONER INLAND REVENUE, ZONE-I, RTO, FAISALABAD VS FAISALABAD ELECTRIC SUPPLY COMPANY (FESCO) LTD., FAISALABAD Ss. 56(1) & 57(4)---Bank deposits of Electricity Distribution Company relating to electricity bills---Profit on such bank deposits---Whether "business income " or "income from other sources"---Department filed Reference against order passed by Appellate Tribunal Inland Revenue in favour of taxpayer/Faisalabad Electricity Supply Company (FESCO)---Validity---Record showed that respondent/ taxpayer (FESCO) declared its net profit as Rs.518,960,129 and a business loss as Rs.23,143,963,041/----However, the Assessing Officer identified the profit from bank deposits at Rs. 368,960,129/-, accrued on deposits of electricity bills through the banks and classified it as "income from other sources", charging it to tax---In cases where the dispute concerns whether the income should be classified as "business income" or "income from other sources", a thorough examination of the facts is necessary; which includes assessing the objectives of the assessee-company, its functions and its memorandum of association or foundational documents---Once the primary business activities and functions are verified, they must be evaluated in relation to the declared objectives---Additionally, the assessee's actual operations, tax returns, and treatment of income should be analyzed to determine the appropriate classification of the income---Respondent-taxpayer (FESCO) was not authorized to carry on any business other than the distribution of electricity; therefore, all income earned by it was considered "business income" and could not be classified as "income from other sources", especially since the income tax return did not show it as such---Assessing Officer had not appreciated the fact that the bank deposits were also business income, being entirely dependent on and incidental to its operations---Accumulated unadjusted depreciation allowance carried forward from year to year should be treated as an admissible expense for the current year in terms of subsection (4) of S. 57 of the Income Tax Ordinance, 2001 ('the Ordinance, 2001') and adjusted against income assessable under any other head under S.56(1) of the Ordinance 2001---The depreciation admissible for a tax year should include the depreciation calculated for that year plus the amount of unabsorbed depreciation from the preceding year and the income loss from business for the tax year can only be determined after deducting admissible depreciation---Thus, the proposed question was decided against the applicant-department and in favour of respondent/taxpayer (FESCO)---Reference Application, filed by Department, was dismissed.

COMMISSIONER INLAND REVENUE, ZONE-I, RTO, FAISALABAD vs FAISALABAD ELECTRIC SUPPLY COMPANY (FESCO) LTD — 2025 PTD 853 LAHORE-HIGH-COURT-LAHORE

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