19 May 2004	Wednesday	28 Rabi-ul-Awwal 1425

ISLAMABAD, May 18: The Supreme Court on Tuesday dismissed identical appeals of a number of small power producers seeking income tax exemption for the year 1994-96.

Different power companies, including M/s Generaltech Pakistan Ltd, M/s Maple Leaf Electric Company Ltd, M/s Kohinoor Energy Ltd and D.G. Khan Electric Company, had challenged the January 1999 orders of the Lahore High Court rejecting their petitions for income tax exemptions.

These power producers had prepared feasibility reports and financial planning to install captive power generation units. The financial planning of the projects also included provisions to issue share capital and subscription.

The amounts received by these companies through the issue of share capital were deposited in banks for the purpose of utilization in the project in accordance with the financial planning of the projects.

Meanwhile, these companies earned interest for the period during which the amount remained deposited in the banks. In assessment years 1994-95 and 1995-96, the deputy commissioner income tax by treating these amounts as "income from other sources," in terms of section 30 of the Income Tax Ordinance, 1979, subjected them to tax by declining the plea of the petitioners that the said profit and gains/income were exempted in terms of item 176 of the second schedule to the Income Tax Ordinance.

Consequently, appeals were filed before the Commissioner Income Tax (Appeals) Lahore, which were dismissed in September 1996. Later, the petitioners filed appeals before the LHC which were also turned down in limine.

The companies moved identical appeals before the Supreme Court with a prayer that the amounts kept in the banks by them were part of the project funds. They pleaded that the commissioner income tax and the high court had failed to appreciate the scope of item 176, which according to them, covered profits and gains derived by an assessee from an electric power generation project set-up in Pakistan on or after the 1st day of July 1988.

Besides, the money kept in the banks that earned profit was part of the project funds and any profit and gains in the form of interest would therefore be fully covered by this provision of the income law, the appeals maintained. The SC-bench consisted of Justice Iftikhar Mohammad Chaudhry, Justice Rana Bhagwandas and Justice Khalilur Rehman Ramday.