IN THE HIGH COURT OF SINDH AT KARACHI

I.T.A. No. 552 / 2000

I.T.A. No. 559 / 2000

Present:   Mr. Justice Aqeel Ahmed Abbasi

Mr. Justice Abdul Malik Gaddi

Appellants:                                          Habib Bank AG Zurich, Karachi

                                                            through Mr. Iqbal Naeem Pasha, advocate

Respondents:                                      Deputy Commissioner of Income Tax,

                                                            Circle – 3, Companies-I, Karachi.

                                                            through Mr. Jawaid Farooqui, advocate

Date of hearing:                                  12.08.2016

Date of order:                                     12.08.2016       

O R D E R

            Through the above Income Tax Appeals, following questions are proposed to be answered, which according to the learned counsel for the appellant are question of law, which  arise out of the impugned order passed by  Income Tax Appellate Tribunal :-

i) Whether the learned Income Tax Appellate Tribunal misdirected itself in law by ignoring provisions of section 50 of the Income Tax Ordinance, 1979 whereunder “interest on securities” alongwith a portion thereof deducted as tax is deemed to be income of the payee when it is “paid” to him.

ii) Whether “interest on securities” is chargeable to tax under the Income Tax Ordinance, 1979 on “receipt basis”.

2.         Learned counsel for the appellant at the very outset submits that the controversy raised through instant appeals, and the questions proposed hereinabove have already been decided by this Court as well as by the Hon’ble Supreme Court in a number of cases, whereby, it has been held that appellant banks are justified to apply hybrid system of accounting, whereas, Interest earned on Government Securities is chargeable on the basis of actual receipt basis. In support of his contention learned counsel has placed a copy of order passed by this Court in the case of appellant Bank i.e. I.T.A. No. 560/2000 Re:   M/s. Habib Bank AG Zurich, Karachi v. The Deputy Commissioner of Income Tax, Karachi, and also referred to a reported judgment of Hon’ble Supreme Court in the case of Commissioner Income Tax v. Habib Bank Limited and ANZ Grindlays Bank (2014 SCMR 1557), copy whereof has also been supplied to the learned counsel for the respondent, who after perusal of record and the aforesaid decisions does not controvert the submissions made by learned counsel for the appellant.

3.         The appellant Bank in its accounts has claimed interest on securities on receipt basis in terms of Section 17 read with Section 32 of Income Tax Ordinance, 1979 by adopting hybrid system of accounting. The Hon’ble Supreme Court in above citied judgment has held as under :-

“Considering the provisions of Sections 17 and 32 of the Ordinance, we cannot help but notice that Section 32 provides an exception to the computation of income set out in Section 17, which obviously includes Section 17(1)(a). In these circumstances, the impugned judgments rendered by the High Court have in our opinion correctly held that the respondent-Bank were justified in adopting the method of accounting which was hybrid and had been consistently used by the respondent-Bank since long.”

4.         Accordingly, instant appeals are disposed of in terms of order already passed by this Court as well as by the Hon’ble Supreme Court, in the aforesaid cases, whereas, questions proposed hereinabove are accordingly answered in affirmative, in favour of the appellant and against the respondent.  A copy of this order shall be sent to Income Tax Appellate Tribunal, Karachi

                                                                                                                        J U D G E

              J U D G E

Zahid Baig