1985 PTD 379

ORDER

SIKANDAR HAYAT KHAN (MEMBER‑ ‑These three appeals at the instance of the department are directed against the impugned orders of the learned AAC and CIT (A) contained in Appeal Nos.267 and 738, dated 24‑6‑1980 and 224, dated 21‑10‑1982 respectively. The common ground in respect of these appeals is that there was no justification with the learned AAC and the CIT (A) in deleting a sum of Rs.55,00,000; Rs.90,00,000 and Rs.80,00,000 for the charge years 1976‑77,1977‑78 and 1978‑79 respectively. It has accordingly been prayed that the orders of the learned AAC the CIT (A) may be vacated and that of the I.T.O. be restored.

2. Briefly speaking the facts of this case are that the respondent received a sum of Rs.55,00,000, Rs.90,00,000 and Rs.80,00,000 from Federal Government during the charge years 1976‑77, 1977‑78 and 1978‑79 respectively. This amount was charged to tax by the I.T.O. In appeal both the learned AAC and the CIT (A) deleted the impugned additions. In this connection relevant part of the appellate order is set out below:

"The money advanced by the Government to a company which is actually owned by it could not be treated as income of the recipient of grant. I, therefore, delete the additions ....made by the I.T.O. from the income of the company "

3. The learned DR in 'support of the fact that the grant received by the respondent was a revenue receipt in its hand and consequently liable to income‑tax relied on a Supreme Court decision cited as Ragnuvanshi Mills Ltd v. Commissioner, Income‑tax (1952) 22 I T R 484. In this case the assessee company received a certain amount from the Insurance Company as a result of fire. The amount was paid on account of loss of profits. There Lordships of the Supreme Court, holding that it was taxable income, remarked as under:

"The assessee is a business company. Its aim is to make profits and to insure against loss. In the ordinary way it does this by buying raw material, manufacturing goods out of them and selling them so that on balance there is a profit or gain to itself. But it also has other ways of acquiring gain, as do all prudent businesses namely by insuring against loss of profits. It is indubitable that the money paid in the circumstances is a receipt and in so far as it represents loss of profits as opposed to loss of capital and so forth, it is an item of income in the normal sense of the term. It is equally clear that the receipt is inseparably connected with the ownership and conduct o the business and arises from it. Accordingly, it is not exempt."

4. The principle laid down by the Supreme Court on the facts of Raghuvanshi Mills, case is, however, hot attracted on the facts of the case before us. In this case grant was given to the respondent for a specific purpose and is accordingly not taxable as income. This principle was upheld in Seaham Harbour Dock Company v. Crook (1931) 16 T.C.333. The fact that the grant was given to the respondent for a specific purpose also finds support from Kashmir Affairs and Northern Affairs Division Letter Nos. DNA‑3(3)/75, dated 16‑4‑1976, DNA‑1(1)/75, dated 9‑9‑1975 and DNA‑1 (1)/76/III, dated 13‑7‑1976. For facility of reference para. 3 of the last quoted letter is given below :

"The expenditure involved will be debitable to the Head "63‑A Development, Y‑2‑Miscellaneous, Y‑2(1) Development Schemes in Gilgit and Baltistan" under demand No. 140‑Development Expenditure of Kashmir Affairs Division for the year 1976‑77."

5. From the above letter it is abundantly clear that a sum of Rs.90,00,000 was placed at the disposal of the Kashmir Affairs and Northern Affairs Division by the Government of Pakistan for Development Schemes in Gilgit and Baltistan under Demand No.140. From Demand No.140 which was concerned with the development expenditure of Kashmir Affairs Divisions a sum of Rs.90,00,000 was given to the respondent for a specific purpose and not to assist it in its business. This amount was consequently a capital receipt in the hands of the company not liable to tax.

6. In our view the safest guide to resolve the question in controversy is to find out whether the grants under reference could be linked with the business carried on by the respondent or not? In this case grants received by the respondent were not in any way directly or indirectly connected with the carrying or of any business activity of the respondent. These grants are, therefore, decidedly exempt from tax. In arriving at this conclusion we find support from case cited as Commis sioner of Income‑tax v. Habib Bank Executors and Trustees Company Limited, Karachi 1967 P T D 217.

7. In the present case M/s. N....A....T....C...Ltd. is wholly owned by the Government of Pakistan. In coming to this conclusion we have placed reliance on letter No. PCN‑43(5)/78, dated 27‑8‑1978, addressed to the Central Board of Revenue. Para 2 of this letter is incorporated below for facility of reference:

"The main idea behind the establishment of this Corporation was to provide transport facilities to far‑flung Northern Areas. The Corporation is not self‑financing and is being financed by the Federal Government through grants on yearly basis so that it may purchase trucks, buses and jeeps and construct its office buildings and workshops, etc. These grants are given from the development budget sanctioned by the Federal Government for Northern Areas. It is, therefore, requested that grants sanctioned for this Corporation may not be included in the income of the Corporation".

8. From the above letter it is abundantly clear that the Federal Government throwing a Public limited company has been providing transport and cargo facilities to far‑flung areas in Gilgit and Baltistan. This duty it performed to use the words of their Lordships of the Supreme Court by through a veil of corporate personality over its function as the Government of Pakistan. Thus, this Government activity should be looked at and not the vested juristic personality thrown over it with the object of coming to a conclusion whether the income of the Government of Pakistan such body corporate was liable to tax or not? In our opinion it was not. In this connection reliance is placed on Sind Industrial Trading Estate Ltd., K v. Central Board of Revenue and 3 other P L D 1975 Kar.

128. In this case it was held as under:

"Thus, the Government of the Sind clothed the activities entrusted to it under the Constitution for the development of trade and industries in the Province with a corporate personality, or, to use the expression which had found favour with their Lordships of the Supreme Court threw a veil of corporate personality over its functions vested in the Government of the Province of Sind. Nevertheless, it is the substance of these Governmental activities which should be looked at and not the vested juristic personality thrown over it."

9. From the above discussion it is abundantly clear that these grants were given for a specific purpose and also did not arise from any business conducted by the respondent. These grants in the hands of the company were therefore, of a capital nature. In any case these are exempt in view of the various authorities cited by us. That being the position we confirm the order of the learned AAC and the CTT (A) respectively consequently all the departmental appeals fail and are hereby dismissed.

M.B.A. Appeals dismissed.