1993 S C M R 1406

 
[Supreme Court of Pakistan]
 
Present: Muhammad Afzal Zullah, CJ., Nasim Hasan Shah and Shafiur Rahman, JJ
 
Civil Appeal No. 60-K of 1987
 
PAKISTAN SERVICES LIMITED---Appellant
 
versus
 
COMMISSIONER OF INCOME TAX (REVISION), KARACHI---Respondent
 
(On appeal from the judgment of High Court of Sindh at Karachi dated 24-4-1986 passed in
Constitution Petition No. 1167 of 1979).
 
Civil Appeal No. 523-K of 1987
 
THE COMMISSIONER OF INCOME-TAX, CENTRAL ZONE `B',
KARACHI---Appellant
 
versus
 
Messrs ALI MUHAMMAD H.K. DADA---Respondent
 
(On appeal from the judgment of High Court of Sindh at Karachi dated 12-10-1987 passed in
I.T.C. No. 99/1979).
 
Civil Appeals Nos. 573-K/1990. 247-K to 252-K and 254-K to 258-K of 1990
 
COMMISSIONER OF INCOME TAX---Appellant
 
versus
 
Messrs UNITED BANK LIMITED and others---Respondents
 
(On appeal from the judgment of High Court of Sindh at Karachi dated 4-11-1987 passed in
I.T.Rs. Nos.97/1979, 19/1979, 6/1980, 15/1981, 68/1982, 11/1983, 22/1983, 24/1981,
45/1982, 46/1982, 23/1979 and 18/1979 respectively).
 
Civil Appeal No.253-K of 1990
 
THE COMMISSIONER OF INCOME TAX---Appellant
 
versus
 
Messrs LEVER BROTHERS PAKISTAN LIMITED---Respondent
 
(On appeal from the judgment of High Court of Sindh at Karachi dated 8-12-1987 passed in
I.T.R. No. 22/81).
 
Civil Appeal No. 568-K of 1990
 
THE COMMISSIONER OF INCOME-TAX---Appellant
 
versus
 
JENSON & NICHOLSON OF PAKISTAN LTD. (NOW CALLED BERGER
PAINTS)---Respondent
 
(On appeal from the judgment of High Court of Sindh at Karachi dated 20-4-1988 passed in
I.T.R. No.69/1984).
 
Civil Appeal No. 710-K of 1990
 
THE COMMISSIONER OF INCOME TAX---Appellant
 
versus
 
PAKISTAN STATE OIL CO. LTD.---Respondent
 
On appeal from the judgment of High Court of Sindh at Karachi dated 26-9-1988 passed in
I.T.R. No.103/1982).
 
Civil Appeal No. 711-K of 1990
 
THE COMMISSIONER OF INCOME TAX---Appellant
 
versus
 
Messrs PAKISTAN TOBACCO COMPANY LTD: --Respondent
 
(On appeal from the judgment of High Court of Sindh at Karachi dated 30-11-1988 passed in
I.T.R. No.23/1983).
 
Civil Appeal No. 613-K of 1990
 
THE COMMISSIONER OF INCOME TAX---Appellant
 
versus
 
Messrs UNITED BANK LIMITED---Respondent
 
(On appeal from the judgment of High Court of Sindh at Karachi dated 15-8-1989 passed in
I.T.R. No.96/1979).
 
Civil Appeal No. 225-K of 1991
 
THE COMMISSIONER OF INCOME TAX---Appellant
 
versus
 
Messrs GLAXO LABORATORIES (PAKISTAN) LIMITED---Respondent
 
(On appeal from the judgment of High Court of Sindh at Karachi dated 2-5,1991 passed in
I.T.R. No. 111/1984).
 
Civil Appeals Nos. 6-K, 523-K of 1987, 573-K, 247-K to 251-K, 254-K to 258-K, 253-K,
568-K, 613-K, 710-K, 711-K of 1990 and 225-K of 1991, decided on 4th April, 1993.
 
(a) Income Tax Act (XI of 1922)---
 
----S. 10(2)(vii)---Constitution of Pakistan (1973), Art. 185(3)---Leave to appeal was grated
to examine the question whether the High Court had not erred in taking too restricted
meaning of the word "discarded" used in S.10(2)(vii) of the Income-tax Act, 1922 so as to
exclude abandoned property and thereby to deprive the assessee of the trading losses suffered
on account of it.
 
(b) Income-tax Act (XI of 1922)---
 
----S. 10(2)(vii)---Word "discarded" as used in S.10(2)(vii) of the Act--?Connotation.
 
No doubt the extended meaning of "discard" given in the dictionary includes "abandonment".
However, all abandonment of property cannot and does not amount to discarding of the
property. The word "discard" entails, a choice, a selection, a voluntary act of leaving behind,
causing of, leaving or abandoning. Without such a choice, selection or volition, the word
"discarded" would be inappropriate to use. For example, if one was made to forcibly leave his
house that would not amount to discarding the house.
 
(c) Income-tax Act (XI of 1922)---
 
----S. 10(2)(vii)---Provision of S.10(2)(vii) of the Act was applicable to losses incurred in
East Pakistan (now Bangladesh) on account of the compulsory acquisition (without payment
of compensation) of the assets by Bangladesh Authorities which also stood recognised by the
Government of Pakistan.
 
The acquisition of the properties of the assessee by Bangladesh Authorities without
compensation will be taken to be compulsory and by the competent authority, and the cause
of action for claiming relief in respect of such properties will arise not retroactively from the
date Bangladesh declared independence or the law was promulgated by the Bangladesh
Authorities but from &he date it was recognized by the Government of Pakistan. Provisions
of section 10(2)(vii) of the Income-tax Act, 1922 would be applicable notwithstanding the
technical objections that one of the conditions of the? proviso namely, that the written down
value was not scored off in the books of account or that the assessment year relevant for
claiming concession was 1972-73, the independence of Bangladesh having been declared in
1971.
 
Section 10(2)(vii) of the Income-tax Act, 1922, was therefore applicable to losses incurred in
East Pakistan (now Bangladesh) on account of the compulsory acquisition of the assets by a
competent authority without argument any compensation which stood recognized by the
Government of Pakistan.
 
CIT v. National Bank Limited (S.C.) India (1965) 55 I.T.R.; (1964) 54 ITR (Sh. N.) 14; PLD
1963 Kar. 48; PLD 1966 SC 510; PLD 1962 Lah. 779; Chitnvis's case AIR 1932 PC 178; 59
IA 290; M/s. Avery Scales Ltd., Karachi v. The Income Tax Officer, Company Circle VII,
Karachi Income Tax Appeal No.287-KB of 1975-76; M/s. United Liner Agencies of Pakistan
Ltd., Karachi v. The Income Tax Officer, Company Circle-IV, Karachi ITA No.4593-KB of
1973-74; M/s. Glaxo Laboratories (Pakistan) Limited, Karachi v. I.T.O. I.TA. No. 273/KB of
1978-79; Halsbury's Laws of England, Fourth Edn., Vol., 18, para. 1433; Oppenheim's
International Law, Vol. I , Art. 75; Aksionairnoye Obschestvo Dlia Mechanicheskoyi
Obrabotky Diereva v. James Sagor & Company (1921) 3 KB 532; United States of America
v. Morgan Belmont and Eleanor R. Belmont 301 U.S. 324=81 L.ed 113; United States of
America v. Louis H. Pink 315 US 203= 86 L.ed. 796; Highway Petroleum Co. v. CIT PLD
1977 Lah. 797; Highway Petroleum Co. v. CIT PLD 1972 Lah. 79; Lever Brothers of
Pakistan Limited v. Commissioner, Income Tax, Central Zone 'A', Karachi 1988 PTD 195;
Broom's Legal Maxims; The Generous, 2 Dod. 321 and Commissioner of Income Tax,
Bombay City-II v. London Hotel 1968 ITR 62 ref.
 
(d) Words and phrases---
 
---?Discarded"---Meaning.
 
(e) Maxim---
 
----"Lex non cogit ad impossibilia"---Parameters within which maxim operates recorded.
 
Broom's Legal Maxims ref.
 
(f) International law---
 
---- Recognition of Bangladesh as an independent State by Pakistan---Implications.
 
Halsbury's Laws of England, Fourth Edn., Vol. 18, para. 1433 and Oppenheim's International
Law. Vol. I, Art. 175 ref.
 
Fakhruddin G. Ebrahim, Senior Advocate, Abdul Hafeez Lakho, Advocate and A. Aziz
Dastgir, Advocate-on-Record for Appellant (in CA. No.60-K of 198). .
 
Shaik Haider, Advocate, S.M. Abbas, Advocate-on-Record for Respondent (in CA. No.60-K
of 1987) and Appellant (in CAs. N os.523-K, 247-K to 258-K, 568-K, 710-K, 711-K of 1990
and 225-K of 1991).
 
Mrs. Rashida Patel, Advocate/Advocate-on-Record for Appellant (in CA. 573-K and CA.
613-K-of 1990).
 
Sirajul Haq, Advocate, M.I. Memon, Advocate-on-Record for Respondent (in CA. No.573-K
of 1990).
 
Sirajul Haq, Advocate and M.C. Motiani, Advocate-on-Record for Respondent (in CA.
No.613-K of 1990). .
 
Fateh W. Vellani, Advocate, Mrs. Majida Razvi, Advocate7on-Record for Respondent (in
CA. No.225-K of 1991).
 
Nizam Ahmed, Advocate-on-Record (absent), KA. Wahab, AA. Dastgir, Faizanul Haq, M.S.
Ghaury, M.C. Motiani, Advocates-on-Record for Respondent (in other Appeals except in
CAs. Nos.255-K and 256-K of 1990).
 
Respondents: Ex parte (in CAs. Nos. 255-K and 256-K of 1990).
 
Dates of hearing: 20th and 21st April, 1992.
 
JUDGMENT
 
SHAFIUR RAHMAN, J.---Leave to appeal was granted in Civil Appeal No.60-K/1987 to
the assessee of Income-tax to examine the question whether the High Court had not erred in
taking too restricted meaning of the word "discarded" used in section 10 (2) (vii) of the
Income-tax Act, 1922 so as to exclude abandoned property and thereby to deprive the
assessee of the trading losses suffered on account, of it. This question was to be examined
alongwith others arising in the case.
 
The question on which leave to appeal was granted to the assessee (in Civil Appeal
No.60-K/1987) is also involved in the following appeals filed by the Commissioner of
Income-Tax:--
 
(1) Civil Appeal No. 523-K of 1987, arising out of judgment of High Court dated
12-10-1987;
 
(2) Civil Appeals Nos. 573-K, 247-K to 252-K and 254-K to 258-K of 1990, arising out of
judgment dated 4-11-1987;
 
(3) Civil Appeal No.253-K of 1990, arising out of judgment dated 8-12-1987;
 
(4) Civil Appeal No. 568-K of 1990, arising out of judgment dated 20-4-1988;
 
(5) Civil Appeal No.710-K of 1990, arising out of judgment dated 26-9-1988;
 
(6) Civil Appeal No. 711-K of 1990, arising out of judgment dated 30-11-1988;
 
(7) Civil Appeal No. 613-K of 1990, arising out of judgment dated 15-8-1989;???????????
 
(8) Civil Appeal No. 225-K of 1991, arising out of judgment dated 2-5-1991. '
 
In the first instance, we will deal with Civil Appeal No.60-K of 1987 filed by the assessee,
arising out of judgment dated 24-4-1986, and. then the others mentioned above filed by the
Commissioner of Income Tax
 
2. The assessee/appellant in CA. No. 60-K/87 is a public company limited by shares and
owned Intercontinental Hotels throughout Pakistan including one in Dacca in East Pakistan in
the year 1971. As a result of the disturbance followed by war in December, 1971, the
appellant was forced to discard or abandon its Dacca Intercontinental Hotel which was
subsequently acquired under the Bangladesh Abandoned Property Control, Management and
Disposal Order, 1972 (President's Order No.16 of 1972 hereinafter referred to as the P.O. No.
16 of 1972) on the 28th of February, 1972 by the Bangladesh Government. The written down
value of this Hotel including the buildings, machinery, plant and furniture was at the relevant
time Rs.4,33,44,772. In the accounting year 1973 and the Income-tax year, 1974-75, the
appellant claimed a trading loss of this amount from its profits and gain's under section 10 (2)
(vii) of the Income-tax Act. The Income-tax Officer by a very short order rejected this claim
observing as hereunder:--
 
"This is not admissible in law and the claim is disallowed."
 
3. An appeal was taken to the Appellate Assistant Commissioner who also rejected the claim
observing as hereunder:--
 
"Having considered the facts and circumstances of the case, I am of the opinion that the
disallowance has properly been made by the Assessing Officer and this view gets support
from several decisions of the learned Income-tax Appellate Tribunal. The issue stands
decided eleborately by the Tribunal vide I.TA. No. 4593/KB/1973-74, dated the 30th June,
1976, and I.TA. No. 662/KB/74-75, dated 1-10-1976. Following the decision of the learned
Income-tax Appellate Tribunal, the disallowance made by the Assessing Officer is upheld in
respect of the loss of fixed assets in East Pakistan:"
 
4. A revision under section 33A (1) was thereafter filed which too failed. The Revising
Authority/Commissioner of Income-Tax (Revision) held as hereunder:--
 
"I have considered the merits of the case and hold that the loss in question is a capital loss."
 
5. The appellant thereafter filed a Constitution Petition in the High Court. The two grounds
taken up in the Constitution Petition were that the fixed assets like the building, the
machinery, the plant and the furniture stood discarded or abandoned on account of the
circumstances beyond the control of the assessee and also that it was compulsorily acquired
by the President of Bangladesh without payment of any compensation and both these events
entitled the assessee to the benefit of section 10 (2) (vii) of the income-tax Act.
 
It appears that in the arguments only one ground was pressed before the High Court and that
was of discarding of the fixed assets on account of circumstances beyond the control of the
assessee. This was examined by the High Court and the plea was rejected observing as
hereunder:-- .
 
"The abandonment of hotel and assets was therefore, clearly due to reason over which the
petitioner had no control whatsoever. Such abandonment of assets by the petitioner, cannot
be construed as their discarding and as such, the same cannot fall within the purview of
clause (vii) of section 19 (2) of the Income Tax Act so as to entitle the petitioner to claim
deduction as aforesaid. It is, therefore, clear that the petitioner did not discard its asset in
Dacca, within the meaning of clause (vii) of section 10 (2) and as such it is not entitled to
claim any deductions thereunder."
 
The writ petition was consequently dismissed.
 
6. Mr. Fakhruddin G. Ebrahim, Senior Advocate, the learned counsel for the appellant in an
attempt to make out a clear case of concession under clause (vii) of section 10 (2) of the
Income Tax Act referred to the following decisions of various Courts and Tribunals:--
 
(i) C.I.T. v. National Bank Limited (S.C.) India (1965) 55 I.T.R. wherein loss on account of
dacoity was allowed under clause (vii) of section 10 (2).
 
(ii) (1964) 54 I.T.R. (Sh. N.) 14, where loss on account of war was allowed under this
provision of law.
 
(iii) PLD 1963 Karachi 48 upheld by the Supreme Court in PLD 1966 SC 510 where loss on
account of robbery of cash was allowed under this provision of law.
 
(iv) PLD 1962 Lahore 779 (Case of Australia Bank Ltd.)
 
(v) Case of Chitnvis (AIR 1932 Privy Council 178)
 
(vi) 59 Indian Appeals 290.
 
7. The learned counsel for the appellant has also filed copies of certain decisions of the
Tribunal where a contrary view has been taken on the same No.287/KB/1975-76 (M/s. Avery
Scales Ltd., Karachi v. The Income Tax Officer, Company Circle.VII, Karachi), the tribunal
came to the following conclusion:--
 
"A reading of the above provisions shows that this allowance is admissible even in respect of
the assets which are discarded and "discard" in the dictionary meaning includes
"abandonment" as well. Therefore, the acquisition of the assets by a competent authority is
not the sole criterion for the application of this provision. The assessee-?appellant had, in its
letter dated the 5th November 1974 clearly intimated to the Income Tax Officer in para. (5)
thereof that the business in East Pakistan had remained abandoned. In these circumstances the
assessee-appellant's claim would very well be covered by this provision. Therefore, there is
no reason why the appellant assessee's claim should have been thrown out summarily and in
the manner the officers below had done. The Income Tax Officer would re-examine the
position on the basis of the written down value and allow the claim now."
 
`In another case I.TA. No. 4593/KB of 1973-74 (M/s. United Liner Agencies of Pakistan
Ltd., Karachi v. The Income Tax Officer, Company Circle-IV, Karachi), the Tribunal has
interpreted the word "discard" in the following manner not beneficial Co the assessee :--
 
"The word `discard' means a voluntary abandoment. It shows a volition and is not the result
of an act of God or of a usurper. In this case admittedly no volition was exercised by the
assessee. Therefore section 10 (2) (vii) could not be pressed into service. The appellant did
not press ground No.2."
 
In yet another appeal, I.T.A. No. 273/KB of 1978-79 M/s. Glaxo Laboratories (Pakistan)
Limited, Karachi v. The I.T.O., the view taken by the Tribunal on the same question was as
hereunder:--
 
"Therefore the recognition of Bangladesh Government by the Government of Pakistan had
turned an illegal authority into a juridical and legal authority and the date of recognition
would determine the date of acquisition by a competent authority. We, therefore, cannot
escape from the conclusion that the property did stand acquired by a competent authority on
22-2-1974:"
 
8. The learned counsel for the appellant, has further contended that having accepted that the
word "discard" has also the meaning of "abandonment", the High Court could not have given
a restricted interpretation to the provision of law with a view to exclude the meaning of
"abandonment" from the word "discard".
 
9. No doubt the extended meaning of "discard" given in the distionary includes
"abandonment". However, all abandonment of property cannot and does not amount to
discarding of the property. The word "discard" entails a choice, a selection, a voluntary act of
leaving behind, causing of, leaving or abandoning. Without such a choice, selection or
volition, the word "discarded" would be inappropriate to use. For example; if one was made
to forcibly leave his house that would not amount to discarding the house.
 
10. The learned counsel for the appellant, however, is on a stronger footing in contending that
taking a general view of what happened in East Pakistan and Bangladesh in respect of this or
such properties it cannot but be said to be compulsory acquisition of the property by a
competent authority. After the Bangladesh unilaterally declared its independence of Pakistan,
there followed in 1972 P.O. 16 of 1972. By this such properties were compulsorily acquired
by the Government of Bangladesh. This was followed by recognition of Bangladesh as an
independent country by the Government of Pakistan on 4-5-1974 vide Constitution (First
Amendment) Act, 1974 (Act XXXIII of 1974).
 
11. The High Court of Sindh while dealing with the very same question in various Income
Tax References, as distinguished from a Constitution Petition, held by its judgments dated
12-10-1987, 4-11-1987, 8-12-1987, 20-4-1988, 26-9-1988, 30-11-1988, 15-8-1989 and
2-5-1991 that such acquisition of assets amounted to compulsory acquisition by the
competent authority and the loss was admissible under section 10(2)(vii) of the Income Tax
Act. It is these orders which have led to other appeals which are under consideration
alongwith the appeal arising out of the Constitution Petition i.e., Civil Appeal No.60-K/1987.
 
12. The President of Peoples Republic of Bangladesh promulgated on the 28th February,
1972, the Bangladesh Abandoned Property (Control, Management and Disposal) Order, 1972
(President's Order No.16 of 1972). `Abandoned property' was defined in a manner to include
"any property owned by any person who is a citizen of a State which at any time after the
25th day of March, 1971, was at war with or engaged in military operations against the
Peoples Republic of Bangladesh". It also included "any property owned by any person who is
not present in Bangladesh" and the Explanation extended the presence in Bangladesh to "any
body of persons. or company constituted or incorporated in the territory or under the laws of
a State which at any time after the 25th day of March, 1971, was at war with or engaged in
military operations against the People's Republic of Bangladesh". `Company' was defined to
include "a banking company and insurance company". `Property' was defined to include
"property of any kind, movable or immovable" and inclusive of "any right or interest in such
property and any debt or actionable claim, any security or negotiable instrument, any right
under a contract and any industrial or commercial undertaking". `Security' included "share,
scrip, stock, bond, debenture, debenture stock or other marketable security of a like nature in
or of anybody corporate and Government security". By its Article 4, P.O. No. 16 of 1972
provided that "on the commencement of this Order, all abandoned properties in Bangladesh
shall vest in the Government and shall be administered, controlled, managed and disposed of,
by transfer or otherwise, in accordance with the provisions of this Order".
 
This Order (P.O. No. 16 of 1972) had the effect of- compulsory acquisition of the assets of
the assessee companies whatever its form or nature. The subsequent recognition of the
Bangladesh State by the Government of Pakistan in 1974 had the effect of retrospectively
recognizing it from' the date of its creation and on that score, making the acquisition of such
properties by authority competent and recognized so by the Government of Pakistan to
acquire it.
 
13. The fact of recognition of Bangladesh as an independent State has more than one
implication. The general law on the subject as contained in Corpus Juris Secundum is as
hereunder:--
 
"Recognition is a political act which, when accorded by the authorized political department,
will be accepted as conclusive by the Courts. Recognition as a de facto Government is
sufficient????..Recognition is retrospective, dating from the original assertion of sovereignty,
so as to validate the acts of the recognized Government. In this respect it is all one whether
the foreign Government has been recognized as a Government de jure or de facto.
Recognition by the United States Government of a foreign Government operates to validate
from the beginning the decrees of the foreign Government confiscating and nationalizing
property, including property within the United States where such property is embraced by the
foreign decree. In such case the national policy is paramount and overrides any contrary local
public policy of the individual States, and the foreign decrees will be fully recognized and
enforced as to local assets, at least where no local creditors have an interest."
 
14. The British law on the subject is found in Volume 18, Halsbury's Laws of England
(Fourth Edition) in paragraph 1433 a hereunder:---
 
 
" 1433. Legal effects of recognition.---The recognition of a foreign Government by the
Crown reverses the consequences of non-?recognition. A recognised Government may sue,
and may claim sovereign immunity if sued, in an English Court. Acts of a recognized
Government are generally recognised as valid and are given effect in accordance with the
rules of the conflict of laws. Thus, contracts made with and by a foreign recognised
Government are valid and enforceable, and legislative and executive acts such as decrees
affecting property within the State whose territory is administered by a recognised
Government and legislation winding up or affecting a company incorporated there will be
given effect in the English Courts, so long as they conform to international law and public
policy. A recognised Government may claim the public property of the State and? the records
and State archives deposited in England by a previous Government. Further, the acts of a
recognised Government will not be treated as the acts of a usurped authority within the
meaning of a general insurance policy, even though the Government has come to power by
revolutionary means."
 
15. The International law on the subject of recognition of a State is found in Article 75 of
Oppenheim's International Law (Volume I) as hereunder:--
 
"Among the more important consequences which flow from the recognition of a new
Government or Stale are these: (1) it thereby acquires the capacity to enter into diplomatic
relations with other States and to make treaties with them; (2) within limitations which are far
from being clear, former treaties (if any) concluded between the two States, assuming it to be
an old State and not a newly-born one, are automatically revived and come into force; (3) it
thereby acquires the right, which, at any rate according to English law, it did not previously
possess, of suing in the Courts of law of the recognising State; (4) it thereby acquires for
itself and its property immunity from the jurisdiction of the Courts of law of the State
recognising it and the ancillary rights which are discussed later-an immunity which,
according to English law at any rate, it does not enjoy before recognition. (5) It also becomes
entitled to demand and receive possession of property situate within the jurisdiction of a
recognising State, which formerly belonged to the preceding Government at the time of its
supersession. (6) Recognition being retroactive and dating back to the moment at which the
newly-recognised Government established itself in power, its effect is to preclude the Courts
of law of the recognising State from questioning the legality or validity of the acts both
legislative and executive, past and future, of that Government; it therefore validates, so far as
concerns those Courts of law, certain transfers of property and other transactions which
before recognition they would have treated as invalid."
 
16. The particular argument that when P.O. No.16 of 1972 was passed, 1H: Bangladesh
Government was not recognised and the retrospective effect recognition cannot make
competent something which was ab initio incompetent was taken note of in Aksionairnoye
Obschestvo Dlia Mechanicheskoyi Obrabotky Diereva v. James Sagor and Company (1921)
3 K.B. 532 at page 549 as hereunder:--
 
"But then it is said that at the time when the legislative or executive acts were done the
persons assuming to act as the Government of Russia had not been recognized by this
country, and those act, therefore are not entitled to the respect due to the acts of. at
independent sovereign State. This contention raises the question whether recognition is
retroactive to any and what extent. Assuming that the acts in question are those of the
Government subsequently, recognized I should have thought that in principle recognition
would be retroactive at any rate to such date as our Government accept as that by which the
Government in question in fact established its authority. It appears from the letter of the
Foreign Office dated April 22, 1921, that that date is anterior to any of the events material to
the present case. "Recognition is the act through which it become apparent that an old State is
ready to deal with a new State as an international person and a member of the family of
nations". If this is so then provided the act in question was an act of the State so recognized it
must, in my opinion, be entitled to the same respect as the act of a sovereign State, whether
done before or after recognition."
 
17. This subject has been dealt with in two American cases also. In Unite States of America
v. Morgan Belmont and Eleanor R. Belmont (301 U.S. 324=81 L.ed. 113 it was held that
judicial notice can be taken of the recognition of a foreign Government, and the effect of
recognition is to validate all acts of such Government from the commencement of its
existence. In the other case, United States of America v. Louis H. Pink (315 US 20=86 L ed
796) it was held that recognition of a foreign Government was a political question and
judicial notice of it can be taken and the laws of that country so recognised given effect to.
 
18. The effect of the law so far discussed is that the acquisition of the properties of the
assessee will be taken to be compulsory and by the competent authority, and the cause of
action for claiming relief in respect of such properties will arise not retroactively from the
date Bangladesh declared independence or the P.O. No.16 of 1972 was promulgated but from
the date it was recognized by the Government of Pakistan. On that view of the matter, the
High Court judgments on this point would appear to be correct notwithstanding the technical
objections that one of the conditions of the proviso namely, that the written down value was
not scored off in the books of account or that the assessment year relevant for claiming
concession was 1972-73, the independence of Bangladesh having been declared in 1971.
With these C general observations it has become necessary to examine the facts of each of the
other appeals individually.
 
CA. No. 523-K/90 CIT v. M/s. Ali Muhammad H.K. Dada:
 
19. For the assessment year 1972-73 (the year ending on 30th March, 1972) the respondent
assessee claimed capital loss in the shares and bad debts written off in respect of the
nationalized companies incorporated in Burma and East Pakistan. These were not allowed by
the income-Tax Officer and by the Appellate Assistant Commissioner. The Tribunal,
however, allowed these losses by an order dated 9-2-1976 as hereunder:--
 
"In our opinion the appellant was in possession of sufficient evidence to entitle him to claim
these losses of capital and we do not find any justification for the Income-tax Officer's
observations that the appellant could not "produce any evidence. After all what other
evidence could be produced for the assets lost in an alien country in the circumstances in
which the appellant is placed. The action of the Income-tax officer at the same time is not
consistent with the action of his counterpart i.e. the Wealth Tax Officer who has accepted this
loss and we shall accordingly vacate the Income-tax Officer's order in this behalf and direct
him to scrutinize the evidence that has been discussed above and allow the loss that the
appellant is able to establish in Burma.
 
The appellant also claimed a loss of Rs.1.220 being the cost of shares of the companies
registered in East Pakistan. The Income-tax Officer disallowed the same on the simple plea
that these were dormant assets and could not be allowed in view of the instructions contained
in the Central Board of Revenue's Circular No.11 dated 28-11-1972. The appellant's plea is
that the Central Board of Revenue's circular, referred to above by the income-tax Officer does
not contain any such instructions. It is stated that no value has to be assigned to these shares
even for the Wealth tax purposes. So far as the assessee is concerned, he has lost these assets.
We agree with the appellant's contention that these assets have also been lost and, therefore,
these should be treated as capital case."
 
The Tribunal refused to refer the question of law arising therein whereupon the
Commissioner of Income Tax sought directly reference of the following question of law:-- .
 
"Whether, on the facts and in the circumstances of the case, the learned Tribunal was justified
in holding that a sum of Rs.7,396 being cost of shares of a company registered in East
Pakistan (now Bangladesh) should` be treated as capital loss and be allowed accordingly?"
 
The High Court, as in other cases, allowed the claim agreeing with the Tribunal's decision.
 
C.A No 573-K/1990
 
CIT v M/s United Bank Limited.
 
20. For the assessment year 1973-74 the assessee, a Banking Company claimed depreciation
allowance under section 10 (2) of the Income Tax Act on assets lying in East Pakistan. It was
denied to it by the Income-Tax Officer as well as by the Appellate Assistant Commissioner.
The Income Tax Appellate Tribunal also upheld that decision ob9erving as hereunder:--
 
"The appellant pressed grounds Nos.4 and 5 only. The assessee claimed depreciation
allowance under section 10 (2) on assets lying in East Pakistan, without declaring any income
or loss from its Branches in East Pakistan. The accounting year of the assessee was calendar
year 1972 for the assessment year 1973-74. As no income from business was declared by the
appellant or considered by the department the question of allowing depreciation on the assets
lying in East Pakistan could not arise."
 
21. On an application by the assessee to refer the question of law, the Tribunal declined it
treating the matter to be time-barred whereupon an application was filed directly in the High
Court. In the statement of the case the only point of law formulated was as hereunder:--
 
"Whether on the facts and in the circumstances of the case the Tribunal was justified in not
allowing the loss under section 10(2)(vii) of the Income Tax Act in respect of the assessee's
business assets lying in East Pakistan?"
 
The. High Court decided the question of law in assesee's favour.
 
CA. No.247-K 1990.
 
CIT v. M/s Asbestos Cement Industries Ltd.:
 
22. For the assessment year 1973-74 (year ending 30-6-1973) the respondent-assessee
claimed Rs.49,35,259 for loss of fixed assets in East Pakistan under section 10(2)(vii) of the
Income Tax Act. The Income Tax Officer disallowed it. So did the Appellate Assistant
Commissioner. The Appellate Tribunal also upheld this disallowance. Nevertheless, the
Tribunal referred the following questions of law to the High Court:
 
"(i) On the facts and in the circumstances "of the case was the Tribunal right in holding that
the Government of Bangladesh was not a "Competent Authority" within the meaning of
section 10(2)(vii) of the Income Tax Act until its recognition by the Government of Pakistan
on 23rd February, 1974?
 
(ii) Whether on the facts and in the circumstances of the case, the Tribunal was right in
confirming the order of the Income Tax Officer in regard to disallowance of loss of
Rs.49,35,259 claimed by assessee under section 10(2)(vii) of the Income Tax Act?"
 
CA. No. 248-K/90.
 
CIT v. M/s. Pakistan Petroleum Ltd.:
 
23. For the assessment year 1972-73 ending 31-12-1971 the assessee revised its return to
claim the toss arising on assets of the assessee in East Pakistan. The Income Tax Officer by
his order dated 15-4-1975 disallowed it on the ground that assets in question were not written
off in the books of the assessee in the accounting year under consideration. The Appellate
Assistant Commissioner upheld that order. The Income Tax Appellate Tribunal rejected the
claim on the ground that it was not a case of discarding of the assets. However, the Tribunal
referred the following questions of law to the High Court:--
 
"(i) Whether on the facts and circumstances of the case, the Income-tax Appellate Tribunal
was right in determining that the loss of fixed assets in the former East Pakistan was not
covered by section 10(2)(vii) of the Income Tax Act?
 
(ii) Whether on the facts and circumstances of the case, the Income-tax Appellate Tribunal
was right in determining that in the return filed the applicant had not claimed the loss of fixed
assets in the former East Pakistan when in fact this loss was claimed in the revised return of
income filed prior to the completion of the assessment?"
 
The High Court decided it in favour of the assessee.
 
C.A. No. 249-K/90.
 
CIT v. M/s. Pakistan Radio House:
 
24. For the assessment year 1972-73 (year ending 30-6-1973) a revised return was filed
claiming allowance under section 10(2)(vii) of the Income Tax Act of loss of assets in East
Pakistan. This was denied by the Income Tax Officer by order dated 30-4-1975 for reason as
hereunder:--
 
"This claim of assessee is not admissible as does not attract section 10(2)(vii) building was
not acquired by a competent authority under any law and secondly such claim is not allowed
as: per C.B.R.'s open Circular No.11 of 1972 dated 28-11-1972."
 
25. The Appellate Assistant Commissioner and the Income Tax Appellate Tribunal upheld
this order. However, on the request of the assessee the following question of law was referred
to the High Court:--
 
"Whether in the facts and circumstances of the case, the Appellate Tribunal was right in
holding that the applicant was not entitled to claim under section 10(2)(vii) of the Income-tax
Act, 1922 as a loss written down value of a building left in East Pakistan to Rs.1,61,076?"
 
The High Court decided it in favour of the assessee.
 
CA. No.250-K/90
 
CIT v. M/s. Kohinoor Chemical Company Ltd.:
 
26. For the assessment year 1972-73 (year ending 31-3-1972) on reconsideration the Income
Tax Officer disallowed assessee's claim of East Pakistan loss amounting to Rs.76,57,060. The
Appellate Assistant Commissioner upheld this order and so did the Tribunal. However, on the
request of assessee the Tribunal referred the following question of law to the High Court:--
 
"Whether on the facts and in the circumstances of case, the applicant's claim of Rs.76,57,060
related to the loss of fixed assets in East Pakistan was allowable under section 10 (2) (vii) of
the Income-tax Act, 1922?"
 
The High Court decided it in favour of the assessee.
 
C.A. No. 251-K/90
 
CIT v. M/s Lipton (Pakistan) Ltd.:
 
27. For the assessment year 1974-75 (year ending 31-12-1974) the assessee claimed loss of
fixed assets under section 10 (2) (vii) of the Income Tax Act amounting to Rs.20,30,708 in
East Pakistan. It was treated as capital loss but not under section 10 (2) (vii) of the
Income-Tax Act. The Appellate Assistant Commissioner upheld, this order. The Income-Tax
Appellate Tribunal, however, remanded the case observing as hereunder:--
 
"This Tribunal's decisions dated 16-1-1976 and 1-10-1976 maintain the view that the loss of
fixed assets in East Pakistan is to be allowed under section 10 (2) (vii) to the extent of their
correct written down value, subject to the limits contained in the fourth and fifth provisions of
the same subsection. A different view has, of course, been expressed and different meaning
placed on the word `discard' in decision dated 10-6-1976 yet the majority view of the
members of the Tribunal, on the principle enunciated by Mr. Justice Afzal Zullah (now Judge
of the SCP) in Highway Petroleum Co. v. CIT PLD 1977 Lahore 797 persuades us to stick to
the opinion that the loss of fixed assets is allowable under section 10 (2) (vii) of the Income
Tax Act. However, the facts in the present case are not fully evident from the assessment as
framed on 27-2-1976, because the disallowance of 15,71,560 has not been discussed at all
and what the assessing officer disallowed as Rs.20,30,708. We would, therefore vacate the
order by the learned AAC and set aside the assessment que-ad-hoc directing the assessing
officer to re-examine the position and consider the loss on the basis of WDV and in the light
of the direction hereinabove:'.
 
Against this the Commissioner of Income Tax successfully sought reference to the High
Court on the following question of law:--
 
"Whether on the facts and in the circumstances of the case, the Appellate Tribunal was
justified in holding that the loss of fixed assets in the former East Pakistan was covered by
section 10 (2) (vii) of the repealed Income-tax Act?"
 
The High Court decided it in favour of the assessee.
 
C.A. No. 252-K/90
 
CIT v. M/s. Lucas Services (Pakistan) Ltd.:
 
28. For the assessment year 1973-74 (year ending 31-3-1972), the respondent/assessee
claimed loss of assets of Rs.1,20,176 which was disallowed by the Income-tax Officer and
the Appellate Assistant Commissioner. It was, however, allowed by the Income Tax
Appellate Tribunal by reference to its earlier decisions as hereunder:--
 
"This Tribunal's decisions dated 16-1-1976 and 1-10-1976, therefore; maintain the view that
the loss of fixed assets in East Pakistan is to be allowed under section 10 (2) (vii) to the
extent of their correct written down value subject to the limits contained in the Fourth and
Fifth Provisos of the same subsection. A different view has of course been expressed and
different meaning placed on the word `discard' in decision dated 30-6-1976. However the
majority view of the Members of the Tribunal on the principle enunciated by Mr. Justice
Afzal Zullah (now Judge of the SCP) in Highway Petroleum Co. v. CIT (PLD 1972 Lah. 79)
pursuades as to stick to the view that the loss of fixed assets is allowable under section 10 (2)
(vii) of the Income Tax Act. However, the facts in the present case are not evident from the
assessment as framed on 24-10-1976, because the disallowance of Rs.1,20,176 has not been
discussed there and what the assessing officer disallowed was Rs.5,936. We would, therefore,
vacate the order by the learned Appellate Assistant Commissioner and set aside the
assessment quo-ad-hoc directing the assessing officer to re-examine the position and consider
the loss on the basis of written down value and in the light of the direction hereinabove."
 
The High Court decided it in favour of the assessee.
 
C.A. No. 254-K/90
 
CIT v. M/s. Electronic Industries Limited:
 
29. For the assessment year 1972-73 (year ending 30th June, 1972) the respondent/assessee
claimed loss of depreciated assets in East Pakistan to the tune of Rs.2,33,420 which was
denied to him by the Income Tax Officer, the Appellate Assistant Commissioner and by the
Income Tax Appellate Tribunal. The assessee, however, succeeded in obtaining a reference to
the High Court of the following question of law arising in the case:--
 
"Whether on the facts and in the circumstances of the case the Appellate Tribunal was correct
in holding that the written down value of assets left in East Pakistan could not be allowed as a
reduction under section 10 (2)(vii) of the Income Tax Act."
 
The High Court decided it in favour of the assessee.
 
C.A. No. 255-K,/90
 
CIT v. I.C.I.(Pakistan) Ltd.:
 
30. For the assessment year 1975-76 (year ending 30th September, 1974) the assessee sought
allowance for loss of assets in East Pakistan to the tune of Rs.2,04,424. This was disallowed
by the Income-Tax Officer and the Appellate Assistant Commissioner. The Tribunal also
maintained the disallowance on the ground that the assessee failed to prove that the assets had
been actually acquired by the competent authority under any law for the time being in force.
However, the assessee sought reference to the High Court of the following question of law
and obtained it:--
 
"Whether, in the facts and circumstances of this case, the Appellate Tribunal was justified in
disallowing the claim for loss in respect of fixed assets in East Pakistan under section 10 (2)
(vii) of the repealed Income-tax Act, 1922?"
 
The High Court decided it in favour of the assessee.
 
C.A. 256-K/90
 
CIT v. ICT Pakistan Manufactures Ltd.:
 
31. For the assessment year 1975-76 (year ending 30-9-1974) the assessee claimed a write off
of Rs.45,07,717 on account of written down value of assets located in East Pakistan. This was
disallowed by the Income Tax Officer. The Appellate Assistant Commissioner upheld this
order. The Tribunal rejected the appeal of the assessee. The Tribunal, however, referred the
following question of law to the High Court on an application filed by the assessee:--
 
"Whether, in the facts and circumstances of this case, the Appellate Tribunal was justified in
disallowing the claim for loss in respect of fixed assets in East Pakistan under Section 10 (2)
(vii) of the repealed Income Tax Act, 1922?"
 
The High Court decided it in favour of the assessee.
 
C.A. No. 257-K/90
 
CIT v. M/s. United Liner Agencies of Pakistan Ltd.:
 
32. For the assessment year 1973-74 (year ending 31-12-1972) the respondent/assessee
claimed a sum of Rs.2,56,825 in respect of loss of fixed assets in East Pakistan. The Income
Tax Officer disallowed it. The Appellate Assistant Commissioner maintained that order. The
Income Tax Appellate Tribunal also rejected the claim on the ground that loss did not amount
to `discard' of the assets nor the compulsory acquisition by a competent authority. However,
on the request of the assessee, the following question of law was referred to the High Court:--
 
"Whether. in the facts and the circumstances of the case, tie Tribunal was right in holding that
the assessee did not discard the assets and hence could not claim it as loss under section 10(2)
(vii) of the Income Tax Act?"
 
The High Court decided it in favour of the assessee.
 
C.A.No.258-K/90
 
CIT v. M/s. Siemen's Pakistan Engineering Co. Ltd.:
 
33. In the assessment year 1973-74 (accounting period ending 30-9-1972) the respondent
company claimed loss of fixed assets in East Pakistan, written down value of Rs.1,61,130.
The Income Tax Officer disallowed it following the Central Board of Revenue Circular
No.11 of 1972 dated 28-11-1972 by observing as hereunder--
 
"However, according to the instructions of the C.B.R. vide Circular No.11 of 1972 dated
28-11-1972 the loss of fixed assets is not to be treated as revenue loss. The written down
value of the fixed assets lost in East Pakistan is Rs.1,12,880 against their book value of
Rs.1,61,130. The assessee has claimed loss under, section 10(2)(vii) to the extent of written
down value of the fixed assets. However, this section cannot be invoked as the assets in
question have neither been sold nor transferred by way of exchange, nor compulsorily
acquired by a competent authority nor discarded, demolished or destroyed in the previous
year. The circumstances under which the assets have been lost are entirely different from any
of the situations visualised in section 10(2)(vii). It is for this reason that a special Circular has
been issued by the Central Board of Revenue."
 
34. The Appellate Assistant Commissioner upheld this order on 15-7-1975. So did the
Tribunal on 15-1-1978. The Tribunal finally referred the following question of law to the
High Court:--
 
"Whether on the facts and circumstances of the case, the Income Tax Appellate. Tribunal was
right in determining that the loss of fixed assets in the former East. Pakistan was not covered
by section 10(2)(vii) of the Income Tax Act?"
 
The High Court decided it in favour of the assessee.
 
C.A.No.253-K/90
 
CIT v. M/s. Lever Brothers Pakistan Ltd.:
 
35. For the assessment year 1973-74 (year ending 31st of December, 1972) the assessee
claimed a sum of Rs.34,62,012 on account of loss of fixed assets in East Pakistan. This was
disallowed by the Income Tax Officer and the Appellate Assistant Commissioner. This was
affirmed by the Tribunal in view of its earlier judgment on the same question. However, the
Tribunal declined to refer the question to the High Court whereupon the assessee approached
the High Court directly raising the following question of law for decision:--????????
 
"Whether in the facts and circumstances, the Tribunal was right in holding that the loss in
respect of depreciable fixed assets of the applicant in East Pakistan was not allowable as a
deduction under clause (vii) of subsection (2) of section 10 of the Income Tax Act?"
 
The High Court by its judgment dated 8-12-1987 answered the question in favour of the
assessee.
 
C-A.No.568-K/90
 
CIT v. M/s. Jenson and Nicholson of Pakistan Ltd.:
 
36. For the assessment year 1975-76 (year ending 31-12-1974) the respondent-assessee
claimed a loss in fixed assets valued at Rs.8.09,948 in East Pakistan. The Income Tax
Officer, the Appellate Assistant Commissioner and the Tribunal, all disallowed this claim for
various reasons. However, on the request of the assessee, the following question of law was
referred to the High Court:--
 
"Whether on .the facts and in the circumstances of the case, the Income Tax Appellate
Tribunal was right in determining the fact that the loss of fixed assets in the former East
Pakistan was not covered by section 10(2)(vii) of the Income Tax Act?"
 
The High Court by Its judgment dated 20-4-1988 answered it in favour of the assessee on the
strength of the decision in Lever Brothers Pakistan Limited v. Commissioner, Income Tax;
Central Zone `A', Karachi (1988 PTD
195).???
 
C A.No.710-K/90
 
CIT v Pakistan State Oils Co Ltd.:
 
37. For the assessment year 1972-73 (year ending 31-12-1971) the assessee claimed from its
East Pakistan business up to 25-11-1971 income of Rs.19,79,568. The Income Tax Officer
proportionately increased it to Rs.21,96,180 for the entire accounting year. The assessee was
a non-resident company and was accountable only for the profits accruing to it to Pakistan.
The accounting period of the assessee ended on 31-12-1971. The Appellate Assistant
Commissioner upheld the addition. The Appellate Tribunal also affirmed the addition.
However, on an application by the assessee, tile: Tribunal referred the following two
questions of law to the High Court:--
 
"(i) Whether on the facts and in the circumstances of the case, the Tribunal was right in
holding that the applicant/assessee, a non?resident company was liable to be subjected to
income-tax in respect of profits accruing or arising to it in the earstwhile East Pakistan for the
previous year ending 31-12-1971?
 
(ii) Whether on the facts and in the circumstances of the case the Tribunal was right in
holding that earstwhile East Pakistan continued to be a part of Pakistan till the date of its
recognition by Pakistan?"
 
The High Court by its judgment dated 26-9-1988 answered both the questions in favour of
the assessee.
 
C.A.No.711-K/90
 
CIT v M /s. Pakistan Tobacco Company Ltd.:
 
38. For the assessment year 1975-76, the respondent claimed a sum of Rs. 1,91,53,298
representing loss of fixed assets in Bangladesh under section 10(2)(vii) of the Income Tae
Act. It was disallowed by the Income Tax Officer, the Appellate Assistant Commissioner and
the Tribunal. The Tribunal gave the following three; reasons for upholding the disallowance
of the claim:--
 
"(i) Even if it could be assumed that the Government of Bangladesh was a `Competent
Authority' the act of acquisition of assets should have followed (de facto recognition by the
Government of Pakistan in February 1974 and the de jure recognition of May 1974) and not
preceded it to entitle the applicant of the benefit for acquisition of assets by the authority.
 
(ii) The applicant failed to establish with reference to an official notification in the Gazette
etc. or any other evidence to prove that the Directors/ Managers of the applicant left in
Bangladesh, were not able to control and manage its branches. The applicant thus failed to
prove that any contingency as contemplated in section 10(2)(vii) had occurred. In fact, the
Bangladesh Acting President's Order No.1 of 1972 does not contemplate the acquiring of all
concerns having their head offices in the former West Pakistan nor does it make the taken
over concerns as the property of the Government of Bangladesh. It only provides for `take
over' of management and control.
 
(iii) In order to claim the loss under section 10(2)(vii) of the repealed Act the
applicant-assessee had to write off the asset in the previous year relevant to the assessment
year in which the loss was being claimed. Secondly, it was also to be examined whether
clause (vii) of subsection (2) of section 10 was applicable only to the asset discarded,
demolished or destroyed or it could also be? extended to the acquisition of assets by any
authority. The Tribunal did not give any finding on these issues because the applicant failed
to prove that its assets were at all taken over (or acquired) by the Government of
Bangladesh." ???
 
39. On a reference application having been filed by the assessee relatable to the assessment
years 1975-76, 1976-77 and 1977-78, the following, three questions of law were referred by
the Tribunal to the High Court:--
 
"(1) Whether the Income Tax Appellate Tribunal. Acted in accordance with law in
confirming computation of export rebate as made by the Income Tax Officer?
 
(2) Whether on the facts and in the circumstances of the case the Income Tax Appellate
Tribunal was justified in holding that loss in respect of fixed assets in the former East
Pakistan was not covered by section 10(2)(vii) of the repealed Act?
 
(3) Whether on the facts and in the circumstances of the case the Tribunal was justified in
upholding the levy of additional tax under section 45(A) of the repealed Income Tax Act?"
 
Questions Nos.1 and 3 were found to be dependent on question No.2. It was agreed before
the High Court that if question No.2 was answered in favour of the assessee, the other two
questions did not require an answer and the High Court by its judgment dated 30-11-1988
held the losses in East Pakistan to be admissible and left unanswered the other two questions.
 
C.A. No.613-K/90.
 
CIT v. United Bank Limited.:
 
40. For -the Assessment year 1972-73 (year ending 31-12-1971) the assessee a banking
company filed revised return showing an amount of Rs.45,90,941 as `East Pakistan Profit not
repatriated' to West Pakistan and another amount of Rs.20,74,214 on the buy back shares.
The claim was denied. It was upheld by the Appellate Assistant Commissioner and also
disallowed by the Tribunal. The following two questions of law, however, were referred to
the High Court on an application made by the assessee:--
 
"(1) Whether on the facts and in the circumstances of the case the Tribunal was justified in
upholding the orders of the Income Tax Authorities taxing the profit of East Pakistan
Branches of the assessee amounting to Rs.45,90,941 which had not been repatriated to its
Head Office at Karachi?
 
(2) Whether on the facts and in the circumstances of the case the Tribunal was justified in
upholding the orders of the Income Tax Authorities charging to tax the amount of
Rs.20,74,214 being the interest accrued on by back shares, which was not received by the
Head Office of the assessee at Karachi?"
 
41. The High Court answered these questions by its judgment dated 15-8-1989, as
hereunder:--
 
"It cannot be denied that under section 4 of the Act only such income is assessable to tax
which is actually received or which is deemed to have been received by the assessee in
Pakistan. There being- no categorical finding by the Income Tax Authorities that the disputed
amount of Rs.45 lacs and Rs.20 lass and odd shown in the revised return of the assessee were
in fact received by the applicant, the assessment order suffered from legal infirmity. The
learned counsel for the department very frankly stated that these questions may now be
decided by the authorities in the light of above observations. We, accordingly, allow this
reference with the observation that the income-tax authorities will redetermine the question of
inclusion or otherwise of the sum of Rs.45 lacs and Rs.20 lacs and odd in the income of the
assessee for the period ending on 31-12-1971 in the light of the observation made by us
above. There reference is decided accordingly but there will be no order as to costs."
 
CA. No. 225-K/91
 
CIT v. M/s. Glaxo Laboratories (Pak.) Ltd:
 
42. Leave to appeal was granted to examine the following two questions of law out of four
questions that were referred to the High Court:--
 
"(1) Whether on the facts and in the circumstances of the case, the Tribunal was justified in
allowing the loss of fixed assets amounting to Rs.1,18,79,220 claimed by the assessee under
section 10 (2) (vii) of the Income-tax Act of 1922? 41.
 
(2) Whether on the facts and in the circumstances of the case, the Tribunal was justified in
holding that the Reference Application was barred by 21 days specially when the order in
appeal was passed after repeal of the Income-tax Act of 1922 and after promulgation of the
Income Tax Ordinance of 1979?"
 
For the other two questions (Nos.2 and 3, the above two questions being Nos.l and 4) by
which the assessee was aggrieved and not the Commissioner of Income-tax, a separate
Petition for Leave to Appeal No. 423-K of 1991 (converted into appeal as Civil Appeal
No.237-K of 1991) was filed.
 
43. For the assessment year 1974-75, the respondent/assessee claimed a loss of fixed assets in
East Pakistan amounting to Rs.1,18,79,220 under section 10 (2) (vii) of the Income-tax Act,
1922 which was disallowed by the income-tax Officer: Further, the Income Tax Officer
found that the assessee had obtained raw material from their foreign associates at higher
prices than was commonly available in the open international market. The Income Tax
Officer worked out that difference in the market price and the purchase price and added a
sum of Rs. 47, 00,000 under section 42 (2) of the Income-tax Act.
 
44. An appeal was taken to the Appellate Assistant Commissioner who upheld the order
against the assessee so far as disallowance of loss in East Pakistan was concerned but allowed
the appeal with regard to applicability of section 42 (2) of the Income-tax Act and directed
the Income Tax Officer to examine the question de novo. The, assessee went in appeal and
succeeded.
 
45. The appellant moved an application under section 136 (1) of the Income Tax Ordinance,
1979 for reference which was taken to be time-barred by 23 days and rejected. A direct
Reference was thereafter preferred under section 136 (2) raising the following four questions
of law:--
 
"(1) Whether on the facts and in the circumstances of the case, the Tribunal was justified in
allowing the loss of fixed assets amounting to Rs.1,18,79,220 claimed by the assessee under
section 10 (2) (vii) of the Income-tax Act of 1922?
 
(2) Whether on the facts and in the circumstances of the case, the Tribunal was justified in
holding that subsection (2) of section 42 of the Income-tax Act of 1922 is applicable in this
case?
 
(3) Whether on the facts and in the circumstances of the case, the Tribunal was justified in
deleting the addback of Rs.47,00,000?
 
(4) Whether on the facts and in the circumstances of the case, the Tribunal was justified in
holding, that the Reference Application was barred by 21 days specially when the order in
appeal was passed after repeal of the Income-tax Act of 1921) and after promulgation of the
Income Tax Ordinance of 1979',?"
 
46. The High Court allowed the losses in East Pakistan, also allowed the applicability of
section 42 (2) and addition of Rs.47,00,000 and held the Reference to be time-barred. Hence,
leave to appeal was granted to the Commissioner of Income. Tax on questions Nos.l and 4
while questions Nos.2 and 3 were subject-matter of appeal in Civil Appeal No. 237-K of
1991 filed by the assessee M/s. Glaxo Laboratories (Pakistan) Limited disposed of on
21-4-1992.
 
47. So far as question of limitation is concerned, for reasons recorded in the Commissioner of
Income Tax, Central Zone `B', Karachi v. M/s. Asbestos Cement Industries Limited, Karachi
(Civil Appeals Nos.261-K/1990 etc.), decided on 11-1-1993 and the Reference Application to
the Income Tax Appellate Tribunal under section 136(1) as well as direct Reference to the
High Court under section 136(2) are held to be within time. The appeal to the extent of
question of limitation is accented and judgment of the High Court on the point is set aside.
 
48. Now we come to the common question involved in all these appeals.
 
49. In all these appeals a common question raised was that the benefit of clause (vii) of
subsection (2) of section 10 of the Income Tax Act was controlled by the first proviso which
required that such amount is actually written off in the books of the assessees. According to
the learned counsel for the Department, in none of these cases this mandatory requirement of
the law was satisfied. It is to be noted in this context that the loss of assets had taken place in
December, 1971. Its compulsory acquisition, though from December, 1971 had taken place
by the statutory instrument which had come into force in 1972, the recognition of Bangladesh
itself had taken place in 1974 having retrospective effect from December, 1971. Unless all
the three requirements were complete, the assessee could rot justifiably lay a claim to the loss
nor could comply with the requirements of the proviso. These statutory instruments had the
effect of retrospectively depriving the assessees of the property and prospectively enabling
them to lay claim in respect of them. For such a situation as this, the maxim LEX NON
COGIT AD IMPOSSIBILIA (Co Litt. 231 b.) the law does not compel a man to do that
which he cannot possibly perform, exists. The parameters within which it operates have been
clearly laid down in Broom's Legal Maxims, as hereunder:-?
 
"The law itself and the administration of it, said Sir W. Scott. with reference to an alleged
infraction of the revenue laws, must yield to that to which everything must bend, to necessity;
the law, in its most positive and peremptory injunctions, is understood to disclaim, as it does
in its general aphorisms, all intention of compelling to impossibilities, and the administration
of laws must adopt that general exception in the consideration of all particular cases. "In the
performance of that duty, it has three points to which its attention must be directed. In the
first place, it must see that the nature of the necessity pleaded be such as the law itself would
respect, for there may be a necessity which it would not. A necessity created by a man's own
act, with a fair previous knowledge of the consequences that would follow, and under
circumstances which he had then a power of controlling, is of the nature. Secondly, that the
party who was so placed used all practicable endeavours to surmount the difficulties which
already formed that necessity, and which, on fair trial, he found insurmountable. 1 do not
mean all the endeavours which the wit of man, as it exists in the acutest understanding, might
suggest, but such as may reasonably be expected from a fair degree of discretion and an
ordinary knowledge of business. Thirdly, that all this shall appear by distinct and unsuspected
testimony, for the positive injunctions of the law, if proved to be violated, can give way to
nothing but the clearest proof of the necessity that compelled the violation" (The Generous, 2
Dod. 321, at pp. 323, 324) "
 
50. Apart from the maxim, there is a decision of Bombay High Court in Commissioner of
Income-tax, Bombay City 11 v. London Hotel (1968 ITR 62) where this proviso was
considered at great length and the conclusion drawn was as hereunder:--
 
"If in such a case we are to bold that still as a matter of law the assessee would not be entitled
to the allowance because the amount is not actually written off in the books of the assessee,
we think we would be perpetrating a clear injustice."
 
51. In view of the discussion above, Civil Appeal No.60-K of 1987 is allowed and the
judgment of the High Court is set aside while all the other appeals filed by the Commissioner
of Income Tax are dismissed maintaining the judgments of the High Court allowing the
applicability of section 10(2)(vii) of the Income Tax Act to losses incurred in East Pakistan
(now Bangladesh) on account of the compulsory acquisition of the assets by a competent
authority which stood recognized by the Government of Pakistan. No order is made as to
costs.
 
Civil Anneals No 60-K of 1987 etc.
 
NASIM HASAN SHAH, J.---I agree with the final conclusion arrived at by my learned
brother Shafiur Rehman, J. that Civil Appeal No. 60-K of 1987 be allowed and the judgment
of the High Court set aside.
 
I also agree that all the appeals filed by the Commissioner, Income Tax against the judgment
of the High Court allowing the benefit of section 10(2)(vii) of the Income Tax Act on account
of Bangladesh Authorities taking over compulsorily the properties concerned, without
payment of any compensation, be dismissed.
 
MUHAMMAD AFZAL ZULLAH, CJ. ---I agree.
 
ORDER OF THE COURT
 
Civil Appeal No. 60-K of 1987 is allowed and the judgment of the High Court is set aside.
 
All other appeals filed by the Commissioner of Income Tax against the judgments of the
High Court allowing the benefit of section 10(2)(vi) of the Income Tax Act on account of
Bangladesh authorities taking over compulsorily the properties concerned, without payment
of any compensation, are dismissed.
 
No order is made as to costs.
 
M.BA./P-207/S??????????????????????????????????????????????????????????????????????
???????????? Order accordingly.