PTD 2001 Judgments

2001 P T D 154

[238 I T R 450]

[Allahabad High Court (India)]

Before R. K. Gulati and M. C. Agarwal, JJ

COMMISSIONER OF INCOME-TAX

versus

MALIK CONSTRUCTION CO.

Income-tax, Reference No.206 of 1982, decided on 23rd December, 1997.

Income-tax--

----Capital or revenue receipt ---Assessee, a contractor---Award by arbitrator of additional sums to assessee for additional work done---Interest awarded on such sums for periods prior to award and thereafter up to date of payment--­Is revenue receipt.

The assessee-firm, engaged in the business of execution of works contracts, executed a project for the Government of Orissa. After the receipt of the said contract in the year 1974 certain disputes arose between the assessee and the Government of Orissa. The assessee claimed that it had to carry out certain work over and above the items stipulated in the agreement. It demanded payment for the additional work and also interest thereon at the rate of 15 per cent. from the date when the payment ought to have been made till July 13, 1974. The matter was ultimately referred to arbitration and the arbitrator gave an award, dated May 21, 1976, holding that the assessee was entitled to recover Rs.3,19,244 for the additional items of work executed by the assessee and interest on the said amount at the rate of 12-1/2 per cent. which was calculated at Rs.96,226. Thus, the assessee became entitled to recover Rs.4,15,470. On this amount, the arbitrator further awarded pendente lite interest at the rate of 12-1/2 per cent. per annum for the period July 14, 1974 to May 21, 1976. The total amount of compensation awarded came to Rs.5,16,020. The arbitrator also directed that the said amount was payable within 45 days of the date of award otherwise the assessee was entitled to further interest at the rate of 6 per cent. to be carried from the date of default till the date of payment. The assessee carried the total amount received under the award to its profit and loss account. In the assessment proceedings for the year 1977-78, the assessee claimed that a sum of Rs.2,00,080 received by way of interest was not liable to be taxed as it was on ex gratia payment. The Income-tax Officer rejected the claim but the Tribunal upheld it. On a reference:

Held, that the receipt of pre-award and post-award interest was a revenue receipt attributable and incidental to the business carried on by the assessee and it bore the same character as the receipts, payment of which it was otherwise entitled to under the contract. The disputed amount of interest was only an accretion to the assessee's receipts from the contract business. The Tribunal was not legally correct in taking the view that the sum of Rs.2,00,080 received as interest by the assessee was an ex gratia payment which was not liable to tax. .

CIT v. Govinda Choudhury & Sons (1993) 203 ITR 8181 (SC) fol.

CIT v. Builders Union (1995) 211 ITR 993 (Orissa) CIT v. Godavaridevi Saraf (Smt.) (1978) 113 ITR 589 (Bom.); CIT. v. Lenka (A.) and Partners (1995) 215 ITR 298 (Orissa); Executive Engineer, Irrigation v. Abnaduta Jena AIR 1988 SC 1520; Govinda Choudhury & Sons v. CIT (1977) 109 ITR 497 (Orissa); Riches v Westminster Bank Ltd. (1947) 15 ITR (Suppl.) 86 (HL) and Secretary, Irrigation Department, Government of Orissa v. G.C. Roy AIR 1992 SC 732 ref.

2001 P T D 1383

[2441 T R 755]

[Allahabad High Court (India)]

Before M. C. Agarwal and S. Rafat Alam, JJ

COMMISSIONER OF WEALTH TAX

versus

ASHOK KUMAR GOEL

Wealth Tax Reference No. 148 of 1979, decided on 1st October, 1999.

Wealth tax---

----Revision---Commissioner---Notices under S.25 by Commissioner in proceedings to revise assessment---Mistake rectified by W.T.O. himself under S.35 of the Act prior to issue of S.25(2) notice---Rectification order later set aside by A.A.C. on appeal---Tribunal setting aside revision order on ground that assessment order stood rectified on date of issuance of notice under S.25---Last notice under S.25 issued after rectification order ceased to exist--Tribunal failing to consider effect of last notice--Commissioner's order subsequent to setting aside of rectification order by A.A.C.---Commissioner has jurisdiction to revise order under S.25---Tribunal's-order erroneous and liable to be set aside---Indian Wealth Tax Act, 1957, Ss.25 & 35.

Proposing to revise, the assessment in -respect of the assessee under the Wealth Tax Act, 1957; the Commissioner issued a notice under section 25(2) of the Act to disallow a liability which had been allowed in the computation of the assessee's net wealth. .Prior to the issuance of the notice under section 25(2), the Wealth Tax Officer himself passed a rectification order under section 35 of the Act. The Appellate Assistant Commissioner by order, dated January 21, 1976, set aside the rectification order on the ground that there was no mistake apparent from the record. . The Commissioner issued two further notices under section 25(2) on Janu2ry 7, 1976, and January 24, 197fx and passed the order on March. 8, 1976, setting aside the assessment and directing the Assessing Officer to make make fresh assessment. On appeal against the order under section 25; the Tribunal held that since, when the Commissioner issued notice under section 25, the assessment order stood already rectified, the Commissioner lacked jurisdiction under section 25 to revise the order. On a reference:

Held, that the notice, dated January 24, 1976 issued by, the Commissioner was given after the Appellate Assistant Commissioner had already set aside the rectification order by his order, dated January. 21, 1976. Therefore, on January 24, 1976, the order under section 35 had ceased to exist and the assessment order could be said to be erroneous as thought by the Commissioner. The Tribunal had failed to consider the effect of the notice, dated January 24, 1976, and also the fact that the order under section 25 was passed after the Appellate Assistant Commissioner had already set aside the rectification order. Accordingly, the Tribunal's order was erroneous and liable to be set aside.

C.I.T. Electro House (1971) 82 ITR 824 (SC) ref, Prakash Krishna for the Commissioner, Nemo for the Assessee

2001 P T D 1390

[244 I T R 658]

[Allahabad High Court (India)]

Before M. C. Agarwal and S. Rafat Alain, JJ

TRILOK CHAND SETH

versus

UNION OF INDIA and another

Civil Miscellaneous Writ Petitions Nos.423 of 1986 and 315 of 1990, decided on 26th November, 1999.

(a) Wealth tax---

----Revision---Commissioner---Scope of powers---Effect of amendment of Explanation to S.25 by Finance Act, 1988, with retrospective effect--­Valuation of business assets not dealt with by Appellate Authority---No merger of order of Assessing Officer---Commissioner has jurisdiction to revise part of assessment order dealing with valuation---Indian Wealth Tax Act, 1957, S.25.

In the wealth tax assessment of the assessee, a Hindu undivided family which did jewellery business, the capital balance and the assessee's share in the firm were taken according to the balance-sheet. Since the market value of the assets of the firm exceeded by more than 20 per cent., the value as shown in the balance-sheet, the Commissioner was of the view chat the market value of the assets should have been determined in accordance with rule 2B(2) of the Wealth Tax Rules, 1957, and, therefore, invoking his

powers of revision, sought to revise the assessment order. The notice issued under section 25(2) of the Wealth Tax Act, 1957, was challenged in writ petitions, contending (a) that since the assessments were subjected to appeals before the Appellate Assistant Commissioner the assessment orders had merged with the appellate orders and the Commissioner had no jurisdiction to revise the order; and (b) that rule 2B(2) was invalid because it was against the standard and established accounting practice:

Held, dismissing the petitions, that by virtue of the amendment of section 25 by the Finance Act, 1988, by which an Explanation had been added to section 25(2) with retrospective effect, the Commissioner had jurisdiction to revise those parts of the assessment order which were not considered and decided in the appeal. Admittedly, since the question. of valuation of the business assets was not dealt with by the Appellate Authority the theory of merger would not apply.

C.I.T. v. Shri Arbuda Mills Ltd. (1998) 231 ITR 50 (SC) and C.I.T. v. Jaykumar B. Patil (1999) 236 ITR 469 (SC) fol.

(b) Wealth tax---

---- Valuation of assets---Rule providing for determination of market. value of assets if , market value exceeds balance-sheet value by more than 20 per cent.---Rule not repugnant or contradictory to provisions or scheme of Act---Taxes levied in terms of statutory provisions and not accounting practices---Rule 2B(2) valid---Indian Wealth Tax Act, 1957, S.7---Indian Wealth Tax Rules, 1957, R.2B(2).

Rule 213(2), when read with the definition .of net wealth in section 2(m) of the Act and section 7 of the Act, carries out the purpose of the Act, which is to tax the market value of an asset and not its book `value and, therefore, it cannot be said that the rule is repugnant or contradictory to the provisions or the scheme of the Act.

Rule 2B(2) cannot be said to be against standard accounting practice because taxes are levied in terms of statutory provisions and not accounting practices. Accordingly, there is no invalidity in the provision of rule 2B(2).

C.W.T. v. Vysyaraju Badreenarayana Moorthy Raju (1985) 152 ITR 454 (SC); J.K. Synthetics Ltd. v. Additional C.I.T. (1976) 105 ITR 344 (All.); Juggilal Kamlapat Bankers v. W.T.O. (1984) 145 ITR 485 (SC); Tuticorin Alkali Chemicals and Fertilisers Ltd. v. C.I.T. (1997) 227 ITR 172 (SC) and U.C.O. Bank v. C.I.T. (1999) 240 ITR 355 (SC) ref.

Shambhu Chopra for Petitioners.

A.N. Mahajan for Respondents.

2001 P T D 1620

[245 I T R 18]

[Allahabad High Court (India)]

Before M. C. Agarwal and R. K. Agrawal, JJ

Dr. RAJENDRA KUMAR AGRAWAL

versus

COMMISSIONER OF WEALTH TAX

Wealth Tax Reference No. 187 of 1991, decided on 24th September, 1999.

Wealth tax---

---- Valuation of assets---Valuation. of house property---Assessment order not stating reasons for resorting to sub-rule (5) of R. 1-BB---No justification for Assessing Officer to adopt price on sale on 28-2-1984 as market value of property as on 31-3-1983---Tribunal not right in invoking provisions of sub­rule (5) of R. 1-BB---Wealth Tax Act, 1957, S.7---Indian Wealth Tax Rules, 1957, R.1-BB.

The assessee determined the value of the house property situate in Allahabad by applying a. multiplier of 20 to its annual letting value which was shown as Rs. 1,496. The Assessing Officer noticed that the property was sold for Rs. 3 lakhs on February 28, 1984, while the valuation date for the year under consideration was March 31, 1983. The assessee claimed that the value of the property should be determined by applying rule 1-BB of the Wealth Tax Rules, 1957, which was rejected by the Assessing Officer. The Tribunal held that because of sub-rule (5) of rule 1-BB the value could be determined in the manner adopted by the Assessing Officer. On a reference:

Held, that if the Assessing Officer wanted to resort to sub-rule (5) of rule 1-BB it was mandatory for him to specify the reasons in writing in the assessment order or otherwise why he considered it impracticable to apply the provisions o: rule 1-BB. The Assessing Officer was not justified in adopting the sale price in respect of the sale that took place on February 28, 1984, as the market value of the property on March 31, 1983, without taking note of material change in circumstances that would affect the market value of the property. The Tribunal was not right in restoring the order of the Assessing, Officer.

Bharat Hari Singhania v. CWT (1994) 207 ITR -1 (SC) and CWT v. Ganga Pershad Kedia (1990) 185 ITR 30 (Delhi) ref.

Nemo for the Assessee.

Shambhu Chopra for the Commissioner,

2001 P T D 1762

(241 I T R 70]

[Allahabad High Court (India)]

Before S. L. Saraf and R. K. Agarwal, JJ

COMMISSIONER OF INCOME-TAX

Versus

BANARAS BRASS MERCHANT AND

MANUFACTURERS ASSOCIATION

Income-tai Reference No.50 of 1982, decided on 23rd March, 1999

Income-tax---

----Charitable purpose---Charitable trust---Trust for formation of trade and commerce---Finding by Tribunal that objects of trusts were for general public utility and that there was no activity for profit---Trust entitled to exemption under S.11---Indian Income Tax Act, 1961, S.11.

Held; that on a reading -of the objects of the assessee-company, it appeared, that the company was incorporated for the purposes of general public utility and the main object of the company was to promote and protect trade, commerce and industry of the mercantile community. The Tribunal found that the objects of the assessee were for general public utility and did not involve the carrying on of any activities for profit and the office-bearers of the company were not entitled to get salary. On winding up or dissolution of the company, if there remained after satisfaction of the debt and liabilities, any profit whatsoever, the same was not to be distributed amongst the members of the company but was to be given or transferred to such other company having objects similar to the association. Hence, the assessee was entitled to exemption under section 11 of the Income Tax Act, 1961.

2001 P T D 1860

[243 I T R 127]

[Allahabad High Court (India)]

Before M. C. Agarwal, J

DAVENDRA PAL SINGH

Versus

COMMISSIONER OF WEALTH TAX and another

Civil Miscellaneous Writ Petitions Nos.330 and 329 of 1995, decided on 16th August, 1999.

(a) Wealth tax---

----Exemption---Agricultural land---Agreement in May, 1989 to sell to developer land which had groves on it---Purchaser authorised to cut trees--­Application for approval for development of land submitted in June, 1989 and amount paid to development authority in September, 1989---Land to be sold by developer in plots and assessee to get amounts from such buyer up to agreed limit---Payment of land revenue and absence of order authorising change of user were not conclusive in determining nature of land---Land had ceased to be agricultural ---Assessee not entitled to exemption in respect of land in assessment years 1990-91 and 1991-92---Indian Wealth Tax Act, 1957, S.2(e).

(b) Wealth tax---

---- Valuation of assets---Land agreed to be sold in plots and vendor to get amounts up to agreed limit of Rs.1,04,28,000---Part of land set aside for common use in shape of roads, parks, etc.---Value of such common land to be taken into account---Valuation in any case could not exceed Rs.1,04,28,000---Indian Wealth Tax Act, 1957.

(c) Wealth tax---

----Penalty---Writ---Concealment of wealth ---Assessee had efficacious alternate remedy by way of appeal---Levy of penalty could not be challenged in writ proceedings---Indian Wealth Tax Act, 1957, S.18---Constitution of India, Art. 226.

(d) Writ---

---- Powers of High Court---Power is limited---Finding of fact cannot be interfered with unless it is based on no evidence or is based on irrelevant considerations---Constitution of India, Art. 226.

One of the objects of the exemption from the wealth tax given to agricultural lands is to encourage cultivation or actual utilisation of land for agricultural purposes and if there is neither anything in its condition, nor anything in the evidence to indicate the intention of its owners or possessors so as to connect it with agricultural purpose, the land would not be "agricultural land" for the purposes of earning an exemption. The question whether a piece of land is agricultural land or not is essentially a question of fact and though several tests have been evolved in decisions of the Supreme Court and the High Courts, all of them are more in the nature of guidelines and the question has to be answered in each case, having regard to the facts and circumstances of that case.

The petitioner was the owner of lands. Up to the assessment year 1988-89, this land was treated as agricultural land and was treated to be exempt from wealth tax. On May 19, 1989, the petitioner entered into an agreement to sell this land to a partnership firm named K constituted by six persons including the petitioner's wife. The agreement described the prospective purchaser as colonizers who were purchasing the land having potential for residential and commercial purposes and who were to sell the same after carving out plots. The consideration agreed was Rs.1,04,28,000 and a period of three years was agreed for the completion of the terms of the agreement. It was agreed that the party of the first part would provide all assistance to the party of the second part so that they may get approved, the layout plan for the establishment of the colony. The party of the first part was to continue to be the owner of the land till the sale-deeds were executed but the party of the second part was entitled to get executed, the sale-deeds plotwise as approved or to be approved by the development authority or pocket-wise or Khata numberwise. The party of the second part was also entitled to enter upon the land for the purposes of making, measurements, marking the roads, parks and plots according to the approved layout plan. The entire expenses for the approval of the layout plan of the development of the site and other ancillary expenses were to be borne by the party of the second part and the party of the second part was at liberty to get out the entire grove at its own expense and sell the wood to meet the expenses of the development work for this purpose. The Assessing Officer while making the assessments held that on the relevant valuation dates, i.e., March 31, 1990 and March 31, 1991, the land had lost its character as agricultural land and was, therefore, not excluded from the definition of "assets" in section 2(e) of the Wealth Tax Act, 1957. The circumstances relied upon by the Assessing Officer for holding that the land in question was no longer agricultural land were that (i) the Bulandshahr Khurja Development Authority (BKDA) was requested for approval of the colony in the month of June, 1989; (ii) on September ~9, 1989, a sum of Rs.3 lakhs was paid by the assessee to -the BKDA; (iii) the firm, K, had paid an instalment of Rs.2,84,407 on December 30, 1989, to BKDA; (iv) the assessee sold Plot No. 119 measuring 176 sq. mtrs. of this colony on March 19, 1990; and (v) in the income-tax return for the assessment year 1990-91, the builders, K, had shown a sum of Rs.3,18,451 as sale proceeds of the plots in H the name that was given to the colony to be developed on the disputed land. For the assessment year 1990-91 the Assessing Officer valued this land at Rs.2,11,52,750. This value was arrived at by applying a rate of Rs.350 per sq. mtr. to the land measuring 6,618 sq. mtrs. and adjusting therefrom the value already received in respect of Plot No. 119. For assessment year 1991-92 the value of the land was assessed at Rs.1,98,68,894 by applying a rate of Rs.350 per. sq. mtr. to the unsold land measuring 56,768.27 sq. mtrs. Against the assessment orders, the petitioner preferred appeals to the Commissioner of Wealth Tax (Appeals) but withdrew the appeals and filed a revision petition. On the dismissal of the revision petition, he filed a writ petition challenging this order as well as an order levying penalty under section 18(1)(c):

Held, (i) that an agreement to sell this property for development as house sites, roads, parks, etc., had been executed on May 19, 1989, i.e., much before the valuation date, i.e., March 31, 1990. An application for approval of a layout plan had been moved on August 9, 1989 before the development authority. Sums of Rs.3 lakhs and Rs.3,18,451 had also been paid to the development authority and even one plot had been sold. Apparently, therefore, the petitioner as well as the builder ceased to have an intention to hold the land for agricultural purposes after May 19, 1989. Payment of land revenue and absence of an order under section 143 of the U.P. Zamindari Abolition and Land Reforms Act authorising the change of user were, therefore, not of much importance. It was a grove land and the buyer had been authorised to cut the trees. The cutting of the trees was a material circumstance and the petitioner- had not alleged that trees had not been cut in pursuance of the agreement. In view of these circumstances and the relevant facts being in the personal knowledge of the petitioner, the burden lay heavily on him to show that on the two valuation dates in spite of the aforesaid circumstances which were not disputed the land did not lose its character as agricultural land. This burden was not shown to have been discharged and mere reliance on the facts that the plots in question were recorded in the revenue papers as agricultural land and the land revenue was paid could not be sufficient to displace the conclusion of the authorities below. The petitioner had failed to show that the conclusions arrived at by the Assessing Officer or by the Commissioner were legally erroneous being based on no evidence or being based on irrelevant circumstances so that the Court in exercise of jurisdiction under Article 226 of the Constitution of India could set aside those findings and direct the authorities to reconsider the matter. The petitioner was not entitled to exemption in respect of the land for the assessment years 1990-91 and 1991-92.

(ii) That the petitioner had agreed to sell the land to K for Rs.1,04,28,000. This was the total consideration that he was to receive in respect of this land in respect of which he was obliged to execute the sale­deeds as and when required by K in favour of any person whatsoever. It was the right of the builders to prepare a plan and to sell the plots to persons of their choice and at a consideration agreed between them and the buyer. The petitioner had no say in the matter and was obliged to execute the sale deed by getting some amount as agreed between him and K subject to the overall limit of Rs.1,04,28,000. No doubt the petitioner continued to be the owner of the land but any purchaser of land from the petitioner would be bound by the terms of the agreement which could be enforced against any buyer from the petitioner. Therefore, the fair market value of the land in the hands of the petitioner on the two valuation dates could not be more than the aforesaid sum of Rs.1,04,28,000 as reduced by the amount already received up to the valuation date. In valuing the property, the authorities below had acted arbitrarily and had riot even made adjustment for the land that would have been left for common use in the shape of parks, roads, etc. Therefore, to this extent the assessment order suffered from a legal error and should be set aside for arriving at the proper fair market value of the asset in question.

(iii) That as regards the orders under section 18(1)(c), the petitioner had efficacious and adequate statutory remedy by way of appeal. Therefore, they, could not be challenged in a writ petition.

CIT v. Gemini Pictures Circuit Private Limited (1996) 220 ITR 43 (SC); CIT v. Siddharth J. Desai (1983) 139 ITR 628 (Guj.); CWT v. Officer-in-Charge (Court of Wards) (1976) 105 ITR 133 (SC); Nawab Sir Mir Osman Ali Khan (Late) v. C.W.T. (1986) 162 ITR 888 (SC); Pioneer Traders v. Chief Controller of Imports and Exports AIR 1963 SC 734; Sarifabibi Mohmed Ibrahim v. CIT (1993) 204 ITR 631 (SC) and State of Orissa v. Murlidhar Jena AIR 1963 SC 404; State of U.P. v. Maharaja Dharmander Prasad Singh AIR 1989 SC 997 ref.

Ajit Kumar for Petitioner.

A.N. Mahajan for Respondents.

2001 P T D 1917

[246 I T R 93]

[Allahabad High Court (India)]

Before M. C. Agarwal and S. Rafat Alam, JJ

COMMISSIONER OF WRALTH TAX

Versus

ANIL KUMAR AGGARWAL

Wealth Tax Reference No.45 of 1982, decided on 14th October, 1999.

Wealth tax---

Exemption---House---Co-owner of house is entitled to exemption in respect of his share---Indian Wealth Tax Act, 1957, S.5.

A partner in a firm or a co-sharer otherwise is entitled to the exemption under section 5(1)(iv) of the Wealth Tax Act, 1957.

CWT v. T.S. Sundaram (1999) 237 ITR 61 (SC) fol.

CWT v. Christine Cardoza (Mrs.) (1978) 114 ITR 532 (Kar.); CWT v. Radha Krishna Jalan (1984) 145 ITR 217 (Pat.); CWT v. Sri Naurangrai Agarwalla (1985) 155 ITR 752 (Cal.) and CWT v. Vimlabai Kantilal Porwal (Sint.) (1983) 141 ITR 484 (MP) ref.

Prakash Krishna for the Commissioner.

Nemo for the Assessee.

2001 P T D 1968

[246 I T R 38]

[Allahabad High Court (India)]

Before M. C. Agarwal and S. K. Jain, JJ

COMMISSIONER OF INCOME-TAX

Versus

ANIL KUMAR

Wealth Tax Reference No. 198 of 1981, decided on 2nd November, 1999

(a) Wealth tax---

----Net wealth---Firm---Partners---Additions in case of firm found by Tribunal to be intangible and not represented by assets---Share of addition not includible net wealth of partner---Indian Wealth Tax Act, 1957.

Held, that under the Wealth Tax Act what is assessable as the wealth of an assessee - is the value of the assets actually owned by him on the valuation date. The Tribunal's finding was that the additions made in the case of a firm were not represented by any assets. Hence, the Tribunal was correct in law in holding that the assessee's share in the additions made in the case of the firm in which he was a partner was not includible in his wealth.

(b) Wealth tax ---

----Exemption---House---Co-owner entitled to exemption under S.5(1)(iv) in respect of his share of house---Indian Wealth Tax Act, 1957, S.5.

A co-owner of a house is entitled to exemption under section 5(1)(iv) of 'he Wealth Tax Act, 1957, in respect of his share of it.

C.W.T. v. T.S. Sundararn (1999) 237 ITR 61 (SC) applied.

Shambhoo Chopra for the Commissioner.

P.K. Mishra for Bharat Ji Agarwal for the Assessee,

2001 P T D 2530

[248 I T R 6681

[Allahabad High Court (India)]

Before M. C. Agarwal and S. Rafat Alam, JJ

WEALTH TAX OFFICER

versus

RAM DEEN SINGH

W.T.R. No.313 of 1981, decided on 15th October, 1999.

Wealth tax---

----Reference---Net wealth ---HUF---Asset of individual or HUF---Inclusion .of value of agricultural land in net wealth of individual---Finding by AAC that land belonged to HUF---Deletion by AAC of two more additions resulting in net wealth below taxable limit---Inclusion of agricultural land would not result in any taxable wealth---Question referred academic--­Returned unanswered---Indian Wealth Tax Act, 1957, Ss.5 & 27.

The assessee's net wealth, in the assessment year 1971-72, included the value of agricultural land at Rs.1,95,000. The assessee's contention before the Appellate Assistant Commissioner was that the agricultural land did not belong to him as an individual but was the property of his Hindu undivided family. The Appellate Assistant Commissioner accepted the contention and also deleted the additions of Rs.70,000 and Rs.68,680 which related to investment in money-lending business and cash and ornaments. By that exclusion, the net wealth of the assessee fell below the taxable limit. Hence; the order of assessment was quashed by the Commissioner and this had been upheld by the Tribunal. On a reference:

Held, that since the Revenue had not challenged the Tribunal's finding about the investment in money-lending business, cash and ornaments, the inclusion of the value of the agricultural land would not result in any taxable wealth and the net wealth, after exemption under section 5 of the Wealth Tax Act, 1957, would be below the taxable limits

[Since the question referred was of mere academic interest, the Court declined to answer it and returned it answered].

Prakash Krishna for the Commissioner:

Bharat Ji Agarwal for the Assessee.

2001 P T D 2827

[240 I T R 614]

[Allahabad High Court (India)]

Before S.L. Saraf and Ikram-ul-Bari, JJ

COMMISSIONER OF WEALTH TAX

versus

WAQF MIRZA KHAIRATI BEG

W.T.R. Case No. 153 of 1979, decided on 10th February, 1999. -

Wealth tax---

----Exemption---Charitable trust---Waqf---Property vesting in God ---Twenty­five per cent. of income from property to be utilised for preserving corpus of Waqf---Income from Waqf property to be utilised for charitable and religious purposes ---Waqf entitled to exemption---Indian Wealth Tax Act, 1957, S.5(1)(i).

Under section 5(1) of the Wealth Tax Act, 1957, exemption is allowable to a trust or other legal entity for any property held by it under trust or other legal obligation for any public purpose of a charitable or religious nature in India. This means that the purpose of the trust should be charitable or religious. The income of the corpus may not be used wholly for the purpose of the trust. It is sufficient if the purpose and object itself is predominantly for a public charitable purpose:

Held, that, in the instant case, the Tribunal had found from the reading of various classes of the Waqf deed that a Waqf was created by the donor out of his own property in accordance with. Muslim law and the provisions of the Mussalman Waqf Validating Act, 1913. The donor glad divested himself of all the property rights and held them only as Mutawalli in perpetuity and forever. It was also seen that nearly 25 per cent. of the income of the Waqf property was to be utilised either for the maintenance of Waqf property for charity and also as a reserve fund for reserving the corpus and for use on charitable and religious occasions and purposes by the Mutawalli. The Waqf was entitled to exemption under section 5(1)(i).

Chopra for the Commissioner.

B. Dayal for the Assessee.

2001 P T D 3651

[241 I T R 131]

[Allahabad High Court (India)]

Before M. C. Agrawal and R. K. Agrawal, JJ

COMMISSIONER OF INCOME-TAX

versus

LAXMI DEVI SUGAR MILLS (PVT.) LTD.

Income-tax Reference No.20 of 1992, decided on 11th March, 1999.

Income-tax---

----Business expenditure---Interest---Interest payable for delay in paying price of cane---Expenditure allowable---Indian Income Tax Act, 1961, S.37.

Held, that the interest under section 17(3) of the Sugarcane (Regulation of Supply and Purchase) Act, 1958, was paid for delay in the payment of purchase price of raw material, i.e. sugarcane, and was clearly an expenditure allowable under section 37 of the Income Tax Act, 1961.

Triveni Engineering Works Ltd. v. CIT (1983) 144 ITR 732 (All.) fol.

A. N. Mahajan for the Commissioner.

Nemo for the Assessee.

2001 P T D 92

[238 I T R 931]

[Andhra Pradesh High Court (India)]

Before P. Venkatarama Reddi and A. Hanumanthu, JJ

COMMISSIONER OF INCOME-TAX

versus

ORBIT TRAVEL AND TOURS (PVT.) LTD. and 4 others

I.T.C. Nos. 94, 11.6, 122, 128 and 134 of 1998, decided on 26th February, 1999.

(a) Income-tax--

----Reference---Assessment---Adjustments under S. 143(1)(a) for computation of book profit under S. 115J---Exclusion of unabsorbed depreciation in calculating loss---Is of debatable nature---Is outside the purview of S. 143(l)(a)---Indian Income Tax Act, 1961, Ss. 115J & 143(1)(a).

In exercise of jurisdiction under section 143(1)(a) of the Income Tax Act, 1961, as it stood at the relevant point of time, the Assessing Officer cannot- proceed to make such adjustments regarding which there could be scope for doubt or argument in the sense that two views can reasonably be taken in the matter.

In the proceedings under section 143(1)(a) of the Act for the years 1988 to 1990, the Assessing, Officer computed the loss excluding unabsorbed depreciation for earlier - years, while arriving at the book profit under section 115J, whereas according to the assessee's return, loss was calculated including unabsorbed depreciation. Thereafter, the assessee filed a petition for rectification under section 154. The assessee contested the method of computation of business loss as per section 115J while processing the return under section 143(1)(a) and that petition was rejected on the ground that there was no apparent mistake in the "intimation" which needs to be rectified under section 154. The Tribunal held that in view of the debatable nature of the issue involved, the Assessing Officer ought not to have resorted to prima facie adjustment under the provisions of section 143(1)(a) as it then stood. On the date of issuing the intimation under section 143(1)(a) or rectification order under section 154, the interpretation and computation of "loss" as per section 115J was the subject-matter of controversy and in March, 1992, the Hyderabad Bench of the Tribunal resolved the issue in favour of the Revenue. At the time the Assessing Officer completed the assessment under section 143(l)(a) of the Act by impliedly rejecting the assessee's claim and making necessary adjustments on the view taken by him, the legal position was in a state of flux. On a petition under section 256(2) for calling for a reference.

(b) Income-tax---

----Rectification of mistakes---Adjustment under S. 143(1)(a) of debatable nature were mistake apparent from record ---ITO had jurisdiction to rectify mistake under S. 154 of Indian Income Tax Act, 1961---Indian Income Tax Act, 1961, S.154.

By resorting to adjustments of controversial nature in purported exercise of power under section 143(1)(a), the Assessing Officer over­stepped his jurisdiction thereby determining an income much higher than what was returned by the assessee. It had obviously introduced an error which was apparent from the record. When such an error was pointed out to the Assessing Officer, he was duty bound to amend the intimation sent under section 143(l)(a). Thus, the assessing authority failed to exercise the jurisdiction which he ought to have exercised under section 154.

V.V. Trans-Investments (P.) Ltd. V. CIT (1994) 207 ITR 508 (AP) ref.

S.R. Ashok for the Commissioner.

S.Ravi for the Assessee.

2001 P T D 282

[238 I T R 717]

[Andhra Pradesh High Court (India)]

Before Ms. S. V. Maruthi and R. Bayapu Reddy, JJ

COMMISSIONER OF INCOME-TAX

versus

YAMUNA DIGITAL ELECTRONICS (P.) LTD.

Case Referred No 62 of 1990, decided on 17th August, 1998.

(a) Income-tax---

----Scientific research---No requirement that expenditure should be wholly and exclusively for research and development---Proportionate deduction on basis of part use of plant and machinery for research---Permissible---Indian Income Tax Act, 1961, S.35.

The Tribunal was justified in law in affirming the order of the Commissioner of Income-tax (Appeals) allowing 50 per cent. of the cost of equipment as attributable to research, on the view that the research and development in the case of the assessee in electronic business was a continuous process acid all the research and development was a preparation for commercial production.

(b) Income-tax---

----Hundis---Whether transactions hundis---Tribunal following its decision in holding transactions not hundis---Tribunal's decision in that other case affirmed by High Court---Transactions in question also not hundis—Indian Income Tax Act, 1961, S.69D.

During the examination of the accounts of the assessee-company for the assessment years 1981-82 and 1982-83, the Income-tax Officer found that certain sums were borrowed on documents in the form of hundis in respect of which the repayments were made by the assessee into the bank for credit to the accounts of various creditors. The Income-tax Officer rejected the assessee's contention that these transactions were not hit by section 69D of the Income Tax Act, 1961. This was confirmed on appeal. On further appeal, however, the Tribunal, following its own decision in the case of another assessee "I", held that the transactions in dispute were not hundis. On a reference:

Held, that since the Tribunal followed its own judgment in the case of "I" in holding that the transactions covered in the present case were not hundis and since the judgment of the Tribunal in that case was upheld by the Court in CIT v. Dexan Pharmaceuticals (Pvt.) Ltd. (1995) 214 ITR 576 (AP), in the present case also the transactions were not hundi transactions and section 69D was not applicable.

CIT v. Dexan Pharmaceuticals (Pvt.) Ltd. (1995) 214 ITR 576 (AP) fol.

From a reading of section 35 of the Income Tax Act, 1961, it is clear that it does not say that the expenditure should be wholly and exclusively used for research and development. In the absence of the words "wholly and exclusively used for research and development", in the section, as long as the expenditure is for scientific research relating to the business carried on by the assessee; the assessee is entitled to deduction of the claim.

S.R. Ashok for the Commissioner.

S. Ravi for the Assessee.

2001 P T D 314

[238 I T R 661]

[Andhra Pradesh High, Court (India)]

Before P. Venkatarama Reddi and A. Hanumanthu, JJ

COMMISSIONER OF INCOME-TAX

versus

TIRUMALAI TRADERS

Case Referred No.21 of 1990, decided on 12th March, 1999.

(a) Income-tax---

----Firm---Registration---Firm doing business in cotton and assessed as registered firm---Company admitted as partner in firm with view to take over of business---That no business other than letting of property carried on by firm in that year'--That firm dissolved only in succeeding year---Not factors sufficient to re registration---Indian Income, Tax Act, 1961, S.185.

The assessee-firm came into existence by a partnership deed, dated June 8, 1979, with five partners with the object of carrying on the business of trading in cotton, Kappas, ginning, building construction, etc. It was subjected to assessment as a registered firm for the assessment year 1980-81. For the assessment year 1981-82, the assessee applied for registration in Form No IIA enclosing the new partnership deed, dated April 1, 1980. According to the said partnership deed, a private limited company by name T was admitted as a partner with effect from April 1, 1980, and it was given a 60 per cent. share. Inter alia, it was mentioned in the partnership deed that the said private limited company was incorporated with the object of taking over the business and assets and liabilities of the firm. The reconstituted firm was dissolved by a deed, dated November 11, 1980, i.e., shortly after the accounting year was over and the entire business was taken over by the private limited company and the erstwhile partners were given equity shares. Thereafter, the private limited company continued to carry on the same business. During the assessment year in question, admittedly, the firm did not carry on the business excepting letting out the building owned by the firm for rent. The assessing authority refused registration for the assessment year 1981-82 on the ground that no business was carried on during the year and that the object of entering into partnership with the private limited company and reconstituting the firm was only to enable the assets to be transferred from one entity to another. On appeal, the Commissioner of Income-tax. (Appeals) held that the firm was eligible for registration for the assessment year 1981-82, and therefore, allowed the appeal. On further appeal by the Revenue, the Appellate Tribunal confirmed the order of the Commissioner of Income-tax (Appeals), holding that the reconstitution of the firm with the induction of the private limited company was for the purpose of promotion of business The mere fact that there was no active business during the relevant year was held to be an immaterial factor. On a reference:

Held, that the induction of a new partner with the object of ultimate transfer of assets etc., to another entity was not inconsistent with the recital in the partnership deed of the firm that it would carry on the business in cotton, etc., as before. There was no positive finding by the primary authority that there .was no intention at all to carryon the business during the relevant year and that the recital in the deed was merely fictitious. The main stress was on the fact that the business was not actually carried on, and that the firm was dissolved soon after the assessment year 1981-82. The fact that the business was in fact not carried on was not conclusive, nor was the fact that the dissolution did take place in the next year, conclusive. On an overall view of the matter the conclusion reached by the Appellate Commissioner and the Tribunal was essentially a finding of fact backed up by some basis. Though it was possible that on the same set of facts a different view could be taken, while disposing of the reference case, it was not proper for the High Court to disturb the finding of fact. It could not be said that the finding of fact was wholly without basis or perverse. The order of the Tribunal was correct.

(b) Income-tax---

----Reference---Firm---Registration---Finding recorded by Appellate Authorities on facts that firm was genuine---Court will not disturb in reference---Indian Income Tax Act, 1961, S.256.

Sudarshan & Co. v. CIT (1973) 89 ITR 85-(Mys.) and CIT v. Kuya and Khas Kuya Colliery Co. (1985) 156 ITR 206 (Pat.) ref.

J.V. Prasad for the Commissioner.

S. Ravi: Amicus curiae.

2001 P T D 319

[238 I T R 754]

[Andhra Pradesh High Court (India)]

Before Ms. S. V. Maruthi and T. Ranga Rao, JJ

COMMISSIONER OF INCOME-TAX

versus

NAVBHARAT ENTERPRISES (P.) LTD.

Case Referred No. 147 of 1990, decided on 20th August, 1998

(a) Income-tax---

----Business expenditure--Interest on agricultural loans ---Assessee engaged in processing add export of tobacco---Interest allowable only on amount spent for raising tobacco, not other crops—Indian Income Tax Act, 1961, S.37.

The assessee-company was engaged in the business of processing and export of tobacco. The assessee claimed the interest paid to the bank on medium and. short-term agricultural loans as deduction under section 37 of the income Tax Act, 1961. The assessee also claimed deduction under section 35C of the Act in respect of the expenditure incurred by it. The :Income-tax officer rejected both the claims made by the assessee. The Tribunal following its decision for earlier years in the case of the same assessee held that the claims would have to be examined de novo by the Income-tax Officer. On a reference:

Held, that only the interest on the amount spent upon the land used for raising tobacco was deductible under section 37 of the Act and not the .whole amount of Rs.91,000.

(b) Income-tax--

----Agricultural development allowance ---Assessee engaged in processing and export of tobacco---Interest on amounts spent on land utilised for raising tobacco---Whether entitled to allowance---Matter remanded--- Same amount not to be deducted simultaneously under Ss.35C & 37---Indian Income Tax . Act, 1961, Ss.35C & 37.

While passing final orders, the income-tax officer (to whom the matter had already been remanded by the Tribunal) shall decide whether the interest on amount spent upon the lands utilised for raising the tobacco crop could be deducted under section 35C. It was, however, clear that the same amount could not be deducted simultaneously under both the provisions. It must fall under one or the other.

CIT v. Navabharat Enterprises (Pvt.) Ltd. (1987) 165 ITR 603 (AP) fol.

S.R. Ashok for the Commissioner.

C. Kodandaram for the Assessee.

2001 P T D 364

[238 I T R 861]

[Andhra Pradesh High Court (India)].

Before Ms. S. V. Maruthi and T. Ranga Rao, JJ

CLOUTH GUMMIWERKE AKTIENGESELLSCHAFT and another

versus

COMMISSIONER OF INCOME-TAX

Case Referred Nos.71 and 149 of 1990, decided on 16th October, 1998

Income-tax---

----Non-resident---Income---Income deemed to accrue or arise in India---Fees for technical services---Fees paid to foreign company for service of engineers for supervising erection of project---Taxable---Air fare of engineers paid by Indian company---Is perquisite and taxable---Payment stipulated to be free of Indian Income-tax- --Income to be grossed up by calculating tax on tax till zero difference is arrived at---Indian Income Tax Act, 1961, Ss.2(24)(iva), 9(1)(vii) & 17(2)(iii).

From Explanation 2 below section 9(1)(vii) of the Income Tax Act, 1961, it is clear that any fee paid for technical services is income within the meaning of section 9 of the - Act and, therefore, it is taxable. Under Explanation 2 'fee offered for technical services' means any consideration paid for technical services and excludes consideration paid for any construction, assembling, mining or like project undertaken by the recipient. In other words, any fee paid for technical services is income, if it does not include any consideration -paid for any construction undertaken by the recipient.

The assessee was a non-resident company. An Indian company entered into a contract with the assessee for erecting certain conveyor belts at their project. The assessee agreed to do the job of erection of conveyor belts through its engineers. Under the agreement, the assessee was to depute two supervisors for a period of two working days for belt changing and erection of new belts, a lump sum, amount of DM 33,000 was to be paid towards the charges and the engineers had to be provided free boarding, lodging and transport facilities apart from air fare. The amount of DM 33,000 paid was understood to be free of Indian income-tax. The assessee carried out the word and raised bills for DM 33,000 and DM 32,542. The Indian company filed returns on behalf of the assessee claiming that these amounts were not taxable. The Income-tax Officer held that they were taxable under section 9(1)(vii) of the Act and brought to tax sums which included air fare, DA, etc. The Tribunal held that the payments were taxable under section 9(1)(vii) of the Act, but that the air fare paid by the Indian company to the employees of the assessee was not taxable for the purpose of income­-tax. The Tribunal also held that the technical fees had to be grossed up for the purpose of income-tax. On a reference:

Held, (i) that the two supervisors were deputed only for the purpose of rendering technical services and nowhere had it been disclosed that they were engaged for the purpose of constructing the plant. Therefore, the amounts of DM 33,000 and DM 32,542, respectively were income under section 9(1)(vii) of the Act and were taxable.

(ii) That under section 17(2)(iii)(c) of the Act the value of any benefit or amenity granted or provided free of cost or at a concessional rate by an employer to an employee is a perquisite. Therefore, the air fare provided by the Indian company fell within the meaning of 'perquisite' and, therefore, income and accordingly it was taxable.

(iii) That in view of the specific provision inserted in section 2(24)(iva) of the Act, under which any sum paid by the representative assessee in respect of any obligation which, but for such payment, would have been paid by the beneficiary, is to be added to the income, the Tribunal was correct in upholding the grossing up of income by calculating tax on tax, until zero difference was arrived at and in not restricting the grossing up of income merely to the tax on the net amount.

CIT v. Superintending Engineer (1985) 152 ITR 753 (AP) and CIT v. American Consulting Corporation (1980) 123 ITR 513 (Orissa) not fol.

CIT v. Barium Chemicals Ltd. (1989) 175 ITR 243 (AP); Frank Beaton v. CIT (1985) 156 ITR 16 (Delhi) and Tokyo Shibaura Electric Co. Ltd. v. CIT (1964) 52 ITR 283 (Mys.) ref.

Y. Ratnakar for the Assessee.

S.R. Ashok for the Commissioner.

2001 P T D 835

[242 I T R 6]

[Andhra Pradesh High Court (India)]

Before P. Venkatarama Reddi, V. Eswariah and S. Ananda Reddy, JJ

COMMISSIONER OF'WEALTH TAX

versus

B. CHANDRASEKHARA RAQ

Case Reference No. 128 of 1989, decided on 3rd December, 1999.

Wealth tax---

----Exemption---House property---Firm---Minor---Minor admitted to benefits of partnership---House property owned by firm---Minor entitled to exemption under S.5(1)(iv) in respect of his share in such house property--­Indian Wealth Tax Act, 1957, S.5---Indian Wealth Tax Rules, 1957, R.2.

If for the purpose of computation of the firm's wealth under rule 2 of the Wealth Tax Rules, 1957, and the interest of the partner therein, the assets specified 'in section 5(1) of the Wealth Tax Act, 1957, cannot be excluded, a fortiori, such assets cannot be excluded while adopting the valuation on general principles de hors rule 2: Thus, whether the partner's interest in the firm is evaluated and subjected to tax under section 4(1)(b) read with rule 2 or on general principles based on the concept of net wealth, the result would be the same. There is no question of deducting exemptible assets under section 5(1)(iv) while evaluating his interest in the firm and therefore, on the principle laid down by the Supreme Court in CWT v. T.S. Sundaram (1999) 237 ITR 61, he can avail of that exemption in his hands, although the exemptible asset relates to the firm. The law laid down in CWT v. Narendra Ranjalker (1981) 129 ITR 203 (AP) and reiterated in C.W.T. v. B. Chandrasekhara Rao (1989) 175 ITR 66 (AP) no longer holds good. The deduction or exemption, under section 5(1)(iv) cannot be granted while evaluating the firm's wealth for the purpose of ascertaining the interest of the partner or a member of the firm. The exemption under section 5(1)(iv) is available irrespective of the fact that the assessee associated with the firm is a minor.

CWT v. T.S. Sundaram (1999) 237 ITR 61 (SC) applied.

CWT v. Narendra Ranjalker (1981) 129 ITR 203 (AP) and CWT v. B. Chandrasekhara Rao (1989) 175 ITR 66 (AP) held no longer good law.

C.W.T. v. Mrs. Christine Cardoza (1978) 114 ITR 532 (Kar.) ref.

S.R. Ashok for the Commissioner.

Nemo for the Assessee.

2001 P T D 1691

[241 I T R 20]

[Andhra Pradesh High Court (India)]

Before Ms. S. V. Maruthi and T. N. C. Rangarajan, JJ

STEEL EXECUTIVES ASSOCIATION

versus

RASHTRIYA ISPAT NIGAM LTD

Writ Petitions Nos.4400, 4978, 5664 of 1996 and 33904 of 1997, decided on 21st April, 1998.

Income-tax---

----Salary---Perquisite--House rent---Accommodation provided by employer-­Perquisite only if rent charged by employer is concessional---Employer constructing houses in a particular location and rent charged rationalised--­No concessional rent when all employees are treated alike and standard rent charged---Department cannot ask employer to deduct tax at source treating standard rent as concessional rent---Revenue objecting that trade unions cannot espouse personal income-tax problems of employees---Not sustainable---Indian Income Tax Act, 1961, Ss. 15, 17(2) & 192---Indian Income Tax Rules, 1962, R.3.

The, members of the Steel Executives' Association were the employees , of Rashtriya Ispat Nigam Ltd. (a Government of India undertaking); The employees of the Nigam were provided with residential accommodation. Up to April 1, 1990, 10 percent of the basic pay of each employee was deducted as the value of the accommodation provided by the employer. Under a memorandum of. settlement between the Nigam and the recognised trade union arrived at in April, 1990, the rates of house rent charged were brought on par with the rates charged for the Central Government employees under rule 45-A of the Fundamental Rules and fixed as standard rents on the basis of the plinth area of the accommodation provided irrespective of the location - of the accommodation anywhere in India. For the assessment year 1992-93, the Income-tax Officer issued notices to some of the employees stating that the difference between 10 percent of the salary and the standard rent paid by them was a perquisite under section 17(2) of the Income Tax Act, 1961, and had to be included in the income assessable under the head "Salary". This was contested in appeal and the appeals were allowed by the Deputy Commissioner (Appeals). However, the Income-tax Officer, Ward-6, TDS, treated the Nigam as an assessee in default for not deducting the, tax at source with reference to the said perquisite and levied a sum of Rs.31.20 lakhs in respect of the assessment year 1994-95 corresponding to the financial year 1993-94. The Nigam filed an appeal which was dismissed. Thereupon, the Nigam issued a Circular, dated February 5, 1996 to the employees proposing to deduct the tax at source by including the said perquisite in the salary. Consequently, a writ petition was filed by the Steel Executives Association, Visakhapatnam, for quashing the said Circular. The Department's contention, inter alia was that the order under section 201 against the Nigam was confirmed in appeal, and therefore, the employees could not collaterally challenge that action against the employer:

Held, (i) that the rent charged was not a concessional rent and, therefore, the difference between the rent actually paid and 10 percent of the salary was not a perquisite within the meaning of rule 3(b) of the Income Tax Rules, 1962, and therefore, the Department had illegally called upon the employers to make a higher deduction of tax at source by adding a perquisite when there was none and mote so where in the individual assessments it had been declared that there was no perquisite at all.

(ii) That there was also a discrimination among the employees of the same organisation, since in the case of employees in Calcutta there had been no deduction of tax at source by including the said perquisite while employees in Andhra Pradesh were subjected to deduction of tax at source.

(iii) That the technical objection of the Revenue that the trade unions could not espouse the personal income-tax problems of the employees, was unsustainable. This was a case where at the instance of the Revenue, part of the salary of the employees was withheld unreasonably and illegally. Since the employer had given up the contest the trade union had come to the rescue as it should, the main object of the trade union being the welfare and service conditions of the employees.

Officers' Association, Bhilai Steel Plant v. Union of India (1983) 139 ITR 937 (MP); Indian Bank Officers' Association v. Indian Bank (1994) 209 ITR 72 (Cal.); ITO v. All India Vijaya Bank Officers' Association (1997) 225 ITR 37 (Cal.) and P.V. Rajagopal v. Union of India (1998) 233 ITR 678 (AP) fol. '

Suryanarayana Murthy, A. V. Krishna Koundinya, G.S. Rao, V. Ajayakumar and P.B. Vijaya Kumar for Petitioner.

S.R. Ashok for Respondent.

2001 P T D 1899

[243 1 T R 1951

[Andhra Pradesh High Court (India)]

Before Ms. S. V, Maruthi and T. Ranga Rao, JJ

COMMISSIONER OF WEALTH TAX

Versus

A.V. REDDY, TRUST B. V. HARISH REDDY and others

Case Referred No. 173 of 1990, decided on 6th October, 1998.

(a) Wealth tax------

----Valuation of assets---Valuation of unquoted equity shares of company----if in provision for taxation advance tax paid is shown as liability it is not to be treated as liability---Indian Wealth Tax Act, 1957---IndianWealth Tax Rules, 1957, R. l D.

If in the case of balance-sheet of any company, the amount of advance tax paid is also shown .as a liability, i.e., if the said amount is included in the amount set apart as provision towards taxation, it would obviously have to be deleted from the column of liabilities. Clause (ii) in a sense complementary to clause (i)(a) of Explanation II to Rule 1D of Wealth Tax Rules, 1957. Truly speaking, the advance tax paid is not really an asset but the pro forma of balance-sheet in Schedule VI to the Companies Act requires it to be shown as such. What clause (i)(a) does is to remove the said amount from the list of assets for the purpose of rule ID. It is then that clause (ii)(e), which speaks of liabilities, says that only that amount which is still remaining to be paid shall be treated as a liability on the valuation date. If in the provision for taxation made in the column of liabilities in the balance-sheet, the amount of advance tax already paid is again shown as a liability, it will not be treated as a liability. It cannot be remembered that the advance tax has already gone out of the profits and been debited in the account books of the company. This is the true function of both the sub­clauses of Explanation II to rule 1 D:

Held, that for the purpose of computation of the market value of unquoted equity shares of a company if advance tax paid is again shown as liability it will not be treated as a liability.

Bharat Hari Singhania v. CWT (1994) 207 ITR(SC) fol, (b) Wealth tax---

----Trust---Assessment---Beneficiary entitled to corpus of trust property after attaining age of twenty-five years---Beneficiary not attaining age of twenty­five years---Interest of beneficiary in trust property alone is includible in net wealth of beneficiary---Indian Wealth Tax Act, 1957, S.21.

Since under subsections (1) and (4) of section 21 of the Wealth Tax Act, 1957, it is beneficial interests which are taxable in the hands of the trustees in a representative capacity and the liability of the trustee cannot be greater than the aggregate liability of the beneficiaries, no part of the corpus of the trust properties can be assessed in the hands of the trustee under section 3 and any such assessment would be contrary to the plain mandatory provisions of section 21:

Held, that, in the instant case, the assessees who were the beneficiaries under the trust were entitled to the beneficial interest from the hands of the trustees until they attain the age of 25 years and thereafter each of these beneficiaries was to be given full possession of the corpus of the trust property. In the assessment years under reference, the beneficiaries were not entitled to the absolute interest in the properties of the trust created in each of these trusts. Hence, the Tribunal was justified in directing the Wealth Tax Officer not to include the value of "corpus" of the trust of which the assessee was a: beneficiary but only the interest of the beneficiary in the trust property.

CWT v. Trustees of H.E.H. Nizam's Family (Reminder Wealth) Trust (1977) 108 ITR 555 (SC) fol.

S.R. Ashok for the Commissioner.

Y. Ratnakar for the Assessee.

2001 PTD 2180

[239 I T R 596]

[Andhra Pradesh High Court (India)]

Before Syed Shah Mohammed Quadri and V. Rajagopala Reddy, JJ

COMMISSIONER OF INCOME‑TAX

Versus

RAASI CEMENT LTD.

Income‑tax Case No.22 of 1992, decided on 7th July, 1997.

Income‑tax‑‑‑

‑‑‑‑Reference‑‑‑Income or capital‑‑‑Other sources‑‑‑Tribunal justified in holding that interest earned on borrowed capital constituted capital receipts and that it was not assessable as income from other sources‑‑‑No question of law arose‑‑‑Indian Income Tax Act, 1961, Ss.56. & 256.

Held, dismissing the application to direct reference, that the Tribunal was justified in holding that the amounts representing interest on borrowed capital constituted capital receipts in the assessee's hands and could not be brought to tax under the head "Other sources" for the assessment year 1981‑82. No question of law arose from its order.

CIT v. Nagarjuna Steels Ltd. (1988) 171 ITR 663 (AP) fol.

S.R. Ashok for the Commissioner.

S. Ravi for the Assessee.

2001 P T D 2313

[239 I T R 890]

[Andhra Pradesh High Court (India)]

Before P. Venkatarama Reddi and A. Hanumanthu, JJ

COMMISSIONER OF INCOME‑TAX

Versus

PARKE DAVIS (INDIA) LIMITED

Income‑tax Case No.93, of 1998, decided on 8th June, 1999.

Income‑tax‑­

‑‑‑‑Reference‑‑‑Transfer of case-‑‑Territorial jurisdiction of High Court‑‑‑Decision by Mumbai Bench of ITAT and rejection of reference application by it‑‑‑Transfer of assessment files to Andhra Pradesh subsequently—­Application to direct reference could not be entertained by Andhra Pradesh High Court‑‑‑Case not covered by S.127‑‑‑Indian Income Tax Act, 1961, Ss. 127 & 256.

The words "the High Court" occurring in section 256 of the Income Tax Act, 1961, have reference to the High Court within whose jurisdiction the Appellate Tribunal which declined to state the case, is located. It is not open to the petitioner to choose any other High Court for filing the application under section 256(2). The whole purport and purpose of section 127 is to transfer the proceedings from one Assessing Officer to another. The Explanation should be understood in relation to the main provision which stipulates the transfer of case from one or more Assessing Officers to any other Assessing Officer or officers. The words "all proceedings under the Act in respect of any year" occurring in the Explanation cannot be understood in a vacuum and cannot be stretched to cover reference applications already filed or decided by the date of transfer under section 127:

Held, that in the instant case, the reference application had been dismissed by the Mumbai Bench of the Income‑tax Appellate Tribunal. Subsequent to the disposal of the appeal, the assessment files of the respondent‑company were transferred to Hyderabad. The reference application having been rejected by the Mumbai Bench of the Income‑tax Appellate Tribunal, the application under section 256(2) ought to have been tiled before the High Court of Mumbai only. The Andhra Pradesh High Court had no jurisdiction to entertain the application to direct reference.

S.R. Ashok for the Commissioner.

Nemo for the Assessee.

2001 P T D 2795

[240 I T R 5]

[Andhra Pradesh High Court (India)]

Before Ms. S. V. Maruthi and S. Ananda Reddy, JJ

COMMISSIONER OF INCOME‑TAX

verses

VEERABHADRA INDUSTRIES

Case Referred No.233 of 1990, decided on 15th June, 1999.

Income‑tax‑‑‑

‑‑‑‑Firm‑‑‑Business‑‑‑Property‑‑‑Registration of firm‑‑‑Essential requirement for a firm is that 'it should carry on business‑‑‑Single act of constructing godown and letting it out does not constitute business‑‑‑Income from such letting out is assessable as income from property‑‑‑Firm was not entitled to registration‑‑‑Indian Income Tax Act, 1961, Ss.22, 28 & 185‑‑‑[Nauharachand Chananram v. CIT (1971) 82 ITR 189 (P & H) and Prem Trading Co. v. CIT (1987) 166 ITR 211 (MP) dissented from].

Godowns constructed by the assessee had been let out and the rental income had been shown as business income. The Income‑tax Officer assessed the rental income under the head "Business" after allowing deductions claimed by the assessee for the assessment years 1979‑80 and 1980‑81. He also granted registration for the two assessment years. The Commissioner of Income‑tax initiated proceedings under section 263 of the Income Tax Act, 1961, and cancelled the registration. The Tribunal, however, held that the assessee was entitled to registration. On a reference.

Held, that a single act of constructing a godown and letting it out cannot be treated as a business. The expression "business" contemplates continuous activity from year to year. There was no evidence that the assessee was continuing the activity of constructing godowns and letting them out from year to year. There was no material that it had constructed a godown in the relevant year. Therefore, the income from a simple letting out of the godown could not be treated as business income for the purpose of the Income‑tax Act. When once it was not business income the question of availing of benefit under section 185(1)(a) would not arise. The firm was not entitled to registration. The income had to be assessed as income from property.

CIT v. Phabiomal & Sons (1986) 158 ITR 773 (AP) fol.

Nauharachand Chananram v. CIT (1971) 82 ITR 189 (P & H) and Prem Trading Co. v. CIT (1987) 166 ITR 211 (MP) dissented from.

CIT v. Lakshmi Company (1982) 133 ITR 904 (Mad.) and CIT v. Shan Finance (P.) Ltd. (1998) 231 ITR 308 (SC) distinguished.

CIT v. Vinod Bhargava (1988) 169 ITR 549 (AP) ref.

S.R. Ashok for the Commissioner.

Nemo for the Assessee.

2001 P T D 2804

[240 I T R 131

[Andhra Pradesh High Court (India)]

Before Ms. S. V. Maruthi and S. Ananda Reddy, JJ

COMMISSIONER OF INCOME‑TAX

versus

SANGHAM ENTERPRISES

Case Referred No. 18 of 1991, decided on 15th June, 1999

Income‑tax‑‑

‑‑‑‑Capital or revenue expenditure‑‑‑Firm‑‑‑Relinquishment of interest and title in share by retiring partner‑‑‑Amount paid for such relinquishment‑‑­Capital expenditure‑‑‑Indian Income Tax Act, 1961, S.37.

The assessee was a registered firm consisting of six partners. Or was one of the partners having 2/16th share in the properties of the firm. The firm was running two cinema theatres at Vizag. During the relevant assessment year 1983‑84, R retired from the firm. The retiring partner relinquished his 2/16th share in the partnership firm, interest and title in the schedule mentioned property and assets and liabilities including hypothecation to bank or guarantees in the bank, etc., for a consideration of Rs.l lakh. The assessing authority held that this amount of Rs.l lakh debited to the profit and loss account was capital expenditure. On appeal, the appellate authority confirmed the same. On a reference:

Held, that once there is relinquishment of interest and title by the retiring partner in the assets of the firm, it results in acquisition of assets by the assessee‑firm. Therefore, the amount paid for relinquishment of interest and title was capital expenditure.

CIT v Puran Das Ranchoodas & Sons (1988) 169 ITR 480 (AP) ref.

S.R. Ashok for the Commissioner.

Nemo for the Assessee.

2001 P T D 3027

[240 I T R 57]

[Andhra Pradesh High Court (India)]

Before Ramesh Madhav Bapat and S. Ananda Reddy, JJ

COMMISSIONER OF INCOME-TAX

Versus

REPUBLIC FORGE CO.

Case Referred No. 15 of 1991, decided on 23rd June, 1999.

Income-tax---

----Interest on borrowed capital---Finding that capital had been used for purpose of business---Interest was deductible---Indian Income Tax Act, 1961, Ss. 36 & 37.

In order to establish a forging plant at Hyderabad, the assessee ­company entered into an agreement with a French company for supply of the entire machinery and the technical know-how relating thereto. The total price of engineering, imported machinery and equipment and technical assistance had to be paid in transferable currency in 20 half-yearly instalments along with yearly interest at 6 per cent. on all amounts remaining due from the date of last shipment. The assessee-company accordingly paid the instalments including interest and the interest debited. As the profit and loss account for the assessment year 1976-77 was Rs.3,97,477 and for the assessment year 1977-78 it was Rs.1,04,474. The Income-tax Officer disallowed the amounts on the ground that the payment was not for purposes of business and it was for the acquisition of assets before the commencement of business and hence it was capital in nature. The Tribunal allowed the deduction. On a reference:

Held, that it was not the case of the Department that the interest was paid by the assessee for its personal benefit. It was wholly paid for the purpose of business and under these circumstances the assessee was entitled for deduction of the interest in computing its income.

S. R. Ashok for the Commissioner.

A.S. Kishore for the Assessee.

2001 P T D 3217

[240 I T R 220]

[Andhra Pradesh High Court (India)

Before P. Venkatarama Reddi and B. Prakash Rao, JJ

MOHD. MOINUDDIN HUSSAIN

Versus

INCOME-TAX OFFICER

Writ Petitions Nos.7161 and 7020 of 1989, decided on 12th August, 1999.

Income-tax---

----Reassessment---Writ---Notice---Failure to disclose material facts necessary for assessment---Notice on ground that there had been under­assessment of capital gains because assessed had given a lower value of land on 1-1-1964, than one shown to Wealth Tax Authorities and had also not disclosed that he was being assessed to wealth tax--Prima facie case made out for assessment---Question whether there was a failure to disclose material facts necessary for assessment could be decided by assessing and Appellate Authorities---Writ would not issue to quash notice---Indian Income Tax Act, 1961, S.147(a)---Constitution of India, Art.226.

A notice of reassessment was issued in respect of the assessment year 198.1-82 under section 147(a) of the Income Tax Act, 1961. The suppression or failure to disclose the material facts had arisen, according to the Department, on account of the fact that the petitioner claimed a fair market value as on January 1, 1964, of the land which was sold during the assessment year 1981-82 at much less than what was shown in the wealth tax return for the year 1978-79. It was also the case of the Department that in the returns filed, the petitioner failed to disclose that he was subjected to wealth tax in respect of the same item of property. On a writ petition to quash the notice:

Held, dismissing the writ petition, that there was a prima facie case to proceed under. section 147. The question whether or not in the circumstances of the case, the omission to divulge the previous year's wealth tax assessment and the valuation that he gave in the previous proceedings amounted to non-disclosure of material facts within the meaning of section 147(a) of the Act was a matter to be more appropriately decided by the assessing and appellate authority under the Act. These were not fit cases to exercise jurisdiction under Article 226 of the Constitution of India to stop the proceedings under sections 147 and 148 of the Act at the threshold. The notice could not be quashed.

CIT v. Jeskaran Bhuvalka (1970) 76 ITR 128 (AP) and Gemini Leather Stores v. ITO (1975) 100 ITR 1 (SC) ref.

A. Satyanarayana for Petitioner

2001 P T D 3522

[240 I T R 852]

[Andhra Pradesh High Court (India)]

Before P. Venkatarama Reddi and B. Prakash Rao, JJ

ANAND SAMRAT & CO.

Versus

INCOME‑TAX OFFICER

Writ Petition No.8196 of 1988, decided on 16th August, 1999.

Income‑tax‑‑‑

‑‑‑‑Re‑assessment‑‑‑Notice under S.148 on basis of material discovered during search operations‑‑ ‑Assessment order passed pursuant thereto becoming final‑‑‑Fresh notice under S.148 on same facts‑‑‑Resorting to re­assessment proceedings piecemeal not permissible‑‑‑Re‑assessment proceedings taken afresh not valid‑‑‑Indian Income Tax Act, 1961, Ss. 147 & 148.

On July, 2, 1982, a search was conducted by the Department. Pursuant to a notice under section 148 of the Income Tax Act, 1961, a return was filed in the year 1983‑84 showing the income of Rs. 2,19,433 However, on March 27, 1986, an assessment order was passed determining the taxable income as Rs.20.55 lakhs on the basis of the material recovered in the course of search. The appeal filed by the petitioner against the assessment was partly allowed. There was a further appeal and on February 19, 1988, the Income‑tax Officer passed order determining the taxable income at Rs.15,11,370. A month later, the successor Assessing Officer issued another notice under section 148. The Income‑tax Officer merely observed that the addition towards suppressed sales made by the Income‑tax Officer was less than the quantum of probable suppression having regard to the entries in the diary recovered at the time of search operations. On a writ petition to quash the notice:

Held, that the proposed re‑assessment was in negation of the principles of finality of the decision of the Tribunal and the implied bar against the initiation of re‑assessment proceedings on the same set of facts twice over. It was not open to the Assessing Officer to go on resorting to re­assessment proceedings piecemeal on a fresh appraisal of the material and evidence that carne to light during the search. Accordingly, the notice under section 148 was liable to be quashed.

S. Dwarakanath for Petitioner.

J.V. Prasad for Respondent.

2001 P T D 3660

[241 I T R 107]

[Andhra Pradesh High Court (India)]

Before P. Vinkatarama Reddi and A. Hanumanthu, JJ

K. MAMA MOHAN RAO and 2 others

versus

COMMISSIONER OF INCOME‑TAX

Income‑tax Cases Nos.46 of 1995, 2 of 1906 and 23 of 1999, decided on 8th June, 1999.

Inocme-tax--

‑‑‑‑Reference‑‑‑Firm‑‑‑Assessment of partners‑‑‑Deductions‑‑‑Interest on borrowed capital‑‑‑Borrowings made in order to liquidate outstanding debts balance against partners in firm's account‑‑‑Dissolution of firm‑‑‑Borrowed money not utilised for purchase of shares of private limited company which ultimately took over firm‑‑‑No nexus established between borrowings and acquisition of shares‑‑‑Interest on borrowings could not be allowed either under S.57 or under S.67 as borrowings were utilised for making good debit balance in capital account of ‑partners in firm which stood dissolved‑‑‑No income from firm against which deduction could be allowed under S.67--‑ No question of law arose‑‑‑Indian Income Tax Act, 1961.

The assessees were partners in a firm. Losses were incurred by the firm consistently from 1972 to 1980 and, therefore, the partners' accounts were debited with substantial amounts. The assessees borrowed money from others and deposited the same with the firm. The firm was dissolved and taken over by a private limited company in October, 1983. The private limited company was also one of the partners of the dissolved firm. In lieu of the assesses' interests in the firm, they were allotted shares by the private limited company. The interest pertaining to the loans was claimed by the assessees in their respective assessments for the years 1985‑86 to 1988‑89 as deduction. The claim was disallowed by the Assessing Officer for the reason that the interest which the assessees had incurred during the relevant assessment years was not relatable to the income earned during that year and it had no relation to the income declared by the assessees. The Deputy Commissioner (Appeals) accepted the contention of the assessees and allowed the appeals. On further appeal, the Tribunal held that the borrowings were made. in order to liquidate the outstanding debit balance against the partners in the firm's account. The Tribunal further held that nothing was available to the assessees which could be said to have been utilised in the purchase of shares in the private limited company which ultimately took over the firm in October, 1983. The Tribunal noted the fact that the firm made profits after 1980 and the capital accounts of the partners thereafter showed credit balance. The amount, invested out of the borrowings from April to August, 1980, had no bearing or nexus to the allotment of shares by the private limited company upon the takeover of the firm in which the assessees were partners. Therefore, the Tribunal held that the interest claimed by the assessees could not be allowed under section 57 nor could it be allowed under section 67 of the Income Tax Act, 1961, as the borrowings were utilised for the purpose of business of the firm which had become defunct and stood dissolved in October, 1983 and there was no income from the firm against which deduction could be allowed under section 67. On an application to direct reference:

Held, dismissing the application, that the Tribunal had found that the borrowed money invested from April to August, 1980, had no bearing or nexus to the allotment of shares boy the private limited company upon the takeover of the firm in which the assessees were partners, and that there was no nexus established between the borrowings and the acquisition of shares. The assessees had a duty and liability to make good the debit balance in their capital account which came about because of the accumulation of losses and the borrowed amounts were deposited in the firm in discharge of their liability. The Tribunal approached the question from the right perspective having due regard to the facts on record and even if a different inference could be drawn, that did not give rise to any question of law. The Tribunal was justified in holding that the interest could not be allowed as a deduction. No question of law arose from its order.

CIT v Rajendra Prasad Moody (1978) 115 ITR 519 (SC) distinguished.

C. Kodandaram for the Petitioners

S.R. Ashok for the Respondent.

2001 P T D 3674

[241 I T R 287]

[Andhra Pradesh High Court (India)]

Before P. Venkatarama Reddi and B. Prakash Rao, JJ

PATCHALA SEETHARAMAIAH

versus

COMMISSIONER OF INCOME‑TAX and another

Writ PetitionNo.13506 of 1999, decided on 8th September, 1999.

Voluntary Disclosure of Income Scheme, 1997‑‑­

‑‑‑‑Scope of S.67 of Scheme‑‑‑Declaration under scheme‑‑‑Tax paid beyond prescribed period‑‑‑Declaration void and non est ‑‑‑Retention of tax by revenue illegal‑‑‑Section 70 of scheme inapplicable‑‑‑Petitioner entitled to refund of tax or adjustment towards arrears‑‑‑Indian Finance Act, 1997, Ss.67 & 70.

Section 67(2) of the Voluntary Disclosure of Income Scheme, 1997, stresses upon the mandatory requirement of payment of tax within the outer limit of time and in the event of any such non‑payment of tax the declaration under the scheme will be non est. When the scheme contemplates that a declaration tiled by the assessee was not acted upon the question of retention of tax paid under such declaration does not arise. There is no provision under the scheme whereby the Revenue can retain the tax paid in respect of a declaration which is void and non est and the retention of the tax contrary to the scheme is against Article 265 of the Constitution of India. In such a situation, the provision under section 70 of the scheme will not apply and accordingly the retention of tax by the Revenue is illegal.

On December 27, 1997, the petitioner filed a declaration under the Voluntary Disclosure of Income Scheme, 1997, disclosing the income for the assessment years 1991‑92. and 1992‑93 and paid tax thereon. The said tax was paid t‑yond the prescribed period. There was a delay of one day in payment of tax and in view of the delay the Department refused to grant a certificate under section 67(2) of the scheme. The petitioner sought for a refund of the tax paid under the scheme as the declaration was deemed to be void. The respondents refused. On a writ petition filed for a direction to refund the tax:

Held, that the Revenue had to refund tile tax paid under the declaration, dated December 27, 1997, to the petitioner within a period of two months from the date of receipt of a copy of the order unless adjustment was made towards any arrears.

Shankarlal v. ITO (1998) 230 ITR 536 (AP) ref.

S. Ravi for Petitioner. J.V. Prasad for Respondents

2001 P T D 187

[238 I T R 266]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and Dr. Mrs. Pratibha Upasani, JJ

NENMAL CHAMPALAL SHAH and others

versus

COMMISSIONER OF INCOME‑TAX

Income‑tax Reference No.385 of 1984, decided on 2nd December, 1998.

(a) Income‑tax‑‑‑

‑‑‑‑Assessment‑‑‑Powers of Assessing Officer‑‑‑Appeal‑‑‑Appellate order setting aside entire assessment with a direction to make a fresh assessment‑‑­Assessing Officer has same powers in making fresh assessment as he had originally‑‑‑Indian Income Tax Act, 1961, S.143.

(b) Income‑tax‑‑

‑‑‑‑Reference‑‑‑Reference at instance of assessee‑‑‑Absence of assessee at the time of hearing‑‑‑Reference returned unanswered‑‑‑Income Tax Act, 1961, S.256.

Held, that there was no dispute about the fact that the entire assessments in this case were set aside by the Appellate Assistant Commissioner with a direction to make assessments de novo after making such other enquiries as may be deemed necessary for that purpose. That being so, the Income‑tax Officer had the same powers in making the fresh assessments as he had originally when making an assessment under section 143(3) of the Income Tax Act, 1961. The scope and ambit of the enquiry for assessment is in no way restricted in such a case. However, in view of the fact that the assessee, at whose instance this reference was made, was absent the reference had to be returned unanswered.

Nemo for the Assessee.

R.V. Desai with B.M. Chatterjee for the Commissioner.

2001 P T D 245

[238 I T R 705]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and D. G. Deshpande, JJ

COMMISSIONER OF INCOME‑TAX

versus

SIGMA PAINTS LTD.

Income‑tax Reference No.480 of 1987, decided on 5th April, 1999.

Income‑tax‑‑‑

‑‑‑‑Revision‑‑‑Commissioner‑‑‑Jurisdiction‑‑‑Draft assessment order‑‑‑Deduction proposed to be disallowed by ITO in draft assessment order but allowed in assessment order pursuant to direction of IAC‑‑‑Commissioner has jurisdiction to revise, that part of assessment order‑‑‑Indian Income Tax Act, 1961, Ss. 143, 144B & 263.

Where a claim to a deduction was proposed to be disallowed by the Income‑tax Officer in the draft assessment order, but is allowed in the assessment order in consequence of the direction of the Inspecting Assistant Commissioner under section 144B of the Income Tax Act, 1961, it is open to the Commissioner of Income‑tax to exercise his jurisdiction under section 263 of the Act in respect of that part of the assessment order. Merely because the procedure under section 144B was followed, the order does not cease to be an order under section 143(3). The order passed by the Income-­tax Officer under section 143(3) read with section 144B of the Act is an order of the Income‑tax Officer which is subject to revisional jurisdiction of the Commissioner under section 263 of the Act.

The Court refused to consider whether the order of the Income‑tax Officer could not be held to be erroneous which is a condition precedent for exercise' of power under section 263 of the Act, on the ground that this submission was wholly irrelevant for the purpose of the reference, which was limited to the question whether it was open to the Commissioner to exercise revisional powers under section 263 of the Act in respect of an order of the assessment passed by the Income‑tax Officer under section 143(3) of the Act following the directions of the Inspecting Assistant Commissioner under section 144B of the Act.

CIT v. Virwani (M.M.) (1994) 207 ITR 225 (Bom.) fol.

R.V. Desai with B.M. Chatterjee for the Commissioner.

J.D.Mistry and R.Shah & Co. for the assessee.

2001 P T D 268

[238 I T R 736]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and D. G. Deshpande, JJ

COMMISSIONER OF INCOME‑TAX

versus

D. M. GHIA

Income‑tax Reference No.418 of 1987, decided on 5th April, 1999.

Income‑tax‑‑‑

‑‑‑‑Special deduction‑‑‑Interest on Monies borrowed for payment of income­tax‑‑‑Provision applicable only to borrowings made after commencement of provision‑‑‑Direct nexus between borrowing and payment of tax must be established‑‑‑Interest charged by firm on debit balance of partner with firm‑‑­No specific withdrawals by partner for payment of tax‑‑‑That portion of withdrawals used to pay tax‑‑‑Not sufficient to allow deduction of interest‑‑­Indian Income Tax Act, 1961, S.80V.

Section 80V of the Income Tax Act, 1961, was inserted in the Act by the Taxation Laws (Amendment) Act, 1975; with effect from April 1, 1976, and was deleted by the finance Act, 1985, with effect from April 1, 1986. This section provides for deduction of interest paid on monies borrowed by the assessee for payment of any taxes due from him under the Act. The benefit of section 80V would be available only if the borrowings are made for the purpose of payment of taxes. That being so, this section would be applicable only to interest paid on monies borrowed after the coming into force of this section for payment of taxes. Moreover, to avail of the benefit of this section, the borrowings, should be specifically for the purpose of payment of tax under the Act. In other words, there should be a direct nexus between the borrowings and the payment of taxes. No deduction under this section can be claimed on account of interest paid on borrowed money on the ground that part of it was used by the assessee for payment of taxes.

The assessee was a partner in a firm. His personal account in the firm had been treated somewhat like a current account. His income was credited in that account. Similarly, his drawing, payment of taxes, etc., were debited in that account. The partnership deed did not stipulate that the partners would be debited with interest. Nevertheless, interest was charged on the debit balances. The interest debited in the account of the assessee was Rs.1,47,257 for the assessment year 1976‑77, Rs.1,04,552 for the assessment year 1977‑78 and Rs.1,16,686 for the assessment year 1978‑79. There was brought forward debit balance in the above account every year. Part of the brought forward debit balance was stated to be the withdrawals made on account of the payment of personal income‑tax of the assessee. The assessee claimed deduction of interest attributable to the amount of tax paid by him in the past from the money withdrawn by him as a partner of the firm and debited in the above account. For the assessment year 1976‑77, the Income‑tax Officer allowed a sum of Rs.2,085 calculated at the rate of 9 per cent. on the borrowings made by the assessee for the payment of taxes after April 1, 1976. For the other two years the Income‑tax Officer found that nothing was withdrawn from the firm for payment of taxes. Nothing was, therefore, allowed as deduction under section 80V of the Income Tax Act, 1961. The Tribunal held that section 80V was applicable even to interest paid on borrowings made prior to the coming into force of section 80V of the Act for payment of taxes under the Act. The Tribunal also held that the amount withdrawn by the assessee from the firm amounted to borrowing and interest thereon was allowable as a deduction under section 80V of the Act. The Tribunal, however, held that as 50 per cent. of the interest paid by the assessee to the firm was received back by him by way of share in the profits in the firm, the assessee was entitled to deduction under section 80V of the Act only of 50 per cent. of the interest paid, on the amount withdrawn by him. On a reference:

Held, that there was no borrowing for the purpose of payment of taxes. The debit balance in the account had been there right from the beginning and there were withdrawals as well as deposits in the said account. There was no direct nexus between the withdrawals and the payment of tax. Even if the withdrawals were held to be borrowings and it was held that the interest paid on the borrowings made in the past for payment of taxes was also a permissible deduction, in the instant case, there was nothing to show that the borrowings were for payment of taxes under the Act. The order of the Tribunal was wrong.

Hindustan Cocoa Products. Ltd. v. CIT (1999) 236 ITR 140 (Bom.) fol.

R.V. Desai with B.M. Chatterjee for the Commissioner.

Ms. V. B. Patel for the Assessee.

2001 P T D 334

[238 I T R 777]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and D. G. Deshpande, JJ

COMMISSIONER OF INCOME‑TAX

versus

AMRITABEN R. SHAH

Income‑tax Reference No.490 of 1987, decided on 20th April, 1999.

Income‑tax‑‑‑

Income from other sources‑‑Deduction‑‑‑Condition precedent for allowance‑‑‑Expenditure must be with primary motive of earning income‑‑­Purchase of shares with view to acquiring controlling interest in company‑‑­Object was not to earn dividend‑‑‑Interest on loan taken to purchase shares not deductible‑‑‑Indian Income Tax Act, 1961, S.57(iii).

In order to get deduction under section, 57(iii) of the Income Tax Act, 1961, the expenditure should be incurred wholly and exclusively for the purpose "of making or earning the income from other sources" In order that an expenditure may be admissible under section 57(iii) of the Act, it is necessary that the primary motive of incurring it is directly to earn income falling under the head "Income from other sources". Unlike section 37 which allows deduction of expenditure "incurred wholly and exclusively for the purposes of the business", under section 57(iii), deduction will not be allowed if the expenditure is not incurred for the purpose of earning income falling under the head "Income from other sources".

Where, admittedly, shares in a company were purchased by the assessee for the purpose of acquiring controlling interest in the company and not for earning dividend:

Held, that the expenditure incurred by way of interest on the loan taken by the assessee for the said purpose could not be held to be expenditure incurred wholly and exclusively for the purpose of earning income by way of dividends. From the nature of transaction, it was clear that the expenditure was not for the purpose of earning income by way of dividends but for the purpose of acquiring controlling interest in the company and, therefore, it would not be allowable as a deduction under section 57(iii) of the Act.

Sarabhai Sons (P.) Ltd. v. CIT (1993) 201'ITR 464 (Guj.) fol.

Chinai & Co. (Pvt.) Ltd. v. CIT (1994) 206 ITR 616 (Bom.) ref.

R.V. Desai for the Commissioner.

Nemo for the Assessee.

2001 P T D 376

[238 I T R 872]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and D. G. Deshpande, JJ

COMMISSIONER OF INCOME-TAX

versus

RADIO TALKIES

Income‑tax Reference No.321 of 1987, decided on 26th March, 1999.

Income-tax------

‑‑‑‑Capital gains‑‑‑Computation of‑‑‑Closure of business of assessee and sale of land and building‑‑‑Payment of retrenchment compensation to ex-­employees‑‑‑Not expenditure wholly and exclusively for purpose of transaction of sale‑‑‑Not deductible‑‑‑Indian Income Tax Act, 1961, S.48.

The assessee, which was carrying on the business of exhibiting films, closed its business in March, 1972, and the property consisting of land and building was sold. In ascertaining the capital gains, the assessee claimed before the Income‑tax Officer that as the assessee had paid Rs.74,687 as retrenchment compensation to the ex‑employees of the assessee, which was a condition precedent to the sale of the property, it was entitled to deduction of the same in the computation of capital gains. The Income‑tax Officer rejected the above claim of the assessee. The Tribunal allowed it. On a reference:

Held, that the retrenchment compensation paid by the assessee to its employees had no connection whatsoever with the transaction of sale of the land and building. It was connected only with the closure of the business of the assessee in March, 1972. Such an expenditure could not be regarded as expenditure incurred wholly and exclusively for the purpose of the transaction of sale of the property. The stipulation in the agreement merely required the owner to clear all its liabilities on certain accounts and to keep the transferee indemnified. This stipulation could not change the character of the retrenchment compensation from a liability arising out of the closure of the business to expenditure incurred wholly and exclusively in connection with the transfer of the asset in question. The order of the Tribunal was wrong.

R.V. Desai with B.M. Chatterjee for the Commissioner, Nemo for the Assessee.

2001 P T D 385

[239 I T R 1]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and D. G. Deshpande, JJ

COMMISSIONER OF INCOME‑TAX

versus

I. A. & I. C. (PVT.). Ltd.

Income‑tax Reference No.483 of 1987, decided on 6th April, 1999.

Income‑tax‑

.... Investment allowance‑‑‑Higher rate‑‑‑Condition that certificate from prescribed authority under S.32A(2B)(ii) to be filed alongwith return‑‑­Certificate can be furnished before completion of assessment with satisfactory explanation for failure to file alongwith return‑‑‑Indian Income Tax Act, 1961, S.32A(2B)(ii).

The assessee claimed investment allowance at the higher rate of 35 per cent under section 32A(2B)(ii) of the Income Tax Act, .1961, in respect of the machinery and plant installed by it in its industrial undertaking, but failed to submit alongwith its return of income the certificate from the prescribed authority as stipulated by that section. However, the assessee had submitted alongwith the return a copy of the application made by it to the prescribed authority for issuance of the necessary certificate. Later, on receipt of the certificate, the assessee furnished the same to the Income‑tax Officer in the course of assessment proceedings. The Income‑tax Officer However, held that since clause (ii) of section 32A(2B) of the Act required the assessee to furnish the certificate alongwith the return, the requirement of that clause was not fulfilled and hence the assessee was not entitled to investment allowance at the higher rate, The Tribunal allowed the higher rate if investment allowance. On a reference:

Held, that furnishing of the certificate from the prescribed authority as contemplated by clause (ii) is mandatory. But the requirement of furnishing the certificate alongwith the return of income is directory. If the assessee furnishes the same to the Assessing Officer before the completion of he assessment and offers a satisfactory explanation for his failure to furnish the same alongwith his return of income, the Income‑tax Officer may consider the same and if he is satisfied with the explanation, he may accept the same and allow the claim of the assessee to investment allowance at the higher rate under section 32A(2B) of the Act. The Tribunal was justified in directing the Income‑tax Officer to consider the claim of the assessee for investment allowance at a higher rate under section 32A(2B)(ii) of the Act on the basis of the certificate filed in the course of the assessment proceedings.

CIT v. Shivanand Electronics (1994) 209 ITR 63 (Bom.) applied.

CIT v. Continental Construction Ltd. (1998) 230 ITR 485 (SC) and CIT v. Hico Products (Pvt.) (No. 1) (1993) 201 ITR 567 (Bon.) ref.

R.V. Desai with B.M. Chatterjee for the Commissioner.

B.V. Jhavri with J.I. Patel for the Assessee.

2001 P T D 524

[239 I T R 151]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and D. G. Deshpande, JJ

INDUSTRIAL CONSULTING BUREAU (P.) LTD

versus

COMMISSIONER OF INCOME‑TAX

Income‑tax Reference No.382 of 1987, decided on 29th April, 1999.

(a) Income‑tax‑‑‑

‑‑‑‑Deduction‑‑‑Draft assessment order‑‑‑Revised return‑‑‑Deduction claimed in revised return after passing of draft assessment order‑‑‑Cannot be entertained‑‑‑Indian Income Tax Act, 1961, S. 144B.

The Tribunal was not right in holding that the claim for deduction under section 80MM of the Income Tax Act, 1961, made in the revised return filed by the assessee after passing of the draft assessment order under section 144B, was valid in law for being considered on the merits.

Panchamahal Steel Ltd. v. U.A. Joshi, ITO (1997) 225 ITR 458 (SC) fol.

(b) Income‑tax‑‑‑

‑‑‑‑Deductions‑‑‑House property‑‑‑Municipal taxes pertaining to earlier year, paid in assessment year in question‑‑‑Cannot be allowed‑‑‑Indian Income Tax Act, 1961, S.24.

Where, admittedly, the municipal taxes amounting to Rs.15,328 which the assessee paid during the accounting year ending on March 31, 1978, relevant to the assessment year 1979‑80 pertained to the period from April 1, 1976 to April 1, 1977, and the demand in respect of the same was also made by the society on June 21, 1977:

Held, that the liability was incurred by the assessee not in the previous year relevant to the assessment year under consideration, i.e., 1979‑80, but in the earlier year, and the same was not allowable as a statutory deduction in the computation of income from house property of the previous year relevant to the assessment year 1979‑80.

D.P. Desai instructed by Manilal Kher Ambalal & Co. for the Assessee

R.V. Desai with T.C. Kaushik for the Commissioner.

2001 P T D 700

[239 I T R 312]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and D. G. Deshpande, JJ

COMMISSIONER OF INCOME‑TAX

versus

JOHN FOWLER (INDIA) LTD.

Income‑tax Reference No.455 of 1987, decided on 31st March, 1999.

Income‑tax‑‑‑

‑‑‑‑Business expenditure‑‑‑Amount paid for acquisition of technical know­how‑‑‑Collaboration agreement subject to approval by Government of India‑­Royalty payable under agreement did not accrue prior to date of approval of agreement‑‑‑Government granting approval on September 30, 1980‑‑‑Royalty not deductible for assessment year 1980‑81‑‑‑Indian Income Tax Act, 1961, S.37.

During the previous year relevant to the assessment year 1980‑81, the assessee entered into a collaboration agreement with M. for upgrading technology and expanding its range of production. Under the agreement, the assessee was liable to pay Rs.21,93,987 to M as lump sum royalty for the technical know‑how received by it. The assessee claimed deduction in respect of the above amount in the computation of its income in the previous year relevant to the above assessment year as. a revenue expenditure. The Income­tax Officer rejected, the claim of the assessee for deduction in the computation of the income of the assessee of the year under consideration on two grounds. First, that it was an expenditure of capital nature and hence not allowable as a deduction. Second, that the agreement under which this amount was payable was subject to the approval of the Government of India, and as admittedly the agreement had not been approved by the Government during the relevant accounting period, the liability did not accrue or arise during the year under consideration. The Tribunal held that the approval of A the Government became operative retrospectively from the date of the agreement and in that view of the matter, the liability accrued in the year under consideration. So far as the controversy in regard to the nature of the expenditure was concerned, the Tribunal remitted the matter to the Commissioner of Income‑tax (Appeals) for deciding afresh on the merits whether the expenditure was capital or revenue. On a reference:

Held, that the liability to pay royalty in the instant case did not accrue or arise during the accounting year ending December 31, 1979. The liability accrued only on September 30, 1980, when the Government of India granted its approval to the agreement. It was not deductible for the assessment year 1980‑81.

CIT v. Kirloskar Tractors Ltd. (1998) 231 ITR 849 (Bom.) and Non‑such Tea Estate Ltd. v. CIT (1975) 98 ITR 189 (SC) applied.

R.V., Desai with B.M. Chatterjee and L.S. Shetty for the Commissioner.

Ashok Kotangale instructed by Kotangale & Co. for the Assessee.

2001 P T D 711

[239 I T R 337]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and Mrs. Ranjana Desai, JJ

GANDHI TRADING

versus

ASSISTANT COMMISSIONER OF INCOME‑TAX and others, Writ Petition No. 1454 of 1999, decided on 7th July, 1999

Income‑tax‑‑‑

‑‑‑‑Provisional attachment of property‑‑‑Provisional attachment of property during pendency of assessment or reassessment proceedings‑‑‑Condition precedent for provisional attachment‑‑‑Sufficient material on record to show that assessee would dispose of property in order to avoid payment of tax‑‑‑Attachment should be made as far as possible of immovable property‑‑­Attachment of Bank accounts and trading assets should be made only as a last resort‑‑‑Finding that value of immovable property according to departmental value was sufficient to cover anticipated demand‑‑‑Provisional attachment of Bank account and FDRs not valid‑‑‑Indian Income Tax Act, 1961, S.281B.

It is clear from a plain reading of section 281B of the Income Tax Act, 1961, that it is intended to empower the Assessing Officer to make a provisional attachment of any property of the assessee during the pendency of any proceedings or assessment or reassessment of any income, even though there is no demand outstanding against the assessee, if he is of the opinion that it is necessary to do so to protect the interests of the Revenue. To ensure that this power is not misused, a number of safeguards have been provided in the section itself. The power of attachment under this section is in the nature of attachment before judgment under the Code of Civil Procedure. It is a drastic power. It should, therefore, be exercised with extreme care and caution. It should not be exercised unless there is sufficient material on record to justify the satisfaction that the assessee is about to dispose of the whole or any part of his property with a view to thwarting the ultimate collection of the demand. Moreover, attachment should be made of the properties and to the extent it is required to achieve the above object. It should neither be used as a tool to harass the assessee nor should it be used in a manner which may have an irreversible detrimental effect on the business of the assessee. Attachment should be made as far as possible of immovable properties if that can protect the Revenue. Attachment of bank accounts and trading assets should be resorted to only as a last resort. In any event, attachment under section 281B should not be equated with attachment in the course of recovery proceedings:

Held, that the two properties of the assessee, which have been attached under section 281B of the Act, having been valued even by the departmental valuer at Rs.2.66 crores against the anticipated liability of Rs.2.68 crores there was no justification for allowing the continuation of attachment on the bank accounts and FDRs. The Income‑tax Department was directed to. lift the attachment forthwith.

F.B. Andhyrajina instructed by Desai and Diwanji for Petitioner.

R.V. Desai with P.S. Jetley for Respondents.

2001 P T D 743

[239 I T R 398]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and Smt. Ranjana Desai, JJ

COMMISSIONER OF INCOME-TAX

versus

KESAR SUGAR WORKS LTD.

Income-tax Reference No.325 of 1987, decided on 15th June, 1999.

(a) Income-tax---

----Income---Accrual of income---Sugar industry---On a writ, High Court by interim order allowing assessee to realise price in excess of levy price fixed by Government---Dispute regarding price---Amount realised by assessee in excess of levy price did not accrue to assessee---Indian Income Tax Act, 1961.

The assessee was a company engaged in the business of manufacture and sale of sugar. In the previous year relevant to the assessment year 1979-80, the assessee collected certain amounts in excess of levy price of sugar fixed by the Government of India by notification under the Sugar (Price) Determination Order, 1973. The collection was made in the following circumstances. The assessee challenged the notification and fixation of price by the Central Government thereunder before the Allahabad High Court by filing a writ petition. In the said writ petition, the High Court passed an interim order allowing the petitioner to charge Rs.175.45 per quintal of D-20 grade sugar as against Rs.155.30 fixed by the Government and to retain the amount so collected as deposit on furnishing a bank guarantee in respect thereof. It was also mentioned in that order that in the event of the dismissal of the writ petition, the assessee would be required to pay interest at the rate of 12 percent. per annum on the said amount. During the previous year relevant to the assessment year 1979-80, the assessee collected a sum of Rs.5,56,366 pursuant to the above order of the High Court and credited the same to the enhanced sugar price account in its books of account. The assessee did not include the said amount in its income. In the course of its assessment for the assessment year 1979-80, the assessee contended before the Income-tax Officer that the amount in question having been collected by the assessee pursuant to the interim order of the High Court subject to several conditions did not constitute its income until finalisation of the dispute by the High Court. The Income-tax Officer did not accept this contention and included the amount of Rs.5,56,366 in the income of the assessee. The assessee appealed to the Commissioner of Income-tax­(Appeals), who accepted the contention of the assessee and directed the Income-tax Officer not to include the said amount in the income of the assessee. The above order of the Commissioner (Appeals) was upheld by the Tribunal.

Later, the writ petition was dismissed by the High Court and the assessee was directed to refund the amount collected by it alongwith interest at the rate of 12 percent. per annum. The assessee-company claimed that on account of dismissal of the writ petition it was required to pay interest at the rate of 12 percent. per annum on the said amount whereas it was receiving interest thereon at the rate of 6 percent. per annum. The difference was claimed by the assessee as deduction in the computation of its income for the assessment years 1978-79 and 1979-80. The Income-tax Officer disallowed the deduction on the ground of pendency of appeal before the Supreme Court against the order of the Allahabad High Court. The assessee appealed to the Commissioner of. Income-tax (Appeals) who allowed the deduction. The order of the Commissioner (Appeals) was confirmed by the Tribunal. On a reference:

Held, (i) that the amounts collected by the assessee at the enhanced rate could not be assessed as the income of the assessee (as income accrued to the assessee) until the finalisation of the dispute pending before the Court in favour of the assessee.

CIT v. Seksaria Biswan Sugar Factory (Pvt.) Ltd. (1992) 195 ITR 778 (Bom.) and CIT v. Sharda Sugar Industries Ltd. (1999) 239 ITR 393 (Bom.) fol.

(b) Income-tax---

----Business expenditure---Interest---Sugar industry---Price realised in excess of levy price fixed by Government---High Court directing refund excess with interest at the rate of 12 percent. per annum---Liability to pay interest was an actual liability---Appeal to Supreme Court did not alter position---Amount of interest was deductible---Indian Income Tax Act, 1961, S.37.

Admittedly, the claim for deduction of interest in this case was made by the assessee only after the dismissal of the writ petition by the Allahabad High Court with a direction to refund the amount alongwith interest at the rate of 12 percent. per annum. After the order of the Allahabad High Court the liability on account of interest became an actual liability in praesenti. It was no more a liability de futuro. The assessee was maintaining mercantile system of accounting. In such a situation, deduction cannot be denied to the assessee on the ground that the assessee was disputing the liability in appeal before the Supreme Court. It was no more a contingent liability. That being so, the assessee was entitled to deduction of the amount of interest in the years under consideration.

Kedarnath Jute Mfg. Co. Ltd. v. CIT (1971) 82 ITR 363 and (1971) 28 STC 672 (SC) applied.

P.S. Jetley with R.V. Desai for the Commissioner.

S.J. Mehta with I. M. Munim for the Assessee.

2001 P T D 750

[239 I T R 393]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and Smt. Ranjana Desai, JJ

COMMISSIONER OF INCOME-TAX

versus

SHARDA SUGAR INDUSTRIES LTD.

Income-tax Reference No.93 of 1987, decided on 15th June, 1999.

Income-tax---

----Income---Accrual of income---Sugar industry---On a writ, High Court by interim order allowing assessee to realise price in excess of levy price fixed by Government---Dispute regarding price---Amount realised by assessee in excess of levy price did not accrue to assessee---Indian Income Tax Act, 1961.

The assessee was engaged in the business of manufacture and sale of sugar. The Government of India by notification, dated November 20, 1973, issued under the Sugar (Price) Determination Order, 1973, fixed the price of levy sugar of D-29 grade at Rs.153.39 per quintal inclusive of excise duty. By another notification dated December 14, 1973„ the Government of India revised the price and fixed the same at Rs.155.30 per quintal. Aggrieved by these notifications, the assessee filed a writ petition in the Allahabad High Court challenging the sugar (Price) Determination Order, 1973. The Allahabad High Court passed an interim order. Pursuant to the said order, the assessee was allowed to realise Rs.18.38 per quintal of levy sugar in excess of the price fixed by the notification issued by the Central Government. The assessee collected Rs.6,36,683 and Rs.18,29,353 in the previous years relevant to the assessment years 1975-76 and 1976-77, respectively, by way of additional price of levy sugar at Rs.18.38 per quintal pursuant to the above order. The High Court allowed the assessee to retain these amounts as deposits pending the final decision in the writ petition subject to the assessee furnishing a bank guarantee in respect thereof. In October, 1976, the writ petition of the assessee was dismissed by the Allahabad High Court. Consequently, the interim order was also vacated and the assessee was directed to refund the excess amount realised by it along with interest to the Food Corporation of India. Against that order, the assessee appealed to the Supreme Court. The Supreme Court admitted the appeal of the assessee and passed an interim order. In the meantime, the Government of India enacted the Levy Sugar Price Equalisation Fund Act, 1976. According to this enactment, the amounts realised in excess of levy prices were required to be credited to the aforesaid fund. In exercise of powers under the above Act, the assessee was directed by the Ministry of Agriculture and Irrigation, Government of India, vide its letter dated March 27, 1976, to deposit the excess amount realised by it with the fund. The assessee, however did not deposit the said amount with the fund and the amount in question continued to remain with the assessee. In the assessment of the assessee for the assessment years 1975-76 and 1976-77, the Income-tax Officer treated the amount of excess collection made by the assessee during the previous years relevant to the above assessment years as income of the assessee and assessed the same in the hands of the assessee in the assessments for those years. The Commissioner of Income-tax (Appeals) deleted the additions made by the Income-tax Officer. The appeals of the Revenue against the above order were dismissed by the Tribunal. On a reference:

Held, that where the right to receive payment is in dispute, no income will arise or accrue. In the present case, admittedly, the amounts in question were collected and retained by the assessee as deposits pending the final decision of the writ petition by the Allahabad High Court pursuant to the interim order of that Court and that too subject to furnishing a bank guarantee in respect thereof. There was a serious dispute about the right of the assessee to receive the amount collected by the assessee. In other words, the right to receive the amount was inchoate or contingent. The extra amount did not accrue to the assessee until the finalisation of the dispute pending in the Court in favour of the assessee. The assessee was accountable for the excess collection and obliged to refund the same if so directed by the Court. Such amounts collected by the assessee were not assessable in the hands of the assessee in the assessment years under consideration.

CIT v. Chodavaram Cooperative Sugars Ltd. (1987) 163 ITR 420 (AP); CIT v. Hindustan Housing and Land Development Trust Ltd. (1986) 161 ITR 524 (SC); CIT v. Hindustan Sugar Mills Ltd. (1994) 122 CTR 37 (Bom.); CIT v. Mysore Sugar Co. Ltd. (1990) 183 ITR 113 (Kar.) and CIT v. Seksaria Biswan Sugar Factory (Pvt.) Ltd. (1992) 195 ITR 778 (Bom.) ref.

P. S. Jetley with R. V. Desai for the Commissioner.

Ms. V. B. Patel for the Assessee.

2001 P T D 1666

[241 1 T R 198]

[Bombay, High Court (India)]

Before Dr. B. P. Saraf and Mrs. Ranjana Desai, JJ

COMMISSIONER OF INCOME-TAX

versus

TRADE WINGS LTD.

Income-tax Reference No.299 of 1988, decided on 17th August, 1999..

(a) Income-tax---

----Business expenditure---Company---Ceiling on expenditure---Expenditure resulting in remuneration, amenity or benefit to employee or Director--­Scope of Ss.40(c) & 40A(5)--Expenditure should result in remuneration, amenity or benefit to employee or Director in his capacity as such Director or employee---Director standing surety for loan taken by company--­Guarantee commission paid to Director---Not a remuneration, amenity or benefit to a Director within the meaning of S.40(c)---Not to be taken into account in computing ceiling---Indian Income Tax Act, 1961, Ss.40(c) & 40A(5).

(b) Income-tax---

----Business expenditure ---Company---Ceiling on expenditure---Expenditure resulting in remuneration, amenity or benefit to employee or Director--­Directors who are employees---Section 40(c) is applicable---Indian Income Tax Act, 1961, S.40(c).

What is to be considered for the purpose of section 40(c) or 40A(5) of the Income Tax Act, 1961, is expenditure which results directly or indirectly in the provision of any remuneration or benefit or amenity to a director or to a person who has substantial interest in the company or to a relative of the director, etc. Section 40A(5) talks , of an expenditure which results directly or indirectly in the payment of any salary to an employee or a former employee or in the provision of any perquisite. The expenditure will fall within the purview of section 40(c) or 40A(5) of the Act only if it results in payment to the director or the employee in his capacity as director or employee. If the payment is made for the services rendered by any of them which they were not required to do in the capacity of Managing Director, Director or employee or for parting with valuable right, such expenditure would not fall within the purview of section 40(c) or 40A(5) of the Act. The guarantee commission paid to a Director for standing guarantee for the loans obtained by the assessee-company cannot be held to be remuneration or benefit or amenity to a Director qua Director. It is paid for the personal guarantee furnished by him which he is under no obligation to furnish as a Director or a Managing Director. The guarantee commission paid to the Managing Director is not a remuneration, etc., to the Managing Director within the meaning of section 40(c) of the Act.

Bharat Beedi Works (P.) Ltd. v. CIT (1993) 201 ITR 1063 (SC) applied.

Pheros & Co. (P.) Ltd. v. CIT (1980) 124 ITR 188 (Gauhati); India Jute. Co. Ltd. v. CIT (1989) 178 ITR 649 (Cal.) and Suessen Textile Bearings Ltd. v. Union of India (1984) 55 Comp. Cas. 492 (Delhi) fol.

The disallowance out of remuneration, perquisites, etc., of the employee-director of a company has to be worked out under section 40(c) and not under section 40A(5).

CIT v. Hico Products (Pvt.) Ltd. (No.l) (1993) 201 ITR 567 (Bom.) fol.

Nav Ketan International Films (P.) Ltd. v. CIT (1994) 209 ITR. 976 (Bom.); Pai Paper and Allied Industries (P.) Ltd. v. CIT (1994) 207 ITR 410 (Bom.) and T.T. (Pvt.) Ltd. v. ITO (1980) 121 ITR 551 (Kar.) ref.

R.V. Desai with P.S. Jetley for the Commissioner.

Ashok N. Bhogani with V.P. Salunkhe and Ms, A Mishra instructed by A. Bhogani & Co. for the Assessee.

2001 P T D 1767

[241 I T R 6]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and Mrs. Ranjana Desai, JJ

COMMISSIONER OF INCOME‑TAX

Versus

Smt. MANDAKINI M. JOG

Income‑tax Reference No.84 of ‑1990, decided .on 3rd August, 1999.

Income‑tax---‑‑

‑‑‑‑Special deduction‑‑‑Interest on fixed deposits in Banks, interest on securities, dividends, etc.‑‑‑Firm‑‑‑Painter‑‑‑Law applicable‑‑‑Effect of insertion of subsection (3) of S.80L w.e.f. 1‑4‑1976‑‑‑Fixed deposits held in bank by firm‑‑‑Partner not entitled to special deduction on interest from such deposits under S.80L‑‑‑Indian Income Tax Act, 1961, S.80L [as amended by Taxation Laws (Amendment) Act, 1984).

Subsection (3) of section 80L of the Income Tax Act, 1961, lays down that where the income referred to in subsection (1) is derived from any asset held by; or on behalf of a firm, an association of persons or a body of individuals, no deduction shall be allowed under the said subsection in respect of such income in computing the total income of any partner of the firm or any member of the association or body:

Held, that though the controversy in this reference had been decided by the Court .in CIT v. Gopalkrishna M. Singre (1995) 214 ITR 443 (Bom.) in favour of the assessee, the legal position had since been changed by the insertion of subsection (3) of section 80L by the Taxation Laws (Amendment) Act, 1984 with retrospective effect from April 1, 1976. Therefore, the assessee was not entitled to deduction for the assessment years 1976‑77 and 1978‑79, under section 80L in respect of the interest income on fixed deposits with banks included in the assessee's share of profit from the Firm J.

C IT v. Gopalkrishna M. Singre (1995) 214 ITR 443 (Bom.) distinguished.

CIT v. Brij Raman Das (1979) 118 ITR 397 (All.).ref.

RN. Desai with P.S. Jetley for the Commissioner.

Shri Kaka: Amicus curiae.

2001 P T D 2021

[239 I T R 523]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and Snit. Ranjana Desai, JJ

COMMISSIONER OF INCOME‑TAX

Versus

GOPALDAS H. HANSRAJANI

Income‑tax Reference No.676 of 1987, decided on 14th July, 1999.

‑‑‑-Capital gains‑‑‑Exemption‑‑‑Sale of property used as residence for two years prior to sale and purchase of another property for residence‑‑‑Condition precedent for claiming exemption under S.54‑‑‑User of property as residence must have been as owner of such property‑‑‑Property occupied on leave and licence basis purchased subsequently‑‑‑Sale of property within two years of purchase and purchase of another property for residence ‑‑‑Assessee not entitled to exemption under S.54‑‑‑Indian Income Tax Act, 1961, S.54.

It is clear from a plain reading of section 54 of the Income Tax Act, 1961, that exemption from tax on profits from the sale of a building under the above section is dependent on fulfilment of the conditions set out therein. One of the conditions precedent is that the property in question should have been used by the assessee mainly for the purposes of his own residence in the two years immediately preceding the date on which the transfer took place. This expression in the context in which it appears in section 54, clearly means that the occupation of the assessee must be occupation in the capacity of the owner. It does not contemplate occupation during the period when the property did not even belong to him.

The assessees, husband and wife, used to reside in a flat on leave and licence basis as per agreement, dated April 27, 1968. On March 16, 1981, the assessees purchased the said flat for Rs.l lakh arid resold it .for Rs.4.5 lakhs by agreement, dated March 25, 1982. They thereafter on May 6, 1982, purchased another flat for Rs.7.15 lakhs. They claimed exemption under section 54 in respect of the capital gains. The Income‑tax Officer denied the claim but the Tribunal accepted it. On a reference:

Held, that there was no dispute about the fact that the assessees were in occupation of the flat on leave and licence basis. It was only on March 16, 1981, that the flat was purchased by the assessees and resold on March 25, 1982. Admittedly, the assessees were in occupation of the said, flat as owners for a period less than two years, i.e. March 16, 1981, to March 25, 1982. Hence, the assessees did not fulfil the requirements of section 54 and were not entitled to exemption under the provision.

Hatneed Jaffery v. CIT (1997) 227 ITR 724 (Bom.) fol.

R. V. Desai with P. S. Jetley for the Commissioner.

B.V. Jhaveri with LL.Patel for the Assessee.

2001 P T D 2037

[239 I T R 561]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and Smt Ranjana Desai, JJ

COMMISSIONER OF INCOME‑TAX

Versus

DR. BECK & CO. (IND.) LTD

Income‑tax Reference No.464 of 1987, decided on 15th June, 1999.

(a) Income‑tax‑‑‑

‑‑‑‑Business expenditure‑‑‑Initial contribution to superannuation fund‑‑­Entitled to deduction‑‑‑Indian Income Tax Act, 1961, S.36(1)(iv).

On the facts and in the circumstances of the case and having regard to the interpretation of section 36(1)(iv) of the Income Tax Act, 1961, and in holding that the assessee was entitled to a deduction of the entire initial contribution to the superannuation fund as a liability in computing the income of the assessee for the assessment years 1977‑78 and 1978‑79.

CIT v. Sirpur‑Paper Mills (1999) 237 ITR 41 (SC) fol.

CWT v. Sharvan Kumar Swarup & Sons (1994) 210 ITR 886 (SC); Dr. Beck & Co.' (India) Ltd. v. CIT (1994) 206 ITR 311 (Born.) and Forbes Forbes Campbell & Co. Ltd. v. CIT (1994) 206 ITR,495 (Bom.) ref.

(b) Income tax----

‑‑‑‑Export markets development allowance‑‑‑Weighted deduction‑‑­Commission paid and expenditure on loading and unloading not entitled to weighted deduction‑‑‑Indian Income Tax Act, 1961, S.35B.

Tribunal was justified in law in holding that the expenses incurred on loading and unloading would not be eligible for weighted deduction under section 35B for the assessment years 1977‑78 and 1978‑79.

Daryani (M.H.) v. CIT (1993) 202 ITR 731 (Born.) and Carona Sahu Co. Ltd. v. CIT (1995) 213 ITR 106 (Born.) fol.

(c) Income-tax----

‑‑‑‑Export markets development allowance‑‑‑Weighted deduction‑‑‑Law applicable‑‑‑Rule 6AA inserted by Income‑tax (Eighth Amendment) Rules, 1981, is not retrospective in operation‑‑‑Not applicable to assessment years 1977‑78 and 1978‑79‑‑‑Expenditure on export inspection charges paid to Government was not entitled to weighted deduction for assessment years 1977‑78 and 1978‑79‑‑‑Indian Income Tax Act, 1961, S.35B.

Weighted deduction under section 35B(1)(a) of the Income Tax Act; 1961, is available to an assessee specified therein only in respect of expenditure incurred wholly and exclusively on the activities specified in any of the sub‑clauses of clause (b). At the material time, i.e., assessment years 1977‑78 and 1978‑79, clause (b) had nine sub‑clauses. Export inspection charges admittedly do not fall under any of the first eight sub‑clauses. The ninth sub‑clause, which is the last sub‑clause, reads as follows: "such other activities for the promotion of the sale outside India of such goods, services or facilities as may be prescribed". No activities were prescribed at first for the purposes of sub‑clause (ix). It was only with effect from August 1, 1981, that certain activities were prescribed for the purposes of sub‑clause (ix) of clause (b) of subsection (1) of section 35B of the Act by insertion of rule 6AA of the Income‑tax Rules, 1962, by the Income‑tax (Eight Amendment) Rules, 1981, as activities for the promotion of sale outside India or the goods, services or facilities, expenditure on which would qualify for weighted deduction under section 35B(1)(a). Rule 6AA is a substantive provision which creates new rights in favour of the assessee. It cannot operate retrospectively. It is not a procedural rule like rule 1BB of the Wealth Tax Rules, 1957. It would, therefore, be applicable only to expenditure incurred by an assessee after August 1, 19$1, when it came into force. It cannot be applied to expenditure incurred prior to that date:

Held accordingly, that it was not necessary for the purposes of the present reference, which pertained to the assessment years 1977‑78 and. 1978‑79 to examine rule 6AA to decide whether expenditure on export inspection charges would qualify for weighted deduction under section 35B.

The Tribunal was justified in holding that the expenditure on export inspection, charges paid to Government agencies was not eligible for weighted deduction under section 35B for the assessment years 1977‑78 and 1978‑79:

Held also, (i) that the Tribunal was justified in holding that the amounts representing commission paid to Dr. Beck & Co. A.G., West Germany, were not eligible for weighted deduction under section 35B for the assessment years 1977‑78 and 1978‑79.

Dr.Beck & Co. (India) Ltd. v. CIT (1993) 202 ITR 922 (Born.) fol. P.S. Jetley with R.V. Desai for tie Commissioner.

A.P. Sathe for the Assessee.

2001 P T D 2134

[239 I T R 418]

[Bombay high Court (India)]

Before Dr. B. P. Saraf and Smt. Ranjana Desai, JJ

COMMISSIONER OF INCOME‑TAX

Versus

JAYPEE DYEING HOUSE

Income‑tax Reference No.343 of 1987, decided on 29th June, 1999

Income‑tax‑‑‑

‑‑‑‑Depreciation‑‑‑Rate of depreciation‑‑‑Higher rate in case of manufacture‑­Assessee dyeing, printing and bleaching artificial silk cloth ‑‑‑Assessee was not engaged in manufacture‑‑‑Not entitled to higher rate of depreciation‑‑­Indian Income Tax Act, 1961, S.32‑‑‑Indian Income Tax Rules, 1962, Appex. I, Part I.

The assessee‑firm carried on the business of dyeing, bleaching and printing of art silk cloth. For the assessment years 1979‑80 and 1980‑81, its claim before the Income‑tax Officer was that, since the assessee was engaged in processing of artificial silk cloth, it was entitled to higher depreciation at the rate of 15 per cent. on the machinery used by it. The Income‑tax Officer did not accept the assessee's claim for depreciation at the higher rate because, in his opinion, the assessee was not doing processing work but was mainly doing the work of blending and bleaching of the cloth. He allowed depreciation at the rate of 10 per cent. only. The Tribunal, however, held that it was entitled to depreciation at the rate of 15 per cent. On a reference:

Held, that the assessee was merely doing bleaching and printing of art silk cloth which was already manufactured by some other person. Admittedly, it was not manufacturing the said silk cloth. By the process of dyeing, printing or bleaching carried out by it, the silk cloth on which the processing was done did not cease to be a textile. No doubt, the silk cloth underwent some chemical changes but it still retained the characteristics and/or properties of a textile. The artificial silk cloth, printed, bleached or dyed by the assessee could not be said to have been manufactured by it therefore, the machinery used for the purpose of dyeing, bleaching and printing of silk cloth obviously did not fall in the category of "artificial silk manufacturing machinery and plant except wooden parts" for. which the higher rate of depreciation is admissible.

CIT v. Fashion Prints Ltd. (1996) 217 ITR 456 (Bom.) fol.

R. V. Desai with P. S. Jetley for the Commissioner.

S. M. Lala with V. H. Patil for the Assessee

2001 P T D 2275

[239 I T R 726]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and Smt. Ranjana Desai, JJ

COMMISSIONER OF INCOME‑TAX

Versus

HADE NAVIGATION (P.) LTD

Income‑tax Reference No.497 of 1987, decided on 22nd June, 1999.

(a) Income‑tax‑‑‑-

‑‑‑‑Assessment‑‑‑Draft assessment order‑‑‑Assessing Officer has no right to issue a second draft order after a draft order has been communicated to assessee under S. 144B.

From the scheme and object of section 144B of the Income Tax Act, 1961, it is clear that so far as the Income‑tax Officer is concerned, the proposed assessment made by him, which is referred to as the "draft assessment order" is final. It is forwarded as a draft order to the assessee only because the variation in the returned income is more than the specified amount, i.e., Rs.1,00,000, with a view to giving him an opportunity to file objections, if he so desires, and to get suitable directions from the Inspecting Assistant Commissioner. If the assessee does not do so within the specified time of seven days or the time extended by the Income‑tax Officer; the Income‑tax Officer is bound to complete the assessment on the basis of the draft order. It is clear from the expression "the Income‑tax Officer shall complete the assessment on the basis of the draft order" contained in subsection (3) of section 144B of the Act that even where objections are received by the Income‑tax Officer, the only function left for him is to forward the objections alongwith the draft order to the Inspecting Assistant Commissioner and to finalise the assessment in terms of the directions of the Inspecting Assistant Commissioner which are binding on him. Once the draft assessment is prepared and the variation in the returned income being more than Rs.1,00,000, the daft order is forwarded to the assessee as required by section 144B, the quasi‑judicial function of the Income‑tax Officer comes to an end. So far as the Income‑tax Officer is concerned, the draft order is the final assessment order. This is clear from the language of subsection (3) of section 144B which clearly provides that if no objections are received within the specified period, he shall complete the assessment on the basis of the draft order. That being so it is not open to the Income‑tax Officer to forward a second draft order to the assessee after the first draft order is communicated.

Panchamahal Steel Ltd. v. U.A. Joshi, ITO (1997) 225 ITR 458 (SC) applied.

(b) Income‑tax‑‑‑

‑‑‑‑Capital gains ‑‑‑Transfer‑‑‑Extinguishment of right in asset‑‑­Extinguishment of asset itself cannot be equated to extinguishment of right in asset‑‑‑Compensation received on destruction of ship‑‑‑Difference between compensation and cost of asset is not assessable as capital gains‑‑‑Indian Income Tax Act, 1961, Ss.2(47) & 45‑‑‑[Banarsidas Bhanot & Sons v. CIT (1981) 129 ITR 488 (MP) and Shahdara (Delhi) Saharanpur Light Railway Co. Ltd. v. CIT (1994) 208 ITR 882 (Cal.) dissented from].

The extinguishment of right in the asset on account of extinguishment of the asset itself is not a transfer of the right in the asset but its destruction. By no stretch of imagination can the destruction of the right on account of the destruction of the‑asset be equated with the extinguishment of right on account of transfer within the meaning of section 2(47) of the Act. The difference between the amount received by the assessee from the insurance company on the destruction of the asset and the cost thereof, therefore, would not be chargeable to tax as capital gains under section 45.

Vania Silk Mills (P.) Ltd. v. CIT (1991) 191 ITR 647 (SC) fol.

Banarsidas Bhanot & Sons v. CIT (1981) 129 ITR 488 (MP) and Shahdara (Delhi) Saharanpur Light Railway Co. Ltd. v. CIT (1994) 208 ITR 882 (Cal.) dissented from.

Sudhir Sareen v. ITO (1981) 128 ITR 445 (Delhi) ref.

R.V. Desai with P.S. Jetley instructed by T.C. Kaushik for the Commissioner.

S.M. Inamdar with P. Vaidya for the Assessee.

2001 P T D 2535

[248 I T R 629]

[Bombay High Court (India)]

Before S. H. Kapadia and A. P. Shah, JJ

COMMISSIONER OF WEALTH TAX

versus

CEMA (P.) LTD.

Wealth Tax Appeal No. 174 of 2000, decided on 28th February, 2000.

Wealth tax‑‑‑

‑‑‑‑Exemption‑‑‑Business asset‑‑‑Building used as a commercial asset‑‑‑Value of building not includible in net wealth‑‑‑Indian Wealth Tax Act, 1957.

Held, that the Tribunal on the facts had come to the conclusion that the property was a business asset. Merely because the property had been leased out for five years, it did not change the commercial character of the asset. Moreover, the returns filed by the assessee right, from the assessment year 1985‑86 clearly indicated that even under the Income Tax Act, 1961, the assessee had been given the benefit of depreciation and the income received by the assessed had been treated as income from business. Hence, the value of the property was not includible in the net wealth of the assessee.

R.V. Desai with J.P. Deodhar for Appellant.

Ms. A. Vissanji with S.J. Mehta for Respondent

2001 P T D 2651

[240 I T R 654]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and Smt. Ranjana Desai, JJ

BHARAT FORGE CO. LTD.

versus

COMMISSIONER OF INCOME‑TAX

Income‑tax Reference No.5 of 1993, decided on 4th August, 1999

Income‑tax‑‑‑

‑‑‑‑Capital or revenue expenditure‑‑‑Expenditure incurred on asphalting existing Kaccha roads‑‑‑Allowable as revenue expenditure‑‑‑Income Tax Act, 1961, S.37.

The assessee, a company spent Rs.10,00,000 on asphalting the Katcha road in its factory premises. The Inspecting Assistant Commissioner held that the expenditure was capital in nature. The Tribunal confirmed the disallowance. On a reference:

Held, that the expenditure was incurred for asphalting the Kaccha roads and hence, it was allowable as revenue expenditure.

CIT v. Chemaux Ltd. (1994) 74 Taxman 201 (Bom.) fol.

P. Vaidya instructed by S.N. Inamdar for the Assessee.

R.V. Desai with P.S. Jetley for the Commissioner.

2001 P T D 2774

[239 I T R 937]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and Dr. Mrs. Pratibha Upasani, JJ

COMMISSIONER OF INCOME‑TAX

versus

MAHINDRA AND MAHINDRA LTD.

Income‑tax Reference No. 104 of 1990, decided on 7th July, 1997.

(a) Income‑tax‑‑‑

‑‑‑‑Business expenditure‑‑‑Remuneration to employees ‑‑‑Superannuation fund‑‑‑Entire initial contribution is deductible‑‑‑Indian Income Tax Act, 196], S.37.

(b) Income‑tax‑‑‑

‑‑‑‑Business expenditure‑‑‑Company‑‑‑Ceiling on expenditure‑‑­Remuneration and perquisites to, employee‑Director‑‑‑Section 40(c) is applicable and not S.40A(5)‑‑‑Indian Income Tax Act, 1961, Ss.40(c) & 40A.

The assessee is entitled to deduction of 100 per cent. of the initial contribution to the superannuation fund.

The Assessing Officer has to apply the provisions of section 40(c) of the Income Tax Act, 1961, instead of section 40A(5) for working out the disallowances out of the remuneration and perquisites paid to the employee ­directors.

CIT v. Hico Products (Pvt.) Ltd. (No.l) (1993) 201 ITR 567 (Bom.) and CIT v. Indian Engineering and Commercial Corporation (P.) Ltd. (1993) 201 ITR 723 (SC) fol.

[The Supreme Court has granted special leave to the Department to appeal against this judgment‑‑‑see (1998) 234 ITR (St.) 29‑‑Ed.].

T.U. Khatri with J.P. Deodhar for the Commissioner.

Nemo for the Assessee.

2001 P T D 2790

[240 I T R 1]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and Mrs. Ranjana Desai, JJ

COMMISSIONER OF INCOME‑TAX

versus

HOECHST DYES AND CHEMICALS (P.) Ltd.

Reference No.338 of 1987, decided on 29th June, 1999.

(a) Income‑tax‑‑‑

‑‑‑‑Depreciation‑‑‑Plant‑‑‑Rate of depreciation‑‑‑Meaning of "plant"‑‑­Electrical fittings and installations of call bell, indicators, etc., would not constitute plant‑‑‑Entitled to depreciation at the rate of 10 per cent.‑‑-Indian Income Tax Act; 1961, Ss.32 & 43‑‑‑Indian Income Tax Rules, 1962. R.5.

It is clear from a plain reading of the first proviso to section 32(l)(ii) of the Income Tax Act, 1961, that where the actual, cost of any machinery or plant does not exceed Rs.750, the actual cost is allowable as a deduction, in the accounting year in which the machinery or plant is installed or put to use by the assessee for the purposes of his business. In other words, in respect of minor items of machinery and plant each costing not more than Rs.750, depreciation is allowed at the rate of 100 per cent. in the very first year: This proviso, however, applies only to plant and machinery and not to furniture and. fittings. On furniture and fittings, the assessee will be entitled to depreciation at the rate prescribed by rule 5 read with Part I of Appendix I to the Income‑tax Rules, 1962, which is ten per cent. "Plant" as such has not been defined in the Act. Section 43(3) of the Act merely contains, an inclusive definition which says that plant shall include ships, vehicles; books; scientific apparatus; and surgical equipment used for the purposes of the business or profession. Obviously it is an inclusive, definition. Its intention is to enlarge the meaning of the depression "plant" occurring in the Act to include not only such items. as are commonly known as "plant" but also those 'which 'are enumerated therein: To decide whether a particular 'item is plant or not one of the ;tests applied is the "common parlance or trade or commercial parlance" test. Another test that is often applied for that purpose is the "functional rest". In common parlance electrical fittings,. etc., are never regarded as "plant". They are ordinary described and referred to as "fitting's". Even applying the dictionary meaning, these items cannot be regarded as "plant" '

Held, accordingly, that electrical fittings and other apparatus like call bell, indicators, etc., installed by the assessee did not qualify as "plant". The Income‑tax Officer was right in holding that these items did not qualify as "plant" but were additions to fittings and allowing depreciation thereon at the rate of ten per cent. which was the rate applicable to "furniture and fittings.

Cole Bros. Ltd. v. Phillips (1982) 55 TC 188 (HL) and Wimpy International Ltd. v. Warland (1988) 61 TC 51 (CA) applied.

(b) Words and phrases‑‑‑

‑‑‑‑"Plant"‑‑‑Meaning.

R.V. Desai with P.S. Jetley for the Commissioner.

J.J. Jain, instructed by T. Pooran & Co. for the Assessee.

2001 P T D 2802

[240 I T R 12]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and S. H. Kapadia, JJ

COMMISSIONER OF INCOME‑TAX

versus

TRUSTEES OF THE TRUST FOR RELATIVES

OF MRS. SUNEETI RAJE A. APTE TRUST

Income‑tax Reference No. 31, of 1987, decided on 10th February, 1999.

Income‑tax‑‑‑

‑‑‑‑Representative assessee ‑‑‑ Trustee ‑‑‑ Assessment‑ ‑‑‑Beneficiaries under trust deed‑‑‑Specified persons with determined shares‑‑‑Section 164(1) not applicable‑‑‑Indian Income Tax Act, 1961, S.164.

The assessee was a trust and under clause 5(b) of the trust deed the beneficiaries were persons who were known and whose shares were specified. The assessee claimed that it was not a discretionary trust and hence the provisions of section 164(1) of the Income Tax Act, 1961, would not apply. The Income‑tax Officer rejected the claim. The Tribunal allowed the claim. On a reference:

Held, that the beneficiaries of the trust were specified persons having determined shares. The income of the trust had been distributed to three beneficiaries. The beneficiaries had included their shares of income in their individual returns and had paid taxes thereon„ Hence, section 164(1) of the Act was not applicable.

R.V. Desai with B.M. Chattarjee for the Commissioner

2001 P T D 2806

[240 I T R 16]

[Bombay High Court (India)]

Before Dr. B.P. Saraf and Mrs. Ranjana Desai, JJ

COMMISSIONER OF INCOME‑TAX

versus

HINDUSTAN CONDUCTORS (P.) LTD.

Income‑tax Reference No.603 of 1987, decided on 23rd July, 1999

Income‑tax‑‑‑--

‑‑‑‑Interest on borrowed capital‑‑‑Interest on original loan plus interest which had accrued over several years‑‑‑Part of such interest disallowed by Assessing Officer‑‑‑Rate of interest reduced to fifteen per cent. in relevant accounting year‑‑‑Disallowance of part of interest in prior years did not result in amount ceasing to be payable to creditor‑‑‑Interest on .balance which included accrued interest was deductible‑‑‑Indian Income Tax Act, 1961, S.36.

The assessee was a private limited company. The shares of the assessee were held by the member of a single family. In its assessment for the assessment year 1978‑79 relevant to the previous year ended on April 30, 1977, the assessee claimed deduction of a sum of Rs.1,34,045 towards finance charges payable to one D.D. Foundation Trust. Under an agreement, dated March 5, 1967, the assessee had received a loan of Rs.2,00,000 from the said trust. Under the agreement between the assessee and the trust, the assessee agreed to pay finance charges calculated at the rate of 1 per cent. of the turnover or Rs.30,000 whichever was higher as a return for the loan advanced by the trust to the assessee. The assessee had been crediting finance charges every year in the account of the trust. These finance charges were allowed as a deduction in the assessment years prior to the assessment year 1975‑76. In the assessment for the assessment year 1975‑76, the Income‑tax Officer found that the trust was founded by D, who was a senior member of the group of the shareholders known as "Apar Group" and the affairs of the said trust, which was a public charitable trust, were controlled by the founder of the assessee‑company through his kith and kin. According to the Income‑tax Officer, the payment by way of financing charges at a most exorbitant rate was not wholly by way of interest. He, therefore, allowed finance charges calculated at the rate of 15 per cent. of the‑amount borrowed as interest on borrowing under section 36(1)(iii) of the Income Tax Act, 1961, and disallowed the balance. In view of the above findings, the Income-­tax Officer reopened the assessments of the assessee for the assessment years 1969‑70 to 1971‑72 and disallowed part of the amount paid by way of finance charges to the trust which was in excess of 15 per cent. of the sum borrowed. This was upheld by the High Court. During the previous year relevant to the assessment year 1978‑79, the assessee modified the original agreement. As a result, the payment of finance charges was restricted to 15 per cent. of the outstanding amount of loan. In fact, by addition of the proviso, the assessee accepted the finding of the Income‑tax Officer in the earlier assessment years that the interest, in the facts and circumstances, was only an amount calculated at the rate of 15 per cent. per annum of the amount borrowed and the excess was not interest but payment for extra commercial considerations. In the previous year relevant to the assessment year under consideration, the credit balance in the account of the trust was Rs.7,51,238, which represented the amount of original loan plus accrued interest over the years, The assessee claimed a sum of Rs.1,34,045 as deduction on account of finance charges calculated at the rate of 15 per cent. on the total outstanding amount of Rs.9,51,233. The Income‑tax officer, however, restricted the claim to 15 per cent. on the amount of Rs.2,00,000 plus the accumulated outstanding finance charges, which were allowed by him in the past. He, therefore, allowed a sum of Rs.48,000 and disallowed the balance. The above order of the Income‑tax Officer was reversed by the Commissioner (Appeals). The appeal of the Revenue was also dismissed by the Tribunal. On a reference:

Held, that disallowance of any pan of the finance charges in any of the earlier assessment years by the Income‑tax Officer did not mean that the amount ceased to be payable to the trust under the agreement. In the instant case, the amount was credited to the account of the trust. No amount was paid to the trust in the past. It could have been paid. There was no legal bar on that. In any event, the amount of loan with accumulated finance charges was the amount due to the trust which the trust was free to withdraw at any time and invest in whatever manner it thought fit. The trust was, therefore, entitled to interest on the amount outstanding to its credit in the .accounts of the assessee. That being so, the finance charges should have been calculated on the outstanding amount of loan with accrued finance charges. The Tribunal was justified in holding that the payment representing finance charges on the loan taken from D.D. Foundation Trust and on accumulated finance charges was allowable as deduction for the assessment year 1978‑79.

Riches v. Westminster Bank Ltd. (1947) AC 390 (HL) ref.

R.V. Desai with P.S. Jetley for the Commissioner.

S.J. Mehta with I.M. Munim and Ms. A. Vissanji for the Assessee.

2001 P T D 3024

[240 I T R 74]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and Sm. Ranjana Desai, JJ

COMMISSIONER OF INCOME‑TAX

Versus

MELAUTO INDUSTRIES (P.) LTD.

Income‑tax Reference No. I of 1989, decided on 26th July, 1999.

Income‑tax‑‑‑

‑‑‑‑Business expenditure ‑‑‑Ceiling on expenditure ‑‑‑Company‑‑­Remuneration to Director‑‑‑Commission paid to proprietary concern belonging to Director‑‑‑Finding that commission paid was not excessive or unreasonable ‑‑‑Commission could not be taken into account for purposes of computing ceiling under provisions of S.40(c) or S.40A(5) ‑‑‑Indian 'Income Tax Act, 1961, Ss.40(c) & 40A(5).

The assessee was a private limited company which was manufacturing various types of forgings, industrial fasteners and automobile spare parts including general engineering goods. P was the managing director of the assessee. He was paid a salary of Rs.5,400 per annum and perquisites. He was also the proprietor of a concern called P & Co. P & Co. was the selling agent of the products of the assessee under an agreement, dated August 23; 1974. During the assessment year 1974‑75, the assessee had paid Rs.5,400 as salary to P. It had also paid commission of Rs.1,24,969 to P. & Co. The Income‑tax Officer included such commission ‑and applied section 40A(5) of the Income Tax Act, 1961, for finding out the allowable salary. Following the earlier orders of the Income‑tax Appellate. Tribunal in the case of the assessee for the years 1975‑76 to 1977‑78, in appeal the Commissioner of Income‑tax (Appeals) held that the amount paid to P & Co., was not covered by section 40A(5). The Tribunal dismissed the appeal filed by the Revenue. On a reference:

Held, that, in the instant case, there was no controversy in regard to the factum of genuineness of the payment or the reasonableness thereof having regard to the legitimate business needs of the assessee. The commission of Rs.1,24,969 paid by the assessee to P. & Co. would neither be covered under section 40A(5) nor under section 40(c).

Prakash Beedies (P) Ltd. v. CIT (1993) 201 ITR 1063 (SC) applied.

Pai Paper and Allied Industries (Pvt.) Ltd. v. CIT (1994) 207 ITR 410 (Bom.) fol.

R.V. Desai with P.S. Tetley for the Commissioner. V.B. Patel for the Assessee.

2001 P T D 3039

[240 I T R 101]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and Mrs. Ranjana Desai, JJ

COMMISSIONER OF INCOME-TAX

Versus

J.N. VAS

Income-tax Reference No.600 of 1987, decided on 20th July, 1999.

Income-tax---

----Salary---Perquisite---Retired employee appointed as technical, consultant for a Company---Employer purchasing from LIC single premium annuity policy---Premium paid to LIC not includible in salary income---Indian Income Tax Act, 1961, S.15.

The assessee retired from employment but pursuant to an agreement was appointed as a technical consultant in the same company in consideration of the annuity of Rs.50,000 to be taken out by the company in addition to the monthly consultation fee of Rs. 600 for the accounting years ending March 31, 1977 and March 31, 1978. In accordance with the agreement, the company purchased from the LIC a single premium annuity policy by paying a sum of Rs.24,000 on March 1, 1977, and the second policy on March 22, 1979. The Income-tax Officer included the premiums paid by the company in the salary income of the assessee. The Tribunal held that it was not taxable. On a reference:

Held, that as per the single premium annuity policy, dated March 1, 1977, the annuity was to vest in the assessee on March 1, 1981, and it was to cease on the expiry of five years from the date on which the annuity vested in the assessee. As per the second policy, dated March 22, 1979, the annuity was to vest in the assessee on October 23, 1983. Therefore, in the previous years ending March 31, 1977 and March 31, 1978, the amount of premiums paid towards single premium insurance policy did not vest in the assessee. Accordingly, these amounts could not be included in the salary income.

CIT v. L.W. Russel (1964) 53,ITR 91 (SC) and Doshi (J.H.) v. CIT (1995) 212 ITR 211 (Bom.) ref.

R.V. Desai with P.S. Jetley for the Commissioner.

Nemo for the Assessee.

2001 P T D 3067

[240 I T R 154]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and A. Y. Sakhare, JJ

MONT BLANC PROPERTIES AND INDUSTRIES (PVT.) LTD

Versus

INCOME-TAX APPELLATE TRIBUNAL and others

Writ Petition No.796 of 1998, decided on 22nd June, 1998

Income-tax---

----Reference---Writ---Maintainability of writ petition---Reference applications under Ss.256(1) & 256(2) dismissed---Special leave petition against dismissals rejected---Order of Tribunal became final---Writ petition to set aside order of Tribunal was not maintainable---Indian Income Tax Act, 1961, S.256---Constitution of India, Art.226.

Held, dismissing the writ petition that the challenge to the order of the Tribunal having been turned down by the Supreme Court by the rejection of the special leave petition, that order had become final. Despite that, the petitioners tried to get that very order set aside by the Tribunal by starting another round of litigation before the Tribunal by filing miscellaneous petitions. That attempt also was foiled by the Tribunal by rejecting the applications and also the reference application taken out by the petitioners against the same. The petitioners did not proceed further in the matter. By this writ petition, the petitioners now seek to have a third round to get the order of the Tribunal set aside which had attained finality by rejection of the special leave petition by the Supreme Court and that too after two and half years had elapsed after the order of the Tribunal on the miscellaneous application and rejection of the reference application against the same by the Tribunal. The petition was misconceived and was liable to be rejected.

S.E. Dastur with Murlidharan and Ashok Kotangale instructed by A. Kotangale & Co. for Petitioner.

J.P. Deodhar with P.S. Jetley for Respondents.

2001 P T D 3076

[240 I T R 167]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and Mrs. Ranjana Desai, JJ

COMMISSIONER OF INCOME-TAX

Versus

JAM MANUFACTURING CO. LTD.

Income-tax Reference No.655 of 1987, decided on 14th July, 1999.

Income-tax---

----Business expenditure---Fines and penalties. Employees provident fund---Amount of damages for delay in payment of contributions---Whether compensatory or penal in Pature---Matter remanded---Employees' Provident Funds and Miscellaneous Provisions Act, 1952, S. 14B.

The amount of damages for delayed payment of contribution under section 14B of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, comprises both the element of penal levy as well as compensatory payment and it will be for the authority under the Act to decide with reference to the provisions of that Act and the reasons given in the order imposing and quantifying the damages to determine what proportion should be treated as penal and what proportion as compensatory:

Held, that since the matter was not examined by the Tribunal in the light of the principle stated above, the matter had to be remanded to the Tribunal for fresh consideration.

Swedeshi Cotton Mills Co. Ltd. v. CIT (1998) 233 ITR 199 (SC); (1998) 93 FJR 461 (SC) and Prakash Cotton Mills (P.) Lid. v. CIT (1993) 201 ITR 684 (SC) and (1993) 82 FJR 546 (SC) fol.

R. V. Desai with P. S. Jetley for the Commissioner.

Nemo for the Assessee.

2001 P T D 3077

[240 I T R 244]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and S. H. Kapadia, JJ

COMMISSIONER OF INCOME‑TAX

Versus

INDIAN SMELTING AND REFINING CO. LTD.

Income‑tax Application No.74 of 1998, decided on 2nd February, 1999.

(a) Income‑tax‑‑‑

‑‑‑‑Reference‑‑‑Business expenditure‑‑‑Ceiling on expenditure‑‑‑Leave salary paid above limit prescribed under S 10 (10AA)‑‑‑Whether includible for purposes of disallowance under S.4QA(5)‑‑‑Question of law‑‑‑Indian Income Tax Act, 1961, Ss. 10, 40A & 256.

Question whether, on the facts and in the circumstances of the case and in law, the Tribunal was right in holding that the leave salary paid above the limit prescribed under section 10(1 OAA) of .the Income Tax Act, 1961, was exempt and not includible for the purposes of disallowance under section 40A(5) had to be referred to the High Court.

(b) Income‑tax‑---

‑‑‑‑Reference‑‑‑Depreciation‑‑‑Extra shift allowance‑‑‑Fork‑lift trucks‑­Finding by Tribunal that fork‑lift trucks were not covered by Entry (9A) of Para. III‑D of old Appendix I‑‑‑Even otherwise assessee was entitled to depreciation on them at the rate of 30 per cent. ‑‑‑Question whether fork‑lift trucks fell under Entry (9A) of Para. III‑D of old Appendix I was academic and could not be referred‑‑‑Indian Income Tax Act, 1961, Ss.32 & 256‑‑­Indian Income Tax Rules, 1962, Appendix I, Part I, Para. III‑D.

Tribunal had come to the conclusion that a fork‑lift truck cannot be equated to harvesting combines and, therefore, fork‑lift truck was not covered by Entry (9A) of Part I, para. III‑D of old Appendix I to Income Tax Rules, 1962. In any event, even if fork‑lift truck stood covered by Entry (9A) as contended by the Revenue, the assessee was entitled to claim depreciation at the rate of 30 per rent. The said rate is mentioned against Entry (9A) of Part I, para. III‑D of the old Appendix I. On the other hand, depreciation was allowed only at the rate of 10 per cent. The question whether fork‑lift trucks fell under Entry (9A) of Part I, para. III‑D of old Appendix I was academic and could not be referred.

P. S. Jetley with R. V. Desai instructed by L. S. Shetty for Applicant.

S.J. Mehta with I.M. Munim and Ms. A. Visanji for Respondent.

2001 P T D 3296

[240 I T R 427]

[Bombay High Court (India)]

N. P. ChapalgaonkarandR.K. Batta, JJ

Smt. LAXMIBAI A. WAGLE through Legal Representatives

Versus

INCOME‑TAX OFFICER and another

Writ Petition No.209 of 1991, decided on 30th March, 1999

Income-tax-----

‑‑‑‑Reassessment‑‑‑Notice‑‑‑Notice need not specify whether it is under S.147(a) or 147(b)‑‑‑Notice need not give reasons for reassessment which have been recorded‑‑‑Failure to disclose material facts necessary for assessment‑‑‑Information that income has escaped assessment‑‑‑Amount shown in 'returns but claimed to be exempt as capital receipts‑‑‑Claim accepted at the time of original assessment‑‑‑Reassessment proceedings to assess receipts were not valid either under S.147(a) or S.147(b)‑‑‑Indian Income Tax Act, 1961, S.147.

Section 147 of the Income Tax Act, 1961, as it stood before the amendment, which came into effect from April 1, 1989, permitted the re­opening of assessment only if (a) the Assessing Officer has reason to believe that there is an omission on the part of the assessee to make a return under section 139 for any assessment year to the Assessing Officer or to disclose fully and truly all material facts necessary; (b) even if there is no such failure on the part of the assessee, the Assessing Officer has, in consequence of information in his possession, reason‑to believe that the income chargeable to tax has escaped assessment for any assessment year. The Income‑tax Act is a taxing statute. The provisions of this Act will have to be construed strictly. Therefore, unless there is a clear case, which would give the Assessing Officer the jurisdiction to re‑open the assessment under section 148 read with section 147 of the Act it would not be valid and proper to re‑open an assessment.

Section 148 deals with the requirement to issue notice before an assessment or reassessment is made under section 148 and subsection (2) makes it mandatory on the Assessing Officer, before issuing any notice under that section, to record the reasons for doing so. Requirement of recording reasons, may be for different purposes. Requirement of recording reasons, in a speaking and reasoned order is different from the requirement of recording reasons before an authority re‑opens a case. They are to be recorded to ensure that the Assessing Officer has applied his mind and has considered the material which permits him to re‑open the case. In judicial scrutiny, the Court would be entitled to examine those reasons, but the notice under section 148 is not required to contain the reasons recorded by the Assessing Officer.

The assessee owned various properties including agricultural lands. For the assessment years 1984‑85 to 1988‑89, she had disclosed in the income‑tax as well as in the wealth tax returns that she had received various sums from M/s. Zuari Agro Chemicals Ltd., in consideration of the Water drawn by them from the source located in the agricultural land and it was also stated that the amount was not taxable under the Income‑tax Act. Thereafter, in March, 1991, a notice was issued to, the assessee seeking to assess the receipts from water. On a writ petition to quash the notice:

Held, that the facts relating to this case were not in dispute. The income which the assessee received from M/s. Zuari Agro Chemicals Ltd. for the sale of water from a source which was situated in the agricultural' land, was disclosed. It was contended that they were capital receipts, and hence not taxable. The position was accepted by the Assessing Officer. No fresh information was received by the Assessing Officer regarding the receipts. The notice of reassessment was not valid and was liable to be quashed.

A.L.A Firm. v. CIT (1991) 189 ITR 285 (SC); Calcutta Discount Co. Ltd. v. ITO (1961) 41 ITR 191 (SC); Coca‑Cola Export Corporation v. ITO (1998) 231 ITR 200 (SC); CIT v. Rasiklal C. Nagri (1992) 193 ITR 665 (Guj.); Indian and Eastern Newspaper Society v. CIT. (1979) 119 ITR 996 (SC) and Maharaj Kumar Kamal:Singh v. CIT (1959) 35 ITR 1 (SC) ref.

(b) Interpretation of statutes‑‑‑

‑‑‑‑ Strict construction of provision.

V.K. Bodke for Petitioners.

S.R. Rivonkar, Additional Central Government Standing Counsel for Respondents:

2001 P T D 3463

[240 I T R 528]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and Snit. Ranjana Desai, JJ

COMMISSIONER OF INCOME‑TAX

Versus

INDIAN PLASTICS LTD.

Income‑tax Reference No.3 of 1990, decided on 2nd August, 1999.

Income‑tax‑­

‑‑‑‑Business expenditure‑‑‑Ceiling on expenditure‑‑‑Entertainment expenditure‑‑‑Law applicable‑‑‑Effect of insertion of Expln. 2 to S.37(2A) by Finance Act, 1983, with retrospective effect from 1‑4‑1976‑‑‑Amount spent on providing tea, coffee and meals to customers in accounting year relevant to assessment year 1977‑78 constituted entertainment expenditure‑‑­ Indian Income Tax Act, 1961, S.37(2A).

There has been an enlargement of the meaning of "entertainment expenditure" by insertion of Explanation 2 to subsection (2A) of section 37. of the Income Tax Act, 1961, by the Finance, Act, 1983, with retrospective effect from April 1, 1976. By this Explanation the meaning of entertainment expenditure in subsection (2A) of section 37 has been enlarged to include expenditure on provision of hospitality of every kind by the assessee to any person whether by way of provision of food and beverages or in any other manner. As a result, in relation to expenses for the assessment year 1977‑78 and subsequent assessment years, such expenditure ‑would be treated as "entertainment expenditure" within the meaning‑of subsection (2A) of section 37 of the Act and deductibility thereof has to be decided in the light of the restrictions contained therein.

CIT v. Patel Brothers & Co. Ltd. (1995) 215 ITR 165 (SC) ref.

R.V. Desai with P.S. Jetley for the Commissioner.

J. Jain, instructed by Mulla and Mulla and Craigie Blunt and Caroe for the‑Assessee.

2001 P T D 3510

[240 I T R 597]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and SM. Ranjana Desai, JJ

COMMISSIONER OF INCOME‑TAX

Versus

UNITED COMPUTERS CERVICES (P.) LTD.

Income‑tax Reference No. 127 of 1989, decided on 9th August, 1999.

Income‑tax‑‑‑

‑‑‑‑Depreciation‑‑‑Extra‑shift allowance‑‑Computers ‑‑‑Exra‑shift allowance cannot be claimed in respect of computers ‑‑‑Indian Income Tax Act, 1961, S.32‑‑‑Indian Income Tax Rules, 1962, R. 5.

No extra‑shift allowance is allowable in respect of any item of plant and machinery which has been specifically excepted by inscription of the letters N.E.S.A. In entry C(3) of sub‑item (ii) of Category III in Part I of Appendix I to the Income Tax Rules, 1962, which contains the rate of depreciation for "data processing machines including computers", inscription of letters N.E.S.A. is there. Therefore, computers are specifically excepted from allowance of extra‑shift allowance. In view of such express prohibition against allowance of extra‑shift allowance, no extra‑shift allowance can be allowed on computers.

CIT v. Paresh S. Shah (1999) 238 ITR 254 (Bom.) fol.

R.V. Desai with P.S. Jetley for the Commissioner.

Nemo for the Assessee.

2001 P T D 3524

[240 I T R 762]

[Bombay High Court (India)]

Before Dr. B. P. Saraf arid Sm., Ranjana Desai, JJ

COMMISSIONER OF INCOME‑TAX

Versus

HINDUSTAN CONDUCTORS (PVT.) LTD.

Income‑tax Reference No. 3 f 1987, decided on 13th July, 1999.

(a) Income‑tax‑‑‑

Interest on borrowed capital‑‑‑Meaning of "interest"‑‑Assessing Officer extra amount paid as interest for non‑commercial reasons‑‑‑ Amount of rupees two lakhs borrowed from charitable trust founded by Director of assessee‑company‑‑‑Amounts of more than rupees one and a half lakhs a year paid as finance charges in two years‑‑‑Loan continuing beyond agreed date of re‑payment‑‑‑Assessing Officer was justified in disallowing interest in excess of fifteen per cent. per annum on borrowed money‑‑‑Indian Income Tax Act, 1961, S.36(1)(iii).

"Interest" is the return or compensation for the retention by one person of a sum of money belonging 'to or owed to another. The essence of interest is that it is a payment which becomes due because the creditor has not had his money at the due date. It may be regarded either as representing the profit he might have made if he had the use of the money, or conversely, the loss he suffered because he had not that use. The general idea is that he is entitled to compensation for the deprivation. It is only interest in the above sense which is deductible under section 36(1)(iii) of the Income Tax Act, 1961 If in the garb of interest something more is paid over and above "interest", that something cannot be allowed as deduction under this section. What is allowable as a deduction under section 36(1)(iii) of the Act is any sum paid by way of interest in the commercial sense. There can be no straitjacket formula. The Income‑tax Officer cannot refuse to allow the deduction of interest on the ground that the rate of interest is high or that the assessee could have borrowed money at lower rate .of interest. But if the Income‑tax Officer comes to a finding that what is claimed as deduction by way of interest is, in fact, not wholly payment by way of interest but partly interest and partly payment of non‑commercial considerations, he may allow the deduction of the amount which is interest and disallow the balance which is for extra commercial considerations.

Dharamvir Dhir v. CIT (1961) 42 ITR 7 (SC) applied.

The assessee was a private limited company. The shares of the assessee‑company were held by the members of a single family. The assessee‑company took a loan of Rs.2 lakhs from a trust F. The assessee was liable to pay finance charges to the trust for the amount of loan. During the previous year relevant to the assessment years 1969‑70. 1970‑7? and 1971‑72, the assessee credited Rs. 1,54,884, Rs. 1,70,848 and Rs.82,120, respectively, to the account of the trust as finance charges for a loan of Rs.2 lakhs and claimed the same as deduction in the computation of its income of the respective years. The claim was allowed by the Income‑tax Officer. However, while completing the assessment of the assessee for the assessment year 1975‑76, the Income‑tax Officer found that the trust was founded by one D, who was a senior member of the group of shareholders, known as. "Apar Group" and the affairs of the trust, which was a charitable trust, were controlled by "T" the founder of the assessee‑company, through his kith and kin. The Income‑tax Officer was oaf the opinion that payment of finance charges at exorbitant rates was not by way of interest but for extraneous considerations. The Income‑tax Officer held that the payment of finance charges at the rate of 15 per cent. per annum on the amount borrowed could be considered reasonable. He, therefore, allowed finance charges calculated at the rate of 15 per cent. per annum as interest under section 36(1)(iii) and disallowed the amount credited as finance charges in excess thereof. On the basis of the above information, the assessments for the assessment years 1969‑70, 1970‑71 and 1971‑72 were reopened under section 147(4,'1 of the Act and finance charges at the rate of 15 per cent. per annum as interest was allowed and the amount credited to the account of the trust by way of finance charges in excess thereof was disallowed. The Commissioner (Appeals) allowed the appeal of the assessee which was upheld by .the Tribunal. On a reference:

Held, that the admitted position was that there had been no re­payment of the loan on or before the due date, viz., March 31; 1972. It remained with the assessee for years. It appeared in the accounts of the assessee for the assessment year 1979‑80. There was also no dispute about the fact that the trust was founded by one of the directors of the assessee­ company. Admittedly, all the shares of the assessee-company were held by the members of one family of which the said director was a senior member. There was nothing on record to show that the assessee's financial condition justified borrowing a sum of Rs.2 lakhs on the terms set out in the agreement as a result of which, it was required to pay for borrowing a sum of Rs.2 lakhs, Rs.1,54,884 as finance charges in one year, Rs.1,70,848 in the second year and Rs.82,120 in the third year and to keep the amount for years even after the due date of re‑payment, vii., March 31, 1972, on such stringent terms of payment of finance charges. It was obvious that the object was to pay certain amount to the trust for considerations other than commercial. In the circumstances, the Income‑tax Officer was justified in holding that part of the amount credited to the account of the trust by way of finance charges could be regarded as interest on borrowings and to disallow the balance as payment on account of extra commercial considerations.

(b) Words and phrases‑‑

‑‑‑‑‑ Interest"‑‑‑Meanings.

Riches v. Westminster Bank Ltd. (1947) SC 390 (HL) ref.

R. V. Desai with P. S. Jetleyfor the Commissioner.

S.J. Mehra with I.A. Munium and Ms. A. Visinji for the Assessee.

2001 P T D 3545

[240 MR 688]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and D. K. Deshmukh, JJ

SABLE WAGHIRE TRUST and another

Versus

S.R. ACHYUTA RAO and another

Writ Petition No. 5034 of 1990, decided on 31st August, 1999.

Income‑tax‑‑‑

‑‑‑‑Re‑assessment‑‑‑Notice‑‑‑Writ‑‑‑Writ petition challenging notice of re­assessment and documents filed supporting such challenge‑‑‑No appearance on behalf of revenue and no counter‑affidavit filed through petition had been pending for about ten years‑‑‑Notice had to be quashed‑‑‑Indian Income Tax Act, 1961, Ss. 147 & 148‑‑‑Constitution of India, Art. 226.

If the existence of the conditions precedent for issuance of notice: under section 148 of the Income Tax Act, 1961, is challenged by an assessee before the Court on oath, it is for the Income‑tax Officer to satisfy the Court about the existence of the conditions precedent by filing an affidavit and/or producing relevant records. If on a consideration of the said material the Court is satisfied that the conditions precedent did exist at the time the notice was issued the challenge may be turned down by the Court. In the absence of any material placed by the Income‑tax Officer to disprove the challenge of the assessee to the existence of the conditions precedent, the writ petition cannot be dismissed:

Held, that in the instant case the writ petition was admitted and rule was issued by the Court on being prima facie satisfied that if the averments of the petitioners in the writ petition challenging the jurisdiction of the Income‑tax Officer were accepted, the notice under section 148 of the Act might not be tenable About ten years had passed since the rule was issued. Allegations had been made against the Income‑tax Officer that he had issued the notice without authority of law with mala fide intention of conducting a fishing enquiry. The Income‑tax Officer had chosen not to appear in the present case, and he had not filed‑any counter‑affidavit. He had also not produced any record before the Court. The only material on the basis of which decision had to be made was the record of the petition which contained the petition and the documents filed with the petition and the documents that had been placed in the petition substantiated the allegations made in the petition. The notice under section 148 had to be quashed.

Madhya Pradesh Industries Ltd. v. ITO (1965) 57 ITR 637 (SC) and Devji Ravji Patel v. Balasu aniam (1994) 210 ITR 925 (Bom.) fol.

C.S. Rawjee v. State of Andhra Pradesh 'AIR 1964 SC 962 ref.

P.J. Pardiwala instructed by Rustamji and Ginwala for Petitioners.

Nemo for Respondents.

2001 P T D 3602

[240 I T R 624]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and Mrs. Ranjana Desai, JJ

COMMISSIONER OF INCOME‑TAX

versus

CHEMET

Income‑tax Reference No. 144 of 1989, decided on 26th July, 1999.

Income-tax--

------Business expenditure‑‑‑Disallowance of expenditure‑‑‑Travel expenses of employees‑‑‑Miscellaneous expenses and local and other conveyance expenses of employees on tour for conducting assessees business‑‑‑Not travel expenses within the meaning of R.6D‑‑‑Are to be excluded from computation of disallowance under R.6D‑‑‑Indian Income Tax Act, 1961‑‑­Indian Income Tax Rules, 1962, R.6D.

Miscellaneous expenses and local and other conveyance expenses which are incurred by the employees on tour for conducting the assessee's business cannot be considered as travelling expenses of the employee under rule 6D of the Income Tax Rules, 1962. Hence, these amounts are to be excluded while computing the disallowance under rule 6D.

CIT v. Gannon Dunkerly & Co. (1993) 114 CTR 56 (Bom.) fol.

R.V. Desai with P.S. Jetley for the Commissioner.

S.M. Lala for the Assessee.

2001 P T D 3835

[241 I T R 865]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and D. K. Deshmukh, JJ

K. SUDHAKAR S. SHANBHAG

Versus

INCOME‑TAX OFFICER

Writ Petition No. 1150 of 1994, decided on 30th August, 1999

(a) Income‑tax‑‑‑

‑‑‑‑Reassessment‑‑‑Scope of reassessment‑‑‑Reassessment proceedings are for benefit of Revenue‑‑‑Income for purposes of reassessment cannot be reduced below income assessed originally‑‑‑Indian Income Tax Act, 1961, 5.147.

(b) Income‑tax‑‑‑

‑‑‑‑Reassessment‑‑‑Advance tax‑‑‑Failure to submit returns‑‑‑Reassessment proceedings stated against assessee‑‑‑Assessee filing returns showing income on which tax payable is less than amount paid as advance tax‑‑‑Advance tax had lost its character and had to be treated as income‑tax for relevant assessment year ‑‑‑Assessee could not claim that reassessment proceedings should be completed and income‑tax liability reduced‑‑‑Claim of assessee for refund of excess tax paid cannot be entertained‑‑‑Indian Income Tax Act, 1961, Ss.219 & 147‑‑‑Constitution of India, Art. 226.

The proceedings under section 147 of the Income Tax Act, 1961, are for the benefit of the Revenue and not of the assessee and the assessee cannot be permitted to convert the reassessment proceedings as his appeal or revision, in disguise, and seek relief in respect of items earlier rejected or claim relief in respect of items not claimed in the original assessment proceedings, unless relatable to escaped income and reagitate concluded matters. It is further clear that allowance of such claim in respect of escaped assessment in the case of reassessment has to be limited to the extent to which they reduce the income to that originally assessed. The Supreme Court has categorically held that the income for the purpose of reassessment cannot be reduced below the income originally assessed.

Any sum paid by or recovered from the assessee as advance tax shall be treated as payment of tax in respect of the income of the period which would be the previous year for an assessment for the assessment year next following the financial year in which it was payable. Once the amount of advance tax is treated as payment of tax in respect of the income of the relevant previous year, the amount loses its character of advance tax and is treated as income‑tax paid in respect of the income of the relevant previous year.

The petitioner was an individual. For the assessment year 1987‑88, he paid in three instalments, a sum of Rs.66,750 by way of advance tax. Similarly, for the assessment year 1988‑89, he paid by way of advance tax, a sum of Rs.51,709. No return, however, was submitted under section 139 of the Act for any of the above two assessment years. On March 23, 1991, the petitioner received two notices from the Income‑tax Officer, Satara, under section. 148 of the Act for these two assessment years. The petitioner submitted returns declaring income of Rs.1",02,700 and Rs.75,200 for the assessment years 1987‑88 and 1988‑89, respectively. The tax due from the petitioner on the basis of the returns submitted pursuant to the notices under section 148 of the Act was less than the advance tax paid by him by Rs.34,200 and Rs.30,212 for the assessment years 1987‑88 and 1988‑89, respectively. The Income‑tax Officer did not make any assessment order and dropped the proceedings initiated under section 147 of the Act. On the expiry of the time‑limit for completion of assessment proceedings pursuant to the above notice under section 148 of the Act, the petitioner claimed refund of the advance tax' paid or the difference between the advance tax and the amount due as per returns submitted pursuant to the notices under section 148. As the application for refund was barred by limitation under section 239 of the Act, he applied to the Central Board of Direct Taxes to condone the delay in filing the same: The said application was rejected by the Board: The petitioner, therefore, filed a writ petition seeking a direction to the Income‑tax Officer to bring the proceedings under section 147 of the Act to a logical end by completing the assessment and refunding the excess tax paid by him by way of advance tax:

Held, dismissing the petitioner, that the petitioner could not claim that the Income‑tax Officer should complete proceedings for assessment of escaped income and reduce income‑tax liability of the petitioner below the amount of the advance tax paid by him which had attained the character of tax paid by him on the income of those years. The petitioner was not entitled to any relief.

CIT v. Indian Rare Earth Ltd. (1990) 181 ITR 22 (Bom.); CIT v. Sun Engineering Works (P.) Ltd (1992) 198 ITR 297 (SC); Jaganmohan Rao (V.) v. CIT/ETP (1970) 75 ITR 373 (SC); Kamalpur (Assam) Tea Estate (Pvt.) Ltd. v. Superintendent of Taxes (1989) 175 ITR 142 (Gauhatil and Modi Industries Ltd. v. CIT (1995) 216 ITR 759 (SC) ref, Atul K. Jasani and Pramod Vaidya for Petitioner.

Nemo for Respondent.

2001 P T D 31

[238 I T R 57]

[Calcutta High Court (India)]

Before Y.R. Meena, J

BRITANNIA INDUSTRIES LIMITED

versus

DEPUTY COMMISSIONER OF INCOME‑TAX and others

Writ Petition No. 1603 of 1995, decided on 17th November, 1998.

Income‑tax‑‑‑

‑‑‑‑Reassessment‑‑‑Capital gains‑‑‑Amount of capital gains shown in return and accepted by Assessing Officer‑‑‑Subsequent report by Valuation Officer that fair market value of property was greater than that disclosed‑‑‑No evidence of understatement of consideration for transfer of property‑­Reassessment proceedings on the basis of such report was not valid‑‑‑Indian Income Tax Act, 1961, Ss.45 & 147.

Although section 52(2) of the Income Tax Act, 1961, has been omitted from the statute the fact remains that in case of transfer of assets no capital gain tax can be taxed over and above the capital' gain shown and disclosed by the assessee unless there is evidence that there has been an understatement by the assessee and more consideration has passed than disclosed. A valuation report is only an opinion, but that does not show or prove that there is some underhand dealing and consideration has passed more than what is disclosed by the assessee or the petitioner. When no tax or any addition can be made on. the basis of the valuation report, the Assessing Officer cannot assume jurisdiction under section 148 of the Income Tax Act, 1961, to issue notice for escaped capital gain as no addition can be made on the basis of the fair market value of the property in case of capital gain tax.

Brooke Bond Lipton India Ltd. v. CIT (1996) 222 ITR 540 (Cal.); Calcutta Discount Co. Ltd. v. ITO (1961) 41 ITR 191 (SC); Indian‑ Oil Corporation v. ITO.(1986) 159 ITR 956 (SC); Indo Asahi Glass Co. v. ITO (4996) 222 ITR 534 (Cal.); ITO v. Selected Dalurband Coal Co. (Pvt.) Ltd. (1996) 217 ITR 597 (SC); Phool Chand Bajrang Lal v. ITO (1993) 203 ITR 456 (SC); Rattan Gupta v. Union of India (1998) 234 ITR 220 (Delhi) and Varghese (K.P.) v ITO (1981) 131 ITR 597 (SC) ref.

Dr. Debiprosad pal and Miss Manisha Seal for Petitioner.

Prodosh Kumar Mallick and P.K. Bhowmick for Respondents.

2001 P T D 55

[238 I T R 13]

[Calcutta High Court (India)]

Before Ajoy Nath Ray, J

SHAW WALLACE & CO. LTD.

versus

ASSISTANT COMMISSIONER OF INCOME‑TAX and another

Writ Petition No.443 of 1998, decided on 23rd February, 1999.

Income-tax-----

‑‑‑‑Assessment‑‑‑Search and seizure‑‑Regular assessment and block assessment‑‑‑Return filed but no assessment made before search‑‑‑Block assessment must precede regular assessment‑‑‑Regular assessment must be on the basis of Income returned under S.143(1)‑‑‑Indian Income Tax Act, 1961, Ss. 143 & 158BB(1)(b)‑‑‑Constitution of India, Art.226.

Broadly speaking, the provisions of Chapter XIVB are that once a search and seizure has been made, the assessee's total income shall be computed under Chapter XIVB for the past ten years irrespective of whether a notice has been served under section 148 of the Income Tax Act, 1961. This is referred to as block assessment. In the block assessment the Assessing Officer is to take into account the materials obtained on search and seizure as well as all other materials which are in his possession, like the returns already filed by the assessee. After computation of the block period income, the Assessing Officer should deduct therefrom the income already regularly assessed or the income returned and then arrive at the figure for assessment of the tax payable on undisclosed income, if any. Under section 113, the undisclosed income is charged to tax at 60 per cent. irrespective of what rates or slabs the Finance Act of the corresponding opened up block years had provided at the material time. Section 158BA is the non obstante section. This section directs that notwithstanding other provisions the Assessing Officer shall proceed to assess undisclosed income as per the new' Chapter XIVB. Subsection (2) of this section is the charging section mentioning section 113 and also the flat rate of 60 per cent. Section 158BA(2) has to be read with the ordinary charging section 4, which gives operation to different Finance Acts for different financial years. Subsection (2) clarifies that the rate shall be as per section 113 irrespective of the previous year. An Explanation has been added to section 158BA with retrospective effect from July 1, 1985. The Explanation makes it clear that the Assessing Officer shall not include the block amount of income in the regular assessment and vice versa. Anything like this was unknown prior to the introduction of Chapter XIVB. When the Assessing Officer makes the regular assessment, although he will have in his possession of at that time materials, probably obtained on search and seizure, and materials which probably indicate that the income as returned by the assessee‑ should have been much more, yet the Assessing Officer is forbidden from making a regular assessment on the basis of the larger income, if that large income is to be included in the block assessment. The result is that the Assessing Officer computes an income for a particular assessment year and yet is compelled to leave out undisclosed income, by reason of the provisions contained in the Income‑tax Act itself, altogether from the purview of the regular assessment on the computation for that assessment year. Regular assessment and block assessment operate in different fields altogether, from one point of view, but, then again they operate in the same field, when one bears in mind that the block assessment and the regular assessments relate to the same assessment years in respect of the income of one and the same assessee. It will be found from section 158BB that the Assessing Officer is to compute the total income twice. The first computation of total income under section 158BB is on an aggregate of materials including returns. The second computation of total income is as per the direction and definition given in section 158BB irrespective of whatever might be contained in the other previsions of the Income Tax Act. That such computation of the second total income is to be made irrespective of other provisions, is seen from the words of section 158BA which states that the Assessing Officer must proceed to assess the undisclosed income as per section 158BB, notwithstanding any other provision contained in the Act. Once the two total incomes under section 158BB are computed, no further scope remains for the Assessing Officer to make any further computation for the concerned assessment year either for the purpose of imposition of tax on the undisclosed income or for the purpose of making the regular assessment under section 143(3). For block assessees, the total income for section 143(3) must be the second total income of section 158BB, when the returns have been filed prior to the date of search and seizure; the total income for section 143(3), i.e., for regular assessment for that assessment year must be on the basis of the return filed under section 139 and on no other basis whatsoever. Even if that return is to be adjusted for arithmetical errors or matters beyond doubt and dispute, even this adjustment has to be made during the block assessment when computing the second total income under section 158BB. That computation of the second total income binds the Assessing Officer for making the assessment of tax in regular assessment under section 143(3) and the Assessing Officer has no jurisdiction to arrive at one computation of the second total income under section 158BB, at least in so far as clause (b) of subsection (1) of section 158BB is concerned, and arrive at a different computation of total income for the purpose of section 143(3) Explanations (b) and (c) to section 158BA indicate that there should be a strict division of income between the undisclosed and the disclosed part, so that the possibility of double taxation should not arise at all. If a Taxing Officer is giving credit for tax already assessed or paid for the block period in the tax which is being regularly assessed, then it must follow that the same income has been taxed both in the block period and in the regular assessment. This is forbidden by the two Explanations. Secondly, if the Assessing Officer is to give credit for block assessment tax during the regular assessment then it presupposes that the block assessment has to be made prior to the regular assessment. This is another important issue. It is not possible to permit the Assessing Officer to have free play as regards completion of filed returns in regard to assessment years included in the block period. If he proceeds in one way one result is reached. If he proceeds in another way another result is reached. If he proceeds to make complete regular assessment by taking into account all materials in regard to all the pending assessments for the assessment years included in the block period, then no income from those pending years will even get included in the block period. He will be able to use sections 142 and 143 powers and the searched materials and reach the computation of the entirety of the total income for those years in the section 143 procedure rendering Chapter XIVB completely useless for that particular assessment year in the block period.

Although the giving of the plain ordinary meaning to the plain ordinary words in a statute is a perfectly well‑accepted rule of construction, yet it is also an equally well‑settled rule of construction that, that construction is not to be adopted by a Court which will render a provision of an enactment partially or wholly meaningless. The Court should adopt a harmonious construction which gives meaning to all parts of the statute. The Assessing Officer must, therefore, in all cases where assessments of returns for assessment years included in the block period are pending on the days of search and seizure, proceed first to assess the undisclosed income for the block period, and then and only thereafter make the regular assessment under section 143(3) on the basis of the returns filed but not assessed up to the date of search and seizure. In case of an unassessed return at the date of search, one would have to bear in mind that when the Assessing Officer is making the block assessment, the second total income of section 158BB shall always be on the basis of the return filed, if that has not already been assessed. The Assessing Officer cannot assess that return in any manner other than on the basis of the return itself under section 158BB; again prior to making of block assessment, regular assessment is ruled out because of the reasons given above, mainly because the Assessing Officer cannot erase the effect of Chapter XIVB for any included assessment year. The Assessing Officer is then and in that event forced with a choice. He can proceed to make the block assessment as expeditiously as possible leaving him time to make the regular assessment on the basis of the returns filed thereafter, which after all will be a comparatively small task as the computations are all over. Or, although this is more practical than logical, the Assessing Officer might convert the return into an assessment return, thereby causing no prejudice either to. the Revenue or to the assessee; no prejudice is caused to the assessee because the return as filed is accepted, no prejudice is caused to the Revenue because the undisclosed income will remain taxable as per section 113, i.e., 60 per cent., and any evidence which goes to increase the income over and above what was filed (or has been assessed) will yield revenue at the prescribed and desired rate of 60 per cent. If the Assessing Officer adopts this course in the case of unassessed but filed returns, he has jurisdiction in this limited case only to make the regular assessment on the basis of the return filed before the search and seizure even before the block assessment. Even if the assessee is the gainer because of the application of Chapter XIVB rather than the application of the regular procedure neither the Income‑tax Officer nor the Courts of law can help it. Parliament has seen it fit to introduce a new procedure. That is contained in Chapter XIVB. It is not permissible to shelve that procedure either in part or in whole and notwithstanding the existence of that Chapter proceed to make assessments under the regular procedure thereby rendering XIVB otiose and the un?disclosed income zero in every case of calculation under the Chapter.

Section 158BC states in the first proviso that no notice under? section 148 is required to be issued for proceeding under Chapter XIVB. This proviso has to be given its meaning. If it is to be given a meaning, that must be that it substitutes the procedure under section 148. If that is not the meaning given, then one would be faced with the double consequence of there being one block period assessment and may be several other 148 reopenings in regard to completed assessments. This would render the provisions of Chapter XIVB totally senseless. The conclusion, therefore, is that although 60 per cent. of tax under section 113 might work out to be a monetary advantage in some cases to some assessees who become block assessees, those consequences notwithstanding, Chapter XIVB must be given preferential status and block assessment must both precede and control regular assessment:

Held, that the regular assessment already made by the Assessing Officer in regard to the assessment year 1995‑96 would stand set aside. The appeal preferred by the assessee was rendered infructuous. This course has to be adopted because the Assessing Officer in making the regular assessment has not proceeded on the basis of making practically an ex parte assessment on the return filed by the assessee for the assessment year 1995‑96, accepting it in toto excepting for arithmetical or undisputed adjustments like those under section 143(1). This course, the Assessing Officer must now take. But he shall take this course within six months of finalisation of the block assessment, which should precede regular assessment so as not to create unnecessary legal problems hereafter.

By the Court: This judgment is limited if not wholly at least largely, to the contingency covered by sub‑clause (b) of subsection (1) of section 158BB because that is the main issue.

Obiter Dicta: If the block assessment precedes the regular assessment income will not be found to be in excess of the return made by the assessee at the stage of the regular assessment. In that event penalty under section 271 will not leviable. This is quite a serious matter. It was even more serious before the introduction of section 158BFA. Prior to the introduction of that section, the block assesssee would pay only 60 per cent. of the undisclosed income as per the block assessment and would not pay any penalty at all. Even after the introduction of section 158BFA, the situation does not change to any very large extent. That section deals with penalty and interest in case the filing of block return by the assessee as per section 158BC has flaws or defaults. It is not possible to rule that because that section was not there in the statute book, the assessee‑writ petitioner would have to be subjected to section 271. That is not and cannot be the law. Once the block return is assessed, and it must be assessed under Chapter XIVB, the liability of the assessee would be limited to 60 per cent. of the undisclosed income and the consequence thereupon as provided in Chapter XIVB must follow. Section 271 could not come in because after block assessment there would be no excess income found in assessing the return on a practically ex parte

John N.T v. CIT (1997) 228 ITR 314 (Ker.); New Shorrock Spinning and Manufacturing Co. Ltd. v. Raval (ICU.)., ITO (1959) 37 ITR 41 (Bom.); N.R. Paper and Board Ltd. v. Deputy CIT. (1998) 234 ITR 733 (Guj.) and Raja Ram Kulwant Rai v. Asstt. CIT (1997) 227 ITR 187 (P&H)

R.N. Bajoria for Petitioner.

Mullick and Shome for Respondents.

2001 P T D 143

[238 I T R 1010]

[Calcutta High Court (India)]

Before Y.R. Meena, J

GOUTAM ROY

versus

COMMISSIONER OF INCOME‑TAX

Writ Petition No. 1617 of 1995, decided on 15th September, 1998

Income‑tax‑‑‑

‑‑‑‑Recovery of tax‑‑Garnishee proceedings‑‑‑Attachment of rent of building belonging to assessee‑‑‑Assessment of income on the basis of search‑‑Appeal against assessment pending‑‑‑No application for stay‑ of demand or recovery proceedings‑‑‑Recovery proceedings were valid‑‑Indian Income Tax Act, 1961, Ss. 132 & 226:

There was a search at the premises of the petitioner. The search and seizure was challenged before the High Court. The High Court upheld the validity of the search and on the basis of the materials found during the search, assessments were made for the assessment years 1982‑83, 1983‑84 and 1984‑85: By the order under section 226(3) of the Income Tax Act, 1961, dated February 19, 1995, the Assessing Officer attached the rent of the building of the assessee for recovery of tax relevant to the assessment years 1983‑84, 1984‑85, f990‑91 and. 1991‑92. On a writ petition against the attachment:

Held, (i) that for the assessment year 1990‑91, the assessment order had been set aside in appeal and' the matter had been remanded. No fresh assessment had been made and so there was no justification for recovery of tax for the assessment year 1990-91.

(ii) That if the petitioner had any case, he could move a stay application even before the Commissioner (Appeals) with whom the matter was pending for the assessment years 1983‑84 and 1984‑85. The Income‑tax Officer had already informed the petitioner that the petitioner had no sound ground for stay of tax recoveries. For the assessment years 1982‑83, 1983‑84 and 1984‑85 the tax demand had been shown in the show‑cause notice under section 226, dated January 3, 1995. The additions had been made on the basis of the materials seized on search. The assessments were valid and the Tax Recovery Officer could proceed with the recovery of outstanding tax due from the assessees.

(iii) That for the assessment year 1991‑92, the petitioner stated that he had paid tax to the tune of Rs.11,436, but the case of the respondents was that tax for 1991‑92 was Rs.31,441. In view of these facts, the Department could recover only the balance amount on the basis of the demand notice issued for the assessment year 1991‑92.

Mani Goyal (R.) (Mrs.) v. CIT (1996)217 ITR 641 (All.) ref.

2001 P T D 149

[238 I T R 445]

[Calcutta High Court (India)]

Before Y.R. Meena and Barin Ghosh, JJ

COMMISSIONER OF INCOME-TAX

versus

BALARAMPUR CHINI MILLS LTD.

Income-tax Reference No.29 of 1997, decided on 30th March, 1999.

Income-tax---

----Capital or revenue receipt---Sugar manufacture---Expansion of plant to avail of additional free sale quota---Stipulation that surplus funds resulting to be used only to repay loans taken from financial institutions---Loans taken for expansion of plant, i.e., capital asset---Receipts from sale of additional free sale quota sugar---Capital receipts---Indian Income Tax Act, 1961.

To overcome the problem of shortage of sugar, the Government introduced an incentive scheme for manufacturers in 1975, one of the incentives under which was an increase in the free sale sugar quota. To avail of the benefit of the scheme, the assessee took loans to the tune of Rs.243 lakhs from Government financial institutions for expansion of the factory and by expansion raised the capacity of the factory from 1,219 tons crushing per day to 1,600 tones crushing per day. On the basis of the expansion of the existing sugar factory, the assessee was held eligible for the incentive by way of release of additional free sale sugar quota., under the incentive scheme. This additional free sale quota of sugar was available to the assessee only in case the assessee repaid the term loans taken from the Central financial institutions out of the realisation of sale of additional free sale quota sugar:

Held, that, admittedly, the incentive had been received by the assessee for re-payment of the loan, which was taken for expansion of plant and machinery--a capital asset. Therefore, the realisation through sale of additional free sale sugar quota under the incentive scheme was in the nature of capital receipt. Sahney Steel and Press Works Ltd. v. CIT (1997) 228 ITR 253 (SC) rel

Pontypridd and Rhondda Joint Water Board v. Ostime (1946) 14 ITR (Suppl.) 45 (HL) and Poona Electric Supply Co. Ltd. v. CIT (1965) 57 ITR 521 (SC) ref..

D.K. Shome for the Commissioner.

D. Pal, J.P. Khaitan and A. K. Dey for the Assessee.

2001 P T D 219

[238 I T R 486]

[Calcutta High Court (India)]

Before Yad Ram Meena and Bijitendra Mohan Mitra, JJ

COMMISSIONER OF INCOME-TAX

versus

DHAWAN INVESTMENT AND TRADING CO. LTD.

Income-tax Reference No.27 of 1993, decided on 26th March, 1998.

(a) Income-tax---

----Business expenditure---Premises taken on rent---Agreement for payment of advance to be adjusted against rent---Finding by Tribunal that premises had been used for business purposes---Rent paid was deductible---Indian Income Tax tact, 1961.

The assessee, an investment company, had taken certain premises on rent. Under the terms of the agreement, the assessee had paid an advance which was to be adjusted against the rent of Rs.36,000 per annum. The Income-tax Officer rejected the claim for deduction of the rent. The Commissioner of Income-tax (Appeals) and the Tribunal found that the premises had been taken on rent for purposes of business. They allowed the deduction. On a reference:

Held, that the amount of rent was deductible.

(b) Income-tax---

----Business loss---Loss on purchase and sale of shares---Transactions effected through registered share brokers---Quotation of price tallying with records of stock exchange---Loss was deductible---Indian Income Tax Act, 1961, S.28.

The assessee claimed a loss of Rs.49,210 in share dealings. This was disallowed by the Income-tax Officer. The Tribunal found that the transactions were made through registered share brokers. The rates quoted for the said shares were found to be correct as per the record of the stock exchange: The Tribunal accepted the claim of the assessee. On a reference:

Held, that the Tribunal had found on the basis of the materials on record that the assessee had suffered the loss in share dealings to the tune of Rs.49,210. The loss was deductible.

McDowell & Co. Ltd. v. CTO (1985) 154 ITR 148; (1985) 59 STC 277 (SC) ref.

2001 P T D 233

[238 I T R 694]

[Calcutta High Court (India)]

Before V. K. Gupta and B. Bhattacharya, JJ

KESHAB NARAYAN BANERJEE

versus

COMMISSIONER OF INCOME-TAX and another

Appeal No.478 of 1993 and Matter No.506 of 1992, decided on 28th August, 1998.

(a) Income-tax--

----Writ---Appeal---procedure---Principles contained in O. 41; R 22 of Civil Procedure Code would apply---No appeal or cross-objection by respondent--­Respondent ,cannot raise issue at the time of appeal---Question regarding service of notice of reassessment---Revenue contending that- notices could not be served by registered post and, therefore; service was effected by affixture---Decision in writ proceedings that notices had been sent by registered post but not served---No appeal or cross-objection against decision by Revenue---Revenue could not challenge decision at the time of appeal---Constitution of India, Art.226---Code of Civil Procedure, 1908, O.41 R.22--Indian Income Tax Act, 1961, Ss. 148 & 282.

Proceedings in a writ application tiled under Article 226 of the Constitution and an appeal arising therefrom, under clause (15) of the Letters Patent strictly would not be civil proceedings in the sense that technically they are not governed by the provisions of the Code of Civil Procedure, yet they, being in the nature of civil proceedings, the principles contained in Order 41, rule 22, should apply in all Letters Patent Appeals: After all a respondent who was partly successful in the writ proceedings should clearly decide whether to appeal against the unsuccessful part of the judgment of the Single Judge or to agitate in the appeal Court the finding -which may go against him. Such a partly successful respondent, therefore, can prefer his own appeal against that part of the judgment Which goes against him or may, in the appeal of the writ petitioner, decide to file cross-objection(s) in respect of the findings which have gone against him. If he does neither, it is still open to him to take recourse to the provision contained in rule 22(1) of Order 41 and urge the Court hearing the appeal, that the finding against him by the Single Judge in respect of an issue ought to have been in his favour. This is the limited right made available under the amended rule 22(1). This right, however, has to be exercised with clear, limitation and a contingent condition that the ultimate result of the appeal shall not amount to upsetting the judgment of the Single Judge in so far as the nature and extent of the relief granted to the writ petitioner (appellant in the Letters Patent Appeal) is concerned. A person, the respondent in the writ application, who does not choose to file appeal against .the judgment of the Single Judge, even though a substantial part of such judgment goes against him, and does not choose to file cross-objections in the appeal filed by the writ petitioner, cannot be permitted to urge the Court to set at naught even that relief which was partially given to the writ petitioner by the Single Judge.

For the assessment years 1983-84 to 1987-88, respondent No.2, the Assistant Commissioner, passed order under section 147 of the Income Tax Act, 1961. It was mentioned in this assessment order that a notice under section 148 was served on the asse9see by 'affixation. Since, however, no return in compliance with the said notice served by affixation was filed, a notice under section 142(1) was s to the assessee by registered post which came back unserved. Subsequently, this notice also was served by affixation 'again. Since the assessee did not comply with the notice served upon him by affixation, the proceedings under section 147 were-completed in the absence of the assessee. The Commissioner of Income-tax served a notice on the assessee under section 263. The assessee filed a writ petition challenging the notice. The only ground which was urged before the Single Judge by the assessee in support of his contention about the invalidity of the proceedings and orders impugned in the writ application, was that the order under section 147 passed on March 8, 1990, eras bad in law since it was not preceded by the service upon the assessee of 'any proper or appropriate notice and because the assessee was denied the opportunity of such a notice and thus, a right of hearing and hence the order under section 147 was invalid and illegal. The Single Judge held that since particulars of the person who allegedly refused to accept the service or the date and place of receiving the notice, etc., were not indicated in the endorsement regarding the refusal, personal service was not effected. The service by affixation claimed to have been made by the respondents was also held not proper since it was not in conformity with the requirement of Order 5, rule 17. The Single Judge was of the view that the assessee was sent notices by registered post and that, in the facts and circumstances of the case, the registered covers should be deemed to have been served upon the assessee, even though there would not be a definite and conclusive proof of the service of contents of these registered covers. She directed respondent No. 1. to reconsider the question of service of notices in the light of her findings and to find out whether the contents of the registered covers were actually there or not, when these were deemed to have been served upon the assessee. On an appeal against the order by the assessee, the Revenue challenged the findings of the Judge:

Held, (i) that, in the instant case the Revenue had neither filed any objections in the appeal filed by the assessee and yet it wanted to challenge the aforesaid two findings regarding the mode of service based on "refusal" and "affixation". The Revenue could not challenge the finding of the Single Judge.

(ii) That on a perusal of the records it was found that in the registered cover (envelope) stated to have been sent to the assessee, there was no endorsement of either refusal of service or even return of the envelope to the sender. There was no material which could justify the inference or finding that service by registered post was either effected or should be deemed to' have been accomplished. Since, admittedly, the service of such notices was a necessary prerequisite, for passing of the orders under, section 147, the orders under section 147 were bad in law. Therefore, the proceedings under section 263 admittedly originating from such orders could not be initiated against the assessee.

Ennis (D.) (Miss) v. Calcutta Vyapar Pratisthan Ltd. AIR 1991 (Cal.) 152; ITO v. S. Veeriah Reddiar (1967) 64 ITR 70 (SC) and Madan & Co. v. Wazir Jaivir Chand AIR 1989 SC 630 ref.

(b) Income-tax---

----Reassessment---Notice---Service of notice - is a condition precedent for passing of order of reassessment---Service by registered post---No meaningful endorsement on c6ver---Service of notice was not valid---Hence reassessment not valid---Proceedings under. S. 263 cannot be initiated from such orders---Indian Income Tax Act, 1961, Ss. 148, 2,63 & 282.

The service of a valid notice is a condition precedent for the passing of an order of reassessment under section 147 of the Income Tax Act, 1961.

Pal for Subrata Das for Appellant.

Prasad for S. Gooptu for Respondents.

2001 P T D 248

[238 I T R 740]

[Calcutta High Court (India)]

Before S. B. Sinha and D.P. Sircar-I, JJ

HOPE (INDIA) LTD. (NOW PODDAR UDYOG LTD.)

versus

COMMISSIONER OF INCOME-TAX

Income-tax Reference No.206 of 1993, decided on 7th April, 1999.

Income-tax---

----Income---Accrual of income--House property---Assessment maintaining accounts on mercantile system---Tenants agreeing to pay enhanced rent with retrospective effect---No accrual in year of account---Enhanced rent agreed to after close of previous year---Not to be assessed as "income from house property" of that year---Indian Income Tax Act, 1961, Ss.5, 22 & 23.

Although, tile system of accounting adopted by the assessee may be a relevant factor, even in the mercantile system of account only such amounts can be assessed which, the assessee had a right to receive or which had accrued. A mere claim or a mere demand without anything else is not income within the meaning of section 5 of the Income Tax Act, 1961. A practical approach in the matter must also be taken. An assessment of income cannot be reopened after a lapse of many years. While determining such question, it must be borne in mind that a claim may fructify only after a lapse of many years because of pendency thereof in a Court of law and/or prolonged negotiation between the parties. A tenant. is not bound to pay rent at an enhanced amount only because the landlord claims the same.

The assessee-company maintained its books of account on the mercantile system. It was the owner of a 2/3rd share in a certain property occupied by tenants, some of which were Government Departments. For the assessment year 1984-85, the Assessing Officer, being of the view that the fair market value of the property being. much higher than the actual rent received, computed the fair rent and the assessee's 2/3rd share out of it. On appeal, the Commissioner (Appeals) held that the tenants had been occupying the premises for more than 15 years and the provisions of the West Bengal Premises Tenancy Act being - applicable, any upward revision of rent would not be permissible except with the mutual agreement between the parties. Efforts, however; were being made by the assessee and the Government Departments who occupied a portion of the premises for enhancement of rent. The Commissioner of Income-tax (Appeals), therefore, directed the Assessing Officer to recompute the income from house property. The Department preferred an appeal. The Tribunal found that on various dates in the years 1986 and 1987, the Government Departments in question had agreed to pay an enhanced rent with effect from 1982 and hence directed the Income-tax Officer to recompute the income from house property on the basis of the enhanced rent sanctioned and agreed to be paid by the various tenants and to determine the income in accordance with law. On a reference:

Held, that the Government Departments agreed to enhance the rent with retrospective effect from 1982, and, thus, the parties were not ad idem in their mind as regards the actual quantum of rent payable to the assessee by its tenants and, thus, the actual amount was not ascertainable. Under the West Bengal Premises Tenancy Act, the rent has to be paid on the basis of the agreement entered into by the parties. A claim made by a landlord for enhancement of rent cannot, thus, be said to be an amount ""receivable" within the meaning of section 23(l) of the Act. A claim or a demand by himself does not come within the purview of the words "income received or receivable". An agreement entered into between the parties in terms whereof the quantum of rent is determined with retrospective effect does not come within the purview of any of the provisions of section 5 of the Income Tax Act, 1961. The Tribunal was not justified in directing the Assessing Officer to recompute the income from the house property on the basis of enhanced rent sanctioned and agreed after the close of the previous year to be paid by the various tenants and to determine the income under the head "income from house property".

E.D. Sassoon & Co, Ltd. v. CIT,(1954) 26 ITR 27 (SC) rel.

Amar Nath Khandelwal v. CIT (1980) 126 ITR 322 (Delhi); Babulal Raj Garhia, In re: (1936) 4 ITR 148 (Cal.); CIT v. Ahmedbhai Umarbhai & Co. (1950) 18 ITR 472 (SQ; CIT v. Alagappan (M.R.); (1987) 164 ITR 690 (Mad.); CIT v. Anamallais Timber Trust Ltd. (1950) .18 ITR 333 (Mad.); CIT v. Ashokbhai Chimanbhai (1965) 56 ITR 42 (SQ; CIT v. Burlop Commercial (Pvt.) Ltd. (1988) 173 ITR 522 (Cal.); CIT v. Chanchani Brothers (Contractors) (Pvt.) Ltd. (1986) 161 ITR 418 (Pat.); CIT v. Dalmia (R.) (1987) 163 ITR 517 (Delhi); CIT v. Dalmia (R.) (1987) 163 ITR 519 (Delhi) (Appex. I); CIT v. Dalmia (R.) (1987) 163 ITR 524 (Delhi) (Appex. II); CIT v. Gajapathy Naidu (A.) (1964) 53 ITR 114 (SQ; CIT v. Hindustan Housing and Land Development Trust Ltd. (1986) 161 ITR 524 (SQ; CIT v. Nadiad Electric Supply Co. Ltd. (1971) 80 ITR 650 (Bom.); CIT v. Probhabati Bansali (1983) 141 ITR 419 (Cal.); CIT v. Simplex Concrete Piles (India) (Pvt.) Ltd. (1989) 179 ITR 8 (Cal.); CIT v. Thiagarja Chetty (K.R.M.T.T.) & Co. (1953) 24 ITR 525 (SC); Commissioner of Taxation v. Kirk (1990) AC 588 (PC);. Colquhoun v. Brooks (1888) 21 QBD 52 (CA)--On appeal (1889) 14 App,. Cas. 493 (HL); Dodgson, In re:(1 Drew 440); Hamilton & Co. (Pvt.) Ltd. v. CIT (1992) 194 ITR 391 (Cal.); Hayward v. James 29 LJ Ch.822; IRC v. Pakenham (96 LJ KB 882 (CA)---On appeal (1928) AC 252 (HL); Jamnadas Prabhudas v. CIT (1951) 20 ITR 160 (Bom.); Krishnalal Seal. and Golap Sundari Dassi v. CIT (1932) 6 ITC 293 (Cal); Leigh v. IRC (43 TLR 528); Mariappa Counder (P) v. CIT (1998) 232 ITR 2 (SQ; Madgul Udyog v. CIT (1990) 184 ITR 484 (Cal.); Ondal Investments Co. Ltd. v: CIT (1979) 116 ITR 143 (Cal.); Rogers Pyatt Shellac & Co. v. Secretary of State for India (1925) 1 ITC 363; AIR 1925 Cal. 34; Seth Pushala Mansinghka (P.) Ltd. v. CIT (1967) 66 ITR 159 (SQ; Webb v. Stenton (1883) 11 Q.BD 518 (CA); West v. Miller (1868) LIZ. 6 Eq.59 and W.S. Try Ltd. v. Johnson (Inspector of Taxes) (1946) 1 All ER 532 (CA) ref.

N.K. Poddar, Senior Advocate, and D. Mitra for the Assessee

J. C. Saha and P.K. Bhowmick for the Commissioner

2001 P T D 263

[238 I T R 648]

[Calcutta High Court (India)]

Before Y. R. Meena and Debi Prasad Sircar‑I, JJ

JUBILEE INVESTMENTS AND INDUSTRIES LTD

versus

ASSISTANT COMMISSIONER OF INCOME‑TAX and others, G.A. No.1932 of 1999, A.P. O/T. No.377, A.P.O. No. T.No.. 647 and Writ Petition No.966 of 1999, decided on 13th May, 1999.

Income‑tax‑‑‑

‑‑‑‑Deduction of tax at, source‑‑‑Delay in depositing TDS‑‑‑‑Penalty‑‑‑Levy of penalty justified though TDS deposited before levy of penalty‑‑‑Liable to pay interest as well as penalty‑‑‑Loss in business of assessee nothing to do with deposit of TDS amount‑‑‑Indian Income Tax Act, 1961, S.221.

The Explanation to section 221 of the Income Tax Act, 1961, provides that an assessee shall not cease to be liable to any penalty under this subsection merely by reason of the fact that before the levy of such penalty he has paid the tax. Once he failed to deposit TDS (tax deducted at source) amount in time, he is liable to pay penalty under section 221 of the Income­-tax Act. Section 221 of the Act relates to cases where the assessee had deducted the tax but failed to deposit that amount within the prescribed time­ limit. Section 271C, the clause (a), applies where a person fails to deduct the whole or any part of the taxi as required by or under the provisions of Chapter XVIIB.

The assessee had deducted tax from interest other than interest on security in the financial year 1996‑67 .to the tune of Rs.9,67,94,972 but that had not been deposited to the account of the Central Government within the time allowed under the statute. The delay varied from one month to twelve months in respect of different deposits. For that failure on the part of the assessee, the Assistant Commissioner of Income‑tax imposed penalty of Rs.3 crores under section 221 of the Income‑tax Act.

Held, (i) that the Chief Commissioner had conferred power: on the Assistant Commissioner of Income‑tax (TDS), Circle 21(1), who had imposed penalty under section 221 of the Act, and; therefore, it could not be said that the Assistant Commissioner of. Income‑tax (TDS) had no power to impose penalty under section 221 of the Income Tax Act, 1961.

(ii) That whether the assessee had paid interest or not was immaterial. When it was found in default in depositing the amount of TDS within the time limit prescribed, it was liable to pay interest as well as penalty. Any loss or profit in the business of the assessee had nothing to do with deposit of

Dr. Pal for Appellant.

Agarwala for Respondent

2001 P T D 286

[238 I T R 899]

[Calcutta High Court (India)]

Before Vinod Kumar Gupta and B. Bhattacharya, JJ

I.T.C. LTD. and another

versus

DEPUTY COMMISSIONER OF INCOME‑TAX and others

APOT No.338, T/465, G.A. No. 1680, W.P. No.501 of 1998, decided on 29th April, 1998.

Income‑tax‑‑‑

‑‑‑‑Assessment‑‑‑Audit‑‑‑Writ‑‑‑Writ petition against order under S.142(2A)‑‑‑Order staying assessment proceedings and observing that payment of auditor's fees would be considered at final hearing of writ petition‑‑‑Order was valid‑‑‑Indian Income Tax Act, 1961', S. 142‑‑­Constitution of India, Art. 226:

Held, that an interim order staying the assessment proceedings for the assessment year 1995‑96 was passed by the Single Judge. In so far as the question relating to the payment of the fees to the auditor was concerned, the Single Judge did not pass any specific order at this stage and merely observed that the question relating to the payment of fees would be considered at the stage of final hearing of the writ application. The Single Judge had passed a well‑reasoned order protecting the interests of the parties at this stage of the, litigation and the stay of the assessment proceedings itself was enough safeguard. The order was valid.

Dr. Pal for Appellants.

Mr. Shome for Respondents. .

2001 P T D 399

[239 I T R 77]

[Calcutta High Court (India)]

Before Y.R. Meena and Prabir Kumar Samanta, JJ

K.M. SADHUKHAN & SONS (PVT.). LTD.

versus

COMMISSIONER OF INCOME‑TAX

Income‑tax References Nos.327 and 323 of 1987, decided on 29th April, 1999.

Income‑tax‑‑‑

‑‑‑‑Reassessment‑‑‑Cash credits‑‑‑Sums shown as hundi loans accepted in original assessments‑‑‑Assessments reopened on basis of statements of creditors‑‑‑Reopening held valid‑‑‑Burden of proof on assessee to prove identity and capacity of creditors and genuineness of loan‑‑‑Failure to do so‑‑Additions justified‑‑‑Indian Income Tax Act, 1961, S.147.

For the assessment year 1960‑61, the assessee had shown certain credits on account of hundi loans. The assessment was completed treating these hundi loans as genuine. Thereafter, it was brought to the notice of the Income‑tax Officer by some employees of the assessee that the hundi loans were not genuine. On this basis, the assessment was reopened under section 147(a) of the Income Tax Act, 1961. After reopening of the assessment, the Income‑tax Officer issued notices to the creditors at their addresses given by the assessee but the notices came back unserved with the remarks "Not known" and "nobody in this name stays here". In the absence of response, the Income‑tax Officer came to the conclusion that all the hundi loans represented the assessee's income from undisclosed sources and he reassessed the income by addition of hundi loans. On appeal, the assessment order was cancelled on the ground that the reopening was bad in law. The Tribunal, however, found that the reopening was in accordance with law and restored the matter to the Appellate Assistant Commissioner for fresh disposal on the merits. The Commissioner of Income‑tax (Appeals) called upon the assessee to produce the persons who had advanced the loans. The assessee expressed inability to produce the persons. The Commissioner of Income‑tax (Appeals) was of the view that the assessee had not discharged the burden to prove the genuineness of the loans and dismissed the appeal. In the second appeal before the Tribunal, the Tribunal also confirmed this view. On a reference:

Held, that there was no dispute on the facts that the burden lay on the assessee to prove the genuineness of the cash credits. The assessee had to prove the identity of the creditors, the capacity of such creditors to advance sums and lastly the genuineness of the transactions. The reopening of the assessment was found in accordance with law. The assessee was wrong in contending that once the genuineness of the hundi loans was accepted in the original assessment, the Revenue should prove that the hundi loans were not genuine. The Revenue had not based its finding that the hundi loans were not genuine on the basis of the statements of some of the employees. The statements of some of the creditors were used only as "information" for reopening of the assessment and they were never used to consider the question of genuineness of the hundi loans on merits. Moreover, when the assessee had not discharged its burden to prove the genuineness of the hundi loans by establishing the identity of the creditors, the capacity of the creditors to advance the hundi loans and the genuineness of the transactions, it could not be said that the finding of the Tribunal was perverse. On the given facts, the only conclusion the authorities below could arrive at was that the hundi loans were not genuine and had rightly added them in the income of the assessee.

Kishnichand Chellaram v. CIT (1980) 125 ITR 713 (SC) ; Shankar Industries v. CIT (1978) 114 ITR 689 (Cal.) and State of Punjab v. Bhagat Ram AIR 1974 SC 2335 ref.

2001 P T D 435

[239 I T R 28]

[Calcutta High Court (India)]

Before Y.R. Meena and Debi Prasad Sircar‑I, JJ

COMMISSIONER OF INCOME‑TAX

versus

TODI TEA CO. LTD, Income Tax Reference. No.15 of 1993, decided on 18th May, 1999.

(a) Income‑tax‑‑‑

‑‑‑‑Business expenditure ‑‑‑Assessee, a tea company‑‑‑Contract for supply of tea by assessee‑‑‑Breach of contract by assessee‑‑‑Payment of sum by assessee under settlement entered, into between parties ‑‑‑Assessee following mercantile system of accounting‑‑‑Sum payable provided for in accounts on date of settlement‑‑‑Allowable as deduction for that year‑‑‑Though paid in later year‑‑‑Indian Income Tax Act, 1961, S.37.

The assessee entered into a contract with a company, T, in December, 1982, agreeing to supply 3 lakhs kgs. of made tea from its garden during the period July to December, 1983 to T. The assessee failed to make the supply. Meanwhile the price of tea increased by Rs.3 to Rs.4, per kilogram, more than the price settled in the contract between the parties. When T found that the assessee could not supply the tea as agreed upon, T claimed compensation on account of breach of contract to the tune of Rs.30,00,000: The matter was referred to arbitration. Before the arbitrator the assessee offered to pay Rs.10 lakhs. The arbitrator in his award settled the compensation at Rs.17,00,000 payable by the assessee to T. That award was challenged before the Court. Finally in March, 1984, when the matter was pending before the High Court, the assessee settled the matter on payment of Rs.10,00,000 and as per the settlement the amount was paid. The question was whether the payment was deductible in the assessment for the assessment year 1984‑85. The Department objected to the deduction on the ground that since T was under winding up, payment made to the director was illegal:

Held, (i) that the facts found by the Commissioner (Appeals) and the Tribunal were that there was a contract between the assessee and T, that under that contract the assessee had to supply tea, that the assessee failed to supply that tea. There was no dispute between the parties, i.e., the assessee and T, that they had arrived at a settlement on the question of quantum of compensation and compensation of Rs.10,00,000 had been paid to T in full and final settlement of its claim. At this stage there was no justification to doubt that transaction specially when there was a concurrent finding of the authorities below. On breach of contract, the assessee created liability of Rs.10 lakhs and ultimately paid that amount. The amount of compensation which was payable by the assessee to T should be allowed as deduction when the amount had been paid for the purpose of business or in due course of business. The assessee was following the mercantile system of accounting. The assessee was prepared to pay Rs.10 lakhs, as compensation in the previous year relevant to the assessment year in question and created that liability in its books. Therefore, the assessee could claim deduction of Rs.10 lakhs in the year under consideration.

(ii) That when the agreement was entered into in 1982, there was no existence of liquidator nor on the date of settlement nor on the date of payment. Therefore, there was no question of payment to the liquidator till the liquidator was appointed.

CIT v. Shewbux Jahurilal (1962) 46 ITR 688 (Cal.) ref.

(b) Income‑tax‑‑‑

‑‑‑‑Business expenditure‑‑‑Sum paid for breach of contract with company‑‑­Company going into liquidation‑‑‑Payment to Director of company as liquidator not appointed at the time‑‑‑Payment deductible‑‑‑Indian Income Tax Act, 1961.

Mallik for the Commissioner.

2001 P T D 498

[239 I T R 129]

[Calcutta High Court (India)]

Before Y.R. Meena and Prabir Kumar Samanta, JJ

COMMISSIONER OF INCOME‑TAX

versus

SHREE SHEW SHAKTI MILLS (P.) LTD.

Income‑tax Reference No. 101 of 1992, decided on 29th, April 1999.

(a) Income‑tax‑‑‑

‑‑‑‑Business Income‑‑‑‑Rental income‑‑‑Superstructure on leasehold land let out to parties for limited period‑‑‑Is income from business‑‑‑Indian Income Tax Act, 1961.

Whether the plot of land was registered or owned by the assessee was immaterial to ascertain whether the rental income was from the business or not. Admittedly, the assessee was the owner of the superstructures on the land which were let out to different parties for a limited period and, therefore, the rental income from those structures was income, from business.

(b) Income‑tax‑‑‑

‑‑‑‑Business income or income from other sources‑‑‑Interest received on loan‑‑‑Loan advanced to a single party‑‑‑Is not money‑lending business‑‑­Interest received is not business income‑‑‑Indian Income Tax Act, 1961.

The assessee claimed interest of Rs.19,500 receivable from K. Nowhere did the assessee claim that Rs.19,500 was receivable from various parties. Thus, the finding of the Tribunal that the assessee received interest from various parties was perverse as the amount wag advanced to only one party, and the sole instance of advance of money could not be treated as money‑lending business of the assessee. There was also no finding that the advance to K was made from business funds. The interest income was taxable as income from other sources and not income from business.

(c) Income‑tax‑‑‑

‑‑‑‑Business expenditure‑‑‑Expenditure on maintenance of flat used for business purpose‑‑‑Is allowable expenditure‑‑‑Indian Income Tax Act, 1961, S.37.

Maintenance allowance and depreciation allowance could be claimed only if the flat was used for business purposes. Admittedly, maintenance expenses were allowed as the flat was used for business purposes. In order to claim depreciation allowance, the assessee has to prove that it owned the flat. Admittedly the flat stood in the name of the director and not of the assessee and there was a dispute regarding the same. Therefore, the order of the Tribunal was liable to be set aside on the question of allowance of depreciation.

(d) Income‑tax‑‑‑

‑‑‑‑Depreciation‑‑‑Flat used for business purpose‑‑‑Flat standing in name of director and not assessee‑Company‑‑‑Facts not properly enquired into‑‑­Matter remanded‑‑‑Depreciation not to be allowed if assessee fails to prove ownership of flat‑‑‑Indian Income Tax Act, 1961, S.32. Matter remanded for further enquiries with a direction that if the assessee failed to prove ownership then it was not entitled to depreciation allowance.

2001 P T D 628

[239 I T R 265]

[Calcutta High Court (India)]

Before Shyamal Kumar Sen and B.M. Mitra, JJ

COMMISSIONER OF INCOME‑TAX

versus

BENGAL WATERPROOF LTD.

I. P. No. 144 of 1996, decided on 22nd December, 1997.

Income‑tax‑‑

‑‑‑‑Income‑‑‑Accounting‑‑‑Accrual of income‑‑‑Time of accrual‑‑­Collaboration agreement with non‑resident company‑‑‑Amount received by assessee‑company under agreement‑‑‑Resolution of Board of Directors before entering into agreement that receipts would be treated on a cash basis‑‑­Amounts not received in year‑‑‑Not assessable‑‑‑Indian Income Tax Act, 1961.

The assessee entered into an agreement with a company in Sri Lanka. Under the agreement, the assessee was to receive Sri Lankan Rs.10 lakhs as technical fees, royalty and export commission within 240 days of the signing of the agreement, which came into effect from September 23, 1982. However, before the period of 240 days was over, the Indian Bank which financed the entire project of the new company by letter, dated December 7, 1982, put a restriction to the effect that no such payment would be allowed to be made to the assessee so long as any loan to the bank was in arrears. The Assessing Officer assessed the amount on the ground that it had accrued. The assessee submitted before the Commissioner of Income‑tax (Appeals) that in respect of the income from this portion of the foreign venture, the board had resolved by its resolution, dated .May 20, 1982, that the new source of income of the company from technical fees, royalty and export commission receivable under the agreement with the Sri Lankan company be treated on cash basis. The Commissioner of Income‑tax (Appeals), however, sustained the addition of Rs.5 lakhs. The Tribunal found that the assessee had passed a resolution on May 20, 1982, to treat the income receivable from Sri Lanka on cash basis. The resolution indicated clearly that the Board of Directors long before the foreign company carry into existence resolved to account for the income of the company from the agreement on cash basis. The Tribunal also found that the bona fides of the assessee in passing this resolution had not been challenged by the Department. The Tribunal deleted the addition. On a reference:

Held, that the resolution passed on May 20, 1982, indicated that the Board of Directors, long before the foreign company came into existence, resolved to account for the income of the company from the agreement on cash basis. The bona fides of the assessee in passing this resolution which had not been challenged by the Department had also been noted by the Tribunal. The method of accounting so far as the assessee was concerned in respect of this transaction not being disputed; the amount would not be taxable since the same had in fact not been realised in that particular year.

Bimal Chatterjee and P. Bhowmick for Petitioner

Debi Pal and Monisha Seal for Respondent.

2001 P T D 720

[239 I T R 355]

[Calcutta High Court (India)]

Before Y.R. Meena and Debi Prasad Sircar‑I, JJ

COMMISSIONER OF INCOME‑TAX

versus

PADMAVATI RAJE COTTON MILLS LTD.

Income‑tax Reference No.36 of 1992, decided on 4th May, 1999.

(a) Income‑tax‑‑‑

‑‑‑‑Business expenditure‑‑‑Payment of market fees to Market Committee‑‑­Payment exceeding Rs.2,500 by cash disallowed by ITO ‑‑‑Miscellaneous application by ‑assessee before Tribunal enclosing letter from Market Committee that committee not prepared to accept crossed cheque‑‑‑Tribunal's finding that letter was afterthought and rejecting it and affirming decision of ITO ‑‑‑In view of finding of fact by Tribunal no interference is called for‑‑­Payment exceeding Rs.2,500 by cash is to be disallowed‑‑‑Indian Income Tax Act, 1961, S.40A(3)‑‑‑Indian Income Tax Rules, 1962, R.6DD(j).

(b) Income‑tax‑‑‑

‑‑‑‑Business expenditure‑‑‑Deduction allowable only on actual payment‑‑­Interest payable under Haryana General Sales Tax Act, 1973, treated as deemed tax for purpose of collections and recovery under that Act‑‑Not a tax within the meaning of S.43B of Income‑tax Act‑‑‑Section 43B not applicable to provision made for such interest‑‑‑Indian Income Tax Act, 1961, S.43B.

While completing the assessment, the Income‑tax Officer had disallowed the payment of market fees where the payments were made in cash to the Market Committee, Sirsa, Haryana, by invoking the provisions of section 40A(3) of the Income Tax Act, 1961. This was upheld by the Commissioner of Income‑tax (Appeals) as well as the Tribunal. The Tribunal found that the assessee had not satisfied the conditions laid down in the Rules. The Tribunal also rejected the assessee's application producing a letter from the Market Committee to the effect that the Committee was not prepared to accept the payment by cheque as an afterthought. On a reference:

Held, that in view of the finding of fact by the Tribunal no interference was called for. The payments exceeding Rs.2,500 by cash were rightly disallowed.

The Income‑tax Officer had also disallowed a sum of Rs.41,666 representing provision .made for liability for interest payable to the Haryana Government on arrears of purchase tax by invoking section 43B of the Income Tax Act, 1961. But the Appellate Tribunal deleted this disallowance accepting the assessee's contention that section 43B of the Act was inapplicable to such interest. On a reference:

Held, that interest could not be treated as tax under section 43B of the Income Tax Act, 1961.

Hindustan Motors Ltd. v. CIT (1996) 218 ITR 450 (Cal.) fol.

CIT v. Syndicate Bank (1986) 159 ITR 464 (Kar.) ref.

Ramchandra for the Commissioner.

J.P. Khaitan for the Assessee.

2001 P T D 1404

[244 I T R 574]

[Calcutta High Court (India)]

Before Y. R. Meena and R. K. Mazumdar, JJ

COMMISSIONER OF WEALTH TAX

versus

P. P. GHOSH (through executrix Smt. Jayanti Ghosh)

Matter No.354 of 1983, decided on 6th April, 2000.

Wealth tax‑‑‑

‑‑‑‑ Revision‑‑‑Meaning of "record "‑‑‑Valuation of immovable properties‑‑­Valuation report of Valuation Officer not available to W.T.O. at time of completion of assessment‑‑Report can be considered by CWT‑‑‑Revision under S.25. justified‑‑‑Indian Wealth Tax Act, 1957, S. 25.

The term "record" is not confined to the material available to the Assessing Officer, it would include material available on record at the time of examination by the Commissioner of Wealth Tax. The valuation report received after completion of the assessment forms part of the assessment record and the Commissioner can consider the report for the purpose of revision of the assessment orders under section 25 of the Wealth Tax Act, 1957.

CIT v. Shree Manjunathesware Packing Products and Camphor Works (1998) 231 ITR 53 (SC) fol.

CIT v. S.M. Oil Extraction (Pvt.) Ltd. (1991) 190 ITR 404 (Cal.) and Ganga Properties v. ITO (1979) 118 ITR 447 (Cal.) ref.

2001 P T D 1773

[241 I T R 269]

[Calcutta High Court (India)]

Before Y. R. Meena and Ranjan Kumar Mazumdar, JJ

ANZ GRINDLAYS BANK PLC

Versus

COMMISSIONER OF INCOME‑TAX

Income‑tax Reference No. 145 of 1993, decided on 13th August, 1999

(a) Income‑tax‑‑‑

‑‑‑‑Appeal to Commissioner of Income‑tax (Appeals)‑‑‑Recovery of tax‑‑­Competency of appeal‑‑‑Levy of interest under S. 220(2)‑‑‑No appeal lies against such levy‑‑‑Levy of interest by Assessing Officer while giving effect to order of Tribunal‑‑‑No appeal lies against order‑‑‑Indian Income Tax Act, 1961, Ss. 220 & 246.

(b) Income‑tax‑‑‑

‑‑‑Advance tax‑‑‑Interest payable by Government‑‑‑Interest paid under S.214‑‑‑Order passed in appeal resulting in higher tax than amount paid as advance tax‑‑‑Interest paid under S.214 could be recovered‑‑‑Indian Income Tax Act, 1961, S.214.

In the order charging interest under section 220(2) of the Income‑tax Act, 1961, on the basis of the decision of the Tribunal in appeals of the assessee and the Revenue, it is a simple calculation of the interest under section 220(2) of the Act. That order charging interest under section 220(2) of the Act admittedly is not appealable under the provisions of section 246 of the Act.

Subsection (1A) of section 214 of the Act provides that where on completion of the regular assessment the amount on which the 'interest paid under subsection (1) has been reduced, the interest shall be reduced accordingly, and the excess, if any paid, shall be deemed to be tax payable by the assessee and the provisions of this Act shall apply.

Held, (i) that, in the instant case, admittedly the net result after regular assessment as well as after giving effect to the orders of the Tribunal for the assessment year 1978‑79 was that the assessee had not paid the tax deducted at source or advance tax more than the tax assessed. Therefore, in any case, if the interest had been paid, which was not payable under section 214 of the Act, that could be recovered. There was outstanding tax to the tune of Rs. 90,49,951. The assessee was liable to pay the interest on the outstanding tax under section 220(2). The interest under sections 214 and 244(lA) of the Act which was not due at all or payable by the Revenue to the assessee, had rightly been adjusted.

(ii) That in the order charging, interest under section 220(2), the Assessing Officer had simply calculated the tax on the basis of the orders of the Tribunal and calculated the. interest on the outstanding tax finally assessed. No appeal lay from the order.

C.E.S.C. Ltd. v. CIT 1999 PTD 1212; Central Provinces Manganese Ore Co. Ltd. v. CIT (1986) 160 ITR 961 (SC); CIT v, Suresh Gokuldas 1999 PTD 3191; Kooka Sidhwa & Co. v. CIT (1964) 54 ITR 54 (Cal.); Modi Industries Ltd. v. CIT (1995) 216 ITR 759 (SC), and Princess Usha Trust v. CIT (1989) 176 ITR 227 (MP) ref.

P.K. Pal, Senior Advocate and Subrata Das for the Assessee.

M.P. Agarwal with J.C. Saha for the Commissioner

2001 PTD 2182

[239 I T R 603]

(Calcutta High Court (India))

Before Ajoy Nath Ray, J

SASHANK INVESTMENT AND CONSTRUCTION

(PVT.) LTD. and another

Versus

INCOME‑TAX OFFICER COMPANIES WARD 12(3) and others

Writ Petition No. 1746 of 1997, decided on 10th July, 1998.

Income‑tax‑‑‑

‑‑‑‑Tax clearance certificate‑‑‑Transfer of property‑‑‑General principles relating to tax clearance certificates under S.230A‑‑‑Indian Income Tax Act, 1961, S.230A.

The requirements of section 230A of the Income Tax Act, 1961, are as follows: (i) A document must prospectively be in sight which requires registration under section 17; (ii) the person applying for clearance must be seeking to transfer some interest to, or in property which he has; this is not necessarily immovable property; also it does not necessarily follow that if the applicant's interest sought to be transferred were the sole subject ­matter of a conveyance or assignment, it would have required registration under section 17; (iii) the value of the interest sought to be conveyed must exceed Rs.5,00,000; (iv) there might be sereval applicants under section 230A in respect of the same prospective document each applying to his own Income‑tax Officer;. (v) the decision as to grant of section 230A clearance must be taken by each Income‑tax Officer independently of what course the other Income‑tax Officer might take in regard to other assessees. The above principles are not intended to be exhaustive, nor very exact, but are only laid down for the purpose of guidance on points of principle and understanding. It should be borne in mind that it is in the interests of the Revenue so to construe section 230A that the maximum number of persons require to get clearance and, therefore, have locus standi to apply for it. It is in the interest of the Revenue that transfers are not made without clearance of tax liability. It should also not be lost sight of, that persons without income ­tax liability who have engaged in some sort of productive economic activity should get the certificate or other benefits of their applications are not tainted by any illegality.

J.P. Khaitan for Petitioner.

Dipak Deb for Respondents.

2001 P T D 2329

[239 I T R 838]

[Calcutta High Court (India)]

Before YR. Meena and Ranjan Kumar Mazumdar, JJ

Smt. MANDIRA MUKHERJEE

Versus

COMMISSIONER OF INCOME-TAX

Income-tax Reference No.212 of 1991, decided on 6th August, 1999.

Income-tax---

----Other sources---Property---Income from property or from other sources--­Assessee, occupying land as non-agricultural tenant---Factory shed constructed on land and rent paid to assessee---Rent was assessable as income from other sources---Indian Income Tax Act, 1961, Ss.22 & 56.

A deed of settlement was executed in 1951 by A. Under the deed A made his only son, S, a trustee and also made provision for the, maintenance of his daughter and grand-daughter. After defraying expenses, S was allowed to enjoy the estate as absolute owner thereof till his lifetime. Thereafter, the property would vest in his grandson, SK. The assessee was the daughter of S. She was in possession of part of the land as a non-agricultural tenant Initially, the assessee was paying ground rent of Rs.150 per month for this land and on January 8, 1977, she entered into an agreement with SK, her brother, according to which she let out the land to him at Rs.1,800 per month with effect from January 1 , 1978, and SK, constructed a factory-shed on this land at a cost of Rs.80,000 and after adjusting Rs.800 per month towards cost of the factory shed he paid the balance of Rs.1,000 per month to the assessee. Thereafter, the rent was enhanced in the year 1981-82 and then in the year 1984-85. As per the assessee, she received Rs.24,000 as gross rent from SK. In the return, she claimed this as income from "the house property" and also claimed deduction there from. The Income-tax Officer did not accept the assessee's claim and assessed the income as income from other sources. This was upheld by the Tribunal. On a reference:

Held, that mere possession did not confer any right of ownership on the assessee. No evidence was adduced to show that the assessee was the owner of the property. The rental income was not assessable as income from house property. It was assessable as income from other sources.

2001 P T D 2667

[240 I T R 632]

[Calcutta High Court (India)]

Before Y.R. Meena and R. K. Mazumdar, JJ

COMMISSIONER OF INCOME-.TAX

versus

SIJUA (JHARRIAH) ELECTRIC SUPPLY CORPORATION LTD.

Income-tax Reference No. 142 of 1993, decided on 26th August, 1999.

Income-tax---

----Business expenditure---Gratuity---Electricity undertaking acquired by State Government---Acquisition Act providing that gross amount payable to assessee would be reduced by gratuity payable by assessee to its employees--­Gratuity was deductible- --Indian Income Tax Act, 1961 S.40A(7).

The assessee was carrying on business of production and sale of electricity. On July 17, 1975, the electricity undertaking was taken over by the Bihar State Electricity Board and all assets, liabilities, etc., vested in the said Board under the Bihar Electricity Supply Undertakings (Acquisition) Act, 1979. The compensation money receivable by the assessee-company for such acquisition was not finalised on the date of making assessment. The assessee had claimed the gratuity payable as on July 17, 1975, at Rs.13,35,467. The Assessing Officer disallowed the claim but the Tribunal allowed it. On a reference:

Held, that under the Bihar Electricity Supply Undertakings (Acquisition) Act, 1979, the company's business had been taken over by the State Government with all liabilities from the date of vesting of the business in the State Government, that is from July 17, 1975. Section 9(m) of the Act further provides that "all sums due to any employee in respect of provident fund, pension fund or gratuity fund or any other fund established for the welfare of the employees of the licensee" are also deductible from the gross amount payable to the assessee as compensation. After .the date of vesting of the assessee-company's business, the employees became the employees of the State Government and the gratuity payable to the employees would be paid by the State Government and that would be deducted from the gross amount payable by the State Government to the assessee. Whether the assessee paid the gratuity amount directly or that amount had been paid on behalf of the assessee by the State Government did not make any difference. The stun of Rs.13,35,467 was. allowable under section 40A(7) of the Income Tax Act, 1961.

W.T. Surer & Co. Ltd. v. CIT (1998) 230 ITR 643 (SC) and CIT v: Sarada Binding Works (1985) 152 ITR 520 (Mad.) fol.

2001 P T D 2714

[239 I T R 484]

[Calcutta High Court (India)]

Y. R. Meena and R. K. Mazumdar, JJ

COMMISSIONER OF INCOME-TAX

versus

SHREE DURGA AGENCIES LTD.

No.48 of 1993, decided on 15th June, 1999.

Income-tax---

----Revision---Commissioner---Scope of powers---Clause (c) of Explanation to S.263 inserted w.e.f. 1-6-1988---Effect---Powers extend to matters not considered and decided by Commissioner (Appeals)---Even in respect of periods prior to 1-6-1988---Indian Income Tax Act, 1961, S.263, Expln. (c).

Clause (c) of the Explanation to section 263 of the Income Tax Act, 1961, inserted with effect from June 1, 1988, leaves no doubt that the power of the Commissioner under section 263 shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in appeal before the Commissioner of Income-tax (Appeals) or the Appellate Assistant Commissioner.

Where, in an appeal relating to the assessment year 1982-83, neither in the grounds of appeal before the Commissioner of Income-tax (Appeals) nor in the matters considered by the Commissioner (Appeals), the issues regarding service charges and vehicles hire charges amounting to Rs.6,65,162 and Rs.18,900 figured, and the Commissioner of Income-tax (Appeals) had not considered those issues: '

Held, that since the matter was not before the Commissioner of Income-tax (Appeals) nor was there any decision on the issue by the Commissioner (Appeals), the Commissioner of Income-tax was justified in invoking the provision of section 263 of the Act to revise the order of the Income-tax Officer on these issues.

CIT v. Shri Arbuda Mills Ltd. (1998) 231 ITR 50 (SC) fol.

General Beopar Co.,(Pvt.) (1987) 167 ITR 86 (Cal.) ref.

Soumitra Pal and B. D. Halder for the Commissioner.

2001 P T D 2755

[239 I T R 916]

[Calcutta High Court (India)]

Before Ajoy Nath Ray and Dipak Prakas Kundu, JJ

COMMISSIONER OF INCOME-TAX

versus

JYOTSNA RANI SAHA

I.T.P. No. 103 of 1998, decided on 10th September, 1998.

Income-tax---

----Reference---Other sources---Property---Finding by Tribunal that income received by assessee was composite and did not wholly arise from house property---Part of income was from other sources---Tribunal was justified in allowing deduction of expenditure on salary of night guard, electricity charges, etc.---No question of law arose---Indian Income Tax Act, 1961, Ss.22, 56 & 256.

Held, dismissing the application to direct reference, that the Tribunal had found that the income received by the assessee was composite and did not wholly arise from house property as part of it was on account of services rendered by the assessee. The Tribunal was, therefore, justified in holding that the assessee was entitled to deductions on account of salary of night guard, electricity charges, etc, relatable to income from other sources. No question of law arose from its order.

CIT v. Kanak Investments (Pot.) Ltd. (1974) 95 ITR 419 (Cal.); CIT v. Sreelekha Banerjee (Smt.) (1989) 179 ITR 46 (Cal.) and Karnani. Properties Ltd. v. CIT (1971) 82 ITR 547 (SC) ref.

Deb fort the Commissioner.

2001 P T D 2761

[239 I T R 921]

[Calcutta High Court (India)]

Before Y R. Meena and Ranjan Kumar Mazumdur JJ

JOINT COMMISSIONER OF INCOME‑TAX

versus

I.T.C. LTD. and another

G.A. Nos.2095'and 2218 of 1999 and A.P.O.T. Nos.401 and 425 of 1999, decided on 5th July, 1999. .

(a) Income‑tax‑‑‑

‑‑‑‑Assessment‑‑‑Appointment of special auditor‑‑‑Scope of S. 142(2A)‑‑­Complexity of accounts is the only criterion for deciding whether special auditor should be appointed‑‑No limit with regard to quantum of receipts‑‑­Indian Income Tax Act, 1961, S.142(2A)‑‑‑[Sarma (A.S.) Union of India (1989) 175 ITR 254 (AP) dissented from].

In cases where the "nature and complexity of accounts is such that it is not possible for the Assessing Officer to justify the correct assessment of the income and to examine the correctness of the accounts the Assessing Officer has power to appoint a special auditor with the approval of the Commissioner or Chief Commissioner. The power conferred on the Assessing Officer and the approval of the Commissioner and Chief Commissioner is not confined to any turnover, in business or profession. There is no limit or any bar on account of amount of receipt either in business or profession. This power has been conferred receipts either in the Assessing Officer to do justice to the assessee and also to protect the interest of the Revenue..

Sarma (A.S.) v. Union of India (1989) 175 ITR 254 (AP) dissented from.

Held, (i) that, in the instant case, the Commissioner after hearing the assessee had endorsed the view taken by the Assessing Officer regarding appointment of auditor under section 142(2A) and finally approval had been given by the Chief Commissioner after considering the written submissions of the assessee submitted before the Chief Commissioner When both the Commissioner and Chief Commissioner are competent and have concurrent jurisdiction to give approval for appointment of auditor, and if finally approval is given by the Chief Commissioner, after going reasonable opportunity to the assessee to raise his objections regarding appointment of special auditor under section 142(2A), no objection could be raised on the ground that approval had not been granted by the Commissioner.

(b) Income‑tax‑‑‑

‑‑‑‑Assessment‑‑‑Appointment of special auditor ‑‑‑Assessee having forty­three branches all over India with turnover running into several crores‑‑­Search in some, of assessee's business premises and discovery of illegal transactions‑‑‑Appointment of special auditor was justified‑‑‑Indian Income Tax Act, 1961, S.142(2A).

Assessee had forty‑three branches all over the country. In the previous year relevant to the assessment year, the assessee had added Rs.81.42 crores to the plant and machinery, Rs.2.95 crores to the motor vehicles, Rs.14.86 crores to the land and Rs.6.69 crores to the buildings. These claims should be verified to see whether these claims/expenditure were for the purpose of business and could be allowed under the Act, and if so to what extent the assessee‑company had purchased leaf tobacco worth Rs.66.33 crores from All India Tobacco Co. Ltd. paper board worth Rs.30.20 crores from T and made payment of Rs.11.45 crores on account of contractual obligation. Whether the expenditures were genuine or whether the expenditures were hit by any of the provisions of the Act that could be determined only when there was verification from the material on the basis of which the accounts had been prepared. The assessee had claimed deduction of Rs.22.27 crores while computing the taxable income, but no proper accounts and details thereof had been furnished. In December, 1996, there was a search in offices, business premises and factories belonging to the assessee throughout the country and illegal transactions worth more than Rs.200crores were found. Considering the fact and "nature and complexity" of the accounts in this case the appointment of a special auditor was justified.

Peerless General Finance and Investment Co. Ltd. v. Deputy CIT (1999) 236 ITR 671 (Cal.) and Swadeshi Cotton Mills Co. Ltd. v. CIT (1988) 171 1TR 634 (All.) ref.

Roy Choudhury for the Commissioner.

Dr. Pal for the Assessee.

2001 P T D 3244

[240 I T R 925]

[Calcutta High Court (India)]

Before Y. R. Meena and R. K. Mazumdar, JJ

COMMISSIONER OF INCOME‑TAX

Versus

PODDAR BROS. (P.) LTD.

I.T.R. No.99 of 1993, decided on 4th August, 1999..

Income‑tax‑‑‑

‑‑‑‑Property‑‑‑Determination of annual value‑‑‑Property let out‑‑‑Valuation under Municipal Corporation Act not challenged‑‑‑Annual value to be determined on basis of annual rateable value‑‑‑Indian Income Tax Act, 1961, S.23.

An entire building was let out to various persons, including some directors of the assessee‑company and relatives of the directors and persons having substantial interest in the company. The Assessing Officer estimated the gross rental income from the building at Rs.2,73,120 in each of the assessment years, 1985‑86 and 1986‑87. The Tribunal held that the annual ` letting value should be taken according to municipal law. On a reference:

Held, that when the valuation of the property had been determined under the Calcutta Municipal Corporation Act and that had not been challenged, the Tribunal was justified in accepting the annual letting wine on the basis of valuation taken by the Calcutta Municipal Corporation under the provisions of the Municipal Corporation Act. The Tribunal was justified in law in adopting the annual rateable value according to the municipal law for the purpose of assessment under the Income‑tax Act.

CIT v. Prabhabati Bansali (1983) 141 ITR 419 (Cal.); CIT v. gatya Co. Ltd. (1994) 75 Taxman 193 (Cal.); Dewan Daulat Rai Kapoor v, New Delhi Municipal Committee (1980) 122 ITR 700 (SC) and Mrs. Sheila Kaushish v. CIT (1981) 131 ITR 435 (SC) ref.

Bajoria for the Assessee.

2001 P T D 3270

[240 I T R 331]

[Calcutta High Court (India)]

Before Ajoy Nath Ray, J

BANK OF TOKYO MITSUBISHI LTD.

Versus

COMMISSIONER OF INCOME‑TAX and others

Writ Petition No. 1017 of 1999, decided on 10th August, 1999.

Income‑tax‑‑‑

‑‑‑‑Refund‑‑‑Adjustment of refund against amounts due for subsequent year‑‑‑Adjustment can be made only by Revenue‑‑‑Revenue must give assessee prior intimation of such adjustment‑‑‑Indian Income Tax Act, 1961, S.245.

The adjustment of the refundable amount against tax dues can be made and must be made in accordance with section 245 of the Income‑tax Act, 1961. Under section'245 a prior intimation in that regard must originate from the Revenue. Only thereafter, the Revenue has jurisdiction to make the set off. The set off is to be made by the Revenue after following the law and observing the mandate of section 245.

For the assessment year 1991‑92, the assessee was assessed to a refund order. For the assessment year 1993‑94, there was assessed liability and the assessee filed the declaration and sought payment of the proportionate amount as per the Kar Vivad Samadhan Scheme, 1998, for settlement of the disputes which were then pending before the Tribunal. The designated authority rejected the declaration on the ground that the dues of the assessment year 1993‑94 were adjusted against the credit of the assessee by way of the refundable amount for the assessment year 1991‑92 at the request of the assessee. On a writ petition to quash the order:‑‑

Held, that in this caste the request of the assessee for adjustment was treated by the designated authority as a matter of completing the adjustment by itself and even as an acquiescence to such adjustment. When the initiation of the adjustment was not made by the Revenue at all, the assessee had nothing to acquiesce in. The impugned order of rejection by the designated authority had to be set aside and cancelled and had to be treated as replaced 'by an order accepting the declaration under the Kar Vivad Samadhan Scheme directing the assessee to pay to the designated authority a sum of Rs.52,59,742 within a period of four weeks. Upon such payment the due certificates should be issued to the writ petitioners within eight weeks.

[It was made clear that on the wiping out of the liability for the assessment year 1993‑94, the revival of the credit for the assessment years 1991‑92 and 1992‑93 would have to be prosecuted by the writ petitioner separately in other proceedings for obtaining those refunds with interest unless the Revenue automatically made those payments.]

R.N. Bajoria, Senior Advqcate, J.P. Khaitan and C.M. Ghorawat for Petitioner.

P.K. Mallick,:Senior Advocate and J.C. Saha for Respondents.

2001 P T D 3317

[240 I T R 477]

[Calcutta High Court (India)]

Before Y.R. Meena and Ranjan Kumar Mazumdar, JJ

BORMAH JAN TEA CO. (1936) LTD.

Versus

COMMISSIONER OF INCOME‑TAX

Income‑tax Reference No. 107 of 1994, decided on 18th August, 1999

Income‑tax‑‑‑

‑‑‑‑Amnesty scheme‑‑‑Benefits under scheme available only in respect of income not offered for taxation‑‑‑Excessive deduction claimed in original return‑‑‑Deduction as per provisions of Act claimed in revised return‑‑­Consequent additional income was entitled to benefits of Amnesty Scheme‑‑­Entire income shown in revised return was not entitled to benefit of Amnesty Scheme.

The assessee filed a return for the assessment year 1985‑86 in November, 1985, declaring a total income of Rs.11,69,100. Thereafter, the assessee filed a revised return on September 12, 1986, declaring a total income of Rs.11,77,590. The difference represented an increase of the income by Rs. 8,488. The assessee claimed that the revised return filed voluntarily disclosing higher income came within the Amnesty Scheme. The Assessing Officer completed the assessment and also initiated penalty proceeding under section 271(1)(a) and section 273(2)(a) of the Income Tax Act, 1961. According to the Income‑tax Officer, the increase in the income in the revised return was a result of statutory disallowance and re‑calculation of depreciation under the Income‑tax Rules and hence, no higher income had been shown by the assessee in the revised return and that, therefore, it could not get the benefit of Amnesty Scheme. The Tribunal confirmed the order of the Assessing Officer. On reference:

Held, (i) that the benefit of the Amnesty Scheme can be extended only to the escaped income. "Income escaped" means the income which has not been offered to tax. In the instant case in the original return the assessee had claimed excessive deductions which were not permissible under the Act. But, in the revised return, it had claimed the deductions as per the provisions of the Act. Therefore, to the extent, the income of the assessee could be treated as income escaped, but the benefit of the Amnesty Scheme could not be extended to the entire income disclosed in the revised return as it was neither concealed income‑ nor undisclosed income. Accordingly only the additional income of Rs.8,488 was covered by the Amnesty, Scheme.

(ii) that the assessee was entitled for the benefit of the Amnesty Scheme, that is, immunity from the levy of interest under sections 139(8) and 215 and from the levy of penalty under section 273(l)(a) only on the additional income, i.e., Rs.8,488 shown in the revised return.

N.K. Poddar, Senior Advocate, P. Ganguly and M.K. Mukherjee for the Assessee.

P.K. Bhowmick and B.D. Halder for the Commissioner.

2001 P T D 3434

[240 I T R 513]

[Calcutta High Court (India)]

Before YR. Meena and Ranjan Kumar Mazumdar, JJ

COMMISSIONER OF INCOME‑TAX

Versus

BHORUKA PUBLIC WELFARE TRUST

Income‑tax Reference No. 104 of 1988 (R.As. Nos.21 and 22 (Cal.) of 1988), decided on 28th July, 1999.

(a) Income‑tax‑‑‑

‑‑‑‑Charitable purposes‑‑‑Charitable trust‑‑‑Exemption‑‑‑Denial of exemption ‑‑‑‑Investment of trust funds in concern in which person who has made a substantial contribution to trust has substantial interest‑‑‑Law applicable‑‑‑Section 13(l)(d) applies only from assessment year 1984‑85‑‑­Donation of shares to trust in June, 1982‑‑‑Section 13(1)(d) was not applicable for assessment year 1983‑84‑‑‑Receipt of shares did not amount to investment of trust funds in shares‑‑‑Exemption could not be denied under S.13(2)(h)‑‑‑Indian Income Tax Act, 1961, Ss.11 & 13‑‑‑CBDT Circular, dated 15-3‑1991.

The assessee was a trust. The trust received donation to the extent of Rs:18,11,134 during the accounting year ending June 30, 1982. Such donation included shares of the face value of Rs.14,00,000 of Transport Corporation of India Ltd. (1,40,000 equity shares of Rs.10 each), received from P and C on August 28, 1981. The Income‑tax Officer found that the donor had substantial interest in Transport Corporation of India Ltd. within the meaning of section 13(2)(h) of the Income Tax Act, 1961. Therefore, the Income‑tax Officer invoked the provisions of section 13(4) and brought to tax the dividend income derived by the trust. The Commissioner of Income‑(Appeals) and the Tribunal, however, held that the assessee was entitled to exemption. .On a reference:

Held, that the assessee received the shares of the company by way of donation. The assessee did not deal with or commit or lay out any part of its existing assets to acquire the said shares. In such case, there was no investment of the fund of the assessee within the meaning of section 13(2)(h).

CIT v.. Birla Charity Trust (1988) 170 ITR 150 (Cal.) fol.

That the Board had clarified that section 13(1)(d) would be applicable only from the assessment year 1984‑85. Hence, it would not be applicable for the assessment year 1983‑84.

(b) Income‑tax‑‑‑

‑‑‑‑Charitable purposes‑‑‑Charitable trust‑‑‑Exemption‑‑‑Computation of income of trust‑‑‑Depreciation is deductible‑‑‑Indian Income Tax Act, 1961.

Depreciation claimed in the accounts by the assessee was an outgoing for the purpose of determination of income in terms of section 11(1).

CIT v. Jayashree Charity Trust (1986) 159 ITR 280 (Cal.) fol.

Obiter Dicta: The decision in CIT v. Jayashree Charity Trust (1986) .159 ITR 280 (Cal.) requires reconsideration.

CIT v. Deoria Public Charitable Trust (1992) 196 ITR 110 (Cal.); CIT v. Indian Jute Mills Association (1982) 134 ITR 68 (Cal.); CIT v. Raipur Pallotine Society (1989) 180 ITR 579 (MP); CIT v. Rao Bahadur Calavala Cunnan Chetty Charities (1982) 135 ITR 485 (Mad.); CIT v. Savan Public Charitable Trust (1993) 201 ITR 877 (Cal.); CIT v. Sheth Manilal Ratichhoddas Vishram Bhavan Trust (1992) 198 ITR 598 (Guj.); CIT v. Society of the Sisters of St. Anne (1984) 146 ITR 28 (Kar.) and CWT v. Bharat Charity Trust (1993) 199 ITR 420 (Cal.) ref.

Ram Chandra Prosad for the Commissioner.

N.K. Poddar for the Assessee.

2001 P T D 3498

[240 I T R 579]

[Calcutta High Court (India)]

Before Ajoy Nath Ray, J

SHAW WALLACE & CO. LTD, Versus

INCOME‑TAX APPELLATE TRIBUNAL and others

Writ Petition No. 11038 (W) of 1999, decided on 28th July, 1999.

(a) Income‑tax‑‑‑

‑‑‑‑Appeal to Appellate Tribunal‑‑‑Writ‑‑‑Powers of Tribunal‑‑‑Power of rectification‑‑Tribunal cannot recall its entire order and rehear appeal‑‑­Question which is debatable ‑‑‑Power of rectification cannot be exercised ‑‑­Order of Tribunal setting aside block assessment‑‑‑Erroneous observation in order that there could be no separate assessment in respect of a particular year comprised in block period‑‑‑Entire order could not be recalled ‑‑‑No appeal lay from such order and even if it did the order could be quashed in writ proceedings‑‑‑Indian Income Tax Act, 1961, S.254.

Absolute obliteration of its earlier order is not within the jurisdiction of the Tribunal. It cannot totally recall its order under section 254(2) of the Income Tax Act, 1961, and proceed to rehear the matter on de novo arguments. The words of the said subsection refer to amendment or rectification and not a total recall. Invocation of section 254(2) is not proper where the matter needs long drawn arguments.

The Tribunal had set aside a block assessment made under Chapter XIV‑B by its order, dated April 22, 1998. After the Tribunal passed its order in April, 1998 an Explanation was added to the Income‑tax Act in Chapter XIV‑B to section 158BA. By that Explanation, regular assessments for all years in the block period are also required to be made. In regard to the regular assessment for one particular assessment year in the block period of the same assessee, an earlier writ was filed and a judgment had been delivered. In that judgment it had been observed that these would be a block assessment for all the years in question but in addition thereto there would be also regular assessments for the separate years included in the block period. A miscellaneous application under section 254(2) had been made by the Revenue subsequent to the introduction of the amendment but prior 4o the delivery of the judgment. The Tribunal passed an order thereon on June 1, 1999, recalling its earlier order. On a writ petition to quash the order, dated June 1, 1999:

Held, that the Tribunal's order of April, 1998, in so far as the ordering portion was concerned, was in perfect accordance with the added Explanation and the earlier judgment delivered by the High Court. However, in the body of the Tribunal's order, it was observed by the Tribunal that the block assessment would be one assessment and there would not be separate assessments for the individual assessment years included in the block period. In the order of June 1, 1999, the Tribunal had observed that remark was a mistake apparent on the record. The Tribunal did not have the power to recall its entire order. Moreover, the invocation of section 254, sub­section (2) in a matter like this was improper because the matter was one requiring long drawn arguments. There are conflicting decisions by the High Court in the matter. Here the order of the Tribunal was not passed in appeal but on a miscellaneous application directed towards rectifying a mistake apparent from the record. If the order under section 254(2) had taken the shape of modifying by way of amendment or rectification, the original order to some extent, then both of those jointly might have been appealable under section 260A; but an order of recall is clearly not appealable. Alternatively, even if appealable, the order being without jurisdiction, the writ application should be entertained in this case, as an exception, in the interest of expedition of the assessment proceedings. In the Tribunal's order in the reasoning portion a mistaken view was no doubt on record that regular assessment for separate assessment years included within the block period would be obviated by the block assessment; but this was mere reasoning. The Tribunal was not entitled under section 254(2) to rectify or amend any reasoning of it which did not affect the correctness of its final order. The ordering portion of the order, dated June 1, 1999, was to be cancelled and set aside so that the ordering portion of the order, dated April 22, 1998, shall revive and be of full effect. However, the Department hereafter was to read the reasoning of June 1, 1999, order also alongwith the body of the order, dated April 22, 1998, as by doing this, they would be proceeding correctly to make the block assessment and also the separate regular assessments for the individual assessment orders included in the block period.

CIT v. ITAT (1992) 196 ITR 590 (Orissa); ‑CIT v. ITAT (1992) 196 ITR 683 (Orissa); CIT v. ITAT (1994) 206 ITR 126 (AP); CIT v. Kelvin Jute Co. Ltd. (1980) 126 ITR 679 (Cal.); CIT v. M.P. Electricity Board (1994) 210 ITR 425 (MP); CIT v. R.M. & Co. (19841 148 ITR 353 (AP); CIT v. E. Sefton & Co. (P.) Ltd. (1989) 179 ITR 435 (Cad.); CIT v. Swadeshi Commercial Co. Ltd. (1992) 106 CTR 122 (Cal.); CIT v. U.P. Shoe Industries (1999) 235 ITR 663 (All.) and Shaw Wallace & Co. Ltd. v: Assistant CIT (1999) 238 ITR 13 (Cal.) ref.

(b) writ‑--‑

‑‑‑‑Alternate remedy‑‑‑Order passed without jurisdiction can be quashed in writ proceedings even if there is an alternate remedy‑‑‑Constitution of India, Art. 226.

R. N. Bajoria, J. P. Khaitan and A.K. Dey for Petitioner.

P.K. Mallick, I.C. Saha and Nizamuddin for Respondents.

2001 P T D 3571

[240 I T R 718]

[Calcutta high Court (India)]

Before YR. Meena and Ranjan Kumar Mazumder, JJ

COMMISSIONER OF INCOME‑TAX

versus

UNIT CONSTRUCTION CO. (PVT.) LTD.

I. T. R. No. 196 of 1993, decided on 9th August, 1999.

Income‑tax‑‑‑

‑‑‑‑Investment allowance‑‑‑Industrial undertaking‑‑‑Industrial company‑‑­Construction work ‑‑‑Assessee engaged in construction work‑‑‑Is an industrial company ‑‑‑Assessee not entitled to investment allowance‑‑‑Indian Income Tax Act; 1961, S.32A(2).

Investment allowance is permissible only in the case of "industrial undertakings" and not in the case of "industrial company" or an assessee engaged in construction work:

Held, accordingly, that the assessee engaged in construction work was not an industrial undertaking as it did not manufacture an article or thing as specified in subsection (2) of section 32A of the Income Tax Act, 1961

Builders Associations of India v. Union of India (1994) 209 ITR 877 (SC) fol.

Soumitra Pal for the Commissioner.

Nemo for the Assessee.

2001 P T D 3593

[240 ITR 889]

[Calcutta High Court (India)]

Before Y. R. Meena and R. K. Mazumdar, JJ

COMMISSIONER OF INCOME‑TAX

versus

Sm. RENUKA GANGULY and others

Income‑tax Reference No. 107 of 1992, decided on 23rd August, 1999.

Income‑tax‑‑‑

‑‑‑Assessment‑‑Body of individuals‑‑‑Death of ‑owner of proprietary concern‑‑‑ Business continued by widow on behalf of heirs of deceased‑‑‑ Business assessable as body of individuals‑‑‑Indian Income Tax Act, 1961, Ss. 143 & 147.

The husband of the assessee, who was a doctor, was the owner of a proprietary concern namely, a clinical laboratory. He died in 1973. The widow of the deceased continued the business on behalf of her minor son and unmarried daughter and two married daughters from the deceased's first wife. For the assessment years 1974‑75, 1975‑76 and 1976‑77, the Income-tax Officer assessed the income from the clinic taking the status as "body of individuals". On appeal, the Tribunal assessed the income of the concern in the hands of each heir of the deceased. On a reference:

Held, that the business was carried on by the widow of the deceased and was in the common interest and object of all the heirs of the deceased. Therefore, the status for assessing the income from the concern as "body of individuals" was proper.

Meera & Co. v. CIT (1979) 120 ITR 564 (P&H) fol.

G:N. Sunanda v. CIT (1988) 174 ITR 66 (Kar.) distinguished.

CIT v. Harivadan Ribhovandas (1977) 106 ITR 494 (Guj.) ref.

2001 P T D 3720

[241 I T R 665]

[Calcutta High Court (India)]

Before Y.R. Meena and Ranjan Kumar Mazumdar, JJ

COMMISSIONER OF INCOME‑TAX

versus

KANUBHAI ENGINEERS (P.) LTD.

Income‑tax Reference No.78 of 1994, decided on 14th September, 1999.

Income‑tax‑‑‑

‑‑‑‑Revision‑‑‑Reassessment‑‑‑Scope of reassessment‑‑‑Original assessment‑‑­Reopening of assessment is only as regards income escaping assessment‑‑­Original assessment under S.143(3) remains even after reassessment in respect of matters which had been decided in original assessment ‑‑‑CIT can revise original assessment order if it was erroneous and prejudicial to Revenue even after reassessment‑‑‑Indian Income Tax Act, 1961, Ss. 143, 147 & 263.

In proceedings under section 147 of the Income Tax Act, 1961, the Income‑tax Officer may bring to charge‑ items of income which had escaped assessment other than or in addition to that item or items which have led to the issuance of the notice under' section 148. Where reassessment is made under section 147 in respect of income which has escaped assessment, the Income‑tax Officer's jurisdiction is confined to only such income which has escaped assessment or has been underassessed and does not extend to revising, reopening or reconsidering the whole assessment or permitting the assessee to reagitate questions which had been decided in the original assessment proceedings. It is only the underassessment which is set aside and not the entire assessment when reassessment proceedings are initiated. When the assessment is reopened the original assessment under section 143('3) remains and it could not be said that the original assessment is non est on account of the reopening of the assessment.

When the original assessment remains the Commissioner of Income-­tax had every right to revise the order if it was erroneous and prejudicial to the interests of the Revenue.

The original assessment was made on November 18, 1985, and the revised assessment under section 147 was made on January 8, 1987 and the Commissioner of Income‑tax revised the original assessment order under section 263 on March 8, 1988, directing the Income‑tax Officer to charge interest under section 215 of the Income‑tax Act. The assessee contended that as the original assessment order had merged with the reassessment order, the Commissioner of Income‑tax could not revise the original assessment order under section 263. On a reference:

Held, that the Commissioner of Income‑tax could revise the original assessment order under section 263.

CIT v. Ahmedabad Manufacturing. and Calico Printing Co. Ltd. (1981) 128 ITR 671 (Guj.); CIT v. Sun Engineering Works (P.) Ltd.(1992) 198 ITR 297 (SC); Hiralal v. CIT (1980) 121 ITR 89 (Raj.) and Sharda Trading Co. v. CIT (1984) 149 ITR 19 (Delhi) ref.

2001 P T D 3747

[241 I T R 605]

[Calcutta High Court (India)]

Before Satyabrata Sinha and Debi Prasad Sircar‑I, JJ

LEDO TEA CO. LTD.

versus

COMMISSIONER OF INCOME‑TAX

Income‑tax Reference No. 124 of 1995. decided on 15th February, 1999.

(a) Income‑tax‑‑‑

‑‑‑‑Depreciation‑‑‑Condition precedent for allowance‑‑‑Ownership of building, plant or machinery‑‑Meaning of "owner" in S.32‑‑‑Owner is person entitled to receive income from property in his own right ‑‑‑Assessee purchasing tea estate alongwith plant and machinery and carrying on business from 1‑1‑1983‑‑‑Conveyance deed executed in May, 1984‑‑‑Assessee was entitled to depreciation from 1‑1‑1983‑-‑Indian Income Tax Act, 1961, S.32.

(b) Precedent--

---Effect of decision of Supreme Court in CIT v. Podar Cement (Pvt.) Ltd. (1997) 226 ITR 625.

(c) Words and Phrases---

---“Owner”---Meaning.

(d) Income-tax--

‑‑‑‑Reference‑‑‑Business expenditure‑‑‑Disallowance‑‑‑Interest paid by assessee‑company to Directors on sums paid for acquisition of estate‑‑­Tribunal finding sums not paid in course of business‑‑‑Finding of fact‑‑­Whether Directors were agents of company‑‑‑Does not arise for consideration‑‑‑Indian Income Tax Act, 1961, Ss.40A(8) & 256.

(e) Income-tax--

---Reference—Findings of fact are final‑‑‑Indian Income Tax. Act, 1961, S.256.

Section 32 of the Income Tax Act, 1961, provides for grant of depreciation in respect of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession. The word "owner" has not been defined in the Income‑tax Act. Under the general law a person derives right, title and interest in respect of an immovable property only when a registered instrument is executed in his favour. However, registration of the deed alone does not make a person the holder of title if the same had been done in violation of any statute or if certain formalities as required under the statute have not been complied with. In CIT v. Podar Cement (P.) Ltd. (1997) 226 ITR 625, the Supreme Court held that where the possession of a property is acquired with a right to exercise such necessary control over the property acquired which it is capable of, it is the intention to exclude others which evinces an element of ownership". Owner" is a person who is entitled to receive income from the property in his own right. Although the aforementioned decision was rendered in the context of section 22 of the Act having regard to the underlying principles enumerated therein, the same principles would also apply in the matter of interpretation of section 32.

The assessee had purchased various assets including land, tea plants, buildings, plant and machinery, furniture and fixtures from D. It had been carrying on business in the tea estate with effect from January 1, 1983. All revenues generated during the period January 1, 1983 to March 31, 1984 were taken into account by the Assessing Officer for computing taxable income of the assessee‑company for the assessment year in question. The conveyance creed was, however, executed on May 23, 1984, which contained a stipulation that all assets of Ledo Tea Estate were sold by the vendor to the assessee with effect from January 1, 1983, and that the business of the said tea estate was carried on by the assessee‑company with effect from the said date. The petitioner claimed depreciation on the abovementioned assets which were rejected. The said order was upheld by the Commissioner of Income‑tax (Appeals) and the Tribunal. On a reference:

Held, that the assessee was the owner of the assets which were purchased with effect from January 1, 1983, but the conveyance deed was registered on May 23, 1984, that is after the end of the previous year. The assessee was entitled to depreciation allowance and additional depreciation allowance in respect of the assets with effect from January 1, 1983. It was also entitled to depreciation and additional depreciation in respect of the houses for labourers constructed by the assessee during the previous year', on the land, conveyance deed for which was registered after the close of the previous year.

The directors of the assessee‑company advanced loans for the purpose of purchase of a tea estate. The Assessing Officer disallowed 15 per cent. of the total amount paid as interest under section 40A(8) of the Income Tax Act, 1961. The Tribunal on appreciation of the facts and circumstances of the case, confirmed the disallowance observing that the persons to whom the interest was paid could neither be called purchasing agents nor selling agents nor agents in terms of "other agents" since interest was not paid in the course of business but for acquiring the assets of the company. It further found that the directors could not be said to have maintained a current account which demonstrated regular transaction during the year by way of withdrawals and deposits. On a reference:

Held, that as the findings recorded by the Tribunal were pure findings of fact, the questions whether the directors and promoters could be called agents and whether the Tribunal was right in disallowing part of the interest paid on the directors' current account, did not arise for consideration.

Chevalier I. I. Iyyappan v. Dharmodayam Co. AIR 1966 SC 1017; CIT v. Draupadi (Pvt.) Ltd. (1995) 211 ITR 593 (Orissa); CIT v. General Marketing and Manufacturing Co. Ltd. (1996) 222 ITR 574 (Cal.); CIT v. Hindustan Cold Storage and Refrigeration (P.) Ltd. (1976) 103 ITR 455 (Delhi); CIT v. Kalani Asbestos. (P.) Ltd. (1989) 180 ITR 55 (MP); CIT (Addl.) v. Mercury General Corporation (P.) Ltd. (1982) 133 ITR 525 (Delhi); CIT v. Podar Cement (Pvt.) Ltd. (1997) 226 I.TR 625 (SC); CIT v. Sahney Steel and Press Works (P.) Ltd. (1987) 168 ITR 811 (AP); CIT v. Shahney Steel and Press Works (P.) Ltd. (1987) 165 ITR 399 (AP); CIT v. Steelcrete (P.) Ltd. (1983) 142 ITR 45 (Cal.); CIT v. Tamil Nadu Agro Industries Corporation Ltd. (1987) 163 ITR 61 (Mad.); CIT (Addl.) v. U.P. State Agro Industrial Corporation Ltd. (1981) 127 ITR 97 (All.); Dalmia (R.K.) v. Delhi Administration (1962) 32 Comp. Cas. 699 (SC); Globe Motors Ltd. (in Liquidation) v. Mehta Teja Singh & Co. (Agencies) (1984) 55 Comp. Cas. 445 (Delhi); Jodha Mal Kuthiala (R.B.) v. CIT (1971) 82 ITR 570 (SC); Lall Choudhary (P.C.) (Raja) v. CIT (1948) 16 ITR 123 (Pat.); Madgul Udyog v. CIT (1990) 184 ITR 484 (Cal.); Nawab Bahadur of Murshidabad v. CIT (1955) 28 ITR 510 (Cal.) and Parthas Trust v. CIT (1988) 169 ITR 334 (Ker.) ref.

J.P. Khaitan and Anil Chowdhury for the Assessee.

P.K. Mallick and J.C. Saha for the Commissioner.

2001 P T D 3776

[241 I T R 537]

[Calcutta High Court (India))

Before Y.R Meena and Ranjan Kumar Mazumdar, JJ

COMMISSIONER OF INCOME‑TAX

Versus

J.K. INDUSTRIES LTD.

Income-tax Reference No. 108 of 1993, decided on 8th July, 1999

(a) Income-tax----

‑‑‑‑Depreciation‑‑‑Depreciation on assets not claimed by assessee and required particulars not furnished ‑‑‑ITO not justified in granting depreciation allowance without particulars‑‑‑Income Tax Act, 1961, Ss.32 & 34‑‑‑Indian Income Tax Rules, 1962, R.5AA.

(b)Income-tax---

‑‑‑‑Capital gains‑‑‑Computation of capital gains‑‑Depreciation on asset not claimed and, therefore, depreciation allowed by ITO has to be withdrawn‑‑­Capital gain to be computed on original cost or written down value after withdrawal of depreciation allowed by ITO in relevant year‑‑‑Indian Income

Allowance of depreciation is subject to the provisions of section 34(1) of the Income Tax Act, 1961. Subsection (1) of section 34 provides that the deductions referred to in section 32 shall be allowed only if the prescribed particulars have been furnished.

For the assessment years 1977‑78 and 1978‑79, while computing the income, the Assessing Officer allowed depreciation though the assessee had neither claimed depreciation nor furnished particulars for allowance of depreciation under section 32 read with section 34 of the Act. The Tribunal held that the Income‑tax Officer was not justified in granting depreciation allowance when no claim was made for the same. On a reference:

Held, (i) that when there was no material before the Income‑tax Officer which was necessary for grant of depreciation allowance, no depreciation could be allowed by the Assessing Officer.

(ii) that consequently capital gain/loss had to be computed on the basis of the value of the original cost of the asset or written down value and the same had to be done after withdrawal of depreciation allowed by the Income‑tax Officer, for the relevant year.

Ascharajlal Ram Parkash v. CIT (1973) 90 ITR 477 (All.); CIT v. Shri Someshwar Sahakari Sakhar Karkhana Ltd. (1989) 177 ITR 443 (Born.) and Dasaprakash Bottling Co. v. CI T (1980) 122 ITR 9 (Mad.) ref.

M.P. Agarwal and Nizamuddin for the Commissioner.

Dr.D. Pal, Senior Advocate and R.K. Biswas for the Assessee.

2001 P T D (Trib.) 1658

[Customs, Excise & Sales Tax Appellate Tribunal Pakistan]

Before Nasim Sikandar, Chairman and Muhammad Aslam, Technical Member

Sales Tax Appeal No.472/LB of 1999, decided on 4th March, 1999.

Sales Tax Act (VII of 1990)---

----Ss. 33 & 34---Additional tax---Penalty---Additional tax and penalty were levied for non-payment of amount of sales tax in time---Order of penalty was clubbed with different parties without caring as to whether the facts of one had any relevant nexus with those of others ---Assessees contended that they had made all payments well before delivery of the goods and if there was any default in the payment, it could be the. result of some procedural inconsistency and not any wilful or deliberate default---Validity---Fact that the principal amount of sales tax was paid well before supply of goods had not been contradicted by the Department---Department thus was not justified to saddle the assessee with the burden of additional tax and penalty in circumstances---Order of the department was declared to be unlawful, null and void and of no legal effect by the Appellate Tribunal.

Abdul Sattar for Appellant.

Shafqat Mahmood, D.R. for Respondent.

2001 P D (Trib.) 1799

[Customs, Excise and Sales Tax Appellate Tribunal Pakistan]

Before Khalil Masood, Member (Technical) and

Malik A.R. Arshad, Member (Judicial)

Excise Appeal No.3 of 1999, decided on 7th April, 2000

(a) Central Excises Act (I of 1944)---

----First Sched., Item No.04.03---Red-lead---Litharge--Pigment or chemical-­Litharge by itself was not a pigment but a chemical that, was used in the manufacture of pigments---Red lead in view of its high toxicity was a dying pigment and was seldom used.

(b) Central Excises Act (I of 1944)

----First Sched., Item No.04.03----Lead oxide---Pigment---Production of lead oxide, was considered/classified as pigment by the Department and charged central excise duty under, Item No. 04.03 of the First Sched. of the Central Excises Act, 1944---Validity---Lead oxide had not reached such stage of manufacture through a chemical process of classification at a temperature of over 350°c based on which it could be categorised as pigment---Same fell outside the preview of Item No.04.03 of First Sched. of the Central Excises Act, 1944 and was not liable to central excise duty---Classification of goods and in particular that of chemicals, their derivatives or preparations could only be given on the basis of very clear determination of chemical attributes which was possible only through chemical test and not on the basis of authority or wisdom---Lead oxide alongwith zinc oxide which appellants were producing were not liable to excise duty as being chemicals in circumstances---Order of Department was set aside by the Appellate Tribunal.

Concise Encyclopaedia of Science and Technology by Megraw Hil; Chemical Process; Chambers' 20th Century Dictionary; Nateruats---Their Properties-and Uses and Remington and France and Chemical. Industries by T.I. Williams ref Treatise on Coatings, Vol. 3, Part 1 by Myers and Long and Outlines of Paint Technology by Morgan, Vol. hp. 95 rel.

(c) Central excise---

---- Lead oxide---Pigments---Non-printing of retail sale price---Rate of excise duty---Application of---200% excise duty was levied in the absence of printing of retail sale price which if printed would have resulted in duty 10%---Validity---Philosophy behind the concept of excise duty on retail sales price was to arrest unbridled price spiral to protect ordinary consumers--­Duty in the absence of retail prices was a punitive duty---Disputed goods, even -if pigments would have been pigments, levy @ 200% would have been inconsistent with the spirit and philosophy of the introduced concept as unlike cement pigments were not goods of daily use but industrial raw materials---Order was set aside in circumstances by the Appellate Tribunal.

Raza Abbass Naqvi and Aijaz Shafi for Appellant.

Afaq Nabi, Superintendent for Respondent. .

2001 P T D (Trib.) 2590

[Customs, Excise & Sales Tax Tribunal Pakistan]

Before Malik A. R. Arshad, Member Judicial and

Khalil Masood, Member Technical

Sales Tax Appeal No.K-193 of 2000, decided on 27th October, 2000.

Sales Tax Act (VII of 1990)---

----S.2(41)---Taxable supply---Levy of sales tax oh the disposal of old and used plant and machinery, electrical and mechanical equipment, furniture and fixture and fittings and motor vehicles by manufacturer of drugs and medicines---Validity---Disposal of goods could not be brought within the ambit of "taxably supply "---Business of assessee being manufacturing of drugs and medicines and not sale/supply of old and used vehicles or furniture, order of the levy of sales tax was set aside by the Tribunal.

(1967) 19 STC 1 (SC) rel.

Sattar Silat for Appellant.

Khursheed Ahmad for Respondent.

2001 P T D (Trib.) 2600

[Customs, Excise and Sales Tax Appellate Tribunal]

Before Abdul Majeed Tiwana, Chairman and Falak Sher, Member (Technical)

Appeal No. 116/LB of 2000, decided on 5th December, 2000.

Sales Tax Act (VII of 1990)---

----Ss.18, 7 & 59---S.R.O. 529(1)88, dated 1-7-1988---S.R.O. 580(1)/91, dated 27-6-1991---C.B.R.'s Circular No.1/25-STP/95, dated 23-10-1995--­C.B.R's STGO No.2/2000---Voluntary registration---Determination of tax liability---Input tax---Credit of---Department initiated proceedings against assessee to recover adjusted input tax alongwith additional tax and penalty on the ground that since the assessee opted for voluntary registration, he was not entitled to seek input tax adjustment in terms of C.B.R. Circular No.1/25­STP/95, dated 23-10-1995---Validity---Person registered under S.18 of the Sales Tax Act, 1990 became a registered person in terms of S.2(25) of the Sales Tax Act, 1990 and was treated accordingly for the purpose of Sales Tax Act, 1990---Such person had the same rights and liabilities, as any other taxpayer has in tax-related matters---Nothing existed in S.7 of the Sales Tax Act, 1990 which debarred a person, who sought voluntary registration, from claiming input tax adjustment on his transaction and it treated the registered persons alike regardless of the consideration whether or not one was registered under S.14, 18 or 19 of the ' Sales Tax Act, 1990---Section 7 further authorised a registered person to deduct input tax from the output tax for the purpose of determining of his tax liability in respect of supplies made during a tax period ---C.B.R.'s letter being in conflict with S.7 of the Act, was of no legal effect---Adjudicating Officer's observation that the assessee was not entitled to claim tax credit on "stock acquired before coming to sales tax net" and could not avail the benefit of S.59 of the Sales Tax Act, 1990 had no relevance and was not tenable---Both orders in original and in first appeal were set aside and appeal was accepted by the Tribunal.

Dr. Muhammad Shafiq for Appellant.

Ms. Rukhsana Yasmin, D.R. and Ishtiaq Ahmed, Law Officer for Respondent.

2001 P T D (Trib.) 3471

[Customs, Central Excise and Sales Tax

Appellate Tribunal]

Before Mian Abdul Qayyum, Member (Judicial) and

Muhammad Sulaiman Member ((Technical)

Appeal No.243 of 1998, decided on 18th December, 2000.

Sales Tax Act (VII of 1990)---

----Ss.59, 7, 8 & 10---Apportionment of Input Tax Rules, 1996,. R.3(1)--­Tax paid on stocks acquired before registration ---Determination of input tax---Claim of refund in the monthly return of October, 1997 by the assessee was rejected by the Assessing Officer on the ground that the stock on 3-10-1997 related to Bill of Entry, dated 24-3-1997, being much beyond the tax period of 1997, was not admissible and. also after repeal of S.59 of the Sales Tax Act, 1990 the claim of assessee was not tenable which was confirmed by the First Appellate Authority---Validity---Repeal of S.59 of the Sales Tax Act, 1990 did not affect the case of the assessee as the same related to persons, firms or companies who were new taxpayers and the assessee was not a new taxpayer ---Assessee was in possession of imported raw material and finished goods made out of the same, which had been imported against the Bill of Entry cleared by the Customs under S.79 of the Customs Act, 1969 and he was making taxable supplies---Refund claimed by the assessee was fully covered by the law and was allowed by the Tribunal in circumstances---Orders of Assessing Officer and First Appellate Authority were set aside.

Isaac Ali Qazi for Appellant.

S.K.M. Kiani, Deputy Superintendent for Respondent.

Date of hearing: 13th November, 2000.

2001 P T D 289

[238 I T R 901]

[Delhi High Court (India)]

Before Arun Kumar and J. B. Goel, J

INDIAN TRADE PROMOTION ORGANISATION

versus

COMMISSIONER OF INCOME‑TAX

I.T.C. No.49 of 1997, decided on 5th March, 1999.

(a) Income‑tax‑‑‑

"Reference‑‑‑Law on point well‑settled ‑‑‑ Reference not to be called for‑‑‑Indian Income Tax Act, 1961, S.256.

When the law is clear and well‑settled on a particular point, there can be no occasion for asking the Tribunal to refer such a point for the opinion of the Court.

(b) Income‑tax‑‑‑

‑‑‑‑Reference‑‑‑Export markets development allowance‑‑‑Weighted deduction‑‑‑Whether expenditure was wholly and exclusively for particular purpose or partly so‑‑‑Question of fact‑‑‑No question arises for reference‑‑­Expenditure must be shown to fall under particular provision of S.35B‑‑­Freight, packing and handling charges, insurance and customs bonded warehouse charges‑‑‑Not eligible for weighted deduction‑‑‑Indian Income Tax Act; 1961, Ss.35B & 256.

When the question of weighted deduction is specifically governed by the provisions of the statute, the same cannot be considered or allowed outside the statute. Therefore, the assessee has to make out a case that a particular claim for weighted deduction falls within a particular provision of section 35B of the Income Tax Act, 1961.

Held, that expenditure on freight, packing and handling, insurance and customs bonded warehouse did not fall within the provisions of section 35B(1)(b).

CIT v. International Exporters (1998) 233 ITR 23 (Delhi); CIT v. Stepwell, Industries Ltd. (1997) 228 ITR 171 (SC) and Gedore Tools (India) (Pvt.) Ltd. v. CIT (1998) 233 ITR 712 (Delhi) fol.

Clause (b) of section 35B(1) uses the words "incurred wholly and exclusively". Therefore, for a. particular head of expenses to qualify for weighted deduction the same should be wholly and exclusively relatable to ­the object. Whether particular expenses were wholly or exclusively for a particular purpose or partly for that purpose is a question of fact.

Where the Tribunal had held that since participation and construction/decoration charges were not wholly and exclusively relatable to the activity involved, they would qualify only to the extent of 1/3rd for purposes of weighted deduction:

Held, that no question of law arose for reference.

Adarsh B. Dayal with Ms. Sumati Anand for Petitioner.

Sanjeev Khanna with Ajay Jha for Respondents.

2001 P T D 293

[238 I T R 1026]

[Delhi High Court (India)]

Before R. C. Lahoti and Dalveer Bhandari, JJ

CASHMERE WOOLLEN AND SILK MILLS

versus

COMMISSIONER OF INCOME‑TAX

Income‑tax Reference No.349 of 1985, decided on 9th January, 1998.

Income‑tax‑‑‑

‑‑‑‑Income‑‑‑Business income‑‑‑Law applicable‑‑‑Effect of introduction of cl.(iiia) in S.28 and amendment of cl.(24) of S.2 with retrospective effect from 1‑4‑1962 by Finance Act, 1990‑‑‑Premium earned on sale of import entitlements in assessment year 1982‑83‑‑‑Assessable to tax‑‑‑Indian Income Tax Act, 1961, Ss.2 & 28.

The Finance Act, 1990, has introduced clause (iiia) in section 28 of the Income Tax Act, 1961, according to which proceeds of sale of licence granted under the Imports (Control) Order, 1955, made under the Imports and Exports (Control) Act, 1947 is income chargeable under the head "profits and gains of business or profession". An amendment has also been effected in the definition of income in clause (24) of section 2 of the interpretation clause of the Act whereby any sum chargeable under clause (iiia) of section 28 is included in the definition of "income". These amendments, though inserted by the Finance Act, 1990, have been given a retrospective effect from April 1, 1962.

Therefore, in view of the amendments the amount earned in the assessment year 1982‑83 on account of import entitlements was assessable.

Nemo for the Assessee.

R. D. Jolly, Ms. Premlata Bansal, Sanjeev Khanna aid Ajay jha for the Commissioner.

2001 P T D 560

[239 I T R 237]

[Delhi High Court (India)]

Before Arun Kumar and D. K. Jain, JJ

COMMISSIONER OF INCOME‑TAX

versus

ENGINEERS INDIA LTD.

Income‑tax References Nos. 130 and 131 of 1978, decided on 29th July 1999.

Income‑tax‑‑

‑‑‑‑Capital or revenue expenditure‑‑‑Amount paid initially for acquiring membership of‑ organisation entitling assessee to receive latest technical information‑‑‑Membership to be renewed annually ‑‑‑Assessee did not acquire asset of enduring benefit by paying initial subscription‑‑‑Amount paid was deductible‑‑‑Indian Income Tax Act, 1961, S.37.

The question whether an expenditure is capital or revenue in nature is a vexed question, because the line of demarcation between the two is very thin. It has not been possible to lay down a single or exhaustive test as infallible or any single criterion as decisive for determination of the question. However, attempts have been made from time to time to outline some broad factors to be taken into consideration to distinguish capital from revenue expenditure. One rough and ready test, which is usually being followed, is to try to ascertain whether a particular expenditure brings about "enduring benefit" to the assessee.

The assessee was a public sector undertaking and derives income for supply of technical know‑how to various concerns in India and abroad. It also undertakes turn key projects in India and abroad. During the previous year, ended on March 31, 1972, and relevant to the assessment year 1972‑73, the assessee paid Rs.90,000 to FRI as initial admission fee for its membership and claimed it as revenue expenditure. The said organisation is a cooperative research organisation and supplies to its members information concerning mathematical models which can be used for rational designing of vapour liquid contracting systems. While computing the total income for the relevant assessment year, the Income‑tax Officer disallowed the said claim and treated it as capital expenditure. The Tribunal held that the payment of membership fee by itself did not bring into existence any asset or advantage of enduring nature to the assessee and, therefore, such expenditure could not be treated as capital expenditure. On a reference:

Held, that by making payment of the initial fee, the assessee had just acquired the membership of FRI and became eligible to receive from them information regarding mathematical models for its further development. But mere membership did not entitle the assessee to get the said information till the prescribed subscription was paid to them from year to year. In the event of default in the payment of yearly subscription for any reason, supply of further information might be stopped to the assessee, even though it continued to be a member of the organisation. Thus, it could not be said that on payment of initial membership fee, the assessee acquired an asset or an advantage for the "enduring benefit" of its business. Hence, the Tribunal was right in holding that the expenditure incurred by the assessee on account of initial membership fee paid to the said organisation could not be capital expenditure.

Assam Bengal Cement Co. Ltd. v. CIT (1955) 27 ITR 34 (SC) applied.

R.C. Pandey with Ajay Jha for the Commissioner.

Ms. Anjali Verma for the Assessee.

2001 P T D 717

[239 I T R 343]

[Delhi High Court (India)]

Before Arun Kumar and D. K. Jain, JJ

COMMISSIONER OF INCOME‑TAX

versus

PUNJAB AND SINDH BANK LTD.

Income‑tax Reference No. 114 of 1982, decided on 5th July, 1999.

(a) Income‑tax‑‑‑

‑‑‑‑Interest on securities ‑‑‑Assessability‑‑‑Interest on securities assessable on due basis‑‑‑Indian Income Tax Act, 1961, S.18.

On a bare reading of section 18 of the Income Tax Act, 1961, it is clear that income from interest on securities is chargeable to tax under subsection (1) of the section only on due basis and the same can be charged to income‑tax on receipt basis only under the circumstances indicated in subsection (2):

Held accordingly, on the basis of the finding of fact recorded by the Commissioner of Income‑tax (Appeals) and affirmed by the Tribunal, that only the amount of interest on securities declared by the assessee in its revised return had become due during the previous year relevant to the assessment year in question, the income from interest on securities was correctly declared by the assessee in the revised return which could be brought to tax in the relevant assessment year under section 18.

CIT v. Canara Bank (1992) 195 ITR 66 (Kar.) fol.

(b) Income‑tax‑‑‑

‑‑Reference‑‑‑Depreciation‑‑‑Development rebate‑‑‑Claim for depreciation and development rebate at 100 percent.‑‑‑No details available‑‑‑Question whether claim was allowable could not be answered‑‑‑Indian Income Tax Act, 1961, Ss.32, 33 & 256.

The assessee's claim for 100 percent. depreciation and development rebate was allowed by the Tribunal on the basis of its orders for the assessment years 1970‑71 and 1971‑72. Counsel for the Revenue submitted that he had not been able to ascertain as to whether any reference on the question in respect of the assessment years 1970‑71 and 1971‑72 was sought by the Revenue and if so, what was the final result. He was also not in a position to point out the nature of the equipment and the value of each of the items on which the assessee had claimed 100 percent. depreciation on the plea that the value of each of those items was less than Rs.750. In the absence of the requisite details the question whether the claim was admissible could not be answered.

R.D. Jolly for the Commissioner.

Nemo for the Assessee.

2001 P T D 1529

[245 I T R 838]

[Delhi High Court (India)]

Before Arijit Pasayat, C. J. and D. K. Jain, J

COMMISSIONER OF WEALTH TAX

versus

UTTAM CHAND JAIN

Wealth Tax Reference No.30 of 1980, decided on 7th July, 2000.

(a) Wealth tax‑‑‑

‑‑‑‑Appeal‑‑‑Doctrine of merger of order of Wealth Tax Officer in appellate order‑‑‑No merger where issue was not subject‑matter of appeal‑‑ ‑Indian Wealth Tax Act, 1957, S.24.

(b) Wealth tax‑‑‑‑

‑‑‑‑Revision‑‑‑Appeal‑‑‑Order , of Wealth Tax Officer, which has not merged in appellate order can be revised‑‑‑Indian Wealth Tax Act, 1957, S.25(2).

The principles relating to the doctrine of merger are as follows: (i) The. application of the doctrine of merger cannot be rendered inapplicable by drawing a. distinction between an application for revision and an appeal; (ii) the application of the doctrine of merger depends oh the nature of the appellate or revisional order in each case and on the scope of the statutory provisions conferring the appellate or revisional jurisdiction. The doctrine of merger is not a doctrine of rigid and universal application. Whether there is fusion or merger‑of the order of the inferior Tribunal into an order by a superior Tribunal will have to be determined by finding out the subject ­matter of the appellate or revisional order and. the scope of the appeal or revision contemplated by the particular statute; (iii) ordinarily, a judgment pronounced in appellate or revisional jurisdiction after issuing a notice of hearing to both the parties would replace the, judgment of the lower Court thus constituting the appellate or revisional judgment the only final judgment; (iv) the doctrine of merger does not apply where an appeal is dismissed (a) for default, (b) as having abated by reason of the omission of the appellant to implead the legal representatives of a deceased respondent; (c) as barred by limitation; (v) an appeal dismissed in limine on the ground of the bar of limitation may still be an order in appeal for the purpose of determining whether a right of further appeal would be available or not but that does not amount to saying that the order appealed against merges into the appellate order dismissing the appeal .in limine as barred by time.

In respect of an issue which is not the subject‑matter of challenge before any higher forum, the doctrine of merger would have no application.

The assessee had filed a return of his wealth on September 8, 1972,' declaring a wealth of Ies.4,56,376 for the assessment year 1972‑73. Subsequently, he made a voluntary disclosure of his additional wealth and in the revised return declared a net wealth of Rs.6,80,826. On the basis of the revised return the assessment was completed on March 31, 1976, on a net wealth of Rs.7,53,087. The assessee was the owner of a half share in a flat at Delhi. In both the original and revised returns, the value was shown at Rs,60,000. This value was not included in the net wealth of the assessee in the assessment made by the Assessing Officer. Subsequently, an order under section 35 of the Wealth Tax Act, 1957, was passed on December 14, 1977, including the aforesaid sum of Rs.60,000 and thereby finally the total wealth was determined at Rs.8,03,037. Several appeals including that relating to the assessment year 1972‑73 were taken up together. The Appellate Assistant Commissioner by order, dated March 22, 1977, accepted the plea of the assessee in respect of certain deductions and directed allowance of these liabilities. On March 18, 1978, the Commissioner of Wealth Tax issued a notice to the assessee under section 25(2) of the Act to show cause as to why the value of the flat should not be enhanced. The assessee filed objections to the proposed action on various grounds. The main stand was that the Commissioner had no jurisdiction to take recourse to section 25(2) of the Act, inasmuch as the order of the Wealth Tax Officer had merged in the order of the Appellate Assistant Commissioner. The Commissioner of Wealth Tax rejected the contention, but the Tribunal upheld it. On a reference.

Held, that the point in issue was not the subject‑matter of appeal and, hence, the doctrine of merger of the order of the Wealth Tax Officer in that of the Appellate Assistant Commissioner was not applicable. The Commissioner of Wealth Tax had jurisdiction to revise the order.

CIT v. Eurasia Publishing House (P.) Ltd. (1998) 232 ITR 381 (Delhi); State of Madras v. Madurai Mills Co. Ltd. (1967) 19 STC 144; AIR 1967 SC 681 and State of Orissa v. Krishna Stores (1997) 104 ITR STC 594 and (1997) 3 SCC 246 ref.

Sanjiv Khanna with Ms. Prem Lata Barisal and Ajay Jha for the Commissioner.

Nemo for the Assessee.

2001 P T D 1604

[245 I T R 704]

[Delhi High Court (India)]

Before Arijit Pasayat, C.J. and D.K. Jain, J

COMMISSIONER OF WEALTH TAX

versus

H.S. CHAUHAN (By Legal Heirs of late B.S. Chauhan)

Wealth Tax References Nos.7 to 16 of 1978, decided on 4th July, 2000.

Wealth tax‑‑‑

‑‑‑‑ Legal representative‑‑‑Penalty‑‑‑Extent of liability of legal representa­tive ‑‑‑Penalty cannot be levied on legal representative‑‑‑Difference between Income Tax Act and Wealth Tax Act‑‑‑Indian Wealth Tax Act, 1957, S.19.

Subsection (3) of section 19 of the Wealth Tax Act, 1957, provides that the provisions of sections 14, 15 and 17 shall apply to an executor, administrator or other legal representative as they apply to any person referred to in those sections. Subsection (1) deals with the liability of legal representative to pay tax of a deceased person. Subsections (2) and (3) deal with the liability to assessment. Subsection (2) provides for initiating proceedings for assessment and determination of net wealth payable by the deceased person. It, therefore, has no application to a proceeding in relation to imposition of penalty. Sections 14, 15 and 17 contemplate and authorise initiation as well as continuance of proceedings for determining wealth tax on the basis of the return as well as on the basis of escapement of wealth against, inter alia, a legal representative. Therefore, the provisions of section 18 do not come within the ambit of section 19. At this juncture, it will be relevant to note that under section 159 of the Income Tax Act, 1.961, there is a clear prescription for continuance of proceedings, inter alia, for imposing penalty against a legal representative. Subsection (2) of section 159 of the Income‑tax Act is contextually different from sub­section (3) of section 19 of the Wealth Tax Act. The position is not similar so far as proceedings under section 18 of the Act are concerned. Penalty cannot be levied on the legal representative.

R.D. Jolly and Ajay Jha for the Commissioner.

Nemo for the Assessee.

2001 P T D 1706

[2411TR91

[Delhi High Court (India)]

Before Arun Kumar and D. K. Jain, JJ

DALMIA DAIRY INDUSTRIES LTD.

(formerly Dalmia Cement Ltd.)

Versus

COMMISSIONER OF INCOME‑TAX

Income‑tax References Nos.301 to 303 of 1978 and 214 to 216 of 1980, decided on 30th September, 1999.

Income‑tax‑‑‑

‑‑‑‑Capital or, revenue expenditure‑‑‑Sale of factories in Pakistan‑‑‑Sale consideration to be satisfied by export of cement‑‑‑Cement not supplied‑‑­Litigation expenses for realising value of cement and interest thereon‑‑‑Not deductible as business expenditure‑‑‑Expenditure related to fixed assets and was capital in nature‑‑‑Indian Income Tax Act, 1961, S.37‑‑‑[Saharanpur Electric Supply Co. Ltd. v. CIT (1971) 82 ITR 405 (All.) dissented from].

The assessee, a public limited company, sold both its cement factories at Pakistan. Under the terms of the sale, the sale price and interest was, to be satisfied by the export of cement by the Pakistan Progressive Cement Industries Ltd. (PPCIL) to the assessee‑company in Delhi. The supply of cement in satisfaction of the purchase price and interest was to be completed within three years from December 19, 1964, being the date on which first despatch instructions were received by the PPCIL from the assessee‑company. In accordance with the sale‑deed, the assessee was entitled to receive cement from Pakistan and sell in India. But due to hostilities between India and Pakistan and prohibitory orders by the Pakistan Government, cement as stipulated in the sale agreement was not supplied by the PPCIL to the assessee. Since the PPCIL had failed to supply cement in terms of the sale‑deed, the assessee‑company filed a claim against the National Bank of Pakistan, which had furnished bank guarantees on behalf of the PPCIL for the performance of the said agreement, before the International Chamber of Commerce and incurred legal and travelling expenses during the previous years relevant to the assessment years 1967‑68 to 1972‑73. The Income‑tax Officer as well as the Tribunal disallowed the expenditure as being capital in nature. On a reference:

Held, that the expenditure incurred was in connection with the assessee's business ventures in Pakistan which stood transferred to the PPCIL and hence the assessee did not have any business which it could be said to be carrying on. Since the same was not incurred wholly and exclusively for the assessee's business it was not allowable under section 37 of the Income Tax Act, 1961. The main object of the expenditure in question was to realise the sale consideration of the fixed assets in Pakistan in cash or in kind. The expenditure related directly to fixed assets and was capital in nature. Hence, the amounts claimed were not allowable.

J.K. Cotton Manufacturers Ltd. v. CIT (1975) 101 ITR 221 (SC) applied. .

Saharanpur Electric Supply Co. Ltd. y. CIT (1971) 82 ITR 405 (All.) dissented from.

Associated Cement Companies Ltd. v. CIT (1996) 221 ITR 215 (Bom.); CIT v. Coal Shipments P. Ltd. (1971) 82 ITR 902 (SC); CIT v. Malayalam Plantations Ltd. (1964) 53 ITR 140 (SC) and M.K. Brothers (P.) Ltd. v. CIT (1972) 86 ITR 38 (SC) ref.

N. R. Khaitan for the Assessee.

Sanjiv Khanna and Ms. Prem Lata Barisal for the Commissioner.

2001 P T D 1914

[246 I T R 348]

[Delhi High Court (India)]

Before Arijit Pasayat, C. J. and D. K Jain, J

COMMISSIONER.OF WEALTH .TAX

Versus

D.R. VADERA

(Legal. Heir of late Hans Raj Vadera)

Wealth Tax References Nos.92 and 93 of 1982, decided on 6th July, 2000.

Wealth tax‑‑‑--

‑‑‑‑ Reassessment --‑‑Effect, of reopening of reassessment ‑‑‑Previous order of underassessment is set aside and Assessing Officer has jurisdiction and duty to levy tax on entire wealth that has escaped assessment ‑‑‑Indian Wealth Tax Act, 1957, S.17.

Once an assessment is reopened the previous under‑assessment is set aside and the whole assessment proceedings start afresh. What is set aside is only the previous, underassessment and not the original assessment proceedings. An order made in respect of the escaped item does not affect the operative force of the original assessment, particularly if it has acquired finality, and the original order retains both its character and identity. It is only in case of "underassessment", that the assessment of net income/wealth and tax due has to be re‑computed on the entire taxable wealth/income, as the case may be.

For the assessment years 1966‑67 and 1967‑68, the assessee had wealth disclosing net wealth of Rs.3,71,188 and respectively. The original assessments were completed under section 16(3) of the Wealth Tax Act, 1957, accepting the net wealth declared. Subsequently, the assessments were reopened. The net wealth in respect of the two years was determined at Rs.14,96,612 and Rs.16,29,924 respectively. In the reassessment proceedings, the value of certain immovable property was taken to be Rs.12,54,100 for the first year and Rs.13,53,100 for the subsequent year. The value of certain other property was taken at Rs.1,00,000 and Rs.1,20,000, respectively, for the two years. The reassessment orders were assailed before the Appellate Assistant Commissioner on the ground, inter alia, that the re‑assessment proceedings were initiated in relation to shares in various companies and it was not permissible to make enhancement of valuation in relation to the properties referred to above. The Appellate Assistant Commissioner held that the enhancement of valuation in respect of the two properties indicated above, was beyond the scope of reassessment under section 17(1)(a) of the Act. This conclusion was affirmed by the Tribunal. On a reference:

Held, that the Wealth Tax Officer had jurisdiction to consider in the present reassessment proceedings initiated under section 17(1)(a) of the Wealth Tax Act, 1957, for the two assessment years 1966‑67 and 1967‑68, the question of valuation of the two immovable properties and enhance the valuation of the said two properties while completing the said reassessments under section 17(1)(a).

Jaganmohan Rao (V.) v. CIT and EPT (1970) 75 ITR 373 (SC) and CIT v. Sun Engineering Works (P.) Ltd. (1992) 198 ITR 297 (SC) ref.

Sanjiv Khanna and Ajay Jha for the Commissioner.

Anoop Sharma with R.K. Raghavan and M. Husain for the Assessee.

2001 P T D 1922

[246 I T R 104]

[Delhi High Court (India)]

Before Arijit Pasayat, C. J. and D. K. Jain, J

ONKARJIT SINGH KANWAR

Versus

COMMISSIONER OF WEALTH TAX

Wealth Tax Reference No. 149 of 1985, decided on 4th July, 2000.

(a) Wealth tax‑‑‑

‑‑‑‑ Valuation of assets‑‑‑Valuation of unquoted shares‑‑‑Rule 1D has to be applied‑‑‑Wealth Tax Act, 1957‑‑‑Indian Wealth Tax Rules, 1957, R. 1D.

The provisions of rule 1D of the Wealth Tax Rules, 1957, are mandatory and the valuation of unquoted shares should be made in accordance with that rule.

Bharat Hari Singhania v. CWT (1994) 207 ITR 1 (SC) fol.

(b) Wealth tax‑‑‑

‑‑‑‑Net wealth‑‑‑Deductions‑‑‑Debt‑‑‑Debts incurred in relation to properties which are exempt from wealth tax‑‑‑Not deductible‑‑‑Indian Wealth Tax Act, 1957, S.2(m)(ii).

Section 2(m)(ii) of the Wealth Tax Act, 1957, on a bare reading shows that deduction is not to be permitted where it relates to debts which have been incurred in relation to any property in respect of which wealth tax is not chargeable under the Act:

Held, that there was a positive finding recorded by the lower forums that the sum of Rs.1,33,327 had been incurred in relation to certain shares whose values were not includible in the net wealth as per the provisions contained in section. 5. Hence, the debt amounting to Rs.1,33,327 was not deductible from the net wealth.

CWT v. Sint. Pushpawati Devi Singhania (1991) 188 ITR 364 (All.) ref.

Nemo for the Assessee.

R.D. Jolly with Ms. Prendata Bansal for the Commissioner.

2001 P T D 1929

[246 I T R 198]

[Delhi High Court (India)]

Before Arijit Pasayat, C.J..and D. K. Jain, J

COMMISSIONER OF INCOME‑TAX

Versus

Mrs. KUKU NARANG Wealth Tax

Reference No.41 of 1979, decided on 4th July, 2000.

Wealth tax----

‑‑‑‑Penalty‑‑‑Reference‑‑‑Concealment of wealth‑‑‑Finding by Tribunal that there had been clerical errors and no concealment of wealth‑‑‑Finding of fact‑‑‑No question of law arose from it‑‑‑Indian Wealth Tax Act, 1957.

Held, that the conclusions of the Tribunal are essentially factual in nature. It had clearly come to the conclusion that the omissions were not deliberate and it was a clerical mistake with no contumacious conduct or conscious act involved. Such finding of fact did not give rise to any question of law.

Sanjiv Khana with Ajay Jha for the Commissioner.

Nemo for the Assessee.

2001 P T D 1940

[246 I T R 683]

[Delhi High Court (India)]

Before Arijit Pasayat, C.J. and D.h. Jain, J

COMMISSIONER OF WEALTH TAX

Versus

Smt. SOMA WANTI SETHI

Wealth Tax References Nos. 121 to 125 of 1983, decided on 3rd August, 2000.

Wealth tax---

Voluntary disclosure of, wealth ---Reference---Assessee a partner in a firm---Voluntary disclosure of income by firm---Additions to net wealth of assessee on account of disclosure by firm---Effect of non-compliance with S.13(2) read with S.8(1) of Voluntary Disclosure of Income and Wealth Act by firm and whether there had been such non-compliance not considered by Tribunal---Question not arising out of order of Tribunal--- qestion returned unanswered---Indian Wealth Tax Act, 1957, S.27 -- .-Indian Voluntary Disclosure of Income and Wealth Act, 1976, Ss. 13 & 8.

The assessee was assessed in the status of an individual. She was a partner in a firm, S, which made a declaration under the provisions of the Voluntary Disclosure of Income and Wealth Act, 1976. On the basis of the disclosure made by the firm, the Inspecting Assistant Commissioner made an addition to the assessee's net wealth. The Tribunal upheld the order of the Commissioner (Appeals) directing exclusion of the amount. On a reference it was contended that section 13(2) read with section 8(1) of the Voluntary Disclosure of-Income and Wealth Act was not complied with and as such the declaration could not be accepted:

Held, that the question sought to be raised by the Revenue was not raised before the Tribunal and there was no finding to that effect. The issue before the Tribunal related to the effect of the Explanation to section 13(1). Since the question as to what would be the effect of non-compliance with section 13(2) read with section 8(1) of the Voluntary Disclosure of Income and Wealth Act was not dealt with by the Tribunal and there was no finding in that regard, the question had to be returned unanswered.

Jamna Prasad Kanhaiya Lal v. CIT (1981) 130 ITR 244 (SC) ref.

Mrs. Prem Lata Barisal for the Commissioner.

Nemo for the Assessee.

2001 P T D 1944

[246 I T R 341]

[Delhi High Court (India)]

Before Arijit Pasayat, C. J. and D. K. Jain, J

COMMISSIONER OF WEALTH TAX

Versus

Mrs. R.B. PATEL

Wealth Tax References Nos.64 and 65 of 1978, decided on 5th July, 2000

Wealth tax---

----Rectification of mistakes ---Exemption ---Jewellery---Wealth tax assessment completed excluding value of jewellery as falling under exemption ---Retrospective amendment to S.5(1)(viii) by Finance (No.2) Act, .1971, making jewellery liable to wealth tax ---Wealth Tax Officer entitled to rectify concluded assessment by U sorting to S.35 of Act---Indian Wealth Tax Act, 1957, Ss.5(1)(viii) & 35 ---Indian Finance (No.2) Act; 1971.

Wealth tax assessments for the assessment years 1968-69 and 1969-70 were originally completed exempting the value of jewellery from the assessee's net wealth. Subsequent to the amendment made to section 5(1)(viii), of the Wealth Tax Act, 1957, by the Finance (No.2) Act, 1971, with retrospective effect from April 1, 1963, making jewellery liable to wealth tax; the Wealth Tax Officer invoking section 35 of the Act sought to rectify the assessments by including the value of jewellery in the net wealth of the assessee. The Tribunal held that the question was a debatable one as to whether the amending provision applied to a concluded assessment against which no further proceedings were pending on the date of the enactment of the amending provision and, therefore, section 35 had no application. On a reference-

Held, Held, that the Wealth Tax Officer had powers to rectify the assessment by resorting to powers under section 35 of the Act.

J. M. Bhatia, A. A. C. of W. T. v. J. M. Shah. (1985) 156 ITR 474 (SC) fol

Sanjiv Khanna with Ajay Jha for the Commissioner

Nemo for the Assessee

2001 P T D 1959

[246 I T R 501]

[Delhi high Court (India)]

Before Arijit Pasayat, C.J. and D. K. Jain, J

COMMISSIONER OF WEALTH TAX

Versus

Smt. SHAKUNTLA MEHRA and 2 others

(through Guardian Smt. Shaukuntla Mehra)

Wealth Tax References Nos. 1 to 3 of 1981., decided on 11th August, 2000

Wealth tax---

---- Valuation of assets----Revision---Powers of Commissioner---Valuation of properties on the basis of average of cost of construction and rent capitalisation method---Orders erroneous and prejudicial to interests of Revenue---Commissioner adopting valuation on rental income basis--­Commissioner justified in exercising revisionary powers---Indian Wealth Tax Act, 1957, Ss.7 & 25.

For the assessment year 1975-76, valuation of the properties was done on the basis of average of land and construction method and rental method. The Commissioner was of the view that the valuation should have been done only on the rental income basis and not on the basis of average of the two, i.e., cost of construction and, rent capitalisation method, and accordingly exercising his revisionary powers he set aside the wealth tax assessment and directed the Wealth Tax Officer to make fresh assessment after taking into consideration the departmental valuation and giving opportunity to the assessees. On appeal, the Tribunal set aside the Commissioner's order. On a reference:

Held, that in the orders passed by the Commissioner it was held that the Wealth Tax Officer should have valued the property on the basis of rental income only and not on the basis of the average of the two and the Tribunal's order was erroneous to that extent. The Wealth Tax Officer's calculation relying on the registered valuer's report which proceeded on the basis of the average between the two methods was also unsustainable. Accordingly, the Tribunal was not justified in setting aside the Commissioner's order, passed under section 25(2) of the Wealth Tax Act, 1957.

Malabar Industrial Co. Ltd. v. C.I.T. (2000) 243 ITR 83 (SC); State of Kerala v. Hassan Koya (P.P.) AIR 1968 SC 1201 and Tribeni Devi (Smt.) v. Collector AIR 1972 SC 1417 ref.

R. D, Jolly with Ms. Premlata Barisal for the Commissioner.

Nemo for the Assessees

2001 P T D 1970

[246 I T R 26]

[Delhi High Court (India)]

Before Arijit Pasayat, C. J. and D. K. Jain, J

COMMISSIONER OF WEALTH TAX

Versus

ANOKHA SINGH

Wealth Tax Reference No. 41 of 1980, decided on 7th July, 2000.

Wealth tax‑‑‑

‑‑‑‑Revision‑‑‑Powers of CWT ‑‑‑Assessment order completed without inquiry‑‑‑Order is erroneous and prejudicial to revenue‑-‑CWT can revise such an order‑‑‑Indian Wealth Tax Act, 1957, S.25.

Where the assessment is completed without any enquiry whatsoever, the order of assessment is erroneous and prejudicial to the interests of the Revenue. While exercising powers to revise such assessment, the Commissioner may make further enquiry before cancelling the original order and he can rely on the result of such enquiry.

For the assessment year 1976‑77, the assessment records of the assessee were inspected by the audit party after completion of the regular assessment. An objection was raised that the fair market value of the property on the relevant valuation date worked out at Rs. 20,26,371 as against Rs. 7,44,400 returned by the assessee and accepted by the Assessing Officer. On receipt of such audit objections, the valuation of the property with referred to the Valuation Officer who determined the fair market value of the property on the relevant date at Rs. 14,18,000. On the basis of the aforesaid material, the Commissioner initiated proceedings under section 25(2) of the Act and finally directed the Wealth Tax Officer to take the fair market value of the assessee's property in New Delhi, at Rs.14,18,000 as against Rs. 7,44,400. The Tribunal held that the Commissioner of Wealth Tax did not have jurisdiction to make the order. On a reference:

Held, that the order of the Commissioner of Wealth Tax was valid.

CWT v. Nageswara Rao (A.) (1998) 231 ITR 215 (AP); CWT v. Ramnarayan Bhojnagarwala 1,1992) 194 ITR 489 (Cal.); Ganga Properties v. ITO (1979) 118 ITR 447 (Cal.); Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83 (SC); Rampyari Devi Saraogi v. CIT (1968) 67 ITR 84 (SC) and Tara Devi Aggarwal (Sint.) v. CIT (1973) 88 ITR 323 (SC) ref.

R.C. Pandey with Ms. Prem Lata Barisal for the Commissioner.

Nemo for the Assessee.

2001 P T D 1975

[246 I T R 524]

[Delhi High Court (India)]

Before Arijit Prasayat, C. J. and D. K. Jain, J

COMMISSIONER OF WEALTH TAX

Versus

Mrs. VIDYA MALHOTRA

Wealth Tax Reference No. 9 of 1983, decided on 6th July, 2000.

(a) Wealth tax‑‑‑

‑‑‑‑Penalty‑‑‑Concealment of wealth‑‑‑Declaration of value of property on basis of valuation report of approved valuer ‑‑‑Difference in estimate of valuation between approved valuer and departmental valuer ‑‑‑Assessee's valuation bona tide‑‑‑No deliberate understatement ‑‑‑Assessee not guilty of gross or wilful neglect in returning. value‑--‑Cancellation of penalty by Tribunal justified‑‑‑Indian Wealth Tax Act, 1957, 5.18(1)(c).

The assessee purchased certain property on August 17, 1965 for Rs.17 lakhs. In 1965, she declared the value of the property for wealth tax purposes at Rs. 17 lakhs and stated that she had spent Rs. 1,42.750. For the assessment years 1966‑67 and 1967‑68; the assessee declared the value of the property at Rs. 12 lakhs but for the assessment years 1968‑69 and 1969‑70, the valuation .was shown at Rs. 7,76,800. On February 18, 1971, the property was sold for Rs. 22,60,000. For the years 1968‑69 and 1969‑70, the Wealth Tax Officer rejected the assessee's valuation and accepted that of the Departmental Valuation Officer at Rs. 19,21,000. Penalty proceedings under section 18(1)(c) of the Wealth Tax Act; 1957, kere initiated for furnishing inaccurate particulars. The Tribunal found that the figure returned by the assessee was bona fide and there was no deliberate understatement or furnishing of inaccurate particulars and, therefore, cancelled the penalty. On a reference:

Held, that the Tribunal had found that the property had been purchased, at an enhanced price because the assessee wanted it in a particular locality and was also anxious to purchase it soon in order to save capital gains tax. The assessee had declared the value of this property at Rs.7,76,000 in the returns of wealth on the basis of the valuation report of an approved valuer. There had been difference of opinion in regard to the estimate of valuation between the approved valuer of the assessee, the Departmental valuer and the tax authorities. The Tribunal had taken into account the basic features, relevant aspects and had also indicated that the assessee made no attempt to understate the valuations. The conclusions were essentially factual and did not give rise to any question of law.

(b) Wealth tax‑‑‑

‑‑‑‑Reference‑‑‑Questions of law and fact‑‑‑Difference‑‑‑Indian Wealth Tax Act, 1957, S.27.

Where the determination of an issue depends upon the appreciation of evidence or materials resulting in ascertainment of basic facts without application of any principle of law, the issue is a mere question of fact. In such cases, the Tribunal is the final fact finding authority and if upon an examination of all evidence and material before it certain findings are reached, it is a question of fact. An inference from facts is also a question of fact.

2001 P T D 2249

[247 I T R 103]

[Delhi High Court (India)]

Before Arijit Pasayat, C. J. and D. K. Jain, J

SHER SINGH (HUF)

Versus

COMMISSIONER OF WEALTH TAX

Wealth Tax Reference No.1 of 1982, decided on 5th July, 2000.

(a) Wealth tax‑‑

‑-‑‑Net wealth‑‑‑Acquisition of land by Government‑‑‑Right to receive compensation‑‑‑Value of right to receive compensation on date alone includible in assessee's net wealth‑‑‑Indian Wealth Tax Act, 1957.

(b) Wealth tax‑‑‑

‑‑‑‑Reference‑‑‑Appeal to Appellate Tribunal‑‑‑Additional grounds of appeal‑‑‑Tribunal whether justified in declining to entertain same‑‑‑Valuation fixed by Tribunal not assailed by assessee‑‑‑Question becoming of academic interest‑‑‑Question returned unanswered‑‑‑Indian Wealth Tax Act, 1957, S.27.

Held, (i) that the Tribunal was right in holding that the amount of compensation for which the appeal was filed before the Delhi High Court was not liable to be included and the value of the right to receive compensation on the date alone was includible in the assessee's net wealth.

C.W.T. v. Snit. Anjamli Khan (1991) 187 ITR 345 (SC) and C.W.T. v. Mehatab (U.C.) (1998) 231 ITR 501 (SC) fol.

(ii) That the question whether the Tribunal was justified in declining to admit an additional legal ground of appeal was of academic interest in view of the fact that the valuation fixed by the Tribunal was not assailed as incorrect by the assessee.

Nemo for the Assessee.

R.D. Jolly with Ms. Premlata Bansal for the Commissioner.

2001 P T D 2378

[247 I T R 162]

[Delhi High Court (India)]

Before Arijit Pasayat, CJ. and D. K. Jain, J

COMMISSIONER OF INCOME‑TAX

Versus

I.S.C. SETHI and another

Wealth Tax References Nos. l5 and 46 of 1982, decided on 3rd August, 2000.

Wealth tax‑‑‑

‑‑‑‑Exemption‑‑‑Reference‑‑‑Manufacturing process ‑‑‑Assessee partner in a firm‑‑Firm buying brass articles, getting them nickel or silver plated from outside and solderine and engraving such articles so as to make them fit for Tribunal that it amounted to processing or manufacturing activity ‑‑‑Assessee was entitled to exemption under S.5(1)(xxxii)‑‑‑No question of law arose‑‑‑Indian Wealth Tax Act, 1957, Ss.5(1)(xxxii) & 27.

The assessee was a partner in a firm which was carrying on the business of buying brass articles from the market, getting them nickel plated or silver plated from parties doing job work and thereafter soldering and engraving such articles so as to make them fit for export as fancy articles to the foreign market. The assessee claimed exemption under section 5(1)(xxxii) of the Wealth Tax Act, 1957, for the capital with the firm. The Wealth Tax Officer rejected the claim on the ground that the firm was not carrying on any manufacturing process. On appeal, the Tribunal found that the firm in which the assessee was a partner was in fact buying various articles from different dealers in Moradabad, and then sent the same to various parties for plating, soldering and engraving; that after the job work was done by the parties, the assessee finally assembled the parts, did the necessary soldering or got it done and sold the products so made in the market by exports as products of its own, and held that this process was covered within the meaning given to the phrase, "processing of goods" in the Explanation to clause (xxxi) which is also applicable to clause (xxxii) of subsection (1) of section 5 of the Act. It set aside the order of the authorities and directed the Wealth Tax Officer to compute the interest of the assessee in the firm and exempt it under section 5(1)(xxxii). On a reference:

Held, that the Tribunal was justified in holding that the firm in which the assessee was a partner was engaged in the processing or manufacturing of goods so as to qualify for exemption under section 5(1)(xxxii). No question of law arose out of the order of, the Tribunal. [The High Court declined to answer the question].

2001 P T D 2439

[247 I T R 485]

[Delhi High Court (India)]

Before Arijit Pasayat. C. J. and D. K. Jain, J

COMMISSIONER OF WEALTH TAX

Versus

Smt. ANGIRA DEVI GUPTA

Wealth Tax References Nos.280 to 283 of 1983, decided on 7th September, 2000.

Wealth tax‑‑‑

‑‑‑‑Penalty‑‑Reference‑‑‑Delay in filing return‑‑‑Unintended delay‑‑­Application for extension of time not rejected by Revenue‑‑‑Tribunal cancelling penalty‑‑‑Factual finding not perverse or unreasonable‑‑‑No question of law arose‑‑‑Indian Wealth Tax Act, 1957, Ss. 18 & 27.

For the assessment years 1970‑71 to 1973‑74, the wealth tax returns were filed belatedly. Proceedings under section 18(1)(a) of the Wealth Tax Act, 1957, were initiated. The assessee submitted that she being an old lady had to depend on the accountants for preparation statements and filing of the returns. Hence, there was unintended delay in tiling the returns. The Wealth Tax Officer rejected the explanations, while the Tribunal accepted the assessee's plea and directed deletion of the penalties. The Tribunal found that the assessee had applied for extension of time for each assessment year and since these applications had not been rejected by the Revenue, they should be taken to be allowed. On a reference:

Held, that the question whether there was sufficient cause for delay in filing of the returns was essentially factual and the Tribunal had recorded a finding with reference to materials that sufficient cause existed for belated filing of the returns and cancelled the penalty. No question of law arose, R.C. Pandey with Mrs. Prem Lata Bansal for the Commissioner.

Nemo for the Assessee.

2001 P T D 2582

[248 I T R 482]

[Delhi High Court (India)]

Before Arijit Pasayat, C.J. and D.K. Jain, J

COMMISSIONER OF WEALTH TAX

versus

Begam BRIGEES ZAHOOR QASIM and others

Wealth Tax References Nos.83 to 86 of 1978, 148 to 152 of 1982 and 45, 84, 85, 92 and 93 of 1983, decided on 12th October, 2000.

(a) Wealth tax‑‑‑

‑‑‑‑Assessment‑‑‑Protective assessment‑‑‑Permissible where substantive assessment has been made in hands of another person‑‑‑Matter remanded‑‑­Indian Wealth Tax Act, 1957.

(b) Wealth tax‑‑‑

‑‑‑‑ Recovery of tax‑‑‑Protective assessment‑‑‑Recovery of tax cannot be made in case of protective assessment‑‑‑Indian Wealth Tax Act, 1957.

Protective inclusion of wealth is permissible where a substantive assessment is made in the hands of another.

In case of property which is included on protective basis, corresponding tax element cannot be recovered:

Held, that there was no definite finding recorded by the Appellate Assistant Commissioner or the Tribunal as to whether there was any substantive inclusion in the hands of any other person so far as the wealth in question was concerned (Matter remanded).

Sanjiv Khanna and Ajay Jha for the Commissioner.

Nemo for the Assessee

2001 P T D 2653

[240 I T R 672]

[Delhi High Court (India)]

Before Arun Kumar and D. K. Jain, JJ

COMMISSIONER OF INCOME‑TAX

versus

PESTO CHEM INDIA LTD.

I.T.C. No.30 of 1999, decided on 4th August, 1999.

Income‑tax------

‑‑‑‑Reference‑‑‑Income from undisclosed sources‑‑‑Addition of amounts withdrawn by directors of assessee‑company from its accounts‑‑‑Finding by Tribunal that amounts had been re‑deposited‑‑‑Tribunal justified in deleting additions to income‑‑‑No question of law arose‑‑‑Indian Income Tax Act, 1961,S.256.

Held, rejecting the application of directing reference, that, in the instant case, the Assessing Officer had made additions to the income of the assessee‑company on the ground that amounts had been withdrawn by its directors from its accounts from time to time. The Tribunal after examining the imprest accounts of the directors/relatives from the assessment year 1989‑90 to the assessment year 1994‑95 observed that the said practice was being followed by the assessee in the past years as well as in the subsequent years but no such addition was ever made in any of the years. The Tribunal further noticed that even according to the Departmental Representative the existing debit balance in the imprest accounts was adequate to cover the credits on any one date in the said imprest accounts, meaning thereby that the directors re‑deposited the amount either wholly or partly with the company out of the withdrawals of the money made by them from the assessee by debiting the same in the respective imprest accounts. The Tribunal accordingly held that the Revenue had failed to prove that the amounts withdrawn by the directors by debiting their respective imprest accounts were spent for some other purposes and the same were not available with them for re‑depositing with the bank. The findings recorded by the Tribunal, based on the material available before it were pure findings of fact, which were not sought to be challenged by the Revenue. The Tribunal was justified in deleting the addition of Rs.11,74,000. No question of law arose from its order.

R.D. Jolly with Ms. Prem Lata Bansal for Applicant

2001 P T D 2740

[239 I T R 899]

[Delhi High Court (India)]

Before Arun Kumar and D. K. Jain, JJ

COMMISSIONER OF INCOME‑TAX

versus

GAURI SHANKER SUSHIL KUMAR & CO.

I.T.C. No.32 of, 1998, decided on 11th August, 1999.

Income‑tax----

‑‑‑Reference‑‑Penalty‑‑‑Concealment of income‑‑‑Finding by Tribunal that assessee was able to explain existence of cash found during search operations and that there was no concealment of income‑‑‑Tribunal was justified in deleting penalty‑‑‑No question of law arose‑‑‑Indian Income Tax Act, 1961, Ss.256 & 271.

Held, dismissing the application for reference, that the Tribunal had found that the assessee had been able to explain the cash found in a search in its business premises. The availability of cash was fully supported by entries of purchases and sales in the books of account. The Tribunal held that the Assessing Officer had not detected any concealment and merely because the assessee had surrendered the amount in the revised return, penalty could not, be levied. There was no specific challenge to the correctness of these findings arrived at by the Tribunal. The Tribunal was correct in cancelling the penalty. No question of law arose from its order.

CIT v. Lal Chand Tirath Ram (1997) 225 ITR 675 (P & H) ref.

Sanjeev Khanna Ajay Kumar Jha for the Commissioner.

S.R. Kharbanda or the Assessee.

2001 P T D 2799

[240ITR9]

[Delhi High Court (India)]

Before Arun Kumar and D. K. Jain, JJ

COMMISSIONER OF INCOME‑TAX

versus

DELHI CLOTH AND GENERAL MILLS, CO.

Income‑tax Reference No. 183 of 1978, decided on 13th July, 1999.

(a) Income‑tax‑‑‑

‑‑‑‑Business expenditure‑‑‑Travel‑‑‑Expenditure on foreign tour of Director to attend meeting of International Chamber of Commerce ‑‑‑Deductible‑‑­Indian Income Tax Act, 1961, S..37.

The provisions of section 80J of the Income Tax Act, 1961, which are intended to encourage the setting up of new industrial enterprises have to be construed liberally. The deduction under that section has to be allowed in full without reducing the same in proportion to the part of the year during which the undertaking was not in productive operation. The Central Board of Direct Taxes has accepted the interpretation placed on the phrase "per annum" by the Madras and Karnataka High Courts and vide its Circular No. F No.178/227/83‑IT(Al), dated March 3, 1984, has issued instructions that deduction under section 80J should not be reduced proportionately with reference to the period for which the business of the undertaking was not carried on during the relevant previous year.

CIT v. Simpson & Co. (1980) 122 ITR 283 (Mad.); CIT v. Mysore Petro‑Chemical Ltd. (1984) 145 ITR 416 (Kar.) and CIT v. Sanghi Beverages (Pvt.) Ltd. (1982) 134 ITR 623 (MP) for.

Held, (i) that the expenditure incurred by the assessee on the foreign tour of Dr. B to attend the meetings of the International Chamber of Commerce was deductible in computing its business income for the assessment year 1970‑71.

Delhi Cloth and General Mills Co. Ltd. v. CIT (1986) 158 ITR 64 (Delhi) fol.

(ii) that the expenditure incurred by the assessee for running the D.C.M. Football tournament was an admissible deduction for arriving at its profits from business.

Delhi Cloth and General Mills Co. Ltd. v. CIT (1992) 198 ITR 500 (Delhi) fol.

(b) Income‑tax‑‑‑

‑‑‑‑Business expenditure‑‑‑Expenditure on running football tournament‑‑­Deductible‑‑‑ Indian Income Tax Act, 1961, S.37.

(c) Income‑tax‑‑‑

‑‑‑‑New industrial undertaking‑‑‑Special deduction‑‑‑Special deduction allowable for entire accounting year although undertaking worked only for part of the year‑‑‑Indian Income Tax Act, 1961, S.80J.

Ajay Jha for the Commissioner.

Ms. Monica Singal for the Assessee,

2001 P T D 3054

[240 I T R 127]

[Delhi High Court (India)]

Before Arun Kumar and D.K. Jain, JJ

DELHI FARMING AND CONSTRUCTION (PVT.) LTD

Versus

ASSISTANT COMMISSIONER OF

INCOME‑TAX and others

C.W.P. No.3052 and 3053 of 1989 and 681 of 1992, decided on 30th August, 1999.

Income‑tax‑‑‑

‑‑‑‑Re‑assessment‑‑‑Failure to disclose material facts necessary for assessment‑‑Duty of assessee is to disclose primary facts‑‑‑Interest on enhanced compensation on compulsory acquisition of land‑‑‑Facts regarding compulsory acquisition, litigation regarding it and amounts received disclosed to AO‑‑No failure to disclose material facts necessary for assessment‑‑‑Re‑assessment proceedings to assess interest on enhanced compensation were not valid‑‑‑Indian Income Tax Act, 1961, 5.147.

It is evident that before proceedings under section 147(a) of the Income Tax Act, 1961, could be initiated, the twin conditions, namely; (i) the Assessing Officer having reason to believe that income chargeable to tax has escaped assessment, and (ii)' such escapement was again by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year, which have been held to be cumulative, must be satisfied. The fulfilment of both the conditions is thus sine qua non for taking action under section 147(a) and this alone could, confer jurisdiction on the Assessing Officer to re‑open a completed assessment and make a re‑assessment. The obligation of the assessee is to disclose only primary facts and not inferential facts. The primary facts are those which are material in that if taken into account they would have an adverse effect on the assessee for the assessment of greater "income than what has been actually assessed. What facts are material and necessary for assessment differ from case to case. It is not for somebody else, far less the assessee, to tell the Assessing Officer what inferences, whether on facts or law, should be drawn from the primary facts placed before him by an assessee. If the income declared is not acceptable to the Assessing Officer, he is obliged to investigate and bring to tax the correct income. Even the object of Explanation 2 to section 147, casting an obligation on the assessee to bring to the notice of the Assessing Officer the entire material which may be lying embedded in the evidence, cannot be construed to mean that the assessee is also required to advise the Assessing Officer as to what inference he should draw on the facts pointed out to him. If all the material facts are before the Assessing Officer at the time of original assessment, he cannot later on take recourse to section 147(a) of the Act to remedy the error resulting from his own negligence, lack of knowledge or even oversight. Merely because an Assessing officer fails to apply correct principles of law because of his ignorance or casual attitude at the time of original assessment, he, cannot be permitted to later take recourse to section 147(a) to correct his inaction.

Notice of re‑assessment was issued to the assessee on the grounds that (i) the facts regarding the filing of appeals for enhancement of compensation with interest thereon were not disclosed by tire petitioner/assessee in its returns filed prior to the date of order by the Additional District Judge on January 31, 1981 (assessment years 1972‑73 to 1982‑83); (ii) the interest received on January 21, 1982, was not declared in the returns even on accrual basis either with reference to the date of order by the Additional District Judge or from the date of receipt of the amount; and (iii) the interest amount of Rs.1,31,41,287, accrued on August 27, 1984; when the High Court decided the matter in the assessee's favour, was not declared in the return filed. On a writ petition challenging the notice:

Held, that it was not in dispute that the annual accounts were filed with the returns of income for the relevant assessment years. From the assessment orders placed on record; we find that in the order for the assessment year 1971‑72, after recording the facts regarding acquisition, litigation with regard to the title of the lands, and the amount of interest received, the Assessing Officer held that though the assessee had apportioned the income to various previous years but since the amount was actually received by the assessee in February, 1973, the entire amount, was taxable in the assessment year 1974‑75 on receipt basis and he accordingly taxed the same in the said year. The petitioner was claiming as part of establishment expenses, the expenses incurred by it of the litigation with regard to enhancement of compensation but the same was being disallowed as not incidental to earning of interest income. The fact with regard to the acquisition of its lands; the amount(s) and the time when compensation/additional compensation was received and all these facts having been noticed by the Assessing Officers in the assessment orders for the years under consideration, it cannot be said that still the petitioner failed to disclose fully and truly all material facts necessary for its assessment for the relevant assessment years. The Legislature amended section 150 of the Act by the Direct Tax Laws (Amendment) Act, 1987 with effect from April 1, 1989, i.e., subsequent to issue of the impugned notice on March 30, 1989. The amendment was not retrospective. The question of taxability of interest on compensation on accrual basis having been settled in CIT v. Deoki Nandan & Sons (1982) 138 ITR 225 (Delhi), the Assessing Officer was obliged to apply the principles enunciated therein. In the present case, the petitioner‑assessee had disclosed fully and truly all material and relevant facts which were necessary, for its assessment for the relevant assessment years and there was no omission on its part in that behalf. The notices of re?assessment were not valid and were liable to be quashed.

CIT v. Deoki Nandan & Sons (1982) 138 ITR 225 (Delhi) and Calcutta Discount Co. Ltd. v. ITO (1961) 41 ITR 191 (SC) ref.

G. C. Sharma, Senior Advocate with Pramod B. Aggarwala, Ms. Paraveena Gautam and Ms. Rachna Katyal for Petitioner.

R.D. Jolly with Mrs. Prem Lata Bansal for Respondent. .

2001 P T D 3225

[240 I T R 191]

[Delhi High Court (India)]

Before Arun Kumar, D. K. Jain and J. B. Goel, JJ

GOWERSONS PUBLISHERS (PVT.) LTD.

Versus

COMMISSIONER OF INCOME‑TAX

Income‑tax Reference No‑166 of 1981, decided on 17th September, 1999.

(a) Income‑tax‑‑‑

‑‑‑‑Depreciation‑‑‑Building‑‑‑Condition precedent for claiming depreciation‑­Ownership of building‑‑‑Meaning of "owner" for purposes of S.32‑‑‑Assessee purchasing factory building and using it‑‑‑Formal sale‑deed not executed ‑‑‑Assessee was owner of factory building and entitled to depreciation in respect of it‑‑‑Indian Income Tax Act, 1961, S.32.

Section 22 of the Income Tax Act, 1961, which uses the word "owner" deals with assessment of income from house property while section 32(1) deals with allowing depreciation on buildings, etc., owned by an assessee. In both the provisions, the words "owner" or "owned by" are used in the context of enjoyment of the property by the owner. So long as a person continues to enjoy the property as an owner, he can make out the case for assessment of the income from the property under section 22 and claim depreciation thereon as per the provisions of section 32(1). Thus, context in which the words "owner" or "owned by" are used, relates to deriving benefit by way of income or by personal use of property. The real test is the right to enjoy the property as owner. This interpretation advances the object of the provision. Secondly, this interpretation also upholds the principle that in taxing statutes, when there is need for interpretation, it should be in a manner favouring the assessee. In CIT v. Podar Cement (Pvt.) Ltd. (1997) 226 ITR 625, the Supreme Court explained that though under the common law "owner" means a person who has got valid title legally conveyed to him after complying with the requirements of law such as the Transfer of Property Act, the Registration Act, etc., in the context of section 22 of the Income‑tax Act having regard to the ground realities and having regard to the object of the Income‑tax Act, namely, to tax the income, "owner" is a person who is entitled to receive income from the property in his own right. In the light of the decision of the Supreme Court in CIT v. Podar Cement (Pvt.) Ltd. (1997) 226 ITR 625 the requirement of registration of sale‑deed in the context of section 22 is not warranted. What is to be seen is who is in a position to enjoy the property or reap benefits from it as owner. An assessee seeks to have the income from his property assessed under section 22 only because he derives the income in his own right. The right to sell the property does not come in the picture. It is not germane to the issue. If for all practical purposes the assessee has a right to enjoy a property as owner he will be deemed to be the owner of the property if a formal document conferring the title to the property in his favour is yet to be executed. The provisions of the Act have reference to the enjoyment of the property by the assessee as owner and nothing else. In Mysore Minerals Ltd. v. CIT (1999) 239 ITR 775, the Supreme Court held that the term "owned" as occurring in section 32(1) of the Act must be assigned a wider meaning. Any one in possession of property in his own title exercising such dominion over the property as would enable others being excluded therefrom and having the right to use and occupy the property and/or to enjoy its usufruct in his own right would be the owner of the buildings though a formal deed of title may not have been executed and registered as contemplated by the Transfer of Property Act, the Registration Act, etc. "Building owned by the assessee", the expression as occurring in section 32(l) of the Act, means the person who having acquired possession over the building in his own right uses the same for the purposes of the business or profession though a legal title has not been conveyed to him consistently with the requirements of laws such as the Transfer of Property Act and the Registration Act but nevertheless is entitled to hold the property to the exclusion of all others:

Held, that, in the present case, the fact was not disputed that the assessee had paid the full price of the property and was using the building in question for its own business. It was only that for reason of some restrictions which were applicable for a specified period, a formal sale‑deed could not be executed in favour of the assessee with respect to the property. The assessee‑company was entitled to claim depreciation under the provisions of section 32 of the Act in respect of the factory building belonging to it and. used by it for its business.

CIT v. Podar Cement (Pvt.) Ltd. (1997) 226 ITR 625 (SC) applied. ‑

Mysore Minerals Ltd. v. CIT (1999) 239 ITR 775 (SC) fol.

CIT v. Hindustan Cold Storage and Refrigeration (Pvt.) Ltd. (1976) 103 ITR 455 (Delhi) and Sushil Ansal v. CIT (1986) 160 ITR 308 (Delhi) ref.

(b) Words and phrases‑‑‑‑

‑‑‑‑‑‑ Owner"‑‑‑Meanings.

K.P. Bhatnagar and Jodh Singh for the Assessee.

R.D. Jolly and Ajay Jha for the Commissioner.

2001 P T D 3334

[240 I T R 880]

[Delhi High Court (India)]

Before Arun Kumar and D. K. Jain, JJ

COMMISSIONER OF INCOME-TAX

Versus

AGGARWAL PIPE CO.

I.T.C. No.35 of 1998, decided on 27th July, 1999.

Income-tax---

----Reference---Penalty---Concealment of income---Tribunal finding that surrender of cash credits for assessment was only because of inability to produce creditors and that there was no concealment of income---Tribunal justified in deleting penalty----No question of law arose---Indian Income Tax Act, 1961, Ss.256 & 271(1)(c).

Held, dismissing the application for reference, that the Tribunal had found that the assessee had furnished confirmations from the cash creditors and it was only when the Assessing Officer wanted him to produce these creditors, including Y in whose case summons sent under section 131 of the Income Tax Act, 1961, were received back unserved, that the assessee found it expedient to surrender the amounts, but merely because the assessee had surrendered the amounts it did not follow that the amount agreed to be added represented its concealed income. The surrender so made also stood accepted and the Revenue had brought no material on record, besides the factum of surrender to show that the amounts involved represented undisclosed income of the assessee. The Tribunal was justified in cancelling the penalty No question of law arose from the order.

CIT v. K.P. Sampath Reddy (1992) 197 ITR 232 (Kar.) ref.

R.D. Jolly with Ms. Prem Lata Barisal for the Department.

N.S. Bhatnagar for the Assessee.

[240 I T R 256]

[Delhi High Court (India)]

Before Anin Kumar,and D.K. Join, JJ

COMMISSIONER OF INCOME-TAX

Versus

BHARAT COMMERCE AND INDUSTRIES LTD.

Income-tax References Nos. 136 to 138 of 1978, decided on 30th August, 1999.

(a) Income-tax---

----Business loss---Valuation of stock---Change in method of valuation--­Change is permissible if it is bona fide and followed regularly thereafter--­Valuation of slow moving items at realisable value---Finding that change was bona fide and followed regularly thereafter---Change in method was justified---Loss on revaluation of stock was deductible---Indian Income Tax Act, 1961.

An assessee is free to adopt a particular method of valuation, of its closing stock which it has to follow regularly from year to year. At the same time it is well-settled that irrespective of the basis adopted for valuation for earlier year, the assessee has an option to change the method of valuation of closing stock, provided the change is bona fide. and followed regularly thereafter.

The Appellate Tribunal being the final fact-finding authority under the Act, the High Court in the exercise of its advisory jurisdiction can neither go behind the facts stated by the Tribunal nor can disturb the same unless a challenge is provided specifically by a question framed in a reference against the validity of the impugned findings of fact on the ground that there is no evidence to support them or they are result of a misdirection in law.

Held, that, in view of the findings of the Tribunal, the assessee had resorted to revaluation of the raw materials on the basis of specific instances of fall in value of the goods when such goods could not be sold even at cost price, there was nothing wrong in valuing the goods at an estimated realisable value. The assessee has an option to change the method of valuation of closing stock if the change is bona fide and followed regularly thereafter. The loss arising out of revaluation of closing stock was allowable.

(b) Income-tax---

----Reference---Finding of fact---Final unless challenged specifically---Indian Income Tax Act, 1956, S.256.

(c) Income-tax---

----Business expenditure---Reference---Appeal to Appellate Tribunal--­Surtax---Supreme Court decision that surtax is not deductible---Question whether Tribunal was justified in rejecting additional ground that surtax was deductible was academic---High Court would not answer it---Indian Income Tax Act, 1961, Ss.37, 254 & 256.

That in Smith Kline and French (India) Ltd. v. CIT (1996) 219 ITR 581, it has been held by the Supreme Court that surtax levied under the Companies (Profits) Surtax Act, 1964, squarely falls within the mischief of sub-clause (ii) of clause (a) of section 40 of the Act and therefore cannot be allowed as deduction while computing the business income of the assessee under the provisions of the Act. In view of this authoritative pronouncement, the first question was academic and therefore, returned unanswered.

Smith Kline and French (India) Ltd. v. CIT (1996) 219 ITR 581 (SC) rel.

K. Mohammad Adam Sahib v. CIT (1965) 56 ITR 360 (Mad.) and Patnaik & Co. Ltd. v. CIT (1986) 161 ITR 365 (SC) ref.

(d) Income-tax---

----New industrial undertaking---Special deduction---Computation of capital-­Borrowed capital is not includible ---Indian Income Tax Art, 1961, S. 80J.

For computing the capital employed under rule 19A of the Income Tax Rules, 1962, the borrowed capital has to be excluded for the purposes of relief under section 80J of the Income Tax Act, 1961.

Lohia Machines Ltd. v. Union of India (1985) 152 ITR 308 (SC) fol.

R.C. Pandey with Ms. Prem Lata Barisal for the Commissioner.

Satyen Sethi with T.V. Mallikarjun for the Assessee.

2001 P T D 3493

[240 I T R 556]

[Delhi High Court (India)]

Before Arun Kumar and D. K. Jain, JJ

COMMISSIONER OF INCOME-TAX

Versus

UNION TYRES

I.T.R. No400 of 1979, decided on 23rd September, 1999

Income-tax--

----Appeal to AAC---Powers of First Appellate Authority---First Appellate Authority cannot consider new source of income---Assessing Officer estimating profits ---AAC cannot direct enquiry regarding unexplained investments---Indian Income Tax Act, 1961, S.251.

The first appellate authority is invested with very wide powers under section 251(1)(a) of the Income Tax. Act, 1961, and once an assessment order is brought before the authority, his competence is not restricted to examining only those aspects of the assessment about which the assessee makes a grievance but ranges over the whole assessment to correct the Assessing Officer not only with regard to a matter raised by the assessee in appeal but also with regard to any other matter which has been considered by the Assessing Officer and determined in the course of assessment. However, there is a solitary but significant limitation to the power of revision, viz., that it is not open to the Appellate Assistant Commissioner to introduce in the assessment a new source of income and the assessment has to be confined to those items of income which were the subject-matter of original assessment:

Held, that, in the instant case, the Tribunal was justified in holding that in calling for a remand report on four points, namely, antecedents of the assessee, source of investment made in purchase of goods, business connections of the assessee and bank reconciliation statement, the Appellate Assistant Commissioner had exceeded his jurisdiction. While computing the total business income of the assessee, the Assessing Officer had estimated the sales at an enhanced figure and had applied a higher rate of gross profit. Thus, the only matter dealt with by the Assessing Officer in the assessment order was the estimation of profits and gains of the business of the assessee. The Appellate Assistant Commissioner had his doubts about the capacity of the assessee to raise finances for the purchase of goods and show a huge turnover in the very first year of his business. In other words, the enquiry ordered by the Appellate Assistant Commissioner was to satisfy himself about the source of investment by the assessee. It is axiomatic that failure to prove the sources of investment will result in addition in the hands of the assessee under a different provision of law and will not have much relevance in the estimation of sales and gross profit rate adopted by the Assessing Officer. Any addition on account of unexplained investment would constitute a new source of income which was not the subject-matter of assessment before the Assessing Officer, and therefore, it was not open to the first appellate authority to direct the Assessing Officer to conduct enquiry regarding it.

CIT v. Shapoorji Pallonji Mistry (1962) 44 ITR 891 (SC) and CIT v. Rai Bahadur Hardutroy Motilal Chamaria (1967) 66 ITR 443 (SC) applied.

CIT v. Kanpur Coal Syndicate (1964) 53 ITR 225 (SC); CIT v. Nirbheram Daluram (1997) 224 ITR 610 (SC) and Jute Corporation of India Ltd. v. CIT (1991) 187 ITR 688 (SC) ref.

R.C. Pandey with Ms. Prem Lata Barisal for the Commissioner.

Harihar Lal with Ms. Radlia Rangaswamy and Ms. Molina Madan Lal for the Assessee.

2001 P T D 3625

[241 I T R 152]

[Delhi High Court (India)]

Before R. C. Lahoti and C. K. Mahajan, JJ

K.K. LOOMBA and another

versus

COMMISSIONER OF INCOME-TAX and others

C.W.P. Nos.3710, 2983 of 1997, Civil Miscellaneous Nos.7138 and 5877 of 1998, decided on 30th November, 1998.

(a) Income-tax---

----Assessment---Jurisdiction---General principles---Scope of Ss. 124 & 127--­Reassessment ---Notice---Assessee shifting business and residence from Amritsar to New Delhi---Notice under 5.148 issued by A.O. of New Delhi-­Notice was valid---Indian Income Tax Act, 1961, Ss.2, 120, 124, 127 & 148.

(b) Writ---

---- Delay in filing writ petition---Writ petition may be dismissed--­Constitution of India, Art.226.

There is no fundamental right of the assessee to be assessed in a particular area or locality. An assessee is entitled to be assessed by the Income-tax Officer of the particular area where he resides and carries his business. If a question arises as to the place of assessment it is to be determined by the Commissioner. The principles underlying determination of jurisdiction on which the provisions are based are (i) convenience of the assessee and (ii) efficiency of the Department (i.e. the exigencies of tax collection). Both the ends would be achieved by conferring jurisdiction on the Assessing Officer of an area where the assessee resides -and carries on business. Section 120 of the Income Tax Act, 1961, deals with the jurisdiction conferred on the Income-tax Authorities to exercise the powers and perform the functions conferred by the Act. The jurisdiction between different authorities can be divided by reference to (i) territorial area; (ii) person or persons; (iii) income and classes of income; and (iv) cases or classes of cases. Section 1240) has relevance to territorial jurisdiction. If area-wise jurisdiction has been conferred on the Assessing Officer then a. person carrying on business or profession must rind out the Assessing Officer having jurisdiction over the place within which business or profession is being carried on. If the assessee is a person not carrying on a business or profession then he is subject to the jurisdiction of the Assessing Officer vested with jurisdiction over the area where he is residing. Section 127 does not speak of power to transfer jurisdiction; it speaks of transfer of "case" as defined in the Explanation enacted to section 127. It is relevant to note that the term assessment as defined in clause (8) of section 2 of the Act includes reassessment.

KKL was a doctor by profession. He was deriving income from Loomba Clinical Laboratories, as a sole proprietor since 1974 and was also a partner in N.B. Hospital up to May, 1984: With effect from May, 1984, he retired from the partnership. In July, 1984, during the assessment year 1985-86, he started his profession in' New Delhi in rented premises. However, he continued to file his return of income at Amritsar. He claimed that he had filed returns for the assessment years 1980-81 to 1992-93 with the Income-tax Officer, Amritsar. No return had been filed for the assessment year 1993-94 onwards.

UL was an individual having tuition income at Amritsar since the assessment year 1982-83 With effect from July 4, 1984, relevant to the assessment year 1985-86, she started her independent proprietary business at Delhi. According to her, returns of income for the years 1982-83 to 1992-93 had been filed with the Income-tax Officer. No return of income had been filed for the assessment year 1993-94 onwards. On July 18, 1989, and February 8, 1990 search and seizure operations within the meaning of section 132(1) of the Act were carried out by the D.I. (investigation), upon both the petitioners. Based on such search and seizure operations the Assistant Commissioner of Income-tax, Investigation Circle. 11(1), New Delhi, issued notices under section 148 of the Act in February, 1993, for the assessment years 1988-89 to 1990-91 to both the petitioners. Notice under section 148, dated March 22, 1994, for the assessment years 1985-86 to 1987-88 and dated March 31, 1995, for the assessment year 1992-93 were also issued to the petitioners. The petitioners filed their returns under protest and also objected to the jurisdiction of the Assistant Commissioner of Income-tax:

Held, dismissing the petitions, that in view of the fact that ever since July, 1984, the two petitioners were having, their business/profession and also residence at Delhi, the issuance of notices under section 148 of the Act by the Assessing Authority having jurisdiction to make the original assessment on the date of issuance of the notice was valid. Moreover, the notices were issued in the years 1993 and 1995. These petitions had been tiled in the year 1997, i.e. after a lapse of more than four and two years, respectively, from the dates of the notices. Assessments had been finalised The question of jurisdiction having received the attention of the Commissioner of Income-tax (Appeals) was left at large to be dealt with by the Assessing Officer pursuant to the orders of remand. At such a belated stage the petitioners could not be shown indulgence in exercise of the writ jurisdiction of the Court.

Bidi Supply Co. v. Union of India (1956) 29 ITR 717 (SC); Industrial Trust Ltd. v. CIT (1973) 91 ITR 550 (SC); Kanji Mal & Sons v. CIT (1982) 138 ITR 391 (Delhi); Pannalal Binjarj v. Union of India (1957) 31 ITR 565 (SC); Paramjit Singh (Lt. Col.) v. CIT (1996) 220 ITR 446 (P&H); Ramasamy Asari (M.) v. Second ITO (1964) 51 ITR 57 (Mad.) and Sardar Baldev Singh v. CIT (1961) 40 ITR 605 (SC) ref.

C.S. Aggarwal with Salil Aggarwal and Anil Sharma for Petitioners.

Sanjeev Khanna with Ms. Premlata Bansal for Respondents.

2001 P T D 3683

[241 I T R 305]

[Delhi High Court (India))

Before R. C. Lahoti and J. K. Mehra, JJ

COMMISSIONER OF INCOME‑TAX

versus

PEACOCK CHEMICALS (P.) LTD.

Income‑tax Case No.83 of 1995, decided on 13th October, 1997

Income‑tax‑‑‑

‑‑‑‑Reference‑‑‑Powers of High Court‑‑‑High Court cannot frame new question‑‑‑Depreciation allowed on finding that assets belonged to assessee but were leased out‑‑‑High Court could not reframe question and consider whether lessee actually used assets‑‑‑Indian Income Tax Act, 1961, Ss.32 & 256.

There are two restrictions on the High Court exercising jurisdiction under section 256(2) of the Income Tax Act, 1961. The High Court cannot disturb the finding of fact recorded by the Tribunal and based on the material available before it. The High Court can reframe a question so as to bring out the real question of law arising from the order of the Tribunal but it cannot frame a new question or reframe a question in such a way as would amount to raising a new question which was not raised before the Tribunal:

Held, dismissing the application to direct reference, (i) that it was not disputed that the business of the assessee in the relevant assessment year had been the leasing out of its assets including trucks, cylinders, photo-­composing and type setting machines. The finding of fact recorded by the Tribunal was that during the assessment year, the assessee was the owner of the assets and they were leased out. The tact that the assets were not actually used or were not capable of being put to use by the lessee might have been relevant for the purpose of finding out whether the transaction was colourable or not but it had no relevance so far as the finding of the assets having been used by the lessor (assessee) for the purpose of the business of leasing was concerned. The question whether depreciation could be allowed despite non‑user of assets for business purposes, did not arise from the order of the Tribunal. It could not be referred to the High Court.

(ii) That the second question related to gas cylinders. They were owned by the lessee but the ownership was transferred to the assessee during the assessment year and the lease had also taken place during the assessment year as found by the Tribunal. The question whether the Tribunal was correct in holding that delivery of movable property includes the user of the asset by the purchaser did not arise from the order of the Tribunal and could not be referred to the High Court.

CIT v. Kotrika Venkataswamy & Sons (1971) 79 ITR 499 (SC); CIT v. Scindia Steam Navigation Co. Ltd. _(1961) 42 ITR 589 (SC) and Lakshmiratan Cotton Mills Co. Ltd. v. CIT (1969) 73 ITR 634 (SC) ref.

R.D. Jolly and Ms. Prem Lata Bansal for the Commissioner.

C.S. Aggarwal, Salil Aggarwal and Partap Srivastava for the Assessee.

2001 P T D 3701

[241 I T R 656]

[Delhi high Court (India)]

Before Arun Kumar and D.K. Jain, JJ

COMMISSIONER OF INCOME‑TAX

versus

AIR FRANCE LTD.

I.T.C. No. 31 of 1998, decided on 16th July, 1999.

Income‑tax‑‑‑

‑‑Reference‑‑‑Deduction of tax at source‑‑‑Interest‑‑‑Salaries earned in India by foreigners‑‑‑Part of salary paid outside India‑‑‑Failure to deduct tax on part of salary paid outside India‑‑‑Finding by Tribunal that failure was due to bona fide belief that part of salary paid outside India was not chargeable to tax‑‑‑Tribunal not expressing any view on question whether amendment to S.9(1)(ii) was retrospective‑‑‑Deletion of penal interest under S.201(lA) by Tribunal was valid‑‑‑No question of law arose from its order‑‑­Indian Income Tax Act, 1961, Ss.9, 201 & 256.

The assessee was a foreign company with its head office in France. It paid salaries to some of its foreign employees posted in India, which included the amounts payable in France as "part francaise". However, the assessee did not deduct or deposit income‑tax on the said amount under section 192 of the Income Tax Act, 1961. This fact came to the notice of the Revenue during search operations conducted at the premises of the assessee.

The Income Tax Officer levied penal interest under section 201(lA) of the Act for non‑deduction of tax by the assessee on the aforenoted amount. The assessee's appeal to the Commissioner of Income‑tax (Appeals) failed but in further appeal to the Tribunal, the interest so levied was deleted. On an application to direct reference:

Held, that the Tribunal had nowhere expressed its view on the question whether the amendment of section 9(1)(ii) of the Act is prospective or retrospective. It had merely observed that prior to the said amendment the assessee was under the bona fide belief that no tax was chargeable on the afore noted portion of the salary paid to its employees outside India. This ending had not been challenged by the Revenue. Hence, no question of law arose from the order of the Tribunal.

CIT v. S.G. Pgnatale (1980) 124 ITR 391 (Guj.) ref.

R. D. Jolly with Ms. Prem Lata.

Bansal for the Commissioner.

A.K. Mata for the Assessee.

2001 P T D 3798

[241 I T R 556]

[Delhi High Court (India)]

Before Arun Kumar anal D. K. Jain, JJ

COMMISSIONER OF TNCOME‑TAX

Versus

JAGATJIT INDUSTRIES LTD.

I.T.C. No.18 of 1999, decided on 18th August, 1999.

Income‑tax‑‑‑

‑‑‑‑Reference‑‑‑Capital or revenue expenditure‑‑‑Finding that expenditure on replacement of certain items forming part of machinery did not enhance capacity of machinery --‑‑Finding of fact‑‑‑Finding not challenged as being perverse‑‑‑Tribunal justified in holding that expenditure was revenue in nature‑‑‑No question of law arose from its order‑‑‑Indian Income Tax Act, 1961, Ss.37 & 256(2).

Held, dismissing the application to direct reference, that the question whether on a given set of facts, replacement of certain items, forming as integral or important part of the machinery would be revenue ­expenditure or capital expenditure is primarily a question of fact. The Tribunal had reached the conclusion, that the moulds in question did not enhance the capacity of the existing, machines and were mere replacements for the moulds damaged during the process of‑manufacture of glass. It was also evident from the format of the question, proposed by the Revenue, that the finding of the Tribunal to the effect that the expenditure in question was incurred by the assessee on the "replacement" of the moulds was not under challenge. In view of the aforenoted finding recorded by the Tribunal, it was justified in holding that the expenditure was revenue in nature. No question of law arose from its order.

CIT v. Mysore Spun Concrete Pipe (Pvt.) Ltd. (1992) 194 ITR 159 (Kar.) and Empire Jute Co. Ltd. v. CIT (1980) 124 ITR 'l (SC) ref.

R.D. Jolly with Ajay K. Jha for the Commissioner.

2001 P T D 3803

[241 I T R 984]

[Delhi High Court (India)]

Before Arun Kumar and I3. K. Jain, JJ

COMMISSIONER OF INCOME‑TAX

Versus

RAJDEV SINGH & CO.

Income‑tax Reference No.58 of 1979, decided on 7th December, 1999.

Income‑tax‑‑

‑‑‑‑Business expenditure‑‑‑Gratuity‑‑‑Mercantile system of accounting‑‑­Provision for gratuity‑‑‑Liability worked out on actual valuation is allowable as business expenditure‑‑‑Indian Income Tax Act, 1961, S.40A(7).

For the assessment year 1972‑73, the assessee, a firm, claimed a sum of Rs. 18,472 as deduction under the head "Gratuity to staff". The claim was trade as per actuarial valuation but the Assessing Officer disallowed it on the ground that neither the gratuity fund was approved by the Commissioner nor an irrevocable trust created for the said purpose. The Tribunal held that the same was allowable. On a reference:

Held, that the provision for payment of gratuity had been made under a scheme on an actuarial basis and was allowable as business expenditure.

CIT v. Dalmia Dadri Cement Ltd. (1992) 195 ITR 290 (Delhi); CIT v. Kelviator of India Ltd. (1994) 210 ITR 933 (Delhi); Dalmia Dadri Cement Ltd. v. CIT (1980) 126 ITR 851 (Delhi) and Shree Sajjan Mills Ltd. v. CIT (1985) 156 ITR 585 (SC) ref.

R.C. Pandey with Ms. Prem Lata Bansal for the Commissioner.

S.K. Aggarwal for the Assessee.

2001 P T‑ D 3895

[241 I T R 807]

[Delhi, High Court (India)]

Before Arun Kumar and D. K. Join, JJ

POWER CONTROLS and others

versus

COMMISSIONER OF INCOME‑TAX and others

Civil Writ Petition No. 4849 of 1999, decided on 7th December, 1999

(a) Income‑tax‑‑‑

‑‑‑‑Transfer of case‑‑‑Conditions to be fulfilled for valid transfer ‑‑‑Show­ cause notice not giving reasons for proposed transfer of cases from Delhi to Faridabad‑‑‑Reasons for transfer not recorded in some orders of transfer‑‑­ Order of transfer vitiated and liable to be quashed‑‑‑Indian Income Tax Act, 1961, S.127(2).

(b) Income‑tax‑‑‑

‑‑‑‑Transfer of case‑‑‑Transfer from one Assessing Officer to another in same city‑‑‑No opportunity of being heard necessary‑‑‑Indian Income Tax Act, 1961, S.127(3).

The respondents, income‑tax authorities in exercise of the powers under subsection (2) of section 127 of the Income Tax Act, 1961, passed orders against four assessees transferring their cases from different wards in New Delhi to the DCIT (Central Faridabad. In the case of another assessee, the order was passed under section 127(3) for transfer of the case from one ward in Faridabad to the DCIT (Central), Faridabad. The reason for transfer in the case of assessee No.3 was stated to be administrative. convenience and coordinated investigation. No reasons were given in the case of the other assessees. On a writ petition to quash the orders of transfer:

Held, that in the three show‑cause notices issued to assesses Nos.1, 2 and 5 there was no indication whatsoever of the reasons for the transfer. In the notice issued to assessee No.3 though it stated the reason for transfer "for the sake of coordinated investigation" it did not spell out any reason requiring coordinated investigation. Furthermore, even some orders of transfer were mere communication of transfer from one ward to another and did not contain any reason. In the records, there was no indication that the disclosure of specific reasons for the transfer was withheld by reason of any satisfaction having been recorded by either the Director‑General of Income‑tax (Investigation) or any other Commissioner concerned that communication of specific reasons to the assessees would be detrimental to the interests of the Revenue. Therefore, the assessees were not granted adequate opportunity of being heard before their cases were ordered to be transferred from Delhi to Faridabad. Accordingly, the transfer orders in respect of assessees Nos. 1 to 3 and 5 were liable to be quashed. So far as assessee No.4 was concerned since the transfer was from one Officer to another in the same city, namely, Faridabad, in view of section 127(3) the order of transfer could not be said to be illegal.

Ajantha Industries v. Central Board of Direct Taxes (1976) 102 ITR 281 (SC); Bhatia Minerals v. CIT (1993) 200 ITR 591 (All,); Jharkhand Mukti Morelia v. CIT (1997) 225 ITR 284 (Pat.); Pwalal Binjraj v. Union of India (1957) 31 ITR 565 (SC); Sameer Leasing Co. Ltd. v. Chairman, Central Board of Direct Taxes (1990) 185 ITR 129 (Delhi); Saptagiri Enterprises v. CIT (1991) 189 ITR 705 (AP); Singhania (S.L.) v. Asst. CIT/WT (1992) 193 ITR 275 (Delhi) and Vijayasadthi Investments (Pvt.) Ltd.. v. Chief CIT (1991) 187 ITR 405 (AP) ref.

O.S. Bajpai for Petitioners.

R.C. Pandey with Ms. Prem Lata Barisal for Respondents.

2001 P T D 3016

[Federal Tax Ombudsman Pakistan]

Before Justice (Recd.) Saleem Akhtar, Federal Tax Ombudsman

Messrs WAQAS JEWELLERS, SAHIWAL

Versus

DEPUTY COMMISSIONER OF INCOME‑TAX/

WEALTH TAX, CIRCLE‑2, SAHIWAL

Complaint No.895 of 2001, decided on 17th August, 2001.

Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.59‑‑‑C.B.R. Circular No.21 of 2000, dated 11‑9‑2000, para. 6(b) [as substituted by C.B.R. Circular No.26 of 2000, dated 14‑10‑20001 ‑‑‑ C.B.R. Letter No. 7(7)S.Asst./2001, dated 9‑6‑2001‑‑‑C.B.R. Letter No.7(7)S. Asst./2000, dated 17‑7‑2001‑‑‑C.B.R. Letter No.7(7)S. Asst./2000, dated 10‑8‑2001‑‑‑Self‑Assessment Scheme 2000‑2001, para. 6(b) [as substituted]‑­Complaints against selection of cases for total audit under para. 6(4) [as substituted] of C.B.R. Circular No.21 of 2000‑‑‑Validity‑‑‑Central Board of Revenue realising the gravity of situation reassessed the position and offered a solution by withdrawing the instructions regarding total audit under para. 6(b) of the Self‑Assessment Scheme, 2000‑2001‑‑‑Federal Tax Ombudsman, in circumstances, recommended that the Commissioners who had taken up the case for assessment in respect of an assessee who was selected for total audit under para.6(b) of the Self‑Assessment Scheme, 2000‑2001 shall not finalise and the proceedings be terminated; that assessment will not be finalised in cases selected under para.6(b) in compliance with instructions dated 9‑6‑2001 and the proceedings be terminated; that all Zonal Commissioners would vacate order of assessment except in cases in which the assessees agreed to accept the assessment already made which will not be disturbed; that in case of ex parte assessment in the total audit cases the assessment shall be set aside suo motu; that in agreed assessment the assessee, if he thinks. proper, may file appeal and Commissioner of Income‑tax (Appeal) would follow the above directions and that in case the Department wishes to select any case for total audit under para.6(b) of the Scheme the same shall be selected 'by the Regional Commissioner of Income‑tax and no other officer, keeping in view the parameters fixed by the C.B.R. in. circular/letter, dated 17‑7‑2001 which includes a show‑cause notice to the assessee before selection‑‑‑Federal Tax Ombudsman also recorded a note of appreciation for the realistic policy decision made by the Central Board of Revenue and its acceptance by the assessees and taxpayers with trust and confidence.

Muhammad Ashraf Hashmi, Masood Ishaq, Kh. Riaz Hussain, Sh. Nisar Ahmad, Siddiq Ahmad, Ch. Muhammad Shahid Abbas and Ch. Hafeezullah, Advocates.

Anwar‑ul‑Haq for the Complainant.

Messrs Vakil Ahmad Khan, Member, Muhammad Jehangir Khan, Chief (I&A) and Saeed Iqbal, Secretary (T.O.), C.B.R.

2001 P T D 3907

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal .Tax Ombudsman

Messrs ZULFIQAR F. HAJI, DIRECTOR, UNIVERSAL AGRO'(PVT.) LTD., KARACHI, versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No.320‑K of 2001, decided on 21st May, 2001.

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.55(2)(3), 54 & 59‑‑‑C.B.R. Circular C.No.7(7)S.Asst./2001, dated 8‑2‑2001‑‑‑ Self‑Assessment Scheme for the year 2000‑2001‑‑‑Due date of filing the return‑‑‑Self‑Assessment Scheme framed and promulgated under S.59, Income Tax Ordinance, 1979 is subject to the provisions of the Income Tax Ordinance, 1979 for filing return and assessment‑‑‑Return filed under Self‑Assessment Scheme during the extended period granted by the D.C.I.T. could not be excluded from the Self‑Assessment Scheme‑‑‑Such extended date shall be the "due date" for filing the return and such return was eligible and qualified for acceptance under the Self‑Assessment Scheme‑‑­Instructions issued by the C.B.R. vide No. C.No.7(7)S.Asst./2001, dated 8‑2‑2001 to the effect that returns filed during the extended period granted by the D.C.I.T. were not eligible for Self‑Assessment Scheme being in conflict with the provisions of the Income Tax Ordinance, 1979, curtailing the exercise of judicial and quasi‑judicial discretion, were neither just nor legal and thus were not binding and enforceable‑‑‑Principles‑‑‑Federal Tax Ombudsman directed that the Central Board of Revenue should with‑draw the Circular/Instruction Letter bearing No. C. No.7(7)S.Asst./2001, dated 8‑2‑2001; that all actions taken in pursuance of said Circular/Letter, dated 8‑2‑2001 be withdrawn and where necessary rectification order be passed; that all returns filed during the extended period granted by D.C.I.T. which otherwise were eligible under the Self‑Assessment Scheme, be considered and assessed under the Self‑Assessment Scheme and that compliance to be reported within thirty days of the receipt of the order.

The Self‑Assessment Scheme for the assessment year 2000‑2001 was made on 11th September, 2000 under section 59 of the Income Tax Ordinance, 1979. According to clause 1 of the Self‑Assessment Scheme, it applies to returns of income filed under section 55 of the Ordinance for the assessment year 2000‑2001. Clause 2 specifies the conditions under which returns shall qualify for acceptance under the Scheme. Clause 4 specifies returns which are not eligible under Self‑Assessment Scheme. Under clause 2 one of the conditions for applicability of the Scheme is that return is filed by the due date and tax payable with the return under section 54 of the Ordinance has been fully paid and proof of such payment is attached with the return. The due date has not been defined in the Scheme. Section 55, subsection (2) prescribes date for furnishing the return. In the present case, according to section 55(2), the due date for furnishing return has been fixed as on or before the thirty‑first day of December next following the income year. Subsection (3) of section 55 provides that the D.C.I.T. may, on sufficient cause being shown, extend the date for the delivery of the return and that no extension of time for a period or periods amounting in all to more than fifteen days from the dates specified in subsection (2) shall be allowed except with the approval of the Inspecting Additional Commissioner (I.A.C.). This provision, therefore, empowers the D.C.I.T. with the approval of I.A.C. to extend the date for filing the return not more than fifteen days. Such extended date shall be the due date for filing the return. In the present case, the return was filed within the extended period and was eligible and qualified for acceptance under the Self‑Assessment Scheme.

The Self‑Assessment Scheme is issued and framed under section 59 of the Ordinance. It provides that the assessee not being a Public Company or a Company engaged in the business of banking, leasing, Modaraba which files return under section 55 of the Ordinance, qualifies for acceptance. Under the provisions of the Self‑Assessment Scheme made by the C.B.R. or under any instructions or orders issued thereunder, the Deputy Commissioner, Income‑tax shall assess the income on the basis of such return. Therefore, the returns filed under section 55 of the Ordinance which are eligible for Self‑Assessment Scheme qualify for assessment according to the said Scheme. According to subsection (3) of section 59 in assessing the total income and determining the tax payable under subsection (1), the D.C.I.T. may make such adjustments as may be necessary including any adjustment under sections 34, 35, 36, 37, 38, 50, 53 or 54, the rules made under section 165, the First Schedule and the Third Schedule. These provisions have been referred to illustrate that Self‑Assessment Scheme framed and promulgated under section 59 of the Ordinance is subject to the provisions of the Ordinance applicable for fling of return and assessment. The due date for filing return has been provided under section 55 of the Ordinance, therefore, the provisions governing the determination of due date shall be applicable. Under subsection (3) of section 55 of the Ordinance, due date for filing return can be extended for fifteen days. Therefore, the due date shall be up to the period so extended. However, the C.B.R. has issued instruction on 8‑2‑2001 to the effect that returns filed during the extended period granted by the D.C.I.T. are not eligible for Self‑Assessment Scheme. This instruction is in conflict with the provision of the Ordinance. The C.B.R. is empowered to issue order and instructions but they should not be in conflict with the provisions of the Ordinance. The exercise of discretion to extend the date is quasi‑judicial in nature, as the Deputy Commissioner, Income‑tax has to grant extension by determining whether sufficient cause has been shown. The instructions dated 8‑2‑2001 curtail the exercise of judicial discretion and are in conflict with section 55 of the Ordinance. Therefore, they are not binding and enforceable.

If the language of a statute is clear and unambiguous, the Court is bound to construe and give effect without taking into consideration anything extraneous to the same.

The Scheme did not fix any due date for filing the return which was left to be determined according to the provisions of the Ordinance. Moreover, there is no provision in the Scheme that any return filed within the extended date granted by the Deputy Commissioner, Income‑tax shall not be eligible under the Self‑Assessment Scheme. In the face of such clear provisions by mere issuing instructions, C.B.R. cannot restrict the provisions of law for curtail the right of an assessee. The determination of right to avail the benefit of Self‑Assessment Scheme is not an administrative decision because the authority has to apply his mind and decide the issue objectively. Any instruction which interferes with the judicial or quasi‑judicial exercise of discretion by the Income‑tax Authority, is not binding upon him.

The Circular, dated 8‑2‑2001 contradicts the earlier one viz. C.B.R Circular No.27 of 1999, dated 2‑10‑1999.

In view of the provisions of the Ordinance and the principles of interpretation there can hardly be any dispute that the instructions issued are neither just nor legal.

Federal Tax Ombudsman recommended:

(i) C.B.R. to withdraw impugned Circular/Instruction Letter bearing No.C.No.7 (7)S.Asst./2001, dated 8th February, 2001.

(ii) All actions taken in pursuance of the aforesaid impugned Circular/Letter, dated 8‑2‑2001 be withdrawn and where necessary rectification order be passed.

(iii) All returns filed during the extended period granted by D.C.I.T, which otherwise are eligible under the Self‑Assessment Scheme be considered and assessed under the Self‑Assessment Scheme.

(iv) Compliance to be reported within thirty days of the receipt of the order.

Messrs Mehran Associates v. C.I.T. 1993 SCMR.274 = 1993 PTD 69 and Messrs A & B Food Industries Ltd. v. C.I.T., Karachi 1992 SCMR 663 ref.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑. S.59‑‑‑Self‑Assessment Scheme framed and promulgated under S.59, Income Tax Ordinance, .1979 is subject to the provisions of the said Ordinance applicable for tiling return and assessment.

(c) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.55 & 59‑‑C.B.R. Instruction No.7(7)S.Asst/2001, dated 8‑2‑2001‑­Establishment of the Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.2(3) & 9(2)(b)‑‑‑Power, discretion and authority conferred on the Federal Tax Ombudsman‑‑‑Scope‑‑‑Term "mal‑administration" as defined in S.2(3) of the Establishment of the Office of the Federal Tax Ombudsman Ordinance, 2000‑‑‑Connotation‑‑‑C.B.R. Instructions as given in Letter No.7(7)S.Asst/2001, dated 8‑2‑2001 which excluded an assessee from availing the benefit of Self‑Assessment Scheme had no relation with the assessment of income or wealth or determination of tax liability‑‑‑Process or the action taken by the C.B.R. through the said Instructions was contrary to law, arbitrary, unreasonable, unjust and oppressive and thus a clear case of mal‑administration giving Federal Tax Ombudsman the jurisdiction in the matter‑‑‑Principles.

Considering the object of the legislation, the wide definition of the term mal‑administration and the power, discretion and authority conferred on the Federal Tax Ombudsman if any allegation of mal‑administration is made against a Tax employee or Revenue Division in a matter relating to assessment, determination of liability of tax or duty, classification or valuation of goods or interpretation of law, rules or regulations in respect of which appeal, review or revision is provided, then the allegation of mal­administration which is not under consideration by any Court, Tribunal or Authority can be investigated by the Federal Tax Ombudsman completely independent of proceedings relating to assessment, valuation, classification or determination of liability of tax or duty. The instruction of C.B.R. excludes an assessee from availing the benefit of Self‑Assessment Scheme. It does not have any relation with the assessment of income or wealth or determination of liability of tax. Coming to the definition of mal­administration it is clear that the process or the action taken by the C.B.R. is contrary to law. It is significant to note that the impugned instruction is given retrospective effect which has taken the assessee by surprise. The impugned instruction and action are arbitrary, unreasonable, unjust and oppressive. Therefore, a clear case of mal‑administration has been made out. The Federal Tax Ombudsman (FTO) has, therefore, jurisdiction in the matter.

Salim Ahmad Laliwala, C.A. for the Complainant.

Muhammad Ali Khan, D.C.I.T. for Respondent.

2001 P T D 43

[238 I T R 1]

[Gauhati High Court (India)]

Before Smt. M. Sharma, J

DIRECTOR OF STATE LOTTERIES

versus

ASSISTANT COMMISSIONER OF INCOME‑TAX and others

Civil Rules Nos. 405 and 2786 of 1994, decided‑on 12th March, 1999.

(a) Income‑tax‑‑‑

‑‑‑‑Income‑‑‑Lottery‑‑‑Agent in, lottery tickets‑‑‑Meaning of "lottery"‑‑­Lottery implies a right to participate in draw‑‑‑Agent in lottery tickets does not have right to participate in draw‑‑‑Income accruing to agent in respect of prizes on unsold unclaimed tickets in his possession‑‑‑Not income from lotteries‑‑‑Assessable as business income‑‑‑Indian Income Tax Act, 1961, Ss.2(24)(ix) & 28.

(b) Income‑tax‑‑‑

‑‑‑‑Deduction of tax at source‑‑‑Lottery‑‑‑Deduction of tax at source from winning from lottery‑‑‑Section 194B applies only in case of actual payment‑­Income accruing to agent in lottery tickets in respect of prizes on unsold/unclaimed tickets in his possession‑‑‑Petitioner not liable to deduct tax at source in respect of unsold/unclaimed prize‑winning tickets‑‑‑Indian Income Tax Act, 1961, S. 194B.

The term "income" has been defined under section 2(24) of the Income Tax Act, 1961. Sub‑clause (ix) of section 2(24) of the Act was inserted by the Finance Act, 1972, which brought winnings from lotteries within the purview of the Act. Three things must concur to establish a thing as a "lottery"; a prize or prizes; the award or distribution of the prize or prizes by chance; and the payment either directly, or indirectly by the participants of a consideration, for the right or privilege of participating. An agent or trader in lottery tickets is not entitled to participate in the draw and claim the prize in such a draw, whereas a participant is entitled to participate in a draw and claim the prize from such draw. The agent or trader does not participate in the lottery draw with an intention to win a prize, but derives income from selling lottery tickets. The gains or commission from the sale of lottery tickets is a business income assessable under section 28. The income accruing to an agent/trader in respect of prizes on unsold/unclaimed tickets in the possession of an organising agent is income from business and does not constitute winnings from lotteries, and, therefore, it cannot be brought within the meaning of section 2(24)(ix).

Under the provisions of section 194B for the purpose of deducting taxes at source in respect of winnings from lottery, the person responsible for paying to any person any payment thereof is obliged to deduct income‑tax thereon at the rates in force. So, it is clear that in respect of section 194B, it is only in cases where actual payment is made that a person is responsible for deducting income‑tax and not at a stage of credit, if any. In that view of the matter, under section 194B, no deduction of tax at source from the payment can be made in the absence of an actual payment. The petitioner is not liable to deduct tax in respect of unsold/unclaimed prize-­winning tickets.

Commercial Corporation of India Ltd. v. ITO (1993) 201 ITR 348 (Bom.) fol.

Anraj (H.) v. Government of Tamil Nadu (1986) 61 STC 165 (SC); Buodge v. Pyne (Inspector of Taxes) (1970) 76 ITR 455 (Ch. D); City of Wink v. Griffith Amusement Co. 100 SW 2d 695. 129 Tex 40; Grimes v. State 178 So 69; 28 Ala App 4; McDowell & Co. Ltd. v. CTO (1985) 154 ITR 148; (1985) 59 STC 277 (SC); New Orleans v. Collins 27 So 532; 52 La Ann 973; Robb and Rowely United v. State Tex. Civ. App. 127 SW 2d 221; Southern Brick Works Ltd. v. CIT (1984) 146 ITR 479 (Mad.) and Sultan Brothers (Pvt.) Ltd. v. CIT (1964) 51 ITR 353 (SC) ref.

Dr. B.P. Todi, Government Advocate for Petitioner.

R. P. Agarwalla and B.J. Talukdar for Respondents Nos. 1 to 3.

Dr. A.K. Saraf, P. Upadhaya, K.K. Gupta and R.K. Agarwal for Respondents Nos.4 and 5.

2001 P T D 357

[238 I T R 855]

[Gauhati High Court (India)]

Before Brijesh Kunzar, C.J. and D. N. Chowdhury, J COMMISSIONER OF INCOME‑TAX

versus

SATYANARAYANA SIKARIA

Income‑tax Reference No. 11 of 1996, decided on 26th May, 1999.

(a) Income‑tax‑‑‑

‑‑‑‑Income from house property‑‑Deductions‑‑‑Partition creating only life interest for Karta‑‑During subsistence of his life interest, Karta to pay annual charge to .his sons and wife‑‑‑Amounts so paid by Karta held not allowable as deduction as creation of charge was voluntary‑‑Indian Income Tax Act, 1961, S.24(l)(iv).

In view of the amendment made to section 24(1)(iv) of the Income Tax Act, 1961, with effect from April 1, 1969, an annual charge created by an assessee voluntarily will not qualify for allowance under the said provision of law. Under the arrangement as detailed in Chapter IV of the Act, an annual charge is to be understood as an annual payment payable by the owner to a third person, that is secured by creation of a charge on the property under assessment. An annual charge in the context signifies something more than yearly payment. It connotes a liability to pay and a charge on the house property with the view to off‑load that liability. The term "liability" here is to be understood as debts and obligations, either absolute, contingent, express or implied, which one is bound in law and justice to perform.

The allowance envisaged in clause (iv) of subsection (1) of section 24 is admissible on fulfilment of the allowing conditions: (a) the property is subject to an annual charge on the house property that is providing income; (b) the said charge is not created by the assessee voluntarily; and (c) it is not a capital charge.

The factum of partition of the Hindu undivided family under section 171 of the Act will not turn the transaction as an act not being voluntary. Recording a finding as to whether there bad been a total or partial partition of the joint family property as such, has no direct bearing, as to the entitlement for allowance as provided under section 24(l)(iv) of the Act.

The statute is not to be interpreted to blunt the edge of the legislative device. An interpretation which makes the law workable and enforceable is to be preferred instead of reducing it to become a dead letter.

There was a total partition of the Hindu undivided family on June 30, 1986, creating a life interest in favour of the Karta, The memorandum of confirmation of family arrangement, dated July 1, 1986, stipulated that on the death of S, the property shall be shared and owned equally by the other parties and during the subsistence of his life interest, S shall pay a sum of Rs.30,000 each as annual charges to his six sons' and wife. S. would take over all the assets and liabilities existing on the date of partition. The assessee, S. in his return filed as an individual for the assessment year 1988‑89, showed income from house property and claimed a deduction under section 241(1)(iv) of the Act for annual charges amounting to Rs.2,10,000. The Income‑tax Officer disallowed the deduction under section 24(1)(iv) of the Act on the ground that the annual charge was created voluntarily by the act of the parties with a view to reduce the tax liability through artificial and sham devices. The Commissioner of Income‑tax (Appeals) upheld the decision. The Tribunal, however, held that, on the facts and circumstances of the case, the deduction was admissible under section 24(1)(iv) of the Act. On a reference:

Held, (i) that though a finding of fact recorded by the Tribunal is binding on the High Court, it must however, appear that the Tribunal genuinely addressed its mind and considered the evidence covering all the essentials before arriving at its conclusions, and the decision of the Tribunal must be based on some evidence to support the finding. In a reference under section 256 of the Act the High Court can look/examine as to whether the conclusion reached by the Tribunal was such that a reasonable person properly instructed in law could have arrived at.

(ii) That the finding was based on the family partition that took place according to the settlement deed. This finding of fact reached by the Tribunal was conclusive. The finding as to whether the settlement was voluntary or involuntary will depend on the interpretation and inference to be drawn from the deed of settlement‑which would be a finding relating to, law and not fact.

(iii) That the Tribunal was not justified in allowing the claim of annual charge of Rs.2,10,000 under section 24(1)(iv).

(b) Interpretation of statutes‑‑

‑‑‑‑ Interpretation which makes law workable and enforceable to be preferred.

(c) Income‑tax‑‑‑

‑‑‑‑Finding of fact or law‑‑‑Interpretation and inference to be drawn from deed of settlement‑‑‑Is a finding relating to law and not fact.

G.K. Joshi for the Commissioner.

Dr. A.K. Saraf, K.K. Gupta and R.K. Agarwalla for the Assessee.

2001 P T D 2043

[239 1 T R 570]

[Gauhati High Corm (India)]

Before N. C. Jain and P. G. Agarwal, JJ

COMMISSIONER OF INCOME‑TAX

Versus

Smt. PRATIMA SARA and another

Income‑tax References Sos.8 and 9 of 1996, 2 and 7 of 1997, decided on 14th May, 1999.

(a) Income‑tax

‑‑‑‑Total income‑‑‑Inclusions‑‑‑Salary received by spouse from firm in which individual has substantial interest‑‑‑Conditions precedent to avoid clubbing‑‑­Qualification for particular employment‑‑‑Nature of employment to be seen‑‑‑Wife earning salary as nurse in husband's clinic‑‑‑Not possessing professional nursing qualification‑‑‑Salary includible in husband's income‑‑­Indian Income Tax Act, 1961, 5.64(l)(ii).

Under the proviso to section 64(1)(ii) of the Income Tax Act, 1961, if the spouse of an individual possesses technical or professional qualifications and the income earned by him or her is solely attributable to the application of his or her technical or professional knowledge and experience, such income which is solely attributable would not be clubbed with the income of the individual. The proviso can be bifurcated into two and both the conditions must co‑exist in order to attract its applicability. The spouse must possess technical or professional qualifications. If this condition is not satisfied, the Court of law does not have to go to the second condition and must allow the clubbing of the income as laid down in section 64(1)(ii). However, if the first condition, i.e., possession of technical or professional qualification is satisfied, the Court of law would further examine whether the income earned by such a spouse is solely attributable to the application of his or her technical or professional knowledge and experience or not. While seeing the application of the second part of the proviso, the Court of law can oily avoid the clubbing of that much of income which is solely attributable to the application of his or her technical or professional knowledge and experience.

Whether such technical or professional qualification need be proved or exhibited by possession of a degree or diploma or certificate from a recognised university would depend upon the facts of each case. In other words, for determining this question the nature of the employment of the spouse will have to be seen.

The assessee was paid salary by a firm running a clinic in which her husband had a 60 per cent. share, for services as nurse‑cum‑supervisor. She did not furnish any certificate evidencing that she had undergone any training in any institution. However, she had a degree of B.Sc. in Bio‑Science:

Held, that the assessee had admittedly not produced any certificate or degree or diploma from arty recognised institute where knowledge of nursing is imparted. Section I1 and the Schedule to the Indian Nursing Council Act, 1947, provides that professional nursing qualification is a must for acting as a nurse. In view thereof, the assessee could not be termed as a nurse as she did not possess the professional and basic qualification of a nurse. As the assessee had failed to satisfy the first condition to claim benefit, the income claimed by her as salary as nurse-cum-supervisor required to be added to the income of her husband.

(b) Income‑tax‑‑--

-------Income from house property…owner----Transfer of land to wife at book value---Is for adequate consideration ‑‑‑Wife constructing house on land‑‑‑wife is owner‑‑‑Income from house property assessable in her hands‑‑‑Indian Income Tax Act, 1961, S.27(i).

The husband of the asses see took certain land on a 99‑year lease from the Government of West Bengal in the year 1977 and in the year 1983 he transferred the said land to his wife. The assessee thereafter made he trans construction over the land. The land in question was transferred to the assessee by her husband at book value. The question was whether the assessee was to be deemed owner of the property and the income therefrom asses was assessable in her hands:

Held, that the requirement of section 27 of the Act is "adequate in a case of transfer of land to the wife, the transfer at book consideration" could not be construed as for inadequate consideration. The fact that value construction started in the land a few months prior to the actual registration was not of much consequence or importance to hold that the transaction was sham. The income from the property was assessable in the hands of the assessee.

Batta Kalyani v. CIT (1985) 154 ITR 59 (AP); CIT v. Madhubala

Kumar (1990) 181 I,TR 180 (MP); CIT v. Rai agopal (D.) (1985) 154 Shrenik

CIT v. Sorabji Dorabji (1987) 168 ITR 598 (Ker.) and ITR 375 Mokashi (J.M.) (Dr.) v. CIT (1994) 207 ITR 252 (Bom.) ref. U. Bhuyan for the Commissioner.

R. Gogoi, R.K. Joshi and Mrs. U. Chakraborty for the Assessee.

2001 P T D 2782

[240 I T R 35]

[Gauhati High Court (India)]

Before Brijesh Kumar, C.J. and D.N. Chowdhury, J

BUDHINDRA NATH SARMA

versus

COMMISSIONER OF INCOME‑TAX

Income‑tax Reference No.6 of 1997, decided on 3rd September, 1999.

(a) Income-tax---

‑‑‑‑Assessment‑‑‑Limitation‑‑‑Extension of period of limitation‑‑‑Extension of limitation if Assessing Officer is satisfied on materials on record that S.271(1)(c) is applicable‑‑‑No satisfactory explanation regarding deposits in assessee's name‑‑‑Limitation for completion of assessment could be extended‑‑‑Indian Income Tax Act, 1961, Ss. 153 & 271(1)(c).

The Assessing Officer is armed with the jurisdiction to prolong the assessment on fulfilment of the conditions set out in clause (b) to subsection (1) of section 153 of the Income Tax Act, 1961. The power is not arbitrary. The Assessing Officer can stretch the period of limitation on being satisfied, on the material on record, about the necessity of invoking section 271(1)(c).

In the course of assessment for the assessment year 1985‑86, the Assessing Officer asked the assessee to explain certain bank deposits, bank accounts, fixed deposits and investments in respect of properties which stood in his name and in the name of his wife and children. He was also required to produce the names of the creditors from whom he had taken loans. Summons were issued to the creditors some of whom were examined by the Assessing Officer on March 8, 1988. Under the normal course, the assessment was to be completed on or before March 31, 1988, in terms of section 153(l)(a)(iii) of the Act. The Assessing Officer, however, held the opinion that the assessee was at fault for the concealment of his income thereby making him liable under section 271(l)(c) of the Act. The Assessing Officer completed the assessment on March 31, 1989, after making additions of various amounts under the head "Other sources". The assessment was assailed in appeal on the ground that the assessment was barred by limitation. The Appellate Tribunal held that the assessment was not barred by limitation and that the provisions of section 153(1)(b) read with section 271(1)(c) of the Act were applicable to the case. In a reference, it was submitted that it was incumbent on the part of the authority to inform the assessee about the discovery of concealment of income within the normal period of limitation and the said fact being evident from the record, it was a fit case in which the Court should call for a supplementary statement of the case:

Held, (i) that the question now sought to be raised of the issue of notice, was neither raised before the Appellate Tribunal, nor was the same considered by it. The High Court could not require a supplementary statement of case to decide the question.

(ii) That, in the case in hand, the Assessing Officer had provided opportunity to the assessee to give an explanation for‑the various amounts of deposits and for the withdrawals in the names of the assessee, his wife and sons. The Assessing Officer noted in his order, dated March 28, 1988 about his satisfaction for extending the period of limitation. The Tribunal accepted the finding of the Assessing Officer. In these circumstances, it could not be said that the Assessing Officer acted illegally in extending the period of limitation for assessment. The assessment was made on March 31. 1989 i.e., within the period of eight years and in the circumstances the assessment made on March 31, 1989, could not be said to be barred by limitation.

(b) Income‑tax‑‑‑

‑‑‑‑Reference‑‑‑Powers of High Court‑‑‑Power to call for supplementary statement of case‑‑‑Power cannot be used to ascertain fresh facts‑‑‑Indian Income Tax Act, 1961, S.258.

The power under section 258 of the Act, is wide in nature, but there are inherent limitations also. The High Court in exercise of its advisory powers is not to send back a case to the Tribunal to ascertain fresh facts and to embark upon a fresh line of enquiry. The High Court's power under section 258 of the Act is not to be exercised for providing one more chance to the party to establish its case by fresh evidence.

CIT v. Scindia Steam Navigation Co. Ltd. (1961) 42 ITR 589 (SC); CIT v. Surajpal Singh (1977) 108 ITR 746 (All.); New Jehangir Vakil Mills Ltd. v. CIT (1959) 37 ITR 11 (SC) and Savitri Rani Malik (Smt.) v. CIT (1990) 186 ITR 701 (Gauhati) ref.

R. Gogoi, Senior Advocate and R.K. Joshi for the Assessee.

U. Bhuyan for the Commissioner.

2001 P T D 3252

[240 I T R 297]

[Gauhati High Court (India)]

Before Brijesh Kumar, C.J. and P. C. Phukan, J

COMMISSIONER OF INCOME‑TAX

Versus

ASSAM ASBESTOS LTD.

Income‑tax Reference No. 13 of 1996, decided on 17th August, 1999.

(a) Income‑tax‑‑‑

‑‑‑‑Business‑‑‑Expenditure‑‑‑Ceiling on expenditure ‑‑‑Entertain expenditure ‑‑‑Meaning of "entertainment"‑‑‑Entertainment connotes some form of hospitality‑‑‑Expenditure on giving rewards to dealers in the form of foreign trips‑‑‑No element of hospitality‑‑‑Part of expenditure could not be disallowed under S.37(2‑A)‑‑‑Indian Income Tax Act, 1961, S.37(2‑A).

The meaning of the term "entertainment" is to receive and treat with hospitality or entertaining guests in a friendly, generous way. Generally "entertainment expenditure" is an expression of wide import. However, in the context of disallowance of entertainment expenditure it must be construed strictly and not expansively.

In the assessment year 1987‑88, the assessee claimed deduction of the expenses incurred on the foreign tour of its dealers as sales promotion expenditure. The Income‑tax Officer disallowed the claim and took the view that even if it were allowable, since it was entertainment expenditure the allowability had to be restricted under subsection (2A) of section 37 of the Income Tax Act, 1961. The Tribunal reversed the order of the assessing authority. On a reference:

Held, (i) that the question which required consideration was whether this would be an expenditure on entertainment or of the like nature so as to be allowable only to a limited extent under subsection (2A) of section 37 h would not be challenging the finding of fact. The question relating to applicability of a provision of law on given findings of fact as recorded by the authorities, would be a question of law.

(ii) That it was not denied that the expenditure incurred was business expenditure. On achieving a given target a dealer became entitled for the reward promised which in the present case was in the shape of a foreign trip and it became the duty or liability of the assessee to fulfil it. It was a reward or something earned by the dealer on making extra effort for the purpose. It was neither hospitality nor entertainment provided by the assessee. Hence, the expenditure incurred could not be restricted under subsection (2A) of section 37 of the Act.

CIT v. Patel Brothers & Co. Ltd. (1995) 215 .ITR 165 (SC) applied.

Brij Raman Dass & Sons,v. CIT (1976) 104 ITR 541 (All.); CIT v. Delhi Safe Deposit Co. Ltd. (1982) 133 ITR 756 (SC); CIT v. Eskaps (I) (Pvt.) Ltd. (1991) 191 ITR 674 (Cal.); CIT v. George Williamson (Assam) Ltd. (1998) 234 ITR. 130 (Gauhati); CIT (Addl.) v. Kuber Singh Bhagwandas (1979) 118 ITR 379 (MP); CIT v. Patel Brothers & Co. Ltd. (1977) 106 ITR 424 (Guj.); CIT v. Veeriah Reddiar (1977) 106 ITR 610 (Ker.); Central Paints Ltd. v. CIT (1984) 146 ITR 212‑(MP); Delhi Cloth and General Mills Co. Ltd. v. CIT (1972) 85 ITR 261 (Delhi); Delhi Cloth and General Mills Co. Ltd. v. CIT (1994) 208 ITR 785 (Delhi) and R.G.S. Industries v. CIT (1990) 183 ITR 31 (Gauhati) ref.

(b) Words and phrases‑‑‑

‑‑‑‑"Entertainment"‑‑‑Meanings.

(c) Interpretation of statutes‑‑‑

‑‑‑‑ Meaning of words.?

(d) Income‑tax‑‑‑

‑‑‑‑Reference‑‑‑Question of law or fact‑‑‑Question regarding application of a provision of a statute is a question of law‑‑‑Indian Income Tax Act, 1961, S.256.

G.K. Joshi for the Commissioner.

A.K. Maheshwari and Mrs. A. Devi for the Assessee.

2001 P T D 3280

[240 I T R 378]

[Gauhati High Court (India)]

Before Brijesh Kumar, CJ and P. G. Agarwal, J

COMMISSIONER OF INCOME‑TAX

Versus

Smt. AMIYA BALA PAUL

Income‑tax Reference No.6 of 1996, decided on 25th August, 1999.

(a) Income‑tax‑‑‑

‑Assessment‑‑‑Powers of Assessing Officer‑‑‑Cost of construction of house‑‑Assessing Authority competent to' call for report from Valuation Officer under Ss‑131, 133(6) & 142(2)‑‑‑Indian Income Tax Act, 1961, Ss. 131, 133(6) & 142(2)‑‑‑Indian Civil Procedure Code, 1908, S.75.

Taxing statutes have two kinds of provisions, one is the charging provision and the other is the machinery provisions. They are to be construed differently. A charging section has to be strictly interpreted irrespective of the consequences, whereas the machinery provisions are not to be so strictly interpreted, but they are broadly to be utilised to provide a machinery to achieve the purpose of the Act or to effectuate the charging provisions of the Act. Sections 131, 133 and 142 of the Income Tax Act, 1961, are machinery provisions which vest ample powers in the assessing authority. A perusal of section 131 makes it clear that the income‑tax authorities while exercising various jurisdictions under the Act enjoy the power of a Civil Court as provided in the Code of Civil Procedure, 1908, for certain purposes including for issue of commissions. Section 75 of the Civil Procedure Code empowers the Court trying a suit to issue commissions for certain purposes, clause (e) of section 75 of the Civil Procedure Code, provides that the Court can issue commission for holding scientific, technical or expert investigation. The function of the valuer of a property is a technical function requiring expert investigation for the purpose of estimating the cost of any building. The report of a valuer, if sought for estimating the cost of a construction would only be the opinion of an expert on technical matter. Therefore, it would be open to the assessing authority to seek expert opinion about the cost of construction of a building which can broadly be termed as issuing commission for the purpose. The assessing authority will be quite competent to call for the report on the valuation of the cost of construction from the Valuation Officer in view of the provisions under sections 131, 133(6) and 142(2).

The assessee constructed a house property in the assessment years 1982‑83 and 1983‑84 and showed the cost of construction as Rs.1,75,000 and Rs.1,70,000 respectively. The Assessing Officer asked the Valuation Officer of the Income‑tax Department to evaluate the cost of construction of the property under section 55A of the Income Tax Act, 1961, who estimated the cost of construction at Rs.4,54,000 and Rs.3,47,000 in the said two years. On appeal by the assessee, the Appellate Tribunal held that section 55A of the Act can be invoked for the purpose of proceedings under Chapter IV of the Act only, namely, computation of capital gain, and not for any other proceedings and, therefore, the assessment should be made without reference to the report of the Departmental valuer. On a reference under section 256(2):

Held, reversing the decision of the Tribunal, that the assessing authority would be quite competent to call for the report on the valuation of the cost of construction from the Valuation Officer in view of the provisions under sections 131, 133(6) and 142(2) of the Act. These are the enabling machinery provisions which vest ample powers in the assessing authority. Any wrong mention of the provision, namely, section 55A, on. the requisition memo. would not be material.

Associated Cement Co. Ltd. v. CTO (1981) 48 STC 466 (SC); CIT v. National Taj Traders (1980) 121 ITR 535 (SC); CIT v. Roshan Lal Seth (1989) 178 ITR 660 (P&H); C IT v. Taj Mahal Hotel (1971) 82 ITR 44 (SC); CST v. Parson Tools and Plants (1975) 35 STC 413 (SC); Daulatram v. ITO (1990) 181 ITR 119 (AP); Hotel Amar v. CIT (1993) 200 ITR 785 (Orissa); Jindal Strips Ltd. v. ITO (1979) 116 ITR 825 (P&H); Murarilal Mahabir Prasad v. B.R. Vad (1976) 37 STC 77 (SC); Polestar Electronic (Pvt.) Ltd. v. Addl. CST (1978) 41 STC 409 (SC) and Tarulata Shyam (Sint.) v. CIT (1977) 108 ITR 345 (SC) ref.

(b) Income‑tax‑‑‑

‑‑‑‑General principles‑‑‑Reference to wrong provision would not invalidate order.

(c) Interpretation of statutes‑‑‑

‑‑‑‑ Charging and machinery provisions‑‑‑Principles.

G.K. Joshi and U. Bhuyan for the Commissioner.

Dr. A.K. Saraf, K.K. Gupta and R.K. Agarwalla for the Assessee.

2001 P T D 3762

[241 I T R 6361

[Gauhati High Court (India)]

Before Brijesh Kumar, C. J. and D. N. Chowdhury, J

DEPUTY COMMISSIONER OF INCOME‑TAX

(ASSESSMENT) and others

Versus

NAGINIMARA VENEER AND SAW MILLS (PVT.) LTD.

Writ Appeal No. 186 of 1996 in C.R. No. 1278 of 1989, decided on 20th November, 1999.

Income‑tax‑‑‑

‑‑‑‑Re‑assessment‑‑‑Failure to disclose material facts‑‑‑Duty of assessee is to disclose primary facts‑‑‑Assessment completed on basis of particulars furnished by assessee‑‑‑Notice issued under 5.148 on account of failure to disclose material facts‑‑‑Amount received from Forest Utilization Officer shown under "current liability" in balance‑sheet‑‑‑No omission to disclose primary and material facts‑‑‑Re‑opening of assessment not justified‑‑‑Indian Income Tax, Act, 1961, Ss. 147, 1.48 & 151.

The Income‑tax Officer acquires jurisdiction to issue notice under section 148 of the income Tax Act, 1961, in respect of the assessment beyond the period of four years but within a period of eight years from the end of the relevant year when the Income‑tax Officer has reason to believe that income chargeable to tax has escaped assessment by reason of failure to file a return under section 139 for the assessment year or to disclose fully and truly the material facts necessary for that year. The obligation on the assessee is to make a true and full disclosure of the primary facts at the time of original assessment. Mere production of the account books or other evidence from which material facts could with due diligence have been uncovered by the Income‑tax Officer will not amount to full disclosure contemplated under the law. The duty of the assessee does not go beyond making a true and full disclosure of the primary facts. It is for the Assessing Officer to draw the right inference from the primary facts. It is not the liability of the assessee to suggest to the Assessing Officer as to what inference he should draw from the primary facts.

The petitioner‑company filed its audited profit and loss account, balance‑sheet and all other relevant documents and submitted its return showing a net loss of Rs.9,29,500. In the balance‑sheet alongwith the return an amount of Rs. 31,58,700 received from the Forest Utilisation Officer (F.U.O) was shown under the head "Current liability" as advance received from the Forest Utilisation Officer. The assessment was finalised on 'nil' income. The Assistant Commissioner of Income‑tax issued a letter asking the assessee to show cause as to why the assessment should not be re‑opened for failure to disclose certain material facts in respect of advances received from the F. U.0. The Deputy Commissioner of Income‑tax (Assessment) issued notice under section 148. The notice was quashed in a writ petition fled by the petitioner before the single Judge on the ground that the letter, dated February 8, 1989, and the notice under section 148 were not issued by the competent authority and that the assessee had furnished ail ‑material particulars necessary for assessment. On appeal against the order of the single Judge:

Held, (i) that in view of the Notification No.2(c) 1988‑89, dated June 14, 1988, issued from the office of the Commissioner of Income‑tax that the Authorised Officer mentioned in the said notice shall concurrently exercise all the powers and perform all functions assigned to or conferred on the Assessing Officer by or under the Income‑tax Act in respect of areas or in respect of persons or classes of persons and/or incomes or clauses of incomes, etc., the Assistant Commissioner of Income‑tax as well as the Deputy Commissioner of Income‑tax (Assessment), Special Range‑II were within their competence in issuing the notice in question.

(ii) That the company submitted the audited profit and loss account and balance‑sheet particulars and the unadjusted amount received from the F.U.O. was shown under the head "Current liability" and, hence, the finding of the single Judge that all primary and material facts were made available to the officer during the assessment could not be said to be erroneous. Accordingly, no interference was called for. The re‑assessment was not valid.

Naginimara Veneer and Saw Mills (Pvt.) v. Dy. CIT (1996) 219 ITR 527 affirmed.

Baijnath Hari Shanker v. CIT (1973) 91 ITR 208 (All.); Calcutta Discount Co. Ltd. v. ITO (1961) 41 ITR 191 (SC); CAIT v. Malayalam Plantations Ltd. (1978) 115 ITR 624 (Ker.); CIT v. Mahesh Chand (1993) 199 ITR 247 (All.); Girindranath Paul v. ITO (1975) 99 ITR 426 (Cal.); ITO v. Lakhmani Mewal Das (1976) 103 ITR 437 (SC); Indo‑Aden Salt Manufacturing and Trading Co. (P.) Ltd. v. CIT (1986) 159 ITR 624 (SC); Jatindra Nath Sarmah v. ITO (1978) 113 ITR 898 (Gauhati); Kantamani Venkata Naryana & Sons v. ITO (First Addl.) (1967) 63 ITR 638 (SC); Muhammad Serajuddin & Brothers v. ITO (1980) 122 ITR 465 (Cal.); Narayanappa (S.) v. CIT (1967) 63 ITR 219 (SC); Rajpal Brothers (P.) Ltd. v. CIT (1971) 80 ITR'463 (Born.); STO v. Uttareswari Rice Mills (1973) 89 1TR 6 (SC);(1972) 30 STC 567 (SC) and Zohar Siraj Lokhandwala v. M.G. Kamat (1994) 3,10 ITR 956 (Born.) ref.

G.K. Joshi, U. Bhuyan and U. Chakravarty for Appellants.

R. Gogoi, S. Saikia and A. Dutta for Respondent.

2001 P T D 3860

[241 I T R 695]

[Gauhati High Court (India)]

Before D. N. Baruah, S.L. Saraf, A. K. Patnaik and B. N. Singh "Neelam", JJ

STEELSWORTH (PVT.) LTD.

versus

COMMISSIONER OF INCOME-TAX

Income-tax Reference No. 12 of 1991, decided on 20th November, 1999.

(a) Income-tax---

----Advance tax---Underestimate of advance tax---Levy of interest--Finding regarding underestimate based on sales figures---Sales figures not supporting finding---No material to support Tribunal's finding---Tribunal was not justified m holding that there had been an underestimate of advance tax--­Indian Income Tax Act. 1961, S.216.

(b) Income-tax---

Reference----Question of fact or law---Question whether there was any material to support finding of Tribunal is a question of law---Indian Income Tax Act, 1961, S.256(2).

The question as to whether there was any material at all for a particular finding b) a Court or a, Tribunal is a question of law.

Held, 'per A.K. Patnaik, B.N Singh and S.L. Saraf JJ. (D.N Baruah, J. dissenting), that the only materials on which the Tribunal had­ relied for coming to the conclusion that the assessee had underestimated the advance tax payable and thereby reduced the amount payable in instalments for the year relevant to the assessment year 1975-76 were the sales figures of the assessee during the years 1973-74 and 1974-75 and the said sales figures did not support the finding of the Tribunal. The sales of the assessee during the year 1974-75 up to August, 1974, exceeded the sales of the assessee during the year 1973-74 up to August, 1973, only by Rs.15,82,000 and odd The assessee returned an income of Rs.12,83,459 for the assessment year 1974-75. Since the difference in the sales during the year 1973-74 up to August, 1973, and during the year 1974-75 up to August, 1974, was Rs.15,82,000 and odd, the assessee fled the estimate of its income on September 5, 1974, at Rs.15,00,000 which was more than Rs.2,00,000 than the returned income of Rs.12,83,459 for the assessment year 1974-75., there was, therefore, no material whatsoever before the Tribunal to hold that the assessee had underestimated its income in the estimate filed on September 5, 1974. The aforesaid sales figures relied on by the Tribunal in its order further showed that the sales of the assessee during the year 1974-75 up to December, 1974 had exceeded the corresponding sales of the assessee during the year 1973-74 up to December, 1973, by Rs.10,20,098. Thus, the difference in the sales figures of the years 1973-74 and 1974-75 had fallen to Rs.10,20,098 in December; 1974, from Rs.15,82,000 in August, 1974. There was, therefore, no need for the assessee to file a revised estimate in December, 1974. The finding of the Tribunal that the assessee had underestimated the advance tax payable and thereby reduced the amount payable in the second instalment falling due in December, 1974, was, therefore, without any material. The difference in the sales of the assessee for the year 1973-74 up to March, 1974, and for the year 1974-75 up to March, 1975, shot up to Rs.50,45,000 due to increase in sales during January, 19'5 to March, 1975, and in the circumstances, the assessee had filed a revised estimate of its income of Rs.23,20;500 on March 13, 1975, and paid the advance tax accordingly. In the facts and circumstances of the case, the Tribunal had no material to hold that the assessee had underestimated the advance tax payable and thereby reduced the amount payable in instalments for the year relevant to the assessment year 197.5-76.

Per D.N Baruah, J. (dissenting). ---In the instant case, for the year 19'5-76 as on September 5, 1974, the sales effected were a sum of Rs.93,82,000 and odd, therefore, the assessee knew that the advance tax payable for the assessment year 1975-76 was more than what was paid during the earlier assessment year .1974-75. It was also seen that by the end of December, 1973, the sales were Rs.1,47,79,902 whereas the sales up to December, 1974, were Rs.1,58,00,000. There was a difference of about RsA0 lakhs. for which no revised estimate was filed in December, 1974, by the assessee. It was the duty of the assessee when it came to its notice or knowledge that the sales had gone up in December, 1974, by about Rs.10 lakhs, to submit a revised estimate to that effect. It could not be said that the assessee did not know the increase of sales by the end of December, 1974. However, the assessee did not take any step for filing a revised estimate: Therefore, the assessee underestimated the advance tax deliberately with full knowledge that the sales had gone up to the extent of Rs.10 lakhs. From the facts stated above, the conclusion could be arrived at that the assessee had underestimated the advance tax payable and thereby reduced the amount payable in instalments for the assessment year 1975-76.

Aluminium Corporation of India Ltd. v. CIT (1972) 86 ITR 11 (SC); CIT v. Elgin Mills Co. Ltd. (1980) 123 ITR 712 (All.); CIT v. Lankashi Tea and Seed Estate (P.) Ltd. (1996) 22 ITR 133 (Gauhati); CIT v. Namdang Tea Co. India Ltd. (1993) 202 ITR 414 (Gauhat'i); CIT (Add.) v. Vazir Sultan Tobacoo Co. Ltd. (1980) 122 ITR 251 (AP); CIT v. Willard India Ltd. (1993) 202 ITR 423 (Cal.); Gasper (A.) v. CIT (1991) 192 ITR 382 (SC) and Hooghly Trust (Private) Ltd. v. CIT (1969) 73 ITR 685 (SC) ref.

R. Goenka and R.K. Joshi for the Assessee.

Dr. A.K. Saraf for the Commissioner.

2001 P T D 160

[238 I T R 399]

[Gujarat High Court (India)]

Before R. Balia and A.R. Dave, JJ

BHARATIBEN JAYANTIBHAI THAKKAR

versus

TAX RECOVERY OFFICER

Special Civil Application No.775 of 1999, decided on 7th April, 1999.

Income‑tax‑‑‑

‑‑‑‑Recovery of tax‑‑‑Attachment and sale of property‑‑‑Property in name of wife of partner of defaulter‑firm‑Wife objecting to attachment on ground property in question acquired out of her own resources‑‑‑Recovery Officer bound to consider objection objectively‑‑‑Indian Income Tax Act, 1961.

The petitioner's husband was a partner of a firm. The petitioner objected to attachment of certain property for recovery of dues of the firm on the ground that the property which was attached was acquired by the petitioner from her own resources, by disposing of other properties owned by her and which had already been subjected to tax as her property in the past. The Assessing Officer, holding that the petitioner had no ostensible source of income from which the property could have been acquired by her and that, the properties under attachment were held by her benami for her husband, directed the Tax Recovery Officer‑ to recover the dues of the firm by proceedings against the property of the petitioner. On a writ petition:

Held, allowing the petition, that when objection to the attachment was raised on the ground that the property in fact belonged to the petitioner which had been acquired by her from her own resources it became the bounden duty of the Assessing Officer as adjudicator to adjudicate that objection of the petitioner objectively and then to proceed in accordance with the finding arrived at on such adjudication. It was necessary that before proceeding against the property of the petitioner, the Recovery Officer had some material, except the bald assertion that she did not have ostensible means to acquire the property. The Tax Recovery Officer was in the first instance to determine the objection of the petitioner as to the availability of the property in question to be attached for recovery of arrears of the firm of which she was not a partner before proceeding further with recovery in, pursuance of the attachment made by the Tax Recovery Officer.

J.P. Shah for Petitioner.

Manish R. Bhatt for Respondent.

2001 P T D 163

[238 I T R 415]

[Gujarat High Court (India)]

Before R. K. Abichandani and A.R. Dave, JJ

A.M. SHAH & COMPANY

versus

COMMISSIONER OF INCOME‑TAX

Income‑tax Reference No. 185 of 1983, decided on 29th August, 1998.

(a) Income‑tax‑‑‑

‑‑‑‑Penalty‑‑‑Concealment of income‑‑‑Furnishing of inaccurate particulars of income‑‑‑Basis for issue of notice and for imposition of penalty should be same‑‑‑Notice issued on the ground that income had been concealed‑‑­Tribunal considering evidence and upholding levy of penalty‑‑‑Additions made by Tribunal in quantum proceedings not made basis for levy of penalty‑‑‑Levy of penalty for assessment year 1970‑71 was valid‑‑‑Indian Income Tax Act, 1961, S.271(1)(c).

Penalty proceedings can be initiated under section .271(1) of the Income Tax Act, 1961, only if the Income‑tax Officer or the Appellate Assistant Commissioner, is satisfied in the course of any proceedings under the Act that there has been concealment of income. If he is satisfied as per clause (c) of section 271(1) that any person has concealed the particulars of his income or has furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty the sum mentioned in sub‑clause (iii) of clause (c). The expression used in clause (c) is "has concealed the particulars of his income" or "furnished inaccurate particulars of such income". Therefore, both in cases of concealment and inaccuracy, the phrase "particulars of income" is used. It will be noted that as regards concealment the expression in clause (c) is "has concealed the particulars of his income" and not "has concealed his income". It is obvious that the penal provisions would operate when there is a failure of duty, to disclose fully and truly particulars of income. There cannot be a straitjacket formula for detection of these defaults of concealment or of furnishing inaccurate particulars of income. Concealment of particulars of income and inaccurate particulars of income may at times overlap, as for example, when half of the income under a particular head is not at all disclosed, that would be concealed to that extent while the remaining half which is in fact disclosed would, not being his complete disclosure, amount to inaccurate particulars of income as regards that constituent item of the return. The basis of the issuance of notice should remain the same while imposing penalty. If the notice is issued in the context of concealment of income, then the penalty cannot be levied by shifting the basis to inaccuracy of particulars.

The assessee was a firm, which at the relevant time, carried on business in ball‑bearings, mill stores, etc., on retail basis. In the assessment for the assessment year 1970‑71, a sum of Rs.9,987 representing cash purchases without proof and another amount of Rs.37,535 which related to understatement of the closing stock were, inter alia, added to the income of the assessee by the Income‑tax Officer and were sustained by the Appellate Tribunal in the quantum appeal. The Tribunal also made an addition of Rs.15,000 in the quantum appeal by way of estimated possible realisation of profit from the sale of the stock, which was not disclosed by the assessee. In the assessment for the next year 1971‑72, the Income‑tax Officer found serious discrepancies in the stock book, purchases, etc. of the assessee. He, therefore, made an addition of Rs.2,06,754 by estimating the turnover at Rs.6 lakhs and the gross profit at 50 per cent. On appeal, the Appellate Assistant Commissioner reduced the gross profit rate to 35 per cent. This was upheld by the Tribunal. The Inspecting Assistant Commissioner imposed the minimum penalty of Rs.75,400 for 1970‑71 and Rs.1,16,754 for 1971‑72 under section 271(1)(c) of the Income Tax Act, 1961, and directed the Income‑tax Officer to issue two demand notices to the assessee for the said amounts of penalty. On appeal, the Appellate Tribunal, while upholding the imposition of penalty under section 271(1)(c) in both the years, reduced the penalty only. for the first year as it held that no penalty would be exigible with reference to the estimated addition of Rs.15,000 made by the Tribunal for the profit element in respect of the addition of Rs.37,535 for understatement of closing stock. On a reference challenging the decision of the Tribunal:

Held, affirming the decision of the Tribunal, (i) that in respect of the year 1970‑71 from the scrutiny of the reconstructed stock book it was clear that there were discrepancies. The income not shown by this process obviously was concealment of particulars of income. Even if it was to be treated as inaccurate particulars of income, there would at best be overlapping of the two defaults and it would nonetheless remain concealed particulars of income to the extent, that the sub‑constituent income was not disclosed in the return. The penalty proceedings did not transgress this basis of its initiation and no penalty was imposed on the additional concealment of particulars of income, i.e, non‑disclosure of the estimated profit arising out of the inferential sale. Admittedly, nowhere during the quantum or penal proceedings did the assessee ever assert that the stock was in fact available. The Tribunal in the appeal in quantum proceedings on the same basis, namely, that the purchases were not traceable in the closing stock and sales, drew only an inference that the purchased goods were sold outside the books.

In the penalty proceedings, only the basis that was adopted by the Income‑tax Officer in respect of the specific and direct item of concealment of particulars of income, i.e., Rs.37,535 for initiating the penalty proceedings was adopted as the basis by the Tribunal for imposing the penalty and the addition of Rs.15,000 made by the Tribunal in the quantum appeal was not made the basis for restoring the penalty. There were, therefore, neither any shift of that basis in the quantum appeal nor in the appeal before the Tribunal from the penalty proceedings. As regards the item of Rs.6,937, the Tribunal held that as it represented inflation in purchases, inasmuch as though purchases had been inflated on the purchase side, the items were not shown in the stock book or sales and since the amount related to inflation of purchases which had resulted in reduction of taxable income, the amount in question was clearly exigible to penalty. The levy of penalty of the assessment year 1970‑71 was valid.

(ii) that in respect of the assessment year 1971‑72, the Explanation to section 271(1)(c) of the Act was attracted and the assessee was required to discharge the burden of proving that the concealment or inaccuracy in the particulars of income did not arise from any fraud or any gross or wilful neglect on its part. The burden which lay on the assessee had not been discharged. Hence, the levy of penalty on the assessee in respect of the assessment year 1971‑72 was fully justified.

(iii) that as provided in section 271(1)(c) of the Act, the Income‑tax Officer may direct that the person who commits the default, shall pay the penalty which would not be less than and 'will not exceed the amount mentioned in sub‑clause (iii). The Inspecting Assistant Commissioner has similar powers by virtue of section 274(2) of the Act. Even if the order of the Inspecting Assistant Commissioner was not happily worded as observed by the Tribunal, it was clear enough to indicate that the penalty was in fact imposed by the Inspecting Assistant Commissioner under this order and all that he had done was that he directed the Income‑tax Officer to issue the demand notice in respect thereof. There was no defect in the issuance of the order and it should be read as an order imposing penalty in respect of which the demand notice was required to be issued by the Income‑tax Officer. The orders were valid.

Bhatia (K.M.) (Quarry) v. CIT (1992) 193 ITR 379 (Guj.); CIT v. Anwar Ali (1970) 76 ITR 696 (SC); CIT v. Bhatt (S.P.) (1974) 97 ITR 44or (Guj.);.CIT (Addl.) v. Jeevan Lal Sah (1994) 205 ITR 244 (SC); CIT v. Lakhdhir Lalji (1972) 85 ITR 77 (Guj.); CIT v. Manu Engineering Works (1980) 122 ITR 306 (Guj.); CIT v. Mussadilal Ram Bharose (1987) 165 ITR 14 (SC); CIT v. Sadayappan (K.R.) (1990) 185 ITR 49 (SC); CIT v. Sharadchandra Harilal (1992) 197 ITR 315 (Guj.); CIT v. Subhash Trading Company (1996) 221 ITR 110 (Guj.) and Mansavi (D. M.) v. CIT (1972) 86 ITR 557 (SC) ref.

(b) Income‑tax‑‑

‑‑‑‑Penalty‑‑‑Concealment of income‑‑‑Income returned less than 80% of assessed income‑‑‑Presumption of concealment under Explanation to S.271(1)(c)‑‑‑No rebuttal of presumption‑‑‑Imposition of penalty for assessment year 1971‑72, was valid‑‑‑Indian Income Tax Act, 1961, S.271(1)(c).

(c) Income‑tax‑‑‑

‑‑‑‑Penalty‑‑‑Concealment of income‑‑‑Levy of penalty by IAC‑‑‑IAC fixing amount of penalty and directing ITO to issue notice of demand‑‑‑No delegation of authority by IAC‑‑‑Order of IAC was valid‑‑‑Indian Income tax Act, 1961, 5.274.

S.N. Soparkar with M.K. Kaji for the Assessee.

M.J. Thakore with Manish R. Bhatt for the Commissioner.

2001 P T D 189

[238 I T R 473]

[Gujarat High Court (India)]

Before J. N. Bhatt and A.R. Dave, JJ

COMMISSIONER OF INCOME‑TAX

versus

GNAN GANGA SCIENCE INSTITUTE

I.T.As. Nos. 28 to 50 with 57 of 1999, decided on 16th March, 1999.

Income‑tax‑‑‑

‑‑‑‑Reference‑‑‑Firm‑‑‑Registration‑‑‑Search of five firms and ITO holding that all firms were benamidars of one person‑‑‑Registration refused ‑‑‑CIT (Appeals) holding that five firms were genuine ‑‑‑ITAT confirming CIT's orders‑‑‑Findings of facts‑‑‑Conclusion after due consideration of evidence‑‑­Reference application refused‑‑‑Indian Income Tax Act, 1961, S.256(2).

The finding of facts recorded and challenged in a reference jurisdiction can be interfered with, as a question of law, only upon satisfaction of one or more following aspects; that (1) it is perverse; (2) it is based on irrelevant materials; (3) it is unreasonable; (4) it is based on no evidence; (5) it is based on material not on record; (6) it suffers from the vice of non‑application of mind to the vital and important materials; (7) the decision or the order is such that no reasonable man can conclude upon the appraisal of the facts on record; (8) there was misapplication of the provisions of law; (9) the authority misdirected itself in law in arriving at the conclusion; (10) there was a complete failure of justice.

When the Appellate Authority particularly agrees with the views taken by the authority below he need not meticulously and minutely discuss all the points at the same length as the original authority.

Whether a firm registered is a genuine one or not is ordinarily a question of fact and the High Court cannot go behind the facts found by the Tribunal. The finding of fact would be erroneous in law only if it is unsupported by any evidence or it is unreasonable or perverse.

There was a search in the premises of five educational institutions as well as residential premises of some of the partners, one of whom was KGD. The Assessing Officer held that all the five institutions were benamidars of the said KGD. Thus, the Assessing Officer was of the view that KGD was the real owner of the five institutions and the said five firms were not genuine. The Assessing Officer, therefore; refused registration under the Income‑tax Act. On appeal, the Commissioner of Income‑tax (Appeals), after consideration of the relevant materials and the facts and circumstances, reversed the view of the Assessing Officer and held that KGD could not be characterised as the real owner of the five educational institutions and that the said firms were genuine and, therefore, registration could not be refused. On further appeals before the Income‑tax Appellate Tribunal, the orders of the Commissioner of Income‑tax came to be affirmed. As reference applications under section 256(1) of the Income Tax Act, 1961, were rejected, applications under section 256(2) of the Act‑were filed:

Held, that having considered the facts and circumstances of the case and the finding of facts recorded by the Appellate Assistant Commissioner and the Tribunal the applications under section 256(2) were liable to be rejected.

CIT v. Juggilal Kamlapat (1967) 63 ITR 292 (SC); CIT v. Karam Chand Thaper & Bros. (P.) Ltd. (1989) 176 ITR 535 (SC); (1989) 65 Comp. Cas. 728 (SC); CIT v. S.M. Bhatiya Associates (1997) 226 ITR 675 (Raj.); CIT v. Sir Shadilal Sugar and General Mills Ltd. (1972) 86 ITR 776 (All.); Prem Family (Pvt.) (Specific) Trust v. CIT (1997) 226 ITR 694 (SC); Ratanchand Darbarilal v. CIT (1985) 155 ITR 720 (SC) and Sir Shadilal Sugar and General Mills Ltd. v. CIT (1987) 168 ITR 705 (SC) ref.

B.B. Naik with Manish R.Bhatt for Petitioner.

K.H. Kaji for Respondent.

2001 P T D 197

[238 I T R 1022]

[Gujarat High Court (India)]

Before R. Balia and A.R. Dave, JJ

COMMISSIONER OF INCOME‑TAX

versus

BIPIN VADILAL

Income‑tax Reference No. 193 of.1984; decided on 26th April, 1999.

Income‑tax‑‑‑

‑‑‑‑Reassessment‑‑‑Limitation‑‑‑Failure to disclose material facts‑‑­Assessment reopened on basis of law declared by Court‑‑‑Not a case of failure to disclose material facts‑‑‑Reassessment could be only under S.147(b)‑‑‑Barred by limitation‑‑‑Indian Income Tax Act, 1961, S.147.

Where the Tribunal found that the reasons recorded by the Income-­tax Officer for reopening the assessment disclosed that the Income‑tax Officer entertained the belief as to escapement of income chargeable to tax from assessment on account of information received by him in the form of a judgment of the Court declaring the state of law about the includibility of the share that is to be received by a beneficiary from the estate left by a deceased:

Held, that the belief as to escapement of income chargeable to tax from assessment was not entertained by the Assessing Officer, on the ground that there had been failure on the part of the assessee to disclose truly and fully all material facts necessary for the assessment. Therefore, no proceedings could have been initiated under section 148 of the Income Tax Act, 1961, beyond the expiry of four years from the end of relevant assessment year. As the case squarely fell under section 147(b) and not under section 147(a), the Tribunal was right in reaching its conclusion that the initiation of reassessment proceedings in the case of the assessee for the two assessment years under section 147(b) was barred by time.

The Court observed that since the decision of the Court in question had been reversed by the Supreme Court, the question about the validity of the reassessment prima facie became academic.

CIT v. Navnit Lal Sakarlal (1980) 125 ITR 67 (Guj.) and Navnit Lal Sakarlal v. CIT (1992) 193 ITR 16 (SC) ref.

Manish R. Bhatt for the Commissioner.

Nemo for the Assessee.

2001 P T D 273

[238 I T R 731]

[Gujarat High Court (India)]

Before R. Balia and A. R. Dave, JJ

COMMISSIONER OF INCOME‑TAX

versus

SUPER SCIENTIFIC CLOCK CO.

Income‑tax Reference No. 124 of 1984, decided on 22nd December, 1998.

(a) Income‑tax‑‑‑

‑‑‑‑Business expenditure‑‑‑Payment to foreign collaborator‑‑‑Mercantile system of accounting‑‑‑Liability accrues arid is deductible in year in which slim payable‑‑‑Not year in which assessee actually pays‑‑‑Procedure for obtaining permission of Reserve Bank to make payment‑‑‑Will not postpone accrual of liability or make it contingent‑‑‑Indian Income Tax Act, 1961, S.37.

Admittedly, the liability of the assessee to pay the amount to its non‑resident technical collaborator under the contract became due‑in the previous year relevant to the assessment year 1975‑76 and not in the previous year relevant to the assessment year in question. The assessee was not entitled to urge that it maintained its accounts on the cash system only for the transaction in question for the year in question. The parties had entered into agreement on transfer of technical know‑how with the permission of the Government of India. Under it the liability of the assessee to pay the fee for technical know‑how accrued. The fact that actual payment could be made only with the permission of the Reserve Bank of India, only put the assessee under obligation to apply to the Reserve Bank of India for grant of necessary permission for releasing payment of the‑amount to the non‑resident: But its enforceability was not a contingent one. The Tribunal was wrong in allowing the sum in question as deduction for the assessment year in question by holding that the liability in the preceding year was contingent and became due and payable in the year in question only.

Chandnee Widya Vati Madden (Mrs.) v. Dr. C.L. Katial AIR 1964 SC 978 ref.

(b) Income‑tax‑

‑‑‑‑Method of accounting‑‑‑Cash or mercantile ‑‑‑Assessee following mercantile system‑‑Cash system adopted for one transaction in one year‑‑­Not permissible‑‑Indian Income Tax Act. 1961; S.145.

Under section 145 of the Income Tax Act. 1961, income under the head "Profits and gains" of business or profession, where the assessee maintains books of account, has to be in accordance with the method of accounting regularly, employed by the assessee. which could be either cash, mercantile or hybrid system. The assessee for .any particular source of income could adopt a different system of accounting but in no case, can he employ for part of, the, transactions or events relating to one source of income, a different system of accounting. There cannot be piecemeal method of accounting in respect of the same business or the same source of income or expenditure. It cannot be said that for a source of income one system is follow but for some of expenses required to be incurred for earning income from that source a different method of accounting can be employed.

The liability of an assessee to pay "know‑how fee" to the foreign technical collaborator arises under the collaboration agreements. The consideration for which such agreement was entered into is not governed by the Foreign Exchange Regulation Act. 1973. The liability to pay, and the right of the recipient of consideration to receive the same, and on failure to pay, the right to enforce, does not depend on the permission or grant of exemption of the Reserve Batik of India under the Foreign Exchange Regulation Act, The tact that before actual payment, is made permission of the Reserve Bank is to be obtained, does not make the account' and enforceability of liability subject to it. On the contrary it prima facie supports that there exists a valid liability to pay.

Manish R. Bhatt for the Commissioner.

Nemo for the Assessee.

2001 P T D 325

[238 I T R 407]

[Gujarat High Court (India)]

Before R. Balia and A.R. Dave; JJ

AVANI CORPORATION

versus

INCOME‑TAX OFFICER

Special Civil Application No.9855 of 1993, decided on 8th April, 1999.

Income‑tax‑‑

‑‑‑‑Reassessment‑‑‑Limitation‑‑Failure to disclose material, facts‑‑‑Facts recorded as reasons to reopen assessment recorded and considered in assessment order‑‑No failure to disclose material facts‑‑‑Reassessment after four years not permissible‑‑‑Indian Income Tax Act, 1961, S.147.

The Assessing Officer, issued notice proposing to reopen the assessment for the assessment year 198788, on the ground that although the assessee had agreed to purchase certain land at Rs.1.75 lakhs from the owners, it claimed to have paid Rs.7 lakhs to the seller and Rs.75,000 to the third party, thus, inflating the cost price of the land in question which formed part of stock‑in‑trade of the assessee, which in turn resulted in reducing the profit. On a writ petition:

Held, allowing the petition, that a perusal of the assessment order for 1987‑88 showed that there was, an agreement to purchase the land in July, 1980‑81 for Rs:1,75,000, that ultimately as a result of a civil suit the assessee had paid Rs.7,00,000 to the original seller and Rs.75,000 to the third party with whom the original seller had entered into an agreement to sell, subsequent to that with the assessee. Thus, the facts which formed the basis for formation of belief as y to the satisfaction of the Assessing Officer about escapement of assessment were all disclosed during the course of assessment proceedings for the assessment year 1987‑88. Therefore, this was not a case where the escapement of income from assessment was on account of failure on the part of the assessee to disclose fully and truly all the material facts necessary for the assessment year 1987‑88. The notice initiated action on June 27, 1983, beyond four years from the end of the relevant assessment year and the, Assessing Officer had no jurisdiction td proceed further in furtherance of that notice.

S.N. Soparkar for Petitioner, R. P. Bhatt for Respondent

2001 P T D 380

[238 I T R 887]

[Gujarat High Court (India)]

Before R. Balia and A.R. Dave, JJ

COMMISSIONER OF INCOME‑TAX

versus

D.K. TRADING CO.

Income‑tax Applications Nos.282 to 286 of 1998, decided on 13th April, 1999.

(a) Income‑tax‑‑‑

‑‑‑‑Reference‑‑‑Firm‑‑‑Registration‑‑‑Whether or not firm genuine. and whether or not formed as device to evade tax‑‑‑Finding of fact‑‑‑No question of law arises‑‑‑Indian Income Tax Act, 1961, S.256.

Where the Tribunal found on the facts, inter alia, that the Assessing Officer had made no enquiry about the genuineness of the firm nor given any finding thereon in the order passed, that with the dissolution of the association of persons all its assets and liabilities were taken over by the assessee‑firm and the capital of the members of the association of persons was brought into the firm by the partners constituting the firm, that the business as carried on thereafter was not as per terms of the indenture of the association of persons, but as per terms of the partnership deed, that at the close of the year the profit was divided not as per the share ratio provided in the association of persons deed but it was divided as per the share ratio provided in the partnership deed, that the firm as constituted on May 1, 1985, continued till today and that the dissolution of the association of persons and the constitution of the firm was for bona fide reasons and no scheming was involved with the object of evading tax:

Held, that a finding as to the existence of the firm as genuine and not as a device for the purpose of avoidance of tax or a part of a scheme, was purely a finding of fact and could not be said to give rise to any question of law nor could it be said, even prima facie, from the material which had gone into consideration before the Tribunal, that it could give rise to a question of law as to the perversity of the finding of fact.

(b) Income‑tax‑‑‑

‑‑‑‑Reference‑‑‑Same business on separate business‑‑‑Whether or not two concerns interdependent for purpose of clubbing income‑‑‑Finding of fact‑‑­No question of law arises‑‑‑Indian Income Tax Act, 1961, S.256.

Where the Tribunal found that the capital acquisition by the independent, entities was genuine and was not disputed by the Revenue at any stage, and that the assessee‑firm maintained complete quantity record of the goods purchased and sold evidenced by audited accounts, though the associate concerns whose income was sought to be clubbed did not maintain quantitative details; that all the entities independently existed prior to the constitution of the firm and were being so assessed; that the associated concerns had not only business dealings with the assessee‑firm but with outside agencies; and that there was no interlocking and interlacing of the funds, and refused to draw inferences of oneness merely on the basis of the fact that the respective proprietors of the different business entities were members of the same family, the business was being carried in the same premises and there were inter se trading activity as well:

Held, that whether the incomes of the entities were to be clubbed was a question of fact depending upon the appreciation of evidence and inference drawn by the Tribunal. It could not be said that the inference drawn by the Tribunal from the material before it was such to which no reasonable person could reach, or that the findings of facts had been arrived at by ignoring relevant material or by irrelevant consideration which would vitiate the finding of fact and require reconsideration of the facts by the Court. Therefore, no question of law arose from the Tribunal's order directing the Assessing Officer to exclude the income of the sister concerns clubbed with the income of the assessee.

Manish R. Bhatt for the Commissioner.

2001 P T D 526

[239 I T R 161]

[Gujarat High Court (India)]

Before R. K. Abichandani and A.R. Dave, JJ

COMMISSIONER OF INCOME‑TAX

versus

VIKRAM PLASTICS and others

Income‑tax Applications Nos.200 to 207 of 1998, decided on 27th August. 1998.

(a) Income‑tax‑‑‑

‑‑‑‑Reference‑‑‑Accounting‑‑‑Finding that books of account had beer: maintained regularly and that no defects had been found in accounts‑‑­Tribunal justified in holding that accounts could not be rejected under S.145‑‑‑No question of law arose‑‑‑Indian Income Tax Act, 1961, Ss. 145 & 256(2).

Held, dismissing the application for directing reference, (i) that in view of the finding reached by the Tribunal that there were no discrepancies, or defects pointed out in the books of account and further that they were regularly maintained and also on the finding that there was no material brought on record to establish that purchases or expenses were inflated or sales suppressed and also in view of the finding that it was not the case that there was no method of regular accounting employed, the Tribunal was fully justified in coming to the conclusion that the provisions of section 145(2) the Income Tax Act, 1961, could not be invoked. This conclusion was bas: on a finding of fact and raised no question of law.

(b) Income‑tax‑‑‑

‑‑‑‑Reference‑‑‑Income from undisclosed sources‑‑‑Finding that explanation regarding consumption of raw materials was satisfactory‑‑‑Tribunal justified in deleting addition to income‑‑‑No question of law arose‑‑‑Indian Income Tax Act, 1961, S.256(2).

The Tribunal, as regards the raw material used, took note of the fact that according to the assessee, the average weight changed from time to time looking to the quality and market requirements. The explanation so offered had not been controverted by the Revenue by bringing any material on record. The Tribunal observed that there was preponderance of probability that the average weight of various items manufactured saw change from time to time from heavier quality to lighter quality and looking to such trend the was every possibility that the average weights of various items furnished during the appellate proceedings were in vogue during the current assessment year and the average weight thereafter, changed to the higher side. The Tribunal was justified in deleting the addition of the sum on account of excess raw material shown as consumed. No question of law arose from the order of the Tribunal.

(c) Income‑tax‑‑‑

‑‑‑Reference‑‑‑Business expenditure‑‑‑Disallowance of expenditure‑‑Finding that lease rent was reasonable‑‑‑Tribunal justified in setting aside disallowance of expenditure under S.40A(2)(a)‑‑‑No question of law arose‑‑­Indian Income Tax Act, 1961, Ss.40A & 256.

As regards the question relating to deletion of disallowance of rent claimed under section 40A(2)(a) of the Act, the finding of the Tribunal on the question of reasonableness of lease rent raised no question of law.

P.G. Desai instructed by Manish R. Bhatt for the Commissioner.

2001 P T D 545

[239 I T R 189]

[Gujarat High Court (India)]

Before R. Balia and A.R. Dave, JJ

COMMISSIONER OF INCOME‑TAX

versus

ARVIND H. SHAH

Income‑tax Application No. 101 of 1999, decided on 20th April, 1999.

Income‑tax‑‑‑

‑‑‑‑Reference‑‑Promissory note found during a search of residential premises of assessee‑‑‑Additions made in income of assessee during assessment year 1987‑88 deleted by CIT (Appeals) on the ground that additions had already been made in assessment year 1983‑84‑‑‑Did not give rise to any question of law‑‑‑Indian Income Tax Act, 1961, S.256(2).

A search was carried out at the residential premises of the assessee on October 14, 1986, during the course of which three promissory notes executed by VC in favour of the assessee were found. The three promissory notes were of the denomination of Rs.50,000, Rs. one lakh and Rs. one lakh. The Assessing Officer‑found that the promissory note of Rs.50,000 was bearing the date of. June 2, 1982, and did not relate to the assessment year 1987‑88 with which the reference application was concerned. However, he was of the opinion that from the other two promissory 'notes it was not possible to discern the date of then execution and having regard to the fact that search took place during the financial year 1986‑87 the amount represented by the two promissory notes of Rs.2 lakhs was brought to tax by making additions to the income of the assessee for the assessment year 1987‑88. On appeal, the Commissioner of Income‑tax (Appeals) deleted the addition of Rs. two lakhs on the ground that it was already taxed in the assessment year 1983‑84. The Tribunal confirmed the order of the Commissioner (Appeals). On a reference application under section 256(2) of the Income Tax Act, 1961:

Held, that the deletion of addition of Rs. two lakhs had been founded on the finding of fact that the promissory notes were executed somewhere‑in 1982 and the income represented by these promissory notes had been already subjected to tax for the assessment in the assessment year 1983‑84. These findings did not give rise to any question of law. So also the disallowance of Rs.24,000 on the supposed accrued income on the amount of promissory notes had been deleted on the ground that the assessee was not maintaining his accounts on the mercantile system. Therefore, the income arising from the investment made should be taxed on the basis of actual receipts only. Therefore, no question of law arose.

Manish R. Bhatt for the Commissioner.

2001 P T D 704

[239 I T R 315]

[Gujarat High Court (India)]

Before R. K. Abichandani and A. R. Dave, JJ

COMMISSIONER OF INCOME‑TAX

versus

M. D. JOSHI and others

Income‑tax Applications Nos. 193 with 191 and 194 of 1998, decided on 8th September 1998.

Income-tax---

‑‑‑‑Income from undisclosed sources‑‑‑Reference‑‑‑Finding that particular amount did not constitute income from undisclosed sources‑‑‑Finding of fact‑‑‑Tribunal justified in deleting amount from income‑‑‑Indian Income Tax Act 1961.

The assessee who was at the relevant time, serving as an Income­tax Officer at Amreli, was residing with his maternal uncle, D. During the accounting year relevant to the assessment year 1985‑86, the following two amounts were transferred to the family members of the assessee: (i) Rs.25,000 on March 26, 1985, to H, son of the assessee,. as gift; (ii) Rs.25,000 on April 5, 1984 to K, wife of the assessee, by way of loan. Since the Assessing Officer was not satisfied with the explanation given by the assessee, he treated the said amounts as income of the assessee from undisclosed sources and added them in his total income, by his order dated October 16, 1991, for the assessment year 1985‑86. For the assessment year 1987‑88, the Assessing Officer also issued notices under section 139(2) of the Income Tax Act, 1961, to the assessee's wife and his two sons. The Assessing Officer assessed on protective basis the income of three family members of the assessee. The income assessed in the hands of the family members was clubbed in the hands of the assessee for the assessment year 1987‑88 and the same was assessed in his hands on substantive basis. The Tribunal noted that D, in his affidavit had admitted the fact that the aforesaid amounts were given by way of gift and loan by him. However, subsequently, he filed another affidavit on June 11, 1988, stating that these amounts were actually not his and that they were given from the money which was given by the assessee to him for safe custody. The Tribunal, after: considering all the relevant material on record, held that the Assessing Officer ought not to have relied upon the affidavit of D made on June 11, 1988, without affording an opportunity to the assessee of cross‑examining D and that reliance placed on the affidavit without giving the assessee an opportunity to cross‑examine D at the time when he was alive, was in violation of the principles of natural justice. The Tribunal found that there was no material on record to prove that the assessee out of any undisclosed sources of income contributed towards the deposit to the extent of Rs.50,000 in the bank account of D, out of which D gave gift/loan to the assessee's family members. It was, therefore, held that the addition made of Rs.50,000 in the assessee's total income was not justified. On a reference:

Held, that it was obvious from the material on record and the findings of the Tribunal that the matter had been decided purely on appreciation of evidence and by reaching findings of facts. The Tribunal was right in law and on facts in deleting the addition of Rs.50,000 made in the assessment year 1985‑86. For the assessment year 1987‑88, the Tribunal remanded the matter to Commissioner of Income‑tax (Appeals) who allowed the appeals of the wife and two sons of the assessee for‑the assessment year 1987‑88 against which no appeal was filed by Revenue.

B. B. Nayak instructed by Manish R. Bhatt for the Commissioner.

N.R. Divetia for the Assessee.

2001 P T D 725

[239 I T R 362]

[Gujarat High Court (India)]

Before R. K. Abichandani and A.R. Dave, JJ

COMMISSIONER OF INCOME‑TAX

versus

SUHASHBHAI VADILAL

Income‑tax Reference No.420 of 1983, decided on 21st September, 1998. .

Income‑tax‑‑‑

‑‑‑‑Capital gains‑‑‑Sale of shares‑‑‑Computation of capital gains‑‑‑Deduction of costs of acquisition of shares‑‑‑Shares held in a company‑‑‑Sale of entire unit of company located in Bombay to a new company formed by it‑‑­Shareholders of vendor company entitled to get shares of new company in ratio of 1:1‑‑‑Transaction was akin to issue of rights shares‑‑‑Fall in value of shares of vendor company when right to receive shares of new company was realised‑‑Sale of shares of new company‑‑‑Fall in value of shares had to be taken into account in computing capital gains‑‑‑Indian Income Tax Act, 1961, Ss.45 & 48.

A company known as S resolved to sell the entire' unit of the company located in Bombay to a new company proposed to be registered under the name of "R". The managing directors were authorised and directed to take all the steps for the formation of the purchasing company and to pay for the time being out of the funds of S all expenses for the proposed company. The consent of the Central Government was obtained in respect of the issuance of the share capital of R as per its application and the shareholders of S became entitled to get the shares of R in the ratio of 1:1. It was resolved that 50,000 equity shares of the face value of Rs.100 each be offered to the holders of equity shares of Sin the ratio of 1:1 and that the sum of Rs.100 was to be paid in respect of each such share applied for. The shares of S were quoted in the stock exchange and from the list maintained by the stock exchange, it was brought on record that the shares of S were quoted at Rs.543.75 each as on August 18, 1961. This position continued up to August 22, 1961. However, on September 15, 1961, the value of share of S came down to Rs.410 (ex‑rights‑cum‑dividend), when the right to receive the shares of R which was, described in the record as "ex‑rights" was realised. The assessee had sold 500 shares of R. which he had acquired in view of the above arrangement against his holding in S for Rs.51,125 in the assessment year 1975‑76. While calculating the cost price of these 500 shares, he added to the face value of Rs.50,000 being the amount at which they were offered to him as a shareholder of S, the depreciation in the value of his shares in S, which was as aforesaid ks.108.75 when the shares came to be sold without the right to receive the shares of R. The assessee ‑accordingly claimed a loss of Rs.53,250. This was allowed by the Income‑tax. Officer. The Commissioner of Income‑tax, however, by his order passed under section 263 of the Income Tax Act, 1961, rejected the assessee's claim as regards the sale of shares in R that as the shares in R were received as rights shares on the holding of shares in S, the cost of shares of R was the cost of such shares plus depreciation in the value of shares of S at the rate of Rs.108.7 per share. The Commissioner of Income‑tax drew a distinction between the cost of shares of R to the assessee and the cost of similar such shares to his father, whose similar claim was earlier allowed, by saying that while the assessee's father had sold the shares immediately, the assessee had held the shares of R for 12 years and, therefore, in his case the cost would be different. The Tribunal set aside the order of the Commissioner of Income­tax. On a reference:

Held, that the evidence showed that the shares in R were given to the shareholders of S as a matter of right, depending upon their holding and at the ratio of 1:1. Though they were not rights issues properly so‑called of S, the fact remained that the shares of S carried with them the right to receive the shares of R in view of the special arrangement made between the two companies and the resolution passed by R linking its issue directly with the holding of the shares in S. When this right to receive the shares of R went with the shares of S, their value was Rs.543.75 per share, but soon after the shares of R were issued, the value of shares of S diminished to Rs.410 per share. The depreciation in the value of share of S to the extent of Rs.108.75 was directly related to the issuance of shares by R and that depreciation was the amount lost to the assessee inquiring the new shares of R. To the extent of this depreciation which in the instant case was Rs.108.75 as per the facts found, the assessee must be deemed to have invested money in the acquisition of the shares of R. Therefore, the cost of acquisition having so crystallised the passage of time when these new shares were sold, would not make a difference to that cost. The assessee was entitled to claim deduction of the amount of depreciation in the value of his shares in S being the loss incurred by him in his capital asset in the transaction in which he acquired the shares in R.

Dhun Dadabhoy Kapadia (Miss) v. CIT (1967) 63 ITR 651 (SC) applied.

B.B. Naik and Manish R. Bhatt for the Commissioner.

J.P. Shah for the Assessee.

2001 P T D 1675

[241 I T R 231]

[Gujarat High Court (India)]

Before R. Balia and A.R. Dave, JJ

COMMISSIONER OF INCOME‑TAX

versus

KIRIT WOOD WORKS

Income‑tax Reference No. 126 of 1984, decided on 22nd December, 1998

(a) Income‑tax‑‑‑

‑‑‑‑Firm‑‑‑Registration‑‑‑Continuation of registration‑‑‑Change in constitution of firm‑‑‑Difference between dissolution of a firm‑and a change in its constitution‑‑Application in Form NO. 11 ‑A has to be filed' in case of change in constitution of firm‑‑‑Registration cannot be continued for a part of previous year up to the date of death of partner on a declaration in Form No. 12‑‑‑Indian Income Tax Act, 1961, Ss. 184, 185, 187 & 188.

(b) Income‑tax‑‑‑

‑‑‑‑Firm‑‑‑Change in constitution of firm‑‑‑Dissolution of firm or change in its constitution‑ ‑‑Partnership deed providing that death of a partner would not result in dissolution of firm‑‑‑Death of a partner during accounting year relevant to assessment year 1978‑79‑‑‑Firm continuing to maintain one account and filing a single return‑‑‑Death of partner resulted in a change in the constitution of the firm‑‑‑Indian Income Tax Act, 1961, Ss. 187 & 188.

A firm for the purpose of the Income‑tax Act, is an assessable entity independent from its partners. For the purposes of computation of taxable income and other purposes a firm is dealt with differently depending on whether the firm is registered or deemed to be registered under the Income Tax Act or is an unregistered firm. Among registered firms there is a distinction in treatment for the purposes of income‑tax between (i) a firm which is not dissolved but reconstituted; (ii) a firm which is dissolved, and (iii) a firm where there is change resulting in succession by any other firm.

Once a firm is registered, the registration enures for succeeding years without any requirement of fresh registration but subject to declaration required to be submitted in the prescribed Form No.12 that no change has occurred in the constitution of the firm or no change in the shares of the partners had taken place from the last date of the preceding previous year to the last day of the previous year relevant to the assessment year and also to the date of making of the application. Thus, the declaration is required to be made for continued existence of the firm for the whole of the previous year in question. The certificate that is required to be entered under section 185(4) of the Income Tax Act, 1961, on the deed of partnership for each succeeding year in that regard, also speaks about continued registration for the whole of the previous year and not for a part of the previous year. Subsection (8) of section 184' provides that where any change in the constitution of the. firm or in the shares of the partners has taken place in the previous year, the firm shall apply for fresh registration for the assessment year concerned in accordance with the provisions of this section. The application has to be in Form No.11A. Under Form No.11 A, apart from all the requirements of Form No.11, a further requirement .is to produce the instrument or instruments evidencing the partnership in existence from time to time during the previous year up to the date of the application, or during the previous year and up to the date of application, as the case may be, together with a copy or duplicate copy of each of such instruments, and the prescribed particulars are to be' given in the Schedule which include the particulars of the firm as constituted at the date of application and of the shares of the partners in the income or loss of the firm and the particulars of the apportionment of the income or loss of the firm for the relevant previous year between the partners, who in that previous year were entitled to share in such income or loss, in accordance with the change or changes that have taken place during the previous year concerned. The difference to be marked in the declaration under Form No. 12 of no change in the constitution of the firm or in the shares of the partners is required for the whole of the previous year; in case of dissolution of a firm, the declaration is required only up to the date of dissolution. If there is any change not amounting to dissolution at any time during the previous year, declaration of continued existence up to the date of change only and continued existence of the firm for the whole of the year is not in accordance with the requirement of section 184(7) read with the rules and forms prescribed thereunder. If the declaration is not in accordance with the statutory provisions, there cannot be any endorsement about continued registration for that year under section 185(4) of the Act, or, in other words, there cannot be automatic continuance of registration within the meaning of section 184(7).

The assessee was a registered firm till the assessment yew 1977‑78. The partnership deed provided that the firm shall not be dissolved on the death of one of the partners. On September 16, 1977, one of its partners died. An application was filed on June 29, 1978, that is to say after the end of the previous year, under. Form No. 12 that the firm continued to be registered for the first part of me previous year that is to say from October 24, 1976 to September 16, 1977. The Assessing Officer held that the registration granted to the firm would not have effect for the assessment year 1978‑79. The Tribunal, however, held that the firm was entitled to registration for a part of the accounting period. On a reference:

Held, that it was not in dispute that the firm continued t o maintain one account, it filed one return for the whole of the previous year and did not put forward any claim of the dissolution of the firm. There was a clause in the deed of partnership of the firm, that was enjoying the benefit of registration under the Act of 1961, that death of a partner shall not result in the dissolution of the firm. Therefore, mere was nothing before the Tribunal to presume that as a result of death of one of the partners the firm was to be dissolved and the declaration could be made of continued existence of 'the firm only up to the date of death of the partner. The firm was not entitled to continued registration for a part of me yea' on the basis of the declaration. made by it under section 184(7) read with rule 24 and Form No.12, Addl. CIT v. Abdul Kareetn & CO. (1979) 117 ITR 233 (Iliad.) ref.

Pranav G. Desai for Manish R. Bhatt for the Commissioner.

Soparker: Amicus curiae.

2001 P T D 1887

[243 I T R 827]

[Gujarat High Court (India)]

Before R. Balia and A.R. Dave, JJ

PRABHAVATI B. SOLANKI

Versus

COMMISSIONER OF WEALTH TAX

Wealth Tax Reference No.23 of 1983, decided on 16th December, 1998.

Wealth tax‑‑‑--

‑‑‑‑Assessment ‑‑‑Limitation‑‑‑Meaning of assessment ‑‑‑Assessment includes determination of net wealth as well as computation of tax payable ‑‑‑No finding on question whether computation of tax had been made before time limit‑‑‑Matter remanded ‑‑‑Indian Wealth Tax Act, 1957, Ss. 16 & 17A.

The term "assessment" in the provision prescribing the period of limitation in the Wealth Tax Act, 1957, has been used in comprehensive sense which includes the integrated process of computation of net wealth as well as computation of tax liability thereon. The two actions need not be simultaneous; they may be taken separately and at different times but the assessment is complete only when both the processes are over, namely, determination of net wealth and determination of tax payable on such net wealth. It is only when both the processes are complete that the assessment can be said to be completed. As a result, both the processes must take place prior to the expiry of the period of limitation.

Held, that, in the instant case, neither the Appellate Assistant Commissioner nor the Tribunal had enquired whether computation of tax has taken place on March 31, 1979, or thereafter. It is a question of fact when computation of tax payable has actually, taken place. In the absence of necessary finding to that effect, it was not possible to answer the question whether the assessments in question were completed prior to March 31, 1979 or were barred by limitation. [Matter remanded].

Kalyankumar Ray v. CIT (1991) 191 ITR 634 (SC) and CIT v. Purshottamdas T. Patel (1994) 209 ITR 52 (Guj.) applied.

K. N. Raval for the Assessee.

Manish R. Bhatt for the Commissioner.

2001 P T D 2024

[239 I T R 528]

[Gujarat High Court (India)]

Before Rajesh Balia and A.R. Dave, JJ

SHANTAGAURI RAMNIKLAL TRUST and others

Versus

COMMISSIONER OF INCOME-TAX and another

Special Civil Application No.8345 of 1989, decided on 2nd November, ,1998.

Income-tax---

----Charitable purposes---Charitable trust---Registration---Application for registration---Duty of CIT to enquire into nature of trust or association---Difference between registration and claiming of exemption from tax--­Meaning of "religious community "---Rejection of application without giving reasons is not valid---Indian Income Tax Act, 1961, S.12A---Constitution of India, Art.226.

Whenever an application is made for registration under section 12A of the Income Tax Act, 1961, it is for the Commissioner to make an enquiry and reach his conclusion about the nature of community. He cannot reject an application simpliciter on abstract doctrine of burden of proof to be on the applicant by presuming the same to be a religious- community unless otherwise proved. In order to reach a conclusion whether a community is a religious community,' there must be something to show that the community denotes abiding by 'a particular faith to be considered as a member of that community, or its identification is on account of practising or following customs or practices. Merely by adhering to distinct cultural practices in its social interactions may not be sufficient to treat a community, as a religious community. The question also requires to be considered whether a caste in order to be excluded from the benefit of registration must be also a religious caste or a part of a religious community as an identifiable mark. Without any such material, it is not possible to reach a concrete conclusion. While considering an application for registration of a trust, the Commissioner must make a clear distinction between the requirement of registration and the requirements for claiming tax benefit. The latter question falls squarely to be considered by the Assessing Officer. Section 12A neither makes registration of trust a condition precedent for claiming benefit under sections 11 and 12 read with section 13, nor does registration obviate enquiry '-into the conditions envisaged under section 13 by the Assessing Officer before the tax benefit can be allowed:

Held, that, in the instant case, the Commissioner of Income-tax must first consider whether the name "Brahmakshatriya" by itself denoted any religion or whether origin of the community had been founded on adherence to any religious faith. As the order made by the Commissioner of Income-tax rejecting the application for registration was not a speaking order and affected the rights of the petitioner adversely, the order could not be sustained.

B.R. Shah for Petitioner

R.P. Bhatt for Respondents.

2001 P T D 2193

[239 I T R 645]

[Gujarat High Court (India)]

Before R.Balia and A.R. Dave, JJ

COMMISSIONER OF INCOME-TAX

Versus

BHAGWAT PRASAD P. PARIKH

Income-tax Reference No. 119 of 1983, decided on 3rd November, 1998.

Income-tax---

----Special deduction---Permanent physical disability---Whether assessee suffers from permanent physical disability and whether disability results in substantially reducing his capacity to engage in gainful employment or occupation---Are questions of fact---Quantum of income earned by physically disabled not sole criterion for disallowing claim for deduction ---Assessee suffering from coronary heart disease---Tribunal after evaluating expert medical report about nature for disease and effect on physical capacity of person suffering from it finding that capacity for work of person with such heart disease would be substantially reduced, resulting in substantially reducing his capacity for earning income---Tribunal holding assessee entitled to deduction---Finding of Tribunal is finding of fact---No question of law arises for reference---Indian Income Tax Act, 1961, S.80U.

The assessee, an Advocate, claimed deduction under section 80U of the Income Tax Act, 1961, on the ground that he was suffering from coronary heart disease which amounted to permanent disability and had substantially affected his capacity to engage himself in gainful employment. The assessee also produced a medical certificate as required by the proviso to section 80U. The claim of the assessee was allowed by the Income-tax Officer for the assessment years 1974-75 to 1976-77 but was disallowed for the assessment year 1977-78, on the ground that the disease was not in itself a permanent physical disability which might bring about a substantial reduction in his capacity to be engaged in gainful employment or occupation. The Appellate Assistant Commissioner affirmed the order of the Income-tax Officer on the grounds that the disease/disability of the assessee was not mentioned in the circular issued by the C.B.D.T. for the application of the said section and that the assessee's heart ailment had in no way reduced his income and on the contrary had gradually gone up implying thereby that the assessee's capacity to engage in gainful employment or occupation had in no way been reduced by the disease. On further appeal, the Tribunal found that the word used in section 80U did not mean everlasting but meant "expected to last indefinitely°, that the requirement of producing a medical certificate was necessary but not conclusive, that the capacity for work of a person with such a heart disease would be substantially reduced and that, therefore, the assessee was entitled to the relief under section 80U. On a reference:

Held, (i) that the question whether the assessee suffered from permanent physical disability and whether the disability is such which had resulted in substantially reducing the capacity of such assessee to engage in gainful employment or occupation are questions of fact and do not give rise to a question of law unless such findings of fact are shown to be perverse or are vitiated because the same are founded on irrelevant considerations or partly relevant and partly irrelevant considerations or have been arrived at by ignoring relevant material on record or are based on no material. The findings had been arrived at by the Tribunal by appreciation of evidence and no question of law arose for reference.

(ii) That the fact that a person has a substantial income by itself cannot be the criteria for determining whether the disease or the disability from which the person is suffering has resulted in reducing his capacity for gainful employment. The substantial reduction in capacity to engage in gainful employment can have relevance to the extent it has affected the potential capacity of a disabled person which otherwise he could have exploited to his advantage. It is not a case of quantifying or measuring the effect of disability on the actual earning but its effect on what he could have earned without disability.

Sardar Harpreet Singh v. CIT (1991) 187 ITR 679 (All.) ref.

Manish R. Bhatt for the Commissioner.

Ajay R. Mehta for the Assessee.

2001 P T D 2551

[248 I T R 379]

[Gujarat High Court (India)]

Before R. K. Abichandani and A.R. Dave, JJ

COMMISSIONER OF WEALTH TAX

versus

ARUN K. PARIKH and others

Wealth Tax References Nos. 10, 10A, 10B, 10C 1and 10D of 1992, decided on 2nd September, 1998.

Wealth tax-----

---- Valuation of assets ---Unquoted equity shares of private limited company-- Valuation to be made as per R.1D of Wealth Tax Rules, 1957, R, 1D. I

Rule I D of the Wealth Tax R 57, has to be followed in every case where unquoted equity shares of a company (other than an investment company or a managing agency company) have to be valued.

Bharat Hari Singhania v. CWT (1994) 207 ITR I (SC) Fol.

CWT v. Ashok K. Parikh (1981) 129 ITR 46 (Guj.) ref

B.B. Nark and Manish R. Bhatt for the Commissioner.

2001 P T D 2655

[240 I T R 628]

[Gujarat High Court (India)]

Before B. C. Patel and M. C. Patel, JJ

GOVIND CHHAPABHAI PATEL

versus

DEPUTY COMMISSIONER OF INCOME-TAX

Special Civil Application No.9598 of 1996, decided on 13th July, 1999.

Income-tax---

----Reassessment---Necessary material placed by assessee before Revenue--­Different view on same material---Mere change of opinion---Reassessment proceedings were not valid---Indian Income Tax Act, 1961, Ss. 147 & 148.

The assessment of the assessee for the assessment year 1985-86 was completed at Rs.1,61,020 after considering the long term capital gain and long term capital loss on the sale of silver. Subsequently a notice under sections 147/148 of the Income Tax Act, 1961, was issued on the ground that the amount of interest paid towards the loan taken for the purchase of silver could not be included in the price of silver or the cost of silver. On a writ petition filed to quash the proceedings:

Held, that there was no material placed on record to show that the petitioners had suppressed any material fact or had failed to disclose fully and truly all material facts necessary for assessment. Earlier the Assessing Officer considered the capitalisation of the amount of interest in computing the capital loss. Now on the same material the succeeding officer had taken a different view and hence, it was nothing but a change of opinion. Accordingly, the reassessment proceedings were liable to be quashed.

S.N. Soparkar for Petitioner.

B.B. Nayak for Manish R. Bhatt for Respondent.

2001 P T D 2673

[248 I T R 1871

[Gujarat High Court (India)]

Before D.M. Dharmadhikari, C.J. and A.R. Dave, J

COMMISSIONER OF INCOME-TAX

versus

ARVIND MILLS LTD

Income Tax Reference No.39 of 1985, decided on 5th September, 2000.

(a) Income-tax---

----Business expenditure ---Royalty---Assessee entitled to allowance of royalty---Indian Income Tax Act, 1961.

(b) Income-tax---

----Business expenditure---Amounts not deductible---Reimbursement of medical expenses of Managing Director---Reimbursement of medical expenses to be considered for purpose of disallowance---Indian Income Tax Act, 1961, S.40(c).

(c) Income-tax---

----Business expenditure---Disallowance expenditure on guest house and depreciation on dead stock and furniture---Tribunal justified in deleting disallowance of guest house expenses---Indian Income Tax Act, 1961, S.37(4).

(d) Income-tax---

----Depreciation---Dead stock and furniture in guest house---Depreciation cannot be claimed---Income Tax Act, 1961, Ss.32 & 37(4).

Held, (i) that the assessee was entitled in law to the allowance of Rs.2;33,300 being royalty paid.

CIT v. Ashoka Mills Ltd. (1996) 218 ITR 526 Guj.) rel.

(ii) That the sum paid to the managing director for reimbursement of medical expenses vivas to be included while computing the disallowance under section 40(c) of the Income Tax Act, 1961.

CIT v. Raipur Manufacturing Co. (1998),.231 ITR.598 (Guj.) (Appex.) fol.

(iii) That the Tribunal was right in law in sustaining the deletion of disallowance of Rs.8,969 in respect of guest house expenses.

CIT v: Gaekwar Mills Ltd. (1992) 193 ITR 734 (Guj.) fol.

(iv) That depreciation was not allowable on dead stock and furniture of the guest house.

CIT v. Gaekwar Mills Ltd. (1992) 193 ITR 734 (Guj.) fol

Manish J. Shah for the Commissioner.

M.R. Bhatt for the Assessee.

2001 P T D 2729

[239 I T R 871]

[Gauhati High Court (India)]

Before A. K. Patnaik, J

BONGAIGAON REFINERY AND PETRO-CHEMICALS LTD.

versus

COMMISSIONER OF INCOME-TAX and others

Writ Petition (C) No. 1473 of 1999, decided on 26th March, 1999.

Income-tax---

----Recovery of tax---Appeal--Writ---Stay of recovery proceedings during pendency of appeal---Commissioner of Income-tax (Appeals) has power to grant stay---Writ petitioner directed to apply within fifteen days to Commissioner of Income-tax (Appeals) and Commissioner of Income-tax (Appeals) directed to apply his mind to application and pass an order within fifteen days---Recovery proceedings to remain stayed till Commissioner of Income-tax (Appeals) passes his order---Indian Income Tax Act, 1961.

Although there is .no specific provision in the Income Tax Act, 1961, or the Rules made thereunder conferring the power to stay a demand in dispute in the appeal to the Commissioner of Income-tax (Appeals), it has now been decided by the Courts that the Commissioner of Income-tax (Appeals) as an appellate authority has the power to stay a demand which is in dispute in the appeal before him.

Prem Prakash Tripathi v. CIT (1994) 208 ITR 461 (All.) and Tin Manufacturing Co. of India v. CIT (1995) 212 ITR 451 (All.) fol.

Held, that the appropriate course for the petitioner would be to move the Commissioner of Income-tax (Appeals), Gauhati, for stay of the demand within a period of 15 days and in case an application was filed before the Commissioner of Income-tax (Appeals) within the aforesaid period of 15 days, the said Commissioner of Income-tax (Appeals) should consider the same in accordance with law and pass appropriate orders within a period of 15 days from the date of filing of such application by the petitioner. The Commissioner of Income-tax (Appeals) should apply his judicial mind to the facts of the case and pass orders on the stay application of the petitioner after hearing the petitioner. Till the Commissioner of Income-tax (Appeals) passed such orders on the application of, the petitioner for stay, the demand in dispute before the said Commissioner should remain stayed. In case no application was filed by the petitioner within the aforesaid period of 15 days the stay order would stand vacated.

Hardeodas Jagannath v. ITO (1961) 43 ITR 562 (Assam) ref.

Dr. A.K. Saraf, K.K. Gupta and S.K. Agarwal for Petitioner.

G.K. Joshi for Respondents.

2001 P T D 2758

[239 I T R 919]

[Gujarat High Court (India)]

Before R. Balia and A. R. Dave, JJ

COMMISSIONER OF INCOME-TAX

versus

SHIVABHAI B. PATEL

Income-tax Reference No. 112 of 1984, decided on-11th November, 1998

Income-tax---

----Revision---Assessments set aside by Commissioner under S.263 and I.T.O. directed to make fresh assessments---Order of revision by Commissioner set aside by Tribunal--- Order of Tribunal made subject-matter of reference before High Court and reference application pending---I. T. O. making fresh assessments in accordance with directions of Commissioner--­Consequence of setting aside order of Commissioner is that order passed in consequence thereof also fails---Consequential orders of I.T O. to give effect to order of Commissioner not valid---Indian Income Tax Act, 1961, S.263.

For the assessment years 1975-76 and 1976-77, the Income-tax Officer completed the original assessments. Those assessments were set aside by the Commissioner under section 263 of the Income Tax Act, 1961, and the Income-tax Officer was directed to make fresh assessments. The order of the Commissioner under section 263 was set aside by the Tribunal. The order of the Tribunal setting aside the order of the Commissioner was made the subject-matter of reference before the High Court and the reference application was pending. The Income-tax Officer made fresh assessments in accordance with the directions contained in the order of the Commissioner which had been set aside. On appeal against the fresh assessment orders, the Commissioner of Income-tax (Appeals) set aside the assessment orders on the ground that the order of the Commissioner of Income-tax under section 263 had been cancelled. On further appeal, the Revenue contended that since the reference application was pending before the High Court, the order passed by the Income-tax Officer ought not to be set aside. The Tribunal dismissed the appeals filed by the Revenue. On a reference:

Held, that once original assessments have come into force unless the same are set aside in accordance with law in appropriate proceedings, they hold the field and there cannot be two operative assessments at the same time. The effect of the order under section 263 made by the Commissioner of Income-tax was that the original assessments stood set aside. However, once an order under section 263 was set aide, it resulted in restoration of the original assessments on record, and there cannot be any room for fresh assessment orders even if the same have come into existence in pursuance of a direction issued under section 263. It could not be said that by complying with the direction under section 263, the remedy of appeal or getting determination of the question by way of further proceedings, in accordance with the provisions of the Income-tax tact, became redundant. Therefore, the Tribunal was right in holding that since it had found that the order under section 263 itself was bad, the consequential orders of the Income-tax Officer to give effect to the order of the Commissioner under section 263 could riot be upheld.

Manish R. Bhatt for the Commissioner.

Nemo for the Assessee.

2001 P T D 2812

[240ITR21]

[Gujarat High Court (India)]

Before Rajesh Balia and A. R. Dave, JJ

COMMISSIONER OF INCOME-TAX

versus

MULJI GORDHANDAS

Income-tax Reference No. 123 of 1984, decided on 12th November, 1998

Income-tax---

----Total income---Inclusions in total income ---HUF---Firm---Karta of HUF partner in his representative capacity---Income of minor sons from admission to benefits of partnership---Not includible in his individual total income--­Indian Income Tax Act, 1961, S.64.

A Hindu undivided family is itself an assessable entity or unit. The income earned by the Karta is taxed in the hands of the Hindu undivided family. No part of such income is computed in his individual assessment. When section 64 of the Income Tax Act, 1961, speaks of "computation of the total income of any individual", it ex hypothesi excludes from such computations, income which is assessable in the hands of the Hindu undivided family. Section 64 does not deal with the share income of the Karta from the firm. It is confined to the clubbing together of the share income of the spouse or minor children of the individual from the firm, with such other income of that individual which is assessable in his individual status. It is thus, clear that the share income of the Karta from the partnership firm is not exigible to tax a second time under section 64.

CIT v. Shri Om Prakash (1996) 217 ITR 785 (SC) fol.

CIT v. H^arbhajan Lal (1993) 204 ITR 361 (SC); CIT v. Jayantilal Prem Chand Shah (1995) 211 ITR 111 (SC); Dinubhai Ishvarlal Patel v. K.D. Dixit, ITO (1979) 118 ITR 122 (Guj.) and Hirday. Narain (L.) v. Income-tax Officer (1970) 78 ITR 26 (SC) ref.

Manish R. Bhatt for the Commissioner

2001 P T D 3005

[240 I T R 33]

[Gujarat High Court (India)]

Before R. Balia and A.R. Dave, JJ

COMMISSIONER OF INCOME-TAX

Versus

NARESH TEA STORES

Income-tax Reference No. 138 of 1984, decided on 19th November, 1998.

Income-tax---

----Firm---Assessment---Reconstitution or succession---Firm consisting of seven partners---Death of a partner on 16-5-1977---New partnership deed executed on 17- 1977. between remaining partners and son of deceased partner---No provision in partnership deed that death of partner would not result in dissolution of partnership---Provisions of Partnership Act prevailed in absence of contract to contrary---Firm stood dissolved on death of partner---Resulted in succession of one firm by another firm---Two assessments to be made one for period before death of partner and another for period after death of partner---Indian Income Tax Act, 1961, Ss.187(2) & 188.

The assessee-firm consisted of seven partners. One of the partners died on May 16, 1977, during the previous year relevant to the assessment year 1978-79, and a new partnership deed was executed on May 17, 1977, between the remaining partners and the son of the deceased partner. The assessee-firm claimed before the Income-tax Officer that the firm stood dissolved on the death of the partner and by the deed, dated May 17, 1977, a new partnership came into existence, that the old firm should be assessed only for the period up to May 15, 19i`L namely, up to the date of death of the partner and a separate assessment had to be made for the newly constituted partnership under the deed, dated May 17, 1977, for the remainder of the previous year. The Income-tax Officer held that it was not a case of dissolution of the firm but it was merely a reconstitution of the firm and section 187 of the Income Tax Act, 1961, applied to the case and only one assessment for the entire year had to be made. The Tribunal found that there was no specific provision in the partnership deed, dated October 2, 1970, for the continuation of the partnership, in the event of death of any partner, nor had any material been brought to notice that such a condition existed and further that the partnership deed in terms provided that the provisions of the Partnership Act would be applicable to the partnership in respect of all matters not spelt out in the deed itself; and that, therefore, the partnership came to an end on the death of the partner as provided in section 42 of the Partnership Act, 1932. On a reference:

Held, affirming the decision of the Tribunal, that two separate assessments had to be made, one for the period before the death of the partner and another for the period after the death of the partner.

CIT v. Dalabhai & Co. (G.). (1997) 226 ITR 922 (Guj.) ref.

Manish R. Bhatt for the Commissioner.

K.C. Patel for the Assessee.

2001 P T D 3030

[240 I T R 77]

[Gujarat High Court (India)]

Before R. Balia and A.R. Dave, JJ

VARELI WEAVES (PVT.) LTD.

Versus

DEPUTY COMMISSIONER OF INCOME-TAX

Special Civil Applications Nos. 3241 to 3256 of 1991, decided on 24th November, 1998.

Income-tax---

----Reassessment---Limitation---Reason given by Department for escapement of tax was non-exercise of due diligence by ITO ---Does not attribute any failure on part of assessee to disclose fully and truly all material facts necessary for assessment either by not filing return or not furnishing requisite information---No failure to disclose material facts fully and truly--­Notices under S.147 issued after expiry of four years from and of relevant assessment years---Notices barred by limitation---Reassessment not valid--­Indian Income Tax Act, 1961, Ss. 147 & 148.

For the assessment years 1984-85 and 1985-86 the Income-tax Officer re-opened the assessment of the assessee under section 147 of the Income Tax Act, 1961, on the ground that an amount of Rs.68,44,752 was claimed by the assessee as a deduction in the computation of the net taxable income and it was not disallowed by the Income-tax Officer while completing the assessment under section 143(3) of the Act, for the reason that due diligence was not exercised by the Income-tax Officer. The assessee contended that there had been no failure on the part of the assessee to make a return under section 139 of the Act or failure to make a return in response to notice issued under subsection (1) of section 142 or under section 148 nor was there any failure on the part of the assessee to disclose fully and truly all material facts necessary for the relevant assessment year, that the assessment year 1984-85 ended on March 31, 1985, and the assessment year 1985-S6, ended on March 31, 1986, and hence the notice issued in March, 1991, were clearly beyond four years from the end of the relevant assessment years for which proceedings for re-assessment were sought to be initiated in each of the cases:

Held, that a bare perusal of the reason attributed for escapement of tax was non-exercise of due diligence by the Assessing Officer. The reason which led the Assessing Officer to believe that income of the petitioner had escaped assessment did not attribute arty failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment either by not filing the return or not furnishing the requisite information. The notices issued in each of the cases, after-the expiry of four years from the end of the relevant assessment years 1984-85 and 1985-86, were beyond the period of four years from the end of that assessment year as envisaged under the proviso to section 147 and the Assessing Officer had no jurisdiction to issue notice under section 147 in these cases after March 31, 1989, in the case of assessment year 1984-85, and after March 31, 1990, in the case of assessment year 1985-86. The initiation of action in each of the cases under section 147 was clearly barred by time. Therefore, the reassessment was not valid.

CIT v. British Paints India Ltd. (1991) 188 ITR 44 (SC) and Lakhanpal National Ltd. v. ITO (1986) 162 ITR 240 (Guj.) ref.

J.P. Shah for Applicant. .

2001 P T D 3044

[240 I T R 121]

[Gujarat High Court (India)]

Before R. Balia and A.R. Dave, JJ

DESAI- BROTHERS

Versus

DEPUTY COMMISSIONER OF INCOME-TAX (ASSESSMENT).

Special Civil Application No.6710 of 1991, decided on 26th November, 1998.

Income-tax---

Reassessment---Condition precedent---Reason to believe that income had escaped assessment---Nexus essential between material on record and belie, that income had escaped assessment----Belief of Assessing Officer that trading activities are not covered by S. 32AB and that concession granted under S.32AB was erroneous---Trading activities are not outside purview S.32AB--Reassessment proceedings were riot valid---Indian Income Tax Act.

The requirement of recording of reasons before issuance of notice is to provide a safeguard against the arbitrary action that may be taken by reopening a completed assessment time and against on irrelevant considerations. Recording of reasons unfolds the process by which the Assessing Officer was led to the formation of his belief about escapement of income. If the action of the Assessing Officer is founded on some material or ground that has no nexus to the formation of reason to believe or is not founded on any existing material the same is liable to be interfered with. The correctness of his tentative opinion is not to be tested on the anvil of the final decision which may be reached after considering rival contentions and weighing them through the process of reasoning. But at the same time, if it appears from the reasoning which has been adopted by the Assessing Officer that no inference of escapement of income from assessment can at all be drawn therefrom, it must be held that the action is ultra vires the statute and does, not confer jurisdiction on the Assessing Officer:

Held, that in the instant case the fact on which the Assessing Officer had founded his belief was that the assessee was a trader in bidies and, accordingly, its activities fell under Item (2) of Schedule XI of the Income Tax Act, 1961, and, therefore, the activities did not come under "eligible business" to which the provisions of section 32AB of the Income Tax Act, 1961, applied. A perusal of section 32AB clearly postulates that the only businesses which have been left out of the definition of "eligible business" or profession are the business of construction, manufacture or production under clause (a) or business of leasing- or hiring of machinery or plant for an industrial undertaking. In order to attract the restrictive meaning of this term, business must be of construction, manufacture or production. Mere trading activity cannot come within the purview of business which is not eligible business for the purpose of the said section notwithstanding that the article'-6r thing in which a person. is trading falls under the Eleventh Schedule. Hence, the action under section 147 had been initiated de hors the provisions of-section 32AB of the. Act which made it ultra vires and void.

Barium Chemicals Ltd. v. Company Law Board (1966) 36 Comp, Cas. 639 (SC) ref.

J.P. Shah for the Assessee.

B.B. Desai with Manish R. Bhatt for the Department.

2001 P T D 3082

[240 I T R 224]

[Gujarat High Court (India)]

Before R. Balia and A.R. Dave, JJ

ADANI EXPORTS

Versus

DEPUTY COMMISS[ONER OF INCOME-TAX (ASSESSMENTS)

Special Civil Application No. 10543 of 1998, decided on 29th December, 1998.

(a) Income-tax---

----Re-assessment---Condition precedent----Assessing Officer must have reason to believe that income had escaped assessment---Existence of such a belief is open to judicial review-- -Indian Income Tax Act 1961, S.147.

Information that income had escaped assessment Opinion of audit party with regard to application or interpretation of law does not constitute information---Assessing Officer computing special deduction under S.SOHHC---Audit objection that there is mistake in allowing deduction under S.80HHC---Assessing Officer stating that there was no mistake but if it is not accepted remedial action could be taken under S.147 or 263---Direction by CBDT for taking action under S.147---Direction was not valid---No information that income had escaped assessment ---Re­assessment proceedings were not valid---Indian Income Tax Act, 1961, S.147---Constitution of India, Art. 226.

The satisfaction of the Assessing Officer for the purpose of re­opening an assessment is subjective in character and the scope of judicial review is limited. When the reasons recorded show a nexus between the formation of belief and the escapement of income, a further enquiry about the adequacy or sufficiency of the material to reach such belief is not op6n to scrutiny. However, it is always open to question the existence of such belief on the ground that what has been stated is not the correct state of affairs existing on record. In the fact of the record the burden lies on the petitioner who challenges it. If the petitioner is able to demonstrate that in fact the Assessing Officer did not have any reason to believe or did not hold such belief in good faith or the belief which is projected on paper is not belief held by him in fact, the exercise Of authority conferred on such person would be ultra vires the provisions of law and would be an abuse of such authority.

That part alone of the note of an audit party which mentions the law which escaped the notice of the Income-tax Officer constitutes "information" within the meaning of section 147(b) of the Income Tax Act, 1961, the part which embodies the opinion of the audit party in regard to the application or interpretation of the law cannot be taken into account by the Income-tax Officer. In every case the Income-tax Officer must determine for himself what is the effect and consequence of the law mentioned in the audit note and whether in consequence of the law which has now come to his notice he can reasonably believe that income had escaped assessment. The basis of his belief must be the law of which he has now become aware.

Held, that, in the instant case, the Assessing Officer did not hold any belief that income had escaped assessment on account of erroneous computation of benefit under section 80HHC. The mere fact that as a subordinate officer he added the suggestion that if his views were not accepted, remedial actions may be taken could not be said to be belief held by him. He had no authority to surrender or abdicate his function to his superiors or could the superiors arrogate to themselves such authority. Audit objections were raised but that would not amount to information within the meaning of section 147(b). The Board had directed remedial action under section 147(b) on the basis of the audit objections. The direction was not valid. The notice under section 147(b) was not valid and was liable to be quashed.

Indian and Eastern Newspaper Society v. CIT (1979) 119 ITR 996 (SC) applied.

CIT v. Canara Workshops (P.) Ltd. (1986) 161 ITR 320 (SC) ref.

S.N. Soparkar for Petitioner.

Pranav G. Desai for Manish R.

Bhatt for Respondent.

2001 P T D 3180

[240 I T R 931]

[Gujarat High Court (India)]

Before B. C. Patel and P. B. Majmudar, JJ

COMMISSIONER OF INCOME-TAX

Versus

PRAYASHVIN B. PATEL

Income-tax Application No.22 of 1999, decided on 4th October, 1999.

Income-tax---

----Reference---Business---Business loss---Not necessary that every year assessee must carry on business activity and earn income---Past and subsequent records of assessee revealing that assessee was running consultancy and commission business---Tribunal justified in holding that assessee was entitled to claim loss under head "Business loss"---No question of law arose---Indian Income Tax Act, 1961, Ss.143(3), 256(2) & 263.

The assessee claimed the business loss of Rs.1,31,893. The Assessing Officer allowed the claim made by the assessee. However, the Commissioner of Income-tax issued notice to the assessee under section 263 of the Income Tax Act, 1961, to revise the order of the Assessing Officer under section 143(3) and held that in order to allow deduction of a business loss, there should have been a computation under the head "Business". In the case of the assessee, there was no such computation of income or loss under the head "Business" and the profit and loss account also showed that the assessee had not done any business activity during the year, and therefore, the loss could not be claimed by the assessee. The assessee preferred an appeal against the order of the Commissioner. The Tribunal held that the assessee had past and subsequent assessment records to show that the assessee was carrying on consultancy and commission business and it treated the amount as business loss. On an application to direct reference:

Held, dismissing the application, that it was not necessary that for every year the assessee must have earned income from the business or profession and for a particular year for one or the other reason there may not be any income but it did not mean that he was not required to spend the amount for carrying on the activities. The Tribunal had found that the assessee was dealing in shares since 1978 and from the assessment year 1984­85 onwards he was doing certain consultancy and commission business and also derived agricultural income. The loan to purchase the car was taken in the assessment year 1984-85 and, therefore, the Tribunal was right in law in allowing the loss as business loss. No question of law arose.

B.B. Naik for Manish R. Bhatt for the Commissioner.

R.K. Patel for the Assessee.

2001 P T D 3425

[240 I T R 487]

[Gujarat High Court (India)]

Before R. Balia and A. R Dave, JJ

COMMISSIONER OF INCOME-TAX

Versus

KASHIRAM TEXTILES MILLS (PVT.) LTD.

Income-tax Reference No.206 of 1984, decided on 17th December, 1998.

Income-tax----

----Depreciation---Initial depreciation--- "Manufacture of textiles "---Assessee purchasing grey cloth,: colour, chemicals, etc., and subjecting cloth to bleaching, dyeing, printing, calendering, starching and then selling it as finished product like "printed Chhint"---Assessee is engaged in business of manufacture of textiles---Entitled to initial depreciation---Indian Income Tax Act, 1961, S.32(1)(vi).

Where the business activity of the assessee consisted of purchase of grey cloth, colour, chemicals, etc., and subjecting the grey cloth to bleaching, dyeing, printing, calendering, starching and then selling it as finished product like "printed Chhint", the activity of the assessee would amount to manufacture of textiles and the assessee would be entitled to claim deduction of initial depreciation under section 32(1)(vi) of the Income Tax Act, 1961.

Ujagar Prints v. Union of India (1989) 179 ITR 317 (SC) fol.

Manish R. Bhatt for the Commissioner.

B:D. Karia with R.K. Patel with K.C. Patel for the Assessee.

2001 P T D 3440

[240 I T R 291]

[Gujarat High Court (India)]

Before R. K. Abichandani and A.R. Dave, JJ

COMMISSIONER OF INCOME-TAX

Versus

SURESH AMICHAND SHAH (HUF)

Income-tax Applications Nos.81; 82 and 91 of 1996, decided on 15th December, 1997.

(a) Income-tax---

----Reference---Property---Owner---Flats transferred to vendees but registration not completed---Supreme Court decision that in such cases vendees were to be treated as owners for purposes -of S.22---Question regarding person chargeable on income from flats could not be referred--­Indian Income Tax Act, 1961, Ss.22 & 256.

The Supreme Court has held in CIT v. Podar Cement (P.) Ltd. (1997) 226 ITR 625, that though under the common law "owner" means a person who has got valid title legally conveyed to him after complying with the requirements of law such as the Transfer of Property Act, the Registration Act, etc., in the context of section 22 of the Income Tax Act, 1961, having regard to the ground realities and further having regard to the object of the Income-tax Act, namely to tax the income, "owner" is a person who is entitled to receive income from the property in his own right. The requirement of registration of the sale deed in the context of section 22 is not warranted:

Held, that in view of this decision, the question whether vendees who were in possession though registration was not executed, could be assessed under section 22 as owners of the flats, could not be referred.

CIT v. Podar Cement (P.) Ltd. (1997) 226 ITR 625 (SC) fol.

(b) Income-tax---

----Reference---Question decided by Supreme Court cannot be referred-- Indian Income Tax Act, 1961, 5.256.

Mihir Joshi for the Commissioner.

J.P. Shah for the Assessee.

2001 P T D 3644

[241 I T R 139]

[Gujarat High Court (India)]

Before R.K. Abichandani and Kundan Singh, JJ

COMMISSIONER OF INCOME-TAX

versus

PETRO-FILS COOPERATIVE LTD.

Income-tax Reference No.295 of 1983, decided on 16th April, 1998.

Income-tax---

----Income from other sources---Interest---Investment of borrowed funds prior to commencement of business---Interest earned is assessable as "income from other sources "---Indian Income Tax Act, 1961, S.56.

The assessee a cooperative society, was in the process of setting up business for manufacture of filament yarn. The production had not commenced but the borrowed funds were invested in short-term fixed deposits with banks. Such interest income alongwith other miscellaneous income from sale of newspapers and small recoveries from contractors were brought to tax under the head "Other sources". The Tribunal held that the receipts were not taxable as income. On a reference:

Held, that the interest income and other miscellaneous income was clearly of revenue nature and fell under the head "Income from other sources" within the meaning of section 56 of the Income Tax Act, 1961. Accordingly it was taxable.

Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT (1997) 227 ITR 172 (SC) fol.

Mihir Joshi with Manish R. Bhatt for the Commissioner.

2001 P T D 3821

[241 I T R 793]

[Haryana High Court (India)]

Before G. C. Garg and N. K. Agrawal, JJ

COMMISSIONER OF INCOME-TAX

Versus

NARINDER KUMAR

(Legal Heir of Roshan Lal deceased)

Income-tax Case 96.35 of 1984, decided on 27th January, 1999.

Income-tax---

----Reference---Assessment---Notice---Legal representatives---Notice not served on all legal representatives---Assessment whether invalid---Question of law---Indian Income Tax Act, 1961, Ss.256 & 292B.

Held, that the question whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the assessment was invalid and a nullity in the absence of service of notices on all the legal representative's of the deceased-assessee was a question of law.

R.P. Sawhney, Senior Advocate with Rajesh Bindal for the Commissioner.

2001 P T D 2732

[(1999) 1 W L R 1333]

[House of Lords]

Before Lord Hoffmann, Lord Mackay of Clashfern, Lord Clyde, Lord Hutton and Lord Hobhouse of Woodborough

McKNIGHT (INSPECTOR OF TAXES)

versus

SHEPPARD

Appeal from the Court of Appeal, decided on 17th June, 1999.

Income-tax---

----Expenses of trade or profession (Sched. .D)---Stock broker---Legal expenses incurred in defending disciplinary proceedings---Whether incurred wholly and exclusively for purposes of trade---Whether incurred also for purpose of preservation of personal reputation---Whether public policy preventing deduction---Income and Corporation Taxes Act, 1970 (C. 10), S.130(A).

The taxpayer, a stock broker, incurred legal expenses of some pounds 200,000 in 1986-87 in defending himself against proceedings on a number of charges before the disciplinary committee of the Stock Exchange and appearing before the appeals committee. The appeals committee set aside an order for suspension imposed by the disciplinary committee and substituted fines totalling pounds 50,000. The taxpayer sought to deduct the fines and the legal expenses in computing his profits under Case I of Schedule D. The Inspector disallowed the deductions as being excluded by section 130(a) of the Income and Corporation Taxes Act, 1970. The Special Commissioner allowed the taxpayer's appeal in respect of the legal expenses but not the fines. Lightman, J. allowed an appeal by the revenue irk' respect of the expenses and dismissed the taxpayer's appeal in respect of the tines. The Court of Appeal allowed the taxpayer's appeal in respect of the expenses.

On appeal by the Crown:

Held, dismissing the appeal, that the Special Commissioner had been entitled to conclude that, although the taxpayer in defending tie charges against him had not been unconcerned for his personal reputation, his purpose in incurring the legal expenses had been exclusively the preservation of his business and, accordingly, the expenses had been incurred Aholly and exclusively for the purposes of his trade; and that deduction of the expenses was not prohibited by considerations of policy.

Morgan v. Tate and Lyle Ltd. (1955) AC 21 (HL) (E) and Mallalieu v. Drummond (1983) 2 AC 861 (HL) (E.) applied.

Inland Revenue Commissioner v. Allexander Von Glenn Co. Ltd. (1920) 2 KB 553 (CA) considered.

(1997) S.T.C. 846 affirmed.

The following cases are referred to in the opinion of Lord Hoffmann:

Edwards v. Bairstow (1956) AC 14: (1955) 3 WLR 410; (1955) 3 All ER 48 (HL) (E); Herald and Weekly Times Ltd'. v, Federal Commissioner of Taxation (1932) 48 CLR 113; Inland Revenue Commissioner v. Alexander Von Glenn & Co.. Ltd'. (1920) 2 KB N53 (CA); Mallalieu v. Drummond (1983)2 AC 861; (1983) WLR 409 ; (lag3) 2 All ER 1095 (HL) (E); Morgan v. Tate and Lyle Ltd. (1955) AC 21; (1954) 3 WLR 85; (1954) 2 All ER. 413 (HL) (E); Smith's Potato Estates Ltd. v. Bolland (1948) AC 508; (1948) 2 All ER 367 (HL) (E.) ref.

The following additional cases were cited in argument:

Boarland v. Kramat Pulai Ltd. (1953) 1 WLR.1332; (1953) 2 All ER 1122; Commissioner of Inland Revenue v. Cosmotron Manufacturing Co. Ltd. (1997) 1 WLR 1288 (PC); Fairrie v. Hall (1947) 28 TC 200 Gallagher v.. Jones (1994) Ch 107; (1994) 2 WLR 160 (CA); Golder v. Grat Boulder Proprietary Gold Mines Ltd. (1952) 33 TC 75; Inland Revenue Commissioners v. Dowdall, O'Mahoney & Co. Ltd. (1952) AC 41)1 (1952) 1 All ER 531 (HL) (E.); Mackinlay v. Arthur Young McClelland Moores & Co. (1990) 2 AC 239; (1989) 3 WLR 1245; (1990) 1 All ER 45 (4L) (E.); Mayne Nickless Ltd. v. Federal Commissioner of Taxation (19841 84 ATC 4458; Morgan v. Tate & Lyle Ltd. (1953) Ch. 601; (1953) 1 WLR 145; (1953) ,2 All ER 162 (CA); Norman v. Golder (1944) 26 TC 293 (CA); Odeon Associated Theatres Ltd. v. Jones (1971) 1 WLR.442; (1971) 2 All ER 407; Putnin v. Federal Commissioner of Taxation (1991) 91 ATC 4097; Russell v. Town and County Bank Ltd. (1888) i3 AC 418 (HL) (SC); Spofforth v. Golder (1945) 26 TC 310; Strong & Co. of Romsey Ltd. v. Woodifield (1906) AC 448; 5 TC 215 (HL) (E.); Vodafone Cellular Ltd. v. Shaw (1997) STC 734 (CA) and Watney & Co. v. Musgrave (1880) 1 TC 272.

This was an appeal by the Crown by leave of the House of Lords (Lord Slynn of Hadley. Lord Nolan and Lord Hope of Craighead) given on 25th February, 1998 from the judgment of the Court of Appeal (Nourse, Potter and Mummery, L. JJ.) on 7th May, 1997 allowing an appeal by the taxpayer, Brian Stephen Sheppard, from Lightman J. The judge on 14th May, 1996 had allowed an appeal by the Crown and dismissed an appeal by the taxpayer from the decision in principle of a Special Commissioner. Mr. Theodore Wallace, who had allowed in part an appeal by the taxpayer from the refusal by Mr. David McKnight, H.M. Inspector of Taxes for the District of Manchester 1, to allow certain deductions from assessments to income-tax under Case I of Schedule D.

The facts are stated in the opinion of Lord Hoffmann.

Anthony Grabiner Q.C. and Timothy Brennan for the Crown.

David Goldberg Q.C. and Hugh McKay for the Taxpayer.

Solicitors: Solicitor of Inland Revenue: Davis Blank Furniss, Manchester.

2001 P T D (Trib.) 13

[Income-tax Appellate Tribunal Pakistan]

Before Syed Masood ul Hasan Shah, Judicial Member and Mansoor Ahmed, Accountant Member

W.T.A. No.27(IB) of 1999-2000, decided on 17th August, 1999.

Wealth Tax Act (XV of 1963)---

----Second Sched., c1.12(1), (2) & First Sched., Part I, para. A, sub­para. (2), proviso ---Exemption---Assessee claimed exemption of shop being self-occupied and statutory exemption of Rs.10,00,000---Statutory exemption of Rs.10,00,000 was rejected on the ground that exemption of Rs.10,00,000 and a shop at the same time was against the spirit of law as the law provides self-occupied shop + self-occupied house or Rs.10,00,000---Validity--­Exemption of Rs.10,00,000 was not allowable to an assessee exercising option under cl. (12) of Part I of the Second Sched. for his claiming exemption in respect of one house owned and occupied by the assessee for his own residence---Shop was not mentioned in proviso (b) of sub-para. (2) of para. A of Part I of the First Sche4. as to have also been excluded from the application of proviso (a) of sub-para. (2) of para. A of Part I of the First Sched. of the Wealth Tax Act, 1963---Shop had been listed at sub-cl. (2) of cl. (12) of Part I of the Second Sched. to which no proviso or exception had been attached as had been entered under sub-cl. (1) of cl. (12) of Part I of the Second Sched. of Wealth Tax Act, 1963---Assessee should have either opted for availing exclusion of one self-occupied house for basic exemption of Rs.10,00,000 and at the same time, he was also entitled to avail exemption of one shop occupied by him for the purpose of his own business or profession.

Muhammad Suleman, ACIT for Appellant.

Azhar Hussain Sheikh for Respondent.

Date of hearing: 28th July, 1999.

ORDER

SYED MASOOD UL HASAN SHAH (JUDICIAL MEMBER).--­This order will dispose of above wealth tax appeal filed by the department against the order, dated 30-4-1999 passed by the learned, A.A.C. Rawalpindi (hereinafter referred as the impugned order) relating to assessment under section 16(3) of the :Wealth Tax Act, 1963 (hereinafter called the Act) for the assessment year 1998-99.

1. Besides terming the order as bad in law and against the facts of the case, the department has objected to the same on the ground that the A.A.C. was not justified to allow the exemption of Rs.10,00,000 and a self-occupied shop at the same time which was against the spirit of law as the law provided "Self-occupied shop + Self-occupied House or Rs.10,00,000".

2. Hence the above appeal.

3. Briefly the facts are that the assessee an individual filed wealth tax return declaring wealth at Rs.8,27,500 which was revised to Rs.5,27,500. In response to notice, A.R. of the assessee attended the proceedings before the Assessing Officer. The assessee claimed exemption of shop being self­-occupied and also statutory exemption of Rs.10,00,000 at the same time which was not allowed by the Assessing Officer. While accepting the declared values of assets like that of 1 Kanal plot, Quarter, Capital, and Cash, the Assessing. Officer estimated the value of House at Choi West at Rs.3,00,000. Besides estimating the value of vehicle at Rs.1,00,000 and then he computed total value of assets at Rs.6,55,000.

4. Feeling aggrieved with the above treatment, the assessee went in appeal before the first appellate forum and the learned first appellate authority vide impugned order while accepting the appeal of the assessee directed the Assessing Officer to follow the provisions and allow the assessee one self-occupied shop + Rs.10,00,000 as provided in clause 12(1)(2) of Schedule II of Wealth Tax Act to the effect that one self-occupied shop + one self-occupied house/Rs.10,00,000 is exempt from the levy of wealth tax.

5. Feeling dissatisfied with the order of the learned first appellate forum, now the department have come to us contesting the same on the grounds enumerated above. .

6. We have heard Mr. Muhammad Suleman, ACIT/DR for the department and Mr. Azhar Hussain Sheikh, Advocate for the assessee.

7. The learned DR, while reiterating the grounds of appeal as. raised by the department, contended that the assessee has exempted for the assessment year under consideration in respect of self-occupied shop as well as basic exemption of Rs.10,00,000, and the order of the Assessing Officer for not allowing basic exemption of Rs.10,00,000 was correct because the assessee could not claim both exemptions at one and the same time.

8. On the other hand, the learned A.R. contended that the order of the learned first appellate forum was legally a right order and the assessee was entitled to the exemption of self-occupied shop as well as the basic exemption of Rs.10,00,000 as provided under the law. He then referred clause (12) of Part I of Second Schedule of the Act and contended that one residential house owned and occupied by the assessee has been excluded from the assets with regard to net wealth of an assessee as per sub-clause (1) of said clause (12) and one shop owned and occupied by the assessee for the purposes of his business has also been excluded as per sub-clause (2) of the said clause. He further contended that the proviso (a) given under sub-paragraph (2) of paragraph A of the First Schedule was not applicable to the assessee exercising option under sub-clause (1) of said clause (12) and further that the provisions of clause (12) relating to the exemption with regard to one shop owned and occupied by an assessee as per sub-clause (2) for the purpose of his own business and one residential House owned and occupied by the assessee as per sub-clause (1) of clause (12) were very clear and provisions of this clause apply to an assessee to whom provisions of sub-para. (2) of paragraph A of Part I of the First Schedule apply. He, while referring to Part I of First Schedule of the Act providing for rates of Wealth Tax, referred to its proviso (b) of sub-para. (2) of paragraph A, contended that the said provision clearly provided that "if any assessee avails of an option under clause (12) of Part I of the Second Schedule to have one house owned and occupied for the purpose of his own residence excluded from his assets, proviso (a) to this sub-paragraph shall not apply". In proviso (a) to sub­para. (2) of paragraph A of Part I of the First Schedule, it has been provided that "no tax shall be payable by an assessee on that portion of his net wealth to which this sub-paragraph applies and which does not exceed Rs.10,00,000." Then while referring to sub-clause (3) of clause (12) of Part I of the Second Schedule, the learned A.R. contended that clause (12) was applicable to an assessee to whom provisions of sub-para. (2) of paragraph A of Part I of the First Schedule would apply. By referring the above provisions of law, the learned A.R. tried to support the order of the learned first appellate forum as to have been rightly passed.

9. We have considered the respective contentions of the parties at length and have also gone through the relevant provisions of law as given in Part I of the First Schedule and Part I of the Second Schedule and specifically paragraph A (2)(a) and (b) of Part I of the First Schedule and clause (12) of Part I of the Second Schedule of the Wealth Tax Act, 1963.

10. It is obvious from proviso (a) of sub-para. (2) of paragraph A of Part I of the First Schedule that an assessee has been granted exemption to `the portion of his net wealth to the extent of Rs.10,00,000 and it was further obvious from proviso (b) of sub-para. (2) of paragraph A that the said basic exemption of Rs.10,00,000 was not allowable to an assessee exercising option under clause (12) of Part I of the Second Schedule for his claiming exemption in respect of one house owned and occupied by the assessee for his own residence as to be excluded from his assets. There is no mention of a shop owned and occupied by the assessee for the purpose of his business in the proviso (b) of sub-para. (2) of paragraph A of Part I of the First Schedule as to have also been excluded from the application of proviso (a) of sub­para. (2) of paragraph A of Part I of the First Schedule of the Act. Whereas, one shop owned and occupied by the assessee for the purpose of his own business has been listed at sub-clause (2) of clause (12) of Part I of the Second Schedule to which no proviso or exception has been attached as has been entered under sub-clause (1) -of clause (12). Moreover, it has been given in sub-clause (3) of clause (12) of Part I of the Second Schedule of the Act that this clause shall apply to an assessee to whom provisions of sub-para. (2) of paragraph A of Part I of the First Schedule apply.

11. From the above referred provisions of law, it clearly meant that an assessee is entitled to avail exclusion from his assets in respect of one house occupied by him for the purpose of his own residence while exercising option in lieu of exemption limit of Rs.10,00,000. He can, obviously either opt for availing exclusion of one self-occupied house for the purpose of his residence or basic exemption of Rs.10,00,000 from his assets or net wealth as the case may be. At the same, he, is also entitled to avail exclusion/exemption from his assets in respect of one shop occupied by him for the purpose of his own business or profession and this exclusion/exemption is not contingent upon any option as stated above and is not in lieu of exemption limit of Rs.10,00,000.

12. For the foregoing discussion, we agree with the resultant effect of the order of the learned first appellate forum but with our own observations as given above. Therefore, no exception can be taken to the conclusion as arrived at by the learned A.A.C. in the impugned order.

14. Consequently; the departmental appeal fails

C.M.A./M.A.K./48/Tax(Trib.)

Appeal dismissed.

2001 P T D (Trib.) 17

[Income-tax Appellate Tribunal Pakistan]

Before S. M. Sibtain, Accountant Member and S-Hasan Imam, Judicial Member

I. T. A'. No. 1931/KB of 1999-2000, decided on 5th August, 2000.

Income Tax Ordinance (XXXI of 1979)---

----S.12(18)---General Clauses Act (X of 1897), S.13(2)---Income deemed to accrue or arise in Pakistan---Addition ---Addition of.Rs.6,86,000 was made under S.12(18) of the Income Tax Ordinance, 1979 which was received by the assessee in cash as loan below each Rs.1,00,000 from several persons---Assessee contended that aggregate loan from several persons having exceeded Rs.1,00,000 did not attract the provision of S.12(18) of the Income Tax Ordinance, 1979 as words used in subsection (18) of S.12 were "any person" which meant a single person---Validity---Held, according to subsection (2) of S.13 of the General Clauses Act, 1897, in all Central Acts arid Regulations, unless there was anything repugnant in the subject or context, words in the singular shall include the plural and vice versa---Addition made to the assessee's income, therefore, was upheld by Tribunal.

Aminuddin Shaikh for Appellant:

Shaheen Aziz Niazi, D.R. for Respondent.

Date of hearing: 4th August, 2000.

ORDER

S. M. SIBTAIN (ACCOUNTANT MEMBER):---Objection is taken in this appeal at the instance of the assessee against the order of the learned CKT(A) for upholding the addition of Rs. 6,86,000 made by the learned DCIT under subsection (18) of section 12 of Income Tax Ordinance.

1. We have heard the learned representatives of the two parties. Briefly, the facts are that the appellant has declared as liability amounting to Rs. 6,86,000 and it has been explained that it is on account of loan obtained from the following persons at the time of purchase of a property to meet the shortage of fund.

| | | | --- | --- | | | Rs. | | 1.Ghulam Nabi son of Mataro Khan Rahu R/o Mehran Colony, Nawabshah. | 98,000 | | 2. Muhammad Siddique son of Ghulam Din Rahu R/o H. No.C-223, Moni Bazar, Nawabshah. | 98,000 | | 3. Ghulam Hyder son of Ghulam Nabi Rahu R/o Mehran Colony, Nawabshah. | 98,000 | | 4. Mevo Khan son of Nabi Bux, Nawabshah. | 98,000 | | 5. Ghulam Muhammad son of Nabi Bux, Nawabshah. | 98,000 | | 6. Muhammad Changai son of Nabi Bux, Nawabshah. | 98,000 | | 7. Dost Muhammad son of Noor Muhammad, Nawabshah. | 98,000 | | | 686,000 |

1. However, the learned Assessing Officer has alleged that the appellant has failed to provide. proper addresses of lenders and admittedly the amounts (supra) have been advanced in cash. The learned Assessing Officer therefore, has concluded that the appellant has failed to prove that loans below Rs.1,00,000 each have been obtained from 7 different persons and since the loans (supra) is admittedly received in cash, the learned DCIT had held that it attracts provisions of section 12(16) of the Income Tax Ordinance.

2. The learned CIT(A) has upheld the impugned decision of the learned DCIT with the following observations and finding:

"It would be seen that essentially the plea taken by the learned counsel is that the amount of cash loan Rs.6,86,000 is not from one person but from several persons and that. ir. no case does the individual loan exceeds Rs.1,00,000 and hence the provision of section 12(18) is not applicable. This in my view is not the correct interpretation of law. The minimum limit, of Rs.1,00,000 prescribed is in respect of total amount of loan obtained in cash whether it be from one person or several persons in a year and it is the aggregate of the sum which has to be looked into and in case the aggregate amount exceeds Rs.1,00,000 the amount attracts the provision of section 12(18) irrespective of the number of persons from whom such sum has been- received. Thus, the special Officer rightly made the addition under section 12(18) which is hereby confirmed. "

1. Subsection (18) of section 12 provides that where any sum, or aggregate of sums, claimed or shown to have been received from any person as loan by an assessee during any income year otherwise than by a cross cheque drawn on a bank exceed Rs.1,00,000, the said sum or aggregate of sums shall be deemed to be income of the assessee for the said income year chargeable to tax under the Income Tax Ordinance.

2. The learned Counsel for the appellant has submitted that the allegation of the learned DCIT regarding non-submission of addresses of lenders is incorrect because the copies of their N.I.Cs. have been submitted before him. However, it has not been substantiated with any documentary evidence.

3. Further it is submitted that the learned CI'T (A) is not justified in holding that even if the aggregate loans from several persons exceeds Rs.1,00,000 it attracts provisions of subsection (18) of section 12: According to the learned Counsel of the appellant the words used in subsection (18) are "any persons" which means a single person.

4. We regret were cannot subscribe to the view (supra) because according to subsection (2) of section 13 of the General Clauses Act, 1897, in all Central Acts and Regulations, unless there is anything repugnant in the subject or context, words in the singular shall include the plural and vice versa.

5. Accordingly, we find that there is no substance in the submissions (supra) either on facts or in law; hence impugned order confirmed and appeal dismissed.

C.M.A./M.A.K./47/Tax (Trib.) ??????????

Appeal dismissed.

2001 P T D (Trib.) 22

[Income-tax Appellate Tribunal Pakistan]

Before S. M. Sibtain, Accountant Member and S. Hasan Imam, Judicial Member

W.T.As. Nos. 102/KB of 1998-99 and 422/KB of 1999/2000, decided on 5th September, 2000.

Wealth Tax Rules, 1963---

----R. 8(3), proviso---SRO 360(1)/92, dated 14-5-1992---S.R.O. 534(1)/94, dated 9-6-1994---Property let to tenant ---Vacancy---Valuation--­Determination of---Value of property was declared on the basis of actual rent received excluding the vacant period---Value of property was assessed without prior approval of Inspecting Assistant Commissioner on the basis of Gross Annual Rental Value for 12 months for which the property might reasonably be expected to let from year to year---Validity---After insertion of proviso to the Explanation to sub-rule (3) of R.8 of the Wealth Tax Rules, 1963 in 1992, the Gross Annual Rental Value of the property shall not be estimated at a sum higher than the rent paid or payable by the tenant, without the prior approval of the Inspecting Additional Commissioner---Rent for the period when the property remained vacant shall not be taken into account for working out the Gross Annual Rental Value---Assessment was set aside with the directions to accept the declared value and assess the value of properties accordingly.

Salman Pasha, A.R. for Appellant.

Shaheen Aziz Niazi, D.R. for Respondent.

Date of hearing : 5th September, 2000.

2001 P T D (Trib.) 755

[Income-tax Appellate Tribunal Pakistan]

Before Khalid Waheed Ahmad, Judicial Member and Inam Ellahi Sheikh, Accountant Member

I.T.As. Nos.4605/LB and 4606/LB of 1999, decided on 28th October, 2000.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.50(4)(ii)---Deduction of tax at source---Expression "companies as payers" in S.50(4)(ii) of the Income Tax Ordinance, 1979---Connotation--­Companies defined as payers in S.50(4)(ii) of the Income Tax Ordinance, 1979 by itself means a "class ' of payers"---Analogy that the expression "companies as payers" appearing, in S.50(4)(ii) of the Ordinance has been used to mean a class of payers other than the companies considered as a class of payers was repelled.

(b) Income Tax Ordinance (XXXI of 1979)--

----S.8---Powers of Central Board of Revenue---Scope---Central Board of Revenue can only issue clarification and is not empowered to give any meanings to any provisions of the statute through its own interpretation.

(c) Interpretation of statutes---

----Fiscal statute---Construction---Fiscal statute must be construed in the light of what is clearly expresses.

(d) Income Tax Ordinance (XXXI of 1979)---

----S.52 [as amended by Finance Act (IV of 1999), S.50(4)---Deduction of tax at source---Liability of persons failing to deduct or pay tax--­Interpretation of S.52 of the Income Tax Ordinance, 1979 [as amended]--­Amendment of S.52 by Finance Act, 1999---Nature---Withholding agent--­Jurisdiction to initiate proceedings against withholding agent under S.52, Income Tax Ordinance, 1979---Scope.

Section 52 of the Income Tax Ordinance, 1979 is not only a deeming section but at the same time it is also a penal section because under the provisions of this section a person is made liable for payment of the amount which is not his own tax liability but the liability of another person in respect of whom he has been made a withholding agent without payment of any compensation or reward for the services which are to be rendered by him for collection and depositing of tax in this regard. However, irrespective of the nature of the section, the amendment is of a procedural nature. Through this amendment, the DCIT having jurisdiction under section 5 over the withholding agent has also been empowered to take action under section 52 of the Ordinance with regard to payments attracting the provisions of section 50(4) of the Ordinance. This amendment has retrospective effect in the sense that proceedings under section 52 of the Ordinance can be initiated by the amending officer against the withholding agent in respect of payments made by him during the period relating to an assessment year which commenced even before the inception of this amendment. However, the defect of such a fatal nature i.e. the order having been passed without a lawful authority by an Assessing Officer is not curable with such kind of amendment unless expressly made applicable in this regard, This amendment was brought in the Ordinance by addition of Explanation in the section 52 through the Finance Act, 1999 and it came into force w.e.f. 1-7-1999. In the present case perusal of the order of the DCIT, revealed that the order under section 52 of the Ordinance was passed on 19-4-1999 which means that of the time when the order was passed, he was not yet vested with the powers to assume jurisdiction under section 52 of the Ordinance in respect of the assessee. Thus, the change brought in the procedure is to be followed from the date of its inception though its applicability is not restricted only to the subsequent years of assessment being an amendment effective retrospectively. In the present case the DCIT and WT, assumed jurisdiction under section 52 of the Ordinance when he was not considered to have jurisdiction to initiate proceedings under the said section in respect of the assessee considered as a payer under section 50(4) of the Ordinance. Under the circumstances of the case, the orders passed by the DCIT' and WT are not maintainable having been passed without lawful jurisdiction in respect of the assessee.

1993 SCMR 338; 1993 SCMR 683; 1990 PTD, PTD 62; PLD 1991 SC 329; PLD 1961 SC 375; PLD 1963 1927 Lah. 635; 1993 SCMR 1232; C. Ps. Nos. " I.T.As. Nos.64 to 67/LB1/DB/1991-92; I. T. As. Nos. 79 to 82 of LB1/1991-92; 1997 PTD (Trib) 1771 and Messrs Tapal Energy Ltd. V. D.C.I.T. Writ Petition No. 1335 of 19978 ref.

Shahbaz Butt, Advocate/A.R, for Appellant.

Javaid Iqbal Rana, D.R. alongwith Shafqat Mehmood Chohan, L.A. for Respondent.

Date of hearing: 18th December, 1999.

2001 P T D (Trib.) 811

[Income-tax Appellate Tribunal Pakistan]

Before Khawaja Farooq Saeed, Judicial Member

I.T.A. No. 1620/LB of 2000, decided on 22nd November, 2000.

Income Tax Ordinance (XXXI of 1979)---

----S. 59---C.B.R. Circular No.4 of 1996, dated 1-7-1996---C.B.R. Circular No.16 of 1996, dated 3-9-1996---C.B.R. Letter C. No.7(27)/S.Asstt./96, dated 2-6-1996---Self assessment---"Broad-based Self-Assessment Scheme" for assessment year 1996-97---New taxpayer---Declared income under Self ­Assessment Scheme of the successor new taxpayer was excluded from the purview of Self-Assessment Scheme and assessment was finalised on the basis of estimate without pointing out any concealment ---Validity--­Paras. 7(a) & 7(b) of C.B.R. Circular No.4 of 1996 having been omitted through C.B.R. Circular No.16 of 1996, a new taxpayer had not only become entitled to acceptance under Self-Assessment Scheme but was not even a case of succession if the person taking over business was a new taxpayer---Concealment having not been found, exclusion of assessee from Self-Assessment Scheme was not justified in circumstance.

Syed Iftikhar Arshad, I.T.P. for Appellant.

Muhammad Asif, D.R. for Respondent.

Date of hearing: 22nd November, 2000.

2001 P T D (Trib.) 865

[Income-tax Appellate Tribunal Pakistan]

Before Khawaja Farooq Saeed, Judicial Member and M. Munir Qureshi, Accountant Member

I.T.A. No.2285/LB of 2000, decided on 16th November, 2000.

(a) Protection of Economic Reforms Act (XII of 1992)---

----S.6---Exemption---Applicability---Question whether the case was covered under S.6 of the Economic Reforms Act, 1992 was a question of fact, which required appreciation of the facts and circumstances of the case.

(b) Interpretation of statutes-

---- Preamble---Preamble could be used in aid of the interpretation but if the main provision was clear in its application, Preamble was not to be read in as a part of the same---Preamble was not a part of statute and while interpreting a provision of law nothing should be read in so as to enhance or decrease its jurisdiction.

(c) Interpretation of statutes---

---- Fiscal statute---Express provision of law to be read to reach its natural and original meanings---Nothing to be read in and no one to be left untaxed if the provision so desired.

(d) Protection of Economic Reforms Act (XII of 1992)---

----S.6---Income Tax Ordinance (XXXI of 1979), Second Sched., Part I, cl.(126-D)---Exemption---Words used "otherwise notified" in S.6 of the Protection of Economic Reforms Act, 1992---Connotation---Section 6 of the Economic Reforms Act, 1992 clearly and unambiguously provided that only those exemptions shall qualify for protection which formed part in its own Sched.---Words used "otherwise notified" as used in Protection of Economic Reforms Act, 1992 could not be expanded so as to include notification issued under the Income-tax, Sales Tax, Excise Duty or any other enactment--­When the Legislature itself had enacted a Schedule for the protection of economic reforms in the Economic Reforms Act, 1992 and had mentioned certain reforms therein, there was no bar in adding the provision of Cl. (126-D) of the Second Sched. of the Income Tax Ordinance, 1979 in the Sched. of the Economic Reforms Act, 1992---Words "otherwise notified" as mentioned in the Act were not to be read in isolation but with reference to he Protection of Economic Reforms Act, 1992 and would not extend the jurisdiction as notified in Sched. of some other fiscal law.

(e) Protection of Economic Reforms Act (XII of 1992)---

---S.6---Income Tax Ordinance (XXXI of 1979), -S.14---Exemption---Words "otherwise notified" used in S.6 of the Economic Reforms Act, 1992--­Interpretation---If the words "otherwise notified" are interpreted to include all subsequent exemptions provided under- S.14 of - the Income Tax Ordinance, 1979 then their mentioning in the Second Sched. of the Protection of Economic Reforms Act, 1992 was unnecessary---Schedule deals with the exemption mentioned therein independently and needs no support from some other enactment---Provision of one Act could not be applied on the proceedings of another unless so provided in unequivocal terms---Not safe to import the meanings of one word from another law--­Income-Tax Ordinance, 1979 is an independent law, and its jurisdiction could not be reduced or enlarged by application of some other law unless the Legislature so desired by specific mentioning.

(f) Income Tax Ordinance (XXXI of 1979)---

----S.80-D, Second Sched., Part I, cl. (126-D) & S.66-A---Protection of Economic Reforms Act (XII of 1992), S.6---Minimum tax on income of certain persons---Exemption---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order ---Assessee's income was exempt under cl.(126-D) of the Second Sched. of the Income Tax Ordinance, 1979---Minimum tax under S.80-D of the Income Tax Ordinance, 1979 was not charged by the Assessing Officer---Inspecting Additional Commissioner revised the order of the Assessing Officer being erroneous and prejudicial to the interest of Revenue and charged tax under S.80-D of the Income Tax Ordinance, 1979 on the ground that exemption from S.80-D was available only to the persons who were covered under the provisions of Part IV of the Second Sched. of the Income Tax Ordinance, 1979 and under S.6 of the Economic Reforms Act, 1992---Assessee contended that S.6 of the Protection of Economic Reforms Act, 1992 not only covered the already introduced measures but it also protected the incoming reforms as the words used in this section are "otherwise notified"-­Validity---If the Legislature had the intention to exclude cl.(126-D) from the charge of S.80-D, there was no reason for not specifically mentioning same in the Income Tax Ordinance, 1979 itself or in the Sched. of Protection of Economic Reforms Act, 1992, or the same could have been otherwise notified through unambiguous notification---Exemption started either prior to the Protection of Economic Reforms Act, 1992, or after, it could have so mentioned it in the Sched. of the Protection of Economic Reforms Act, 1992 or would have otherwise notified under the said Act---None of the exemptions otherwise provided in Second Sched. of the Income Tax Ordinance, 1979 be it earlier or subsequent to the Act, escaped the charge of S.80-D of the Income Tax Ordinance, 1979---Having escaped charge under S.80-D, the order of the Assessing Officer was "erroneous" and prejudicial to the interest of Revenue---Cancellation of Assessing Officer's order by the Inspecting Additional Commissioner was upheld by the Appellate Tribunal.

Messrs Ellahi Cotton Mills (Pvt.) Ltd.'s PLD 1997 SC 2 = 1997 PTD 1555; PLD 1969 Dacca 1; PLD 1969 Lah. 563; 1991 SCMR 657 and Writ Petition No. 11575 of 1998 ref.

Shahbaz Butt for Appellant.

Mrs. Talat Altaf, D.R. for Respondent.

Date of hearing: 22nd June, 2000.

2001 P T D (Trib.) 876

[Income-tax Appellate Tribunal Pakistan]

Before Khawaja Farooq Saeed, Judicial Member and M. Munir Qureshi, Accountant Member

I.T.A. No. 5383/LB of 1999, decided on 18th October, 2000.

(a)Words and Phrases---

------“Securities” Meanings---Term "securities" means and includes such document which company issued in recognition of one's share in business company which entitled the securities holders to share the profits to the grant of holding and included such documents which were issued in acknowledgment of a debt owned by a company.

(b) Words and phrases---

---- Term "Finance Certificate"---Explanation---Term "Finance Certificate" issued by a Finance Company with the guarantee to give a fixed expected profit did not vest in any right to share the business or right to participate in earning other than the expected guaranteed profit---Certificate was an acknowledgment of deposit of an amount, a redeemable capital but the holder in no way obtained right to participate in the earning and/or distribution of the profits of a Leasing Finance Company.

(c) Income Tax Ordinance (XXXI of 1979)---

----Ss.50(2) & 50(7-D)---Deduction of tax at source---Interest---Section 50(2) was applicable on "interest" on securities while S.50(7-D) created a charge on "profit or interest" from bonds, certificates and securities.

(d) Interpretation of statutes---

---- Fiscal statute---Purposive approach---While interpreting a fiscal statute the intendments are not to be ignored---When a statute is enacted with some background the principle of interpretation is that the Courts should suppress the mischief and advance the remedy---Courts are required to adopt a purposive approach to interpret the statute and statute as a whole has to be considered to ascertain the true purpose of law.

(e) Words and phrases---

----Securities---Term "Finance Certificate"---Generally, bonds, shares, convertible debentures, stocks, warrants are considered as securities but the certificates issued in recognition and acknowledgement of some deposit which do not give the right to tire bearer to act as a shareholder are not considered as securities.

(f) Income Tax Ordinance (XXXI of 1979)---

----Ss.52, 50(7-D) & 50(2)---S.R.O. No.703(I)/97, dated 13-9-1997--­S.R.O. No.171(1)/98, dated 17-3-1998---Assessee in default---Term "Finance Certificate"---Profit---Deduction of tax at source---Rate of tax--­Assessee deducted tax on profit of term "Finance Certificate" @10% under S.50(7-D) of the Income Tax Ordinance, 1979---Department treated term "Finance Certificate" as securities covered under S.50(2) of the Income Tax Ordinance, 1979 and taxed @30 % for the purpose of S.52 of the Income Tax Ordinance, 1979 while holding the assessee as "assessee in default"--­Validity---Term "Finance Certificates" were not securities in terms of S.50(2) of the Income Tax Ordinance, 1979, even if it was covered within the definition of “securities” it was a “fixed income security” rated by credit rating company registered under Credit Rating Companies Rules, 1995, under the Securities and Exchange Ordinance, 1979---Such securities have been exempted by cl. (10-B) of the Second Sched.---Term "Finance Certificate" was subject to withholding tax under S.50(7-D) and not under S.50(2) of the Income Tax Ordinance, 1979---Order under S.52 declaring the assessee as assessee in default was declared to be unjustified and cancelled by the Appellate Tribunal.

Messrs State Cement Corporation of Pakistan v. Collector of Customs, Karachi 1998 PTD 2999; State v. Allen 216 NC 621, 5 S.E. 2nd 844, 845, 487 and Oklahma - Texas Trust v. Securities and Exchange Commissioner, C.C.A. 10,000 P.2d 888, 890 ref.

Iqbal Khawaja for Appellant.

Mian Manawar Ghafoor, D.R. for Respondent.

Date of hearing: 25th March, 2000.

2001 P T D (Trib.) 884

[Income-tax Appellate Tribunal Pakistan]

Before Syed Kabirul Hasan, Judicial Member and Muhammad Mahboob Alam, Accountant Member

I.T.As. Nos.2086/KB to 2088/KB of 1999-2000, decided on 4th December, 2000.

(a) Income-tax---

----Best judgment assessment---Concept---Best judgment assessment is that judgment which is according to one's own judgment meaning thereby that there is an element of guesswork but that guesswork should be honest, legally permissible but not arbitrary or capricious---Guess should not be a wild guess but legally explainable as compared to history of the assessee.

(b) Income tax----

----Assessment---Assessment order speaking of penalty---No assessment---If assessment speaks of penalty, then it would not be an assessment at all---Ex parte order or best judgment assessment order should not be a penalty order in its form.

(c) Income Tax Ordinance (XXXI of 1979)--

----Ss.63 & 12(18)---Best judgment assessment---Addition---Assessing Officer made addition under S.12(18) of the Income Tax Ordinance, 1979 while proceeding ex parte under S.63 of the Income Tax Ordinance, 1979--­Assessee contended that assessment framed was not a best judgment assessment as same was arbitrary and capricious and should have been legal and reasonable---Validity---Facts available from assessment orders and the appellate orders made it clear that the Assessing Officer was not in a position to make honest guesswork or there was no nexus between the income determined and the facts available with the Assessing Officer nor the same related to the history of the assessee---Assessment was set aside by the Appellate Tribunal in circumstances with the observation that for non ­compliance of-any notice issued under the Income Tax Ordinance, 1979, the assessee might be penalized in accordance with law but the assessment should not be a penal assessment.

(1963) 7 Tax 1 (Dacca H.C.) and (1966) 60 ITR 239 (SC) rel.

Rehan Hassan Naqvi for Appellant.

Jawed Iqbal Rana, D.R. for Respondent.

Date of hearing: 25th November, 2000.

2001 P T D (Trib.) 888

[Income-tax Appellate Tribunal Pakistan]

Before Jameel Ahmed Bhutto, Accountant Member and Syed Masood-ul-Hassan

Shah, Judicial Member

I.T.As. Nos.530/IB to 533/IB of 1999-2000, decided on 27th November, 2000.

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss.2(16)(c), 2(30) & 2(40)(c)---Company---Non-resident or resident--­Determination of status ---Company/assessee was registered in U.S.A.--­Branch Office in Pakistan claimed "resident status" being permanent establishment which was rejected by the Assessing Officer---First Appellate Authority found that company was resident with no head office expenses and was qualified for status of company as defined under S.2(16) of the Income Tax Ordinance, 1979---Validity---Pernussion letter showed that branch office was not a resident company the control and management of affairs of which were not in Pakistan---Expenses of branch office were met by transfer of funds from abroad through normal banking channels---Balance-sheet and P&L Account also showed that it was the head office of the foreign company which financed the branch office---Nothing was on record which suggested that branch office itself was a resident company but it was a body corporate incorporated in U.S.A. and fell within the definition of a company under S.2(16)(c). of the Income Tax Ordinance, 1979 but could not be treated as resident under S.2(40)(c) of the Income Tax Ordinance, 1979 in circumstance.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.12(5)(a)---Income deemed to accrue or arise in Pakistan---Fee for technical services---Fiction of place---Fees paid to non-resident were deemed to accrue or arise in Pakistan under S.12(5)(a) of the Income Tax Ordinance, 1979 if technical services were utilised in a business or profession carried on in Pakistan or for purposes of earning any income from any source in Pakistan---Effect of S.12(5)(a) of the Ordinance was to create fiction of place i.e. declaring an income of a non-resident from a source in Pakistan as income arising in Pakistan.

(c) Income Tax Ordinance (XXXI of 1979)--

----Ss.80-AA, 12(5)(7), 30(2)(b), 22 & 62---C.B.R. Circular No.2(3)IT/2, dated 20-11-1982---Convention between Government of -Pakistan and Government of U.S.A. for Avoidance of Double Taxation, Arts. II(1), III(1) & III(3)---Tax on income of non-resident from fees for technical services--­Assessee/company was registered in U.S.A. maintaining a branch office in Pakistan---Income of assessee was from consultancy services---Assessment was made under S.80-AA of the Income Tax Ordinance, 1979 which was set aside by the First Appellate Authority with the remarks that income had to be assessed under S.22 of the Income Tax Ordinance, 1979 on account of industrial and commercial profits in accordance with the Convention instead of under S.80-AA of the Income Tax Ordinance, 1979. on the pleas of the assessee to the effect that fee for technical services fell under industrial and commercial profits as defined in Art. II(1) of the Convention--Validity--­Section 30(2)(b) of the Income Tax Ordinance, 1979 treats the fees for technical services as income chargeable under the head "Income from other sources" and not as income chargeable under the head "income from business or profession" under S.22 of the Income Tax Ordinance, 1979---Fees for technical services were chargeable at the flat rate of tax under S.80-AA of the Income Tax Ordinance, 1979---For the purposes of S.12(5) read with S.30(2) & S.80-AA of the Income Tax Ordinance, 1979, income of assessee by way of fees for technical services Was taxable at flat rate in Pakistan and not under S.22 of the Income Tax Ordinance, 1979 as income from business or profession.

Black's Law Dictionary and 2000 PTD (Trib.) 1396 ref.

(d) Convention between the Government of Pakistan and Government of U.S.A. for Avoidance of Double Taxation----

----Arts. III(1) & III(3)---Income Tax Ordinance (XXXI of 1979), Ss.12(5)(a), 30(2) & 80-AA:--Fee for technical services---Overriding provisions---Convention did not lay down any rule in respect of fees for technical services, and therefore, the provisions of the Convention could not override the provisions of S.12(5)(a) read with Ss.30(2) & 80-AA of the Income Tax Ordinance, 1979.

(e) Convention between the Government of Pakistan and Government of U.S.A. for Avoidance of Double Taxation---

---- Arts. III(1) & III(3)---Fee for technical services---Industrial or commercial profit---Heads of income---Determination of---Term "industrial or commercial profits" given in the Convention could not be interpreted as fees for technical services which was distinguishable and different from industrial or commercial profits---Industrial or commercial profits had to be taken only in the context of trade or business of an assessee and not in relation to any other source of income.

2000 PTD (Trib.) 1396 rel.

Abdul.Jalil, D.R. for Appellant.

Aamir Ahmed, I.T.P. for Respondent.

Date of hearing: 22nd November, 2000.

2001 P T D (Trib.) 895

[Income-tax Appellate Tribunal Pakistan]

Before Inam Ellahi Sheikh, Chairman

I.T.A. No.635/IB of 1998-99, decided on 12th December, 2000.

Income Tax Ordinance (XXXI of 1979)----

----Ss.59(1)(4), 59-A & 63---Self-assessment---Assessment year 1995-96--­Assessment on the basis of return---Two assessments for the year 1994-95 were made, one under normal law as on 30-4-1995 which was set aside on 19-5-1996 and the second on the basis of revised return under S.59(A) of the Income Tax Ordinance, 1979 as on 20-3-1997---Return for the assessment year 1995-96 was filed under Self-Assessment Scheme on the basis of revised return which was processed under normal law being not qualified under Self-­Assessment Scheme on the ground that order passed under normal law for the assessment year. 1994-95 was in field when the return for the assessment year 1995-96 was filed ---Assessee contended that revised return could be deemed to have been accepted as on 30-6-1995 and return for the assessment year 1995-96 based on such revised return had to be accepted under Self­-Assessment Scheme---First Appellate Authority accepted the pleas of assessee and directed the Assessing Officer to accept the return under Self-Assessment Scheme---Validity---Order recorded under S.59-A of the Income Tax Ordinance, 1979 as on 20-3-1997 could not be considered to bane vested a right on the assessee on 30-9-1995 i.e. before the order itself seas passed--­Self-Assessment Scheme was a privilege/concession allowed to the assessee which could only be availed within the framework of Self-Assessment Scheme---Revised return filed before the order under S.62 of the Income Tax Ordinance, 1979 would not help in the claim of Self-Assessment Scheme in the assessment year 1995-96---Order under S.62 was in the field when the return was filed which was set aside on 19-5-1996---Assessee having failed to establish his claim for acceptance under Self-Assessment Scheme order of the First Appellate Authority was vacated and the matter was remanded back by the Appellate Tribunal for adjudication on any other grounds in appeal that may have been taken before him.

1993 PTD 332 ref.

Shoaib Bilal v. C.I.T., Faisalabad S.A.S. for Assessment Year (1987-88) distinguished.

Manzoor Ahmed, D.C.I.T./D.R. for Appellant.

Ghulam Sarwar for Respondent.

Date of hearing: 12th December, 2000.

2001 P T D (Trib.) 994

[Income-tax Appellate Tribunal Pakistan]

Before Inam Ellahi Sheikh, Chairman and Muhammad Tauqir Afzal Malik, Judicial Member

I.T.As. Nos. 970/LB, 971/LB, 943/LB and 944/LB of 2000, decided on 18th November, 2000.

(a) Income-tax---

----Trading account ---Assessee, manufacturer of ghee and cooking oil etc.--­Foreign exchange losses and leakage of material at customer's store--­Treatment---Principles---Charge of foreign exchange losses and leakage of goods at customer's store in trading account was against the basic principles of accounting.

(b) Income-tax---

----Sale---Considerable improvement in sale as declared in the previous years ---Assessee showed considerable improvement in the declared sales than the last two years---Assessing Officer estimated the sales---Validity--­Appellate Tribunal directed the Assessing Officer to accept the declared sale in circumstance.

(c) Income-tax---

----Trading account---Defective accounts----Different sale rate for different parties---Admissibility---Reduced sale rate for one party as compared to the other parties---Rejection of account was- upheld by the Tribunal.

(d) Income-tax---

----Loss---Closure of business on account of loss---Declaration of sale for six months only---Addition---Addition was made by making comparison with the previous years---Validity---Assessing Officer was directed by the Tribunal to accept the declared sale in circumstances.

(e) Income-tax---

----Gross profit rate ---Assessee, a manufacturer of ghee, cooking oil and soap---Declaration of loss by the assessee---Assessing Officer applied 4% gross profit rate against the 5.81% and 3.82% declared rate for the previous years---Contention of the assessee was that there was a decline of G.P. rate from 6.85% to 2.62% in the parallel cases and if a similar adjustment was made to the declared results, it would result in a deficit---Validity--­Contention of the assessee being illogical was repelled by the Tribunal by making no interference in the G.P. rate in circumstances.

(f) Income-tax---

--Scrap/packing material---Declaration of sale of scrap/packing material--­Addition by Assessing Officer---Validity---Appellate Tribunal declined interference with addition made by the Assessing Officer which was tinkering against the declared sale of scrap/packing material.

Muhammad Iqbal Hashmi for Appellant (in I.T.As. Nos. 970/LB and 971/LB of 2000).

Sajjad Ali, D.R. for Respondent (in I.T.As. Nos. 970/LB and 971/LB of 2000).

Sajjad Ali, D.R. for Appellant (in I.T.As. Nos. 943/LB and 944/LB of 2000).

Muhammad Iqbal Hashmi for Respondent (in I.T.As. Nos. 943/LB and 944/LB of 2000).

Date of hearing: 10th November, 2000.

2001 P T D (Trib.) 1017

[Income-tax Appellate Tribunal Pakistan]

Before Jameel Ahmed Bhutto, Accountant Member and Syed Masood ul Hassan Shah, Judicial Member

I.T.As. Nos. 693/IB and 694/113 of 1999-2000, decided on 20th November, 2000.

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss. 156, 35 & 30---Rectification of mistake---Carry-forward of business loss---Income from other sources---Interest income---Business income--­Business loss---Carried forward---Set off against interest income--­Rectification of---On pointing out by the Audit Authorities that assessee was not entitled to set off interest income against brought forward business losses, Assessing Officer rectified his order under S.156 of the Income Tax Ordinance, 1979 and interest income was charged to tax under the head "income from other sources" under S.30 of the Income Tax Ordinance, 1979 on the ground that as per S.35 of the Income 'Tax Ordinance, 1979 while setting off carried forward losses the source of business income should be the same---Assessee contended that interest income was adjustable against brought forward losses and any debatable point of law could not be rectified under S.1.56 of the Income Tax Ordinance, 1979---First Appellate Authority found that rectification was carried out on the basis of observation made by the Audit Authorities and not by independent application of mind and that such order under S.156 of the Income Tax Ordinance, 1979 was not maintainable as the same represented the change of opinion and that the two activities of the assessee could not be separated and the decisive test was unity or control and not the nature of the two lines of business---Order under S.156 of the Income Tax Ordinance, 1979 by the Assessing Officer was cancelled by the First Appellate Authority---Validity---Plain reading of S.35 of the Income Tax Ordinance, 1979 would show that, carry forward of business losses was to be set off and restricted only against the profits and gains of the same business or profession and not against any other head of income specified in S.15 of the Income Tax Ordinance, 1979---Interest income of the assessee „was declared as income from other sources and charged to tax in the preceding years as a separate head under S.30 of the Income Tax Ordinance, 1979 was immaterial; that mistake apparent from record was observed by the Audit Authorities---Assessing Officer himself applied his mind to such apparent mistake from record and independently passed the order under S.156 of the Income Tax Ordinance, 1979---No exception could be taken to the pointation of such mistake by the Audit Authorities and subsequent proceedings for rectification were taken by the Assessing Officer because the mistake was very much apparent on the face of record and no debatable point of law or controversial fact was involved---No interconnection, interlacing, interdependence and unity was found to be embracing any two businesses---Appellate Tribunal vacated the order of the First Appellate Authority and restored the order of the Assessing Officer made under S.156 of the Income Tax Ordinance, 1979.

Snam Progetti S.P.A. v. Additional Commissioner of Income-tax, New Delhi and others (1981) 132 ITR 70; CIT v. Eastern Bank Limited PLD 1982 Kar. 680; Produce Exchange Corporation v. CIT (1971) 24 Tax 1 (SC India); C.I.T., Dacca v. Amin Jute Company (1969) 19 Tax 103; 1976 PTD 109 and 1988 PTD 147 distinguished.

2000 PTD 363; 1999 PTD (Trib.) 708 and I.T.A. No. 455 (IB) of 1997-98 ref.

(b) Income Tax Ordinance (XXXI of 1979)--

----S.156---Rectification of mistakes---Essential conditions. The essential conditions for exercise of power under section 156 of the Ordinance is that the mistake should be apparent on the face of record; mistake which may be seen floating on the surface and does not require investigation or further evidence and that the mistake should be so obvious that on mere reading the order it may immediately strike on the face of it. Any mistake which is patent and obvious on record can be termed as x mistake apparent from record and corrected by exercising power under section 156 of the Ordinance.

Abdul Jalil, D.C.I.T./D.R. for Appellant.

Zahid Hussain, A.C.M.A. for Respondent.

Date of hearing: 14th November, 2000.

2001 P T D (Trib.) 1040

[Income-tax Appellate Tribunal Pakistan]

Before Karamat Hussain Niazi, Judicial Member and Mahmood Ahmed Malik, Accountant Member

I.T.A. No. 809(IB) of 1997-98, decided on 16th October, 2000.

(a) Income-tax--

----Appeal---Limitation---Delay in filing appeal---Condonation of delay--­Sufficient cause---Determination---Principles---Plea of "rush of work" for condonation of delay by no stretch of imagination was a "sufficient cause".

Chamber's Dictionary; Oxford Dictionary; Black's Law Dictionary; 1990 CLC 206 and PLD 1984 SC (AJ&K) 51 ref.

(b) Words and phrases--

----"Sufficient cause"---Meaning.

Chamber's Dictionary; Oxford Dictionary; Black's Law Dictionary; 1990 CLC 206 and PLD 1984 SC (AJ&K) 51 ref.

Abdul Shakoor, D.R. for Appellant.

Nemo for Respondent.

Date of hearing: 26th September, 2000.

2001 P T D (Trib.) 1043

[Income-tax Appellate Tribunal Pakistan]

Before Karamat Hussain Niazi, Judicial Member and Mahmood Ahmed Malik, Accountant Member

I.T.A. No. 3(IB) of 1997-98, decided on 18th October, 2000

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss. 59-A(2) & 59(3)---C.B.R. Circular No. 18 of 1980, dated 28th July, 1980----Addition---Powers of Assessing Officer to make addition---Scope--­Assessing Officer was not empowered to make an addition of undisclosed income to the income of the assessee while making the order under S.59-A of the Income Tax Ordinance, 1979, as such an addition was not an "adjustment" allowable under said S.59-A---Principles---Expression "adjustment" ---Connotation.

The provisions of subsection (3) of section 59 read with subsection (2) of section 59A, Income Tax Ordinance, 1979 does not empower the Assessing Officer to make an addition of undisclosed income to the income of the assessee while making the order under section 59A as this addition is not an adjustment allowable under the aforementioned provision of law. In the present case it was found upon an information, by the Assessing Officer that the rent of the self-occupied house equal to the rental ceiling of the assessee was not declared in the return and this amount was added to the total income of the assessee while making the assessment under the provisions of section 59A. Such addition could not be made while determining the total income by an order under section 59A of the Ordinance. If the Assessing Officer was of the opinion that the taxable income has not been declared by the assessee, then the proper course open for the Assessing Officer was to initiate proceedings under the normal law and after confronting the assessee on this issue was justified to make the assessment under section 62 of the Ordinance. The Assessing Officer having not adopted the proper procedure and made the assessment in violation of the express provision of law as contained in section 59A, the addition made was not sustainable.

Adjustment is a word in common use. It is commonly applied to the settlement among various parties of their several shares in respect of claims, liabilities or payments relating to a Central Average Claim. That is not its only application; it is word which is applied to other matters in the same manner in which it is commonly applied in marine insurance. When there are matters which require re-arranging regulating or equalizing so as to restore the true balance, the process of so re-arranging setting right, regulating o: equalizing may be described as 'adjusting'.

"Adjustment" means re-arranging, regulating of equalizing so as u restore the true balance. The Income Tax Officer, therefore, would be within his rights to make necessary adjustment even if the assessee refuses or fails to accord his consent to the proposed add-backs, provided it is reasonable and the assessee had been given an opportunity of offering his explanation and that too through correspondence to the proposed add-backs.

Stroud's Judicial Dictionary, 4th Edn., p.66; 1986 PTD (Trib.) 380 and 1985 PTD (Trib.) 247 ref.

(b) Words and phrases---

----"Adjustment"---Meaning.

1986 PTD (Trib.) 380 and 1985 PTD (Trib.) 247 ref.

Raza Munawar, D.R. for the Department.

Mansoor-ul-Haq, I.T.P. for the Assessee.

Date of hearing: 18th October, 2000.

2001 P T D (Trib.) 1047

[Income-tax Appellate Tribunal Pakistan]

Before Syed Kabirul Hasan, Judicial Member and Shahid Jamal, Accountant Member

I.T.A. No. 2697/KB of 1993-94, decided on 31st October, 2000

Income-tax---

----Casual income---Word "casual"---Connotation---Assessee was Director­-employee of a company and certain amount of loan advanced to him during his service with the company was waived by the employer company at the time of retirement of the assessee---Amount received on account of waiver of loan was a casual income of the-assessee and taxable---Principles.

The assessee was a Director-employee of a company. A loan was, advanced to the assessee out of which a balance of Rs. 9,11,658 was left at the time of retirement. The employer at the time of retirement waived the remaining balance of loan amounting to Rs. 9,11,658. This loan amount was shown as exempt on the plea that the same was a capital receipt. The Assessing Officer did not accept the plea of capital receipt but treated the same as revenue receipts and taxed as voluntary receipts or gift or ex gratia.

No doubt, the waiver of loan is not explained in any previsions but in the characteristic of the transaction, it is defined that it is a receipt and since all receipts by the assessee would necessarily be deemed to be income of the assessee for the purpose of income-tax and the question whether any particular receipt is income or not depends on the nature of the receipts and the true scope and effect of the relevant tax provisions. If the assessee takes a stand that certain receipt is not income, then the onus is on the assessee. In the present case it is clear that this type of receipts are not recurring receipts because it may be granted in a lifetime. These receipts can be characterised as windfall receipts because unexpectedness of the advantage pertaining to the factum of the receipts and not to the quantum of receipts. Windfall receipt is some unexpected receipt and not in the contemplation of the assessee and not directly attributable or occurring by way of its using profits. In the present case, these receipts are not related to the business of the assessee as the assessee is not doing any business but was a Director of the company who is doing the business. This fact is defined that this income was not expected neither by the assessee nor by the employer of the assessee.

The income is normally defined "that a gain or recurring benefit (as measured in money) which proceeds from labour, business or property; commencing revenue or receipts of any kind, including wages or salaries, the proceeds of agricultural or commercial, the rent of houses or return on investments".

The income may be casual or non-recurrent, the word "casual" implies chance, accident, uncertainty. The fact that a receipt is only occasional in its existence would not itself make out casual in nature. If it arises in respect of the amount for which the payment is normally made, the presumption is that it is not of a casual nature. The better example would be that of case of reward paid to the Government employees. Previously, clause 48 was inserted in the Schedule to the Income Tax Ordinance, 1979 whereby the Government employees specially of Customs were awarded a certain prize on their meritorious duties, but this clause was omitted in the assessment year 1996-97. Likewise, there was clause 65 were by the casual income of any nature was exempted from the tax under the Ordinance. Later on, an amendment was made in this clause from the assessment year 1990-91 and it was inserted that any income of more than Rs. 25,000 will be taxable. It can safely be assessed that every receipt generally may be income unless is expressly exempt.

Income received by the assessee can either be a casual income or windfall receipts. The causal income is an income which is not recurring income whereas windfall income has been defined as a casual or unexpected acquisition or advantage.

The amount received on account of waiver of loan was a casual income of the assessee. Since it is taxable under the law, therefore, the said income of the assessee was taxable.

1985 PTD 500 and 106 ITR 758 ref.

Irfan Saadat for Appellant.

Jawed Iqbal Rana, D.R. for Respondent

Date of hearing: 27th October, 2000.

2001 P T D (Trib.) 1052

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Mujibullah Siddiqui, Chairman, Khawaja Farooq Saeed, Judicial Member and Mahmood Ahmed Malik, Accountant Member

I.T.As. Nos. 897/LB of 1998 and. 2893/LB of 1997, decided on 30th November, 1999.

(a) Finance Act (XII of 1991)---

----S.12---Corporate Assets Tax---Levy---Validity---Fixed assets ---Meaning-­"Work in progress" being fully covered by the term "fixed assets" as used in S:I2(12)(d), Finance Act, 1991 was chargeable to capital assets, tax under S.12(1) read with S.12(12)(d) of the said Act.

PLD 1986 Quetta 148; 1986 PCr.LJ 2917; AIR 1946 Cal. 217 = 225 Ind. Cas. 130; 1996 PTD (Trib.) 286; 1999 PTD 4028; Black's Law Dictionary, 5th Edn.; Dictionary of Accounting Terms, p.174; Dictionary of Accounting and Finance, p.101 and Derek French, 1985 Edn. ref.

(b) Words and phrases-

------ Fixed assets"---Meanings.

Black's Law Dictionary, 5th Edn.; Dictionary of Accounting Terms, p.174; Dictionary of Accounting and Finance, p.101. and Derek French, 1985 Edn. ref.

Shafqat Mahmood Choban and Shahid Bashir, D.R. for Appellant.

Ahmad Mushir Ali Qadri, F.C.A. for Respondent.

Date of hearing: 2nd September, 1999.

2001 P T D (Trib.) 1243

[Income-tax Appellate Tribunal Pakistan]

Before Syed Masood ul Hassan Shah, Judicial Member, and Jameel Ahmed Bhutto, Accountant Member

I. T. As. Nos. 110/IB, 111/IB. of 1997-98, 1143/IB, 523/113 and 1356/113 of 1999-2000, decided on 3rd October, 2000.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.2(16)(bb) (32) & First Sched., Part I, para. (A)---Company ---Trust--­Army Welfare Trust---Status---Army Welfare Trust was, previously carrying name of Army Welfare Projects Fund which was registered under the Societies Registration Act, 1860 and later on the name was changed as Army Welfare Trust and the new nomenclature stood entered with the Registrar, Joint Stock Companies---Nomenclature given that of a Trust was just a name adopted by the assessee which could not be included in the definition of "company" as defined in S.2(16)(bb) of the Income Tax Ordinance, 1979, and could be termed as having status of an association of persons to be taxed in accordance with the rate of income-tax given in para. (A) of Part I of the First Sched. to the Income Tax Ordinance, 1979.

1998 PTD (Trib.) 2017 rel.

(b) Income Tax Ordinance (XXXI of 1979)--­

----Second Sched., Part I, Cl.(62)---Income of welfare trust for ex­ servicemen--Exemption---Income/profits/gains of the Army Welfare Trust actually spent on designed welfare activities would attract exemption provisions under CL (62) of Part I of the Second Sched. to the Income Tax Ordinance, 1979.

(c) Income-tax---

----Diversion of income at source through overriding title---Concept---Not recognized in Pakistan.

C.I.T. v. Shoorji Valle Bhdas (1962) 46 ITR 114 (SC); L. Hans Raj Gupta v. C.I.T. (1969) 73 ITR 765 (Delhi); (1933) 1 ITR 135 (PC); (1996) 73 Tax 197 (H.C. India); (1970) 76 ITR 194 (All.); (1974) 93 ITR 27 (All.); (1979) 116 ITR 56 (Guj.) (1976) 102 ITR 557 (All.); (1977) 107 ITR 776 (SC Ind.); (1995) 211 ITR 393 (Guj.) (1995) 216 ITR .291 (Bom.); Black's Law Dictionary; (1960) 39 ITR 706; (1962) 46 ITR 144 (SC India); (1981) 131 ITR 497; (1990) 61 Tax 149 (Kar.); C.I.T., Bombay City v. Sitaldas Tirathdas (1961) 41 ITR 367; (1996) 219 ITR 330; Messrs Elahi Cotton Mills' case PLD 1977 SC 532; (1972) 84 ITR 466; AIR 1946 Bom. (HC) 516; (1976) 105 ITR 320 (All.) and PLD 1990 SC 612 ref.

----Welfare trust---Income---Diversion of income---Income derived by the project of Welfare Trust would not qualify the definition of "diversion of income".

(e) Income Tax Ordinance (XXXI of 1979)---

----Second Sched., Part I, Cl. (62)---Societies Registration Act (XXI of 1860)---Exemption---Income of welfare society registered under Societies Registration Act, 1860 would be exempt to the extent as allowed in cl.(62) of Part I of the Second Sched. of the Income Tax Ordinance, 1979.

(f) Income Tax Ordinance (XXXI of 1979)---

----Second Sched., Part I, Cl. (62r --C.B.R. Circular No. 11 of 1993, dated 7-7-1993---Word "expended" used in Cl. (62) of Part I of the Second Sched. of the Income Tax Ordinance, 1979---Interpretation---Term "expended" could be regarded as having been actually spent for the purpose of carrying out designated welfare activities and onus of proof would lie on the assessee to prove the same---On submission of proof, the same would be exempt to .such extent and the remaining income would be subject to tax.

1998 PTD (Trib.) 2017 rel.

(g) Income Tax Ordinance (XXXI of 1979)---

----Ss. 22 & 30---Income from business or profession---Income from other sources---Interest income---Interest income earned from Bank deposits etc. was to be regarded income from business or profession as per provision of S.22 of the Income Tax Ordinance, 1979 and likewise the proportionate financial expenses were also to be allowed which had been incurred in earning the said interest income.

I.T.As. Nos. 548 to 553/IB of 1998-99 rel.

(h) Income Tax Ordinance (XXXI of 1979)---

----Second Sched., Part I, Cl. (62) & S.23(1)---Words "expended" and "any expenditure laid out or expended"---Meanings---Word "expended" means actually spent by the assessee for the purposes of carrying out welfare activities and had narrow meaning as compared to the words "any expenditure laid out or expended" as used in Cis. (xii), (xiii), (xiv), (xv) & (xviii) of S.23(1) of the Income Tax Ordinance, 1979 which provide for allowances and deductions admissible under, the head "income from business or profession"---Word "expended" mentioned in Cl. (62) of the Second Sched. of the Income Tax Ordinance, 1979 did not have any larger scope and meaning and was restricted only to the extent of actual spending of the business income by the assessee for the purpose of carrying out welfare activities.

(i) Income Tax Ordinance (XXXI of 1979)---

----Second Sched., Part I, Cl. (62), Part II, Cl. (9)---Word "expended"---. Connotation.

(j) Income Tax Ordinance (XXXI of 1979)---

----S.23(1)---Expression "any expenditure laid out or expended" as used in cis. (xii) to (xv) & (xviii) of S.23(1) of the Income Tax Ordinance, 1979--­Meanings.

Imtiaz Rasheed Siddiqui, Anjum Sheikh, F.C.A. and M. Nasir Khurshid, F.C.A. for Appellant (in I.T.As. Nos. 110/IB, 111/IB of 1997-98 and 1143/113 of 1999-2000).

Mansoor Ahmed, D.A. G./L.A. and Riaz Hussain Shah, D.R. for

Respondent (in I.T.As. Nos. 110/IB, 111/IB of 1997-98 and 1143/IB of 1999-2000).

Mansoor Ahmed, D.A. G./L.A. and Riaz Hussain Shah, D.R. for Appellant (in I.T.As. Nos. 523/IB and 1356/113 of 1999-2000).

Imtiaz Rasheed Siddiqui, Anjum Sheikh, F.C.A. and M. Nasir Khurshid, F.C.A. for Respondent (in I.T.As. Nos. 523/IB and 1356/11 of 1999-2000).

Date of hearing: 9th September, 2000.

2001 P T D (Trib.) 1440

[Income-tax Appellate Tribunal Pakistan]

Before Rasheed Ahmad Sheikh, Judicial Member and Mrs. Safia Chaudhry, Accountant Member

I.T.A. No. 1851/LB of 1999, decided on 25th March, 2000

(a) Income Tax Ordinance (XXXI of 1979)---

----S.59(1)---Self-assessment---Workers' Welfare Fund---Short payment of workers' welfare fund was not the condition precedent for acceptance of the return -under Self-Assessment Scheme.

(b) Income. Tax Ordinance (XXXI of 1979)---

----S.59(1)---Self-assessment---Workers' Welfare Fund---Merger of Workers' Welfare Fund in tax--Workers' Welfare Fund does not merge anywhere for the purpose of, availing benefits of the Self-Assessment Scheme unless specifically so provided therein.

(c) Income Tax Ordinance (XXXI of 1979)---

----Ss.66-A & 59(1)---C.B.R. Circular No.4 of 1996, dated 1-7-1996--­C.B.R: Letter C.N.7(4), S. Asstt. 95---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order ---Self-assessment--­Workers' Welfare Fund---Assessment completed under Self-Assessment Scheme was cancelled by the Inspecting Additional Commissioner on the ground that tax paid was calculated by including Workers Welfare Fund, and thus, was short and return was erroneously accepted under Self­ Assessment Scheme---Validity---Workers' Welfare Fund was not a levy to be charged under the Income Tax Ordinance, 1979 and was an allowable expenditure of the assessee---Comparison of tax, had to be made with the tax payable on the basis of last declared/assessed income---Workers' Welfare Fund was not to be merged anywhere for availing benefits of Self ­Assessment Scheme---Order of Inspecting Additional Commissioner was vacated and that of Assessing Officer under -S.59(1) of the Income Tax Ordinance, 1979 was restored by the Appellate Tribunal.

I.T.A. No.2316/LB of 1998 ref.

Ch. Abdul Ghafoor, I.T.P. and Imran Rasheed for Appellant

Shahid Zaheer, D.R. for Respondent

Date of hearing: 25th March, 2000

2001 P T D (Trib.) 1480

[Income-tax Appellate Tribunal Pakistan]

Before Syed Nadeem Saqlain, Judicial Member and Muhammad Sharif Chaudhry, Accountant Member

I.T.As. Nos.6183/LB, 6182/LB, 6180/LB, 6181/LB, 853/LB and 854/LB of 1999, decided on 19th April, 2000.

(a) Income Tax Ordinance (XXXI of 1979)--- .

----S.62---Assessment on production of accounts, evidence etc.---No books of account were produced on ground of being lost---No specific notice was, issued under S.62, Income Tax Ordinance, 1979---Assessment of sales without confrontation of proposed sales---Validity---Assessing Officer though could not confront the assessee with the defects in account in absence of any books of accounts but the Assessing Officer should have confronted the assessee with the proposed estimation of sales rather than giving general type of notice which in no way could be equated with the notice under S.62(1) of the Income Tax Ordinance, 1979.

(b) Income Tax Ordinance (XXXI of 1979)--

----S.52---S.R.O. No.368(1)/94, dated. 7-5-1994---C.B.R. Letter No.C. No.3(7)SS(WHT)/98-99---Assessee in default---Purchases by assessee­company---Non-deduction of tax ---Company/assessee having paid up capital less than Rs.1.5 million was not liable to deduct tax on its purchases and the assessee was erroneously declared as assessee-in-default by the Assessing Officer---Order of the Assessing Officer was cancelled by the Appellate Tribunal in circumstances.

Muhammad Shahid Abbas for Appellant (in I.T.As. Nos.6183/LB, 6182/LB, 6180/LB and 6181 /LB of 1999).

Shahid Azam, D.R. for Respondent (in I.T.As. Nos.6183/LB, 6182/LB, 6180/LB and 6181/LB of 1999).

Shahid Azam, D.R. for Appellant (in I.T.As. Nos.853/LB and 854/LB of 1999).

Muhammad Shahid Abbas for Respondent (in I.T.As. Nos.853/LB and 854/LB of 1999).

Date of hearing: 22nd March, 2000.

2001 P T D (Trib.) 1484

[Income-tax Appellate Tribunal Pakistan]

Before M. Munir Qureshi, Accountant Member and Khawaja Farooq Saeed, Judicial Member

I.T.A. No.5339/LB of 1999, decided on 17th August, 2000.

Income Tax Ordinance (XXXI of 179)---

----S. 50(4) & 52---Deduction of tax at source---Liability of persons failing to deduct or to pay tax---Withholding tax---Levy of---Purchases not in the nature of supplies and largely unverifiable and also below Rs.25,000 in each case were not subject to withholding tax under the provisions of Income Tax Ordinance, 1979.

Shahid Bashir, D.R. for Appellant.

Mian Muhammad Javaid for Respondent.

Date of hearing: 17th August, 2000.

2001 P T D (Trib.) 1551.

[Income-tax Appellate Tribunal Pakistan]

Before S. M. Sibtain, Accountant Member and Tahseen Ahmed Bhatti, Judicial Member

W.T.A'. No.224/KB of 1997-98, decided on 26th .Tune, 1999.

Wealth Tax Rules, 1963---

----R. 8(3) first proviso---Valuation of rented out property---Value of property was declared @ 10 times of gross annual letting-value ---Previous two years were assessed on the same basis ---Assessee himself declared higher value of its property in the income tax record on the basis of revaluation of such property by the valuer and surplus amount was included in the books of accounts as "surplus on revaluation of fixed assets" ---Assessing Officer assessed/adopted the higher value for wealth tax purposes of the said property as declared in the Income Tax record than the ten times of the gross annual letting value of such property under R.8(3) of the Wealth Tax Rules, 1963 which was upheld by the First Appellate Authority---Contentions of the assessee were that property was 80 years old and actually let out, that property should be assessed @ 10 times of its gross annual letting value in accordance with first proviso to R.8(3) of the Wealth Tax Rules, 1963 and that professional revaluation done by the valuer was purely notional and property was occupied by tenants which did not warrant the Assessing Officer to determine its value at a sum higher than ten times of its gross annual letting value---Validity---First Proviso to R.8(3) of Wealth Tax Rules, 1963 did not permit the Assessing Officer to assess the value of house property on any basis other than their gross annual rental value---Exception allowed in the first proviso to R. 8(3), Wealth Tax Rules, 1963 was the option to assess the value at more than ten times of the gross annual rental value with the prior approval of the Commissioner and while exercising such discretion reasons were to be recorded in writing---First Appellate Authority, misdirected itself in upholding the assessment which in circumstances was not sustainable in law---Order was set aside by the Appellate Tribunal with the directions to assess the value of property de novo keeping in view the ratio of decision by the Appellate Tribunal.

1989 PTD (Trib.) 859; W.T.A. No. 692/HQ.of 1990-91, dated 11-12-1993 and 1995 PTD (Trib.) 1445 rel.

Ghulam Din Zia v. CWT, Lahore 1990 PTD 442; P.V. Reddy v. CWT (1972) 85 ITR 132, 135; J. N. Boss v. CWT (1976) 104 ITR 83 (Cal.) and T.K. Pillar v. CWT (1964) 51 ITR 150 (Mad.) ref.

Z. H. Jaffri for Appellant.

Amjad Jamshed, D.R. for Respondent.

Date of hearing: 6th June, 1998.

2001 P T D (Trib.) 1790

[Income-tax Appellate Tribunal Pakistan]

Before Inam Ellahi Sheikh, Chairman and S. Hasan Imam, Judicial Member

W.T.As. Nos.134/KB and 138/KB of 1994-95, decided on 23rd January, 2001.

(a) Civil Procedure Code (V of 1908)---

----O.VI, R.17---Pleadings---Amendment in pleadings---Conditions. The Courts of law are very liberal to allow any party at any stage of the proceedings to amend his pleadings in such manner and on such terms as may be just and necessary for the purpose of determining the real questions under controversy between the parties. The real object of the law is that if amendment is necessary for the purpose of determining the real matter in controversy it should be allowed but as a general rule, amendment will not be allowed in cases:---

(i) Where its effect would be to complete the character of the appeal and fundamental character should not be altered;

(ii) where cause of action ought not to be allowed to be substituted;

(iii) where it will work injustice to any party; and

(iv) if by the time, the amendment is sought, it has become time-barred.

(b) Civil Procedure Code (V of 1908)---

---O.VI, R.17---Pleadings----Refusal to allow amendment in pleadings--­Amendment in the pleadings was refused for the reason that new cause of action will be substituted by way of amendment for the original cause of action and amendment would also deprive the party of the defence of limitation.

(c) Appeal------

---- Two appeals against one order---Common grounds of appeal---Appeal filed subsequently having become infructuous was dismissed by the Appellate Tribunal.

(d) Finance Act (XII of 1991)---

----S.12(7)---Corporate Assets Tax---Penalty for non-filing of return in time---Penalty was levied by the Assessing Officer for non-filing of return in time ---Assessee produced evidence for filing of return before First Appellate Authority which was confirmed by the Inspector of the circle---Deletion of penalty by First Appellate Authority was upheld by the Appellate Tribunal.

Vishno Raja Qavi, D.R. for Appellant.

Ashraf Ali, A.C.A. for Respondent.

Date of hearing: 19th January, 2001.

2001 P T D (Trib.) 1794

[Income-tax Appellate Tribunal Pakistan]

Before S. M. Sibtain, Accountant Member and

S. Nasan Imam, Judicial Member.

I.T.A. No.2721/KB of 1992-93, decided on 26th April, 2000.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.16---Salary income---Determination---Condition precedent to the classification of the income under S.16 of the Income Tax Ordinance, 1979 was that the payer and the payee had the relationship of the "employer" and the "employee".

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss.16, 30 & 31(l)(b)---Salary income---Income from other sources--­Assessee received commission from his employer in addition to his monthly salary and claimed expenditure /exemption 30% of such commission under S.31(1)(b) of the Income Tax Ordinance, 1979 being commission income chargeable under S.30 of the Income Tax Ordinance, 1979---Validity--­Assessee received commission from his employer in addition to his salary, which was assessable under.S.16(2)(a)(iii) of the Income Tax Ordinance, 1979 and there was no provision under S.16 of the Ordinance to allow any deduction on account of any expenditure incurred to such commission--­Commission was not assessable under S.30 of the Income Tax Ordinance, 1979----Expenditure disallowed by the Assessing Officer in respect of such commission was upheld by the Appellate Tribunal in circumstances.

I.T.A. No. 1834/KB of 1984-85 ref.

Bakht Zaman, D.R. for Appellant.

Zulfiqar Ali Hussaini, F.C.A. for Respondent.

Date of hearing: 26th April, 2000,

2001 P T D (Trib.) 1809

[Income-tax Appellate Tribunal Pakistan]

Before S.M. Sibtain, Accountant Member and

S. Hasan Imam, Judicial Member

W.T.As. Nos. 27/KB and 28/KB of 2000-2001, decided on 11th November, 2000.

(a) Wealth Tax Act (XV of 1963)---

----Ss.17-B, 16(3) & 2(5)(ii)---Powers of Inspecting Assistant Commissioner to revise Wealth Tax Officer's order---Unfinished four storeys of commercial building---Portions of ground floor and first floor of said building were let out and were completed by the assessees out of the amount of advance rent and let out---Net wealth of the assessee was assessed on the basis of gross annual rental value of the rented out portion only in the status of an association of persons---Inspecting Assistant Commissioner directed the Assessing Officer to include the value of the rest of the vacant building in the net wealth on the proportionate basis as being property held for the purposes of letting out in future ---Assessees contended that they were contemplating to use the entire unleased property for the business to be set up by them which was evident from the fact that assessees had not issued any advertisement, either directly or indirectly for letting out or sale of the said property--­Validity---No evidence on record was found to ,support the view of the Inspecting Additional Commissioner that incomplete (unfinished) vacant property was held for the purpose of letting out in future---View that property had been let gut in an unfinished condition and the rest of the property was held in the same condition to be let out in future was found too presumptive in the absence of any other overt act and attending circumstances---Order of the Inspecting Assistant Commissioner was vacated by the Appellate Tribunal in circumstances.

1996 SCMR 1470 ref.

1996 PTD (Trib.) 114 distinguished.

(b) Wealth Tax Act (XV of 1963)---

----S.2(16)---Net wealth---Advance rent---Debt owed ---Admissibility--­Advance rent allowed as debt owed by the Assessing Officer against the gross value of -taxable assets was disallowed by the Appellate Tribunal being a debt neither secured nor incurred in relation to the taxable assets.

Salman Pasha for Appellant.

Zaki Ahmed for Respondent.

Date of hearing: 11th November, 2000

2001 P T D (Trib.) 1816

[Income-tax Appellate Tribunal Pakistan]

Before Inam Ellahi Sheikh, Chairman and

Zafar Ali Thaheem, Judicial Member

I.T.As. Nos. 2919/LB and 2921/LB of 1999, decided on 17th February, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.50(3-A)---Deduction of tax at source---Convention for avoidance of double texation---Exemption---Assessee claimed exemption, from deduction of tax from payment to non-resident on account of technical services, under double tax treaty---Validity---Exemption under double tax treaty could not be considered as under the provision of S.50(3-A) of the Income Tax Ordinance, 1979 Assessing Officer was authorised to, issue a certificate in this regard and no such claim had been made by the assessee at any stage before the Tribunal.

(b) Income Tax Ordinance (XXXI 1979)---

----Second Sched., Part I, Cl. 77-A, Ss.2(29), 50 & 52---Exemption--­Interest--Liability of person failing to deduct or pay tax---Deduction of tax at source---Fee for technical services---Tax under S.52 of the Income Tax Ordinance, 1979 was levied as the assessee had not made deductions on payments in respect of technical services ---Assessee pleaded that payments were in the nature of interest as defined under S.2(29) of the Income-tax Ordinance, 1979 which was exempt from tax under Cl. (77-A) of Part I of Second Sched. of the Income Tax Ordinance, 1979 and thus, not liable to deduction of tax---Validity---"Interest" as defined in S.2(29) of the Income Tax Ordinance, 1979 included any service; fee or other charge in respect of any credit facility which had not been .utilised which did not mean that all types of charges in respect of credit facility, whether utilised or not, could be included in the definition of interest---Claim of exemption under cl. (77A) of Part I of the Second Sched. of Income Tax Ordinance, 1979 was rejected by the Appellate Tribunal in circumstances.

Law Lexicon Dictionary, 1997 Edn. and 1995 PTD 877 ref.

1994 PTD 174 = 1994 SCMR 229 and 1990 PTD (Trib-.) 925 distinguished.

(c) Income Tax Ordinance (XXXI of 1979)---

----Ss. 52, 50(3-A), 12(5) & 80-AA---Liability of person failing to deduct or pay tax---Payment to non-resident professionals/consultants---Nature of payment---Determination of---Agreement in respect of services---Non­availability of such agreement on record---Effect---Due to non-tiling of agreement between the assessee and the non-resident recipient, the issue of applicability of S.52 of the Income Tax Ordinance, 1979 to the payment to non-resident was set aside by the Appellate Tribunal as the nature of payment could not be determined in the absence of such agreement---Assessing Officer was directed to examine the nature of payments in the light of agreement in case of another assessment year where such agreement was available and the relevant provision of law.

(d) Income Tax Ordinance (XXXI of 1979)---

----S.52---Liability of person failing to deduct or pay tax ---Expenses---Re­imbursement of---Deduction of tax ---Assessee could not be made liable for making deduction of tax at the time of re-imbursement of expenses while the tax had been deducted when the original payment was made on behalf of assessee on purchases.

(e) Income Tax Ordinance (XXXI of 1979)---

----Ss.52 & 50(4)---Liability of person failing to deduct or pay tax--­Deduction of tax at source---Expenses borne by the non-resident parent company ---Re-imbursement of such expenses by the resident subsidiary company without deduction of tax---Department treated the resident company as assessee in default in respect of such tax and invoked the provision of S.50(4) of the Income Tax Ordinance, 1979---Validity---Parent company being non-resident, provisions of S.50(4) could not be applied as the same were applicable to residents only at the relevant period---Action of the Assessing Officer of charging tax in respect of parent company was annulled by the Appellate Tribunal in circumstances.

(f) Income Tax Ordinance (XXXI of 1979)-----

----Ss. 52 & 50---Liability of person failing to pay or deduct tax---Provisions of Ss.50 & 52 of the Income Tax Ordinance, 1979 could not be applied in the absence of any details which could show the nature of payment.

Khalique-ut-Rehman, F.C.A. and Iqbal Ahmad, I.T.P. for Appellant.

Shafqat Mahmood Chohan, L.A., Muhammad Asif, D.R. and Adrian Saeed, Assessing Officer for Respondent.

Date of hearing: 19th October, 2001.

2001 P T D (Trib) 1848

[Income-tax Appellate Tribunal Pakistan]

Before Karamat Hussain Niazi, Judicial Member and

Mahmood Ahmed Malik, Accountant Member

R. A. No.2(IB) of 2000-2001, decided on 28th November, 2000.

(a) Appeal-----

----Right of appeal---Right of appeal which was available at the time of commencement of a "lis" could not be taken away except by express language.

(b) Appeal---

---- Right of appeal---Not an inherent right---Right of appeal is not an inherent right but it must be expressly conferred by a statute or rules having force of law and has to be determined with reference to law prevailing at the time when cause was instituted in the original Court.

(c) Income Tax Ordinance (XXXI of 19779)---

----S.136---Reference---Appeal---Distinction---Reference application could not be pressed on the analogy of right of appeal---Reference could not be equated with right of appeal which was a substantive right.

(d) Income Tax Ordinance (XXXI of 1979)---

----S.136---Reference---Meaning---Reference means referring a matter for seeking advice or decision by a subordinate Court to the superior Court by invoking the advisory jurisdiction of that superior Court.

(e) Income Tax Ordinance (XXXI of 1979)---

----S.136---Reference---Appeal---Distinction---Reference application could be rejected by the Appellate Tribunal, if it was found that no question of law arose from its order---Appeal was a right of entering a superior Court and invoking its aid and interposition to redress the error of the Court below.

(f) Income Tax Ordinance (XXXI of 1979)-----

----S.136---Reference to High Court---- Reference application was filed in the Appellate Tribunal and order was passed on 8-4-2000 on the ground that when the assessment proceedings were initiated in 1987, the assessee had the right to file "Reference to High Court" and that right would remain intact notwithstanding the substitution of the provision into "Appeal to High Court" by Finance Act, 1997---Validity---Substituted provision expressly provided that the same applied to the orders of the Appellate Tribunal passed on or after the 1st July, 2000; before that repealed provision which provided reference to the High Court, from the order of Appellate Tribunal, would be applicable---Assessee could prefer appeal instead of reference application, the order having been passed before the date when the provision of appeal to High Court was in force---Reference application being not maintainable, was rejected by the Tribunal.

Sh. Muhammad Sadiq v. I.A. Khan 1991 MLD 1205; Pakistan International Airlines Corporation v. Pak Saaf Dry Cleaners PLD 1981 SC 553; Idrees Ahmed and others v. Hafiz Fida Ahmed Khan PLD 1985 SC 376 and Hassan and others v. Fancy Foundation PLD 1975 SC

Sikandar Hayat Khan for Applicant.

Muhammad Tahir Khan, D.R. for Respondent.

Date of hearing: 21st November, 2000.

2001 P T D (Trib) 1988

[Income-tax Appellate Tribunal Pakistan]

Before Inam Ellahi Sheikh, Chairman and

S. Hasan Imam, Judicial Member

I.T.A. No. 1973/KB of 1993-94, decided on 22nd February, 2001

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss. 25(a), (b) & 23-----Deduction---Amount subsequently recovered in respect of deduction etc.---Addition---Assessee a public sector. Corporation had declared loss---Amount credited in the profit and loss account in the heads, GOP loans, interest, dividend amount reimbursable to Government for guarantee and redemption were added in the total income of the assessee by the Assessing Officer being adjusted against losses of the earlier years which arose from the expenditure allowed under S.23 of the Income Tax Ordinance, 1979---Addition was upheld by the First Appellate Authority on the ground that assessee had already availed benefits in the past in respect of interest on foreign loans and guarantee commission paid by the Government---Contention of the assessee was that credits had been made in pursuance of the financial re-structuring of the Corporation in accordance with the recommendations of the Ministry of Communication and amounts of ,interest on loan as well as exchange losses had already been disallowed in the past while making the assessment---Validity---Amounts had been waived in pursuance of a re-structuring formula as approved by the ECC---Neither the Government was obliged to make good losses of the Corporation nor the Corporation was providing subsidised passage on the instructions of the Government--Amounts/credits received could not be held to be income or the assessee in circumstances as, amounts in question did not fall within the definition of "income" as generally understood---Some of the expenses, though had been allowed in the past-and the assessee had derived some benefit by way of waiver of the liabilities and possibility of application of S.25 of the Income Tax Ordinance could not be ruled out completely---­Appellate Tribunal remanded the case for reconsideration with the instruction that no bald estimate may be made and provisions of S.25 of the Income Tax Ordinance, 1979 may be followed strictly.

CIT v. Stewart and Lloyds 165 ITR 416; Mehboob Productions (Private) Limited v. CIT, Bombay 106 ITR 758 and CIT v. S.K.&.F. and 2 others (1991) 64 Tax 37 [SC (Pak)] ref.

Addl. CIT, Delhi-II v. Handicraft and Handloom Export Corporation 133 ITR 590 rel.

(2001) 83 Tax 17 distinguished.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss.25(a)(b) & 23---Deduction---Amounts subsequently recovered in respect of deductions, etc.---Invoking of provisions of S.25 of the Income Tax Ordinance, 1979---Conditions--While invoking the provisions of S.25 of the Income Tax Ordinance, 1979, the Assessing Officer should have established as to the losses, bad debts, expenses or trading liabilities which had been incurred by the assessee, and allowed in the past, under S.23 of the Income Tax Ordinance, 1979.

(c) Income Tax Ordinance (XXXI of 1979)------

----Ss.25 & 23---Provision of S.25 of the Income Tax Ordinance, 1979 was quite specific and required the addition to the income in respect of recoveries, in cash or kind, where such expenses of deductions had been allowed under S.23 of the Income Tax Ordinance, 1979.

Muhammad Hassan Alam for Appellant.

Vishno Raja Qavi, D.R. for Respondent.

Date of hearing: 1st February, 2001.

2001 P T D (Trib.) 2017

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Mujibullah Siddiqui, Chairman and

Muhammad Mahboob Alam, Accountant Member

W.T.A. No.372/KB of 1999-2000, decided on 10th June, 2000.

Wealth Tax Act (XV of 1963)---

----Ss.31-B, 14-A, 24 & 25---Additional tax----Assessing Officer had charged additional tax under S.31-B, Wealth Tax Act, 1963 though there was no default in payment of tax under S.14-A, Wealth Tax - Act, 1963--­Commissioner of Income-tax (A), in appeal, instead of cancelling/deleting the charge of additional tax, set aside the finding of the Assessing Officer with the observation that the additional tax was leviable under S.31-BB of the Wealth Tax Act. 1963 and gave the direction to the Assessing Officer for fresh decision in accordance with law---Validity---Held, setting aside of the issue pertaining to the charge of additional tax and consequential direction given by the Commissioner of Income-tax (A) were manifestly beyond the jurisdiction vested in the CIT(A)---Finding of CIT(A) was modified by the Appellate Tribunal to the effect that finding relating to charge of additional tax and consequential direction were vacated and charge of additional tax under S.31B of the Wealth Tax Act, 1963 was cancelled/deleted.

S. Rehan Hasan lafri, I.T.P. for Appellant.

Khalid Siddiqui, D.R. for Respondent.

Date of hearing: 10th June, 2000.

2001 P T D (Trib.) 2065

[Income-tax Appellate Tribunal Pakistan]

Before Mazhar Farooq Sherazi, Accountant Member and

Zafar Ali Thaheem, Judicial Member

Reference Application No.6/LB of 2000, decided on 24th March, 2001.

(a) Income-tax---

----Reference application---Question of fact---Question for reference to the High Court was as to whether the Tribunal was justified in holding that the firm and individual partners were not two separate legal entities was a question of fact---Question framed being a question of fact could not be referred to the High Court for opinion.

PLD 1985 Tsar. 83; 1980 CLC 1300; PLD 1956 SC (Ind.) 873 and PLD 1979 SC 815 rel.

(b) Income Tax Ordinance (XXXI of 1979)---

---Ss.12(18-A) & 136---Addition---Reference---Assessment year 1994-95--­Firm---Lady partner---Loan from husband of lady partner who resided out of Pakistan---Treatment of the amount of loan as loan from partner----Addition of amount received as loan from the husband of the lady partner on account of having not been repaid within five years was deleted by the First Appellate Authority on the ground that the provisions of S.12(18-A) of the Income Tax Ordinance, 1979 were not applicable because the receipt of foreign remittance was admitted three years earlier---Appellate Tribunal maintained the Appellate Order holding that firm and individual partners were not two separate legal entities because the amount in question was received by the firm only from one of its partners whose husband had advanced the same---Question, whether the Tribunal was justified in holding that loan received from husband of a partner could be treated as loan received from the partner of the firm was put by the Department for reference as a question of law---Validity---Loan was a foreign remittance which was received during the period from 13-6-1981 to 14-6-1988 and at that time the provision of S.12(18-A) was not in existence and at the time of re-assessment the provisions of S.12(18-A) stood deleted vide Finance Act, 1996---Order of the Appellate Tribunal did not hit the provisions of S.12(18-A) of the Income Tax Ordinance, 1979, therefore, the question raised by the Department was a question of fact and not question of law arising out of the order of the Tribunal---Reference application was rejected by the Appellate Tribunal in circumstances.

Javed Aziz, D.R. for Applicant.

Mirza Muhammad Waheed Baig for Respondent.

2001 P T D (Trib.) 2069

[Income-tax Appellate Tribunal Pakistan]

Before Inam Ellahi Sheikh, Chairman, Miscellaneous Application/(RECT) No.221/KB of 2000-2001 in re: I.T.A. No.534/KB of 1999-2000, decided on 20th March, 2001.

(a) Income Tax Ordinance (XXXI of 1979)-----

-----S.156---Rectification of mistake---Scope---New facts---Application for rectification of Tribunal's order based on new facts---Validity---In the absence of satisfactory explanation, admission of such facts which were not produced at the time of hearing of appeal, would lead to the revision of order, which is not permissible.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.156---Rectification of mistake---Scope---Three assessment orders in respect of one assessee for the same year were passed under Ss.59(1) & 62 of the Income Tax Ordinance, 1979---Genuineness of the order under S.59(1) was neither challenged in first appeal nor before the Appellate Tribunal by the Department but the same was challenged, later on, in a rectification application on the ground that the order under S.59(1) was neither signed by the Assessing Officer nor its genuineness had been owned by the. D.P.C. and the same was fabricated print-out---Validity---Language of the grounds of appeal before the Tribunal showed that the department did not specifically challenge the genuineness of the order which had now been challenged at the time of hearing of rectification application---Department had not been able to establish a case of mistake apparent from record in circumstances.

PLD 1996 Kar. 68 and 1998 PTD 3478 ref.

Amjad Jamshaid, I.A.C. and Vishno Raja Qavi, D.R. for Applicant.

Muhammad Ishratullah for Respondent.

Date of hearing: 16th January, 2001.

2001 P T D 2075

[Income-tax Appellate Tribunal Pakistan]

Before Rasheed Ahmed Sheikh, Judicial Member and

Mrs. Safia Chaudhry, Accountant Member

W.T.As. Nos.812/LB to 817/LB of X000, decided on 26th July, 2000.

(a) Wealth Tax Act (XV of 1963)---

---S. 41---Service of notices---Doubtful service---Effect---Assessments were set aside by the First Appellate Authority for fresh adjudication on the ground that services of statutory notices were doubtful ---Assessee asserted that once the First Appellate Authority had come to the conclusion that that ice of notice was doubtful, he should have either annulled or cancelled the re-assessment order rather remanding the case to the Assessing Officer for de novo consideration---Validity---Where order was made in the absence of proper service of call notice or on account of doubtful service, such order was voidable and should be set aside rather than annulling or cancelling the same ---No prejudice had been caused to the assessee by setting aside the same assessment for de novo consideration as the matter was still wide open and the assessee was at liberty to plead his case in his own fashion and could also adduce any documentary evidence in support of his contention---Assessment was rightly vacated by the First Appellate Authority ---Appeal was dismissed by Appellate Tribunal in circumstances.

1980 PTD 343 distinguished.

(b) Wealth Tax Act (XV of 1963)------

----S. 16(2)---Assessment---Jurisdiction----Section 16(2) of the Wealth Tax Act, 1963, in no way confers jurisdiction upon the Assessing officer to pass an order under the Wealth Tax Act, 1963---Section 16(2) simply envisages that if the Assessing officer is not satisfied with the return furnished by the assessee, he shall serve a notice upon him either to attend in person in the office on a date specified in the notice or to produce or cause to be produced on that date any evidence on which the assessee may rely in support of his return---Section 16(2) of the Wealth Tax Act, 1963 clearly spells out that S.16 (2) is a machinery section and has nothing to do with the assumption of jurisdiction to assess the net wealth of the assessee and determine the amount payable by him as tax or the amount refundable to him---Said section only required attendance of the assessee so as to direct him to adduce documentary evidence, if any, to substantiate his returned version.

(c) Wealth tax--­-----

----Decision in income-tax proceedings---Effect in wealth tax assessments Decision made in the income-tax proceedings had in no way any binding effect on the wealth tax assessment.

(d) Wealth Tax Act (XV of 1963)---

----S.23(3)---Income-tax Act (XI of 1922), S.31(6)---Comparison and distinction between the two legislations.

Shaukat Amin, F.C.A. for Appellant.

Mian Khadim Hussain, D.R. for Respondent.

Date of hearing: 26th July, 2000.

2001 P T D (Trib.) 2086

[Income-tax Appellate Tribunal Pakistan]

Before Inam Ellahi Sheikh, Chairman and

Javed Masood Tahir Bhatti, Judicial Member.

I.T.A. No.22/KB of 1999-2000, decided on 13th March, 2001

(a) Income-tax---

----Word "payment" ---Definition.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss.80-C, 143-B & 50(4)---C.B.R. Letter C.No. 1(l7) WHT/91-F1T (iv), dated 28-4-1992---Tax on income of certain contractors and importers---Levy of tax on cost of material supplied by the client---Validity---Tax on the cost of material supplied by the client could not be levied as the title of such material had not been passed to the assessee and there was no evidence of any obligation which would render such transaction to be a 'payment'---Assessee had rendered, construction contracting services and in the performance of such contracts the assessee had used certain materials provided by its clients---Such materials, as per agreement, were to be supplied at a fixed price and the client was to deduct/recover the value of such materials at the same fixed price from the bills presented by the assessee to the client------ ­Question arose as to whether the assessee had become the owner of such materials and whether he was receiving payments against such material--­Held, if the assessee was making the purchase of such material from the client, then the title should have passed to the assessee while there was nothing mentioned in letter of intent of passing the title in such materials or to hold the assessee to be responsible for any losses in such materials, there being no evidence of any obligation which could render such transactions to be a payment---Treatment given by the departmental officials in respect of the materials supplied by the client of the assessee as part of the receipts taxable under S.80-C of the Income Tax Ordinance, 1979 was not approved by the Appellate Tribunal and addition made in respect of the materials supplied by the client of the assessee was deleted in circumstances.

Black's Law Dictionary, 6th Edn. ref.

(c) Income-tax---

----Central Board of Revenue---Authority to go beyond the law or extend its application---Central Board of Revenue had no authority to go beyond the law to extend the application of any law unless the law authorises it to do so.

(d) Income Tax Ordinance (XXXI of 1979)---

----Ss.143-B, 80-C & 61---Statement regarding certain assessees---Statement under S. 143-B of the Income Tax Ordinance, 1979 as well as return showing nil income to declare the- exempt income was filed---Department issued notice under S.61 of the Income Tax Ordinance, 1979 in respect of income covered under S.80-C of the Ordinance declared in a statement filed under 5.143-B of the Income Tax Ordinance, 1979----Validity---Notice under S.61 of the Income Tax Ordinance, 1979 could not be issued in those cases where no other income had been declared whereas in the present case the assessee had declared income from Defence Saving Certificates although the same was claimed to be exempt.

1998 PTD (Trib.) 1201 and I.T.A. No.3359/KB of 1986-87 distinguished.

Salman Pasha for Appellant.

Vishno Raja Qavi, D.R. for Respondent.

Date of hearing: 13th January, 2001.

2001 P T D (Trib.) 2564

[Income-tax Appellate Tribunal Pakistan]

Before Khawaja Farooq Saeed, Judicial Member

I.T.A. No.3928/LB of 2000, decided on 10th March, 2001.

Income Tax Ordinance (XXXI of 1979)---

----Ss.50(7E) & 59---Deduction of tax at source---Self-Assessment--­Contention that tax deducted after 30th of June and before filing of return had to be calculated for qualifying the return under Self-Assessment Scheme---Validity---Deduction made on bills after 30th of June could not be allowed for adjustment against demand of the taxes for the relevant assessment year---Case did not fall within the purview of Self-Assessment Scheme.

Muhammad Imran Rashid and Ch. Abdul Ghafoor, .T.P. for Appellant.

Javed-ur-Rehman, D.R. for Respondent.

Date of hearing: 3rd February, 2001.

2001 P T D (Trib.) 2579

[Income-tax Appellate Tribunal Pakistan]

Before Khawaja Farooq Saeed, Judicial Member and

M. Munir Qureshi, Accountant Member

W.T.As. Nos.903/LB to 908/LB of 1999, decided on 16th March, 2000.

Wealth Tax Act (XV of 1963)---

----Second Sched. Part I, Cl. 7(ii) & S.5(i)(xv)(ii)---Exemption---Assets created out of encashment of Foreign Exchange Bearer Certificate---If Foreign Exchange Bearer Certificates were purchased by the assessee himself against the draft received by him from outside Pakistan and subsequently an asset had been created on its encashment, the same was fully covered under the exemption Cl. 7(ii), First Part of Second Sched. of the Wealth Tax Act, 1963---Facts of the case were not disputed to the extent that the amount having been undisputedly received by the assessee through normal banking channel its conversion into FEBC would not amount to creation of another asset.

1997 PTD (Trib.) 1928 rel.

1995 PTD (Trib.) 1112; 1991 PTD (Trib.) 135-and 1999 PTD (Trib.) 1494 ref.

Javed lqbal Khan, F.C.A. for Appellant.

Sh. Muhammad Hanif, D.R. for Respondent.

Date of hearing: 14th March, 2000.

2001 P T D (Trib.) 2584

[Income-tax Appellate Tribunal Pakistan]

Before Khawaja Farooq Saeed, Judicial Member and

Mazhar Farooq Sherazi, Accountant Member

R. A. No. l I/LB of 2000, decided on 31st January, 2001.

Income Tax Ordinance (XXXI of 1979)---

----Ss.136 & 80C---Workers' Welfare Fund Ordinance (XXXVI of 1971), S.4(4)---Application for Reference to High Court ---Assessee being covered under presumptive tax regime was assessed under S.80C of the Income Tax Ordinance, 1979---Normal order was also passed for the same and Workers Welfare Fund was charged under the provision of Workers' Welfare Fund Ordinance, 1971 which was deleted by the First Appellate Authority and confirmed by the Appellate Tribunal---Question for reference to High Court was as to whether Tribunal was justified to delete the Workers' Welfare Fund---Validity---Unequivocal findings by the Tribunal on the question referred being already available, no further dilation was required--­Question referred was not considered fit for reference to High Court by the Tribunal as the same did not arise out of the order of the Tribunal.

1998 PTD (Trib.) 1201 and Lungla (Sylhet) Tea Co. Ltd. v. C.I.T. 1970 SCMR 872 rel.

Javed-ur-Rehman, D. R. for Appellant.

Date of hearing 25-1-2001.

2001 P T 0 (Trib.) 2596

[Income-tax Appellate Tribunal Pakistan]

Before Khawaja Farooq Saeed, Judicial Member and

Mrs. Safia Choudhary, Accountant Member

I.T.As. Nos.25/LB to 29/LB of 2000, decided on 24th October, 2000.

Income Tax Ordinance (XXXI of 1979)---

----Ss.154, 61 & 13---Service of notice---Improper service---Effect--­Assessee assailed the order setting aside the assessment by First Appellate Authority on the ground that once it was established that notice had not been served properly the assessment order should have been annulled and not set aside---Validity---Assessing Officer had though proceeded on the basis of a notice which was not properly communicated to or served upon the assessee but it would not mean that the notice was without jurisdiction---If, in ordinary course of proceedings, a notice was not properly served and the ,Issuing Authority otherwise had the jurisdiction to assess the case it could not be annulled because in the process of material irregularity the Assessing Officer was still acting with jurisdiction---Illegality or irregularity in the exercise of jurisdiction was not the same as acting of the Authority without jurisdiction---Improper service of notice would not make an order "without lawful authority" or "of no legal effect" ---Order of the First Appellate Authority was upheld and assessee's appeal was dismissed by the Tribunal.

1971 SCMR 681 and 1986 SCMR 962 distinguished.

1985 PTD (Trib.) 178 and PLD 1966 SC I ref.

Latif Ahmed Qureshi for Appellant.

Mrs. Talat Altaf, D.R. for Respondent.

Date of hearing: 24th October, 2000,

2001 P T D (Trib.) 2605

[Income-tax Appellate Tribunal Pakistan]

Before Khawaja Farooq Saeed, Judicial Member

Mazhar Farooq Sherazi, Accountant Member

W.T.As. Nos. 2666/LB to 2670/LB of 2000, decided on 3rd March, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.52---Assessee in default---Where seller himself is paying taxes as a taxpayer and withholding agent has not deducted tax from his supplies, he could not be held an assessee in default for non-deduction from such assessee.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.52---Assessee in default---When a withholding agent is held to be an assessee in default and tax has been collected from him, the Department should not ask the seller (supplier) for further payment of tax liability and their tax liability shall be settled from the amount collected from the assessee in default.

(c) Income Tax Ordinance (XXXI of 1979)---

----Ss. 52, 50(4)(a) & 143-B---Liability of persons failing to deduct or pay tax ---Assessee in default ---Assessee a private company involved in construction work, filed statement under S.143-B of the income Tax Ordinance, 1979 which was accepted---Subsequently, on a show-cause notice, tax was charged under S.52 of the Income Tax Ordinance, 1979 on the basis of 65 % of the contractors receipts by treating the same as purchases---Order was set aside by First Appellate Authority ---Validity--­Department could not be permitted to just go for a loud estimate to say that if the assessee was doing a business he must have made some purchases and that such purchases attracted the provisions liable to deduction so as to penalize him as an assessee in default---Even if the assessee was to be held an assessee in default, the tax calculated had to be adjusted against the recipients of the amount on account of supplies where the purchases were not identifiable there was no question of any deduction and holding the assessee in default was also unnecessary- --Order to set aside by the First Appellate Authority was not considered appropriate as it had left the door for the Department and the same was cancelled by the Tribunal.

1995 PTD 614; 2000 PTD (Trib.) 2664; 1997 PTD (Trib.) 1771 and CIT v. Abbestos Cement Industries Ltd. and others 1992 SCC 904 ref.

(d) Interpretation of statutes---

---- Mode of expression has to be interpreted according to the Legislature's will and then to discover such will in letter and spirit---One should not go beyond the intentions and will of the Legislature with its background and state of circumstances should not be ignored.

(e) Income Tax Ordinance (XXXI of 1979)---

----S.52---Assessee in default---Section 52 of the Income Tax Ordinance, 1979 by no means is a charging provision and is only a mode of ensuring collection of taxes before the assessment, which later is to be adjusted against the income of the said person on whose behalf it is deducted---Department cannot be allowed to use it as a substitute of a normal assessment or as a new source of revenue.

Muhammad Iqbal Hashmi and Yousaf Ali Ch., I.T.P. for Appellant.

Muhammad Asif, D.R. for Respondent.

Date of hearing: 3rd February, 2001.

2001 P T D (Trib.) 2642

[Income-tax Appellate Tribunal Pakistan]

Before Fazlur Rehman Khan, Muhammad Tauqir Afzal Malik, Judicial Members

and Abdur Rehman Afridi, Accountant Member

I.TAs. Nos.574(PB) to 577(PB) of 1998-99, decided on 29th March, 2000

(a) Income-tax---

----Assessment---Annulment of setting aside of assessment by Tribunal--­Principles--- Assessment is usually annulled on, the ground that when an assessee comes with clean hands he shall not be harassed time and again--­Assessment will be set aside for fresh assessment where the assessee did not come with clean hands and was a tax evader.

(b) Administration of justice---

---- Law believes in doing substantial justice to the parties, rather believing in technicalities.

(c) Income Tax Ordinance (XXXI of 1979)---

----S.148---Power to take evidence on bath, etc.---Any proceedings based on a statement on oath recorded by an officer not authorised under the law to do so shall be without any legal effect.

(d) Income-tax---

----Invalid assessment---Illegally recorded statement on oath---When assessment itself was invalid in law, the Tribunal did not have any discretion left except to annul the assessment insofar as it was based on an illegally recorded statement on oath.

(e) Income-tax---

---Non-practising allowance ---Fact that assessee had not been receiving non-­practising allowance as- shown by her salary statement was not sufficient to conclusively prove, that the assessee had been earning income from private practice---If the assessee had been receiving such income the quantum had to be determined by the Assessing Officer through other irrebutable evidence.

(f) Income-tax---

----Proof of assertion by assessee---Assertion that assessee had not come up to the Department with clean hands, had to be established with reference to independent evidence to be gathered in a legal manner.

(g) Income Tax Ordinance (XXXI of 1979)---

----Ss.148 & 62---Power to take evidence on oath, etc. ---Assessment--­Income of doctor from private clinic/practice was added in the salary income of the assessee on the basis of statements of assessee and witnesses recorded by the Inspector on oath---Validity---Statement recorded by the Circle Inspector on oath being inadmissible in evidence, the income determined in respect of private practice was deleted and the income declared by .the assessee was accepted by the Tribunal.

I.T.A. No.43(PB of 1996-97 and 1997 PTD (Trib.) 103 rel.

1985 PTD (Trib 178 ref.

Sultan Wazir, D.R. for Appellant.

Nawaz Ahmad Khan for Respondent

Date of hearing: 26th January, 2000.

2001 P T D (Trib.) 2848

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Tauqir Afzal Malik, Judicial Member and

Mahmood Ahmad Malik, Accountant Member

I.T.As. Nos.124/LB, 125/LB of 1989-90, 1248/LB to 1252/LB and 2268/LB to 2271/LB of 1995, decided on 14th July, 2000.

(a) Income Tax Ordinance (XXXI of 1979)--

.----Ss.154, 62 & 63---Service of notice ---Assessee contended that assessment should not have been framed under S.63 of the Income Tax Ordinance, 1979 because the alleged notice under S.62 was served on the ex-Chief Accountant of the assessee---Validity---Assessing Officer had no means of knowing that the ex-Chief Accountant who received the notice under S.62 had left the service of the assessee---Representative of assessee kept attending the office of the Assessing Officer but no such objection was ever raised during these proceedings---Contention was repelled by the. Tribunal in circumstances.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.63---Best judgment assessment---Non-attendance of the assessee---Ex parte assessment---Validity---Ex parte action of Assessing Officer was upheld by the Tribunal as the Assessing Officer discharged his legal responsibility of giving adequate opportunity of representation to the assessee and waited for a sufficiently long time for compliance'.

(c) Income Tax Ordinance (XXXI of 1979)---

----S.62---Assessment on production of accounts, evidence etc.--­Enhancement of sales in absence of books of accounts ---Validity---Assessee was duty bound to submit complete and comprehensive details of the sale pertaining to the year under consideration and to satisfy the Assessing Officer regarding their verifiability---Assessee having not done so could not take the plea that its declared version merited acceptance---Enhancement made in the sale was found quite commensurate with the reputation and over­all production capacity of the assessee-company and for that reason same were confirmed by the Tribunal.

(d) Income-tax---

----Gross profit rate ---Assessee's declared gross profit for the previous two years was 28 % and 23 % respectively ---Assessee's request for reduction of gross profit to 15 % for the year under consideration was rejected by the Tribunal and it was deemed fit and reasonable to reduce the gross profit rate to 25 % on the same level as in the previous years.

(e) Income Tax Ordinance (XXXI of 1979)---

----S.62---Assessment on production of accounts, evidence etc.---Assessee submitted unaudited accounts---Production record was not submitted for scrutiny---Declared version was rejected by the Assessing Officer--­Validity---Assessing Officer developed co-relationship between the consumption of electricity' and production---Fluctuations in the production pattern which were unnatural and could not be satisfactorily explained-was also noted ---Assessee itself gave certain information regarding the ratio and proportion of consumption of the components and Assessing Officer found that production pattern which evolved the consumption of electricity was at variance with the declared formula---Assessing Officer, on the basis of such blatant and patent discrepancies, was justified to reject the declared version of the assessee.

(f) Income Tax Ordinance (XXXI of 1979)---

----Second Sched., Part IV, C1.9 & S.80-C---Option for presumptive tax regime ---Assessee's products were such that those could be utilized only by known industrial concerns which made its sales primarily in the nature of supplies ---Assessee having not exercised its option in C1.9, Part IV of the Second Sched., therefore, the case of assessee fell within the ambit of S.80-C of the Income Tax Ordinance, 1979.

(g) Income Tax Ordinance (XXXI of 1979)---

----S.62---Assessment on production of accounts, evidence etc. --Rejection of trading result---In the absence of books of accounts it was maintained that the Assessing Officer was justified in rejecting the declared trading result--­Assessing Officer was left with no alternative but to resort to the estimation of the overall production as well as the sales on the basis of sketchy information provided by the assessee as well as the past history of the case--- Treatment given by Assessing Officer merited confirmation because no worthwhile rebuttal was pleaded or given at the appeal stage.

Shafqat Mahmood Chohan and Naseer Ahmad, D.R. for Appellant.

Nemo for Respondent.

Date of hearing: 28th April, 2000

2001 P T D (Trib.) 2869

[Income-tax Appellate Tribunal Pakistan]

Before Jameel Ahmed Bhutto, Accountant Member and

Syed Masood ul Hassan Shah, Judicial Member

W.T.A. No.568/IB of 1997-98, decided on 15th May, 2001.

(a) Wealth Tax Act (XV of 1963)---

----S.23---Appeal to Appellate Assistant Commissioner from order of Wealth Tax Officer---Vague grounds of appeal---Effect---No provision of the Wealth Tax Act or the rules made thereunder empower the First Appellate Authority to consider dismissal of any appeal on the basis of vague grounds of appeal--­Section 23 of the Wealth Tax Act, 1963 does not empower the First Appellate Authority to dismiss any appeal on such ground or similar ground.

(b) Wealth Tax Act (XV of 1963)---

----S.23---Appeal---Vague grounds of appeal---Opportunity of being heard—­Provisions of the Wealth Tax Act, 1963 suggest that the appellant could be provided with an opportunity of being heard in order to remove vagueness, if any, in the original grounds ofappeal or substitute the same with unambiguous grounds, alongwith necessary particulars required for the disposal of appeal.

(c) Wealth Tax Act (XV of 1963)---

----S.23---Appeal---Irregularity or defect---Right of appeal under S.23 of the Wealth Tax Act, 1963 could not be denied on account, of any alleged irregularity or defect.

(d) Income Tax Ordinance (XXXI of 1979)---

----S.134--Appeal to Appellate Tribunal---Right of appeal granted to assessee under S.134 of the Income Tax Ordinance, 1979 had been expressly granted by the Legislature and it could not be snatched away or sacrificed at the altar of procedural niceties dictated by the Income-tax Appellate Tribunal Rules---Such valuable right of appeal could also not be extinguished by an irregularity or an omission or defect which was either unintentional or error committed unwittingly or inadvertently.

1992 PTD (Trib.) 1176 distinguished.

1991 PTD (Trib.) 583 rel.

(e) Wealth Tax Act (XV of 1963)---

----S.23---Appeal to Appellate Assistant Commissioner from order of Wealth Tax Officer---Appeal was dismissed on the ground that appeal with regard to valuation of properties was vague--Validity--Appeal had not been decided in the manner laid down in S.23 of the Wealth Tax Act, 1963 and had not been adjudicated upon the grounds of appeal on merits of the case which were required to be dealt with in a proper, fair and judicious manner in accordance with law---Case was remanded for de novo proceedings.

1992 PTD (Trib.) 1176 distinguished.

1991 PTD (Trib.) 583 rel.

2000 PTD 2165 and Messrs Zamir Hussain and 7 others v. Rasul Butt PLD 1992 Lah.'427 ref.

Muhammad Waseem Siddiqui, F.C.A. for Appellant.

Nemo of Respondent.

Date of hearing:.9th May, 2001.

2001 P T D (Trib.) 2872

[Income-tax Appellate Tribunal Pakistan]

Before Inam Ellahi Sheikh, Chairman and Zafar Ali Thaheem, Judicial Member

I. T. A. No. 1213(LB) of 2001, decided on 7th June, 2001.

Income Tax Ordinance (XXXI of 1979)---

--Ss.65, 13(1)(aa) & 59-A---Additional assessment---Assessment was completed under S.59-A of the Income Tax Ordinance, 1979 having the information on record with regard to purchase of car and subsequently the case was reopened on the basis of same information---Validity---Action under S.65 of the Income Tax Ordinance, 1979 could-only be initiated if the department came into possession of a definite information after the, original assessment had been made or it was established that the original assessment was made without the application of mind---,Original assessment under S.59A of the Income Tax Ordinance, 1979 could only be made after applying the mind to the facts of the case and coming to the conclusion that the presence of the assessee was not required---Return having not been accepted under any deeming provision of law, Assessing Officer was not justified to reopen the assessment framed under S.59-A of the Income Tax Ordinance-1979 ---Order passed under S.65 of the Income Tax Ordinance, 1979 was annulled by the Appellate Tribunal.

1990 PTD 155 and 1997 PTD 1485 ref.

Muhammad Ajmal Khan, A. R. for Appellant.

Muhammad Aslam Bhatti, D.R. for Respondent.

Date of hearing: 6th June, 2001.

2001 P T D 2880

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Mujibullah Siddiqui, Chairman, Muhammad Tauqir Afzal Malik, Judicial Member and

Mahmood Ahmad Malik, Accountant Member

I.T.As. Nos. 3863/LB and 3864/LB of 1998, decided on 30th October, 1999.

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss.12{18) & 66-A---Income deemed to accrue or arise in Pakistan---Share deposit money---Authorised capital---Loan---Share deposit money was treated as loan on the ground that it was in excess of authorised capital—treated was neither competent nor had any authority to call for share deposit in excess of authorised capital---Department proceeded in accordance with law---Revising Authority was justified in invoking the provisions of S.66-A of the Income Tax Ordinance, 1979 by treating the share deposit money as loan under S.12(18) of the Income Tax Ordinance, 1979 in circumstances ---Assessee's appeal was rejected by the Tribunal.

Messrs Kanwar Textile Mills Limited. Lahore I.T.A. N6.983/LB of 1997; PLD 1966 SC 738; PLD 1979 Lah. 252; 1999 PTD 2949; 1999 PTD 2895; 1996 SCMR 1264; PLD 1971 Lah. 217; 1994 PTD 758 and 1999 PTD (Trib.) 1672 ref.

Messrs Quality Casting (Pvt.) Limited, Lahore I.T.A. No. 1206/LB of 1995-96 rel.

(b) Income Tax Ordinance (XXXI of 1979)--­

----S.12(18)---Deemed income---Intention of Legislature---Plain reading of provision contained in S.12(18) of the Income Tax Ordinance, 1979 shows that the intention of Legislature was that if any transaction was claimed or shown which was in the nature of a loan then the deeming provision shall come into operation.

(c) Administration of justice--­

---- Duty of Court---True facts are to be discovered by the Court and then the law is to be applied to such facts.

(d) Income-tax--

----Charge of tax---Substance and real nature of the transaction in all judicial proceedings including tax proceedings is to be seen for the simple reason that when the Legislature invests a taxing authority with the power and jurisdiction to tax a particular transaction then it empowers such Authority to discover the real nature of transaction and apply the correct law.

Abrar P.ssain Naqvi, Iqbal Hashmi and Yousaf Ali Chaudhary, I.T.P. for Appellant.

Shafqat Mehmood Chohan and Shahid Bashir, D.R. for Respondent.

Date of hearing: 2nd September, 1999.

2001 P T D (Trib.) 2896

[Income-tax Appellate Tribunal Pakistan]

Before Inam Ellahi Sheikh, Chairman and

Javed Masood Tahir Bhatti, Judicial Member

I.T.As. Nos. 1380/KB, 1381/KB and 1382/KB of 1999-2000, decided on 22nd May, 2001. .

(a) Income Tax Ordinance (XXXI of 1979)---

---Ss.59-D, 65, 13(1)(d)(aa) & 62---C.B.R. Circular No. 7 of 1997, dated 21-7-1997--- Assessment finalized under S.62 of the Income Tax Ordinance, 1979 was re-opened under S.65 of the Income Tax Ordinance, 1979 and assessee's Maim of having filed the declaration under Amnesty Scheme was rejected and addition was made under Ss.13(l)(d) & '3(1)(aa) of the Income Tax Ordinance, 1979---First Appellate Authority cancelled the assessment on the ground that notice under S.65 was issued after the assessee had already filed the declaration under S.59-D of the Income Tax Ordinance, 1979--- Validity--- Declaration was filed on 30-9-1997 whereas .the notice under S.65 of the Income Tax Ordinance, was issued on 2-6- 1998---,Assesscc had already opted to avail the Amnesty before the issuance of notice under S.65 of the Income Tax Ordinance, 1979 and no evidence had been produced before the Tribunal to show that there was a discovery of any valuation prior to filing of declaration under S.59-D of the Income Tax Ordinance, 1979---Department had no case for interference except for modification to the extent that order under S.65 was annulled and departmental appeal was dismissed by the Tribunal.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss.59-D, 66-A, 62 & 13(1)(d)(aa)---C.B.R. Circular No. 7 of-1997, dated 21-7-1997---Tax on undisclosed income ---Assessee filed declaration under S.59-D of the Income Tax Ordinance, 1979 after initiation of proceedings under S.66-A/62 by the Assessing Officer---Assessing Officer rejected the claim of assessee with regard to Amnesty with the observation that the assessee's case was excluded from the Amnesty Scheme because the proceedings had already been initiated---First Appellate Authority cancelled the Assessment with the observation that case was fully covered under the Amnesty Scheme---Validity---Declaration was never rejected by the Assessing Officer prior to the proceedings initiated under S.62/66-A of the Income Tax Ordinance, 1979 and neither formal intimation was issued to the assessee nor the tax paid by him was refunded---Order did not show any adjustment for the payment of tax under S.59-D of the Income Tax Ordinance, 1979 which would amount to double taxation of the same undisclosed income or assets which was not the intention of the law--- Assessee was entitled to the benefit of doubt because of the lapses m the Scheme and on the part of Department--- Scheme did not provide for the rejection of such a declaration nor was there any provision for refund or adjustment of tax paid with such declaration---Order of First Appellate Authority was modified so as to annul the assessment instead of cancellation of the same---Department's appeal was dismissed subject to modification by the Tribunal.

I.T.A. No. 685/KB of 1998-99 rel.

Agha Hidayatullah, D.R' for Appellant:

Najam Irshad for Respondent.

Date of hearing: 17th May, 2001.

2001 P T D (Trib.) 2906

[Income-tax Appellate Tribunal Pakistan]

Before Khalid Waheed Ahmed, Judicial Member and

Mazhar Farooq Shirazi, Accountant Member

I:T..As. Nos. 3168/LB, 3163/LB, 3169/LB, 3.167/LB, 3166/LB, 3165/LB, 3164/LB, 3256/LB, 3257/LB/ 3258/LB and 3259/LB of 1996, decided on 23rd December, 2000.

(a) Income Tax Ordinance (XXXI of 1979)--.

----Ss.87 & 156---Charge of additional tax for failure to pay advance tax--­Rectification of mistake---Additional tax could be charged through an order of rectification if the same had not been charged at the time of framing the assessment.

1996 PTD (Trib.) 65 rel.

(b) Income Tax Ordinance (XXXI of 1979)---

--Ss.87 & 156---Charge of additional tax for failure to pay advance tax--­Limitation---Rectification of mistake---Additional tax was charged after a time lag of 9, 8 and 4.5 years from the completion of assessment ---Validity-­Order passed by the Assessing Officer whereby the additional tax was charged under S.87 of the Income Tax Ordinance, 1979 after completion of assessment of income was considered to be an order of rectification under S.156 of-the Income Tax Ordinance, 1979---Order passed under S.87 after the limitation period of 4 years provided by S.156(4) of the Income Tax Ordinance, 1979 was barred by limitation---Additional tax deleted by the First Appellate Authority was confirmed by the Tribunal.

PLD 1964 SC 410 and 1987 PTD (Trib.) 256 ref.

1996-PTD (Trib.) 65 rel.

(c) Income Tax Ordinance (XXXI of 1979)---

----Ss.87 & 156---Charge of additional tax for-failure to pay advance tax--­Show-cause notice---Rectification of mistake---Additional tax was charged under S.87 of the Income Tax Ordinance, 1979 without show-cause notice subsequent to the completion of assessment---Validity---Order passed under S.87 of the Income Tax Ordinance, 1979 was an order of rectification under S.156 of the Income Tax Ordinance, 1979---Assessing Officer was required to confront the assessee and provide him opportunity of being heard before charging the additional tax under S.87 of the Income Tax Ordinance, 1979 because as a result of his order the liability of the assessee was enhanced-- Order setting aside the assessment by the First Appellate Authority was declared illegal and the same was cancelled by the Tribunal.

PLD 1964 SC 410 and 1987 PTD (Trib.) 256 ref.

1996 PTD (Trib.) 65 rel.

S.A. Khan for Appellant.

Ashraf Ahmed Ali, D.R. for Respondent.

2001 P T D (Trib.) 2914

[Income-tax Appellate Tribunal Pakistan]

Before Inam Ellahi Sheikh, Chairman and Rasheed Ahmed Sheikh, Judicial Member

I.T.As. Nos. 1244/KB, 1245/KB and 1266/KB of 1999-2000, decided on 6th April, 2001.

Income Tax Ordinance (XXXI of 1979)---

----Ss.66-A, 50(5) & 80-C---Power of Inspecting Additional Commissioner to revise Deputy Commissioner's order ---Assessee imported card,, and pay phones and tax was deducted at import stage under S.50(5) of the Income Tax Ordinance, 1979--- Assessee claimed credit of such tax and assessment was finalized under S.62 of the Income 'fax Ordinance, 1979---Assessment was cancelled by the Inspecting Additional Commissioner on the ground that the imports were covered under S.80-C of the Income Tax Ordinance 1979 being goods imported and directed the Assessing Officer to finalize the assessment accordingly---Assessee contended that cards, imported could not be classified as "goods" because those could be used only for the purpose of using the pay phone facility i.e. services provided by the assessee and could not be said to be "goods" imported for sale as cards were not goods to ordinary sense of the word---Validity---Term "goods" carries wide meaning--Collection of tax under S.50(5) of the Income Tax Ordinance, 1979 was applicable to all the imports of the goods subject to certain exceptions and concessions laid down in S.50(5)---Cards having been imported as commercial importer amount computed for the purpose of collection of tax under S.50(5) of the Income Tax. Ordinance; 1979 was deemed to be the income of such person who was importing' the goods and tax was to he charged at the rate specified in the First Sched. Of the Income Tax Ordinance, 1979 Cards had been imported as commercial goods and had suffered tax under S.50(5) of the Income Tax Ordinance, 1979---Assessee's appeal was dismissed by the Tribunal in circumstances.

AIR 1968 SC 922 and 189 ITR 463 ref.

E.U. Khawaja for Appellant.

Qamaruddin, D.R. for Respondent.

Date of hearing: 27th March, 2001.

2001 P T D (Trib.) 2919

[Income-tax Appellate Tribunal Pakistan]

Before Jameel Ahmed Bhutto, Accountant Member and

Karamat Hussain Niazi, Judicial Member

I.T.As. Nos.296/IB to 300/IB of 1998-99, decided on 31st March, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss.66-A & 5(1)(c)---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---When Inspecting Additional Commissioner acts as Assessing Officer, he could not,. in respect of such assessments exercise the powers of revision under S.66-A of the Income Tax Ordinance, 1979 and in that case, as provided under S.5(1)(c) of the Income Tax Ordinance,'1979, read with S.66-A of the Income Tax Ordinance, 1979, the revisional powers shall be exercisable by the Commissioner of Income Tax.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.66-A---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Assessments were cancelled on the contention that the Housing Societies engaged in the development of residential colonies were subjected to tax on their receipts from sale of plots of land to its members or clients at the G.P. rate 15% on such receipts---Validity--­Inspecting Additional Commissioner fell in error by coming to the conclusion that receipts from sale of land were never scrutinized by the Assessing Officer who had admittedly obtained details of the business and found no reason to subject the receipts of the assessee to G.P. rate at 15%--­No material was available to hold that S.66-A was applicable on the ground that proper treatment as per law had not been accorded resulting in the loss of revenue---First requirement of issuance of notice was not fulfilled because the original assessment orders could not be considered as erroneous insofar as prejudice to the interest of revenue---Notice issued under S.66-A was neither based' on any enquiry, evidence or material on record, nor issued after, examination of the case with an independent, impartial and unbiased mind, especially when most of the original assessments had been made by his counterpart Inspecting Additional Commissioner--Inspecting Additional Commissioner was not competent to pass the impugned order under S.66-A of the Income Tax Ordinance, 1979 in circumstances.

Sukdeo Doe Jalan v. C.I.T. 26 ITR 617 distinguished.

1988 PTD 723; 1984 PTD 201; 1984 PTD 137; 1969 PTD (Trib.) 144; Glaxco Laboratories' case 1992 SCC 910 (SC Pak.) and (2001) 83 Tax 193 (SC Ind.) rel.

Nasir Khursheed, I.T.P. for Appellant.

Muhammad Tahir Khan, D.R. for Respondent.

Date of hearing: 30th March, 2001.

2001 P T D (Trib.) 2922

[Income-tax Appellate Tribunal Pakistan]

Before Inam Ellahi Sheikh, Chairman and

Javed Masood Tahir Bhatti, Judicial Member

I.T.A. No. 1072/KB of 2000-2001, decided on 28th April, 2001.

Income Tax Ordinance (XXXI of 1979)-­---

--Ss.66-A, 62, 80-D & Second Sched., C.1. (118-D)---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Assessee declared sales of Rs.153,462.972 for the period of "Trial Production" from 8-4-1993 to 30-9-1993 (Assessment year 1994-95) and tax under S.80-13 was paid---Assessing Officer while finalizing the assessment for the assessment year 1995-96 under S.62 of the Income Tax Ordinance, 1979 had taken the date of commercial production as 1-10-1993---Inspecting Additional Commissioner modified the assessment for the assessment year 1995-96 and date of production was taken as 8-4-1993 instead of 1-10-1993 contending that sale of such magnitude could not be termed as trial production--­Consequently, assessee's entitlement to exemption for a period of 5 years under C1. (118-D) of the Second Sched. of the Income Tax Ordinance, 1979 was allowed w.e.f. 8-4-1993 to 8-4-1998---Validity---According to Inspecting Additional Commissioner exemption would start from 8-4-1993 and not from 1-10-1993 which meant that income after 8-4-1998 would become taxable, whereas according to original assessment income after 30-9-1998 would become taxable---If there was an error iii the ascertainment of exact date of the start of the commercial production, the same occurred in the assessment year 1994-95 and not assessment year 1995-96--Case of the revenue was not that the income for the assessment year 1995-96 was taxable apprehension of the Revenue was that the assessee would be allowed exemption between 8-4-1998 and 30-9-1998 which was not due---Inspecting Additional Commissioner had not given a clear finding that there was in fact any income for such period of approximately 6 months on which the assessee could be asked to pay tax or if there was any other prejudice caused to the Revenue---Order of the Inspecting Additional Commissioner was cancelled by the Tribunal in circumstances.

1998 PTD (Trib) 3742 ref.

Shabbar Zaidi, F.C.A. for Appellant.

Qamaruddin, D.R. for Respondent.

Date of hearing: 24th April, 2001.

2001 P T D (Trib.) 2926

[Income-tax Appellate Tribunal Pakistan]

Before Jameel Ahmed Bhutto, Accountant Member and

Karamat Hussain Niazi, Judicial Member

I.T.As. Nos.747/IB to 749/11 of 1999-2000, decided on 31st March, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.13(1)---Unexplained investment---Onus of proof---Onus of proving the fact that assessee had concocted the story was not on the department since the burden was placed upon the assessee under S.13(1) of the Income Tax Ordinance, 1979 to offer satisfactory explanation to the effect that the sum of money admittedly available with the assessee in the relevant year was from a definite source and was not to be treated as unexplained money liable to be added as deemed income.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss.13(1)(aa) & 19---Addition---Agreement to sell ---Assessee had shown the amount from sale of property as exempt income on the basis of agreement to sell and affidavit from the purchaser but no sale deed in respect of such property was executes--- Assessing Officer made addition under S.13(1)(aa) of the Income Tax Ordinance, 1979 of such declared exempt income as well as income from house property was also assessed in the !antis of the assessee being the owner of such property which was deleted by the First Appellate Authority---Validity---Simple agreement to sell was never acted upon and there was no deed for sale and transfer of the property in question---Such a sham arrangement could not satisfy the requirements of S.13(1) or S.19 of the Income Tax Ordinance 1979 since the house property remained in the ownership of the assessee and the source of money declared by the assessee could not be attributed to any genuine sale of the property---Order of First Appellate Authority was declared unsustainable being devoid of correct interpretation of the provisions of the Income Tax Ordinance, 1979 and based on improper appraisal of evidence and incorrect appreciation of facts of the case and order of Assessing Officer was restored by the Appellate Tribunal.

Bachu Bai F.E. Dinshaw v. CIT 1967 PTD 170; B.D. Avari v CIT 1989 PTD 670 (H.C, Kar.); CIT v. Hans Ri' Gupta (1982) 137 ITR 195 and CIT N Zorostrian Building Society Limited (1976) 102 ITR 499 rel.

Muhammad Tahir Khan, D.R. for Appellant.

Zahid Hussain, A.C.M.A. for Respondent.

Date of hearing: 27th March, 2001.

2001 P T D (Trib.) 2933

[Income-tax Appellate Tribunal Pakistan]

Before Jameel Ahmed Bhutto, Accountant Member and

Syed Masood ul Hassan Shah, Judicial Member

I.T.A. No.674/IB of 1997-98, decided on 19th April, 2001.

(a) Income Tax Ordinance (XXXI of 1979)----

----S. 116(b)--Imposition of penalty after notice of hearing, etc.---Non­-compliance of notice---Conclusion---Perpetual non-compliance at the end of assessee led the Assessing Officer to draw the conclusion that the default was wilful and committed without reasonable cause.

(b) Income Tax Ordinance (XXXI of 1979)---

----S. 108---Penalty---Excessive and harsh---Penalty in circumstances, calculated in accordance with the provisions of S.108 of the Income Tax Ordinance, 1979 was pot adjudged to be excessive and harsh.

(c) Income Tax Ordinance (XXXI of 1979)---

----S.108---Penalty---Mens tea---Department had not to establish mens tea on the part of assessee since in a fiscal law, failure to furnish the prescribed statement, without reasonable cause, attracts penalty .and the Assessing Officer was duty-bound to impose upon the defaulter the penalty under S.108(b) of the Income Tax Ordinance, 1979---No discretion available with the Assessing Officer if the failure to furnish such statement, without reasonable cause, was proved after giving a reasonable opportunity of being heard to the person failing to furnish such statement as word "may" appearing in S.108 of the Ordinance was substituted by the word "shall" through -Finance Act, 1994 leaving no discretion with the Assessing Officer.

(d) Income Tax Ordinance (XXXI of 1979)---

----S. 116(b)---Imposition of penalty after notice of hearing etc.---Non-filing of statements---Assessee was provided repeated opportunities and its persistent non-compliance with notices/letters issued by the Assessing Officer gave strong support to the fact that the assessee had failed to furnish the required statements, without reasonable cause, and had no explanation to offer when provided opportunities of being heard under S.116(b) of the Income Tax Ordinance, 1979.

(e) Income Tax Ordinance (XXXI of 1979)--

----Ss. 108(b), 142 & 50(4)---Penalty was imposed for non-furnishing monthly statements of tax deduction under S.50(4) of the Income Tax Ordinance, 1979 after giving a reasonable opportunity of being heard--­Validity---Nothing was available on record to suggest that the penalty was imposed without proper service of statutory notices---Penalty order was deemed to be correct in the absence of any evidence to the contrary---Order of Assessing Officer as well as First Appellate Authority was maintained by the Tribunal and appeal was rejected.

(f) Income Tax Ordinance (XXXI of 1979)---

----S.108---Penalty--Wrong writing of assessment year on the face of order--­Effect---Penalty order made it clear beyond doubt that the penalty was imposed for failure to furnish monthly statements under S.142 of the Income Tax Ordinance, 1979 for the month of July, 1996 to November, 1996--­Writing of assessment year 1997-98 on the face-sheet (and not in, the body of the penalty order) did not vitiate penalty proceedings.

(g) Income Tax Ordinance (XXXI of 1979)—­

----S. 155---Certain mistakes not to vitiate assessment, etc.---No assessment order, notice warrant or other document under the Income Tax Ordinance, 1979 shall be void or otherwise inoperative merely for want of form or for a mistake, defect or omission therein, if such want of form or mistake, defect or omission was not of a substantial nature prejudicially affecting an assessee.

Shahbaz Butt for Appellant.

Abdul Jaleel, D.R. for Respondent.

Date of hearing: 17th April, 2001.

2001 P T D (Trib.) 2938

[income-tax Appellate Tribunal Pakistan]

Before Muhammad Daud Khan, Accountant Member

I.T.A. No.76/KB of 2000-2001, decided on 20th October, 2000.

Income Tax Ordinance (XXXI of 1979)--

----S. 62---Assessment on production of accounts, evidence etc.---Rejection of accounts---Assessing Officer rejected the declared version of the assessee after recording the finding to the effect that assessee's sales and purchases were in cash and not open to verification---Validity--Assessing Officer neither pointed out material defects nor quoted any parallel case to justify the rejection of account ---Unverifiability of sales and purchases alluded to in the order was immaterial in the context because in spite of the same the accounting version was accepted for preceding year---If the Assessing Officer had objections to decrease in G:P., he should have gone deeper into the matter by comparing the prices of assessee's menue items with prices of raw materials last year to draw adverse inference on valid basis---Argument that assessee had been confronted with the defects on the order sheet was not found forceful in the context---Notice under S.62 of the Income Tax Ordinance 1979, was a statutory requirement which had to be met and entries in order sheet were no substitute for the same---Entries on order sheet were meant only for day to day record of proceedings and the Assessing Officer was obligated under the law to issue notice under S.62 confronting the assessee with the defects or deficiencies found and his intention to reject the version and estimate the same in case he was so inclined---Assessing Officer was directed to accept the declared sales and G.P. in the circumstances by the Tribunal.

I.T.A. No.223/KB of 1990-91 ref.

Javed Zakaria for Appellant.

Pervez Akhtar, D.R. for Respondent.

Date of hearing: 20th October, 2000.

2001 P T D (Trib.) 2941

[Income-tax Appellate Tribunal Pakistan]

Before Shahid Jamal, Accountant Member and

Syed Kabirul Hasan, Judicial Member

I.T.As. Nos.897/KB to 899/KB of 1993-94, decided on 19th October, 2000.

(a) Income Tax Ordinance (XXXI of 1979)---

----S. 62---Assessment on production of accounts, evidence etc.---Assessee, a spinning mill---Rejection of accounts---Absence of Spinning Master's report---Effect---Spinning Master's report was though an important and relevant document of the record but non-production of such record could not invest the Assessing Officer with power to reject the accounts, contrary to -established history of the case---Admitted positions being that assessee's accounts, without production of Spinning Master's reports, were accepted from 1977-78 to 1982-83 in spite of a much higher claim of wastage, Department could not make the absence of Spinning Master's report the basis of rejection of accounts.

(b) Income Tax Ordinance (XXXI of 1979)---

----S. 62---Assessment on production of accounts, evidence etc.--Rejection of accounts---Unverifiable cash sales---Name and addresses of the buyers--­Arguments that sales were not verifiable did not hold good because the Assessing Officer himself accepted the declared average sales rate in all the three assessments in dispute while making additions on account of excessive wastage, and in cash sales the seller could not insist on names or the addresses of the buyers---Non-verifiability of purchases in export account was mere formality as no specific instance was either confronted to assessee or cited in assessment order, nor any discrepancy in purchase rate had been pointed out---Assessing Officer did not have any material basis to reject either the manufacturing account or the export account.

I.T.A. No. 1127/HQ of-1989-90; 1.T.A. No.3895/KB of 1986-87; dated 1-6-1995; I.T.A. No.494/HQ of 1989-90, dated 4-9-1997 and I.T.A. No. 137/HQ of 1991-92, dated 12-6-1994 ref.

1997 PTD 76; 1990 PTD 254; Indus Textile Mills v. CIT 1989 PTD 567 and 1992 PTD 341 rel.

Vishno Raja Qavi, D.R. for Appellant:

Muhammad Javed Zakaria for Respondent.

2001 P T D (Trib.) 2946

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Mujibullah Siddiqui, Chairman, S. Hasan Imam, Judicial Member and Shahid Jamal, Accountant Member

M.A. (Rect) No.02/KB of 2000-2001, decided on 11th September, 2000.

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss. 59(1), 80-B, 80-C & 80-CC---Self-Assessment Scheme---Presumptive income for purpose of comparison---Assessment year 1997-98---When Self­-Assessment Scheme was introduced, it contained the provisions relating to the presumptive income to be included for purpose of comparison of income whereas Self-Assessment Scheme for the assessment year 1997-98 did not carry any such provision, excluding presumptive income, as such there was no bar to consider presumptive income for the purpose of comparison--­When no presumptive provision was given in the original Self-Assessment Scheme, any subsequent clarification of the Central Board of Revenue might not be taken into consideration being extraneous---Clarification or interpretation issued by the Central Board of Revenue being expressly contrary to the Self-Assessment Scheme could not override the Scheme itself.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss. 156 & 59(1)---Rectification of mistake---Self-Assessment Scheme 1997-98--- Application for rectification of Tribunal's judgment in I.T.A. No.683/KB of 1998-99, dated 25-3-1999 in which Tribunal held that presumptive tax under S.80-C will be taken for the purpose of comparison in respect of Self-Assessment Scheme for the year 1997-98, on the basis of another Tribunal's judgment in I.T.A. No.257/KB of 1998-99 in which the same issue was decided contradictory to its own earlier decision ---Validity--­ Assessee's case qualified under Self-Assessment Scheme---Judgment in I.T.A. No.683/KB of 1998-99, dated 25-3-1999 contained correct exposition of law as compared to the order, dated 31-3-1999 in I.T.A. No.257/KB of 1998-99---No room was left for rectification---Judgment referred for rectification having not been overruled by any subsequent Larger Bench of the Tribunal or superior Court, the same was a binding judgment---Issue involved had rightly been decided in I.T.A. No. 683 of 1998-99, dated 25-3-1999--Judgment bearing I.T.A. No.257/KB of 1998-99 was overruled-­ [Messrs A.G. Meraj & Co.'s case I.T.A. No.257/KB of 1998-99 overruled].

I.T.A. No.683/KB of 1998-99 confirmed.

Messrs A.G. Meraj & Co.'s case I.T.A. No.257/KB of 1998-99 overruled.

1993 PTD (Trib.) 1196 rel.

Javed Zakaria for Appellant.

Khalid Siddiqui, D.R. for Respondent.

Date of hearing: 26th August, 2000.

2001 P T D (Trib.) 2951

[Income-tax Appellate Tribunal Pakistan]

Before S.M. Sibtain, Accountant Member and Tahseen Ahmad Bhatti, Judicial Member

I.T.As. Nos.262/KB to 264/KB of 1999-2000, decided on 30th November, 1999.

Income Tax Ordinance (XXXI of 1979)---

----S. 66-A---Companies Profit (Workers' Participation) Act (XII of 1968)--­Companies Profit (Workers Participation) Rules, 1971---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Assessing Officer allowed claim on account of contribution to Workers Participation Fund---Inspecting Additional Commissioner directed the Assessing Officer to modify the order by disallowing the respective claims on the ground that allocation made with interest earned on the accumulated balances were neither distributed amongst the workers, nor the same were transferred to W.W.F. as required under the law yet the Assessing Officer erroneously allowed the entire amounts while framing the assessments---Validity---Provisions of Companies Profits (Workers Participation Fund) Act, 1968 and Rules thereunder as well as the Schedule provided that if a company established a fund and paid to the Fund every year 5 % of its profits during such year, it had to constitute a Board Trustees within the prescribed time to manage the Fund---Board of Trustees expresses the share of each worker in the annual allocation and distributes 100% of annual income of the Fund including capital gains realised each year in proportion to their units of entitlement---Discretion of the worker who continues to remain in service to leave his share in the Fund and such allocated or accruing amounts to the Fund shall be available to the company for business operations subject to the condition that it will pay interest to the Fund on such amount---Company shall be allowed the allocation made to the Scheme as a deduction to arrive at the taxable income---Order was set aside by the Tribunal with the direction to allow the claim after verification of establishment of the Fund.

I.T.As. Nos.1195 to 1201/IB of 1998-99 and 2118 to 2121/KB of 1997-98 ref.

Jawed Zakaria for Appellant.

Muhammad Umer Farooque, D.R. for Respondent.

Date of hearing: 26th November, 1999.

2001 P T D (Trib.) 2957

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Mujibullah Siddiqui, Chairman and

Muhammad Mahboob Alam; Accountant Member, W.T.Os. Nos. 239/KB to 242/KB of 1999-2000, decided on 9th August, 2000.

Wealth Tax Act (XV of 963)---

----Second Sched., C1.7(ii)---S.R.0.140(1)/91, dated 25-2-1991, R.7--­Exemption---Dollar Bearer Certificate ---Encashment of---Exemption was not allowed to the assessee on the ground that assets were created out of sale of Dollar Bearer Certificates in the secondary market and not through proper banking channel in spite of encashment certificate issued by the Bank--Validity---Dollar Bearer Certificates were properly surrendered to the office of issue and the relevant provision as contained in R.7 of the rules issued under S.R.0.140(I)/91, dated 25-2-:991 was properly complied with by the assessee---Rupee .proceeds having been realised by the office of issue and credited to the accounts of the assessee constituted a sufficient evidence of encashment of such certificates---Rupee value realised on conversion of Dollar Bearer Certificates was to be exempted in terms of provision of C1.7(ii) of the Second Sched. to the Wealth Tax Act, 1.963---Disallowance by the Assessing Officer was deleted by the Tribunal.

Jawed Zakaria for Appellant.

Khalid Siddiqui, D.R. for Respondent.

Date of hearing: 9th August, 2000.

2001 P T D (Trib.) 2964

[Income-tax Appellate Tribunal Pakistan]

Before M. Munir Qureshi, Accountant Member and

Khawaja Farooq Saeed, Judicial Member

I.T.A. No.897/LB of 1998, decided on 29th March, 2000:

(a) Finance Act (XII of 1991)---

----S.12---Corporate Assets Tax---Exclusion of unallocated capital expenses-­Determination of depreciation allowance---Principles.

Notwithstanding the departments' treatment of such expenses at the time of determinat.3n of depreciation allowance, the fact of the matter is that since these expenses are directly connected with the Company's fixed assets, they constitute "Capitalized Expenditure". The Company would be able to derive "Recurring Benefit" from its fixed assets only if such "Capitalized Expenditure" has been actually incurred. These expenses eventually merge into the cost incurred on the acquisition of fixed assets. However, it may not be possible to precisely relate the capital expenditure to "a" particular fixed asset. In -other words such expenditure may be spread over a number of different fixed assets viz. different plant/machinery/building items. In such a situation it may not be possible to tell immediately, the exact quantum of capital expenditure "embodied" in "a" particular fixed assets. That is one reason -why such unallocated capital expenses are often excluded at the time of determination of depreciation allowance.

Nevertheless where the capital expenditure has been admittedly incurred in the context of the Company's aggregate fixed assets, the nature of such capital expenditure remains unchanged and it must form part of the over all value of the Company's fixed assets. Hence, so far as levy of corporate assets tax is concerned, the capitalized expenditure, though "unallocated" must form part of the Company's fixed assets.

(b) Finance Act (XII of 1991)----

----S. 12---Corporate Assets Tax---Unallocated capital expenditure--­Taxability---Where capital expenditure had been admittedly incurred in, the context of Company's aggregate fixed assets, the nature of such capital expenditure remained unchanged and it must form part of the overall value of the company's fixed assets and so far as levy of Corporate Assets Tax was concerned, the capitalized expenditure, though "unallocated" must form part of the company's fixed assets.

(c) Finance Act (XII of 1991)---

----S.12---Corporate Assets Tax---Levy of additional tax/penalty---Penalty and additional tax should not be levied---Central Board of Revenue had issued multiple circulars relating to Corporate Assets Tax which had created confusion in the mind of taxpayers.

I. T. A. No. 1872/LB of 1997 rel.

Mian Munawar Ghafoor, D.R. for Appellant.

Ahmed Mushir Qadri, F.C.A. for Respondent.

Date of hearing: 25th March, 2000.

2001 P T D (Trib.) 2969

[Income-tax Appellate Tribunal Pakistan]

Before Jameel Ahmed Bhutto, Accountant Member and

Syed Masood-ul-Hassan Shah, Judicial Member

I.T.A. No. 1091/IB of 1998-99, decided on 29th May, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.80-C(2)(a)(i)---Expression "services rendered" has not been defined in the Income Tax Ordinance, 1979 but has to be understood in the context in which it is used in the provision of -the Income Tax Ordinance, 1979.

(b) Income Tax Ordinance (XXXI of 1979)---

----S. 80-C---C.B.R. Circular No.11 of 1991, dated 30-6-199.1---Term "services rendered"---Interpretation---Central Board of Revenue had not restricted interpretation of word "services rendered" by use of word. "includes" in its Circular No.11 of 1991 but it was only by way of illustration that "services rendered" by professionals like legal and medical practitioners, accountants were mentioned in the said circular---Intention 'was not to restrict or limit the application of expression "services rendered" only to the doctors, lawyers, accountants, auditors, architects, surveyors, actuaries, engineers, advisors and consultants.

(c) Income. Tax Ordinance (XXXI of 1979)---

----Ss. 80-C & 50(4)----Expression "services rendered' ---Interpretation--­Intention of Legislature---Intention of Legislature was expressed by unrestricted use of expression "services rendered" to mean that all recipients of payments on which tax is deductible under S.50(4) of the Income Tax Ordinance, 1979 on account of services rendered would fall outside the purview of presumptive tax regime under S.80-C of the Income Tax Ordinance, 1979 and the tax deducted in their case would not be final discharge of their tax liability.

(d) Income Tax Ordinance (XXXI of 1979)---

----S. 80-C---C.B.R. Circular No.11 of 1991, dated 30-6-1991---Difference between other contractors, suppliers and those who "rendered services"---Tax deducted under S.50(4) in case of other contractors and suppliers was intended to be their full and final discharge of tax liability, being covered under the presumptive tax regime of S.80-C, the recipients of payments on account of services rendered were intended to be kept outside the presumptive tax regime of S.80C of the Income Tax Ordinance, 1979---Such persons had to be treated differently from suppliers and contractors, otherwise even contractors and suppliers could claim to have rendered services in one way or the other, either by using man and material for others or working as middleman by making supplies of goods produced by others and was in that context that the intention of the Legislature had to be gathered from the use of expression "services rendered" which could not be as large and unrestricted as in the dictionaries and not as restricted as shown by way of illustration in C.B.R. Circular No. 11 of 1991, dated 30-6-1991.

(e) Income Tax Ordinance (XXXI of 1979)---

----Ss. 80-C & 50(4)---Expression "services rendered"---Reliance on dictionary meaning of the words "services rendered" cannot be placed by ignoring the context in which these words are used in S.80-C read with S.50(4) of the Income Tax Ordinance, 1979.

(f) Income Tax Ordinance (XXXI of 1979)---

----Ss. 80-C & 50(4)---Expression "services rendered"---Explanation--­Expression "services rendered" relates to all resident persons who are not contractors or suppliers of goods mentioned in S.50(4)(a) of the Income Tax Ordinance, 1979---Distinction could only be made when the facts and circumstances of each case were properly appreciated on the basis of supportive material and a definite conclusion was drawn to maintain the desired difference between the payments made to a resident person on account of services rendered by him and the payments on which tax was deductible under S.50(4) on account of supply of goods or for the execution of other contracts.

(g) Income Tax Ordinance (XXXI of 1979)---

----Ss.66-A & 80-C---C.B.R. Circular No.11 of 1991, dated 30-6-1991--­C.B.R. Circular No.25 of 1980, dated 23-9-1980---C.B.R. Letter No. C. No.1(10) WHT-92, dated 7-4-1992---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order ---Assessee declared his income from providing security services---Assessment was finalized under S.62 of the Income Tax Ordinance, 1979---Inspecting Additional Commissioner observed that the aspect of application of S.80-C of the Income Tax Ordinance, 1979 was ignored and nature of business carried out by the assessee did fall within the ambit of "services rendered" in view of Circular No.11 of 1991---Assessment was cancelled and Assessing Officer was directed to reframe the assessment by scrutinizing the Bank statement, book of accounts and other details and further, to assess those receipts on which tax was deductible under Ss.50(4) and 80-C of the Income Tax Ordinance, 1979 and the remaining receipts under normal law ---Assessee contended that it was only a manager to the principals, charging fixed amount as its administrative charges and all powers of hiring firing of workers rested with principals---Contention of the Department was that assessee was not a consultant because of its actual physical involvement and active undertaking of the job as a contractor and activities of assessee were not "services rendered" within the meaning of expression used in S.80-C of the Income Tax Ordinance, 1979---Validity---Assessee's plea was not borne out from the material brought on file---Claim that there was no other contractual income and all payments were received for "services rendered" was also not substantiated---Inspecting Additional Commissioner was justified in considering that the assessment was erroneous insofar as it was prejudicial to the interest of revenue---Direction to make a fresh assessment in the manner suggested in the order, however, was not fully justified---Bank accounts were not carefully scrutinized by the Inspecting Additional Commissioner and mistake in working out total deposit could influence the independent application of mind by the Assessing Officer---Assessing Officer could not be directed to assess those receipts on which tax was deductible under S.50(4), and S.80-C of the Income Tax Ordinance, 1979 and remaining receipts under normal law---Not all receipts of assessee on which tax was deductible were on account of execution of contracts and not for services rendered under the contracts---Payment on which tax was deductible under S.50(4) had to be scrutinized independently in order to determine the nature of payment vis-a-vis the terms of agreement or, contract on the basis of which such payments were made to the assessee---If Assessing Officer found that payments were made for services rendered within the meaning of expression used in S.80-C, he would have made fresh assessment under normal law as income from business or profession under S.22 of the Income Tax Ordinance, 1979--­Only those payments on which tax under S.50(4) of the Income Tax Ordinance, was deductible would fall within the ambit of S-80-C under the presumptive tax regime of the Income Tax Ordinance, 1979--Re-assessment had to be made by the Assessing Officer independently and without being influenced by the observation of Inspecting Additional Commissioner and keeping in view the observation of the Tribunal after providing full opportunity to assessee to produce books of accounts and other supportive material/evidence.

1965 PTD 373; 1975 PTD (Trib.) (sic); 1967 PTD 156; Black's Law Dictionary, 7th Edn., p. 1372; Chamber's Twentieth Century Dictionary; Glaxo Laboratories v. IAC 1992 SCC 910; Southern Travels (Pvt.) Ltd., Rawalpindi's case I.T.As. Nos. 672 and 941(IB) of 1998-99 ref.

Mirza Muhammad Wasim, I.T.P. for Appellant.

Abdul Jaleel, D.R. for Respondent.

Date of hearing: 19th May, 2001.

2001 P T D (Trib.) 3117

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Munir Qureshi, Accountant Member and Syed Nadeem Saqlain, Judicial Member

I.T.A. No.6134/LB of 1999, decided on 31st March, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss.66A & 59(I)---Powers of-Inspecting Additional Commissioner to revise Deputy Commissioner's order---Self-Assessment Scheme ---Non­availability of assessment order---In response to show-cause notice under S.66A of the Income Tax Ordinance, 1979, question of non-availability of assessment order under S.59(1) of the Income Tax Ordinance, 1979 was not raised but the assessment was supported and it was asserted to be valid in all respects ---Assessee could not be allowed subsequently to contest alleged non­availability of such order under S.59(1) of the Income Tax Ordinance, 1979 at appellate stage.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.59(l)---Self-assessment---Assessment order---Order under S.59(1) of the Income Tax Ordinance, 1979 is generated automatically once Return filed under Self-Assessment Scheme is found to be in order and taken up for processing by making appropriate entry on the order sheet.

(c) Income Tax Ordinance (XXXI of 1979)---

----Ss.66A &59(1)---C.B.R. Circulars No. 5 of 1997, dated 12-7-1997 and No.11 of 1997, dated 9-9-1997---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Self-Assessment Scheme for the assessment year 1997-98---New assessee---Inspecting Additional Commissioner initiated action order S.66A of the Income Tax Ordinance, 1979 on the basis of violation of Self-Assessment Scheme's requirements i.e. non-filing of wealth statement and declaration being not in the ratio of 1/3rd of the capital---Validity---Even if it be accepted that A.O.P. had in effect been exempted from filing wealth statement the fact remains that capital available vis-a-vis income declared was grossly understated/deficient and income cited on the return was as a consequence inadequate and unacceptable for self-assessment purposes---Order of the Inspecting Additional Commissioner was maintained by the Tribunal.

S. A. Khan for Appellant.

Ahmad Kamal, D.R. for Respondent.

Date of hearing: 15th February, 2001.

2001 P T D (Trib.) 3132

[Income-tax Appellate Tribunal Pakistan]

Before Inam Ellahi Sheikh, Chairman and

Jawaid Masood Tahir Bhatti, Judicial Member

I.T.As. Nos.364/KB, 1300/KB to 1305/KB of 1999-2000, decided on 16th April, 2001.

(a) Agreement for Avoidance of Double Taxation Between Pakistan and United States of America---

Art.II(1)(m)---"Permanent Establishment"---Connotation---Definition of permanent establishment as given in the Treaty enumerates the places which fall within the concept of "permanent establishment" and enlarge the scope of "permanent establishment" by including agents in its ambit---Definition of "permanent establishment" distinguishes between independent agent; or contractor and dependent agent or contractor---An agent is deemed to create a permanent establishment who has the authority to conclude contracts on behalf of a US enterprise or who actually exercises such authority; such are dependent agents---Agents of independent status acting in the ordinary course of their business are excluded from the scope of "permanent establishment-­Mere agency for acting on behalf of US enterprises is not enough to constitute a permanent establishment and for such purpose the agent must fill orders from stock of goods or habitually exercise an authority to conclude contracts on behalf of or in the name of US enterprise---If the agent is independent and acting in the ordinary course of its business there is no permanent establishment of US enterprise in Pakistan.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.78---Agreement for Avoidance of Double Taxation Between Pakistan and USA----Liability of agents representing assessee---Permanent establishment ---Assessee was treated as an agent of non-resident principal under S.78 of the Income Tax Ordinance, 1979, and tax was charged on the income that had accrued to the non-resident principal in Pakistan in the hands of assessee on the ground that assessee had entered into the distribution agreement with non-resident principal whereby the assessee was responsible for payment of taxes which arose as a result of payment of sub-licence fee to the said non-resident principal ---Assessee contended that income of non­resident principal was not chargeable to tax in Pakistan since it had no permanent establishment in Pakistan---Validity---Agreement between the assessee and the non-resident principal provided that the right to sub-licence the programmes was non-exclusive and the principal had the rights to distribute programmes directly in Pakistan and to appoint another agent in Pakistan---Only rights to use the intellectual property had been granted to assessee which could not be treated as goods or articles as had been referred to in the definition of "permanent establishment" in the Treaty---Subsequent sub-licensing the rights to use the programmes was not executed on behalf of non-resident principal, but the assessee in the capacity of licensor for its clients sub-licensed the rights to use the programmes ---Assessee was acting independently in the ordinary course of its business and did not represent "permanent establishment of non-resident principal in Pakistan---Non-resident principal having no "permanent establishment in Pakistan, in circumstances, its income would not be subjected to tax in Pakistan---Order of the First Appellate Authority as well as that of the Assessing Officer was vacated by the Tribunal.

CIT v. R.D. Aggarwal & Co., (1965) 56 ITR 20 (SC Ind.); B.P. Ray v. ITO, (1981) 129 ITR 295 (SC Ind.) and 1989 PTD 271 ref.

(c) Agreement for Avoidance of Double Taxation Between Pakistan and United States of America---

----Art.II(1)(m)---Income Tax Ordinance (XXXI of 1979), S.78--=Permanent Establishment---Principle---Technological progress in the field of communication has considerably changed the manner of doing business and affected the basic concepts of fiscal policies relating to cross-border transactions---Old concepts of geographical boundaries have been demolished and now a borderless world Internet business, known as E-business is rapidly progressing---Need of the persons to a transaction, or the middleman, to be present physically has been eliminated---Basic rule of the "permanent establishment" i.e. the fixed place of business and the agency rule of permanent establishment were crumbling---E-business was, therefore, heading towards the resident base taxation---E-business could deal in digital goods (technological goods) and not in merchandise, articles or services--­"Permanent establishment" was very much relevant to the cross-border transactions relating to the latter---Income arising from cross-border transfer of technological goods and services could not be taxed on the basis of traditional concepts of permanent establishment under the present provisions of the Income Tax Ordinance, 1979.

Khalil Ahmed Waggan, A.C.A. and Irfan Sadat Khan for Appellant.

Vishno Raja Qavi, D.R. for Respondent.

Date of hearing: 4th January, 2001.

=2001 P T D (Trib.) 3367

[Income-tax Appellate Tribunal Pakistan

Before Inam Ellahi Sheikh, Chairman and

Rasheed Ahmed Sheikh, Judicial Member

W.f.As. Nos.60-A/LB and 61-A/I:B of 1996, decided on 30th. April, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.129---Appeal to Appellate Additional Commissioner---Amendment in S.129 raising the amount of appeal fee---Effect---Amendment brought in S.129 of the Income Tax Ordinance, 1979 by virtue of Finance Act, 1994 raising the appeal fee from Rs.25 to Rs.2,500 was not applicable to the assessment year prior to the assessment year in which the change was introduced in the statute book.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.129---Appeal to Appellate Additional Commissioner---Right of appeal-- Accrual of---Right to file appeal accrues to the assessee the day tax return is filed by the assessee or on the date a statutory notice for filing of return is served upon the assessee.

(c) Income Tax Ordinance (XXXI of 1979)---

----S.129---Appeal to Appellate Additional Commissioner ---Assessee paid appeal fee Rs.25 and Rs.500 for the assessment years 1992-93 and 1993-94 respectively ---Assessee's appeals were dismissed with the observation that "full payment of appeal fee had not been paid"---Validity---Appeals related to assessment years prior to introduction of increase in fee by amendment in S.129 of the Income Tax Ordinance, 1979---Appeals were illegally dismissed without appreciating factual position. of the amended provisions of S.129 of the Income Tax Ordinance, 1979---Appellate Tribunal directed the First Appellate Authority to admit the assessee's appeals for hearing to be decided on merits.

(1995) 71 Tax 318 (Trib.); (1996) 73 Tax 132 (Trib) and W.T.A. No.59A/LB of 1995 rel.

Mirza Anwar Baig for Appellant.

Muhammad Aslam, D.R. for Respondent.

Date of hearing: 20th April, 2001.

2001 P T D (Trib.) 3369

[Income-tax Appellate Tribunal Pakistan]

Before Rasheed Ahmad Sheikh, Judicial Member and

Mazhar Farooq Shirazi, Accountant Member

I.T.As. Nos.340/LB to 342/LB of 2001, decided on 20th June, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.59-C---C.B.R. Circular No.16 of 1993, dated 23-8-1993---C.B.R. Circular No.8 of 1994, dated 11-7-1994---Assessment years 1993-94 and 1994-95---Fixed Tax Scheme---Conditions for eligibility.

Part 1 of the Scheme has laid down three conditionalities for eligibility of the case under the Scheme of fixed tax. Firstly, status of the taxpayer should be individual, A.O.P., H.U.P. and U.R.F. Secondly, he must conduct business or profession at a fixed or a temporary place of pucca shop. Thirdly, the area in which business or profession is being carried on should fall in any city of Pakistan including Metropolitan, Municipal Corporations, Committees. Cantonment Board, Federal Territory of Islamabad, Town Committees and villages. There is also one more condition, the fourth one which is enumerated in para. 6(a) of the Scheme. It has been provided therein that business capital of the taxpayer as on 30th June, 1993 and 30th June, 1994 should be less than Rs.1,00,000 and their income in the immediately preceding assessment year 1992-93 should not exceed Rs.36,000 or Rs.33,000 depending upon the tax paid in pursuance of paragraph 3 of the Scheme.

Para. 1 of the Scheme has provided three exceptions whereby the case of any taxpayer falling in any of the three exceptions mentioned in sub­paras. (a) to (c) of para. 1 shall not be eligible for the Scheme of fixed tax. It has nowhere been provided in the Scheme that "successor-in-business" shall be treated as an "existing assessee" and he shall not be eligible for the Scheme of fixed tax, such meanings in no way can be deduced from any para. of the Scheme. The "successor-in-business" is also eligible for the Scheme of fixed tax if his case is otherwise not hit by any infirmity laid down in the Scheme.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.59-C---C.B.R. Circular No-16 of 1993, dated 23-8-1993, para. 1(c)--­C.B.R. Circular No.8 of 1994, dated 11-7-1994, para.. 1(c)---Fixed tax--­Successor-in-business is also entitled to avail Fixed Tax Scheme --­Assessee availed the facility of Fixed Tax Scheme as a "new tax payer" but his case was excluded from the ambit of the Fixed Tax Scheme by treating him as "successor-in-business"---Such treatment given by the Assessing Officer was confirmed by the First Appellate Authority---Validity---Scheme has not provided that "successor-in-business" shall not be treated as an "existing assessee" and he shall not be eligible for the Scheme, of Fixed Tax if his case was otherwise not hit by any infirmity laid down in the Scheme ---Assessee's case did not fall within the definition of "existing assessee" as is provided in para.l (c) of the scheme and was illegally excluded out of the ambit of the Scheme ---Assessee's case was erroneously proceeded under normal law owing to misconception of law and the whimsical inferences drawn from the facts available on record---Receipt obtained for payment of token tax shall be deemed to be an assessment order under S.59-C of the Income Tax Ordinance, 1979---Order of First Appellate Authority was vacated and that of Assessing Officer was set aside by the Appellate Tribunal.

(c) Income Tax Ordinance (XXXI of 1979)---

----S.59-C---Fixed Tax Scheme---Facility of Fixed Tax Scheme extended to the predecessor in the preceding assessment years could not be refused to the successor who availed such facility as a "new taxpayer".

(d) Income-tax---

----Inspector's report---Credibility---No credence could be attached to the Inspector's report in view of glaring contradictions that Inspector was available at assessee's business premises from 7-00 a.m. to 10-00 a.m. whereas attendance of the Inspector on the said date had been marked at 8-00 a.m. in the attendance register which certainly made the Inspector's report dubious.

(e) Income-tax---

----Inspector's report---Reliance on---Estimate of sale---Contents of the Inspector's report pertained to the assessment year 2000-2001 while the assessment was completed in respect of the assessment year 1995-96 meaning thereby that the inquiry was conducted after the lapse of five years from the year in which the business was conducted by the assessee---No reliance could be placed on Inspector's report and was ignored by the Tribunal for the purpose of estimating the sales.

(f) Income-tax---

----Estimate of sales and profits and loss expenses---Principles.

Azhar Ehsan Sheikh for Appellant.

M.B. Anjum, D.R. for Respondent.

Date of hearing: 18th May, 2001.

2001 P T D (Trib.) 3420

[Income-tax Appellate Tribunal Pakistan]

Before Khalid Waheed Ahmed, Judicial Member and

Mazhar Farooq Shirazi, Accountant Member

I.T.A. No.2536/LB of 2000, decided on 27th February, 2001.

(a) Income-tax---

----Assessee, running a factory---Rent of the factory building was debitable to the manufacturing account according to the principles of accountancy.

Advanced Accountancy by Hrishikesh Chakraborty; Double-Entry Book-Keeping by Jamshed R. Batliboi, 24th Edn. and Advanced Accounts by M.G. Shukla and T.S. Grewal rel.

(b) Income Tax Ordinance (XXXI bf 1979)---

----Ss.66-A & 59(1)---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Inaccurate particulars---Proper course of action on furnishing of inaccurate particulars of income by claiming excess rent was to proceed under S.65 of the Income Tax Ordinance, 1979 provided there was any definite evidence of concealment---Order passed under S.66-A of the Income Tax Ordinance, 1979 was vacated and assessment framed under S.59(1) of the Income Tax Ordinance, 1979 was restored by the Appellate tribunal in circumstances.

1984 PTD 137 and 1999 PTD (Trib.) 2851 ref.

Mirza Anwar Baig, A.R. for Appellant.

Ashraf Ahmed Ali, D.R. for Respondent.

Date of hearing: 4th November, 2000.

2001 P T D (Trib.) 3916

[Income-tax Appellate Tribunal Pakistan]

Before Khawaja Farooq Saeed, Judicial Member

I.T.As. Nos.4287/LB and 4288/LB of 2000, decided on 6th June, 2001.

(a) Income-tax-

----Exemption---Depreciation---Buildings---"Work" and "workshop"--­Meanings---" Work" means any physical activity that means to obtain some end, the goal or the purpose and does not necessarily mean only a place of manufacturing process---" Workshop" as such is a place where some work is being carried on, be that for the purpose of manufacturing or not--­Restrictive meanings are to be allowed to the definition of "Factory or shop" in relation to an exemption clause, in respect of a facility provided by the Legislature in term of depreciation---Definition of the words "work" and "workshop" from such an angle would include the buildings which are utilized for the purposes which are not strictly manufacturing but are ancillary to the manufacturing process.

(b) Income Tax Ordinance (XXXI of 1979)--

----Third Sched., R.2(1)---Depreciation allowance---Factory and workshop--­Cold storage---Cold storage was covered under the definition of word "workshop" and it was entitled to depreciation @ 10%---Cold storage was an industrial. undertaking and was fully covered under the definition of "workshop" as it operated through a huge plant that manufactures a type of gas which maintains the freshness of the items placed therein and its natural shape for a longer duration than it could normally retain---Manufacturing of compressed gas for cooling the atmosphere within the area of the cold storage, was a "manufacturing process" cold storage was covered under the definition of the word "workshop" and was entitled to depreciation @10% .

(c) Words and phrases---

----"Work" and "workshop" ---Meanings.

Webster's Comprehensive Dictionary, International Edn., Vol. Two by J.C. Ferguson ref.

Muhammad Ahmad, D.R. for Appellant.

Muhammad Nazeer, I.T.P. for Respondent.

Date of hearing: 13th April, 2001.

2001 P T D 1904

[246 ITR 603]

[Jammu & Kashmir High Court (India)]

Before Dr. B. P. Saraf, C. J. and N.A. Kakru, J

COMMISSIONER OF WEALTH TAX

Versus

JAWAHAR LAL MEHRA

Income-tax Reference No.9 of 1982,'decided on 3rd July, 2000, (a) Wealth tax--------

----Assessment---Procedure---Computation of net wealth and tax payable need not be done in same sheet of paper---Sum payable calculated on a separate sheet of paper which was signed by Assessing Officer on same date on which order computing stet wealth was signed by him---Assessment order was valid---Indian Wealth Tax Act, 1957, S.16.

Like section 143(3) of the Income Tax Act, 1961, the Wealth Tax Act, 1957, also provides that the Assessing Officer shall, by order in writing, assess the net wealth of the assessee and determine the tax payable on the basis of such assessment. This requirement does not mean that both the calculations, that is, the calculation of the net wealth as well as of the tax payable, should be done in the body of the assessment order itself. It will be sufficient compliance with the requirement of section 16(3) of the Wealth Tax Act, 1957, if the tax payable is also calculated and the Assessing Officer approves the calculation by putting his signature thereon. It is immaterial whether the calculation is made on the assessment order or on a separate sheet of paper. Once both the sheets, that is, the assessment order sheet and the tax calculation sheet, are signed by the Assessing Officer, the assessment process, will be complete in accordance with the requirement of section 16(3):

Held, that, in the instant case, there was no dispute about the fact that the tax payable had been duly determined in a separate sheet of paper, namely, the assessment order form, which was prepared and signed by the Wealth Tax Officer simultaneously with the assessment order and sent to the assessee alongwith the assessment order and the demand notice. The assessment order was valid.

Kalyankumar Ray v. CIT (1991) 191 ITR 634 (SC) and CIT v. Alkeensons Agencies (2000) 246 ITR 125 (J & K) applied.

Mubarik Shah Naqshbandi (S.) v. CIT (1977) 110 ITR 217 (J & K) distinguished.

(b) Wealth tax-----

---- Appeal to Appellate Tribunal--Assessment---Penalty---Competency of appeal---Validity of assessment order cannot be challenged in appeal against order of penalty---Indian Wealth Tax Act, 1957, S.23.

Penalty proceedings and assessment proceedings are two separate proceedings. An appeal is provided under section 23 of the Act both against the order of assessment and the order of penalty. Any person objecting to any penalty imposed by the Assessing Officer under section 18 may appeal to the Appellate Assistant Commissioner under clause (d) of section 23(1). Separate provisions have been made in clauses (a), (b) and (c) of section 23(1) for appeal by a person aggrieved by an order of assessment. Any person objecting to the amount of net wealth determined under the Act or objecting to the amount of wealth tax determined as payable by him under the Act or denying his liability to be assessed under the Act may appeal to the Appellate Assistant Commissioner under clauses (a), (b) and (c) of section 23(I), respectively. If the order of assessment is not challenged, it becomes final and cannot be challenged in an appeal under clause (d) of section 23(1) of the Act against an order of penalty. The challenge in such appeal is confined to the imposition of penalty. The scope and ambit of the appeal is restricted to the order of penalty. The validity of the assessment order, which has attained finality, cannot be challenged in such an appeal.

Anil Bhan for the Commissioner

Nemo for the Assessee.

2001 P T D 1965

[246 I T R 607]

[Jammu and Kashmir High Court (India)]

Before Dr. B. P. Saraf C. J. and N. A. Kaknu, J

COMMISSIONER OF INCOME-TAX

Versus

ABDUL GANI BHAT

Income Tax Reference No.6 of 1979, decided on 3rd July, 2000.

(a) Wealth tax---

----Assessment---Procedure---Computation of net wealth and tax payable need not be done in same sheet of paper---Sum payable calculated on a separate sheet of paper which was signed by Assessing Officer on same date on which order computing net wealth was signed by him---Assessment order was valid---Indian Wealth Tax Act, 1957; S.16.

It will be sufficient compliance with the requirements of section 16(3) of the Wealth Tax Act, 1957, if the tax payable is also calculated and the Assessing Officer approves the same by putting his signature thereon. It is immaterial whether the calculation is made on the same sheet of paper on which the net wealth has been assessed or on a separate sheet of paper. Once the Assessing Officer signs both the sheets, that is, the assessment order sheet and the tax calculation sheet, the assessment process is complete in accordance with the requirements of section 16(3).

Held, that, in the instant case, there was no dispute about the fact that the tax payable had been duly calculated on a separate calculation sheet, which was signed by the Wealth Tax Officer on the same date on which the order computing the net wealth was signed by him. The assessment order was valid.

Kalyankumar Ray v. C.I.T. (1991) 191 ITR 634 (SC) applied.

C.W.T. v. Jawahar Lal Mehra (2000) 246 ITR 603 (J&K) fol.

Mubarik Shah Naqshbandi (S.) v. C.I.T. (1977) 110 ITR 217 (J&K) distinguished.

(b) Wealth tax-----

---- Appeal to Appellate Tribunal---Assessment---Penalty---Competency of appeal---Validity of assessment order cannot be challenged in appeal against order of penalty---Indian Wealth Tax Act, 1957, S.23.

The scope and ambit of an appeal against an order of penalty is confined to the levy of penalty. In such an appeal, the validity of the assessment order, which has attained finality, cannot be challenged. The Tribunal cannot consider the challenge to the validity of the assessment order, which has become final 2nd conclusive, in an appeal against the order of the Appellate Assistant Commissioner passed on an appeal against an order of penalty under clause (d) of section 23(l):

Held, (i) that the Tribunal was not right in law in cancelling the penalty order on the ground that there was no legally determined wealth, when the assessment order determining the wealth passed on March 27, 1971, had already become final;

(ii) that the Tribunal was not right in law in deleting the penalty of Rs.27,536 imposed under section 18(1)(a).

CIT v. Alkeensons Agencies (2000) 246 ITR 125 (J&K) ref.

Anil Bhan for the Commissioner.

Nemo for the Assessee.

2001 P T D 570

[Karachi High Court]

Before Saiyed Saeed Ashhad, Dr. Ghous Muhammad and Ata‑ur‑Rehman, JJ

Messrs CONTINENTAL CHEMICAL CO. (PVT.) LTD.

versus

PAKISTAN and others

Constitutional Petition No.D‑707 of 1999, decided on 30th March, 2000.

Per Dr. Ghous Muhammad, J.‑‑‑

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.52‑‑‑Deduction of income‑tax at source‑‑‑Failure to deduct such income‑tax ‑‑‑Effect‑‑‑Assessee who fails to deduct income‑tax at source is treated as "assessee in default"‑‑‑Where payee/deductee pays his full tax, any shortfall in or failure to deduct income‑tax at source by the deductor/payer would not make the latter an assessee in default, since shortfall in relation thereof would be of no consequence.

Commissioner of Income‑tax v. Manager, Madhya Pradesh State Cooperative Development Bank Ltd. (1982) 137 ITR 230; Commissioner of Income‑tax y. Divisional Manager, New India Assurance Co. Ltd. (1983) 140 ITR 818; Gwalior Rayon Silk Co. Ltd. v. Commissioner of Income‑tax (1983) 140 ITR 832; Commissioner of Income‑tax v. Shri Synthetics Ltd. (1985) 151 ITR 634 and Commissioner of Income‑tax v. M.P. Agro Morarji Fertilizers (1989) 176 ITR 282 ref.

(b) Interpretation of statutes‑‑‑

‑‑‑‑Taxing statute‑‑‑Words in a taxing statute including notifications and orders, unless ambiguous, must be given their ordinary and natural meaning‑‑‑Subject is not to be taxed unless the statute clearly imposes the burden of tax, while language of the taxing statute must not be strained to tax a transaction on the premise that had the Legislature thought of the same, it would have covered the events by appropriate words.

Pakistan Textile Mills Owners' Association v. Administrator of Karachi PLD 1963 Kar. 137; Lt.‑Col. Nawabzada Muhammad Aamir Khan v. Controller of State Duty PLD 1961 SC 119; Commissioner of Income‑tax v. B.W.M. Abdul Rehman 1973 SCMR 445; Bisvil Spinners Ltd. v. Superintendent, Central Excise PLD 1988 SC 370 and Sterling Engineering Corporation v. Collector of Customs PLD 1986 Kar. 211 rel.

(c) Income Tax Ordinance (XXXI of 1979)‑‑­‑

‑‑‑S.50(4)(a)‑‑‑Deduction of tax at source‑‑‑Precondition enlisted.

Following are the preconditions for deduction of tax at source:

(a) The credit of tax deducted or imposed has to be passed on to deductee;

(b) the deductee shall be allowed to claim the benefit of this deduction in his return of total income‑tax and towards his final tax liability.

(d) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.50(4) & 80C(4)‑‑‑Central Board of Revenue Circular No. 19 of 1991, dated 8th July, 1991‑‑‑Deduction of tax at source‑‑‑Exemption‑‑‑Exemption in relation to deduction of tax at source under S.50(4) of Income Tax Ordinance, 1979, has been extended by the C.B.R. Circular to all recipients who may enjoy exemption under any of the provisions of the Ordinance as such the same includes further exemption prescribed by S.80C(4) of Income Tax Ordinance, 1979.

(e) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.8 & 80C(4)‑‑‑Central Board of Revenue Circular No. 19 of 1991, dated 8th July, 1991‑‑‑Instructions given by Central Board of Revenue‑‑‑Failure to comply with the instructions‑‑‑Effect‑‑‑Where the instructions were issued in keeping with the provisions of S.80C(4) of Income Tax Ordinance, 1979, the Authorities under the provisions of S.8 of Income Tax Ordinance, 1979, were bound to obey such instructions‑‑‑Failure to disregard the Circular was ipso facto unlawful exercise of jurisdiction in circumstances.

Julian Hoshang Dinshaw Trust v. Income‑tax Officer 1992 SCMR 250; Paramount Electric Co. v. Income‑tax Officer 1973 PTD 511 and Navitlal C. Javeri v. K.K. Sen (1965) 56 ITR 198 rel.

(f) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.50(4) & 53‑‑‑Advance income‑tax, deduction of‑‑‑Jurisdiction to apply provisions of Income Tax Ordinance, 1979‑‑‑Such jurisdiction is not restricted to the proceedings for the assessment or recovery of final income­tax liabilities but also relates with the same force in respect of advance tax, be it under S.50(4) or S.53 or any other provision of Income Tax Ordinance, 1979.

(g) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.50(4)(a), proviso‑‑‑Non‑resident‑‑‑Provision of S.50(4)(a) of Income Tax Ordinance, 1979‑‑‑Applicability‑‑‑Section 50(4)(a) of the Income Tax Ordinance, 1979 is applicable to non‑residents also but only mutatis mutandis.

(h) Constitution of Pakistan (1973)‑‑‑

‑‑‑‑Art. 199‑‑‑Constitutional jurisdiction of High Court‑‑‑Scope‑‑‑Void order‑‑‑Effect‑‑‑Where orders are void and completely without jurisdiction, petitioner can directly approach High Court in its Constitutional jurisdiction.

Gattron Industries v. Collector of Customs 1999 SCMR 1072; Kamran Industries v. Collector of Customs PLD 1996 Kar. 68; Premier Cloth Mills Ltd. v. Sales Tax Officer 1972 SCMR 257 and The Murree Brewery Co. v. Pakistan PLD 1972 SC 279 rel.

(i) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.50(4)(a) & 53‑‑‑Advance income‑tax‑‑‑Deduction of tax after end of the year‑‑‑Effect‑‑‑Provision of S.50(4)(a) having been made subject to S.53 of Income Tax Ordinance, 1979, the tax to be deducted was advance tax‑‑­Such tax had to be imposed before the year ran out‑‑‑Income‑tax to be deducted had to be a percentage of purchase and was directly linked up with the transactions‑‑‑If the tax under S.50(4)(a) or under S.53 of Income Tax Ordinance, 1979, was, imposed after the end of the year to which it related the same would cease to have the character of advance income‑tax.

(j) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.50(4)(a)‑‑‑Advance income‑tax‑‑‑Failure to deduct the same‑‑‑Show ­cause notice‑‑‑Limitation‑‑‑Case related to assessment year 1996‑97 for the purpose of advance income tax and the same had run out on 3‑6‑1996 and the assessment year 1997‑98 on 30‑6‑1997, respectively, while the Authorities had issued first notice on 1‑6‑1998 and then on 3‑6‑1998 and had completed orders in July/August, 1998‑‑‑Validity‑‑‑Proceedings and orders of the Authorities were beyond S.50(4)(a) of Income Tax Ordinance, 1979, incompetent and time‑barred.

(k) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.50(4)(a) & 53‑‑‑Advance income‑tax‑‑‑Failure to deduct advance tax when time framing regular assessment or end of assessment year had reached‑‑‑Effect‑‑‑Any payment under S.53 of Income Tax Ordinance, 1979 being a credit with the exchequer which was liable to be adjusted with the actual liability for that year, the substantive default of S.53 of Income Tax Ordinance, 1979, would automatically lapse‑‑‑High Court extended the application of such benefit to S.50 of Income Tax Ordinance, 1979, as well since the same was also an advance tax and had to be given adjustment as prescribed.

(l) Void order‑‑

‑‑‑‑ Where the order is void, all subsequent orders are also void.

Yousuf Ali v. Muhammad Aslam Zia PLD 1958 SC 104 ref.

Per Ata‑ur‑Rehman, J disagreeing with Dr. Ghous Muhammad, J.‑‑‑

(m) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.50(4) & 80C‑‑‑Advance income‑tax‑‑‑Failure to deduct the tax at source‑‑‑Presumptive tax regime has been made applicable to limited number of items but the deduction made at source has been made liable for adjustment against the tax demand created on regular assessment.

Commissioner of Income‑tax v. Manager, Madhya Pradesh State Cooperative Development Bank Ltd. (1982) 137 ITR 230; Commissioner of Income‑tax v. Divisional Manager, New India Assurance Co. Ltd. (1983) 140 ITR 818; Gwalior Rayon Silk Co. Ltd. v. Commissioner of Income‑tax (1983) 140 ITR 832; Commissioner of Income‑tax v. Shri Synthetics Ltd. (1985) 151 ITR 634 and Commissioner of Income‑tax v. M.P. Agro Morarji Fertilizers (1989) 176 ITR 282 distinguished.

Per Saiyed Saeed Ashhad, J.‑‑‑

(n) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.50 & 52^ Explanation‑‑‑Advance tax, deduction of‑‑‑Explanation added to S.52 of Income Tax Ordinance, 1979‑‑‑Effect‑‑‑Explanation has not created any new obligation or liability on the taxpayers but has been solely designed to bring about a change in the forum where a person responsible for deducting advance tax on behalf of another assessee as per requirement of S.50 of Income Tax Ordinance, 1979, is to be proceeded against on his failure to deduct or collect the advance tax and to deposit the same in Government treasury.

(o) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑Ss.50 & 52, Explanation‑‑‑Advance tax, deduction of‑‑‑Explanation added to S.52 of Income Tax Ordinance, 1979‑‑‑Retrospective effect‑‑­Retrospective operation of the Explanation would have arisen only if the same had the effect of imposing new liability or obligation on the taxpayer or had effected any existing rights either by taking them away or curtailing them‑‑‑Explanation had only provided a change in the forum whereby the powers to hold. proceedings against the taxpayer as a deemed assessee in default had been taken away from the Assessing Officer/Deputy Commissioner of Income‑tax dealing with the tax proceedings of the recipients and had been conferred on the Assessing Officer/Deputy Commissioner of Income‑tax having power to deal with the tax proceedings of the payer‑‑‑Explanation of S.52 of Income Tax Ordinance, 1979, had not taken away the right of appeal or revision or had not curbed the rights available to the deemed assessee in default and was merely in the nature of the change of officer/authority.

Adnan Afzal v. Cap. Sher Afzal PLD 1969 SC 187; Dr. Sheer Afghan v. Amir Hayatkan and others 1987 SCMR 1787; Yew Bon Tev v. Kanderan Bas Mara 1983 PSC 1200 (PC); Hakim Ali Zardari v. The State and another PLD 1998 SC 1; Malik Gul Hasan & Co. and another v. Allied Bank of Pakistan 1996 SCMR 237; Yusuf Ali Khan v. Shanghai Banking Corporation 1994 SCMR 1007 and Messrs Ever Shine Limited v. Commissioner of Income‑tax 1995 PTD 624 rel.

(p) Interpretation of statutes‑

‑‑‑‑ Change in forum‑‑‑Retrospective effect of such change‑‑‑Scope‑‑‑When Legislature brings about a change in the forum then the same is always with retrospective effect unless the same had the effect of curtailing the existing rights available to a party for challenging any adverse order.

(q) Interpretation of statutes‑‑‑

‑‑‑‑ Explanation to a statutory instrument‑‑‑Object‑‑‑Object of the Explanation to a provision is to clarify, to facilitate proper, understanding of a provision and to serve as a guideline.

Naveed Textile Mills Ltd. v. Assistant Collector' (Appraising), Customs House and others PLD 1984 SC 92 rel.

(r) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.52 & 86‑‑‑Assessee in default, proceedings against‑‑‑Petitioners failed to deduct advance income‑tax and were proceeded against as assessee in default under the provisions of Ss.52 & 86 of Income Tax Ordinance, 1979‑­Validity‑‑‑Authorities with the tax assessment proceedings of an assessee would have the right to initiate and finalize the proceedings against such assessee in cases where the assessee was to be treated as an assessee in default.

Commissioner of Income‑tax v. Manager, Madhya Pradesh State Cooperative Development Bank Ltd. (1982) 137 ITR 230; Commissioner of Income‑tax v. Divisional Manager, New India Assurance Co. Ltd. (1983) 140 ITR 818; Gwalior Rayon Silk Co. Ltd. v. Commissioner of Income‑tax (1983) 140 ITE 832; Commissioner of Income‑tax v. Shri Synthetics Ltd. (1985) 151 ITR 634; Commissioner of Income‑tax. v. M.P. Agro Morarji Fertilizers (1989) 176 ITR 282; (1961) 42 ITR 589; (1964) 53 ITR 250; (1979) 119 ITR 475; (1984) 149 ITR 143 and Hakim Ali Zardari v. The State PLD 1998 SC 1 distinguished.

Per Saiyed Saeed Ashhad, J., disagreeing with Dr. Ghous Muhammad, J. and agreeing with Ata‑ur‑Rehman, J.‑‑‑

(s) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.50(4), 52 & 86‑‑‑Constitution of Pakistan (1973), Art.199‑‑­ Constitutional petition‑‑‑Failure to deduct advance income‑tax at source‑‑­ Show‑cause notice, issuance of‑‑‑Authorities initiated proceedings against the petitioners for not deducting advance income‑tax and held the petitioners as assessees‑in‑default under Ss.50(4), 52 & 86 of Income Tax Ordinance, 1979‑‑‑Contention of the petitioners was that since the advance tax had already been deducted of their suppliers at the time of import of the goods, therefore, the petitioners were not required to deduct the tax and the Authorities had no jurisdiction to initiate such proceedings ‑‑‑Validity‑‑­ Petitioners should have satisfied themselves by reliable and satisfactory evidence that the importers had been subjected to tax and should not have relied on assumptions, surmises and conjectures for non‑performance of the obligations cast upon them by S.50(4) of Income Tax Ordinance, 1979, i.e. deduction and collection of tax from the amount which they had paid to the importers‑‑‑In view of the addition/incorporation of the Explanation to S.52 of Income Tax Ordinance, 1979, the Authorities had the jurisdiction and authority to initiate proceedings under S.52 of Income Tax Ordinance, 1979, against the petitioners as assessees‑in‑default in the assessment proceedings relating to the petitioners‑‑‑No exceptions could be taken to the orders passed by the Authorities under S.52, read with S.86 of Income Tax Ordinance, 1979.

Mamy Beverages v. Naseem 1995 PTD 91; Kamran Industries v. Collector of Customs PLD 1996 Kar. 68; PTCL 1991 St. 741(1); Union Bank Ltd. v. Federation of Pakistan 1998 PTD 2116; Elahi Cotton Mills v. Federation of Pakistan PLD 1997 SC 582; 1997 PTD (Trib.) 1143; (1965) 55 ITR 741 (SC); (1972) 86 ITR 2 (SC); Molasses Trading Export (Pvt.) Ltd. v. Federation of Pakistan and others 1993 SCMR 1905; Mirpurkhas Sugar Mi11s,Limited v. District Council, Tharparkar and 3 others 1991 MLD 715; Province of East Pakistan v. Sharafatullah and 87 others PLD 1970 SC 514; Arshad Akram & Co. and others v. Divisional Superintendent, Pakistan Railways and others PLD 1982 Lah. 109; Pakistan v. Muhammad Himayatullah Farukhi PLD 1969‑SC 407 and Province of Punjab and another v. Mian Manzoor Ahmed Wattoo 1998 CLC 1585 ref.

(t) Words and Phrases----

‑‑‑‑"Supply"‑‑‑Connotation‑‑‑Word "supply" includes the sale of goods by the sellers in return for their price from the buyer.

Commissioner of Income‑tax/Wealth Tax v. Messrs Prime Dairies Ice-Cream Limited 1999 PTD 4147 ref.

Muhammad Naseem for Petitioner.

Shaikh Hyder for Respondents

Date of hearing: 15th July, 1999.

2001 P T D 609

[Karachi High Court]

Before, Saiyed Saeed Ashhad and Raja Qureshi, JJ

Messrs KARACHI HOSPITAL LTD.

versus

COMMISSIONER INCOME TAX, CENTRAL ZONE A (NOW COMPANIES

(III), KCY.

I.T.C. Nos.49 to 52 of 1990, decided on 24th July, 1998.

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.136‑‑‑Appeal to High Court‑‑‑Maintainability‑‑Where the decision rests on examination of the facts on record, the same would be a question of law as the question whether inference framed from given facts or not was a question of law.

N.M. Khan and another v. The Chief Settlement and Rehabilitation Commissioner, Pakistan 1970 SCMR 158 ref.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.23(i)(xviii)‑‑‑Deduction‑‑‑Expenditure not incidental to business‑‑­Refusal to allow such expenditure as deductions under S.23 of Income Tax Ordinance, 1979‑‑‑Expenditure of salaries made by the assessee was not deducted by the Income Tax Authorities as the assessee failed to establish that the disputed amount was paid to its employees as salary‑‑‑Appellate Authority as well as Appellate Tribunal upheld the findings of the Income Tax Authorities‑‑‑Validity‑‑‑Mere fact that the assessee had deducted income­tax from the amount paid to the employees as salaries was not a sufficient ground or circumstance which would establish the employees in question to have been employed for performing the work incidental to or connected with the business or affairs with the assessee's company as the same was required to be established by the assessee before it could claim the deduction thereof as "business expenditure" ‑‑‑Forums below were justified in disallowing the said amount to have been paid by the assessee as salaries to its employees during the assessment years‑‑‑ Order of the Appellate Tribunal was upheld.

S.M. Ilyas & Sons v. C.I.T., Lahore PLD 1982 SC 259 ref.

Rehan Hassan Naqvi for Applicant.

Nasrullah Awan for Respondent.

Date of hearing: 8th July, 1998.

2001 P T D 623

[Karachi High Court]

Before Saiyed Saeed Ashhad and Raja Qureshi, JJ

COMMISSIONER OF INCOME TAX

versus

KAMRUDDIN FAKHRUDDIN

I.T.C. No.347 of 1990, decided on 23rd July, 1990.

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.55 & 57‑‑‑Revised return‑‑‑Failure to reflect/mention figure of capital gains in the relevant column of the return‑‑‑Revised return whether to be treated as one under S.57 of Income Tax Ordinance, 1979‑‑‑Return was initially submitted by the assessee under S.55 of Income Tax Ordinance, 1979, but as there was some mistake/discrepancy in not reflecting/mentioning figure of capital gains in respect of which the assessee claimed exemption, in the relevant column of return, revised return was filed under S.57 of Income Tax Ordinance, 1979‑‑‑Effect‑‑‑Such return of income­tax could not be construed or deemed to be a return under S.57 of Income Tax Ordinance, 1979.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.55 & 57‑‑‑Penalty‑‑‑Punitive action, taking of‑‑‑Withdrawal of immunity from self‑assessment scheme ‑‑‑Assessee filed revised return under S.57 of Income Tax Ordinance, 1979, as he failed to reflect/mention figure of capital gains in the relevant column of the return ‑‑‑Assessee was subjected to penalty or liability by way of withdrawal of the immunity from self­ assessment scheme and subjecting the return to detailed assessment without order containing valid and plausible reasons ‑‑‑Validity‑‑‑Provisions of S.57 of Income Tax Ordinance, 1979, had provided punishment and made the assessee revise a return under S.57 of Income Tax Ordinance, 1979, initially filed under S.55 of the Ordinance to punitive action‑‑‑Such an assessee could not be subjected to any further penalty or liability‑‑‑Income Tax Appellate Tribunal had not committed any illegality in allowing the issue relating to the authority/power of the Income Tax Authorities to finalize the assessment by way of detailed scrutiny‑‑‑Income Tax Appellate Tribunal had rightly found that return filed .by the assessee qualified to be assessed under the self‑assessment scheme formulated for that assessment year.

Rashid Ahmad v. The State PLD 1972 SC 271; Metro Cooperating Housing Society Ltd. v. Bonanza Garments Industries Ltd. 1996 MLD 593; Shagufta Begum v. The Income Tax Officer, Circle XI, Zone B, Lahore PLD 1989 SC 360; Sh. Muhammad Anwar v. Ch. Sultan Muhammad Khan ,and another 1974 SCMR 371 and Nasreen Iqbal v. Shaffat Ali 1990 CLC 1974 ref.

Nasarullah Awan for Applicant.

Khalifa Salahuddin Ahmed for Respondent.

Date of hearing: 9th July, 1998.

2001 P T D 633

[Karachi High Court]

Before Saiyed Saeed Ashhad and Abdul Ghani Shaikh, JJ

Messrs NATIONAL BEVERAGES (PVT.) LTD.

versus

FEDERATION OF PAKISTAN and others

Constitutional Petition No. D-1813 of 1998, decided on 31st December, 1999.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.65---Definite information---Re-opening of assessment---Scope---Change of opinion of Income Tax Officer---Where assessee had disclosed all the material facts without concealment and the assessment had been consciously completed by the Income Tax Officer, in absence of discovery of any new fact, which could be treated as "definite information", there could not be any scope for re-opening of the assessment under S.65 of the Income tax Ordinance, 1979, on the grounds referred to in S.65(1)(a)(b) of the Ordinance---Neither any change of opinion on the basis of same material by Income Tax Officer would warrant pressing into service the provisions of S.65(1) of Income Tax Ordinance, 1979, nor circular from Board of Revenue would authorise the Income Tax Officer to reopen the assessment.

Messrs Central Insurance Co. and others v. The Central Board of Revenue, Islamabad PLD 1990 SCMR 1232 rel.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.65---Expression "definite information"---Connotation---Scope---Every information cannot be treated as basis for re-opening of the assessment but the information should be of the nature which should qualify as "definite information"---As such the expression cannot be given a universal meaning but the same has to be construed in given facts of each case.

Messrs E.F.U. General Insurance Co. Limited v. The Federation of Pakistan and others PLD 1997 SC 700 rel.

(c) Income Tax Ordinance (XXXI of 1979)---

----S.65---Re-opening of assessment---Scope---Re-opening of assessment when not permissible---Requirement of law is that Income Tax Authorities should apply their mind consciously to the facts of the case as appearing on record---Once all the facts have been fully disclosed by the assessee and considered by the Income Tax Authorities and assessment has been consciously completed and no new fact has been discovered there can be no scope for interference with such concluded transactions under S.65 of Income Tax Ordinance, 1979 on the ground that the income chargeable to tax has escaped assessment or has been under assessed within the meaning of S.65(1)(a)(b) of Income Tax Ordinance, 1979.

Messrs Pakistan. Tobacco Co. Ltd. v. Government of Pakistan through Secretary, Ministry of Finance and 3 others 1993 SCMR 493 rel.

(d) Income Tax Ordinance (XXXI of 1979)---

----S. 65---Constitution of Pakistan (.1973), Art. 199---Constitutional petition---Income-tax assessment, reopening of ---Scope---Prerequisites--Production of all documents before Income Tax Authorities--Discovery of new facts by Income Tax Authorities---Petitioners failed to produce any evidence to prove the alleged huge expenditure in making additions in the plant and acquiring new assets---Income Tax Authorities, received complaint against the petitioners to the effect that the declared purchase of new assets/additions to the assets was bogus with the motive to reduce taxable gains---On the basis of such complaint assessment was reopened---Contention raised by the petitioners was that all the relevant documents were produced before the Income Tax Authorities and the assessment was made after considering those documents---Validity---Production of all necessary evidence and documents to prove the alleged expenditure, would not be a ground which would bar action under S. 65 of Income Tax Ordinance, 1979---Where the Assessing Officer had adverted to the issue and had given a finding thereon without referring to the evidence and documents produced by the petitioners, the action under S.65 of Income Tax Ordinance, 1979, would be barred---In the present case there was allegation of mala fides and the matter had to be inquired into and investigated thoroughly and the same could be undertaken by Assessing Officer only after reopening of assessment finalized earlier---Earlier assessment had not been completed consciously and definite information regarding income chargeable to tax had escaped assessment, therefore, issuance of notice under S.65 of Income Tax Ordinance, 1979, for reopening of the assessment finalized earlier were neither without authority or jurisdiction nor 'the result of illegal exercise of jurisdiction of power by Income Tax Authorities---High Court refused to take any exception to the issuance of the notice under S.65 of Income Tax Ordinance, 1979---Petition was dismissed in circumstances.

Messrs Central Insurance Co and others v. The Central Board of Revenue, Islamabad and others 1993 SCMR 1232 distinguished.

Edulji Dinshaw Limited v. Income Tax Officer PLD 1990 SC 399; Arafat Woollen Mills Ltd. v. The Income Tax Officer and others 1990 PTD 338; Saghir Hussain Naqvi v. Province of Sindh 1996 SCMR 1165; Ch. Muhammad Ismail v. Fazal Zada, Civil Judge, Lahore and 20 others PLD 1996 SC 246; Mian Ejaz Shafi v. Syed Ali Ashraf Shah and 12 others PLD 1994 SC 867; Muhammad Iftikhar Mohmand v. Javed Muhammad and 3 others 1990 SCMR 328; Fateh Ali v. Province of Balochistan through Secretary, Health and others 1997 SCMR 1687; Collector of Customs, Lahore and others v. S.M. Ahmed & Co. (Pvt.) Limited 1999 SCMR 469; Messrs Airport Support Services v. The Import. Manager, Quaid-e-Azam International Airport, Karachi arid others 1998 SCMR 2268; Messrs H.M. Abdullah v. The Income Tax Officer, Circle V, Karachi and 2 others 1993 SCMR 1195 and Inspecting Assistant Commissioner and another v. Pakistan Herald Limited 1997 PTD 1485 ref.

(e) Income Tax Ordinance (XXXI of 1979)--

----S.65---Reopening of income tax assessment---Such reopening on the direction of officer other than Inspecting Assistant Commissioner of Income Tax---Validity---Directions for the reopening of assessment can be issued by any other officer but it is the question of application of mind and satisfaction of Income Tax Officer himself regarding the presence of "definite information" and reasons to believe that the income has escaped assessment, which is required in law.

Sirajul Haq Memon for Petitioner.

Muhammad Farid for Respondent.

Date of hearing: 24th November, 1999

2001 P T D 661

[Karachi High Court]

Before Saiyed Saeed Ashhad, C.J. and Sarmad Jalal Osmany, J

Messrs CHINA YUNNAN CORPORATION

versus

COLLECTOR, CENTRAL EXCISE and others

Constitutional Petition No.D-1479 of 1998, decided on 20th May, 2000.

(a) Customs Act (IV of 1969)---

-----S.32(2)(3)---Constitution of Pakistan (1973), Art.199---Constitutional petition---Customs duty and sales tax, short levy and non-levy of ---Show­ cause notice---Limitation---Petitioner imported bridge equipment and machinery and paid all his custom duties and sales tax after having the same inspected by the Authorities---Last payment of such duties were made on 7-9-1994 and the show-cause notice was issued to the petitioner on 10-6-1995---Goods imported were according to the specifications and the same were -thoroughly inspected by the Custom Authorities---Authorities, after the laps of nine months issued the notice to the effect that the customs duty and sales tax were short-levied and non-levied on account of inadvertence or misconstruction on the part of the Customs Authorities---Petitioner assailed the notice before the Customs, Excise and Sales Tax Appellate Tribunal wherein the Tribunal only reduced the penalty imposed by the Customs Authorities---Validity---Notice could have been issued on or before 6-3-1995 but the same was issued on 10-6-1995---Where the show­ cause notice could have been issued within six months from-the date of payment of duty/charges and the same was issued beyond the period of six months as prescribed under S.32(3) of Customs Act, 1969, the order passed by the Tribunal was set aside.

(b) Customs Act (IV of 1969)---

----S.32---Income Tax Ordinance (XXXI of 1979), S.65---Re-assessment of goods imported---Show-cause notice, issuance of---Scope---Provisions of S.32 of Customs Act, 1969, are analogous to the provisions of S.65 of Income Tax Ordinance, 1979---Provisions of the statutes empower the Assessing Officer to reopen the assessment finalized earlier on receiving a "definite information" ---Customs Authorities, under S.32 of Customs Act, 1969, had accepted the facts disclosed and the version given by the importer with regard to the imported goods and had subjected the importer to duty under a particular provision of law---Show-cause notice under S.32(2) of Customs Act, 1969, was issued to the importer for short levy and on account of some other act or omission of the petitioner ---Validity---Such notice could not be issued unless the same was definitely established that the short levy was on account of any act or omission of the importer as contemplated in S.32(1)(a)(b) of Customs Act, 1969---Show-cause notice could not be issued in circumstances.

Jawaid Siddiqui for Petitioner.

S. Tariq Ali for Respondents.

Date of hearing: 15th March, 2000.

2001 P T D 672

[Karachi High Court]

Before Saiyed Saeed Ashhad and Raja Qureshi, JJ

COMMISSIONER OF INCOME-TAX

versus

VALIKA ART FABRICS LTD

I.T.Cs. Nos. 27 and 30 of 1993, decided on 23rd July, 1998

(a) Income Tax Ordinance (XXXI of 1979)---

---S. 19---Rental income---Premises/properties used for manufacturing process or business---Income derived by renting out such premises/properties---Such income to be treated as rental income---Failure to produce any material evidence to show that the closure or stoppage of the business or manufacturing process was merely temporary and not permanent and the properties were rented out on temporary basis---Effect---Income derived by renting out the premises/properties which were being used for manufacturing process or business could not be construed to be income from business and the same was to be treated as rental income liable to assessment under the head "rental income".

C.I.T. (Appeals) v. Muhammad Allah Bux 1977 PTD 13; CIT v. Narayandas Kishindutt (1988) 149 ITR 636; CIT. v. Rampur Industries Ltd. (1971) 82 ITR 23 and CIT v. Hindustan Chemical Works (1980) 124 ITR 561 ref.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss.19 & 22---Rental income---Premises/properties used for manufacturing process or business---Income derived by renting out such premises/properties---Failure. to establish that the premises were temporarily rented out till the time the manufacturing process or business was restarted after installing new machinery---Income-tax Authorities assessed the income under S.19 of Income Tax Ordinance, 1979, as income from rental--­Commissioner Income-tax as well as the Income-tax Appellate Tribunal found the income as one from business and to be assessed under S.22 of Income Tax Ordinance, 1979---Validitl---Asscssce had been absolutely quiet and had not been able to establish that they, at any time during the period that had lapsed since closure of the manufacturing business, reflected or showed any real and positive interest, desire or intention to restart the business of manufacturing---Both the Income-tax Commissioner and the Income-tax Appellate Tribunal had fallen in error in holding that the income of the assessee was derived from leasing out the godowns and part of factory premises was incidental to or connected with the process of manufacturing business and was to be construed as income liable to be assessed under S.22 of Income Tax Ordinance, 1979---Findings of the Tribunal that the rental income of the assessee was, to be assessed under S.22 of Income Tax Ordinance, 1979, could not be upheld---Order of the Tribunal was set aside by High Court in circumstances.

C.I.T (Appeals) v Muhammad Allah Bux 1977 PTD 13 distinguished.

CIT v. Narayandas Kishindutt, (1988) 149 ITR 636; CIT. v. Rampur Industries Ltd. (1971) 82 ITR 23 and CIT v. Hindustan Chemical Works (1980) 124 ITR 561 ref.

Nasarullah Awan for Applicant.

Khalifa Salahuddin for Respondent.

Date of hearing: 9th July, 1998.

2001 P T D 682

[Karachi High Court]

Before Saiyed Saeed Ashhad, C.J. and Sarmad Jalal Osmany, J

COMMISSIONER OF INCOME-TAX

versus

Messrs FAYSAL ISLAMIC BANK OF BAHRAIN, KARACHI

I.T.As. Nos. 66 and 67 of 1999, decided on 22nd May, 2000.

(a) Interpretation of statutes---

---- Meaning of word/expression in a particular section of statute --Resorting to ordinary dictionary meaning---Scope---Courts in assigning/defining the meaning of a word/expression has to take into consideration the object or the purpose of the statute---Where the Word/expression is defined in the statute, that meaning, or definition would serve the purpose and object of the section---If the Court finds that the definition of a word/expression given in the statute does not tit in or is not in the context with the declared object or purpose of a particular section of a statute, (lien the Court can reject the definition given in the statute and resort to the ordinary dictionary meaning of the word/expression.

Iftikhar Ahmed and others v. President National Bank of Pakistan and others PLD 1988 SC 53 rel.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.2(24)---Income as mentioned in S.2(24), Income Tax Ordinance, 1979-­Connotation---Expression "income" does not mean "net income" after making all permissible allowances, deductions, depreciations etc.

(c) Income Tax Ordinance (XXXI of 1979)---

---S.23---"Income" as mentioned in S.23', Income Tax Ordinance, 1979--­Expression "income" denotes "gross income" and not "net income"---Various permissible allowances, depreciations, expenditures etc. are to be deducted from income, under the provisions of S.23 of income Tax Ordinance, 1979---Such deductions can only be made from "gross income" and not from the "net income" as the "net income" would be arrived at after providing/deducting all the permissible allowances, expenditures, depreciation etc.---If the meaning of word "income" is to be assigned as "net income", then .the very purpose of S.23 of Income Tax Ordinance, 1979, would be rendered nugatory---Expression "income" as appearing in S.23 of Income Tax Ordinance, 1979, means "gross income" and not "net income".

(d) Income Tax Ordinance (XXXI of 1979)---

----Ss. 23 & 136(1)---Depreciation on leased assets---Refusal to allow the depreciation from net income from lease rentals---Assessee being dissatisfied with the assessment filed appeal before Appellate Authority---Assessment framed by the Income Tax Authorities was set aside by the Appellate Authority and directed that disallowing the depreciation on leased assets be restricted to the net income from lease rentals---Validity---Depreciation on assets' given on lease, under the provisions of S.23(i)(v) of Income Tax Ordinance, 1979, was to be allowed against lease rentals only---Appeal filed by the department was dismissed accordingly.

Laxmi Insurance Co. Ltd., Lahore v. Commissioner of Income-tax, Punjab, N.W.F.P and Delhi Provinces AIR 1931 Lah. 441; Shaw Wallace & Co. v. Privy Council AIR 1932 PC 138; (1969) 73 ITR 546; Pakistan Fisheries Ltd., Karachi and others v. United Bank Ltd. PLD 1993 SC 109; Shorter Oxford English Dictionary, 3rd Edn., p.1046; Stroud's Judicial Dictionary; Words and Phrases on pp.1265, 1267; The New Hamlyn Encyclopaedic World Dictionary, p. 836; Concise Oxford. Dictionary of Current English, 7th Edn., p.598; Iftikhar Ahmed and others v. President National Bank of Pakistan and others PLD 1988 SC 53; 2000 PTD (Trib.) 474 and 1999 PTD 3958 ref.

(e) Words and phrases---

----"Income"---Meaning.

Muhammad Fareed for Appellant.

Fatehali W. Vellani for Respondent.

Dates of hearing: 8th and 9th March, 2000.

2001 P T D 785

[Karachi High Court]

Before Saiyed Saeed Ashhad and Zahid Kurban Alavi, JJ

Messrs HABIB CREDIT & EXCHANGE BANK LIMITED

versus

DEPUTY COMMISSIONER OF INCOME-TAX

I.T.A. No.D-141 of 1998, decided on 3rd February, 2000.

Income Tax Ordinance (XXXI of 1979)---

----S.136---Banking Companies Ordinance (LVII of 1962), S.13---Appeal to High Court---Banking company---Question of treatment given by the department to the money acquired by Banking company from surrender/sale of Federal Investment Bonds held by the banking company in pursuance of S.13, Banking Companies Ordinance, 1962---Income-tax Appellate Tribunal had not applied its mind and had not taken into consideration all the aspects of the case specially the issue dealing with the question as to whether said amount was to be treated as "Capital Asset" as was held by the banking company for purpose of earning income by selling the same in open market---Appellate Tribunal had not advanced any plausible or cogent reason for vacating the discretion of Commissioner of Income-tax (Appeals) to the effect that the same was to be examined for the purpose of deciding whether the same represented capital gain or income for investment---Finding of the Tribunal having not been made with application of mind in accordance with law could not be sustained---High Court set aside the order of the Tribunal and remanded the case to Deputy Commissioner of Income-tax for deciding the issue/finding relating to the treatment to be given to the amount in question.

Iqbal Naeem Pasha for Appellant.

Jawaid Farooqui for Respondent.

Date of hearing: 3rd February, 2000.

2001 P T D 793

[Karachi High Court]

Before Saiyed Saeed Ashhad and Zahid Kurban Alavi, JJ

COMMISSIONER OF INCOME‑TAX

versus

Messrs KARIM SILK MILLS LTD.

I.T.C. No.44 of 1993, decided on 11th February, 2000.

Income‑tax‑‑‑

‑‑‑‑Deduction‑‑‑Penal interest‑‑‑Such interest being in the nature of fine was not an allowable deduction and the department was right in excluding the same from the deduction claimed by the assessee.

Commissioner of Income‑tax v. Premier Bank Limited 1999 SCMR 1213 fol.

Nasrullah Awan for Applicant

Nemo for Respondent.

Date of hearing: 11th February, 2000.

2001 P T D 987

[Karachi High Court]

Before Saiyed Saeed Ashhad, C. J. and Zahid Qurban Alavi; J

MEHRAN GIRLS COLLEGE

Versus

COMMISSIONER OF INCOME-TAX

I.T.As. Nos. 10 and 38 to 42 of 1999, decided on 2nd May, 2000.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.2(7)---Assessment---Assessment relating to each assessment year is an absolutely different and independent proceeding under the Income Tax Ordinance, 1979, which does not permit the findings of a particular assessment year to be made applicable to the different facts and circumstances of another assessment year.

Commissioner of Income-tax v. Pakistan Industrial Engineering Agencies Ltd. PLD 1992 SC 562 fol.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.136---Appeal to High Court---Question of law and fact---Inference drawn from undisputed facts is a mixed question of law and fact.

Glaxo Laboratories Pakistan Ltd. v. Federation of Pakistan and others PLD 1992 SC 455 fol.

(c) Income Tax Ordinance (XXXI of 1979)---

----S.136---Appeal to High Court---Finding of fact arrived at by misreading or misconstruing the evidence on record or on consideration of extraneous material could be subjected to scrutiny and inquiry by High Court in exercise of its powers under S.136, Income Tax Ordinance, 1979.

Harmones Laboratories Ltd. v. The Commissioner of Income-tax 1988 PTD 84; Commissioner of Income-tax v. Saeeda Nasreen 1994 PTD 949 and Commissioner, of Income-tax (Appeals), v. Pakistan Industrial Engineering Agencies Ltd. PLD 1992 SC 562 fol.

(d) Income Tax Ordinance (XXXI of 1979)---

----Second Sched., Part 1, cl. (86) & S.136---Exemption from income-tax was not allowed to the assessee by the Tribunal---Appeal to High Court--­Finding of Income-tax Appellate Tribunal that assessee, a Girls College, which was being run by a society registered under Societies Act, 1860, was not an Educational Institution and its income was not being utilized solely for the running of the college/establishment as such assessee was not entitled for exemption under cl. (86) of Second Sched. to the Income Tax Ordinance, 1979---Such finding of the Tribunal was not based on an evidence or material on record which warranted an inference that the earnings of the establishment/college were not utilized solely for the purpose of running of the college and were being utilized for the personal benefits and requirements of the members of the society running the college---Finding not based on the material on record was open to challenge by way of an appeal under S.136, Income Tax Ordinance, 1979.

Commissioner of Income-tax v. Saeeda Nasreen 1994 PTD 949 and Commissioner of Income-tax (Appeals) v. Pakistan Industrial Engineering Agencies Ltd. PLD 1992 SC 562 fol.

M. Mazhar-ul-Hassan for Appellants

Javaid Farooqi for Respondent.

2001 P T D 999

[Karachi High Court]

Before Saiyed Saeed Ashhad and Zahid Qurban Alavi, JJ

COMMISSIONER OF INCOME‑TAX

Versus

SHIRAZI INVESTMENT

I.T.A. No. 443 of 1990, decided on 1st February, 2000.

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss. 136 & 131‑‑‑Appeal to Appellate Tribunal‑‑‑Procedure‑‑‑New or fresh evidence/material was not permissible to be brought on the record by the Appellate Tribunal at the stage of Second Appeal.

Memoona Ahmed v. The A.C.I.T. 1998 PTD 2969 ref.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.136‑‑‑Appeal/reference to High Court‑‑‑Finding of fact arrived at b) the Income‑tax Appellate Tribunal on the basis of proper reading and appreciation of the evidence on record cannot be interfered with by the High Court in exercise of its power under S.136, Income Tax Ordinance, 1979

C.I.T. v. Abdul Karim Transport Co. Ltd. 1993 P T D 508 ref.

Jawed Farooqi for Appellant.

Mazhar Jafri for Respondent.

Date of hearing: 1st February, 2000.

2001 P T D 1002

[Karachi High Court]

Before S. Ahmed Sarwana and Muhammad Mujeebullah Siddiqui, JJ

THE COMMISSIONER OF INCOME‑TAX

Versus

Messrs DURATHENE MANUFACTURERS

LT.A. No. 244 of 1997, decided on 1st February, 2001

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

Ss. 131, 148 & 158‑‑Qanun‑e‑Shahadat (10 of 1984), Arts. 129, illus. (e) & 1(2)‑‑‑Appeal to Appellate Additional Commissioner‑‑‑Affidavit filed by the assessee assailing the consent assessment‑‑‑Procedure to be followed by Appellate Additional Commissioner‑‑‑‑Provision of S.131, Income Tax Ordinance, 1979 being mandatory in nature, A'.A'.C. by placing reliance on an affidavit filed by assessee assailing the correctness of , the consent assessment order, without seeking comments from the Assessing Officer fell in serious error and committed an illegality patent on the face of it‑‑­Principles.

The A.A.C. in the present case should have issued notice to the Assessing Officer under section 131 of the Income ‑Tax Ordinance. The provision contained in section 131 is mandatory in nature. It is provided that the Appellate Additional Commissioner shall give notice of the day fixed for the hearing of the appeal to the appellant and to the Deputy Commissioner against whose order the appeal is preferred. It is provided in section 131(3) of Income Tax Ordinance that the Appellate Additional Commissioner may, before disposing of any appeal, call for such particulars as he may require respecting the matters arising in .the appeal or cause further inquiry to be made by the Deputy Commissioner. Thus, when an affidavit was filed by the assessee, assailing the consent assessment order, the A.A.C. ought to have called for at least the comments of the Assessing Officer, which was not done. If the A.A.C. intended to place reliance on the affidavit of assessee assailing the consent order, a copy of the affidavit was required to be sent to the Assessing Officer even if there is no specific provision in this behalf in the law, by adhering to the general principle of law that nobody is to be condemned unheard. Copy of the affidavit filed by the assessee before the A.A.C. in the present case was never sent to the Assessing Officer and therefore, without affording opportunity to the Assessing Officer, no reliance could be placed on the affidavit, particularly when‑ a quasi judicial order was assailed to which presumption of correctness is attached under Article 129, illustration (e) of the Qanun‑e‑Shahadat Order 1984, which provides that judicial and official acts shall be presumed to have been regularly performed. The Evidence Act, 1872 was not applicable to the income‑tax proceedings; however, the Qanun‑e‑Shahadat Order, 1984 is applicable to the income‑tax proceedings. It is provided in Article 1(2) of the Qanun‑e‑Shahadat Order, 1984 that it applies to all judicial proceedings in or before any Court, including a Court Martial, a Tribunal or other authority exercising judicial or quasi‑judicial powers or jurisdiction, but does not apply to proceedings before an arbitrator. The proceedings under the Income Tax Ordinance are quasi‑judicial in nature. Under section 148 of the Income Tax Ordinance, 1979, "the Deputy Commissioner, the Inspecting Additional Commissioner, the Appellate Additional Commissioner, the Commissioner and any other officer under the administrative control of the Central Board of Revenue authorised by it in this behalf, and the Appellate Tribunal, for the purposes of the Ordinance, have the same powers as are vested in a Court under the Code of Civil Procedure, 1908 when trying a suit for the following matters namely‑‑‑

(a) enforcing the attendance of any person and examining him on oath or affirmation;

(b) compelling the production of any accounts or documents;

(c) receiving evidence on affidavit; and

(d) issuing commissions for the examination of witnesses.

It is provided in section 158 of the Income Tax Ordinance that any proceeding under the Income Tax Ordinance before Deputy Commissioner, Commissioner or the Appellate Tribunal shall be deemed to be judicial proceedings within the meaning of sections 193 and 228 and for the purposes of section 196 of the Pakistan Penal Code.

Thus, the A.A.C. by placing reliance on an affidavit filed by the assessee at the first appellate stage assailing the correctness of the consent assessment order, without seeking comments from the Assessing Officer fell in serious error and committed an illegality patent on the face of it.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.131‑‑‑Provisions of 5.131, Income Tax Ordinance, 1979 are mandatory in nature.

(c) Income Tax Ordinance (XXXI of 1979)

‑‑‑‑S.158‑‑‑Proceedings under Income Tax Ordinance, 1979 to be judicial proceedings‑‑-Principles.

(d) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.131‑‑‑Qanun‑e‑Shahadat (10 of 1984), Arts. 129, illus. (e) & 1(2)‑‑­Appeal to Appellate Additional Commissioner‑‑‑Affidavit filed by the assessee assailing the consent assessment‑‑‑Procedure‑‑‑Quasi‑judicial order by the Deputy Commissioner of Income‑tax having been assailed, presumption of correctness was attached to it under Art. 129, illus. (e) of Qanun‑e‑Shahadat, 1984.

(e) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Preamble‑‑‑Proceedings under the Income Tax Ordinance, 1979‑‑Nature‑­Proceedings under the Ordinance arc quasi‑judicial in nature but they are not adversarial in character.

(f) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.131‑‑‑Appeal to Appellate Additional Commissioner‑‑‑Allegation by assessee that there had been an interpolation after the conclusion of consent assessment proceedings at the departmental level‑‑‑Statement tiled by the Assessing Officer on solemn affirmation but not attested by an Oath Commissioner or any other authority competent to administer oath was to be treated as comments and had to be considered for the purpose of deciding the plea taken by the assessee at the first appellate stage that there was some interpolation after the conclusion of agreement between the assessee and the Assessing Officer‑‑‑Principles‑‑‑Order sheet on which the agreement of the assessee had been recorded and which bore the signature of the Assessing Officer and the assessee and which was not denied by the assessee in the affidavit filed before the A.A.C. and contained the approval and signature of the I.A.C. as well, showed that there was no interpolation or insertion of anything subsequent to the agreement‑‑‑Income‑tax Appellate Tribunal, held, was not justified in not examining the facts available on record and dismissing the appeal at the instance of department without any justification in law.

In the present, case the affidavit filed by the assessee at the first appellate stage was never supplied to the Assessing Officer, for filing a counter‑affidavit, and even if the affidavit filed by the Assessing Officer was not attested, the plea of the department contained in the grounds Oil' appeal that the assessment was framed in agreement with the assessee in presence of IAC and that the assessee had himself put his assent and signature on the order, could not be ignored and brushed aside. The proceedings under the Income Tax Ordinance, 1979 before the Assessing Officer are quasi‑judicial in nature and the Assessing Officer while conducting the assessment proceedings perform a quasi‑judicial function, therefore, there was no question of tiling any counter‑affidavit by the Assessing Officer. If anything is alleged by any person in respect of any act done in performance of the judicial or quasi‑judicial function, the judicial or quasi‑judicial officer is not required to swear an affidavit but the comments filed by the said judicial or quasi judicial officer are sufficient. The Assessing Officer cannot be equated with a party to the proceedings in adversarial system of adjudication. The proceedings under the Income Tax Ordinance are undoubtedly quasi judicial in nature but at the same time they are not adversarial in nature. They are inquisitorial in nature. The. Assessing Officer acts in dual capacity i.e., investigating the truth or falsehood of the version of an assessee and in doing so confronts the assessee with the material available with him having the effect of creating new demands or enhancing the liability of an assessee. In doing so the burden lies on him to establish the facts resulting in enhancement of liability of an assessee. During the proceedings he records evidence and performs other functions as a quasi‑judicial officer. On conclusion of the proceedings he records an assessment order which is purely a quasi judicial function. Thus, an Assessing Officer while acting in performance of his functions under the Income Tax Ordinance, acts in different capacities and combining of different capacities in the Assessing Officer is an attribute of inquisitorial system of the administration of justice. The result is that the statement filed by the Assessing Officer which is on solemn affirmation but is not attested by an Oath Commissioner or any other authority competent to administer oath is to be treated as comments and has to be considered for the purpose of deciding the plea taken by the assessee at the first appellate stage that there was some interpolation after the conclusion of agreement between the assessee and the Assessing Officer. Perusal of the order‑sheet on which the agreement of the assessee has been recorded and which bears the signature of the Assessing Officer and the assessee, which is not denied in the affidavit of the assessee, filed before the AAC and contains the approval and signature of IAC as well, shows that there is no question of any interpolation or insertion of anything subsequent to the agreement. Thus, the Tribunal was not justified in not examining the facts available on record and dismissing the appeal at the instance of department without any justification in law. .

The A.A. C. and the ITAT acted in flagrant violation of the law and fell in serious error. The findings were held to be perverse, illegal and not sustainable in law which were vacated and consent order made by the Assessing Officer was held to be binding on the assessee, as no material had been brought on record to controvert or dislodge the presumption of truth attached to the official act. The assessment order stood restored accordingly.

(1974) 94 ITR 1; (1978) 114 ITR 19; 1988 PCr.LJ 2347; AIR 1952 Cal. 255 and 1981 SCMR 364 ref.

(g) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss. 2(17A) & 4‑‑‑Assessing Officer‑‑‑Nature of functions stated.

The Assessing Officer cannot be equated with a party to, the proceedings in adversarial system of adjudication. The proceedings under the Income Tax Ordinance are undoubtedly quasi‑judicial in nature but at the same time they are not adversarial in nature. They are inquisitorial in nature. The Assessing Officer acts in dual capacity i.e., investigating the truth or falsehood of the version of an assessee and in doing so confronts the assessee with the material available with him having the effect of creating new demands or enhancing the liability of an assessee. In doing so the burden lies on him to establish the facts resulting in enhancement of liability of an assessee. During the proceedings he records evidence and performs other functions as a quasi‑judicial officer. On conclusion of the proceedings he records an assessment order which is purely a quasi judicial function. Thus, an Assessing Officer while acting in performance of his functions under the Income Tax Ordinance, acts in different capacities and combining of different capacities in the Assessing Officer is an attribute of inquisitorial system of the administration of justice.

Nasrullah Awan for Appellant.

Muhammad Farogh Naseem for Respondent.

Date of hearing: 6th December, 2000.

2001 P T D 1030

[Karachi High Court]

Before Saiyed Saeed Ashhad and Zahid Kurban Alavi, JJ

COMMISSIONER OF INCOME‑TAX

Versus

NATIONAL REFINERY LTD.

Income‑tax Appeal No. 245 of 1998, decided on 4th February, 2000.

Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss. 80 CC & 50(SA)‑‑‑C.B.R. Circular No. 14 of 1993, dated 19‑8‑1993‑‑­Tax on certain exporters ‑‑‑Assessee/exporter cannot be charged to tax under S. 80CC of the Income Tax Ordinance, 1979 once the assessee/exporter establishes that the consignment exported has already been subjected to withholding tax.

75 Tax 223 (Trib.) ref.

Nasrullah Awan for Appellant.

Siraj Haq Memon for Respondent.

2001 P T D 1574

[Karachi High Court]

Before S. Ahmed Sarwana and Muhammad Mujeebullah Siddiqui, JJ

Messrs MACPAC FILMS LTD.

versus

THE FEDERATION OF PAKISTAN and others

Constitutional Petition No.D‑1214 of 2000. decided on 19th January, 2001.

(a) Income‑tax Act (XI of 1922)‑‑‑

‑‑‑‑S.34 [Income Tax Ordinance (XXXI of 1979), S.6517‑‑Escapement of assessment‑‑‑Notice under S.34, Income‑tax Act, 1922‑‑‑Expression "reason to believe" in S.34 of‑the Act‑‑‑Connotation‑‑‑Belief must be based upon reasonable grounds and not on mere suspicion, gossip and rumour‑‑­Principles enumerated.

Following are the principles of law concerning issuance of notice under section 34, Income‑tax Act, 1922 [section 65, Income Tax Ordinance, 1979] :‑‑‑

(i) That by the use of the words "reason to believe" in section 34(1‑A) of the Act, ‑ the Legislature intended that the belief must be based upon reasonable grounds and not on mere suspicion, gossip and rumour.

(ii) That the expression "reason to believe" does not mean a purely subjective satisfaction on the part of the Income‑tax Officer but the reason must be held in good faith and should not be a mere pretence.

(iii) That it is open to the Court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose.

(iv) That before an Income‑tax Officer issues a statutory notice under section 34(1‑A) of the Income‑tax Act; 1922 he must have reason to believe that by reason of omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for the years in question, income, profits or gains chargeable to income‑tax have escaped assessment during those years

(v) That the notice of the Income‑tax Officer under section 34(1‑A) would be without jurisdiction if the reason for his belief that the conditions are satisfied, does not exist or is not material or relevant to the belief required by the section.

(vi) That before issuing a notice under section 34 it is not necessary to hold a quasi judicial enquiry but there should be material before the Income­ tax Officer on the basis of which an honest and reasonable officer can form the opinion that there has been escapement of assessment.

(vii) That once it is shown to the Court that there exists reasonable ground for the Income‑tax Officer to form the belief that there has been escapement of the income from the levy of tax, that would be sufficient to clothe him with jurisdiction to issue notice and the Court would not go into the question whether the grounds are sufficient or not nor it would go into the question of sufficiency of the reasons for the belief.

(viii) That a notice under section 34 of the Act need not contain the reasons or the Material on the basis of which the Income‑tax Officer formed the opinion that there is .a reason to believe that the income, profits or gains chargeable to income have escaped assessment during the relevant years.

(ix) That an assessee against whom a notice under section 34 of the Act is issued is of entitled in law at the stage of investigation to see the material on the basis of which the notice was issued or belief was formed but once the Income‑tax Officer decides to act upon certain material for re‑opening the assessment, the assessee is entitled to be confronted with the material to be used against him and is also entitled to an opportunity to explain and to place material in rebuttal to the above material to be used against him by the Income‑tax Officer.

(x) That in a case falling within the ambit of the second part of the proviso to subsection (1) of section 34 of the Act, the Income‑tax Officer cannot initiate proceedings under the above subsection capriciously and without any reason as the proviso is itself sub‑ordinate to that above main subsection. .

(xi) That since section 34 is not the charging section but deals merely with the machinery of assessment, that construction should be preferred which makes the machinery workable (ut res valeat potius quam pereat).

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.65 & Second Sched., Part I, cl. (118‑C)‑‑‑Constitution of Pakistan (1973), Art.199‑‑‑Constitutional petition‑‑‑Maintainability Escapement of assessment‑‑‑Notice to the assessee (petitioner) under S.65, Income Tax Ordinance, 1979‑‑‑Validity‑‑‑Tax holiday ‑‑‑Exemption‑‑‑Entitlement‑‑­Assessing Officer accepted the plea of assessee at the time of original assessment that the industrial undertaking was set up and was ready for commercial production on the basis of certificate issued by Assistant Collector of Customs which was to the effect that the plant and machinery had been installed‑‑‑Information was, however, received subsequently from the Assistant Director, Directorate of Inspection and Internal Audit Customs Central Excise and Sales Tax Regional Office that the unit was not complete or capable of producing anything on the cut off date‑‑‑Information forming basis for issuance of notice under S.65, Income Tax Ordinance, 1979 thus, was not available at the time of original assessment and in reply to the show­ cause under S.65 of the Ordinance, the assessee could not furnish any material/evidence to establish that information .received was incorrect and that the industrial undertaking, was set up‑‑‑Assessing Officer, in circumstances, had reason to believe that the exemption was wrongly allowed resulting in the escapement of assessment‑‑‑Pleas raised by the assessee in support of the contention that initiation of proceedings under S.65, Income Tax Ordinance, 1979 were mala fide or industrial undertaking was actually set up being pure questions of fact, could not be resolved in a Constitutional petition‑‑‑Constitutional petition, in circumstances, was not maintainable‑‑­Notwithstanding the dismissal of the Constitutional petition and observations made by the High Court, High Court ordered that the assessee shall be entitled to raise all the questions of fact and law before Assessing Officer and the Assessing Officer was directed to consider the objections raised by the assessee including the question pertaining to the exercise of jurisdiction under section 65 of the Income Tax Ordinance, 1979‑‑‑High Court further directed that observations in the order of the High Court shall have no bearing on the proceedings before the Assessing Officer who was directed to exercise independent jurisdiction and apply his mind to all the issues of facts and law raised by the assessee before him without being influenced with any of the observations made in the order of the High Court.

In the present case Assessing Officer had accepted the plea of assessee at the time of original assessment that the industrial undertaking was set up and was ready for commercial production on the basis of certificate issued by Assistant Collector of Customs, which was to the effect that the plant and machinery had been installed. Subsequently the information was received from the Assistant Director, Directorate of Inspection and Internal Audit Customs, Central Excise and Sales Tax Regional Office, that the unit was not complete or capable of producing anything on the cut off date. Thus, the information forming basis for issuance of Notice under section 65 of the Income Tax Ordinance, 1979 was not available at the time of original assessment and in reply to the show‑cause notice the assessee could not furnish any material/evidence to establish that the information received was incorrect and that the industrial undertaking was set up. No evidence was produced that electric connection was available to the industrial undertaking from which it could be inferred that the industrial undertaking was ready for going into the commercial production. In these circumstances, the Assessing Officer had information on the basis of which he had reason to believe that the exemption was wrongly allowed resulting in the escapement of assessment. The pleas raised by the assessee in support of the contention that the initiation of proceedings under section 65 were mala fide or industrial undertaking was actually set up, were the pure questions of fact which could not be resolved in a writ petition.

Assessee had failed to show that the notice under section 65 was without jurisdiction. Assessee, therefore, could not be allowed to bypass the normal remedies available to him under the Income Tax Ordinance, 1979. As other remedies were available to the assessee under the Income Tax Ordinance and. the issues raised were questions of fact which required probe at the original stage therefore, writ petition was not maintainable. 'However, notwithstanding, the dismissal of petition and observations made in the order, the assessee was entitled to raise all the questions of fact and law before Assessing Officer and the Assessing Officer was directed to consider all the objections raised by the assessee including‑ the question pertaining to the exercise of jurisdiction under section 65 of the Income Tax Ordinance. The observations made in the order would have no bearing on the proceedings before the Assessing Officer and the Assessing Officer was directed to exercise independent jurisdiction and apply his mind to all the issues of facts and law raised by the assessee before him without being influenced with any of the observations made in the order.

Messrs Burhan Engineering Co. Ltd. v. The Income‑tax Officer, Companies, Circle 11, Karachi 1985 PTD 465; Shagufta Begum v. The Income‑tax Officer, Circle‑XI, Zone‑B, Lahore PLD 1989 SC 360; Benedict F.D. Souza v. Karachi Building Control Authority 1989.SCMR 918; Messrs Pak‑Arab Fertilizers (Pvt.) Ltd. v. Deputy Commissioner, Income‑tax 2000 PTD 263; Data Distribution Services v. Deputy Commissioner of Income‑tax and another 2000 PTD 2427; Messrs Wali Traders v. Income‑tax Officer, Circle XVIII 1988 PTD 206; Messrs Shadman International (Pvt.) Ltd. v. Income‑tax Officer 1991 PTD 387; Edulji Dinshaw Limited v. Income‑tax Officer PLD 1990 SC.399; Arafat Woollen Mills Ltd. v. Income-tax Officer 1990 SCMR 697; Jeson International (Pvt.) Ltd. v. Income‑tax Officer 1989 PTD 1141; Republic Motors Ltd. v. Income‑tax Officer 1990 PTD 889; Car Tunes v. Income‑tax Officer PLD 1989 Kar. 337 1989 PTD 478; Income‑tax Officer v. Panama (Private) Ltd. (1974) 97 ITR 210; Wali Traders v. Income‑tax Officer 1988 PTD 206; Zafar Usman v. Income‑tax Officer 1989 PTD 547; Hafiz Muhammad Arif Dar v. Income‑tax Officer PLD 1989 SC 109 1989 PTD 485 and Income‑tax Officer v. Purushottam Das Bangur 1997 PT6 1969 ref.

Muhammad Ather Saeed for Petitioner.

Aqeel Ahmed Abbasi for Respondents Nos.2 to 5.

Date of hearing: 19th January, 2001.

2001 P T D 1637

[Karachi High Court]

Before S. Ahmed Sarwana and Muhammad Mujeebullah Siddiqui, JJ

Messrs PAKISTAN AUTOMOBILE CORPORATION LIMITED

versus

GOVERNMENT OF PAKISTAN and others

Constitutional Petition No. D‑941 ‑of 1999, decided on 1st February, 2001.

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.8‑‑‑Central Board of Revenue Circulars‑‑‑Opinion or decision of Central Board of Revenue is not binding on the Income‑tax Appellate Tribunal, Income‑tax Commissioner (Appeals) or Appellate Additional Commissioner of Income‑tax.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Second Sched., Part I, cl. 79‑A‑‑‑Constitution of Pakistan (1973), Art. 199‑‑‑Constitutional petition ‑‑‑Maintainability‑‑‑Petitioner/assessee cannot be allowed to bypass/abandon the remedy already availed by it by filing first appeal before CIT(A)‑‑‑Petitioner‑assessee having not come to the Court with clean hands also the petition was not maintainable in circumstances.

Collector of Customs v. Messrs S.M. Ahmad & Company (Pvt.) Limited 1999 SCMR 138 distinguished.

Collector of Customs v. Messrs S.M. Ahmad & Company (Pvt.) Limited 1999 SCMR 138; Commissioner of Income‑tax v. Hamdard Dawakhana (Waqf) PLD 1992 SC 847; H.M. Abdullah v. I.T.O., Karachi and 2 others 1993 SCMR 1195 and Wealth Tax Officer and another v. Shaukat Afzal and 4 others 1993 SCMR 1810 ref.

Jawaid A. Siddiqui for Petitioner.

Shaikh Haider for Respondent No.4.

Muhammad Jamil for Respondent N.o.5

Date of hearing: 1st February, 2001

2001 P T D 2961

[Karachi High Court]

Before Zahid Kurban Alavi and Mushir Alam, JJ

COMMISSIONER OF WEALTH TAX

versus

MUHAMMAD AHMAD

Wealth Tax Case No.111 of 1992, decided on 10th October, 2000.

Wealth Tax Act (XV of 1963)‑‑‑

‑-‑‑Ss.27(4) & 16(3)‑‑‑Reference application‑‑‑Valuation of half share in plot‑‑‑Assessing Officer accepted the declared value of half share of plot in the hands of one co‑owner while the value of other half share of the same plot was assessed on the higher side in the hands of other co‑owner‑‑­Tribunal directed the Assessing Officer to accept the declared value of the half portion of the plot in the hands ‑of other co‑owner also‑‑‑Department challenged the Tribunal's order on the ground that valuation in question was accepted without referring to any factors justifying the reasonableness of the declared value which was ridiculously low‑‑‑Validity‑‑‑Not open to the department to discriminately adopt varying valuation for distinct portions of the same plot in the hands of different assessees when ex facie there was no disparity between the two portions‑‑‑Reference application was dismissed by the High Court.

Jaswant Rai v. Commissioner of Wealth Tax (1978) 38 Tax 9 (HC Ind.) rel.

Nasurllah Awan for Applicant.

Jawed Zakariya for Respondent.

Date of hearing: 25th September, 2000.

2001 P T D 2982

[Karachi High Court]

Before Sabihuddin Ahmed and Zahid Kurban Alavi, JJ

Messrs USMANI ASSOCIATES SUB PROPRIETARY FIRM

versus

CENTRAL BOARD OF REVENUE and another

Constitutional Petition No.D-646 of 1999; decided on 22nd March, 2001.

Per Zahid Kurban Alavi, J.---

(a) Sales Tax Act (VII of 1990)---

----S.3---Expression 'Taxable supplies'---Connotation---Scope of the expression has to be restricted only to -such transaction as may amount to ` sale---Any extended meaning would render the provision extra­-Constitutional.

(b) Sales Tax Act (VII of 1990)---

----Ss. 3 & 16(34)---Sales tax, levy of---Condition precedent---Expression 'taxable activity'---Applicability---Tax under the Sales Tax Act, 1990 is charged, levied and paid only when taxable supply is made in the course or furtherance of 'taxable activity, as such the expression 'taxable activity' involves in whole or in part 'the supply of goods to any other person' ---Such is the condition precedent for the levy of sales tax.

(c) Interpretation of statutes---

---- Enactment of a statute on subject on which already there is a statute--­Laws are presumed to be passed with deliberation and with full knowledge of all existing ones on the same subject, it is but reasonable to conclude that the Legislature, in passing a statute would not intend to interfere with or abrogate any former, law relating to the same matter; unless the repugnancy between the two is irreconcilable---Inconsistency or repugnancy is not to be readily assumed in a statute and attempt should be made to reconcile and give effect to all the provisions.

Ali Ameer v. Dalmia Cement PLD 1961 Kar. 255; Said Omer v. Federation of Pakistan and others PLD 1956 Lah. 382; Messrs Karachi Steam Navigation Company Limited v. Messrs Abdul Rehman Abdul Ghani PLD 1962 SC 90; Gul Khan and others v. The State PLD 1986 Kar. 629 and Construction of Statutes by Crawford, para. 166 ref.

(d) Interpretation of statutes---

----Change in existing statute---Object of the change in the law if any, is to be ascertained.

(e) Sales Tax Act (VII of 1990)---

----S. 3(a) [as amended by Finance Act (IX of 1996)]---Substituting word 'business' by expression 'taxable activity'---Effect---Such amendment in S.3(a) of Sales Tax Act, 1990, was intended to bring about a change in the existing law and was to narrow down the scope of the charging section.

Construction of Statutes by Crawford para. 166 ref.

(f) Maxim---

-----"Leges posteriores priores contrarias abrogant (subsequent laws repeal prior contrary laws)---Applicability---When the existing provision of law is absolutely contradictory to. or inconsistent with the amending provision maxim leges posteriores priores contrarias . abrogant comes into play.

Construction of Statutes by Crawford, para. 166 and Ahmed Saeed Kirmani, M.L.A. v. Fazal Illahi, Speaker, West Pakistan Assembly PLD 1956 Lah. 807 ref.

(g) Sales Tax Act (VII of 1990)---

----S. 16(33)(34)---Expressions 'supply' and 'taxable activity'---Defined and distinguished---Both Ss.16(33) & 16(34) can be so construed in the light of rules of Interpretation of Statute that full effect can be given to the both---To achieve this object, definition of 'supply' has to be construed in such a manner that it does not offend against expression 'involves in whole or in part the supply of goods to any other person'---Such can be done, if, instead of giving a very wide and extended meaning to the expression putting to private business or non-business use", it is restricted to disposition of goods to any other person, keeping self-use or in-house use for the manufacture of finished exempt goods outside of its purview---Person, who supplies taxable goods to his wife or to his son even without consideration would be deemed to have made a taxable supply chargeable with sales tax---Supply of goods to another person for the purpose of charity, without consideration, would similarly fall Within the scope of charging section---Interpreted in such manner the activity sought to be taxed would remain within Constitutional limits of taxation on 'sale' otherwise it would transgress the said limits and would be rendered ultra vires of the Constitution---If, however, restricted meaning is not assigned to the definition of 'supply', then either cf. (a) of the definition of 'supply' will have to be treated as absolutely superfluous or phrase 'supply of goods to any other person' in the definition of 'taxable activity' will have to be treated as surplus---While interpreting the two terms appearing in the charging section, choice is to be made between treating the phrase 'putting to private, business or non-business use' as surplus, or treating the phrase 'involves in whole or part, the supply of goods to any other person' as superfluous, or stretching or restricting the scope of any of the two expressions referred to above in any or both the definitions, so as to reconcile the two apparently conflicting provisions and harmonize them--­While making the choice one should not be oblivious of the principle that no part or word of the statute is to be held as surplusage.

East and West Steamship Co. v. Queensland Insurance Co. PLD 1963 SC 663 ref.

(h) Interpretation of statutes---

---- No part or word of a statute is to be held as surplusage.

(i) Sales Tax Act (VII of 1990)---

----S. 16(34)---Expressions 'any activity carried on in the form of a business, trade and manufacture'---Effect---Where term 'manufacture' has been used in the definition of 'taxable activity.' alongwith expression 'trade and business' at the end, the expression 'any activity carried on in the form of a business, trade and manufacture' used at end of the definition is to be read in conjunction with 'any activity which is carted on by any person' in the beginning of the definition of 'taxable activity'.

(j) Sales Tax Act (VII of 1990)---

----S. 16(34)---Expressions 'whether or not for a pecuniary profit' and 'whether for any consideration or otherwise' appearing in definition of 'taxable activity'--- Connotation---Where the two expressions interpolated in the middle of the definition clause, the same are meant to cover the entire spectrum of possible motives for an activity.

(k) Sales Tax Act (VII of 1990)---

----S.16(34)---Term 'taxable activity'---Interpretation---Term 'taxable activity' would mean 'any activity' including any activity in the form of business, trade or manufacture which is carted on by any person, and involves in whole or in part, the supply of goods to any other person, whether or not for any pecuniary profit or for any consideration or otherwise---Read in such manner, expression 'any activity carried on in the form of any business, trade or manufacture' used in the end of the definition of 'taxable activity' does not seem to have the effect of making a supply, which is not made to any other person liable to sales tax.

(l) Sales Tax Act (VII of 1990)---

----Ss. 2(16)(17)(41)(47), 3 & 16(34)---Taxable activity---Sales tax, levy of---Mere fact, that a supply is taxable or that a person is a manufacturer of that he manufactures or produces goods or is wholesaler within the meaning of S.2(16), (17), (41) or (47) of Sales Tax Act, 1990, is not enough to levy tax on the taxable supply or manufacture or wholesale unless the taxable supply is made in the course or furtherance of taxable activity carried on by him as envisaged by S.3 of Stiles Tax Act, 1990, which is the charging section, as distinguished' from 'business activity, as such these terms by themselves cannot be equated with 'sale'.

(m) Interpretation of statutes---

---- Taxing statute---Taxing statutes are to be interpreted strictly---Subject will be taxed only if he falls within the strict letter of charging section.

B. P. Biscuit Factory Limited, Karachi v. Wealth Tax Officer and another 1996 SCMR 1470 ref.

(n) Sales Tax Act (VII of 1990)---

----Preamble---Word "sale" appearing in Sales Tax Act, 1990---Defined--­Sale in its simple parlance means the transfer of a property from one individual to another on payment of or passing of a consideration---Any different interpretation would be against the basic concepts of law---To infer and to suggest that goods consumed by a person would also fall within the ambit of a sale and, therefore, the tax shall be levied, such inference or suggestion is far-fetched and against justice.

(o) Sales Tax Act (VII of 1990)---

----Ss. 3; 16(34) & 19---Constitution of Pakistan (1973), Art. 199--­Constitutional petition---Sales tax, levy of---Taxable activity---Compulsory registration under $.19 of Sales Tax Act; 1990---Issue in question was regarding compulsory registration of petitioner on the basis of his using pre­-cast material in construction of a bridge---Authorities while considering the use of pre-cast material as taxable activity, registered the petitioner under S.19 of Sales Tax Act, 1990, and made a demand of sales tax from the petitioner---Validity---Petitioner did not supply pre-cast material as such to any other person---Use of such material in the construction ,of a bridge could not be considered a "taxable supply" in the course of furtherance of a taxable activity---If private use of goods was held to be liable to sales tax merely because it amounted to sale to self, then expression "involves in whole or in part, the supply of goods to any other person' would have to be declared as surplus or redundant---Such an interpretation would be against all canons of interpretation---Where the petitioner had undertaken to build bridge and purchased raw material viz. Sarya, cement and concrete, which were already liable to sales tax and were consumed by him in creating that bridge, under no circumstances, it could have created at the intermediatory stage independent marketable products, which could be sold in the market and, therefore, he would be liable to be registered and pay sales tax.

Hunza Central Asian Textile and Woollen Mills Limited's case 1999 SCMR 526 distinguished.

(p) Sales Tax Act (VII of 1990)---

----S. 16(34)---Finance Act (IX of 1996), S.2(33)---Expression 'taxable activity' as appearing in S.16(34) of Sales Tax Act, 1990 and S.2(33) of Finance Act, 1996 discussed---Definition of the expression under the provisions of §.2(35) of Finance Act, 1996, was the same as it stood at the time of enactment of the Sales Tax Act, 1990 as such the definition clearly envisaged the supply of goods to any other person and in that- respect it was apparently in direct conflict with S.2(33)(a) of the Finance Act, 1996---If there was really a conflict between the two provisions which was irreconcilable, the provision which was inserted in the charging section later in point of time would prevail over the provisions existing earlier, but if the apparent conflict could be reconciled and harmonized so as to give effect to both the provisions, such interpretation would be given effect accordingly.

(q) Sales Tax Act (VII of 1990)---

----Ss. 3 &.16(34)---Sales tax, levy of---Semi-manufactured goods---Scope--­No tax should be levied on an individual only on the ground that since a semi-manufactured goods were capable of independent sale in' the market, therefore, such goods were taxable and fell within the ambit of taxable activity.

(r) Sales Tax Act (VII of 1990)---

----S. 3 & Preamble---Sales tax---Object and scope---Pre-cast material used in construction of bridge---Levy of sales tax---Validity---provisions of Sales Tax Act, 1990 showed that-it was a value added tax, which was levied at every stage, the value addition took place at the time of supply, it was therefore, no more a one-point levy---Pre-cast material was not separately identifiable goods, which could be sold into market as the same was not marketable because of its particular design, size and specification and as it could not be used in any- other fly-over bridge, building or construction work, it could not be used anywhere except the fly-over for which it was specifically designed in consideration of multivariable factors---Sales tax was leviable only when the, transaction in which the person was involved was completed.

Hunza Central Asian Textile and Woollen Mills Limited 1999 SCMR 526 distinguished.

(s) Sales Tax Act (VII of 1990)---

----S.3---Sales tax, levy of---Sales tax becomes leviable only when the transaction in which the person is involved is completed.

Per Sabihuddiun Ahmed, J.---

(t) Interpretation of statutes---

---- Taxing statute---Striking down statutory provisions---When the legislative intent was clear, whereby the tax net had been extended through creation of legal fiction, the Courts were not entitled to nullify it by resorting to an undefined concept of law and justice---Statutory provisions could only be struck down after the same was found to be repugnant to any provision of the Constitution and not otherwise.

(u) Sales Tax Act (VII of 1990)---

----S. 3---Constitution of Pakistan (1973), Fourth Sched., Item 49 [as amended] ---Sales tax, recovery of---Jurisdiction of Federal Government---Scope---Amendment in Item 49 of Fourth Sched.---Object---Item 49 of Fourth Sched. to the, Constitution initially spoke of tax on sales and purchases and subsequently through amendment, its ambit was extended to provide for taxes on sales and purchases of goods imported, exported, produced, manufactured or consumed---Object of such amendment was to pre-empt a challenge on the ground that a tax on manufacture, import, export or consumption as distinguished from a sale also came within the, ambit of the Federal Legislative power.

(v) Sales Tax Act (VII of 1990)---

----S. 3---Sales Tax Act (III of 1951), S.13---Sales tax, levy of---Recovery under the provisions of Sales Tax Act, 1990, and Sales Tax Act, 1951--­Distinction---Sales tax payable under Sales Tax Act, 1990, -is a value added tax as distinguished from the Sales Tax Act, 1951, where it was one point levy---Such distinction, however, does not necessarily lead to the inference that only such activities as may amount to sale of goods in common parlance would fall within the tax net.

(w) Sales Tax Act (VII of 1990)--­

---Ss. 3 & 16(34)(41)---Finance Act (IX of 1996), S.2(35)---Expressions 'taxable supply' and 'taxable activity'---Scope--Pre-cast material used in construction of bridge---Sales tax, levy of---Quantum of tax liability-­Determination ---Both the expressions operate in their respective fields--- Quantum of tax liability was determined on the basis of the value of taxable supply but the liability to pay tax under the charging section would arise only when such supply was made in furtherance of a taxable activity---Applying the provisions of S.2(35) of Finance Act, 1996, to the facts of the present case, the person while manufacturing the goods in question and using them for the construction of a bridge was engaged in making taxable supplies.

(x) Sales Tax Act (VII of 1990)---

----Ss. 2(12), 3 & 16(34)---Constitution of Pakistan (1973), Art. 199--­Constitutional petition---Sales tax, levy of---Term 'goods'---Applicability--­Pre-cast material used in construction of bridge---Petitioner was constructing a bridge in which pre-cast material was being used---Authorities treating the material as taxable activity imposed sales tax on the same ---Validity--­Expression 'goods' was defined in S.2(12) of the Sales Tax Act, 1990, to include every kind of movable property other than money, stocks etc.--­Bridge which was eventually handed over to the Authority could not be treated as goods---Such supply was not made in furtherance of a taxable activity and the petitioner could not be saddled with the liability to pay sales tax in circumstances.

Abdul Aziz Memon for Petitioner.

S. Zaki Muhammad, Dy.A.-G. for Respondents.

Date of hearing: 22nd March, 2001.

2001 P T D 3090

[Karachi High Court]

Before S. Ahmed Sarwana and

Muhammad Moosa K. Leghari, JJ

ROCHE PAKISTAN LTD.

Versus

DEPUTY COMMISSIONER OF INCOME-TAX and others

Constitutional Petition No.D-324 and Miscellaneous No. 867 of 2001, decided on 18th June, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.62---Constitution of Pakistan (1973), Art. 199---Constitutional petition-­Maintainability ---Notice under S.62, Income Tax Ordinance, 1979 issued by Deputy Commissioner of Income-tax being strictly in accordance with law and not without jurisdiction and/or mala fide could not be assailed by filing a petition under Art. 199 of the Constitution---Adequate alternate remedy by way of appeal before the Commissioner of Income-tax, a second appeal before the Income-tax Appellate Tribunal and thereafter a reference to the High, Court under S.136, Income Tax Ordinance, 1979 being available to the assessee, petition under Art. 199 of the Constitution was not maintainable in circumstances---Principles.

Assessee, in the present case, imports raw materials for manufacture and sale of pharmaceutical products and also imports pharmaceutical specialties in finished form for sale in Pakistan. On the imported products advance tax is collected by the Customs Department under section 50(5) of the Income Tax Ordinance and in respect of local products in many instance tax is deducted at source by the payer under section 50(4) of the Ordinance Assessee filed its Income Tax Return for the Assessment Year 1999-2000 under section 55 of the Income Tax Ordinance in respect of its income which is not assessable under section 80-C of the Income Tax Ordinance. It also filed a Statement under section 143B of the Income Tax Ordinance in respect of its income assessable under section 80-C of the Income Tax Ordinance. It appears that Deputy Commissioner of Income-tax was not satisfied with the information in the Return and did not determine the tax liability of the assessee under section 59A of the Ordinance. Consequently, before finalizing the assessment, D.C.I.T., in exercise of its powers under sections 61/62 of the Ordinance, asked the assessee to provide/furnish further information, documents and explanation. A lengthy exchange of discussion and communication took place between the parties by correspondence and personal hearing. Thereafter, on 11-12-2000, D.C.I.T. issued a Notice under section 62 of the Ordinance to the assessee asking it to give its comments in the views expressed therein by him. The assessee has filed Constitutional petition challenging the issuance of the Notice under section 62 of the Ordinance on the ground that it is without jurisdiction, mala fide and a sham exercise as D.C.I.T. has already expressed his opinion in the notice and intends to depart from the past practice.

From the bare perusal of section 62, Income Tax Ordinance, 1979 it appears that if the Deputy Commissioner of Income-tax is satisfied with the information attached with the return and such further information that may be provided by the assessee to him in response to his query, he may assess the total income and determine the tax payable by the assessee; however, if he does not agree with the accounts, information or explanation given by the assessee, he is required to give a notice to the assessee of his disagreement with the accounts and/or the information provided by the assessee and provide him an opportunity to explain his point of view and after considering the same pass the Assessment Order which should incorporate the explanation given by the assessee and the reasons for the rejection if the explanation is not accepted by him together with the basis of the computation of the income. An opportunity to the assessee to explain his point of view is therefore a must before passing the order of assessment. From a reading of the Notice under section 62 of the Ordinance it is clear that D.C.I.T. asked the assessee to explain the several points which had arisen from the documents and information provided by the assessee. The Notice also refers to the applicability of section 79 in respect of the raw materials imported by the company by giving the comparison of another multinational company which had imported the same raw material from the same source but at a lower price relating to which D.C.I.T. had several questions in mind which were stated in the impugned notice and the assessee was asked to give its comments on the views expressed by him. A reading of the impugned notice also clearly shows that D.C.I.T. has not made up his mind but has only given another point of view or argument which can possibly be advanced on the basis of the facts and the law applicable to the case and has asked the assessee to give its own comments or point of view so that he may decide the issue after proper application of his mind by considering all the pros and cons. D.C.I.T. has not yet passed the final order. He has only issued a Notice to the assessee because he is obliged to do so under section 62 of the Ordinance before passing the Assessment Order. Therefore, the issuance of the Notice cannot be said to be without jurisdiction or mala fide. It would be pertinent to mention here that if D.C.I.T. had made up his mind he would have passed the Assessment Order and not issued a Notice under section 62 to the assessee to give its comments on the views expressed by him. It is quite possible that the explanation/comments communicated by the assessee to D.C.I.T. may find favour with him and he may draw the conclusion desired by the assessee. D.C.I.T. cannot be restrained from doing his duty of exercising his powers and applying his mind as enjoined upon him by the general principles of law and section 62 of the Ordinance specifically to seek clarification from the assessee if he so requires for resolution of problem. If D.C.I.T. does not agree with the comments communicated by the assessee and passes an order which adversely affects the interest of the assessee, the latter would be free to resort to the remedies provided by he Ordinance. In no case can High Court at the stage of issue of a simple notice under section 62 of the Ordinance declare it to be mala fide, without jurisdiction and of no legal effect.

Now, under Article 199 of the Constitution, the jurisdiction of the High Court can be invoked, if there is no other remedy provided by law. If a person is aggrieved by an order passed by an Income Tax Officer, the Ordinance provides an appeal against such an order to the Commissioner of Income-tax and a second appeal to the Income Tax Appellate Tribunal and if' the person is still dissatisfied with the Order of the Tribunal, he can refer the question of law arising from the order of the Tribunal for an opinion by a Division Bench of the High Court under section 136 of the Ordinance. A party cannot be allowed to bypass the ordinary remedies provided by a statute in favour of a Constitution Petition under Article 199 of the Constitution. [p. 3100] C

It cannot be reasonably argued that D.C.I.T. had no jurisdiction or exceeded his jurisdiction by asking the assessee to explain several points including the question of applicability of section 79 of the Ordinance highlighted by him in Notice.

In such matters, where the High Court itself is the repository of the ultimate appellate, revisional or referral powers; conferred by the relevant statute, it is in the rarest of cases that the High Court may be persuaded to entertain a Constitutional remedy in preference to its own appellate, revisional or referral dispensation arising in course of time. Constitutional relief can be declined for the sole reason that the alternative of a reference under the suited section of the Ordinance was an equally adequate remedy.

In the present case, the impugned notice has not been issued to open an assessment already made but the Deputy Commissioner of income-tax has issued the notice to seek further information in order to comply with the legal requirement of section 62 of the Ordinance and by no stretch of imagination he can be alleged to be acting mala fide or without jurisdiction patent on the face of the record.

In the present case, D.C.I.T. has not yet applied any law. He has only issued a notice to assessee to give its comments which he is empowered to do. By doing so D.C.I.T. has no misapplied any established law or abused his powers.

In the present case D.C.I.T. has applied his own mind to the facts of the case and has issued a notice under section 62 which cannot be termed as an improper or illegal exercise of authority in any way.

High Court has to discourage the tendency to bypass the remedy provided under the relevant statute to press into service Constitutional jurisdiction of the High Court.

Impugned notice under section 62 of the Ordinance issued by D.C.I.T. to the assessee was strictly in accordance with law and was not without jurisdiction and/or mala fide. Consequently, it could not be assailed by filing a Constitutional petition 'under Article 199 of the Constitution. Moreover, as adequate alternate remedy by way of appeal before the Commissioner of Income-tax, a second appeal before the Income-tax Appellate Tribunal and thereafter a reference to the High Court under section 136 of the Ordinance were available to the petitioner, this petition was not maintainable.

The conduct of the assessee in withholding its response to the applicability of section 79 in its reply to the Notice under section 62, filing the present Constitutional petition and thereafter submitting its reply on the question in issue in order to justify the maintainability of the Constitutional petition cannot validate the proceedings which may otherwise be not maintainable. D.C.I.T. would now consider the reply filed by assessee, apply his mind and make the assessment in accordance with law. If assessee is aggrieved by the order passed by D.C.I.T. it would be open to it to resort to the statutory remedies available under the law.

Attock Cement Pakistan Ltd. v. Collector of Customs 1999 PTD 1892; Central Insurance Company v. C.B.R. 1993 SCMR 1232; CIT v. Jennings Private School 1993 SCMR 96; Julian Hoshang Dinshaw Trust v. I.T.O. 1992 PTD 1; Eduljee Dinshaw Limited v. I.T.O. 1990 PTD 155 = PLD 1990 SC 399; Adamjee Insurance Cc. Ltd. v. C.B.R. 1989 PTD 1090; Ms. Tayabba v. The Controller of Examinations PLD 1976 Kar. 481; Prince Glass Works Ltd. v. C.B.R. = Messrs GEC Avery (Pvt.) Limited v. Government of Pakistan 1995 PTD 856; Ellahi Cotton Mills Ltd. v. Federation of Pakistan PLD 1997 SC 582; CIT v. National Agriculture Ltd. 2000 PTD 254; Shagufta Begum v. I.T.O. PLD 1989 SC 360; Khalid Mehmood v. Collector of Customs 1999 SCMR 1881; H.M. Abdulla.`t v. I.T.O. 1993 SCMR 1195; CIT v. Hamdard Dawakhana PLD 1992 SC 847; AI-Ahram Builders v. I.T.A.T. 1993 SCMR 29; Yasmeen Lari v. Registrar, Income-tax Appellate Tribunal 1990 PTD, 967; Arafat Woollen Mills v. I.T.O. 1990 SCMR 697 and Amin Textile Mills (Pvt.) Ltd. v. CIT and others 2000 SCMR '101 ref.

(b) Income-tax---

----Assessment---Principles of res judicata were not applicable in income-tax cases as every assessment year is an independent proceeding and is decided on its own merits.

CIT v. Wahiduzzaman 1965 PTD 283 and CIT v. Farookh Chemical Industries 1992 SCMR 523 = 1992 PTD 523 ref.

Fatehali Vellani for Petitioner.

Aqeel Ahmed Abbasi for Respondents.

Dates of hearing 19th and 26th April, 2001.

2001 P T D 3105

[Karachi High Court]

Before S. Ahmed Sarwana and Muhammad Moosa K. Leghari, JJ

COMMISSIONER OF INCOME-TAX

Versus

NOOR ZAMAN AFRIDI

Wealth Tax Appeal No.892 and Civil Miscellaneous Applications Nos. 1032 and 1033 of 2000, decided on 25th April, 2001.

(a) Wealth Tax Act (XV of 1963)---

----S.27---Appeal to High Court---Scope---Not every question of law arising" from the order of the Appellate Tribunal could be referred by way of an appeal to the High Court but the question had to have substance in it---If the answer to the question was patently clear and free from doubt, High Court was not bound to require the Tribunal to state the case and refer to High Court---High Court recorded a note of caution for the parties filing such appeals before the High Court.

A plain reading of section 27, Wealth Tax Act, 1963 clearly indicates that an Appeal shall lie to the High Court in respect of a question of law which arises out of the order passed by the Appellate Tribunal. A question or several questions of law can and do arise out of every order passed by the Appellate Tribunal but it is not every question of law arising from the order which can be referred to High Court by way of an appeal. If the answer to the question of law is clear and has been settled by the superior Courts, an appeal raising a question in respect thereof ought not to be filed in the High Court.

If the answer to the question is patently clear and free from doubt the High Court is not bound to require the Tribunal to state the case and refer to High Court.

It is not every question of law that must be referred to the High Court. There must be some substance in it.

In the presence of clear authoritative judgments of the superior Courts and undisputed facts of the case, it appears that the Commissioner of Income-tax did not apply his mind to the facts and circumstances of the case before filing the appeals thereby wasting the time of High Court which could have been more fruitfully utilized in dealing with other important cases requiring immediate attention of the Court. High Court hoped that in future the C.I.T. shall exercise his mind and discretion prudently. No question of law having arisen for an opinion by High Court, the appeals were dismissed and the order of the Income-tax Appellate Tribunal was confirmed.

Commissioner of Income-tax v. Pakistan Beverage Company, Karachi 1967 PTD 265 and Lungla (Sylhet) Tea Co. Ltd., Sylhet v. Commissioner of Income-tax, Dacca Circle, Dacca 1970 SCMR 872 ref.

(b) Wealth Tax Act (XV of 1963)---

----S.27(8)---Appeal to High Court---Scope---Where the law relating to the question referred in appeal to the High Court was well-settled, High Court declined to answer the same and observed that High Court under S.27(8) of the Wealth Tax Act, 1963 would exercise its discretion in future and burden the party with costs who filed an appeal which was found to be not bona 101de.

Abdul Sattar Dadabhoy v. Honorary Secretary, PECHS, Karachi PLD 1998 Kar. 291; Mst. Umer Bibi v. Bashir Ahmed 1977 SCMR 154; Muslim Law by Soksena, 3rd Edn. pp.368-369; Maulvi Abdullah v. Abdul Aziz 1987 SCMR 1403 and Mir Haji Ali Ahmed Khan Talpur v. Government of Sindh PLD 1976 Kar. 316 ref.

Jawaid Farooqui for Appellant:

2001 P .T D 3939

[Karachi High Court]

Before Anwar Zaheer Jamali and Ghulam Nabi Soomro, JJ

COMMISSIONER OF INCOME-TAX

versus

SAFDAR PERWAIZ

Income-tax Appeal No. 25 of 2000, decided on 11th October, 2000

Income Tax Ordinance (XXXI of 1979)---

----Ss.66A, 13 & 136(1)---Income Tax Rules, 1982, R.207A---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Valuation of immovable property---Addition---Assessment year 1994-95---Assessing Officer assessed the difference of value between sale and purchase price of plot as income in the nature of trade and tax was paid accordingly by the assessee---Inspecting Additional Commissioner set aside the assessment order under S.66A of the Income Tax Ordinance, 1979 on the ground that assessed value of the plot was much lower than the rate prescribed by the Collector's Table for such property., thus, difference in value was liable to be added in assessee's income under S.13 of the Income Tax Ordinance, 1979---Contention of the assessee was that R.207A was inserted in the Income Tax Rules, 1982 by Notification No.414(1)97, dated 13-6-1997 and the same could not be pressed into service with retrospective effect to the prejudice of the assessee---Validity---Since mode of valuation of immovable property as provided under R.207A of the Income Tax Rules, 1982 was not available with the Department in the year' 1994-95 same having been inserted in the Income Tax Rules on 13-6-1997; could not have been applied retrospectively to the assessee's case which was a past and closed transaction by that time---High Court dismissed the departmental appeal in circumstances.

Javed Farooqi for Appellant

Ali Akbar for Respondent.

2001 P T D 3956

[Karachi High Court]

Before. Dr. Ghous Muhammad and Zahid Kurban Alavi, JJ

GULF EDIBLE OILS (PVT.) LTD.

versus

FEDERATION OF PAKISTAN and another

Constitutional Petition No. 1674 of 1999, decided on 23rd December, 1999.

(a) Income Tax Ordinance (XXXI of 1979)---

---Ss.96, 100 & 102---Refund---Interpretation of Ss.96, 100 & 102 of the Income Tax Ordinance, 1979.

(b) Administration of justice--

---Judicial forums are not the tax collectors of the State.

Mushtaq Ali v. Government of Sindh PLD 1998 Kar. 416 rel.

(c) Income-tax---

-Fiscal machinery---Need of taking optimum measures for confidence building of taxpayers emphasized.

(d) Income Tax Ordinance (XXXI of 1979)---

----Ss.96 & 100---Constitution of Pakistan (1973), Art. 199---Constitutional petition---Refund---Refund becoming due to the assessee was to be paid immediately irrespective of assessee having made any claim or not in that behalf.

Elahi Cotton v. Federation of Pakistan 1997 PTD 1555 irrelevant.

Inayatullah v. I.T.O. 1989 PTD 876; Farida Mirza v. I.T.O. 1992 PTD 173; Noor & Sons v. I.T.O. 1993 PTD 58&2; Unique Enterprises v. A.C.I.T. 1995 PTD 749; C.B.R.'s Letter No. I.T.B-3(5) of 1986, dated 3-7-1994 and Afzal Construction Co. v. v. Chairman, C.B.R. 1995 PTD 1248 rel.

Sirajul Haque Memon for Petitioner.

Nasrullah Awan for Respondents.

Date of hearing: 17th December, 1999.

2001 P T D 201

[238 I T R 276]

[Karnataka High Court (India)]

Before Y. Bhaskar Rao and A.M. Farooq, JJ

C.G. KRISHNA PRASAD

versus

COMMISSIONER OF INCOME‑TAX and another

Writ Appeal No.4830 of 1998, decided on 16th November, 1998

Income‑tax‑‑‑

‑‑‑‑Interest‑‑‑Waiver of interest‑‑‑Conditions precedent‑‑Tax paid alongwith revised return‑‑‑Demand further raised upon assessment paid within time allowed‑‑‑Condition for waiver satisfied‑‑‑Indian Income Tax Act, 1961 Ss.139(8), 217 & 273A‑‑‑[C.G. Krishna Prasad (Major) v. CIT (1999) 237 ITR 422 (Kar.) reversed].

By reading sections 139(8)(a), 217 and 273(A)(1)(iii)(c) of the Income Tax Act, 1961, it is manifest .that a special power is conferred on the Commissioner to waive the interest if conditions laid down in clause (iii)(c) of section 273A(1) are satisfied. The two conditions required are as follows: (1) When a revised return is voluntarily filed before notice under section 139(2) or section 148 is issued, the self‑assessed tax has to be paid along with the revised return. (2) The difference of tax as assessed by the authority has to be paid within the time prescribed by the assessing authority after the assessment order is passed.

On appeal against an order dismissing the writ petition filed by the assessee against refusal by the Commissioner to waive the interest levied under sections 139(8) and 217 of the Income Tax Act, 1961, on the ground that the assessee had failed to comply with the basic requirement of payment of the full amount of tax on the amount disclosed in the return and was, therefore, not entitled to claim either waiver or reduction of the interest amount levied:

Held, accordingly, allowing the appeal, that the assessee had paid self‑assessed tax of Rs.1,02,180 alongwith the revised return filed on March 16, 1990. Later on, assessment was made and the assessing authority issued a demand notice on March 29, 1990, demanding Rs.7,010 on or before April 30, 1990. The appellant paid the same on April 13, 1990 within time. Thus, the appellant hard satisfied the two conditions laid down in section 273(A)(1)(iii)(c). Therefore, the appellant was entitled to waiver of the interest levied under sections 139 and 217 of the Act.

C.G. Krishna Prasad (Major) v. CIT (1999) 237 ITR 422 (Kar.) reversed.

S. Ganesha Rao for Appellant.

M.V. Seshachala for Respondents.

2001 P T D 735

[239 I T R 386]

[Karnataka High Court (India)]

Before Tirath S. Thakur, J

K. L. SWAMY

versus

COMMISSIONER OF INCOME‑TAX and another

Writ Petition No. 1008 of 1992, decided on 19th June, 1998.

Income‑tax‑--

‑‑‑Penalty ‑‑‑Concealment of income‑‑‑Waiver or reduction of penalty‑‑­Condition precedent‑‑‑Disclosure by filing return voluntarily and in good faith‑‑‑Meaning of expression "voluntarily and in good faith"‑‑‑Finding that disclosure had been made to avoid prosecution‑‑‑Disclosure was not voluntary or in good faith‑‑Rejection of application for waiver was valid‑­Indian Income Tax Act, 1961, Ss. 271(1)(c) & 273A.

Assessees are entitled to a waiver of penalty only if they had made a disclosure by riling their returns voluntarily and in good faith. The term "voluntary" has to be understood as anything done intentionally and without coercion, compulsion or constraint. Coercion may in turn by direct or positive as in cases where physical force is used to compel on act against one's will or it may be implied. That would not, however, mean that a mere legal obligation to do something should constitute a constraint of the kind, which would render any such action involuntary. It follows that the circumstances, conditions or constraints that make a disclosure under the Act "involuntary" must be constraints other than obligations that arise under the Act, requiring the assessee to take a particular action. The expression "good faith" means an act done honestly even if the same be tainted with negligence or mistake. Section 2(22) of the General Clauses Act, 1897, lends a similar meaning to the said expression. In order that a disclosure is termed as having been made in good faith, the same must be demonstrably honest. A disclosure which is made Linder the compulsion of a possible penalty or other proceedings cannot be termed honest or one made in good faith, the underlying object of any such disclosure being not to come clean on the subject but to avoid the adverse consequences that may follow a non­disclosure.

The High Court does not exercis6 appellate powers in proceedings under Article 226 so as to re-appreciate the facts and the evidence involved in the determination by the authorities below and to substitute its own findings for those returned by such authorities. The High Court would be justified in interfering with a finding of fact only in cases where the finding is perverse in that there is no evidence to support the same or that no rational person could have arrived at the conclusion recorded by the authority on the basis of the available material. Short of perversity and patent irrationality in the decision recorded by the authority, the High Court would be reluctant to interfere with a finding which is essentially a finding of fact:

Held, that, in the instant case, it could not be said that the finding recorded by the Commissioner to the effect that the circumstances attendant upon the case, let no option for the petitioner but to make a disclosure to avoid prosecution and penalty proceedings was either without any evidence or so perverse or irrational as to constitute an outrageous defiance of logic. There was indeed no physical coercion used on the petitioners forcing them to file their returns, there may also have been no formal notice issued to the petitioners asking them to file such returns or threatening action against them in the event of their failure to do so. Yet, the compulsion of the circumstances that unfolded themselves consequent upon the search and seizure operations would itself constitute a constraint effective enough to render the filing of returns by them "involuntary". Just because the search and seizure operations were not conducted in the premises of any one of the petitioners who were brothers or just because the person through whom the petitioners were alleged to have paid the additional amount of Rs.25 lakhs for purchase of two estates, had denied any such payment, would not have been conclusive of the matter. The fact of the matter, however, was that they did not risk any such finding and made an enquiry into the matter academic by filing their returns in which they admitted the amount of Rs.25 lakhs as their income for the years 1980‑81 and 1985‑86. The disclosure made in the returns as actually tantamounted to an admission on the part of the petitioners to the effect that the amount disclosed was the additional consideration for the purchase of the estates by them and that the said payment was according to them assessable in their hands as a body of individuals and not as individuals. Having, thus, disclosed the amount and by necessary implication accepted its utilisation towards the purchase of the estates it was not possible for the petitioners to contend that any such disclosure or admission was made or accepted not because any such consideration had actually changed hands but with a view to buy peace with the Department and avoid a long term and expensive legal battle over the question. The petitioners were estopped from raising any such contention specially when the disclosure came after an initial denial of the making of the payments and only when T stood his ground offered himself for cross‑examination in support of his version that such a payment was made. The order rejecting the application for waiver of penalty was valid.

Hakam Singh v. CIT (1980) 124 ITR 228 (All.); Jadav Desai (S.R.) v. WTO (Sixth) (1980) 121 ITR 531 (Kar.); Rohitkumar & Co. v. F.J. Babdur, CIT (1991) 190 ITR 93 (Bom.) and Shantha Devi (Snit.) v. WTO (1980) 121 ITR 703 (Kar.) ref.

Ramabadran and Sarangan for Petitioner.

M.V. Seshachala for Respondent No. 1.

2001 P T D 1369

[244 I T R 593]

[Karnataka High Court (India)]

Before V. K. Singhal and T. N. Vallinayagam, JJ

COMMISSIONER OF WEALTH TAX

versus

S. D. NARAYANSA

C. Ps. Nos.906 to 909 of 1999, decided on 10th February, 2000.

Wealth tax‑‑‑

‑‑‑‑Reference‑‑‑Valuation of property‑‑‑Schedule III to Act introduced w.e.f. 1‑4‑1989‑‑‑Procedural not substantive‑‑‑Schedule applicable to all matters pending on 1‑4‑1989‑‑‑No referable question of law arose for consideration‑­Indian Wealth Tax Act, 1957, S.27(3), Sched. III‑‑‑Indian Wealth Tax Rules, 1957, R.1‑BB.

Schedule III introduced in the Wealth Tax Act, 1957, with effect from April 1, 1989, is procedural and not substantive and all matters which were pending on April 1, 1989, are covered by the said Schedule. The market value in all such cases has to be determined in accordance with Schedule III.

C.W.T. v. Sharvan Kumar Swarup & Sons (1994) 210 ITR 886 (SC) fol.

C.W.T. v. Sunder Lal Gupta (1997) 225 ITR 729 (Raj.) and George (P.J.) v. C.I.T. (1998) 231 ITR 19 (Ker.) ref.

M. V. Seshachala for Petitioner. Nemo for Respondent.

2001 P T D 2200

[239 I T R 694]

[Karnataka High Court (India)]

Before V .K. Singhal, J

CHAMUNDI GRANITES (P.) LTD

Versus

DEPUTY COMMISSIONER OF INCOME‑TAX and another

Writ Petitions Nos. 30318 of 1994 and 33115 of 1995, decided on 25th June, 1999.

Income Tax---

‑‑‑‑Penalty‑‑‑Evasion of tax‑‑‑Mode of taking loans and deposits‑‑­Constitutional validity of provisions‑‑‑Section. 269‑SS stipulating that loans and deposits exceeding prescribed limit should be taken only by way of crossed cheques or crossed Bank drafts‑‑‑Section 271‑D providing for penalty for violation of S.269‑SS ‑‑‑Provisions to prevent evasion of tax‑‑­Restrictions reasonable and not violative of Arts. 14 & 19 of Constitution‑‑­Sections 269‑SS & 271‑D are valid‑‑‑Indian Income Tax Act, 1961, Ss.269‑SS & 271‑D‑‑‑Constitution of India, Arts. 14, 19 & 226.

Section 269‑SS of the Income Tax Act, 1961, has placed restrictions in taking any loans or deposits otherwise than by way of an account payee cheque. It is a reasonable restriction and does not take away the right of any person to take the loan from the other person in the manner prescribed under law. It is the mode prescribed under the section which is to ensure prevention of evasion of tax to avoid fictitious entries to be made in the books of account without there being any actual transaction. There is no infirmity in the enactment of such a provision since it carries out its object of prevention of evasion of tax. The lender and borrower constitute different classes. Just because the borrower has been made liable it cannot be construed that there is violation of Article 14 of the Constitution. It is only the borrower who can need adjustment by book entries to avoid tax. The loan may be genuine and in a particular case reasonable hardship might be created .to the borrower by such a provision. But the ultimate aim of the section is to prevent evasion of tax. Section 269‑SS to prevent evasion of tax is ancillary and incidental to the main power to levy the tax. The contention that if the loan is taken again and again and repaid it tray result in levy of penalty of an amount which is more than the loan once taken and, therefore, the provision is confiscatory, has no substance because the Legislature intended to check the transactions which are beyond the prescribed limit and they should be only through account payee cheque. If any contravention is made action could be taken under section 171‑D. The provisions of sections 269‑SS and 271‑D are reasonable restrictions in accordance with the powers which are with Parliament and cannot be considered violative of Articles 14 and 19 of the Constitution of India. Sections 269‑SS and 271‑D are valid.

CIT v. Khatau Makanji Spinning and Weaving Co. Ltd. (1960) 40 ITR 189 (SC); K.R.M. V. Ponnuswamy Nadar Sons (Firm) v. Union of India (1992) 196 ITR 431 (Mad.); Navinchandra Mafatlal v. CIT (1954) 26 ITR 758 (SC); Navnit Lal C. Javeri v. K.K. Sen. AAC (1965) 56 ITR 198 (SC); Shanthi (A.B.) v. Assistant Director of Inspection, Investigation (1992) 197 ITR 330 (Mad.); State of Madhya Pradesh v. Bharat Heavy Electricals (1998) 99 ELT 33; Sukhdev Rathi v. Union of India (1995) 211 ITR 157 (Guj.); Tripura Goods Transport Association v. Commissioner of Taxes (1.999) 112 STC 609 (SC) and AIR 1999 SC 719 ref.

K.R. Prasad for Petitioner. .

M.V. Seshachala for Respondents.

2001 P T D 2318

[239 I T R 831]

[Karnataka High Court (India)]

Before V. K. Singhal, J

TADALAM G. DWARAKANATH & CO.

Versus

COMMISSIONER OF INCOME‑TAX

Writ Petition No. 10212 of 1994, decided on 26th May, 1999.

Income‑tax‑‑‑

‑‑‑‑Business loss‑‑‑Embezzlement‑‑‑Loss is deductible‑‑‑Loss must be deemed to have occurred when embezzlement was discovered‑‑‑Indian Income Tax Act, 1961.

The Supreme Court held in Badridas Daga v. CIT (1958) 34 ITR 10 (SC) that the loss sustained by the assessee as a result of misappropriation by an employee/agent was one which was incidental to the carrying on of the business and should, therefore, be deducted in computing the profits of business. In Associated Banking Corporation of India Ltd. v. CIT (1965) 56 ITR 1, the Supreme Court observed that the loss by embezzlement must be deemed to have occurred when the assessee came to know about the embezzlement and realised that the amounts embezzled could not be recovered.

Held accordingly, that the observation of the Commissioner of Income‑tax that the embezzlement which related to an earlier year could not be claimed in the subsequent year, was contrary to the observation of the apex Court. The petitioner was made aware of the audit report of the loss in the assessment year 1986‑87 and it was on the said amount becoming irrecoverable that a loss could be claimed. The order passed by the Commissioner of Income‑tax was not valid.

Associated Banking Corporation of India Ltd v. CIT (1965) 56 ITR 1 (SC); Badridas Daga v. CIT (1958) 34 ITR 10 (SC) and Chokshi Metal Refinery v. CIT (1977) 107 ITR 63 (Guj.) ref.

M.V. Javali for Petitioner.

E.R. Indra Kumar for Respondent.

2001 P T D 2567

[248 I T R 406]

[Karnataka High Court (India)]

Before P. V. Reddi, C.J., A.M. Farooq and H.L. Dattu, JJ

COMMISSIONER OF WEALTH TAX

versus

D.M. SRINIVAS

T.R.C. Nos.9 to 15 of 19$9, decided on 5th January, 2001

Wealth tax‑‑‑

---Additional wealth tax on urban property‑‑‑Exemption‑‑‑Property used by assessee for purposes of his business‑‑‑Property owned by partner used for business of firm‑‑‑Business carried on by firm is business carried on by all partners‑‑‑Partner entitled to exemption from additional wealth tax‑‑‑Indian Wealth Tax Act, 1957, Sched., Part I, Para. A, Item (2)‑‑‑Indian Partnership Act, 1932.

Item (2) of Part ‑I of the Schedule to the Wealth Tax Act, 1957, provides‑ for levy of additional wealth tax, in the case of every individual and Hindu undivided family on his urban assets being building or land or any right in such building or land situate in an urban area. The "urban area" is defined to mean any area which is comprised within the jurisdiction of the municipality, municipal corporation, etc. The provisions specifically exclude business premises from the levy of additional wealth tax. The meaning of the expression "business premises" is found in rule 1 of Para. B of the Schedule, which means any building or land or part of such building or land or any right in building or, land or part thereof, owned by the assessee and used throughout the previous year for the purpose of his business or profession. The expression "used for business purposes" means used for the purpose of enabling the owner to carry on the business and earn profits in the business. The question would be whether "his business" would include the business of the partnership firm in which he is a partner. However, the expression "his business" is not defined either under the Act or in the Rules and, therefore, it must carry the meaning assigned to it in the Indian Partnership Act, 1932. A firm is not a distinct legal entity and the partnership property in law belongs to all the partners constituting the firm. The Supreme Court observed in CIT v. Ramniklal Kothari (1969) 74 ITR 57 that business carried on by a firm is business carried on by the partners. The profits of the firm are the profits earned by all the partners in carrying on the business. The share of the partner is business income in his hands. In view of this settled legal position, the business carried on by the firm in the premises owned by the assessee in an urban area in which he is a partner is the business of the assessee. Therefore, while computing the net wealth of the assessee owning the urban asset, the business premises in which the business is ‑carried on by the firm, of which he is a partner, shall have to be excluded since there is nothing to show in the definition of the word "business premises" in rule 1 of Part B of the Schedule that the benefit of the provisions would not be available, if the business premises owned by the assessee are utilised by the firm of which the assessee is a partner for its business purposes.

CWT v. R. Susheela (1989) 176 ITR 232 (Kar.) approved.

CIT v: K.M. Jagannathan (1989) 180 ITR 191 (Mad.); CWT v. Rama Shanker Gupta (1988) 174 ITR 134 (All.) and CWT v. C.G. Radhakrishnan (1994) 210 ITR 1016 (Mad.) fol.

Addanki Narayanappa v. Bhaskara Krishnappa AIR 1966 SC 1300; Birla (L.N.) v. CWT (1987) 168.ITR 86 (Cal.); CIT v. Bajoria (C.L.) (1981) 129 ITR 772 (Cal.); CIT v. Prakash Beedies (P.) Ltd. (1986) 161 ITR 241 (Kar.) CIT v. Ramniklal Kothari (1969) 74 ITR 57 (SC); CIT v. Rasiklal Balabhai (1979) 119 ITR SOS (Guj.); Dulichand Laxminarayan v. CIT (1956) 29 ITR 53.5 (SC); Liquidators of Pursa Ltd. v. CIT (1954) 25 ITR 265 (SC) and Malabar Fisheries Co. v. CIT (1979) 120 ITR 49 (SC) ref.

E.R. Indrakumar for the Commissioner.

K.R. Prasad and A .A. Kulkarni for the Assessee.

2001 P T D 2725

[239 I T R 867]

[Karnataka High Court (India)]

Before V.K. Singhal, J

BRAHMAVAR CHEMICALS (PVT.) LTD.

versus

COMMISSIONER OF INCOME-TAX and another

Writ Petitions Nos.12599 and 12600 of 1991, decided on 30th November, 1998.

Income-tax---

----Return---Unabsorbed depreciation--- Investment allowance---Carry forward--- Limitation prescribed under S.139(1) not applicable---Indian Income Tax Act, 1961, Ss.72(1), 73(2), 74(1), (3), 74A(3), 80 & 139(1).

The period of limitation prescribed under section 139(1) of the Income Tax Act, 1961, is not applicable for carry forward of unabsorbed depreciation and investment allowance.

CIT v. Harprasad & Co. (Pvt.) Ltd. (1975) 99 ITR 118 (SC); CIT v. Jaipuria China Clay Mines (P.) Ltd. (1966) 59 ITR 555 (SC); CIT v. Kulu Valley Transport Co. (Pvt.) Ltd. (1970) 77 ITR 518 (SC); CIT v. Nagpur Gas and Domestic. Appliances (1984) 147 ITR 440 (Bom.); Sathappa Textiles (Pvt.) Ltd. v. Second ITO (1969) 71 ITR 260 (Mad.) and Sri Hari Mills Ltd. v. First ITO (1967) 65 ITR 348 (Mad.) ref.

Ramabhadran for Petitioner.

M.V. Sheshachala for Respondents.

2001 P T D 3014

[240 I T R 45]

[Karnataka High Court (India)]

Before V .K. Singhal, J

SHAH GENMAL SAKAL CHAND & CO.

Versus

COMMISSIONER OF INCOME‑TAX and another

Writ Petition No. 19181 of 1999, decided on 23rd June, 1999.

Income-tax-----

‑‑‑‑Revision‑‑‑Limitation‑‑‑Delay in filing revision petition‑‑‑No application filed for condonation of delay in spite of notice--‑‑Tending" in S.95(i)(c) of Finance (No.2) Act, 1998 (Kar Vivad Samadhan Scheme), meaning of‑‑­Indian Income Tax Act, 1961, 5.264‑‑‑InKC11an Finance (No.2) Act, 1998, S.95(i)(c).

Under the Income‑tax Act, a time limit is prescribed for filing a revision petition before the Commissioner of Income‑tax and there is a power to condone the delay also. If the revision petition is filed belatedly with an application for condonation of delay which may ultimately be considered as sufficient cause for condonation of delay by the Commissioner or may not be so considered, would make the revisional proceedings pending, but if the revision petition is filed belatedly without any application for condonation of delay, then it will not be considered to have been filed in accordance with the provisions of section 264 of the Income Tax Act, 1961.

The assessee filed a revision petition under section 264 of the Income Tax Act, 1961, before the Commissioner of Income‑tax on January 29, 1999, against the assessment order passed under section 143(3) of the Act on March 31, 1997, for the assessment year 1995‑96. The assessee neither filed an application for condonation of delay nor stated any reasons for late filing of the petition. In response to the notice, dated February 5, 1999 also no reasons were stated. Hence, the Commissioner of Income‑tax dismissed the revision petition by his order, dated February 17, 1999, where it was observed that it was filed only for taking benefit of the Kar Vivad Samadhan Scheme, 1968. The assessee challenged this order of the Commissioner of income‑tax by filing a writ petition under Article 226 of the Constitution of India:

Held, dismissing the writ petition in limine, that it was the duty of the petitioner to give reasons when a notice was issued to him, so that the revision petition could be maintained. A delayed petition without giving reasons for delay was no petition in the eye of law. Even when a notice was issued to the petitioner pointing out the fact of delay no steps were taken to move an application for condonation of delay at that stage. The word "pending" in section 95(i)(c) of the Scheme refers to a petition pending in the eye of law. In these circumstances, there was no valid revision preferred by the petitioner and it was not pending. Hence, the order passed by the Commissioner did not require any interference.

Mela Ram & Sons v. CIT (1956) 29 ITR 607 (SC) ref.

M.V. Javali for Petitioner.

2001 P T D 3222

[240 I T R 189]

[Karnataka High Court (India)]

Before V.K. Singhal, J

JOINT COMMISSIONER OF INCOME‑TAX (TDS)

Versus

JINDAL TRACTBEL POWER CO. LTD. and another

Writ Petitions Nos.7435 and 7436 of 1999, decided on 10th March, 1999

Income‑tax‑‑‑

‑‑‑‑Appeal to Appellate Tribunal‑‑‑Procedure‑‑‑Writ‑‑‑Difference of opinion on application for stay of recovery proceedings between two members who constituted Tribunal‑‑‑No final order which could be challenged‑‑‑Writ petition was not maintainable against observations of one of members‑‑­Indian Income Tax Act, 1961, S.254‑--‑Constitution of India, Art. 256.

Any observations made in a stay application are only tentative and do not affect the merits of the case which has to be decided by the Bench of the Tribunal after taking 'into consideration the relevant evidence, the judgment of the Courts and other facts. In a case where there is difference of opinion the point has to be decided by opinion of the majority, if there is a majority, but if the members are equally divided they shall state the point or points on which they differ and the case shall be referred by the President‑ of the Appellate Tribunal for hearing on such point or points by one or more of the other members of the Appellate Tribunal and the decision on such point or points shall be according to the opinion of the majority of the members of the Appellate Tribunal who have heard the case including those who first heard it. Unless there is a final decision whether it is on appeal or on stay application, the order cannot be considered to be final:

Held, dismissing the writ petition, that since in the eyes of law there was no order which required adjudication, the High Court could not interfere. The Tribunal had to follow the procedure laid down under section 255(4) of the Income Tax Act, 1961.

E.R. Indrakumar for Petitioner.

K.R. Prasad for Respondents.

2001 P T D 3566

[240 I T R 707]

[Karnataka High Court (India)]

Before V.K. Singhal, J

MITTAL STEEL LTD.

versus

ASSISTANT COMMISSIONER OF INCOME‑TAX and another

Writ Petitions Nos. 32477 to 32481 of 1995, decided on 16th June, 1999.

Income‑tax‑‑‑

‑‑‑‑Deduction of tax at source‑‑‑Interest‑‑‑Constitutional validity of provisions‑‑‑Failure to deduct tax or failure to pay tax deducted at source to Revenue‑‑‑ Provision for penal interest under S.201‑‑‑Adequate safeguards for assessee given in S.201‑‑‑Section 201 is not ultra vires the Constitution‑‑­Section 201 is valid‑‑‑Indian Income Tax Act, 1961, S.201.

Section 201 of the Income Tax Act, 1961, is a penal provision to treat a person as an assessee in default if there is a failure to deduct the tax, or if after deducting the tax it is not paid. The proviso makes it clear that the Assessing Officer must be satisfied that such failure was without good and sufficient reason. This contemplates an adjudication by the Assessing Officer, to provide an opportunity to the person who is deemed to be an assessee in default for which an order has to be passed which is appealable under section 246 of the Act. The Assessing Officer, therefore, is to fix the liability and compute the amount of tax which was liable to be deducted or liable to be paid and has not been paid and thereafter has to serve a notice of demand calling upon the assessee to make such payment. Sufficient safeguards have been provided in the section itself and as such it cannot be considered that the provisions are ultra vires the Constitution. The contention that under section 191 of the Act, there could be a direct payment of tax by the assessee to the Department, has no relevance for the offence which the assessee has committed in not deducting the tax under various sections of the Act, particularly, in Chapter XVII. The finding that there was a failure to deduct the tax has to be on the basis of either the assessment or other records available with the assessee and, therefore, the contention that no process 'or procedure has been stipulated has no force. The Assessing Officer has to provide an opportunity and, therefore, there is sufficient guideline protecting the right of innocent assessees. The provisions of section 201, therefore, cannot be considered to be ultra vires.

Rajesh Chander Kumar for Petitioner.

M.V. Seshachala for Respondents.

2001 P T D 3610

[241 ITR 178]

[Karnataka High Court (India))

Before V .K. Singhal, J

VYSYA BANK LTD. and another

versus

JOINT COMMISSIONER OF INCOME‑TAX and another

Writ Petitions Nos.34820, 34919, 34920, 35026 and 35027 of 1998, decided on 2nd August, 1999.

Income‑tax‑‑‑

‑‑‑‑Recovery of tax‑‑‑Garnishee proceedings‑‑‑Condition precedent‑‑­Subsisting relationship of debtor and creditor‑‑‑Fixed deposit in Bank‑‑­Banker becomes a debtor the moment the fixed deposit receipt is obtained‑‑­Fixed deposit can be withdrawn before date of maturity‑‑‑Fixed deposit can be attached in garnishee proceedings‑‑‑Indian Income Tax Act, 1961, S.226(3).

Section 226(3) of the Income Tax Act, 1961, contemplates that the Income‑tax Officer may require any person at any time or from time to time (1) from whom money is due; (2) or may become due to the assessee; (3) arrived person who holds money for an assessee; (4) or may subsequently hold money on account of an assessee, to pay to the Assessing Officer or Tax Recovery Officer either forthwith or upon the money becoming due or being held or at or within the time specified in the notice (not being before the money becomes due or is held) There should be an obligation on the person on whom notice is served to pay money to the assessee, i.e. the subsisting relationship of a debtor and creditor is a sine qua non for the exercise of the power under the section. In the case of a fixed deposit in a bank the banker becomes a debtor of the assessee in default the moment the fixed deposit receipt is obtained. Normally, the payment of the fixed deposit receipt is made on the due dates. But on forgoing interest or paying lesser rate of interest the bankers generally permit customers to withdraw the amount of the fixed deposits before the maturity date. The fixed deposit receipt is not a negotiable instrument, but could be assigned with the concurrence of the bank in favour of other persons: According to the instructions which are issued by the Reserve Bank from time to time if a depositor wants to encase the fixed deposit receipt before its maturity, the bank is bound to refund the amount. with lesser interest as is permissible looking to the time involved. The Department steps into the shoes of the assessee and. can claim payment even before its maturity. Attachment of the amount in the fixed deposit could be made by the income‑tax authorities under the proviso to section 226(3).

Adam (K.M.) v. ITO (1958) 33 ITR 26 (Mad.); Buddha Pictures v. Fourth ITO (1964) 52 ITR 321 (Mad.); Devarajan (I) v. Tamil Nadu Farmers Service Cooperative Federation (1981) 51 Comp. Cas. 682 (Mad.); European Life Assurance Society: In re (1869) LR 9 Eq. 122; Hyderabad Cooperative Commercial Corporation Ltd. v. Syed Mohiuddin Khadir AIR 1975 SC 2254; ITO v. Budha Pictures (1967) 65 ITR 620 (SC); ITO v. Mysore Spun Silk Mills Ltd. (In Liquidation) (1963) 50 ITR 672 (Mys.); 33 Comp. Cas. 1159 (Mys.); Joachimson (N.) v. Swiss Bank Corporation (1921) 3 KB 110 (CA); Rekstin v. Severo Sibirsko Gosudarstvenunpe Akcionernoe Obschestvo Komserverputj and Bank of Russain Trade Ltd. (1933) 1 KB 47; Rogers v. Whiteley (1889) 23 QBD 236 (CA) and Webb v. Stenton (1883) 11 QBD 518 (CA) ref.

N. Khetty for Petitioners.

E.R. Indra Kumar for Respondents.

2001 P T D 3825

[241 I T R 877]

[Karnataka High Court (India)]

Before V. K. Singhal, J

BIYAR RUBBER (P.) LTD.

Versus

ASSISTANT COMMISSIONER OF INCOME-TAX and others

Writ Petition No.6231 of 1997, decided on 3rd August, 1999.

Income-tax---

----Recovery of tax---Interest---Constitutional validity of provisions--Levy of interest under S.220(2) on non-payment of sum specified in notice of demand---Interest is compensatory---Section 220(2) does not violate Arts. 14 & 19 of Constitution---Section 220(2) is valid---Indian Income Tax Act, 1961, 5.220---Constitution of India, Arts. 14, 19 & 226.

Section 220(1) of the Income Tax Act, 1961, provides' that the amount specified in the notice of demand has to be paid within 30 days of the service of the notice. Subsection (1) refers to the amount and has not categorised "interest", "tax" and "penalty" separately. The distinction between "interest", "tax" and "penalty", comes to an end once the demand notice is issued. The distinction remains only till they are determined separately. Section 220 refers to any amount payable in accordance with the notice of demand under section 156. Section 221(1) provides for levy of penalty when the assessee is in default or is deemed to be in default in making the payment of tax. The distinction between sections 220 and 221 is thus obvious that penalty could be levied only if there is default in making the payment of tax. This penalty is in addition to the interest payable under section 220(2). The interest under section 220(2) is to be levied for non­payment of the sum specified in the notice of demand which may be, interest or even penalty as determined by the assessing authority under the Act and for which the notice of demand is issued under section 156. The nature of the interest is compensatory and, therefore, the liability which has been created by the statute in respect of "tax, interest and penalty" has to be discharged within the time specified in the notice of demand and any non-payment or late payment thereof has to be compensated by paying the interest as provided under section 220(2). If Parliament has competence to levy interest for non-payment or late payment of tax, then, after the liability is determined, if certain amount of interest is payable, the power to recover and make a provision for levy of interest for non-payment of such amount is ancillary incidental to the main power for levy of tax. Section 220(2) is not violative of Articles 14 and 19(1)(g) of the Constitution. Section 220(2) is valid.

Achamma Kuriakose (Smt.) v. State of Kerala (1988) 171 ITR 494 (Ker.); Gujarat State Fertilizers Co. Ltd. v. ITO (1983) 142 ITR 787 (Guj.); Khazan Chand v. State of Jammu and Kashmir (1984) 56 STC 214 (SC); Sali Maricar (A.M.) -v. ITO (1973) 90 ITR 116 (Mad.) and Soma Sundarams (Pvt.) Ltd. v. CIT (1979) 116 ITR 620 (Kar.) ref.

Vasan Associates for Petitioner indra Kumar for Respondents.

2001 P T D 84

[238 I T R 630]

[Kerala High Court-(India)]

Before P. Shanmugam, J

In re: MOOLAMATTOM ELECTRICITY BOARD EMPLOYEES COOPERATIVE BANK LTD. and others

O.P. Nos. 12927, 14931, 15432, 16389 and 17082 of 1997, decided on 10th July, 1998.

(a) Income-tax---

----Deduction of tax at source---Cooperative society---Exemption from liability to deduct tax at-source---Scope of subsection (3) of S. 194A--­Cooperative society is entitled to exemption--Indian Income Tax Act, 1961, Ss.2 & 194A.

Section 194A of the Income Tax Act, 1961, provides that any person who is responsible for paying any income by way of interest other than income by way of interest on securities, shall at the time of credit of such income or payment thereafter deduct income-tax thereon at the rates in force. Subsection (3) of section 194A sets out certain, categories of persons who are exempted from section 194A. Income credited or paid to institutions like Life Insurance Corporation, Unit Trust of India or cooperative society carrying on business of insurance are exempted. The exemption clause in reference to the cooperative society, calls for a liberal interpretation. If one were to go by the plain meaning of the cooperative society as defined under the Income-tax Act, the provisions of subsection (1) of section 194A do not apply to a primary credit society. If the definition as set out in the Banking Regulation Act under section 56 were to be applied, there should have to be a further investigation as to the eligibility. Resort to a different provision of another Act may be relevant in the absence of a definition or of a technical nature. For the purpose of understanding the "cooperative- society" the meaning that can be given is only as per the definition under section 2(19) of the Income-tax Act and not otherwise. They are not controlled or governed by the Reserve Bank of India and they are registered and are bound by the provisions of the Cooperative Societies Act. Hence, cooperative societies are exempted and are not liable to make deduction of tax at source.

(b) Interpretation of statutes---

----Provision for exemption---Liberal interpretation---Resort to different provision of another Act.

Alikunju (P.), M.A. Nazeer Cashew Industries v. CIT (1987) 166 ITR 804 (Ker.); Broach Dist. Cooperative Cotton Sales, Ginning and Pressing Society Ltd. v. CIT (1989) 177 ITR 418 (SC); CIT v. Bagyalakshmi & Co. (1965) 55 ITR 660 (SC) and CIT v. Shaan Finance (P.) Ltd. (1998) 231 ITR 308 (SC) ref.

Raveendranatha Menon and N.R.K. Nair for Petitioners.

2001 P T D 97

[238 I T R 945]

[Kerala High Court (India).]

Before Om Prakash, C. J. and J. B. Koshy, J

COMMISSIONER OF INCOME-TAX

versus

P. GANGADHARAN

I.T.R. Nos.68 of 1994 and 55 of 1996, decided on 31st July, 1998.

Income-tax--­

----Non-resident---Test of residence---Maintenance of dwelling house in India for 182 days in relevant previous year ---Assessee, member of HUF, which owned a house in India---Though assessee might have a share in house, no evidence to indicate that Karta of family maintained house for benefit or at behest of assessee as dwelling place in India for 182 days in relevant previous year ---Assessee not resident in India and could not be subjected to assessment---Indian Income Tax Act, 1961, S.6(1)(b).

Section 6(1)(b) of the Income Tax Act, 1961, states that an individual can be said to be resident in India in any previous year, if he maintains or causes to be maintained for him a dwelling place in India for a period or periods amounting in all to one hundred and eighty-two days or more in that year. Therefore, to contend that the assessee was resident in India in the previous year, relevant to the assessment year 1980-81, the Revenue must establish two things concomitantly: (1) that the assessee maintained or caused to be maintained for him a dwelling place in India for 182 days or more in that year; and (2) that the assessee has been in India for 30 days or more in the relevant previous year. Both the conditions are to be established concomitantly and not alternatively.

The assessee was a member of a Hindu undivided family which owned a house in India. In that house the family of the assessee also stayed. The question arose whether in the house belonging to the coparcenary of the assessee and the same being maintained by the corparcenary, a portion of that house, if notionally partitioned, could be said to have been maintained or caused to be maintained by the assessee or for him as a dwelling place in India for 182 days in the relevant previous year:

Held, that there was nothing on record to indicate that the Karta of the family maintained the house for the benefit or at the instance of the assessee. The house belonged to the Hindu undivided family. The assessee might have a share in the said house, but the fact was that neither the house was maintained by the assessee nor was the house maintained by the Karta at the behest of the assessee, and therefore, the requirements of section 6(1)(b) had not been fulfilled. Therefore, the assessee was not resident in India in the previous year relevant to the assessment year 1980-81 and he could not be subjected to an assessment.

CIT v. K.S. Ramaswamy (1980) 122 ITR 217 (SC) fol.

Ramjibhai Hansjibhai Patel v. ITO (1964) 53 ITR 547 (Guj,) ref, P.K.R. Menon and N.R.K. Nair for the Commissioner.

K.M.V. Pandalai for the Assessee.

2001 P T D 127

[238 I T R 987]

[Kerala High Court (India)]

Before Om Prakash, C. J. and J. B. Koshy, J

COMMISSIONER OF INCOME‑TAX

versus

MEAT PRODUCTS OF INDIA LTD.

Income‑tax Reference No. 86 of 1996, decided on 31st July, 1998.

Income‑tax‑‑‑

‑‑‑‑Capital or revenue expenditure‑‑‑Subsidy‑‑‑Tests‑‑‑Purpose of subsidy to set up or complete a new project‑‑‑Subsidy is capital receipt‑‑‑Subsidy received to run business operations successfully after commencement of production‑‑‑Subsidy received is revenue receipt ‑‑‑Assessee engaged in producing meat and meat products‑‑‑Subsidy received from Government‑‑­No clear fining recorded by Tribunal whether subsidy was grad to assessee for establishing a new unit for manufacturing or 'for starting some other activity or for successful running of an already established unit‑‑­Matter remanded.

The test to distinguish between subsidy of capital nature and subsidy of revenue nature is the purpose of the subsidy. If the purpose is to help the assessee to set up its business or complete a project, the monies must be treated as having been received for capital purposes. If the monies are given to the assessee for assisting him in carrying on the business operations and the money is given only after and conditional upon commencement of production, such subsidies must be treated as assistance for the purpose of the trade and as revenue receipts.

The assessee engaged in the business of meat and meat products received a sum of Rs.5 lakhs from the State Government as subsidy. The Assessing Officer assessed the amount as receipt of a revenue nature. On appeal, the Commissioner of Income‑tax (Appeals) held that the subsidy received was in the nature of a capital receipt. On further appeal, the Tribunal held that the subsidy was meant for low cost high quality pig feeds for distribution to farmers and affirmed the order of the Commissioner of Income‑tax (Appeals). On a reference:

Held, that no clear finding had been recorded by the Tribunal whether the subsidy was granted to the assessee for establishing a new unit for manufacturing or for starting some other activity or for successful running of an already established unit. Hence the matter was to be remanded to the Tribunal for recording a clear finding as to what was the purpose for which the subsidy was granted to the assessee and thereafter for deciding the appeal afresh

Sahney Steel and Press Works Ltd. v. CIT (1997) 228 ITR 253 (SC) fol.

P.K.R. Menon and N.R.K. Nair for the Commissioner.

P. Balachandran for the Assessee.

2001 P T D 138

[238 I T R 1005]

[Kerala High Court (India)]

Before Om Prakash, C. J. and J. B. Koshy, J

COMMISSIONER OF INCOME‑TAX

versus

K. GOVINDAN & SONS.

Income‑tax Reference No. 63 of 1996, decided on 31st July, 1998.

Income‑tax‑‑‑

‑‑‑‑Return‑‑‑Delay in filing return or failure to furnish return‑‑‑Interest‑‑­Levy of‑‑‑"Regular assessment", meaning of‑‑‑Delay in filing return‑‑­Explanation 2 to S.139(8) inserted w.e.f. 1‑4‑1985‑‑‑Is only clarificatory it nature‑‑‑Assessment made under S.147(a) read with 5.148 for first time is a regular assessment within the meaning of S.139(8)‑‑‑Levy of interest for delay in filing return is valid‑‑‑Indian Income Tax Act, 1961, Ss.139(8); Expln.2, 147 & 148.

Explanation 2 to section 139(8) of the Income Tax Act, 1961, substituted by the Taxation Laws (Amendment) Act, 1984, with effect from April 1, 1985, is only clarificatory in nature. This being so, the assessment made under section 147(a) read with section 1.48 for the first time is nothing but a regular assessment within the meaning of section 139(8) and, therefore; the Assessing Officer could legally charge interest under section 139(8) for delay in filing the return.

Lally Jacob v. ITO (1992) 197 ITR 439 (Ker.) fol.

CIT v. G. B. Transports (1985) 155 ITR 548 (Ker.) and Modi Industries Ltd. v. CIT (1995) 216 ITR 759 (SC) ref.

P.K.R. Menon and N.R.K. Nair for the Commissioner.

P. Balachandran for the Assessee.

2001 PT D 278

[238 I T R 721]

[Kerala High Court (India)]

Before Om Prakash, C. J. and J. B. Koshy, J

COMMISSIONER OF INCOME‑TAX

versus

JOSEPH RAJAPPAN and others

Income-tax Reference No. 18 of 1996, decided on 12th January, 1999.

Income-tax---

‑‑‑‑Loss‑‑‑Carry forward and set off‑‑‑Return of loss tiled pursuant to notice under S. 148 within time limit prescribed under S. 139(4)‑‑‑Will be deemed to have been filed under S.139‑‑‑Assessee entitled to carry forward loss‑‑­Indian Income Tax Act, 1961, Ss. 139 & 148.

The legal position is well‑settled that when. a return is tiled pursuant to the notice issued under section 148 of the Income Tax Act, 1961, within the time limit prescribed under section 139(4), it will be taken to have been tiled under that provision and if any loss is determined by the Assessing Officer pursuant to such return, that will be allowed to be carried forward for the purpose of set off. The position will not change simply because there was no deeming provision under section 148(1) as it stood in the relevant year that a return filed pursuant to the notice under section 148(1) will be deemed to have been filed under section 139.

CIT v. R. Chandran (1991) 191 ITR 328 (Ker.): Kareemsons, (Pvt.) Ltd. v. CIT (1992) 198 ITR 543 (Kar.); Cooperative Marketing Society Ltd. v. CIT (1983) 143 ITR 99 (MP); Burdwan Wholesale Consumers Cooperative Society Ltd. v. CIT (1991) 191 ITR 570 (Cal.) and CIT v Kulu Valley Transport Co. (P.) Ltd. (1970) 77 ITR 518 (SC) fol.

P.K.R. Menon and N.R.K. Nair for the Commissioner

C. Kochunni Nair and S. Vinod Kumar for the Assessee.

2001 P T D 310

[238 I T R 1054]

[Kerala High Court (India)]

Before Om Prakash, C. J. and J. B. Koshy, J

COMMISSIONER OF INCOME‑TAX

versus

STEEL COMPLEX LTD.

Income‑tax Reference No. 131 of 1996, decided on 4th August, 1998.

Income-tax---

‑‑‑‑Capital or revenue expenditure ‑‑‑Assessee engaged in manufacture of steel‑‑‑Incurring expenditure on installation of water treatment plant and fume extraction plant‑‑‑Resulted in improvement in operation of existing systems with greater efficiency and profitability‑‑‑Installation of fume extraction plant and water treatment plant did not lead to increase in volume of production‑‑‑Fume extraction plant installed to ward off health hazards and in compliance with statutory requirements‑‑‑Expenditure incurred on installation of water treatment plant and fume extraction plant is revenue expenditure.

The assessee‑company, engaged in manufacture of steel, claimed expenditure incurred on installation of water treatment plant and fume extraction plant as revenue expenditure. The Assessing Officer disallowed the claim for deduction on the ground that the expenditure was capital in nature. The First Appellate Authority affirmed the order of the Assessing Officer. On further appeal, the Tribunal found that the assessee installed two plants, that they were for the purposes of improvement in the operation of the existing systems with greater efficiency and profitability, that originally the municipality was supplying water to the assessee for running the factory, that since it was found that the municipality was not supplying sufficient quantity of water, the assessee dug wells, but the well water was found to be salty, that therefore, they installed the water treatment plant for getting pure water with an intention to improve the functioning of the factory, that this did not in any way enhance the production of steel, that the fume extraction plant also did not lead to any increase in the volume of production and it was also installed to ward off the health hazards and in compliance with statutory requirements and that therefore, the expenditure incurred was revenue in nature. On a reference:

Held, affirming the decision of the Tribunal, that the expenditure incurred for the water treatment plant and the fume extraction plant was revenue expenditure and hence an allowable deduction.

Alembic Chemical Works Co. Ltd. v. CIT (1989) 177 ITR 377(SC) applied.

P.K.R. Menon and N.R.K. Nair for the Commissioner.

P. Balachandran for the Assessee.

2001 P T D 330

[238 I T R 685]

[Kerala High Court (India)]

Before Om Prakash, C.J. and J.B. Koshy, J

G. GANGADHARAN NAIR

versus

COMMISSIONER OF INCOME‑TAX

Income‑tax Reference No. 36 of 1996, decided on 19th June, 1999.

Income‑tax‑‑‑

‑‑‑‑Reference—Tribunal recording finding without considering evidence Question referred cannot be answered‑‑Matter has to be remanded‑‑‑Indian Income Tax Act, 1961. Ss. 80HHC & 256.

The assessee dealt in marine products. For the assessment year 1982‑83, he claimed a deduction of Rs.12,27,463 under section 80HHC of the Income Tax Act, 1961. Though return was filed, the assessing authority to verify the correctness of the claim for deduction by the assessee, issued notice under section 143(2). On verification of accounts, the assessing authority noticed that the assessee had received a total sum of Rs.5,93,072 from various export houses. These receipts were credited in his trading account under the head "Export earnings premium'. The assessee entered into agreements with various export houses who agreed to pay a percentage of the F.O.B. value of exports to the assessee. Such amount was described in different agreements as incentive/premium. The Assessing Officer concluded that the amounts constituted serious charges and that it was deductible from the profits and gains of business for arriving at the profit of business as defined in Explanation (baa) to section 80HHC(4A). On appeal, the Appellate Authority confirmed such finding of the Assessing Officer. On further appeal, the Income‑tax Appellate Tribunal also affirmed the order of the Appellate Authority. On a reference:

Held, that neither the Assessing Authority nor the Appellate Authority assigned any reason whatsoever to come to the conclusion that premium/incentive was paid to the assessee for rendering services to the export houses; nor did either authority elaborate services, allegedly rendered by the assessee to the export houses. Hence, the question whether the amounts received by the assessee was includible in the total turnover for purposes of section 80HHC could not be answered. [Matter remanded.]

CIT v. Greaves Cotton & Co. Ltd. (1968) 68 ITR 200 (SC) ref

Y. G. K Warriyar and P. Balakrishnan for the Assessee.

F. K. R. Menon and N. R. K. Nair for the Commissioner.

2001 P T D 338

[238 I T R 781]

[Kerala High Court (India)]

Before om Prakash, C. J. and J. B. Koshy, J

COMMISSIONER OF INCOME‑TAX

versus

TRAVANCORE CEMENTS LTD.

Income‑tax Reference No. 12 of 1996, decided on 10th July, 1998.

Income-tax--

‑‑‑‑Business expenditure‑‑‑Disallowance‑‑‑Repairs‑‑‑Whether motor car expenses and repairs to cars would fall under S.37(3A) f6r computing disallowance‑‑‑Contrary views taken by Division Benches of High Court in CIT v. Navodaya (1997) 225 ITR 339 and CI'T v. A.V. Thomas & Co. (1997) 225 ITR 29‑‑‑Matter referred for consideration of Full Bench‑‑­Indian Income Tax Act, 1961, S.37(3A).

For the assessment year 1985‑86, the Assessing Officer included the motor car expenses and repairs to cars in the aggregate expenses for the purpose of computing disallowance under section 37(3A) of the Income Tax Act, 1961. On appeal, the Commissioner of Income‑tax (Appeals) held that repairs would not fall within the mischief of section 37(3A) and allowed the claim of the assessee. On further appeal, the Tribunal upheld the order of the Commissioner of Income‑tax (Appeals). On a reference:

Held, that since one Division Bench of the High Court in CIT v. Navodaya (1997) 225 ITR 399 and another Division Bench of the High Court in CIT v. A. V. Thomas & Co. Ltd. (1997) 225 ITR 29 took contrary views on the point involved. the question of law had to be referred for the consideration of a Full Bench.

CIT v A. V. Thomas & Co. Ltd. (1997) 225 ITR 29 (Ker.) and CIT v. Navodaya (1997) 225 ITR 399 (Ker.) ref.

P.K.R. Menon and N.R.K. Nair for the Commissioner.

Joseph Markos and Thomas Vellpally for the Assessee.

2001 P T D 342

[238 I T R 799]

[Kerala High Court (India)]

Before A. S. Venkatachala Moorthy, J

HOTEL SHAH & CO

versus

ASSISTANT COMMISSIONER OF INCOME‑TAX and another

O. P. No. 16276 of 1992, decision on 16th March, 1999.

Income-tax--

‑‑‑‑Best judgment assessment‑‑‑Failure to file return within due date‑‑‑Failure to respond to notices under Ss.139(2) & 142(1)‑‑‑Assessee submitting that it could not file return due to search and seizure‑‑‑Not acceptable as search and seizure was long after due date for filing return ‑‑‑Assessee not entitled to relief in writ petition‑‑‑Constitution of India, Art. 226‑‑‑Indian Income Tax Act, 1961, Ss.139(2) & 142(1).

The petitioner‑firm did not file the return for the assessment year 1988‑89 by the due date which was July 31, 1988, nor seek extension of time. It did not reply to notices issued under sections 139(2) and 142(1) of the Income Tax Act, 1961. Thereupon, a best judgment assessment was made, cancelling its registration. On a writ petition pleading that in view of the search and seizure on February 22, 1989, the petitioner had no required details and hence it could not submit its return:

Held, dismissing the petition, that if really the petitioner had any difficulty, it should have asked for extension of time under section 139(2) of the Act. The petitioner did not choose to do so. That apart it also did not respond to the notices issued under sections 139(2) and 142(1) of the Act. The plea of the petitioner that as there was search and seizure on February 22, 1989 it could not submit its return could not be accepted because nothing prevented the petitioner from filing the return on July 31, 1988 long before the search and seizure. No case for interference was made out.

S. Santhosh Kumar for Petitioner.

P.K.R. Menon for Respondent.

2001 P T D 539

[239 I T R 183]

[Kerala High Court (India)]

Before Om Prakash, C.J. and J.B. Koshy, J

COMMISSIONER OF INCOME‑TAX

versus

KERALA TRANSPORT COMPANY

Income‑tax Reference No. 13 of 1996, decided on 14th August, 1998.

Income‑tax‑‑‑

‑‑‑‑Business expenditure ‑‑‑Assessee carrying on transport business‑‑‑Liability in respect of loss of goods‑‑‑Liability under Carriers Act, 1865, is as statutory liability‑‑Provisions made in respect of such liability in accounts maintained on mercantile system‑‑‑Deductible‑‑‑Indian Income Tax Act, 1961, S.37‑‑‑Indian Carriers Act, 1865; S.9.

In order to consider the question of legal liability of the assessee in the mercantile system of accounting, the only concern can be that of the legal liability arising in the relevant assessment year. The fact that the liability has not been quantified for payment; which the law enjoins an assessee to do, cannot be said to be relevant.

On a perusal of section 9 of the Carriers Act, 1865, ‑it is abundantly clear that the carrier's liability is absolute. The liability to make good the loss to the claimants, whose goods were lost or destroyed, stems from the provisions of the. Carriers Act and, therefore, the carrier's liability is statutory in nature.

The assessee, a partnership firm engaged in the business of transportation of goods, made a provision of Rs.9,58,532 in its books following the mercantile system of accounting in the\previous year relating to the assessment year 1985‑86 and claimed deduction in respect of the said amount. The provision represented the loss claimed for non‑delivery or short‑delivery of goods. The claim was rejected by the Income‑tax Officer but allowed by the Tribunal. On a reference:

Held, that the assessee was entitled to make a provision in respect of the demand made by the claimants for loss of their goods in the relevant previous year and to claim deduction in respect thereof, notwithstanding the fact that it continued to negotiate with the claimants during or after the expiry of the previous year and that upon settlement of the negotiations, the assessee paid lesser amounts to the claimants. Lesser payments than the provision made would be taken care of by section 41(1) of the Act. The provision made in the books in a sum of Rs.9,58,532 was an allowable deduction in the year in which such a provision was made.

Kedamath Jute Mfg. Co. Ltd. v. CIT (1971) 82 ITR 363 and 28 STC 672 (SC) applied.

Astuna Cashew Co. v. CIT (1990) 182 ITR 175 (Ker.); Indian Raoadways Corporation v. Unneerikutty (M.A.) (1990) 1 KL 86; (1990) 1 KLT 292; Kerala Transport Co. v. Kunnath Textiles (1983) KLT 480; Ramalinga Nadar (R.R.N.) v. Narayana Reddiar (V.) AIR 1971 Ker. 197 and Sudareswaran (N.) v. CIT (1997) 226 ITR 142 (Ker.) ref.

P.K.R. Menon and N.R.K. Nair for the Commissioner.

C. Kochunni Nair, M.A. Firoz and Dale P. Kurian for the Assessee.

2001 P T D 564

[239 I T R 546]

[Kerala High Court (India)]

Before Om Prakash, C. J. and J. B. Koshy, J

COMMISSIONER OF INCOME‑TAX

versus

ENGLISH INDIAN CLAYS LTD.

Income‑tax Reference No. 132 of 1996, decided on 26th August, 1998.

Income‑tax‑‑‑

‑‑‑‑Advance tax‑‑‑Liability to pay advance tax‑‑‑Obligation to file estimate‑­Law applicable‑‑‑Effect of S.209A inserted w.e.f. 1‑6‑1978‑‑‑Order passed by Tribunal without considering effect of S.209A‑‑‑Matter remanded‑‑­Indian Income Tax Act, 1961, S. 209A‑‑‑CBDT Circular No. 240, dated 17‑5‑1978.

Held, that the Tribunal had not considered the ambit and scope of section 209A of the Income Tax Act, 1961, inserted by the Finance Act, 1978, with effect from June 1, 1978, which was germane for the assessment years in question. The ambit and the scope of section 209A inserted by the Finance Act, 1978, had been elaborated in the Department Circular No.240, dated May 17, 1978. Neither the circular nor any other material had been looked into by the Appellate Tribunal to come to the conclusion that the assessee was not liable to pay advance tax, and that the assessee was not under legal obligation to file an estimate of advance tax. [Matter remanded.]

P.K.R. Menon and N.R.K. Nair for the Commissioner.

P. Balachandran for the Assessee.

2001 P T D 908

[241 I T R 728]

[Kerala High Court (India)]

Before Arijit Pasayat, C.J., Mrs. K.K. Usha and K.S. Radhakrishnan, JJ

COMMISSIONER OF WEALTH TAX

Versus

M.K. ABDUL KHADER HAJI

I. T. R. C. No. 143 of 1996, decided on 18th December, 1999.

(a) Wealth tax‑--

‑‑‑‑Exemption‑‑‑Moneys and assets brought by Indian citizen ordinarily residing abroad who returns with intention of residing in India permanently--­Law applicable‑‑‑Effect of amendment of S.5(1)(xxxiii) w.e.f. 1‑4‑1987‑­Remittances made prior to return‑‑‑Not entitled to exemption in assessment year 1985‑86‑‑‑Indian Wealth Tax Act, 1957, S.5‑‑‑[V.P. Gopinathan (Dr. v. CWT (1996) 221 ITR 401 (Ker.) overruled].

Section 5(1)(xxxiii) of the Wealth Tax Act, 1957, inserted by the Finance Act, 1976, with effect from April 1, 1977, grants exemption, for and from the assessment year 1977‑78, to an assessee, being a person o Indian origin (as defined in Explanation 1) or a citizen of India, who was ordinarily residing in a foreign country and who, leaving such country, ha returned to India with the intention of permanently residing in India. In the assessment years 1977‑78 to 1986‑87, the exemption was in respect o moneys and the value of assets brought by him to India and the value o assets acquired by him out of such moneys. However, for and from the assessment year 1987‑88, the scope of such exemption has been broadened also in respect of moneys and the value of assets brought by the eligibly assessee to India and the value of assets acquired by him out of such moneys within one year immediately preceding the date of his return Explanation 2 to section 5(1)(xxxiii) (which has been inserted by the Finance Act, 1986 with retrospective effect from April 1, 1977) clarifies that money standing to the credit of an eligible assessee' in a non‑resident (external; account in any bank in India in accordance with the Foreign Exchange Regulation Act, 1973, and any rules made thereunder on the date of hi; return to India, shall be deemed to be moneys brought by him into India or that date. Earlier, a Department Circular No. 411, dated February 25, 1985 had clarified the same position in the absence of a statutory provision in that regard. Such exemption is available only for a period of seven successive assessment years commencing with the assessment year next following the date on which such eligible assessee returned to India'. Thus, where an eligible assessee has returned to India on January 1, 1978, and brought eligible assets into India, he will be entitled for exemption for assessment years 1978‑79 to 1984‑85 in respect of the eligible assets. A bare reading of the provision would make it apparent that what was exempted in respect of an assessee was moneys and the value of assets brought by him into India and the value of assets acquired by him out of such moneys. "Such moneys" obviously relates to moneys and the value of assets brought by him into India. The expression "moneys and the value of assets brought by him" precedes the expression "out of such moneys". It is relatable to moneys brought by him into India when he returns from a foreign country with the intention of staying here permanently. The requirement is that (a) a person of Indian origin as defined in Explanation 1 or a citizen of India, who was ordinarily residing in a foreign country; (b) who on leaving such country has returned to India with the intention of permanently residing here; (c) moneys had been brought by him into India; and (d) assets have been acquired out of such moneys. There is another significant expression, used, i.e., "on leaving such country has returned to India". Therefore, the expression "moneys and the value of assets brought by him into India" is also relatable to the factum of the assessee leaving the foreign country and returning to India. The inevitable conclusion is that only moneys brought by the assessee at the time of leaving the foreign country and the value of assets acquired by him out of such money qualifies for exemption. A later statute is normally not used as an aid to construction of an earlier one, unless the earlier provision was truly ambiguous. Section 5(1)(xxxiii) prior to its amendment was not ambiguous.

The assessee, an individual, though a citizen of India, was a resident of Kuwait for a long time. He was a partner in a firm in Calicut which ran a hotel. The Valuation Officer determined the fair market value of the hotel building as on March 31, 1984. The assessee being a partner in the said partnership firm, the Assessing Officer computed the value of the assessee's share in the interest of the firm and consequently enhanced the returned figure of wealth by Rs. 20,87,448. The assessee claimed that the entire wealth was exempt under section 5(1)(xxxiii) of the Act as investments made in India were out of the remittance made by him from abroad. The Assessing Officer refused the claim on the ground that the exemption would not be available in respect of the amounts brought prior to his return to India. The Commissioner of Wealth Tax (Appeals) and the Tribunal held that the assessee was entitled to exemption. On a reference:

Held, that the assessee was not entitled to exemption under section 5(1) (xxxiii).

V.P. Gopinathan (Dr.) v. CWT (1996) 221 ITR 401 (Ker.) overruled.

Cape Brandy Syndicate v. IRC (1921) 2 KB 403 (CA); Dharangadhra Chemicals Works v. Dharangadhra Municipality AIR 1985 SC 1729; Hariprasad Shivshanker Shukla v. A.D. Divelkar (1956‑57) 11 FJR 317; AIR 1957 SC 121; Jogendra Nath Naskar v. CIT (1969) 74 ITR 33 (SC) and Nalinikant Ambalal Mody v. S.A.L. Narayan Row, CIT (1966) 61 ITR 428 (SC) ref.

(b) Interpretation of statutes---

----Later enactment not normally used as aid to construction of earlier one.

P.K.R. Menon and N.R.K. Nair for the Commissioner.

P. Balachandran for the Assessee.

2001 P T D 987

[Karachi High Court]

Before Saiyed Saeed Ashhad, C. J. and Zahid Qurban Alavi; J

MEHRAN GIRLS COLLEGE

Versus

COMMISSIONER OF INCOME-TAX

I.T.As. Nos. 10 and 38 to 42 of 1999, decided on 2nd May, 2000.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.2(7)---Assessment---Assessment relating to each assessment year is an absolutely different and independent proceeding under the Income Tax Ordinance, 1979, which does not permit the findings of a particular assessment year to be made applicable to the different facts and circumstances of another assessment year.

Commissioner of Income-tax v. Pakistan Industrial Engineering Agencies Ltd. PLD 1992 SC 562 fol.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.136---Appeal to High Court---Question of law and fact---Inference drawn from undisputed facts is a mixed question of law and fact.

Glaxo Laboratories Pakistan Ltd. v. Federation of Pakistan and others PLD 1992 SC 455 fol.

(c) Income Tax Ordinance (XXXI of 1979)---

----S.136---Appeal to High Court---Finding of fact arrived at by misreading or misconstruing the evidence on record or on consideration of extraneous material could be subjected to scrutiny and inquiry by High Court in exercise of its powers under S.136, Income Tax Ordinance, 1979.

Harmones Laboratories Ltd. v. The Commissioner of Income-tax 1988 PTD 84; Commissioner of Income-tax v. Saeeda Nasreen 1994 PTD 949 and Commissioner, of Income-tax (Appeals), v. Pakistan Industrial Engineering Agencies Ltd. PLD 1992 SC 562 fol.

(d) Income Tax Ordinance (XXXI of 1979)---

----Second Sched., Part 1, cl. (86) & S.136---Exemption from income-tax was not allowed to the assessee by the Tribunal---Appeal to High Court--­Finding of Income-tax Appellate Tribunal that assessee, a Girls College, which was being run by a society registered under Societies Act, 1860, was not an Educational Institution and its income was not being utilized solely for the running of the college/establishment as such assessee was not entitled for exemption under cl. (86) of Second Sched. to the Income Tax Ordinance, 1979---Such finding of the Tribunal was not based on an evidence or material on record which warranted an inference that the earnings of the establishment/college were not utilized solely for the purpose of running of the college and were being utilized for the personal benefits and requirements of the members of the society running the college---Finding not based on the material on record was open to challenge by way of an appeal under S.136, Income Tax Ordinance, 1979.

Commissioner of Income-tax v. Saeeda Nasreen 1994 PTD 949 and Commissioner of Income-tax (Appeals) v. Pakistan Industrial Engineering Agencies Ltd. PLD 1992 SC 562 fol.

M. Mazhar-ul-Hassan for Appellants

Javaid Farooqi for Respondent.

2001 P T D 1398

[244 I T R 747]

[Kerala High Court (India)]

Before Arijit Pasayat, C.J. and K. S. Radhakriahnan, J

COMMISSIONER OF WEALTH TAX

versus

P. GOPINATHA PILLAI

Income-tax Reference No.273 of 1997, decided on 10th March, 2000.

Wealth tax---

---- Valuation of assets---Reference to Valuation Officer---Assessment year 1982-83---Accounting year ending 30-9-1981---Valuation report of Valuation Officer relating to position as on 30-9-1982---Valuation report not relevant for period ending on 30-9-1981---Appellate Authority adopting valuation report relating to assessment year 1978-79 and providing appropriate depreciation---Tribunal confirming method of valuation---Method no unreasonable or irrational---No application of principle of law involved it valuation---Indian Wealth Tax Act, 1957, S. 16A.

Valuation of an asset cannot be an exact science. Mathernatica calculation and precision is impracticable. The money value attributable to the asset is to be decided and estimated by the concerned statutory authority in a reasonable and judicious manner on the basis of the facts and circumstances available. An objective valuation has to be made and the same has to be based on some material. No mechanical rule of universal application can be there to determine the value of asset or property whatever be the nature of the statute under which the valuation has to be fixed.

The Wealth Tax Officer referred the valuation of various properties of the assessee under section 16A of the Wealth Tax Act, 1957, to the valuation officers for the assessment year 1982-83 corresponding to the accounting year ending on September 30, 1981. The Commissioner of Wealth Tax (Appeals) found that the valuation report related to the position as on September 30, 1982, and not relevant for valuing the properties as on September 30, 1981. The Commissioner of Wealth Tax (Appeals) adopted the value of the properties valued for the assessment year 1978-79 and provided appropriate depreciation. The Tribunal upheld the valuation of the Commissioner of Wealth Tax (Appeals). On a reference:

Held, that the question about the valuation of a particular property was a question of fact. The determination of the question of valuation depended upon appreciation of materials or evidence resulting in ascertainment of basic facts without application of any principle of law. The issue raised a question of fact and the conclusion was one of fact. Even if a different method could be adopted that would not affect the acceptability of the method adopted by the Appellate Authority. Since, the: Commissioner of Income-tax (Appeals) and the Tribunal adopted a method which could not be said to be irrational or unreasonable, no interference was called for.

Gold Coast Selection Trust Ltd. v. Humphrey (1949) 17 1TR (Suppl.) 19 (HL) ref.

P.K.R. Menon and George K. George for the Commissioner.

P. Balachandran for the Assessee.

2001 P T D 1764

[241 I T R 15]

[Kerala High Court (India)]

Before Arijit Pasayat, C. J. and K. S. Radhakrishnan, J

COMMISSIONER OF INCOME-TAX

Versus

ABAD HOTELS INDIA (P.) LTD.

I.T.R. No.27 of 1997, decided on 23rd September, 1999.

(a) Income-tax---

----Investment allowance---Hotel business ---Kitchen, store-room and equipment used for producing foodstuffs--Not entitled to investment allowance as there is no production of food materials in a hotel---Indian Income Tax Act, 1961, S.32A.

Hotel business is not an industrial undertaking, engaged in the production of an article or thing as contemplated under section 32A of the Income Tax Act, 1961. The assessee is not entitled to investment allowance on the building housing the kitchen, store room and the equipment used for producing the food stuffs as there is no production or manufacture of food materials in a hotel. The assessee is not entitled to investment allowance on additions to plant and machinery.

CIT v. Vrindavan Hotels (P.) Ltd. 2000 PTD 3674 fol.

(b) Income-tax---

----Depreciation---Hotel building is a "plant" ---Entitled to extra shift depreciation---Indian Income Tax Act, 1961, S.32.

The hotel building is a plant.

The hotel building is a plant and the assessee is entitled to extra shift depreciation allowance on it.

East India Hotels Ltd. v. CIT 1997 PTD 1386 fol.

CIT v. Hotel Luciya 1999 PTD 3690 fol.

P.K.R. Menon and N.R.K. Nair for the Commissioner.

Nemo for the Assessee.

2001 P T D 1770

[241 I T R 50]

[Kerala High Court (India)]

Before Arijit Pasayat, C. J. and K. S. Radhakrishnan, J

COMMISSIONER OF INCOME‑TAX

Versus

VAIKUNDAM RUBBER CO. LTD.

I.T.R. No.23 of 1997, decided on 22nd September, 1999.

Income‑tax‑‑‑

‑‑‑‑Other sources‑‑‑Deduction‑‑‑Interest from fixed deposits ‑‑‑Borrowals for agricultural purposes‑‑‑Interest paid on borrowals‑‑‑Not a charge on interest income from fixed deposits‑‑‑Not deductible‑‑‑Indian Income Tax Act, 1961, S.57.

The assessee derived interest income from fixed deposits with a bank assessable under other sources. Against this income a claim for deduction was made for interest paid on borrowals for agricultural purposes. The Income‑tax Officer rejected but the Tribunal accepted and allowed the: claim. On a reference:

Held, that any, set off or deduction of any expenditure can only be made in accordance with the provisions of the Act. Hence, the interest paid on borrowals was not an allowable deduction.

Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT 1998 PTD 900 fol.

P.K.R. Menon and N.R.K. Nair for the Commissioner.

P. Balachandran for the Assessee

2001 P T D 2028

[239 1 T R 532]

[Kerala High Court (India)]

Before Om Prakash, C. J. and J. B. Koshy, J

A.P. SIVARAMAN and others

Versus

INCOME‑TAX OFFICER and others

W.A. No.847 of 1994‑A, decided on 21st August, 1998.

Income‑tax‑‑‑

‑‑‑‑Central Board of Revenue‑‑‑Powers of‑‑‑Power to issue directions‑‑‑Application filed before C.B.D.T. for condonation of delay in filing rectification applications‑‑‑Applications rejected after considering report from CIT, Cochin, which was forwarded to CIT, Bangalore‑ ‑‑No evidence to show that thereby jurisdiction of C.B.R., divested‑‑‑CBR has discretion to condone or not to condone delay‑‑‑Indian Income Tax Act,, 1961, Ss.119(2)(b) & 154.

The assessees filed applications for rectification of their assessments under section 154 of the Income Tax Act, 1961, which were filed belatedly. The assessees also filed applications under section 119(2)(b) of the Act for condonation of delay in filing the applications for rectification. The Central Board of Direct Taxes taking into consideration the report of the Commissioner of Income‑tax, Cochin, which was forwarded to it by the Chief Commissioner, Bangalore, rejected the application for condonation of delay. On a writ petition challenging the rejection of the application, a single Judge held that the question whether there was sufficient cause for condonation of delay or not was a matter within the discretion of the C.B.D.T and the Board had considered the matter and found that there was no ground for condonation of delay. The Single Judge rejected the contention of the assessee that the Board had lost its jurisdiction to consider the application for condonation of delay inasmuch as the files had been transferred to the Chief Commissioner of Income‑tax, Bangalore. The Single Judge observed, that there was no evidence to show that the files had been transferred to the Chief Commissioner of Income‑tax, Banglore, and that the Board thereby divested itself of its jurisdiction. On a writ appeal preferred by the assessee against the judgment of the Single Judge:

Held, that the Chief Commissioner at Bangalore, merely forwarded the' report of the Commissioner of Income‑tax, Cochin, and that there was nothing to indicate that the proceedings had been transferred to the Chief Commissioner of Income‑tax at Bangalore thereby divesting the jurisdiction of the Central Board of Direct Taxes in the matter. It was purely within the discretion of the C.B.D.T to condone or not to condone the delay. It could not be said that the Board had acted arbitrarily inasmuch as the Board rejected 'the application for condonation of delay only after taking into consideration the report called for from the Commissioner of Income‑tax, Cochin, which was duly forwarded to the Chief Commissioner of Income­-tax, Bangalore.

A.P. Sivaraman v. ITO (1994) 209 ITR 36 affirmed.

S.A. Nagendran and Premjith Nagendran for Appellants.

V.V. Asokan, Special Government Pleader for Respondents

2001 P T D 2218

[239 I T R 713]

[Kerala High Court (India)]

Before Mrs. K.K. Usha and G. Sivarajan, JJ

ASIAN DEVELOPMENT SERVICE

Versus

COMMISSIONER OF INCOME‑TAX

Income‑tax References Nos. 179 and 180 of 1991, decided on 27th August, 1998.

(a) Income‑tax‑‑‑--

‑‑‑‑Income deemed to accrue or arise in India‑‑‑Non‑resident‑‑‑Business connection‑‑Agreement with resident for rendering technical services‑‑­Amount paid by resident to non‑resident treated by assessing authority as royalty and technical fees taxable under S.9(1)(vii) read with S.44D without allowing any deduction ‑‑‑Assessee claiming that services rendered by it fall, under excluded category specified in Expln. 2 to S.9(1)(vii) being construction, assembly or like project‑‑‑Agreement for rectifying defects in plant of resident‑‑Tribunal not considering agreement as a whole and actual work done by non‑resident‑‑‑Finding of Tribunal that there was no construction or assembly work undertaken by assessee by relying on' preamble to agreement was not reasonable‑‑‑Matter remanded‑‑‑Indian Income Tax Act, 1961, Ss.9 & 44‑D.

In case of an agreement between a resident and a non‑resident pursuant to which amounts were paid to the non‑resident, if the contract provides that tax liability, if any, in respect of the amounts so paid to the non‑resident is to be borne by the resident company the amount of tax payable by the non‑resident has to be added to the income remitted to the non‑resident and the tax liability of the non‑resident should be determined with reference to the gross figure arrived at.

CIT v. Superintending Engineer (1985) 152 ITR 753 (AP) fol.

The assessee was a non‑resident company engaged in the business of undertaking rectification of fertiliser plants throughout the world. It received certain amounts from. FACT Ltd. Cochin Division, under a contract. The assessee was to render technical and management assistance in bringing the plant to its full designed capacity, to provide expert assistance in the form of day‑to‑day operational and maintenance guidance and also to give guidance for granulation and to provide specific engineering know‑how in de­ bottlenecking and upgrading the performance of the plant. The Assessing Officer held that the payment made by FACT Ltd. to the non‑resident assessee was by way of royalty and technical services fees which was taxable under section 9(1)(vii) of the Income Tax Act, 1961 read with section 44‑D without allowing any deduction for expenses. The assessee claimed that the services rendered by it fell under the excluded category specified in Explanation 2 to section 9(1)(vii) of the Act, namely, construction, assembly or like project, and, therefore, the main provisions of section 9(1)(vii) were not attracted. According to the assessee, the amount received from FACT Ltd. was liable to be assessed treating it as business income computed with reference to sections 28 to 43 of the Act. The assessing authority rejected the claim of the assessee and treated the payments made by FACT to the assessee as income falling under section 9(1)(vii) read with section 44‑D of the Act and accordingly completed the assessments without allowing any deduction. This was upheld by the Tribunal. The Tribunal also held that the amount of tax payable by the non‑resident shall be added to the income remitted to the non‑resident and the tax payable by the non‑resident should be determined with reference to the gross figure arrived at. On a reference:

Held, that in order to decide the question as to whether the service rendered by the assessee under the agreement was for construction, assembly or like project and/or any managerial, technical or other services unconnected with the same, it was necessary to consider the entire terms of the agreement and further to see what the assessee in fact had done pursuant to the said agreement. The income‑tax authorities and the Tribunal had come to the conclusion that the work undertaken by the assessee would not fall under the excluded category specified in Explanation 2 to section 9(1)(vii), namely, construction, assembly or like project, only on a consideration of the preamble of the agreement. None of the authorities including the Tribunal had considered the terms of the agreement in its entirety. Alterations to the plant were also contemplated in the agreement. But in order to determine the matter effectively and satisfactorily, it was necessary to ascertain whether in fact any such dismantling, re‑assembling or like project was done in the instant case. None of the authorities had considered the matter in that perspective. Hence, the finding of the Tribunal was unreasonable and perverse. The matter had to go back to the assessing authority for fresh consideration.

(b) Income‑tax‑‑‑

‑‑‑‑Income deemed to accrue or arise in India‑‑‑Non‑resident‑‑‑Liability under S.9‑‑‑Agreement that on amount paid to non‑resident, tax liability is to be borne by resident‑‑‑Amount of tax payable by non‑resident has to be added to income remitted to non‑resident and tax liability of non‑resident to be determined with reference to gross figure arrived at‑‑‑Principle enunciated but question returned unanswered as the matter was remanded‑‑‑Indian Income Tax Act, 1961, S.9.

In view of the fact that the matter was being remanded to consider the question as to whether the various amounts received by the assessee under the contract would fall within the Explanation 2 to section. 9(l)(vii) of the Act with reference to the various documents and the terms of the contract and since a decision on the said question had a bearing on the question regarding computation of tax payable by the assessee, the said question could not be answered although the principles regarding the method of grossing up had been laid down by the Court.

CIT v. American Consulting Corporation (1980) 123 ITR 513 (Orissa); CIT v. Barium Chemicals Ltd. (1989) 175 ITR 243 (AP); Karam Chand Thapar & Bros. (P.) Ltd. v. CIT (1971) 80 ITR 167 (SC); Karnani Properties Ltd. v. CIT (1971) 82 ITR 547 (SC); Orissa Synthetics Ltd. v. ITO (1993) 203 ITR 34 (Orissa) and Sanyasi Rao (A.) v. Government of A.P. (1989) 178 ITR 31 (AP) ref.

C. N. Ramachandran Nair for the Assessee.

P.K.R. Menon and N.R.K. Nair for the Commissioner.

2001 P T D 2334

[239 I T R 848]

[Kerala High Court (India)]

Before J. B. Koshy, J

M. KUMARAN and others

Versus

STATE OF KERALA and another

O.P. No. 13822 of 1994‑U, decided on 25th January, 1999.

(a) Income‑tax‑‑‑

‑‑‑‑Deduction of tax at source‑‑‑Compulsory acquisition of land‑‑‑Interest on enhanced compensation‑‑‑Tax has to be deducted at source on such interest‑‑‑Land Acquisition Officer has to deduct tax at source on such interest ‑‑‑ Indian Income Tax Act, 1961.

It has been held by the Supreme Court in Rama Bai v. CIT (1990) 181 ITR 400 that interest on enhanced compensation for land compulsorily acquired under the Land Acquisition Act, 1894, awarded by a Court on a reference under section 18 of the Land Acquisition Act or on further appeal is liable for payment of income‑tax and section 194A of the Act makes the person who is responsible or making the payment liable to deduct income tax. In Lt.‑Col., K.D. Gupta v. Union of India (1990) 181 ITR 530, the Supreme Court held that it was the obligation of the Land Acquisition Officer to deduct income‑tax at source. If the petitioners felt that they were not liable to pay income‑tax considering their total income for the relevant years, especially in the light of the Supreme Court decision in Gupta's case (1990) 181 ITR 530, it was for them to make an application for refund to the Income‑tax Department, or to use the income‑tax deduction certificate according to law.

Baldeep Singh v. Union of India (1993) 199 ITR 628 (P & H) Gupta (K.D.) (Lt. Col.) v. Union of India (1990) 181 ITR 530 (SC); Ramp Bai v. CIT (1990) 181 ITR 400 (SC); Special Tahsildar and Lang Acquisition Officer v. Dandu Saraswatamma (1994) 205 ITR 587 (AP) and Tuhi Ram v. Land Acquisition Collector (1993) 199 ITR490 (P & H) ref.

(b) Writ‑‑‑

‑‑‑‑ Writ petition against Revenue‑‑‑Income‑tax Department or Union of India not made a party to proceedings‑‑‑Writ petition was not maintainable‑‑­Constitution of India, Art. 226.

Held, dismissing the writ petition, (i) that this was a petition against the venue but the Income‑tax Department or the Union of India was not made a party in the proceedings and as such the original petition itself was not maintainable.

O. Ramachandran Nambiar for Petitioners.

Smt. P.K. Santhamma, Government Pleader for Respondents.

2001 P T D 2671

[240 I T R 887]

[Kerala High Court (India)]

Before P. V. Narayanan Nambiar, J

K. GOVINDAN & SONS

versus

UNION OF INDIA and others

O.P. No.5088 of 1993‑E, decided on 14th December, 1998

Income‑tax‑‑‑

‑‑‑‑Return‑‑‑Advance tax‑‑‑Interest‑‑‑Delay in filing return‑‑‑Deficiency in paying advance tax‑‑‑Waiver or reduction of interest‑‑‑Sections 139(8) & 215 deal with different situations‑‑‑Reduction of interest under S.215‑‑‑No reduction or waiver of interest under S.139(8)‑‑‑Order was valid‑‑‑Indian Income Tax Act, 1961, Ss. 139 & 215‑‑‑Constitution of India, Art. 226.

Interest is payable under section 139(8) of the Income Tax Act, 1961, for delay in filing the return and interest under section 215 is payable for deficiency in payment of advance lax. The two sections deal with entirely different fact situations. The levy of interest in respect of two different lapses is permissible under law.

Held, that, in the instant case, the discretion vested in the Deputy Commissioner of Income‑tax had been exercised by him. Interest was payable from April 1, 1988, till October 25, 1992. But the interest under section 215 was claimed only up to January 31, 1990. Interest under section 139(8) had not been reduced or waived. However, substantial benefit had been given to the petitioner. The order was valid.

V.V. Surendran for Petitioner.

P.K.R. Menon and N.R.K. Nair for Respondent

2001 P T D 2751

[239 I T R 908]

[Kerala High Court (India)]

Before Om Prakash, C.J. and J. B. Koshy, J

COMMISSIONER OF. INCOME‑TAX

versus

COOPERATIVE SUGARS LTD

Income‑tax Reference No.87 of 1995, decided on 18th February, 1998

Income‑tax‑‑‑

‑‑‑‑Capital or revenue expenditure‑‑‑Expenditure on maintenance of machinery‑‑‑ Revenue expenditure‑‑Indian Income Tax Act, 1961,.S.37.

Held, that, on the facts and in circumstances of the case, the Tribunal was justified in holding that the expenditure incurred by the assessee under the head "Machinery maintenance" was revenue in nature and was an allowable deduction.

C.I.T. v. Cooperative Sugars Ltd: (1999)235 ITR 343 (Ker.) fol.

P.K.R. Menon, Senior Advocate and N. R. K. Nair for the Commissioner.

B. S. Krishnan, Senior Advocate and P.R. Raman and K. Anand for the Assessee.

2001 P T D 3011

[240 I T R 47]

[Kerala High Court (India)]

Before Om Prakash, C. J. and J. B. Koshy, J

COMMISSIONER OF INCOME TAX

Versus

N. KRISHNAN

I.T. R. No. 104 of 1996, decided on 29th September, .1998.

Income‑tax‑‑‑--

‑‑‑‑Penalty‑‑‑Concealment of income‑‑‑Penalty could not be quantified unless tax determined‑‑‑Loss Assessment‑‑‑No penalty could .be imposed‑‑‑Indian Income Tax Act, 1961, S. 271(1)(c).

It is clear from a perusal of section 271(1)(c) of the Income Tax Act, 1961, that penalty could be determined with reference to the amount of tax and unless tax is determined, penalty could not be quantified. Where a loss assessment is made, the question of determining the amount of tax does not arise and, therefore, no penalty could be determined. When penalty cannot to quantified in the absence of determination of tax, no penalty could be imposed. Even if there is concealment of income, where a loss assessment is made, no penalty could be imposed.

P.K.R. Menon, Senior Advocate and N.R.K. Nair for the Commissioner.

C. Kochunni Nair for the Assessee.

2001 P T D 3214

[240 I T R 2221

[Kerala High Court (India)]

Before Om Prakash, C. J. and J. B. Koshy, J

BEENA METALS

Versus

COMMISSIONER OF INCOME‑TAX

I.T.R. No.49 of 1996, decided on 9th October, 1998.

Income‑tax‑‑‑

‑‑‑‑Penalty‑‑‑Concealment of income‑‑‑Failure to furnish particulars of brokers through whom purchases made‑‑‑Failure to produce purchase and sale registers and stock register‑‑‑Assessing Officer finding some purchase bogus ‑‑‑Assesssee himself admitting concealment of income to extent of bogus purchases‑‑‑Concealment proved‑‑‑Levy of penalty valid‑‑‑Indian Income Tax Act, 1961, S.271(1)(c).

The assessee filed a return of income declaring a total income of Rs.2,10,460. Thereafter, revised returns were filed showing income of Rs.3,76,920 and Rs.4,21,920. The Income‑tax Officer issued notices to the assessee for levy of penalty under section"271(1)(c) of the Income Tax Act, 1961, for concealment of particulars of income on the ground that purchases made by the assessee aggregating to Rs.1,61,459 were bogus. The assessee explained that purchases had been made through brokers and there was no direct link between the assessee and the suppliers, and therefore, the suppliers could not be identified. The Assessing Officer, however, held that despite sufficient opportunity being given to the assessee to produce purchase and sale registers and the stock register coupled with the stock inventories for the relevant period, the assessee could produce only the stock inventory, that neither the purchase and sale registers nor the stock register showing the day‑to‑day stock position was produced, that even the names and addresses of the brokers through whom the purchases were said to have been made were not furnished, that the assessee himself had stated before the Assessing Officer that if at all there was concealment with regard to bogus purchases, it could be taken at Rs:1,61,459, that during the search operation at the assessee's premises it was discovered that the assessee had understated stock to the extent of Rs.3.5 lakhs and that in the successive revised returns the additional income was declared by the assessee having known that the Department had discovered the bogus purchases. The Assessing Officer imposed a penalty of Rs.1,05,730 under section 271(1)(c) of the Act. The assessee's appeal before the Appellate Assistant Commissioner and the Tribunal failed. On a reference:

Held, affirming the decision of the Tribunal, that there was concealment of income to the extent of Rs.1,61,459 and the levy of penalty was, therefore, valid.

P. Balachandran for the Assessee.

P.K.R. Menon, Senior Advocate and N.R.K. Nair for the, Commissioner.

2001 P T D 3243

[240 I T R 924]

[Kerala High Court (India)]

Before P.K. Balasubramanyan and J.B. Koshy, JJ

COMMISSIONER OF INCOME‑TAX

Versus

PALGHAT SHADI MAHAL TRUST

C.M.P. No. 1189 of 1999 in I.T.R. No.34 of 1996, decided on 9th April, 1999.

Income‑tax‑‑‑

‑‑‑Appeal to Supreme Court‑‑‑Leave to appeal‑‑‑Charitable trust‑‑­Exemption‑‑‑Trust constituted for educational, social and economic advancement of Muslims and for religious and charitable objects recognised by Mohammedan law‑‑‑Whether entitled to exemption‑‑‑No binding decision of Supreme Court or of other High Courts on scope of Expln. 2 to S.13(1)(b)‑‑‑Leave to appeal to Supreme Court granted‑‑‑Indian Income Tax Act, 1961, Ss. 11, 13(1)(b), Expln. 2 & 261.

Held, that the question regarding the eligibility for exemption under section 11 of the Income Tax Act, 1961, of the assessee is of general importance and there is no binding decision of the Supreme Court or of other High Courts on the scope of Explanation 2 to section 13 in the context of the exclusion contained in section 13(1)(b). Hence, leave to appeal to Supreme Court had to be granted.

CIT v. Palghat Shadi Mahal Trust (1999) 236 ITR 722 (Ker.) ref.

P.K.R. Menon for Petitioner.

P. G. K. Warriyar for Respondent.

2001 P T D 3326

[240 I T R 484]

[Kerala High Court (India)]

Before Mrs. K.K. Usha and R. Rajendra Babu, JJ

SEA MATES INDIA

Versus

COMMISSIONER OF INCOME‑TAX

I.T.R. No.29 of 1992, decided on 15th September, 1999.

(a) Income‑tax‑‑‑

‑‑‑‑Business expenditure‑‑‑Liability towards purchase tax ‑‑‑Deductible‑‑­Indian Income Tax Act, 1961, S.37.

Provision made towards purchase tax liability was deductible.

Abad Fisheries v. CIT (1995) 213 ITR 694 (Ker.) and Baby Marine Exports v. CIT (1997) 225 ITR 631 (Ker.) fol.

(b) Income‑tax‑‑‑

‑‑‑‑Reference‑‑‑Liability towards purchase tax disallowed by Assessing Officer on the ground that it represented a contingent liability‑‑‑Disallowance not on the ground that assessee was not following mercantile system of accounting‑‑‑High Court could presume that assessee had been following mercantile system of accounting‑‑‑Indian Income Tax Act, 1961, S.256.

If the assessing authority was of the view that the assessee was not following the mercantile system of accounting it could have observed that the principle in Kedarnath Jute Mfg. Co. Ltd. v. CIT, (1971) 82 ITR 363 (SC) could not be made applicable in the present case, merely for the reason that the assessee was not following the mercantile system of accounting. No such reason was given in the assessment order. Hence, it was clear that the assessing authority had no doubt that the assessee was following the mercantile system of accounting.

CIT v. Bell Foods (Marine Division) (1991) 191 ITR 219 (Ker.); Deputy CST v. Neroth Oil Mills Co. Ltd. (1982) 49 STC 249 (Ker.); Kedarnath Jute Mfg. Co. Ltd. v. CIT (19'71) 82 ITR 363 (SC); (1971) 28 STC 672 (SC) and Sterling Foods v. State of Karnataka (1986) 63 STC 239 Sc ref.

P.G.K Wariyar and P. Balakrishnan for the Assessee.

P.K.R. Menon Senior Advocate and George 'K. George for the

2001 P T D 3355

[240 I T R 916]

[Kerala High Court (India)]

Before Mrs. K. K. Usha, K. S. Radhakrishnan and R. Rajendra Babu, JJ

COMMISSIONER OF INCOME‑TAX

Versus

TRAVANCORE CEMENT LTD

Income‑tax Reference No. 12 of 1996, decided on 22nd September, 1999.

Income‑tax‑‑‑

‑‑‑‑Business expenditure‑‑‑Repair‑‑‑Ceiling on expenditure‑‑‑Scope of S.37(3A)‑‑‑Section 37 applies only to expenses not falling under Ss.30 to 36‑‑‑Expenditure on repair of‑plant and machinery is deductible under S.31‑­Motor cars constitute plant‑‑‑Expenditure on repair of cars is not subject to ceiling prescribed by S.37(3A)‑‑‑-- Indian Income Tax Act, 1961, Ss.31 & 37‑­[CIT v. Navodaya (1997) 225 ITR 399 (Ker.) overruled and CIT v. Travancore Cements Ltd. (1999) 240 ITR 825 (Appendix) (infra) reversed].

Section 31 of the Income Tax Act, 1961, allows deduction of expenditure on repairs and insurance of machinery, plant and furniture. 'Plant' is defined in section 43(3) of the Act. It includes all motor vehicles including motor car. A plain reading of subsection (1) of section 37 would make it clear that the deductions referred to under sections 30 to 36 are excluded from the purview of section 37(1). Section 37(3A) of the Act provides that notwithstanding anything contained in subsection (1), 20 per cent. of any expenditure in excess of Rs.l lakh incurred by an assessee in respect of one or more of the items specified in subsection (3B) shall not be allowed as deduction in computing the business income. Clause (ii) in subsection (3B) specifies one such expenditure as "running and maintenance of aircraft and motor cars". The expenditure on repairs contemplated under section 31 is entirely different from the expenditure towards maintenance contemplated in section 37(3B). From the dictionary meaning of these two expressions it is very clear that the expression "repair" presupposes certain injury or partial destruction. But the expression "maintenance" does not do so. It means to keep a particular thing in its similar state. Hence, the expenditure on "repairs" dealt with under section 31 of the Act is entirely different from the expenditure on maintenance covered by subsections (3A) and (3B) of section 37. The non obstante clause in section 37(3A) cannot have any overriding effect in respect of the other provisions pertaining to the allowances of expenditure under sections 30 to 36 of the Act. The expenditure towards repairs and premium paid towards insurance of motor cars is deductible under section 31 of the Act and the same expenditure will not fall within the mischief of section 37(3A).

CIT v. Navodaya (1997) 225 ITR 399 (Ker.) overruled.

CIT v. A. V. Thomas & Co. Ltd. (1997) 225 ITR 29 (Ker.) and CIT v. Midland Rubbers and Produce Co. Ltd. (1998) 232 ITR 530 (Ker.) affirmed.

Grorge Williamson (Assam) Ltd. v. CIT (1997) 223 ITR 203 (Gauhati) fol.

CIT v. Travancore Cements Ltd. (1999) 240 ITR 825 (Appendix) (infra) reversed.

CIT v. Bharat Industrial Works (1997) 226 ITR 543 (MP); CIT v. Chase Bright Steel Ltd. (No. 1) (1989) 177 ITIt 124 (Bom.); CIT v. K.N. Oil Industries (1997) 226 ITR 547 (MP); CIT v. Price Waterhouse (1994) 207 ITR 564 (Cal.); CIT v. Steel Tubes of India Ltd. (No.2) (1997) 228 ITR 418 (MP); CIT v. Tungabhadra Industries Ltd. (1994) 207 ITR 553 (Cal.) and Mohan Meakin Breweries Ltd. v. CIT (No.l) (1979) 118 ITR 101 (HP) ref.

P.K.R. Menon and N.R.K. Nair for the Commissioner.

Joseph Markos and Thomas Vellapally for the Assessee.

2001 P T D 3427

[240 I T R 499]

[Kerala High Court (India)]

Before Om Prakash, C. J. and J. B. Koshy, J

COMMISSIONER OF INCOME-TAX

Versus

A.M. ZAINALABDEEN MUSALIAR

I.T.Rs. Nos.74 to 76 of 1997, decided on 1st December, 1998

Income-tax---

----Business expenditure---Disallowance---Payment exceeding prescribed limit other-than by crossed cheque or crossed Bank draft---Exclusion from disallowance---Clear finding needed as to clause of R. 6DD under which such exclusion operates---Matter remanded---Indian Income Tax Act, 1961, S.40A(3)---Indian Income Tax Rules, 1962, R.6DD.

The assessee made local purchases of cashew kernels. These purchases included a purchase of cashew kernels worth Rs.50,000 from R. The Assessing Officer discovered that the payment was made through bearer cheque. In order to test the genuineness of the payment, the Assessing Officer issued summons to R, who was never produced for examination before him or before any other authority by the assessee. The Assessing Officer disallowed the deduction and this was confirmed by the Commissioner of Income-tax (Appeals). The Tribunal, however held that the payment was covered by rule 6DD of the Income-tax Rules, 1962, and could not be disallowed .On a reference:

Held, that the Tribunal simply observed that the payment made by the bearer cheque to R was covered by rule 6DD. Rule 6DD contains clauses (a) to (j). It was, therefore, the duty of the Tribunal to record a clear finding as to the clause of rule 6DD under which the payment in question fell. If the Tribunal was of the view that cashewnut kernels were covered by rule 6DD(f), then unless a clear finding was recorded that payment by the bearer cheque made to R was in fact made to growers or producers of cashewnuts, the advantage of rule 6DD(f) could not be taken. If the Tribunal was of the view that the payment was covered by rule 6DD(j), then unless a clear finding was recorded regarding the circumstances as stated in clause (j), that clause could not be pressed into service. The question whether the payment to R was deductible could not be answered. [Matter remanded] .

P.K.R. Menon, Senior Advocate and N.R.K. Nair for the Commissioner.

C. Kochunni Nair and S. Vinod Kumar for the Assessee.

2001 P T D 3520

[240 I T R 617]

[Kerala High Court (India)]

Before P. Shanmugam, J

G. K. NAIR

Versus

DEPUTY COMMISSIONER OF INCOME-TAX and another

O.P. No.25695 of 1998-H, decided on 22nd December, 1998.

Income-tax---

----Revision---Powers of CIT---Interest levied - under S.234B---Appellate order reducing assessment as also interest under S.234B---Order upheld by Appellate Tribunal ---CIT under S.264 cannot interfere with levy of interest under S.234B---Indian Income Tax Act, 1961, Ss. 234B & 264.

For, the assessment year 1993-94, interest under section 234B of the Income Tax Act, 1961, towards delayed remittance of advance tax was levied. The petitioner's appeal before the Commissioner of Income-tax (Appeals) against the assessment was partly allowed. Consequently, a revised order giving effect to the appellate order was issued by the Deputy Commissioner of Income-tax. Interest under section 234B was also revised. Thereafter, the petitioner filed an application for wavier of interest. He had also filed a revision under section 264 of the Act before the Commissioner of Income-tax which was rejected. According to the Commissioner of Income-­tax, the assessment order in which the demand arose had been the subject-­matter of appeal before the Commissioner of Income-tax (Appeals) as well as the Income-tax Appellate Tribunal. In the circumstances, the Commissioner of Income-tax held that he could not statutorily interfere with the levy of interest. Oil a writ petition against the order:

Held, dismissing the writ petition, that the order in appeal before the appellate authority as well as before the Tribunal comprised the order relating to the interest under section 234B of the Act. It was an integral part of the assessment and appellate orders. Therefore, the Commissioner of Income-tax was justified in rejecting the revision petition. However, it was made clear that the petitioner could pursue his waiver application.

T.M. Sreedharan and N. Unnikrishnan for Petitioner.

P.K. Raveendranatha Menon for Respondents.

2001 P T D 3542

[204 ITR 782]

[Kerala High Court (India)]

Before Om Prakash, C. J. and J. B. Koshy, J

COMMISSIONER OF INCOME-TAX

Versus

JOHNY JOSEPH

I.T.Rs. Nos. 24, 25 and 26 of 1997, decided on 16th November, 1998.

Income-tax---

----House property---Annual value---Determination of---For assessment year 1983-84, assessee himself declaring annual letting value at certain figure--­For assessment years 1986-87, 1987-88 and 1988-89 annual letting value shown in descending trend without,giving reasons---Merely because annual letting value shown by assessee is more than that fixed by Municipality, value declared by assessee could not be accepted---Assessing Officer right in adopting annual letting value declared by assessee himself for assessment year .1983-84, which was at a higher figure, for assessment years 1986-87, 1987-88 and 1988-89---Indian Income Tax Act, 1961, S.23.

For the assessment years 1986-87, 1987-88 and 1988-89, the assessee returned the annual letting value of the property owned by him at Rs. 24,450, Rs. 23,400 and Rs. 22,680, respectively. However, the Income­ tax Officer assessed the annual letting value of the house property owned by the assessee at Rs. 46,441 for each of the years since he found that for the assessment year 1983-84, the annual letting value of the property admitted by the assessee himself was Rs. 46,441 and that the rental value of the property had been increasing year after year. On appeal, the Deputy Commissioner (Appeals) estimated the annual letting value at Rs. 36,000 for each of the assessment years. On further appeal to the Tribunal, both by the assessee and the Revenue, the Tribunal held that as per the municipal valuation, the annual value was Rs. 13,560, that the Deputy Commissioner (Appeals) was not justified in fixing the annual letting value at Rs. 36,000 for the assessment years in question, that the annual letting value returned by the assessee for the years in question was more than the annual value fixed by the municipality and that, therefore the annual letting value returned by the assessee could be accepted. On a reference:

Held, that for the years in question the assessee declared the annual letting value in descending trend without giving any cogent reasons therefore and normally the annual letting value should gradually increase and merely because the annual letting value shown by the assessee was more than the amount fixed by the Municipality, the annual letting value declared by the assessee could not be accepted. Therefore, the Assessing Officer was right in taking the annual letting value as declared by the assessee himself for the assessment year 1983-84.

P.K.R. Menon, Senior Advocate and N.R.K. Nair for the Commissioner.

C. Kochunni Nair for the Assessee.

2001 P T D 3598

[240 I T R 758]

[Kerala High Court (India)]

Before Om Prakash, C. J. and J. B. Koshy, J

COMMISSIONER OF INCOME‑TAX

versus

COMMONWEALTH TRUST INDIA LTD.

I. T.Rs. Nos. 127 of 1995, 135 and 136 of 1996, decided on 16th November, 1998.

Income-tax--

‑‑‑‑Expenses or payments not deductible‑"Deposit", meaning of‑‑‑Foreign company amalgamated with Indian company under scheme of amalgamation approved by High Court‑‑‑All assets and liabilities of foreign company vesting with Indian company‑‑‑Indian company issuing debentures to foreign company in part satisfaction of consideration for vesting the business in Indian company‑‑‑Debentures treated as unsecured loans in books of Indian company and Indian company paying interest to foreign company on such loans‑‑‑Indian company paid interest "on the mode of payment of consideration for assets received 'by virtue of scheme of amalgamation'".‑‑­Loan does not amount to "deposit" as defined in Expln. (b) to subsection (8) of S.40A‑‑‑15 per cent. of such interest cannot be disallowed‑‑‑Indian Income Tax Act, 1961, S. 40A(8), Expln. (b) [before deletion by Finance Act, 1985, with effect from April 1, 1986].

A foreign company (Commonwealth Trust Ltd., London) was amalgamated with the Indian Company (Commonwealth Trust (India) Ltd.) with effect from October 1, 1977, as a result of a scheme of the amalgamation approved by the High Court. As a result of the amalgamation all the assets and liabilities of the foreign company vested in the Indian Company. The consideration fixed for the transfer was Rs.50,00,000 and towards the consideration the Indian company issued debentures to the foreign company in part satisfaction of the consideration for vesting the business in the Indian company. The, debentures were treated as unsecured loans in the books of the Indian company consequent of which the Indian company was paying interest to the foreign company. For the assessment years 1983‑84 and 1984‑85, the Inspecting Assistant Commissioner (Assessment) held that the loan amounted to a "deposit" within the meaning of Explanation (b) to subsection (8) of section 40A of the Income Tax Act, 1961, and hence disallowed 15 per cent. of such interest amounting to Rs.82,500. On appeal, the Commissioner of Income‑tax (Appeals) confirmed the order of the Inspecting Assistant Commissioner (Assessment). On further appeal, the Tribunal held that what the assessee paid was interest on the mode of payment of consideration for the assets received by virtue of the scheme of amalgamation and hence no disallowance could be made under subsection (8) of section 40A of the Act. On a reference:

Held, affirming, the decision of the Tribunal, that from the definition of the word "deposit" as contained in Explanation (b) to sub­section (8) of section 40A of the Act, it is amply clear that unless interest liability is incurred on the deposit of money which includes money borrowed by a company, no disallowance as envisaged by subsection (8) of section 40A could be made. The Indian company was neither a banking company nor a financial company and no "deposit" as defined in Explana­tion (b) to subsection (8) of section 40A was received by the Indian company. The Indian company paid interest 'on the mode of payment of consideration for the assets received by virtue of the scheme of amalgamation". Therefore, the 'Tribunal was right in holding that no disallowance of interest could be made under subsection (8) of section 40A of the Act.

P.K.R. Menon, Senior Advocate and N.R.K. Nair for the Commissioner.

P. Balachandran for the Assessee.

2001 P T D 3620

[241 I T R 175]

[Kerala High Court (India)]

Before Arjit Pasayat, C. J. and K. S. Radhakrishnan, J

COMMISSIONER OF INCOME‑TAX

versus

P.K. NARAYANAN

O.P. No. 16428 of 1999‑S, decided on 4th October, 1999.

Income‑tax‑‑

‑‑‑‑Reference‑‑‑Business expenditure‑‑‑Interest‑‑‑Loans availed of long back‑‑‑Payment of interest established year after year‑‑‑Tribunal, justified in holding that disallowance of interest by Assessing Officer was not justified‑‑­No question of law arose‑‑‑Indian Income Tax Act, 1961, S.256(2).

For the assessment year 1990‑91, the assessee claimed interest in respect of certain credits amounting to Rs.16,08,000 which was disallowed by the Assessing Officer on the ground that it was not genuine. The total interest claimed was Rs.1,50,750. The Assessing Officer disallowed it on the ground that it was not genuine and that the alleged creditors did not respond to the notices issued and, therefore, they were non‑existent for all practical purposes. On appeal, the Commissioner of Income‑tax (Appeals) held that the genuineness of the 29 creditors was accepted by the Assessing Officer for the earlier years and it was not open to him to turn around and say that the persons from whom loans were allegedly taken were non‑existent persons for the purpose of payment of interest. On further appeal, the Tribunal held that the genuineness of the creditors was not disputed and, therefore, the claim was to be allowed. On an application to direct reference:

Held, that the credits in so far as the 29 persons were concerned were not introduced in the year of assessment, namely, 1990‑91. Once the genuineness of the credits was accepted in an earlier year there was no question of disallowing the interest on the ground that the creditors were persons to whom payment of interest was not established. Therefore, the Assessing Officer was not justified in disallowing the interest and no question of law arose out of the order of the Tribunal.

P.K.R. Menon and George K. George for Petitioner.

S. Ananthakrishnan for Respondent.

2001 P T D 3640

[241 ITR 168]

[Kerala High Court (India)]

Before Arjit Pasayat, C. J. and K. S. Radhakrishnan, J

COMMISSIONER OF INCOME‑TAX

versus

Smt. GUNAVATHY DHARMASY

Income‑tax Reference No.37 of 1997, decided on 25th September, 1999.

Income‑tax‑‑‑

‑‑‑‑Loss‑‑‑Return‑‑‑Carry forward of loss‑‑‑Law applicable‑‑‑Effect of amendment of S.80 by Taxation Laws (Amendment) Act, 1984 w.e.f. 1‑4‑1985‑‑‑Return of loss not submitted within time allowed under S.139(1) or extended period allowed by ITO ‑‑‑Assessee not entitled to carry forward of loss‑‑‑Indian Income Tax Act, 1961, Ss.80 [as amended by Indian Taxation Laws (Amendment) Act, 1984), 139(1)].

Section 80 of the Income Tax Act, 1961, deals with the submission of returns of losses. This provision has undergone several changes.

The Legislative history of the provision shows that from 1st April, 1985, under the Taxation Laws (Amendment) Act, 1984, a return of loss must be submitted within the period prescribed by section 139(1). For that purpose for the words "under section 139" in the section which stood earlier, the words "within the time allowed under subsection (1) of section 139 or within such further time as may be allowed by the Income‑tax Officer" have been substituted with effect from 1st April, 1985. Under section 80, no loss was allowed to be carried forward and set off under section 72(l) or section 73(2) or section 74(l) or section 74A(3) unless such loss had been determined in pursuance of a return filed by the assessee under section 139. With effect from 1st April, 1985, by the Taxation Laws (Amendment) Act, 1984, no such loss would be allowed to be carried forward or set off unless the return under section 139(1) had been filed within the time allowed under subsection (1) .of section 139 for filing the return or within such further time as might be allowed by the Income‑tax Officer.

For the assessment year 1985‑86, a return was filed by the assessee on January 13, 1986, showing a loss of Rs.3,72,212. The due date for filing the return was on or before 31st July, 1985, and in the case of loss up to 30th June, 1985. Though an application was filed initially in Form No.6 requesting for extension of time to file the return up to 30th September, 1985, further extension of time was not asked for, and the return of income was filed on January 13, 1986. The Assessing Officer refused to carry forward the loss as the return of loss was not filed within the time allowed under section 139(3). On appeal, the Commissioner of Income‑tax (Appeals) held that since the assessee had not complied with the statutory requirement of filing the return of income as envisaged in section 139(3), the Assessing Officer was justified in refusing to allow carry forward of loss. On further appeal, the Tribunal held that the question as to whether loss can be set off can arise only in the assessment of the succeeding year or years where there is positive income against which such set off is claimed. The Tribunal further held that whether the loss in any year may be carried forward to the following or subsequent years had to be determined by the Assessing Officer who dealt with the assessment of the following or subsequent years. The Assessing Officer was directed by the Tribunal to carry forward the loss. On a reference at the instance of the Revenue :

Held, that the Assessing Officer as well as the Commissioner of Income‑tax (Appeals) were justified in holding that the provision of section 80 would have application only in a case where the return as required to be filed within the time allowed under subsection (1) .of section 139 or within such further time as may be allowed by the Income‑tax Officer is so filed and that the Tribunal did not notice the provisions of section 80 as it stood at the relevant time. Since the assessee had not complied with the statutory requirement of filing the return of income as envisaged in section 139(3), the Assessing Officer was justified in refusing to allow carry forward of loss.

CIT v. Manmohan Das (1966) 59 ITR 699 (SC) ref.

P.K.R. Menon and N.R.K. Nair for the Commissioner.

2001 P T D 3659

[241 IT R 111]

[Kerala High Court (India)]

Before Om Prakash, C.J., J.B. Koshy and S. Marimuthu, JJ

COMMISSIONER OF INCOME‑TAX

versus

ANAND THEATRES

Income‑tax Reference No.85 of 1996, decided on 11th March, 1998.

Income‑tax‑‑‑

‑‑‑‑Depreciation‑‑‑Rate of depreciation‑‑‑Plant‑‑‑Theatre building constitutes plant‑‑‑Entitled to higher rate of depreciation‑‑‑Indian Income Tax Act, 1961, S.32.

A theatre building can be considered to be "plant" and is entitled to the higher rate of depreciation.

CIT v. Hotel Luciya (1998) 231 ITR 492 (Ker.) fol.

P.K.R. Menon and N.R.K. Nair for the Commissioner.

Pathrose Mathai for the Assessee.

2001 P T D 3686

[241 I T R 333]

[Kerala High Court (India)]

Before S. Sankarasubban, J

SASIDHARA SHENOY & BROS.

versus

DEPUTY COMMISSIONER OF INCOME‑TAX (ASSESSMENT) and another

O.P. No.4134 of 1999, decided on 25th September, 1999.

(a) Income‑tax‑‑‑

‑‑‑‑Appellate Tribunal‑‑‑Powers‑‑‑Reference‑‑‑Tribunal passing orders to give effect to opinion of High Court‑‑‑Subsequent decision by Full Bench of High Court in case of another assessee taking a different view‑‑‑Tribunal has no power to implement decision of Full Bench‑‑‑Indian Income Tax Act, 1961,S.260.

(b) Income‑tax‑‑‑

‑‑‑‑Depreciation‑‑‑Reference‑‑‑Cinema theatre‑‑‑Decision of High Court in case of assessee that cinema theatre is a building for purposes of grant of depreciation‑‑‑Subsequent Full Bench decision of High Court in case of another assessee that cinema theatre constitutes plant‑‑‑Tribunal has to grant depreciation in case of assessee treating cinema theatre as a building and not as a plant‑‑‑Indian Income Tax Act, 1961, Ss.32 & 260.

Section 260 of the Income Tax Act, 1961, makes it clear that as soon as a reference is made or answered, the Tribunal has to pass orders in the appeal on the basis of which the reference was disposed of. Thus, it is clear that once a reference application has been decided, the Tribunal has no other go, but to decide that question in accordance with the judgment of the High Court. The assessee cannot say that merely because the Full Bench of the High Court in the case of another assessee has taken another view, the Tribunal should automatically erase the decision in its reference and in its place substitute the judgment of the Full Bench. Further, under the provision of section 260, the High Court judgment as a whole is binding between the parties in a particular case.

The assessee was a firm which owned a cinema theatre. For the assessment years 1984‑85 and 1985‑86, the Assessing Officer allowed depreciation on the theatre building at the rate applicable to building. The contention of the assessee was that the building ought to have been treated as a plant and depreciation should have been given as a plant. The appeal filed by the petitioner was dismissed. On further appeal, the Tribunal held that the theatre building was a plant eligible for depreciation at the rates applicable to a plant. A reference was made by the Revenue which was answered in favour of the Revenue and against the assessee, holding that the building was entitled to depreciation applicable to buildings. Pursuant to the answer given by the Court, the Tribunal gave effect to .it under section 260(1) of the Act by order, dated May 19, 1997. Subsequently, the Full Bench of the High Court considered the question in another case, whether a theatre was a plant and by judgment, dated March 11, 1998 (CIT v. Hotel Luciya (1998) 231 ITR 492) overruled the earlier decision of the Division Bench and held that a theatre will also come under the category of plant. The assessee applied for a rectification of the orders passed under section 260(1). This was rejected. On a writ petition to quash the order and pass final orders in accordance with the decision of the Full Bench of this Court reported in CIT v. Hotel Luciya (1998) 231 ITR 492 (Ker.).

Held, dismissing the writ petition, that the order passed by the Tribunal was correct.

CIT v. Hotel Luciya (1998) 231 ITR 492 (Ker.); CIT v. Sasidhara Shenoy &. Bros. (1998) 231 ITR 489 (Ker.); CIT v. Tehri‑Garhwal State (1934) 2 ITR 1 (PC);‑East India Corporation Ltd. v. CIT (1975) 99 ITR 287 (Mad.); Jose T. Mooken v. CIT (No.2) (1979) 117 ITR 921 (Ker.) and Kil Kotagiri Tea and Coffee Estates Co. Ltd. v. ITAT (1988) 174 ITR 579 (Ker.) ref.

P.G.K. Wariyar, P. Balakrishnan and K.S. Menon for Petitioner.

P.K.R. Menon and N.R.K. Nair for Respondents.

2001 P T D 3737

[241 I T R 572]

[Kerala High Court (India)]

Before Arijit Pasayat, C.J. and K.S. Radhakrishnan, J

P.J. EAPEN

versus

COMMISSIONER OF INCOME‑TAX

Income‑tax Reference No. 168 of 1995, decided on 30th September, 1999.

Income‑tax‑‑‑

‑‑‑‑Other sources‑‑‑Scope of S.56‑‑Rental income from house property‑‑­Construction completed during previous year‑‑‑Rental income only for 10 months‑‑‑Not covered by expression "annual value" ‑‑‑Rental income assessable as income from "other sources "‑‑‑Indian Income Tax Act, 1961, S.56.

Under section 56(1) of the Income Tax Act, 1961, income of every kind which is not to be excluded from the total income under the Act shall be chargeable to income‑tax under the head "Income from other sources", if it is not chargeable to income‑tax under any of the other heads specified in section 14, Items A to E.

The assessee completed construction of his house property in the previous year relevant to the assessment year 1983‑84 and since the same was in existence for a period of ten months only the rent received was for a period of ten months. The assessee claimed that since the "annual value" represents rent for one whole year and since the property was in existence, for less than one year the rental income was not taxable. The Income‑tax Officer rejected the plea but the Tribunal held that it was assessable‑under the head "Other sources". On a reference:

Held, that since the rental income was not exempted it had to be brought within the net of tax and hence it was chargeable under the head "Other sources".

Emil Webber v. CIT (1993) 200 ITR 483 (SC) applied.

CIT v. Kaithikeyan (G.R.) (1993) 201 ITR 866 (SC); CIT v. Sidhwa (T.P.) (Smt.) (1982) 133 ITR 840 (Bom.); Eisner v. Macomber (1919) 252 US 189; Maharajkumar Gopal Saran Narain Singh'v. CIT (1935) 3 ITR 237 (PC); Merchants' Loan and Trust Co. v. Smietanka (1920) 255 US 509; Nalikant Ambalal Mody v. S.A.L. Narayan Row, CIT (1966) 61 ITR 428 (SC); Navinchandra Mafatlal v. CIT (1954) 26 ITR 758 (SC); Raja Bahadur Kamakshya Narain Singh of Ramgarh v. CIT (1943) 11 ITR 513 (PC) Resch v. Federal Commissioner of Taxation (1943) 66 CLR 198 and United States of America v. Stewart (1940) 311 US 60 ref.

C. Kochunni Nair and M.C. Madhavan for the Assessee.

P.K.R. Menon and N.R.K. Nair for the Commissioner.

2001 P T D 3771

(241 I T R 626]

[Kerala High Court (India.)]

Before Arijit Pasayat, C. J. and K. S. Radhakrishnan, J

COMMISSIONER OF INCOME‑TAX

Versus

S.R.V. PRESS AND PUBLICATIONS (P.) LTD.

Income‑tax Reference No. 141 of 1996, decided on 30th September, 1999.

Income‑tax‑‑‑

‑‑‑‑Capital gains‑‑‑Computation of capital gains ‑‑‑Assessee‑company under liquidation‑‑‑Sale of property which had been mortgaged to a financial corporation by assessee‑‑‑Repayment of loan is not an expenditure incurred wholly and exclusively in connection with transfer‑‑‑Not deductible while computing capital gains‑‑‑Indian Income Tax Act, 1961, S.48.

The assessee was a private limited company in liquidation. The liquidator sold a property of land alongwith a building for a sum of Rs.10 lakhs. The assessee had taken a loan from the Kerala Financial Corporation on the security of this property and had not repaid it. The liquidator discharged the liability to the extent of Rs.5.,37,940. The assessee claimed this amount as an expenditure incurred wholly and exclusively in connection with the transfer. The Assessing Officer and the Commissioner of Income‑tax (Appeals) rejected the assessee's claim. On second appeal, the Tribunal observed that there is nothing in section 48 of the Income Tax Act, 1961, to exclude expenditure of a capital nature from the expenditure laid out wholly and exclusively in connection with the transfer, that an amount payable for repayment of secured loans was, therefore, deductible under section 48 and that the repayment of loan was in connection with the transfer of property and was covered under section 48 of the Act as an expenditure incurred wholly and exclusively in connection with the transfer. On a reference at the instance of the Revenue:

Held, that the repayment of the loan was not on expenditure incurred wholly and exclusively in connection with the transfer and was not deductible under section 48 while computing capital gains.

Rm. Arunchalam v. CIT (1997) 227 ITR 222 (SC) and V.S.M.R. Jagadishchandran v. CIT (1997) 227 ITR 240 (SC) applied.

Ambat Echukutty Menon v. CIT (1978) 111 ITR 890 (Ker.); CIT v. Attili Narayana Rao (1998) 233 1TR 10 (AP); CIT v. Daksha Ramanlal (1992) 197 ITR 123 (Guj.); CIT v. Thressiamma Abraham (Sint.) (No. 1.) (1997) 227 ITR 802 (Ker.); Idiculla (K.V.) v. CIT (1995) 214 ITR 386 ~Ker.) and Salay Mohamad Ibrahim Sait v. ITO (1994) 210 ITR 700 (Ker.) and Valliammai (S.) (Sint.) v. CIT (1981) 127 ITR 713 (Mad.) ref.

P. K. R. Menon and N. R. K. Nair for the Commissioner.

C. Kochunni Nair and M.C. Madhavan for the Assessee.

2001 P T D 3877

[241 I T R 682]

[Kerala High Court (India)]

Before Arijit Pasayat, C. J. and K. S. Radhakrishnan, J

COMMISSIONER OF INCOME‑TAX

versus

O.E.N. INDIA LTD.

Income‑tax Reference No.99 of 1996, decided on 30th September, 1999.

Income‑tax‑‑‑

‑‑‑‑Business expenditure‑‑‑Mercantile system of accounting‑‑‑Customs duty of earlier assessment years claimed in assessment year 1983‑84‑‑‑Original demand for customs duty on 30‑10‑1980‑‑‑Nullified on appeal by Central Board on 28‑3‑1981‑‑‑Fresh demand, dated 27‑3‑1982‑‑‑Liability accrued in year of demand‑‑‑Deductible in assessment year 1983‑84‑‑‑Indian Income Tax Act, 1961, S. 37.

The assessee, a company engaged in the manufacture and sale of electronic components; followed the mercantile system of accounting and claimed deduction of a sum of Rs.70.56 lakhs for the assessment year 1983‑84 being the customs duty payable in respect of the assessment years 1975‑76 to 1983‑84. The Income‑tax Officer rejected the claim on the ground that the liability to pay duty had not arisen but the Tribunal upheld the claim on the ground that since the demand was subsisting the liability also subsisted and accrued during the relevant assessment year and hence the deduction was allowable. On a reference:

Held, that the original order of demand, dated October 30, 1980, passed by the customs authorities was nullified in appeal by order, dated March 28, 1981; of the Central Board of Excise and Customs. Therefore, the order dated October 30, 1980 had become non est. Thereafter, the original order of demand was made by the Collector of Customs on March 27, 1982, within the relevant assessment year 1983‑84. Therefore, the deduction of customs duty claimed was allowable in the assessment year 1983‑84.

Kedarnath Jute Mfg. Co. Ltd. v. CIT (1971) 82 ITR 363; (1971) 28 STC 672 (SC); Pope the King Match Factory v. CIT (1963) 50 ITR 495 (Mad.) and Salem Cooperative Central Bank Ltd. v. CIT (1993) 201 ITR 697 (SC) ref.

P. K. R Menon, Senior Advocate and N. R. K. Nair for the Commissioner.

C.N. Ramachandran Nair for the Assessee.

2001 P T D 1

[Lahore High Court]

Before Nasim Sikandar, J

Messrs MAQBOOL TEXTILE MILLS LTD.

versus

FEDERATION OF PAKISTAN through Secretary, Ministry of Finance, Islamabad and others

Criminal Originals Nos. 142/W and 143/W of 2000 in Writ Petitions Nos.8430 and 8431 of 1998, decided on 6th July, 2000.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.80D---Economic Reforms Act (XII of 1992)---Minimum tax on income of certain persons---Provisions of Economic Reforms Act, 1992 prevail over the provisions of S.80D of the Income Tax Ordinance, 1979.

(b) Economic Reforms Act (XII of 1992)---

----S.6 & Schedule---All levies of the kind whether recovered or yet to be recovered from the assessees covered by the notifications mentioned in the Sched. to S.6 of the Economic Reforms Act, 1992 were against law.

Messrs Elahi Cotton Mills Ltd. and others v. Federation of Pakistan through Secretary, Ministry of Finance, Islamabad and 6 others PLD 1997 SC 582 rel.

(c) Precedent---

----Pronouncements by superior Courts interpreting specific provisions of law have retrospective effect.

(d) Precedent---

---- Judgment of the Supreme Court declaring certain provisions of law to be inapplicable to a class of assessees was a judgment in rem.

(e) Income Tax Ordinance (XXXI of 1979)---

---S.80D & Second Sched., cl.(118C)---Minimum tax on income of certain persons---Exemption---Refund of tax ---Assessees having not agitated against turn over tax were also entitled to the refund of tax paid either voluntarily or under coercion---Any such payment made by the assessees or received by the department could not be termed as a past and closed transaction--­Retention of all such sums by the Revenue would be unjustified.

Pfizer Lab. Ltd. v. Federation of Pakistan PLD 1998 SC 64 rel

(f) Interpretation of statutes---

---- Different reasons and principles have emerged to judge if a statute, rule, regulation or by-law was effective from a date earlier to its becoming a superior or subordinate legislation.

(g) Precedent---

----Declaratory judgments of superior Courts, like declaratory statutes, are retrospective in application.

(h) Income Tax Ordinance (XXXI of 1979)---

----S.80D & Second Sched., cl. (118C)---Economic Reforms Act (XII of 1992), S.6---SRO No.1283(I)90, dated 3-12-1990---C.B.R.'s Letter No.2(98)IT-Judi/94, dated 11-12-1998---C.B.R.'s Letter C.No.2(98)ITJ/94, dated 11-12-1997---Law & Justice Division's Letter No.1327/97-SO-I, II, dated 10-10-1997 and Letter No.1329/97 SOR-II, dated 16-12-1998--­Minimum tax on income of certain persons ---Exemption---Assessee's income was exempted under cl. (118C) of the Second Sched. of the Income Tax Ordinance, 1979---Minimum tax under S.80D of the Income Tax Ordinance, 1979 was collected by the Department---Refund of the same was claimed by the assessee on the basis of Supreme Court Judgment reported as PLD 1997 SC 582 = 1997 PTD 1555 (M/s. Elahi Cotton Mills Ltd. and others v. Federation of Pakistan) declaring that such tax was also not chargeable upon the persons whose income was exempt under Second Sched. of the Income Tax Ordinance, 1979---Department refused to refund the tax received on the basis of letters issued by the Central Board of Revenue and Law & Justice Division that assessees who had not filed appeal or petition were not entitled to claim refund as the said judgment was not retrospective in effect---Validity---Levy of minimum/turnover tax under S.80D of the Income Tax Ordinance, 1979 was applicable to certain category of assessees for certain period---Case of the assessee was covered by Economic Reforms Act, 1992, and therefore, was not liable to pay minimum tax---Defence of the department based upon the Circulars being not tenable it was directed to make the payments of the sums received by it under S.80D of the Income Tax Ordinance, 1979.

Messrs Elahi Cotton Mills Ltd. and others v. Federation of Pakistan through Secretary, Ministry of Finance, Islamabad and 6 others PLD 1997 SC 582; Pfizer Lab. Ltd. v. Federation of Pakistan PLD 1998 SC 64 and Central Insurance Company v. C.B.R. 1993 SCMR 1232 rel.

Walchant Nagar Industries Limited v. Income-tax Officer (1962) 44 ITR 260; Commissioner of Income-tax v. Model Mills Nagpur Limited (1967) 64 ITR 67; Parshram Pottery Works Co. Ltd. v. Wealth Tax Officer (1975) 100 ITR 651; Baghwandas Kavaldas v. N.D. Mehrotra-etc. (1959) 36 ITR 538 (Bom.) and Kid Kotagiri Tea and Coffee Estate Co. Limited v. I.T.A. etc. (1988) 174 ITR 579 ref.

Tariq Javed for Petitioner.

Ch. Sagheer Ahmad, Standing Counsel.

2001 P T D 10

[Lahore High Court]

Before Jawwad S. Khawaja and Nasim Sikandar, JJ

COMMISSIONER OF INCOME-TAX, MULTAN ZONE

versus

Messrs JIRSO CORPORATION, MULTAN

C.T.R. No.33 of 1989, heard on 2nd October, 2000

(a) Income Tax Ordinance (XXXI of 1979)---

----S.68---Registration of, firm---Fresh application for registration of firm--­None attended the proceedings on notice nor order for production of male partners and books of accounts was complied with---Application for registration of firm was rejected on the ground that no genuine firm had come into existence---First Appellate Authority found that it was a change of constitution of firm and in absence of any substantial objection, there was no justification in refusing the renewal of registration and this order, was maintained by the Appellate Tribunal---Validity---Assessing Officer before allowing an application for registration might make such inquiry as he thought fit ---Registration of firm was dependent upon the satisfaction of Assessing Officer that the requirements of S.68(2) & (3) of the Income Tax Ordinance, 1979 were fulfilled---If a firm had been reconstituted even then requirements of S.68(2) of the Income Tax Ordinance, 1979 had to be satisfied---Satisfaction of the Assessing Officer that there is, or was, a genuine firm in existence for the relevant income year would matter--­Tribunal was not justified to confirm the order of the First Appellate Authority in circumstances.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.68(5)---Registration of firm---Jurisdiction to cancel registration--­Section 68(5) of the Income Tax Ordinance, 1979 indicates the facet .of jurisdiction of Assessing Officer that even after the registration of a firm, at any time, if he is satisfied that the pre-conditions given in cls. (a) to (c) of S.68(2) of the Income Tax Ordinance, 1979 had ceased to exist, he may proceed to cancel the registration.

(c) Income Tax Ordinance (XXXI of 1979)---

----S.68(4), proviso---Reconstitution of firm---Proviso to S.68(4) of the Income Tax Ordinance, 1979 does not by itself deal with the cases of reconstitution of firm---Proviso to S.68(4) of the Ordinance only checks the earlier procedure of making of an application for renewal every year and no fresh application for renewal from year to year was required.

(d) Income Tax Ordinance (XXXI of 1979)---

----S.68(2)---Requirements of registration---Change in constitution--­Registration of a firm in terms of requirements of S.68(2) of the Income Tax Ordinance, 1979 and change in constitution stand at par.

Shafqat Mahmood Chauhan for Petitioner.

Nemo for Respondent.

Date of hearing: 2nd October, 2000.

2001 P T D 19

[Lahore High Court]

Before Nasim Sikandar and Jawad S. Khawaia, JJ

COMMISSIONER OF INCOME-TAX, A-ZONE, LAHORE

versus

SOHAIB NASIR

C.T.R. No.31 of 1991, decided on 11th October, 2000.

(a) Income Tax Ordinance (XXXI of 1979)---

---Ss.108, 110 & 58---Penalty---Failure to furnish return of total income and certain statements---Wealth statement---Assessment year 1983-84---Assessee was burdened with penalty under S.108 of the Income Tax Ordinance, 1979 on failure to file wealth statement alongwith the income return for the relevant year---Validity---Section 108 of the Ordinance specifies the default with reference to specific sections and S.58 of the- Income Tax Ordinance, 1979 or any of its subsections do not figure out there---In presence of S.110 of the Income Tax Ordinance, 1979, applicable to the situation, Assessing officer could not have taken resort to any other provision of law---Penalty deleted by the Tribunal was upheld by the High Court.

(b) Interpretation of statutes--­

--Fiscal statute---Penalty provisions in fiscal matters must be construed strictly.

(c) Income Tax Ordinance (XXXI of 1979)---

---Ss.108 & 110---Penalty---Mode of calculation---Penalties provided under S.108 of the Income Tax Ordinance, 1979 are fixed and have nexus with default in terms of days while penalty provided under S.110 of the Income Tax Ordinance, 1979. is co-related with the amount of tax which would have been avoided "if the income as returned by assessee had been accepted as correct income".

Shafqat Mehmood Chohan for Petitioner.

Nemo for Respondent.

2001 P T D 406

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

Messrs NARRY SONS, LAHORE

(Messrs BARRY BROTHERS, LAHORE)

versus

COMMISSIONER OF INCOME-TAX, ZONE A, LAHORE

C.T.R. No. l of 1991, decided on 10th October, 2000.

(a) Administration of justice---

---- Adverse order---Before adverse order is passed against any party such party should be afforded full opportunity to meet the case and rebut evidence used against him.

(b) Income Tax Ordinance (XXXI of 1979)--

----S.32---Rejection of accounts---Unverifiable portion of cash sales--­Rejection of such sales by Assessing Officer---Previous as well as in subsequent years the declared results of the assessee had been accepted--­Contention of the assessee was that he was more concerned with the acceptance of the accounts rather than a decrease in the estimation of sales--­Validity---Unless the unverifiable portion of the cash sales was substantial and such proportion was sufficient to create doubts with regard to the genuineness of the assessee's account, the same could not have been out rightly rejected---Assessing Officer had not confronted the assessee with the alleged incomplete address of the cash purchasers---Both the forums below found the estimation made after rejection of the accounts to be on the higher side ---Assessee had neither adopted a different method of accounting during the disputed period nor the method adopted was so different from the previous and subsequent methods that profits and gains for the purpose of various provisions of Income Tax Ordinance, 1979, could not be computed therefrom---Accounts of the assessee could not be rejected in circumstances.

Seth Gurmukh Singh and another v. Commissioner of Income-tax, Punjab (1944) 12 ITR 393; Dhakeswari Cotton Mills Ltd. v. Commissioner of Income-tax, West Bengal (1954) 26 ITR 775; R.B. Jessaram Fatehchand v. Commissioner of Income-tax, Bombay City 11 (1974) 29 Tax 161; Commissioner of Income-tax (West Zone), Karachi v. Fateh Textile Mills Ltd. 1984 PTD 218; Messrs Karachi Textile Dyeing and Printing Works, Karachi v. The Commissioner of Income-tax, (Central), Karachi (1984) PTD 150; S. M. Yousuf & Brothers v. Commissioner of Income-tax 1974 PTD 45 and Pandit Brothers v. Commissioner of Income-tax, Delhi (1954).26 ITR 159 ref.

Ahmed Shujah Khan for Petitioner.

Muhammad Ilyas Khan for the Revenue.

2001 P T D 411

[Lahore High Court]

Before Muhammad Nawaz Abbasi, J

Messrs SHADMAN COTTON MILLS LIMITED

versus

FEDERATION OF PAKISTAN through Secretary Ministry of Finance, Federal Secretariat, Islamabad and another

Writ Petition No. 505 of 1997, decided on 31th July, 2000.

(a) Customs Act (IV of 1969)---

----S.18---Sales Tax Act (VII of 1990), S.13---Customs duty and sales tax--­Date for charging of such duties---Dates of chargeability of customs duty and sales tax are the date of filing of Bill of Entry and establishment of Letter of Credit respectively.

(b) Customs Act. (IV of 1969)---

----S.19---Service charges, imposition of---Scope---Imposition of such charges is illegal.

Collector of Customs and others v. Ravi Spinning Ltd. and others 1999 SCMR 412 rel.

(c) Customs Act (IV of 1969)---

----Ss.18 & 19---Sales Tax Act (VII of 1990), S.13---Notification No. S.R.O. 279(1)/94, dated 2-4-1994---Customs duty and sales tax, recovery of--­Benefit under Notification No. S.R.O. 279(1)/94, dated 2-4-1994---Execution of Power Purchase Agreement with WAPDA and KESC or Government--­Only condition to avail the benefit under the notification was that the machinery and equipment being imported would be used for power projects without any requirement of such agreement.

(d) Constitution of Pakistan (1973)---

----Art.25---Principle of equality---Exercise of discretion and reasonable classification---Essential conditions---All persons placed in similar circumstances must be treated alike and the reasonable classification must be based on reasonable grounds in a particular set of circumstances, but the same in any case must not offend the spirit of Art.25 of the Constitution--­Person equally placed must be treated alike in the matter of privileges and liabilities under the rule of equal protection of law.

Army Welfare Sugar Mills Ltd. and others v. Federation of Pakistan and others 1992 SCMR 1652 and Messrs Godoon Textile Mills and others v. WAPDA and others 1997 SCMR 641; Government of Balochistan through Additional Chief Secretary v. Aziz-ullah Memon and others PLD 1993 SC 341 ref.

(e) Customs Act (IV of 1969)---

----Ss.18 & 19---Sales Tax Act (VII of 1990), S.13---Notification No.S.R.O. 279(1)/94, dated 2-4-1994---Customs duty and sales tax, recovery of--­Benefit under Notification No.S.R.O. 279(1)/94, dated 2-4-1994--­Subsequent change in policy through legislative measures in the form of notifications---Effect---Rights already accrued under the original notification in favour of such importers would remain available to them till the date of withdrawal of the same.

Rafi-ud-Din and 6 others v. The Chief Settlement and Rehabilitation Commissioner and 2 others PLD 1971 SC 252 ref.

(f) Customs Act (IV of 1969)---

----Ss.18 & 19---Sales Tax Act (VII of 1990), S.13---Notification No. S.R.O. 279(1)/94, dated 2-4-1994---Customs duty and sales tax, recovery of--­Benefit under Notification No.S.R.O. 279(1)/94, dated 2-4-1994---Execution of Power Purchase Agreement with WAPDA and KESC or Government--­Operation of amending notification---Retrospective effect---Where the condition of execution of Power Purchase agreement by the importers of equipment and machinery for Power Generation Projects was not made part of Notification No.S.R.O. 279(1)/94, dated 2-4-1994, the exemption from payment of customs duty, sales tax, regulatory duty and Iqra surcharge subject to the fulfilment of the conditions contained in the notification would be available to all those importers of such machinery and equipment under the Power Policy of the Government, who had filed Bill of Entry or opened the Letter of Credit before 1-7-1995 on which date amendment in the notification was made without any discrimination as the amending notification would not be operative retrospectively---Exemptions allowed under Notification No.S.R.O. 279(1)/94, dated 2-4-1994, would be available to all such importers till 1-7-1995, without any discrimination--­Amended notification would take effect from the date of its amendment.

Messrs M.Y. Electronic Industries Ltd. through Manager and another v. Government of Pakistan through Secretary Finance and others 1998 SCMR 1404 ref.

(g) Customs Act (IV of 1969)---

----Ss.18(2) (3) (4) & 19---Regulatory duty, levy of---Jurisdiction of Government---Exemption from payment of regulatory duty---Provisions of S.18 of Customs Act, 1969, were valid and the regulatory duty would remain enforced from the date of publication of notification till the end of financial year during which the same was issued---.Regulatory duty being transitory in nature was always imposed subject to the limitations contained in S.18(2) (3) (4) of Customs Act, 1969, and also the existence of conditions essential for such levy---Government being entitled to exercise the discretion of levying such duty could continue the imposition of the duty through a fresh notification on the expiry of earlier notification if such conditions still existed---Exemption from the payment of custom duty would not by itself exempt from the payment of regulatory duty unless the same was specifically provided through a notification under S.19 of Customs Act, 1969, and such notification could not ipso facto be applied to the duty not already enforced---Where it was provided in the exemption notification, in addition to its application to the existing charge of customs duty, same could also cover future levy of such duty.

(h) Customs Act (IV of 1969)---

----Ss.18(2) & 19---Regulatory duty, exemption from---Non-mentioning of such duty in exemption notification under S.19 of Customs Act, 1969--­Effect---In absence of specific mention of regulatory duty in exemption notification, the customs duty would not include the regulatory duty leviable under S.18(2) of Customs Act, 1969---Exemption from regulatory duty could not be claimed in general under a notification giving such exemption beyond the financial year, during which the same was imposed.

(i) Customs Act (IV of 1969)---

----Ss-18 & 19---Sales Tax Act (VII of 1990), S.13---Notification NO.S.R.O.279(1)/94, dated 2-4-1994---Constitution of Pakistan (1973), Art.199---Constitutional petition---Customs duty, sales tax, regulatory duty and service charges, levy of---Benefit of Notification No.S.R.O. 279(1)/94, dated 2-4-1994, withdrawal of---Retrospective effect of the notification--­Petitioners imported power generating plants under the power policy framed by the Federal Government---Such duties were exempted by the Government vide Notification S.R.O. No.279(1)/94, dated 2-4-1994, and the exemptions were withdrawn through subsequent notifications issued by the Government---Petitioners claimed exemptions from the duties on the basis of the notification---Validity---Notification through which the exemption was granted remained operative so long the same existed and in case the exemption was withdrawn, the notification of withdrawal of exemption being prospective in its operation would not operate retrospectively and the exemption already made through earlier notification would remain available till the time the same was not taken away---Exemption in sales tax given through the Notification S.R.O. No.279(1)/94, dated 2-4-1994, would be given to the petitioners indiscriminately till the same was withdrawn through a subsequent notification---Such exemption on the import of machinery and equipment which were imported within the target date would be available under the notification and would continue till the issuance of notification of withdrawal---Where the notification through which the exemptions were allowed was neither issued for a specific time nor the power of the Government to withdraw the benefits given -under the notification were restricted by any condition, consignment relating to the contract already entered into for the import of machinery and equipment of power generation projects, in which the Letters of Credits were established before the target date would be unconditionally entitled to avail the exemption from the payment of sales tax under S.R.O. No.279(1)/94---Grants and withdrawal of exemptions were subject to certain conditions which must not be discriminatory and under the principle of prospective application of the notification the petitioners were entitled to get the benefit of the notification for the period during which the same held the field in its original form qua the imports made before the date of its amendment.

Collector of Customs and others v. Ravi. Spinning Ltd. and others 1999 SCMR 412; Messrs M.Y. Electronic Industries Ltd. through Manager and another v. Government of Pakistan through Secretary Finance and others 1998 SCMR 1404; Molasses Trading and Export (Pvt.) Limited v. Federation of Pakistan and others 1993 SCMR 1905; Army Welfare Sugar Mills Ltd. and others v. Federation of Pakistan and others 1992 SCMR 1652; Messrs Godoon Textile Mills and others v. WAPDA and others 1997 SCMR 641; Government of Balochistan through Additional Chief Secretary v. Aziz-ullah Memon and others PLD 1993 SC 341 and Rafi-ud-Din and 6 others v. The Chief Settlement and Rehabilitation Commissioner and 2 others PLD 1971 SC 252 rel.

(j) Customs Act (IV of 1969)---

----Ss.18 & 19---Sales Tax Act (VII of 1990), S.13---Customs duty and sales tax, exemption from---Power to withdraw such exemption---Scope--­Notification which purports to impair an existing right or imposes new liability or an obligation cannot operate retrospectively, whereas the notification which confers benefits can operate retrospectively but no one can claim exemption from payment of customs duty sales tax or any other tax as of right without legal sanction---Grant of exemption being discretionary, the Authority which enjoys the power to grant exemption is also empowered to withdraw such exemption subject to the condition that the exemption, if already allowed would not be withdrawn from the previous date---Where exemption was granted subject to the existence of certain conditions and withdrawal of the same was also made conditional, the Government while fulfilling such condition would be justified in withdrawing the exemption--­No estoppel can be pleaded against the law or the legislative power of the Government for the grant of exemption or withdrawal thereof.

Army Welfare Sugar Mills Ltd. And others v. Federation of Pakistan and others 1992 SCMR 1652 rel.

(k) Vires of legislation---

---- Judicial interference into the functions of legislation of representative body or Government---Scope---Legislature is presumed not to legislate a law manifestly causing injustice or abuses of the jurisdiction of legislation--­Where such abuses of jurisdiction is manifest the Courts have the exclusive powers to examine the validity of the same.

Raja Muhammad Akram and Salman Akram Raja for Petitioners.

Farhat Nawaz Lodhi and Raja Bashir Ahmad Kiani for Respondents.

Date of hearing: 19th May, 2000.

2001 P T D 443

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

Messrs NIDA-I-MILLAT (PVT.) LIMITED, LAHORE

versus

COMMISSIONER OF INCOME-TAX, ZONE I, LAHORE

C.T.R. No.24 of 1989, heard on 2nd October, 2000.

(a) Income-tax---

----Allowable expenses---Gratuities payable to employees---Admissibility as expense against income of relevant years---Such amount is a proper charge on the income of the assessee and as such is admissible as an expense.

Commissioner of Income-tax v. Oriental Dyes & Chemical Co. Ltd. 1992 SCMR 763 ref.

(b) Income-tax---

----Allowable expenses---Expense vouched by Director---Deletion of such expense in computing taxable income of assessee---Pre-conditions---Expenses whether vouched by a Director or otherwise must satisfy two statutory requirements, firstly that the same was actually incurred and secondly that the expense was incurred wholly and exclusively for the purpose of business of the assessee---Petty expenses having been certified by the Directors must be deemed to have been actually incurred for the business of the assessee--­Verification of a Director would not dispense with the statutory requirements for allowing of an expense ---Disallowances of small amounts were made by the Assessing Officer under the heads of general repairs, general charges, entertainment, medical expense, car expense and travelling etc. as the expenses were not fully vouched---Validity---Both the verifiability as well as the admissibility of an expense was to be seen in the light of relevant provisions of Income Tax Ordinance, 1979, irrespective of the amount of the expense claimed---Verification of Director per se could not be accepted as a proof of actual incurring of expense---Where the assessee failed to comply with the requirements of law, the expenses so incurred were liable to be deleted in computing the taxable income of the assessee in circumstances.

Sh. Maqbool Ahmed for Petitioner.

Muhammad Ilyas Khan for Respondent

Date of hearing: 2nd October, 2000.

2001 P T D 455

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

COMMISSIONER OF INCOME-TAX, LAHORE

versus

Messrs NAWA-E-WAQT PUBLICATIONS LTD., LAHORE

C. T. R. No. 14 of 1978, heard on 25th September, 2000

Income-tax Act (XI of 1922)---

----Ss.9, 10 & 66(1)---Income from property---Rejection of claim of assessee without cogent reasons--Assessing Officer treated the declared income from property under S.9 of Income-tax Act, 1922, and rejected the claim of the assessee---Income-tax Tribunal following its earlier decision, directed that income declared from business property let out should be assessed under S.10, Income-tax Act, 1922---Validity---Where the Assessing Officer was to proceed to reject a claim of the assessee contending that income disclosed by him fell under a particular head, the officer was required to support his findings by cogent reasons and by bringing on record sufficient material---Finding of the Tribunal amounted to holding as a fact that letting out property was part of business of the assessee--­Findings of the Assessing Officer .were not supported by cogent evidence the Tribunal was justified in following its earlier order in .circumstances.

Muhammad Ilyas Khan for Petitioners.

Nemo for Respondent.

Date of hearing: 25th September, 2000.

2001 P T D 476

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

Messrs KOHI NOOR INDUSTRIES, LAHORE

versus

COMMISSIONER OF SALES TAX, LAHORE

C.T.R. No. 26 of 1978, heard on 26th September, 2000.

Income-tax Act (II of 1922)---

----S.10(2)(iii), second proviso [as introduced by Finance Act (? of 1967)]--­Sales Tax Act (III of 1951), S.17(1)---Allowable expenses---Disallowing proportionate interest relating to borrowed capital---Introduction of second proviso to S.10(2)(iii) of Income-tax Act, 1922 --- Retrospectivity --- Assessing Officer made disallowance of interest claimed as expense under S.10 of Income-tax Act, 1922 which order was maintained by the Income-tax Appellate Tribunal---Validity---Mere fact that the borrowing in respect of which the interest was claimed as an expense was made before the introduction of the second proviso to S.10(2)(iii) of the Act did not make application of the proviso retrospective---Burden to prove that the borrowing was not made to replenish the shortfall in working capital was certainly on the assessee---Assessee having failed to bring on record any evidence in that regard on disallowance as provided for in the second proviso to S.10(2)(iii) of Income-tax Act, 1922, during the period under review, was rightly made by the Authorities.

Commissioner of Income-tax, Lahore v. Sheikh Muhammad Ismail & Co. Lyallpur 1986 SCMR 968 and Ever Shine v. Commissioner of Income-tax 1995 PTD 614 ref.

Imtiaz Javed Hashmi for Petitioner.

Muhammad Ilyas Khan for Respondent

Date of hearing: 26th September, 2000.

2001 P T D 668

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

COMMISSIONER OF INCOME TAX, ZONE-B, LAHORE

versus

MUHAMMAD SARWAR KHAN

C. T. R. No. 121 of 1991, heard on 18th October, 2000.

(a) Constitution of Pakistan (1973)---

-----Art.12---Retrospective punishment, protection against---Scope---Under the provision of Art. 12 of the Constitution, no law providing for a greater or different punishment which was available at the time of commission of the offence or default can be held to be a valid law muchless to interpret a law which on the face of it appears prospective.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss. 13 & 111---Unexplained investment---Concealment of income--­Penalty---Retrospective effect of S.111(2)(c) of Income Tax Ordinance, 1979---Income Tax Authorities imposed penalty on the assessee for having concealed the assets for assessment year 1977-78---Penalty was imposed under S.111(2)(c) of Income Tax Ordinance, 1979---Income Tax Appellate Tribunal set aside the order of the Income Tax Authorities on the ground that the provisions of S.111 were not retrospective in nature---Validity---Penalty imposed was not permissible as the act of alleged concealment and furnishing of inaccurate particulars in terms of various provisions of S.13(1) of Income Tax Ordinance, 1979, occurred many years before the introduction of the provisions---Where the penalty was not made with reference to any other provisions of the Ordinance, the view adopted by the Tribunal that the provisions of S.111(2)(c) of Income Tax Ordinance, 1979, were not retrospective in nature, was correct---Reference was answered in affirmative.

Commissioner of Income-tax v. Olympia 1987 PTD 739 and Messrs Rippon's case PLD 1973 Lah. 849 ref.

Shafqat Mehmood Chohan for Petitioner.

Nemo for Respondents.

Date of hearing: 18th October, 2000.

2001 P T D 678

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

COMMISSIONER OF INCOME-TAX

versus

Miss AASIA FILM ARTIST

C.T.R. No. 4 of 1974, heard on 25th October, 2000.

(a) Income-tax Act (XI of 1922)---

----S.46(1)---Imposition of penalty---Principle of natural justice--­Applicability---Show-cause notice, non-issuance of---Effect---Penalty was imposed on the assessee by the Income-tax Authorities under S.46(1) of Income-tax Act, 1922, without providing any opportunity of hearing to the assessee---Income-tax Appellate Tribunal set aside the penalty on the ground that show-cause notice was necessary before imposition of penalty under S.46(1) of Income-tax Act, 1922---Validity---Tribunal had rightly cancelled penalty orders on the ground of those having been made in violation of the principles of natural justice by not serving upon the assessee a show-cause notice prior to the passing of the order where imposition of penalty was discretionary the powers so vested might not be exercised unless the default was found contumacious---Order of the Tribunal was upheld by High Court.

Commissioner of Income Tax v Fazlur Rehman PLD 1964 SC 410; Chief Commissioner, Karachi v. Mrs. Dina Sohrab Katrak PLD 1959 SC (Pak.) 45; Province of East Pakistan and another v. Nur Ahmad and another PLD 1964 SC 451; Sh. Abdur Rehman, Advocate v. The Collector and Deputy Commissioner, Bahawalnagar and 13 others PLD 1964 SC 461; Jumma Khan v. Province of Sindh and others PLD 1981 Kar. 311; Tanweer Ahmed Khan v. District Magistrate, Sanghar arid another PLD 1979 Kar. 732; Asghar Ali and 10 others v. Rationing Controller, Hyderabad and another PLD 1979 Kar. 194 and Muhammad Jai-nil Khan v. Commissioner of Wealth Tax 1995 PTD 1239 ref.

(b) Income-tax---

----Penalty, imposition of---Penalties in fiscal matters should not be imposed only for the reason that the same legal to do so, particularly where the statute vested a discretion in the Tax Collector.

Additional Commissioner of Income-tax v. Narayandas Ramkishan 1994 PTD 199 ref.

Shafqat Mahmood Chouhan for Petitioner.

Nemo for Respondent.

Date of hearing: 25th October, 2000.

2001 P T D 772

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

Messrs NASEER MUGHIS LTD., LAHORE

versus

C.I.T., LAHORE ZONE, LAHORE

C.T.R. No. 31 of 1973, heard on 25th September; 2000.

Income-tax Act (XI of 1922)--

----S. 23A---Assessment---Undistributed dividend or bonus---Double taxation---Income-tax Authorities imposed tax on the assessee-company on the basis of undistributed profits, as income under the provisions of S.23A of Income-tax Act, 1922---Contention of the assessee was that the undistributed profits should have first been made part of the total income and then brought to tax---Validity---Provision of S.23D, Income-tax Act, 1922 did not create any fictional income inasmuch as S.23(1) had only defined the undistributed income for previous years while S.23(2) of Income-tax Act, 1922, proceeded to show as to how undistributed income was to be calculated--No dispute existed regarding computation made by the Assessing Officer---Income of the assessee accrued in the previous years and in the process of assessment of profits already earned were found liable to a higher rate by reference to expiry of certain period---Where no income tar receipt accruing to the assessee-company after the end of the previous year was even brought into the circle of total income or subjected to tax the same was against the rule of double taxation---High Court refused to interfere in the assessment and reference was answered accordingly.

Laxmipat Singhania v. Commissioner of Income-tax, U.P. (1969) 72 ITR 291; Ishwarlal Girdharilal Parekh v. State of Maharashtra and others (1968) 70 ITR 95; Commissioner of Income tax, Bombay City-I v. Khatau Makanji Spinning and Weaving Co. Ltd (1960) 40 ITR 189/194 and Pakistan Industrial Development Corporation v. Pakistan through the Secretary, Ministry of Finance 1992 PTD 576 distinguished.

Commissioner of Wealth Tax, Haryana H.P. and Delhi-III v. Gurdhari Lal (1975) 99 ITR 79 and Zeenat Textile Mills (E.PAL) Ltd. v. Commissioner of Income-tax, Dacca Zone and another 1969 PTD 405 ref.

Syed Ibrar Hussain Naqvi for Petitioner.

Muhammad Ilyas Khan for Respondent.

Date of hearing: 25th September, 2000.

2001 P T D 781

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

Messrs KHURRAM SAGHIR INDUSTRIES, LAHORE

versus

COMMISSIONER OF INCOME-TAX, ZONE-A, LAHORE

C.T.R. No. 107 of 1991, decided on 26th October, 2000.

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss.13(1)(2) & 136(1)---Re-assessment---Requirement of Object---Income-tax Authorities without prior separate approvals assessments under Ss. 13(1) & 13(2) of Income Tax Ordinance, Contention by the Authorities was that a subsequent consolidated was obtained---Validity---Requirement of prior approval was safeguard the interest of the assessee to avoid jurisdiction vested in Assessing serve the purpose as the same would be a fait accompli---Two approvals were required to be obtained and simultaneous grant of by the Authorities did not fulfil obtained under Ss. 13(1) & 13(2) of Income Tax Ordinance, 1979, against the law.

Commissioner of Income-tax v. Muhammad Kassim 2000 PTD 28l and Messrs V.N. Rakhani & Company v. m. v. Lakatoi Express and 2 other PLD 1994 SC 894 ref.

(b) Interpretation of Statutes-----

----Ambiguity in language of statute---Where there is ambiguity in the language of the statute the same has to be interpreted in favour of assessee or citizens.

Messrs B.P. Biscuit Factory Ltd. v. Wealth Tax Officer 1996 SCMR 1470 ref.

(c) Interpretation of statutes---

---- Powers of Court---Court is not supposed to add or substract any word so as to give the' statute meaning other than the one which obviously and plainly flows or can be inferred from it.

Asanyasi Rao and another v. Government of Andhra Pradesh (1989) 178 ITR 31 and Sri Venkateswara Timber Depot v. Union of India and others (1991) 189 ITR 741 ref.

(d) Interpretation of statutes---

---- No provision of enactment is to be treated as redundant or surplus.

(e) Administration of justice---

--When law requires something to be done in a particular manner then the same must be done in that manner or may not be done at all.

Shahbaz Butt for Petitioner.

Shafqat Mehmood Chohan for Respondent.

2001 P T D 789

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

COMMISSIONER OF INCOME-TAX, COMPANIES, LAHORE

versus

Messrs AL-GHAZI TRACTOR LIMITED, LAHORE

P. T. R. No. 54 of 1990; heard on 4th October, 2000.

Income-tax---

----Warranty Commission ---Un-expired warranty commission---Not a revenue receipt---Principles.

The assessee-respondent was a public limited company and was engaged in the assembly and sale of the tractors. For the assessment year, 1984-85 they offered for taxation a sum of Rs.15,00,000 out of total receipts of Rs.46,61,033 received as warranty commission from Italian Suppliers at a rate of 0.5% of the value of OKD imports for carrying out servicing,, repairs and replacement. It was explained in terms of the industrial collaboration agreement with Italian Suppliers, that the aforesaid receipt was meant for providing after sales facilities during the warranty period. Further that as accounts of the company were maintained on mercantile system, as long as the goods were held in stock and the period of warranty had not expired the advance so received did not become the income of the company and remained an advance. The Assessing Officer, however, disagreed. He was of the view that since the suppliers had permanently parted with that amount and since the nature of the expense was only stipulated and it was not actually incurred, the remaining amount of warranty commission needed to be treated as a revenue receipt.

Period of warranty could not be said to have been a direct nexus with the warranty commission received by the company. The fact that the company itself offered for taxation a sum of Rs.15,00,000 on expiry of one year warranty period at least showed that the total amount received under this head was income of the assessee-company. The claim that only the expired portion of the warranty commission matured into income was, however, not acceptable. After receiving commission, the company itself appeared to have evolved a formula to apportion it with the total period of warranty. Evidently, no direct expense in discharge of warranty obligation was made during the period. Also the amount offered for taxation and the balance indicated that neither an expense was incurred out of the advance nor any separate account for the purpose was maintained. It could not, therefore, be the case of the assessee that part of the total receipt had to be spread over a period of three years to keep a separate account of the claim made in that regard. A period of warranty could not otherwise be relevant as far as taxability of warranty commission was concerned. A period of warranty of one year in respect of every CKD Engine imported during a particular year could not be tied with a time limit as the period of warranty would start from the time of sale of the Engine and will remain effective till one year thereafter. Since, the time of sale or the starting point could not be the same in respect of every CKD Engine imported during a year, it would not be correct to say that period of one year warranty expired exactly after one year from the date of import of one consignment. An indefinite period of warranty or spread over a number of years will not bind the revenue to postpone levy for that period. Particularly, when the assessee failed to prove as a fact that he had actually performed any act to discharge the liability against the alleged advance. That balance amount in the warranty commission could be seats as a provision for future expense regarding or replacement was claimed under this head during the whole meant that all such expense was incurred and treated. The nature of receipt when seen from clearly indicated that the treatment, given by the Assessing officer was correct. The expiry of warranty period of one year in respect of every engine sold during the accounting period obviously over-lapped and, therefore, the formula evolved by the assessee to offer part of the receipt as revenue receipt in the year under review was not factually correct.

Muhammad Ilyas Khan for Petitioner.

Dr. Ilyas Zafar for Respondent.

Date of hearing: 4th October, 2000.

2001 P T D 798

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

Messrs SUI NORTHERN GAS PIPELINES LIMITED, AVARI PLAZA, HILTON

HOTEL, SHAHRAH-E-QUAID-E-AZAM, LAHORE

versus

COMMISSIONER OF INCOME-TAX, CENTRAL ZONE, LAHORE

P.T.R. No.38 of 1988 (T.R.29 of 1988), heard on 28th September, 2000.

Income-tax----

----Capital expenditure---Determination---Requirements---Assessee engaged in the business of transmission and distribution of gas had paid certain amount to the Provincial Irrigation Department for additional protective work built on marginal bund and claimed that transmission pipelines of the assessee laid in immediate vicinity of the barrage were threatened by flood water, therefore, the amount was spent to provide additional protection to .the transmission pipelines---Nature of expenditure---Burden to prove--­Mere desire of the, assessee to ward off a worry of possible damage due to future flood could not fulfil the requirements of law to claim the expense as revenue expense---Principles.

Assessee who was engaged in the business of transmission and distribution of gas had paid to the Sindh Irrigation Department for additional protective works built on Guddu Marginal Bund. It was claimed that transmission pipelines of the assessee laid in immediate vicinity of that barrage and were threatened by flood water. Therefore, that amount was spent to provide additional protection to the transmission pipelines.

The Assessing Officer found the claim to be untenable. In his view the expenditure had secured and prolonged the life of Company's transmission lines and; therefore, the benefit accruing to it from this protective work was available over a number of years. It was noted that admittedly the payment was made "towards the cost of additional safety works required for the protection of Sui gas pipelines at Guddu Barrage left marginal bond". Observing that the expenditure was not directly related to the business of the assessee nor it had either enhanced its earning capacity or as otherwise related to the production process, the claim that the expense was entirely of revenue nature was rejected and in the final analysis it was found that it did not come under the head "normal wear and tear" either.

The nature of expense being a mixed question of law and fact, the evidence produced or the finding of fact recorded -in that regard were of immense importance. In .the present case, like all others of similar nature, it was the evidence produced or relied upon which could sail the point through that the expense was revenue in nature and if not incurred, there was all likelihood that the assessee could not have continued its business. It was the reasonable apprehension of closure, destruction disturbance or immediate discontinuation of business that could validly change the class of expenditure from capital to revenue. Without such evidence and a finding to that effect no case could possibly be made out that an expense which was otherwise capital in nature should be taken to the revenue side. No evidence worth the same was produced in the present case .to support the proposition. In fact no claim was made that incurring of the expense saved the assessee-company from immediate discontinuation of business etc. Mere desire to ward off a worry of possible damage due to future floods could not fulfil the requirements of law to claim the expense as revenue expense.

Before the Assessing Officer it was never established as a fact that there was an immediate threat to the pipelines installation of the assessee­ company and that it could not carry on business" "in that year" if the expenditure in question had not been undertaken. There was obviously no compulsion from the Government nor the payment was made under any statutory obligation. According to the Assessing Officer the assessee­ company had "decided" to share the expenditure on the construction of the aforesaid bund with the Provincial Irrigation Department of the Province of Sindh. At no time the assessee-company claimed that there was an imminent threat to their installations which if not addressed swiftly could have thrown the assessee out of business. The costs of additional safety works as incurred by the assessee even did not satisfy the broad principles.

It had also not been the case of the assessee that construction of the marginal bund exclusively benefited the company and that the share made by it could be distinguished from the rest expended and, created by the Provincial Government.

Mere fact that capital assets brought into being did not belong to the assessee or apparently belonged to another person would not by itself derogate from the fact that the assessee made an expense only by way of pre­caution and to be on the safer side that in case of floods its installation will be saved from damage or destruction. Expense in question neither resulted into an increase in, production, profit or otherwise made the production of assessee more attractive to the consumer. By making the expense at best the assessee purchased peace of mind that flow of flood or other erosion created by water will not interrupt its supply of gas to the consumers. The situation obviously would have been different if there was direct and imminent threat to the pipelines or if the same had actually been damaged to render the supply to the consumer difficult or impossible. Factually no effect whatsoever was made on the part of the assessee to make its case to support the claim of diverting expense to revenue account.

The issue necessarily being a mixed question of law and fact a heavy burden lay upon the petitioner to establish or to fulfil the aforesaid necessary ingredients subject to which an expense could be taken as a revenue expense. On facts no case was attempted to be made out in this regard as the assessee contented itself with mere filing of the claim. To claim an expense under a particular head and to prove that claim are certainly two different things.

Re: Benarsidas Jagannath (1947) 15 ITR 185; C.I.T. v. Messrs Madras Auto Service (Pvt.) Ltd. 1986 PTD 718; (1932) 16 Tax 253; Travancore Titanium Product Ltd. v. Commissioner of Income-tax, Kerala (1966) 60 ITR 277; Southern (H.M. Inspector of Taxes) v. Borax Consolidated Ltd. (1942) 10 ITR (Supplement) 11; Commissioner of Income-tax, Bihar v. Tara Prasad Lodha and others (1975) 99 ITR 173 and Lakshmiji Sugar Mills Co. Ltd. v. C.I.T., New Delhi (1971) 82 ITR 376 distinguished.

Aftab Ahmad Khan and Azhar Maqbool Shah for Petitioner.

Muhammad Ilyas Khan for Respondent.

Date of hearing: 28th September, 2000.

2001 P T D 807

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

Mrs. ISMAT KAMAL

versus

ASSISTANT COMMISSIONER OF INCOME-TAX/WEALTH TAX CIRCLE-II, ZONE-C, LAHORE and 2 others

I.T.A. No.362 of 1999, decided on 12th December, 2000.

Wealth Tax Act (XV of 1963)---

----S. 31-B---C.B.R. Circular No. 5 of 1994, dated 19-9-1994 --- Additional wealth -tax---Levy of additional wealth tax was not mandatory---Value of rented out house was declared by the assessee on the basis of Annual Rental Value after deduction of allowances for fittings and fixtures, and 25% deduction in gross annual rent---Department pointed out that rebate on account of Annual Letting Value pertaining to rentals of furniture, fittings and fixture was not available after the year 1994---Assessee readily admitted the same and house was assessed on the higher value against originally assessed---Additional tax was charged which was upheld by the Appellate Tribunal while interpreting the word "shall" used in S.31-B of the Wealth Tax Act, 1963 on the ground that its levy was mandatory ---Validity--­Assessee had never been contumacious nor had been guilty of actively concealing any fact from the Revenue ---Assessee, after having been confronted, immediately agreed and offered to pay tax at the valuation--­Additional tax or penalty thus should not have been imposed only for the reason that it was legally permissible to do so---Levy of additional tax in a mechanical manner being not justified in the facts of the case levy was cancelled by the High Court in circumstances.

Manufacturers v. Collector 1995 PTD 345 and Shamroz Khan and another v. Muhammad Amin and others PLD 1978 SC 89 rel.

Ch. Amin laved and Ch. Ishtiaq Ahmad for Appellant.

Shafqat Mehmood Chohan for Respondents.

Date of hearing: 22nd November, 2000.

2001 P T D 812

[Lahore High Court]

Before Ch. Ijaz Ahmad, J

F.M.C. UNITED (PVT.) LIMITED, LAHORE

versus

THE FEDERATION OF PAKISTAN through Secretary, Ministry of Finance, Islamabad and 2 others

Writ Petition No.2476 of 2000, decided on 3rd March, 2000.

Income Tax Ordinance (XXXI of 1979)---

----S.53(1)(b)---Constitution of Pakistan (1973), Art. 199---Constitutional petition---Advance payment of tax---Assessment was set aside in first appeal---Notices for recovery of advance tax were issued on the basis of said assessment---Validity---Recovery notices having been issued on the basis of assessment which was set aside and thus was not in the field, was not sustainable in the eye of law---Notices issued were set aside by the High Court.

Sardar Ahmed Jamal Sukhera for Petitioner.

Shafqat Mehmood Chohan, Legal Advisor for Respondents.

2001 P T D 814

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

C.I.T., CENTRAL ZONE, LAHORE

versus

NATIONAL SECURITY INSURANCE CO. LTD., LAHORE

C. T. R. No .360 of 1991, decided on 11th December, 2000.

(a) Income-tax Act (XI of 1922)---

----Ss.2(7), 10(2), (7) & First Sched., R.6---Income Tax Ordinance (XXXI of 1979), Fourth Sched., R.5(a) [as amended by Finance Ordinance (XXV of 1980)]---Deduction---Insurance business--- "Provision or a reserve" as disclosed by the assessee---Admissibility---Held, till the introduction and enforcement of amendment by virtue of Finance Ordinance, 1980 to the Income Tax Ordinance, 1979 in Fourth Sched., R.5(a), the Assessing Officer was not competent to interfere with a "provision or a reserve" as disclosed by an assessee carrying on the business of Insurance---Principles.

In terms of the provisions of section 10 read with the First Schedule of the Income-tax Act, 1922 an Assessing Officer could disallow only that expenditure which was not admissible under subsection (2) of section 10 of' the said Act but he could not interfere with the other claims like 'provision' or 'reserves'. It is also an admitted position in the comparable provisions of the Fourth Schedule the situation did not change till the year 1980. In that year by way of section 2 of the Finance Ordinance, 1980 sub-clause (a) of rule 5 of the Fourth Schedule to the Ordinance was amended to include the words and phrases "or any reserve or provision for any expenditure or the amount of- any tax deducted at source from any dividend or interest receipt.

Rule 5 of the Fourth Schedule of the Income Tax Ordinance, 1979 is identical to rule 6 of the First Schedule of the late Act, 1922.

Amendment brought about by Finance Act, 1980 was only prospective and that in case of pending assessments at the relevant time the Assessing Officer could not go beyond the provisions of rule 5 of the Fourth Schedule as originally made. In these years in cases covered by Fourth Schedule only adjustments of certain expenditures or allowances could be made or the Assessing Officer could interfere with the amounts claimed, written off or taken to reserve to meet depreciation or loss on realization of investment.

In absence of a clear provision making the aforesaid amendment to be retrospective, the Assessing Officer could not be held to have a power earlier to the date of amendment to examine, "reserves" or "provisions" for any expenditure etc.

In case of taxing statutes an assumption of retrospectivity is all the more forbidden. Though the power of Legislature in that regard is never questioned, yet in absence of an express provision to that effect in taxing statutes, retrospectivity of application cannot be accepted except in cases of remedial legislation or beneficial notifications.

The amendment by Finance Ordinance, 1980 certainly clothed the Assessing Officer with a fresh power to examine certain kinds of reserves and provisions which he was not earlier empowered to do. The enhancement of scope of his interference with regard to reserves and Provisions in process of an assessment for levy of tax could not be taken as procedural in nature. The amendment represented vesting of a view jurisdiction in the Revenue Collector which could not travel back to earlier assessment years merely for the reason that some of the assessments in these years were still pending till the introduction and enforcement of the amendment in sub-clause (a) of rule 5 of the Fourth Schedule to the Income Tax Ordinance, 1979. The Assessing Officer was not competent to interfere with a provision or a reserve as disclosed by an assessee carrying on the business of Insurance.

Adrian Afzal v. Sher Afzal PLD 1969 SC 187; CIT v. Messrs Shah Nawaz Ltd. 1993 SCMR 73 and Sardar Ali v. Muhammad Ali PLD 1988 SC 287 ref.

(b) Interpretation of statutes--­

-----Fixing statute---Retrospectivity---In absence of an express provision to that effect in taxing statute, retrospectivity of application cannot be accepted except in cases of remedial legislation or beneficial notifications.

Messrs Army Welfare Sugar Mills Ltd. v. Federation of Pakistan 1992 SCMR 1652 ref.

Muhammad Ilyas Khan for Petitioner.

Latif Ahmed Qureshi for Respondent.

2001 P T D 860

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

THE COMMISSIONER OF INCOME-TAX, RAWALPINDI

versus

Messrs AMANAT ALI

C.T.R. No.296 of 1991, decided on 6th November, 2000.

Income Tax Ordinance (XXXI of 1979)---

----Ss.65, 59(1) & 13(1)(b)---Reopening of assessment---Scope and extent--­Self-Assessment Scheme---Unexplained investment---Once the assessment was re-opened under S.65, Income Tax Ordinance, 1979 on one specific issue, the Income-tax Officer could reassess income from other sources for the same year even when income from other sources was previously accepted under Self-Assessment Scheme---Principles---Proceedings initiated under S.65 of the Ordinance were not restricted only to the grounds and the reasons or the material on the basis of which a notice for reopening was issued ­Such proceedings were not to remain within the four corners of the reasons given in the show-cause notice---Once the assessment had been reopened same would not be restricted to a specific head of income or a sub-head of the main head---Additional assessment could be made not only with respect to total income of the assessee but also the tax payable by him if the requirements of S.65(1)(b) of the Ordinance were answered--Additional assessment could be made and proceedings for reopening of assessment could also be initiated when either a lower rate of tax had been applied in respect of a particular head of income or excessive relief had been allowed to an assessee in relation to any claim to which he was not entitled as also for the reason that the amount of refund made was more than what was due to him--­Findings of fact that enough material was not available on record to enhance the business income, would not in any manner change the nature of the case, if the Income-tax Officer could assess income from other source in the same year when income had previously been accepted under Self-Assessment Scheme.

The original assessment in the case of the assessee, an individual, was framed at total income of Rs.18,200 under section 59(1) of the Ordinance. Subsequently on the basis of a 'complaint he was served with a notice under section 65 of the Ordinance and in the proceedings that followed net income for the year was determined at Rs.38,650. In the process besides making an addition of Rs.1,00,000 under section 13(1)(b) of the Ordinance a sum of Rs.38,650 was determined as income from business. Appellate Tribunal directed that business income as earlier accepted at Rs.18,200 under section 59(1) of the Ordinance should be accepted. According to the Tribunal the case of the assessee was not re-opened on the question of any suppression relating to business income and therefore, income from that source could not again be determined.

Section 65 of the Income Tax Ordinance, 1979 is titled as "Additional assessment". After contemplating various situations, in which re­assessment proceedings are to be initiated, it is laid down that an Assessing Officer "may proceed to assess or determine by an order in -writing; the total income of the assessee or the tax payable by him, as the same may be, and all the provisions of this Ordinance shall, so far as may be, apply accordingly". These provisions do not in any manner go to point out that the proceedings initiated under section 65 are to be restricted only to the grounds and the reasons or the material on the basis of which a notice for re-opening was issued. It is also not discernible from the provisions that the proceedings initiated thereunder are to remain within the four corners of the reasons given in the show-cause notice or the material pointed out therein. The use of the word "total income" is also indicative of the fact that once the proceedings have been re-opened, these will not be restricted to a specific head of income or a specific sub-head of the main head. Also, the succeeding words "or the tax payable by him" further go to point out that an additional assessment can be made not only with respect to total income of the assessee but also the tax payable by him if the requirements of sub-clause (b) of subsection (1) of section 65 are answered. That clause requires of an Assessing Officer to go for additional assessment if the total income of an assessee had been under­ assessed, or assessed at too low rates or had been the subject of excessive relief or refund under the Ordinance. All the three elements pointed out in sub-clause clearly show that additional assessment can be made and proceedings for re-opening of assessment can also be made when either a lower rate of tax had been applied in respect of a particular head of income or excessive relief had been allowed to an assessee in relation to any claim to which he was not entitled as also for the reason that the amount of refund made was more than what was due to him.

A finding of fact that enough material was not available on record to enhance the business income does not in any manner change the nature of the aforesaid question if an Income-tax Officer could assess income from other sources in the same year when income had previously been accepted under Self-Assessment Scheme.

Messrs Sutlej Cottog Mills Ltd. Okara v. C.I.T., North Zone (West Pakistan), Lahore PLD 1965 SC 443; Hind Wire Industries Ltd. v. C.I.T. 1996 PTD 562; V. Jagmahan Rai v. C.I.T. (1970) 75 ITR 373 and C.S.T. v. H.M. Esufali H.M. Abdulali (1973) 32 STC 77 (SC) = (1973) 90 ITR 271 (SC) ref.

Malik Muhammad Nawaz for Petitioner.

Nemo for Respondent.

2001 P T D 874

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

THE COMMISSIONER OF INCOME-TAX, CENTRAL ZONE, LAHORE

versus

Messrs CRESCENT TEXTILE MILLS LTD., LAHORE

C.T.R. No.78 of 1991, heard on 18th December, 2000.

Income Tax Ordinance (XXXI of 1979)---

----S.65---Income-tax Act (XI of 1922), S.34---Re-opening of assessment under S.65, Income Tax Ordinance, 1979---Limitation---Extended time of limitation after enforcement of the Income Tax Ordinance, 1979 under S.65 could not be made applicable to assessments in respect whereof the proceedings under S.34, Income-tax Act, 1922 had already become barred by limitation---Principles.

After statutory period of two years from the end of the relevant assessment year as provided for under section 34 of the late Act, 1922 had expired, vested rights had been created in the assessees. Therefore, the time limitation of 10 years as envisaged under the corresponding provision of section 65 of the Income Tax Ordinance, 1979 had no application.

On the date of enforcement of the Income Tax Ordinance, 1979 on 1-7-1979 the right to re-open even the latest assessment framed for the year 1976-77 had become barred by limitation. Therefore, it was a past and closed transaction and the comparable provisions of section 65 of the Ordinance could not have been resorted to as the asses see had by that time acquired a vested right. All the moreso when there was no provision in the Income Tax Ordinance, 1979 which could directly or by necessary implication indicate application of the provisions of section 65 of the Ordinance to the time-barred cases under section 34 of the late Act of 1922.

Re-assessments for the aforesaid assessment years when those had already become barred by time for the purpose of re-opening as contemplated under section 34 of the late Act, 1922, were rightly cancelled by the Tribunal.

New Jubilee Insurance-Co. Ltd. v. Special Officer, Central Zone-A, Karachi and another 1990 PTD 1 and J.P. Jani, I.T.O. v. Induprasad Devshanker Bhatt (1969) 72 ITR 595 fol.

Shafqat Mehmood Chauhan for Appellant.

Muhammad Iqbal Khawaja for Respondent

Date of hearing: 18th December, 2000.

2001 P T D 900

[Lahore High Court]

Before Nasim Sikandar and Jawad S. Khawaja, JJ

THE COMMISSIONER OF-INCOME-TAX, LAHORE

Versus

MESSRS IMMION INTERNATIONAL, LAHORE

C.T.R. No. of 1991, decided on 14th November, 2000.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.136---Reference to High Court---Purpose and scope---Where the answer to a question is applicable to a certain assessee only in a particular year and is not of general application, a reference to the High Court need not be made---Principles---Answer/opinion expressed by High Court on the reference scope.

In the case of an individual-taxpayer when the question framed remains absolutely personal to and revolves only around the facts of that case in that very assessment year, no substantial question of law can be said to have arisen. In other words where the answer to a question is applicable to a certain assessee only in a particular year and is not of general application, a reference to High Court need not be made.

The scheme of the Income Tax Ordinance, 1979 (and the late Income-tax Act, 1922) contemplates a reference on a question which is of general interest and importance. An isolated issue which is neither of general recurrence nor its determination would be applicable to other assessees, cannot be said to be a substantial question of law. The purpose of reference under the aforesaid provisions, it will be seen, is not merely the resolution of a legal controversy- between the revenue and an assessee, it is also for the future guidance of the revenue to deal with the matter in a particular manner. An assessee will also be guided for its future assessments if a particular issue is decided for or against him to determine if it is to make a particular claim in a particular set of facts or is to refrain from making a particular expense in a particular manner. For the assessee also the purpose of reference is not only the resolution of an existing controversy but also its future guidance. Where, however, none of these purposes is to be served, a reference to High Court need not be made and the matter should conclude with the decision of the Tribunal. An answer by High Court or the opinion expressed should not merely add some more, pages to the file of an assessee. Such opinion, generally speaking, must be to the interest of all those involved in the assessment process, the Assessing Officer, the First Appellate Court and the Tribunal as an extra-departmental or the judicial forum. The opinion so expressed should normally enable all of them to avoid unnecessary pleas in future and to restrict litigation.

The Lungla (Sylhet) Tea Co. Ltd. v. Commissioner of Income-tax, Dacca Circle, Dacca 1970 SCMR 872 and C.I.T. v. Basanta Kumar Agarwalla (1983) 140 ITR 418 ref.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.136---Reference to High Court---Jurisdiction of High Court---Nature' and purpose of conferment of such jurisdiction---Guiding principles for Tribunal, department and assessees laid down.

The Revenue, the assessees as well as the Tribunal need to understand the precise nature of the jurisdiction of High Court as also the purpose for which it has been conferred. Without an iota of doubt this jurisdiction is advisory in nature and is required to be invoked only when the issues raised before and decided by the Tribunal were of substantial nature and of general application to a sizeable class of assessees. The nature of jurisdiction of High Court is clearly distinguishable from its appellate or the revisional jurisdiction. The most important difference which needs, to be noted is that during the pendency of a reference the appeal before the Tribunal is deemed pending and in case the view adopted by the Tribunal is varied it is again listed before them and then decided in the light of the opinion expressed by High Court. The purpose of reference is not to get a decision for or against a party before the Tribunal. It is only the resolution of a problematic or debatable legal question.

"A point of law" could not be equated with the expression "question of law" and that the question referred must be a, disputed or disputable question of law. Further that the object of a reference was to get a decision from the High Court on a problematic or debatable question and not an obvious or simple point of law. Accordingly, the reply to a question referred to High Court, affirmative or negative, should, normally settle a pattern of guidance both for the-Revenue as well as the assessee besides the Tribunal who had sought the advice in the first instance. Therefore, the practice on the part of the Revenue or the assessees which, at times, is aided by the Tribunal to treat High Court as a Court of appeal needs to be disapproved. Factual controversies should not be allowed to be converted into legal issues only by dint of draftsmanship or employment of legal language in a style which is usual to the framing of such questions. In case the Tribunal is not certain if the question framed raises a substantial legal issue, it must refuse to make a reference as in that case the assessee or the Revenue will have to approach the High Court under subsection (2) of section 136 and satisfy, before admission, that the question raised/framed is of substance. Therefore, unless a question framed by the Tribunal at the instance of an assessee or the Revenue under section 136(1) or brought directly before High Court under section 136(2) of the Income Tax Ordinance, 1979 fulfils the aforesaid standard of general interest, application and relevancy to the overall assessment proceedings, it shall be deemed to be a question of fact, The principle that an advice should never be given unless asked for also has another angle. A reference as a matter of course to the High Court has never been the intention of law either under the late Act, 1922 or section 136 of the Ordinance. With regard to reference proceedings under the Ordinance it means that an advice should not be sought unless it is absolutely necessary for the guidance of the parties and for smooth and effective flowing of the assessment stream.

The Lungla (Sylhet) Tea Co. Ltd. v. Commissioner of Income-tax, Dacca Circle, Dacca 1970 SCMR 872 and C.I.T. v. Basanta Kumar Agarwalla (1983) M 140 ITR418 ref.

?

(c) Income Tax Ordinance (XXXI of 1979)--?

----S.136---Self Assessment Scheme---Reference to High Court---Eligibility of an individual in a particular year to avail immunity from detailed scrutiny could not be said to be a question having substance---Principles.

The eligibility of an individual assessee in a particular year to avail immunity from detailed scrutiny can hardly be said to be a question having substance. The reply to the said questions will not even be available to the assessee for his future assessments. Having a peculiar background of facts it will not be of any importance for the Revenue or other assessees either. The principle settled in replying the questions will not be of general application even to answer the parameters o the self-assessment scheme for the year.

Muhammad Ilyas Khan for Petitioner.

Ahmed Shuja Khan for Respondent.

2001 P T D 1032

[Lahore High Court]

Before Nasim Sikandar, J

TANVIR ELAHI, DIRECTOR, ELAHI ENTERPRISES (PVT.) LIMITED, LAHORE

Versus

ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-13, COMPANIES ZONE-II LAHORE and 2 others

Writ Petition No. 12514 of 1997, decided on 18th December. 2000:

Income Tax Ordinance (XXXI of 1979)---

----Ss. 80-B read with At Sched., Part 1, 50(2-A) & 30---Income from dividends and Bank deposits---Interpretation and scope of S.80-B of the Income Tax Ordinance, 1979---Assessments---Assessee, an individual derived income from salary and dividend and besides income from salary he declared receipt of interest which was not offered for taxation on the ground that his interest expense was more than his receipt on that account--­Contention of the assessee was that to carp the income of interest he had paid interest to the Banks from which the assets were earlier borrowed for the purpose of advancing them to the company of which he was Director--­Assessing Officer, however, refused to consider the contention and found that sums being interest income were chargeable to tax as a separate block of income at the flat rate of 10% as provided in S.80-B of the Income Tax Ordinance, 1979 read with Part 1 of he First Sched. thereof ---Validity--­Charge contemplated in S.80-B, Income Tax Ordinance, 1979 was not an interest income but only an interest income which was received from a Banking company or a financial institution and was, therefore, liable to deduction as contemplated in S.50(2-A), Income Tax Ordinance, 1979 and reference to those provisions in S. 80B(2)(b) had the effect of making them a part of the provision and to be read accordingly---Amount received try the assessee was on account of its having made in advance to the company of which he was a Director---Non obstante clause and the provisions of S.80-B, Income Tax Ordinance, 1979 were not attracted to the kind of sums received by him nor disentitled him for assessment as a normal assessee under S.30, income Tax Ordinance, 1979.

The assessee an individual, at the relevant time, derived income from salary and dividend. For the assessment years 1993-94 and 1994-95 besides income from salary he declared receipts of interest at Rs. 25,51,994 and Rs. 41,40,593 respectively. However, both sums were not offered for taxation on the ground that his interest expense was more than his receipt on that account. It was claimed that to earn that income the assessee had paid interest amounting to Rs. 32,11,178 and Rs. 40,84,329 to the banks from which the amounts were earlier borrowed for the purpose of advancing them to the company of which he was a director. The Assessing Officer, however, refused to consider the contention. In his view the aforesaid sums being interest income were chargeable to tax. as a separate block of income at the flat rate of 10% as provided for in section 80-B of the Income Tax Ordinance, 1979 read with Part I of the First Schedule thereof.

Section 80-B of the Income Tax Ordinance, 1979 provides for tax on income of certain persons from dividends and bank profit etc. It certainly contains a non obstante clause. Subsection (1) of section 80-B provides that where any amount referred to in subsection (2) is received by or accrues or arises or is deemed to accrue or arise to an individual and certain other categories of persons or assessees, the whole of such amount shall be deemed to be income of such person and tax thereon shall be charged at the rate specified in the First Schedule. Subsection (2)(b) of section 80-B provides that the amount referred to in subsection (1) shall be the interest or profit on which tax is deductible under subsection (2-A) of section 50. The two situations contemplated by subsection (1) and then subsection (2) of section 80-B are, therefore, clear. Firstly that an amount (income) referred to in subsection (2) shall be charged to tax at a flat rate. Secondly, "The amount referred to in subsection (1) shall be the following namely:---

(a) dividend on which tax is deductible under subsection (6-A) of section 50;

(b) interest or profit on which tax is deductible under subsection (2-A) of section 50;

(bb) the amount received on encashment of bearer certificates on which tax is deductible under subsection (5B) of section 50;

(c) interest or profit on which tax is deductible under subsection (7-D) of section 50; and

(d) prizes and winnings on which tax is deductible or collectible under subsection (7-C) of section 50.

In other words the nature of the amount contemplated in sub­section (1) is restricted to the categories which are referred to in sub­-clauses (a) to (d). It is so because of the use of words "shall be" and "namely" in the opening part of subsection (2): After stating of the first two, one has to refer to the provisions of section 50(2-A) to know the third and the last situation which shapes the intention of the Legislature and crystallizes the levy.

The accumulative effect of subsections (1) and (2) of section 80-B; is that certain kind of income accruing to certain kind of persons shall be taxed at a flat rate. Subsection (2) identifies various categories of receipts, all with reference to various subsections of section 50 to identify the nature of receipt or the amount visualized in subsection (1) of section 89-B. It says that the sum covered by the clause would be one which is, (i) paid by way of interest, (ii) on an account or deposit and (iii) by any banking company (and since 1995 a financial institution as well). The time of accrual of the amount though not specified, it is nevertheless connected with the deduction at source of the fixed tax of specified rates, "at the time of credit of such interest or profit, to the account of recipient, or at the time of payment thereof, whichever is earlier..."

In the case of the assessee, it is only the receipt of interest which is answered out of the above three conditions. The amount was admittedly received as interest but it was neither on an account nor deposit nor it was received from a banking company. Even if the loan advanced by the assessee is taken to be -an "account" or "deposit" with the borrower company, still the last condition of the accrual from a banking company or a financial institution is completely absent. The revenue including the C.B.R. obviously magnified the awe of non obstante clause to hold that the assessee was not entitled to be assessed under the normal scheme of the Ordinance.

The word "notwithstanding" is equivalent of "non obstante" which denoted the words used in old legal instruments intending to preclude, in advance, any interpretation contrary to certain declared objects or purposes. In common law system it also referred to the power of the Crown to dispense with the laws in any particular case. These clauses were also used in old English Statutes and letters patent which contained authorization from the Crown to a person to do a thing which he was otherwise restrained from doing by an Act of the Parliament. A non obstante clause, as necessarily section 80-B is, certainly excludes the other provisions of statute. However, its purport and scope can be ascertained only by reading it in the context and consistent with the scheme of the statute that context and consistency in the case of the provision under discussion means a very strict and restricted reading. The clam; being an exception to the general rules of framing of an assessment as contained in the Ordinance needed to be strictly construed. When the provisions of section 80-B are read with subsection (2-A) of section 50 it clearly comes out that only an amount fulfilling the aforesaid three requirements can possibly be treated at a fixed rate. If any one or more of the requirements are lacking then the sum or the amount accrued even on account of interest must be treated in accordance with the general provisions of the Ordinance which allowed the assessee to claim it as income from other sources assessable under section 30, and. therefore, subject to the deductions given in the following section 31 of the Ordinance. .

The provisions of section 80-B, it will further be seen, are charging provisions as well. Like all such provisions, the charge made has to be in clear and unambiguous words. There is no room from any intendment nor according to the established principle of interpretation of taxing statute, there is any equity or presumption as to a tax. The charge contemplated in section 80-B is not on interest income but only on interest income which is received from a banking company or a Financial Institution and is therefore liable to deduction as contemplated in subsection (2-A) of section 50. The reference to these provisions in clause (b) of subsection (2) of section 80-B has the effect of making them a part of the provision and to be read accordingly.

In the case of the assessee, in the first instance, there is no ambiguity as to the application of the provisions in the perspective of the facts in hand. However, if at all there was any ambiguity, it should have been resolved in favour of the assessee on the established principle of interpretation of taxing statute. Ordinarily the interest paid by the assessee to the Bank would have been an admissible expense. However, the amount of interest received by the assessee was not hit by mischief of section 80-B. It is correct that any income/sum covered by section 80-B is not entitled to any deduction. However the issue of non-deductibility could arise only after the revenue had successfully brought home that the interest income earned by the assessee from a borrower private limited company was an amount contemplated in subsection (2-A) of section 50. The amount received by the assessee in this case was on account of its having made an advance to the Company of which he was a Director. Earlier he had borrowed that amount from a banking company and therefore the said provisions of subsection (2-A) of section 50 were not at all attracted to his case. Accordingly, the non obstante clause and the provisions of section 80-B were not attracted to the kind of sums received by him nor these disentitled him for assessment as a normal assessee under section 30 of the Income Tax Ordinance.

Bharat Hari Sanghiana v. CWT 1995 PTD 997 = 207 ITR 1; Mehran Associates Limited v. CIT, Karachi 1993 SCMR 274 = 1993 PTD 69 and Messrs Hirjina & Co. (Pakistan) Ltd., Karachi v. Commissioner of Sales Tax, Central, Karachi 1971 SCMR 128 ref.

Zia Haider Rizvi for Petitioner.

Muhammad Ilyas Khan for Respondent.

Date of hearing: 16th November 2000.

2001 PT D 1150

[Lahore High Court]

Before Malik Muhammad Qayyum and Raja Muhammad Sabir, JJ

Messrs METAL FORMING (PVT.) LIMITED through Maulood Ahmad Shahid

Versus

THE DEPUTY COMMISSIONER OF INCOME-TAX/WEALTH TAX CIRCLE-10, COMPANIES ZONE-1, LAHORE and 2 others

Writ Petition No. 6954 of 2000, heard on 29th January, 2001

Income Tax Ordinance (XXXI of 1979)---

----S. 138---Civil Procedure Code (V of 1908), S.115--Revision--­Aggrieved person can decide as to whether he would like to file a revision or invoke .the appellate jurisdiction of the higher Income Tax Authorities---No condition has been laid down by 5.138, Income Tax Ordinance, 1979 for the exercise of revisional jurisdiction---Principles.

There was nothing in the Income Tax Ordinance, 1979, which takes away the right of revision in appealable cases and as such no restriction could be placed on the right of the affected person to file a revision even in cases where appeal lies. It is evident from the bare reading of section 138 of the Income Tax Ordinance, 1979, that it lays down no condition for the exercise of revisional jurisdiction.

There is nothing in section 138 of the Income Tax Ordinance, 1979 expressed or implied that the power of revision would not be available in appealable cases. As a matter of fact, it is for an aggrieved person to decide whether he would like to file a revision or invoke the appellate jurisdiction of the higher Income-tax Authorities. This view is strengthened by the comparison of section 115 of C.P.C. with section 138 of the Income Tax Ordinance, 1979.

Even in those cases where the appeal is allowed, the revisional remedy under section 115, C.P.C. may be invoked in special circumstances.

Manager, Jammu and Kashmir, State Property in Pakistan v. Khuda Yar and another PLD 1975 SC 678 fol.

Shahbaz Butt and Mr. Naveed for Petitioners. Shafqat Mahmood Chauhan for Respondents.

Date of hearing: 29th January, 2001.

2001 P T D 1153

[Lahore High Court]

Before Nasim Sikandar and Jawad S. Khawaja, JJ

Messrs SHAFSAL ENTERPRISES, LAHORE

Versus

COMMISSIONER OF INCOME-TAX, ZONE-B, LAHORE

Civil Miscellaneous Application No. 1065 of 2000 in C.T.R. No. 30 of 1991, decided on 10th January, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----S. 136(1)---Reference to High Court---Question of law, when arises---

Question of law could be said to have arisen only if the issue was raised and ruled upon by the Tribunal---In absence of any finding recorded thereupon, no authoritative advice could possibly be rendered under S.136(1), Income Tax Ordinance, 1979.

Messrs Hunza Ashian Textile Mills Ltd., Saidpur Road, Rawalpindi v. Commissioner of Sales Tax, Rawalpindi 1973 PTD 544; Haji Abdullah Khan and others v. Nasar Muhammad Khan PLD 1965 SC 690 and Messrs Gatron (Industries) Ltd. v. Government of Pakistan and others 1999 SCMR 1072 distinguished.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss. 136 & 137(1)---Reference to High Court---Jurisdiction of High Court---Nature---Issuance of certificate by High Court under S.137, Income Tax Ordinance---Effect---Reference under S.136, Income Tax Ordinance, 1979 devolves a special jurisdiction on the High Court which is advisory in nature---Appellate or revisional jurisdiction of the High Court and even of the Supreme Court is certainly different from the jurisdiction as conferred by law on a reference in income-tax matters---High Court by issuance of a fitness certificate on a question of fact could not arrogate to itself the special jurisdiction of the Supreme Court under the Constitution providing for leave to appeal.

A reference under section 136 of the Income Tax Ordinance, 1979, however, devolves a special jurisdiction on the High Court which is advisory in nature. The appellate or revisional jurisdiction of the High Court and even of Supreme Court is certainly different from the jurisdiction as conferred by law on a reference in Income-tax matters.

No High Court by issuance of a fitness certificate on a question of fact could arrogate to itself the special jurisdiction of the Supreme Court under the Constitution providing for leave to appeal.

(c) Income Tax Ordinance (XXXI of 1979)---

----S. 137(1)---Issuance of fitness certificate by the High Court under S.137(1), Income Tax Ordinance, 1979---Conditions.

Under section 137(1) of the Income Tax Ordinance, 1979 a fitness certificate can be given by High Court only on a "judgment" delivered by High Court. According to subsection (5) of section 136, the High Court "shall decide the question of law raised thereby and shall deliver its judgment thereon containing the grounds on which such decision is founded". The use of word 'judgment' in subsection (1) of section 137 when read in the fight of the aforesaid provisions, makes it clear that a fitness certificate can be granted only where High Court had decided the question of law raised in a reference. Since in the present case the questions as referred to by the Tribunal were found not to have arisen out of its order no "judgment" as contemplated in section 136(5) was delivered which could be certified to be a fit case for appeal to the Supreme Court. Under these provisions High Court delivers a "judgment" which contains the grounds on which the decision- was founded. These grounds are the only substance which could form a basis for a certificate as prayed for. Where no question of law was considered nor a judgment containing grounds on which the decision was founded were given no occasion for a fitness certificate arose at all.

A fitness certificate under section 137(1) of the Ordinance is issued only where a debatable question of law of general importance has been answered by the High Court and in view of the complexity of the issues involved, it is considered suitable to give a certificate so that the matter should finally be resolved by the Supreme Court. A difference of opinion on an issue by different High Courts also gives a good reason for issuance of fitness certificate. A certificate should be granted if the law is not well?-settled or if there is some doubt as to the principle of law involved. No leave should be granted where mere question of law or of fact had arisen; that litigation should not be made oppressively expensive as it was of importance not to allow the litigants who had succeeded in the High Court to be unnecessarily harassed by further appeal.

The principles which govern applications for leave to appeal under section 109(c) of the Civil Procedure Code should normally govern the applications under the Income Tax Law and unless the question raised was of "wide public importance" the case should not be certified as a fit case for appeal.

Where High Court declines to answer a question on the ground that either it does not arise out of the order of the Tribunal as framed or it does not raise a legal controversy, the question of issuance of fitness certificate under section 137(1) for appeal to the Supreme Court does not arise at all.

Kaikhushroo Pirojsha V.C.P. Syndicate Ltd.'s case AIR 1949 Bom. 134; Commissioner of Income-tax v. Kamal Singh Rampuria (1967) 64 ITR 527; Chunfal Mehta v. Century Spinning and Manufacturing Co. AIR 1962 SC 1314 and Mishrimal Gulab Chand v. Commissioner of Income-tax (1951) 55 ITR 91 ref.

(d) Income Tax Ordinance (XXXI of 1979)---

----S. 136---Reference to High Court---Question of law---Proper test for determination as to whether a question of law raised in the case was substantial.

The proper test for determining whether a question of law raised in the case is substantial would be, whether it is of general public importance or whether it directly and substantially affects the rights of the parties and if so, whether it is either an open question in the sense that it is not finally settled by the Supreme. Court or is not free from difficulty or calls for discussion of alternative views. If the question is settled by the highest Court or the general principles to be applied in determining the question are well-settled and there is a mere question of applying those principles or that the plea raised in palpably absurd, the question would not be a substantial question of law.

(e) Income Tax Ordinance (XXXI of 1979)---

----S. 137(1)---Issuance of fitness certificate by the High Court under S.137(1), Income Tax Ordinance, 1979---Principles to be kept in mind while granting a fitness certificate for appeal to Supreme Court enumerated.

The following principles to be kept in mind while granting a fitness certificate for appeal to the Supreme Court:---

(1) When a question is fairly and really arguable and not at all free froth difficulty.

(2) When there exists already a difference of opinion whether in the same High Court or in different High Court or a room for it.

(3) Where the High, Court thought it necessary to deal with the question at length for its complexity (case occupied a very long time before the High Court) and alternative views have been put forward and elaborate judgment was delivered.

(4) When it is still an open question and not finally settled by the Supreme Court.

(5) Where there are grave and considerable doubts in the mind of the reference Court itself and which are likely to govern other cases.

(6) Where a precedent is necessary to be created.

(7) Where it is capable of arising frequently in Courts affecting the assessees generally and depending upon general principles.

(8) When a question of law applied is palpably absurd and contrary to the principle laid down by the Supreme, Court.

(9) Where substantial property rights of the parties are affected based on the interpretation of documents.

(10) Where the question douches successive references and the interest is recurring.

(11) Where there are complexities of law requiring authoritative interpretation by the Supreme Court even touching the cases of small value.

(12) Where the dispute, is not measurable by money, but one of great public importance, such as those relating to religious rites or ceremonies, to caste and family rights as well as the question 6f wide public importance such as questions affecting the whole community.

The principles which govern applications for leave to appeal under section 109(c) of the Civil Procedure Code should normally govern the applications under the Income Tax Law and unless the question raised was of "wide public importance" the case should not be certified as a fit case for appeal.

Commissioner of Income-tax v. Kamal Singh Rampuria (1967) 64 ITR 527 and Mishrimal Gulab Chand v. Commissioner of Income-tax, Ajmer Merwara (1951) 55 ITR 91 quoted. ??????

(f) Income Tax Ordinance (XXXI of 1979)---

----S. 137(1)---Civil Procedure Code (V of 1908), S.109(c)---Issuance of fitness certificate by the High Court under S.137(1), Income Tax Ordinance, 1979---Principles which govern applications for leave to appeal under , S.109(c), C.P.C. should normally govern the applications under S.137(1), Income Tax Ordinance, 1979---Unless the question raised was of "wide public importance" the case should not be certified as a fit case for appeal.

The principles which govern applications for leave to appeal under section 109(c) of the Civil Procedure Code should normally govern the applications under the Income Tax Law and unless the question raised was of "wide public importance" the case should not be certified as a fit case for appeal.

(g) Income Tax Ordinance (XXXI of 1979)---

----S. 137(1)---Issuance of certificate by High Court under S.137, Income Tax Ordinance, 1979---High Court by issuing a fitness certificate on a question of fact could not arrogate to itself the special jurisdiction of the Supreme Court under Constitution providing for leave to appeal.

(h) Income Tax Ordinance (XXXI of 1979)---

----S.137(1)---Issuance of fitness certificate by the High Court under S.137(1), Income Tax Ordinance, 1979---Question either not arising out of the order of the Tribunal as framed or not raising a legal controversy---High Court would not issue fitness certificate under S.137(1) of the Ordinance for appeal to the Supreme Court.

Where High Court declines to answer a question on the ground that either it does not arise out of the order of the Tribunal as framed or it does not raise a legal controversy, the question of issuance of fitness certificate under section 137(1) for appeal to the Supreme Court does not arise at all.

Latif Ahmad Qureshi for Petitioner.

2001 P T D 1162

[Lahore High Court]

Before Nasim Sikandar and Jawad S. Khawaja, JJ

Mian MUHAMMAD HANIF MONNOO

Versus

COMMISSIONER OF INCOME-TAX, CENTRAL ZONE, LAHORE

P.T.R. Nos. 50 to 53 of 1988, heard on 5th October, 2000.

Income Tax Ordinance (XXXI of 1979)----

----S. 83(3) [before amendment]---Transfer of property in shares by way of oral gift without a right to receive dividend---Declaration of intention to gift by the donor was not supported from the record---Mere delivery of share certificates could not in any manner defeat the provisions of law nor could make the donor an agent of the donees to receive dividend on their behalf--­Property in shares having not changed hands it remained the property of donor---Revenue, in circumstances, was right in refusing to accept the donees as owners of the shares and not to permit the receiver of income of the said shares to pass the incidence of tax on the basis of some arrangement which was never accepted as such by the person, natural or legal, distributing the income---When an assessee received the dividend the law assumed completion of one transaction of distribution and subsequent transfer of share or, the manner in which the said money was expended was not at all the concern of Revenue---Requirements of gift, in circumstances, were not established as a fact and even if it was so, the assessee could not be accepted to have divested himself of the ownership, in absence of any act done in furtherance of the completion of the gift, which never took off in absence of a creation of an intervening document which was an application for transfer of shares made either on behalf of the donor or the donees---Principles.

In the given circumstances property in the shares never changed hands.

There is no doubt that a declaration by the donor, acceptance of gift by the donee and delivery of possession of subject-matter of gift completes it in Islamic Law. The declaration, however, needs to be an irrevocable pronouncement to completely part with the ownership rights and of their incidents. Any declaration which is not supported by evidence that donor wanted to transfer the property absolutely, is hardly of any significance. Correspondingly the acceptance of gift by the donee needs to be supported by evidence that the gift was accepted to become owner of the property or the transferee of all kinds of rights earlier vested in the donor. An oral gift cannot be allowed to be used as a vehicle to defeat the present or future rights of the third parties or to manipulate the status of ownership in order to avoid a fiscal or other similar obligations towards the State or any individual. What goes between the donor and the donee remains their personal matter as long a transaction does not throw its shadow on the rights of third parties or the provisions of any law including fiscal laws. The moment an oral gift touches the rights of a third party or affects a claim of the State functionaries both the giver and the taker shall be required to establish the vesting of rights through most superior kind of evidence. In the present age exercise of ownership rights in every kind of property is not expected without the involvement of a document to witness the nature and extent of such rights or a judgment of a Court recognizing such rights in rem or in personum. A donee will not be in a position to enjoy the attributes of ownership without the execution of an intervening document by whatever name called. Since these days all the record of the transfer of properties (particularly immovable) is meticulously maintained and in fact it is one of the important duties of the State to regulate such transactions, the alleged declaration of oral gift and its acceptance by the donee is the weakest type of evidence to be relied upon. Particularly when the alleged gift affects the rights of an individual or the national coffer.

The scene of human living from small villages inhabited by a tribe has moved to cosmopolitan cities where even next door neighbours remain strangers except for a reason to interact. A liberal interpretation of the requirements of gift has done more harm than good. It has given rise to bogus claims. It has divided families because a greedier member will always be willing to take chance through a claim of oral gift to oust co-owners or co-heirs from a legitimate inheritance. For a real donor in these days nothing is more easy to express his wish in writing and to get it registered with the official or semi-official agencies entrusted with the job. Unlike old times, the deed-writers, writing facilities and witnesses are so much in abundance that a claim of oral transfer must immediately give rise to an eyebrow. It is not that transactions registered with the concerned agencies are not disputed and are accepted as sacrosanct. It is only that the documented transactions are open and public. An oral gift has the semblance of a conspiracy. Like all other clandestine arrangements, it smacks of turbidity and treachery. The registration of a gift makes the intention to gift and transfer both open as well as public. When both these elements are available the element of honesty will come in as a natural corollary. The transfer of possession as one of the ingredients of gift, in fact, represents and manifests openness of the transaction and a notice to all and sundry. However, since transfer of possession is possible in a number of manners and for a number of purposes, it is necessary that such transfer has the support of record manifesting openly that it is with the object and for the purpose of change of ownership.

In the present case the alleged declaration to make a gift does not find support either from the record or from events which followed. Although the donees never refused to accept the alleged gift, the fact remains that the contention qua delivery of signed blank transfer deeds alongwith shares was never established before the Revenue. All along it was only said as a claim but was never supported by production of the alleged blank transfer deeds either by the donor or by the donees. The intention to make the gift also appears motivated inasmuch as till today neither of the parties the donor or the donees has made an application for transfer of shares to the company. The dividend till today is continuously being received by the assessee. His claim to pass on the proportionate dividend to the donees may very well be correct but such a claim is not at all acceptable in income-tax laws. The transaction of distribution. The subsequent transfer or the manner in which that money was expended is not at all the concern of the revenue.

The divergent positions taken up as defence by the assessee do not inspire confidence. The provisions of section 83(3) of the Income Tax Ordinance, 1979 are very clear and ~ were properly invoked to check the intention of the assessee to have the best of both. To remain a shareholder of certain percentage which gave him a particular position in the company and at the same time to reduce his liability towards the Revenue even for the changed income bracket cannot flow together. The aforesaid provisions of section 83(3) of the Ordinance, 1979 do not indirectly frustrate the general principles of gift under the Islamic Law. Since the system provides a complete mechanism for declaration of a particular provision of law as opposed to Injunctions of Islam no contention of the kind can be entertained till the time such provision of law is declared to be against the Injunctions of Islam. Till that declaration, statutory provisions are fully enforceable.

In the present case the completion of gift was never an issue.. The Revenue in the light of the aforesaid provisions of the Ordinance had concluded that the property in the assets transferred remaining with the assessee he was liable to pay tax upon income accruing from them. In other words the liability to pay tax retrained fixed on the transferor if he could not establish that the transfer of assets happened for consideration. The main qualification being that assets remained the property of the transferor. If the contention of the assessee that according to the general principles of Islamic Law of gift property stood transferred to the donees is accepted then how could the receipt of income from that property by the assessee be explained, It cannot be said that although the property in the shares stood transferred to the donees yet the income from property remained vested in the assessee. These are clearly opposite pleas, the acceptance of one will certainly destroy the other. The issue concerns more the tax liability rather than the transfer of property in the shares in favour of the donees. The Revenue cannot and should not go beyond the picture as emerges from the admitted facts which are proved on record. It is that the assessee is receiving dividend as owner of certain number of shares. The end destination of the income not being the worry of the Revenue, the assessee cannot avoid his liability on the basis that certain oral arrangements were made between him and his family members. A transfer of property in' shares without a right to receive dividend may well be a choice of the donees, yet the Revenue will rightly refuse to accept them as owners of the shares nor will it permit the receiver of income to pass the incidence of tax on the basis of some arrangement which was never accepted as such by the person, natural or legal, distributing income.

It is correct that a person is allowed to arrange his affairs in any manner to minimise the tax burden. However, such an intention and the manner to achieve the goal must not amount to a design to evade tax. In the case of the assessee the alleged gift never took place. His intention to part with the property in gift never crystallized and their ownership continued to remain vested in him. He enjoyed the position and prestige of being a shareholder of a certain percentage. His desire to share the tax burden with his family could not be accepted by the Revenue in the manner it was sought to be achieved. The declaration of intention to gift having never been supported from record, mere delivery of blank share transfer deed alongwith share certificates could not, in any manner, defeat the provisions of law nor these could make the donor an agent of the donees to receive dividend on their behalf.

In the present case the requirements of gift were not established as a fact. Secondly, even if it was so, the assessee could not be accepted to have divested himself of the ownership in absence of any act done in furtherance of the completion of the gift which never took off in absence of a creation of an intervening document which in this case was an application for transfer of shares made either on behalf of the donor or the donees.

The assessee having failed to establish the said gift as a legal transaction, answer to the questions was in the affirmative.

L.I.C of India v. Escorts Ltd. AIR 1986 SC 1370; Vasudev Ramchandra Shelat v. Pranlal Jayanand Thaker and others AIR 1974 SC 1728; Sheila Devi Chamria v. Tara Chand Saraogi and others AIR 1986 Com. Cas. 735; V.B. Rangara v. V.B. Gopalakrishnan and others (1992) 73 Com. Cas. 201; Rai Bahadur Mohan Singh Oberoi v. Commissioner of Income-tax, West Bengal AIR 1973 SC 651; A.M.P. Arunachalam v. A.R. Krishnamurthy, and others (1979) 49 Com. Eas. 662 and Maulvi Abdullah and others v. Abdul Aziz and others 1987 SCMR 1403 ref.

Nauman Akram Raja for Petitioner.

Muhammad Ilyas Khan for Respondent.

Date of hearing: 5th October, 2000.

2001 P T D 1180

[Lahore High Court]

Before Nasim Sikandar and Jawad S. Khawaja, JJ

Messrs MICROPAK (PVT.) LTD., LAHORE

Versus

INCOME-TAX APPELLATE TRIBUNAL, LAHORE and 2 others

I.T.As. Nos. 491, 492 and 321 of 2000, 677 and 678 of 1999, decided on 6th February, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----S. 12(18) [as inserted by Finance Act (VI of 1987)] & 66-A---CBR Circular No. 6 of 1987, dated 5-7-1987---Deemed income---Revision--­Jurisdiction---Scope---Company ---Share advance money indicated in the books of accounts/balance-sheet of the company could by no imagination be treated as loan---Principles.

Irrespective of the factual position as to the extent of the authorized capitals of the assessee/companies the Revenue had no business to pick up faults with the intention and motive of a company to increase its capital and the reasons therefore. A joint stock company is at liberty to increase and subject to certain conditions prescribed by law, to decrease its paid-up capital. As for the increase in the authorized capital is concerned, for a' private limited company, there is hardly any difficulty and in fact it is almost a declaration made to the Registrar of Companies subject to payment of certain fees. It is correct that an Assessing Officer can always probe, look into arid judge the exact nature of a receipt or an entry in the books of accounts. Entries made-by an assessee in books of accounts are not determinative of the question whether the amount was paid as capital asset or a stock in trade. However, it is equally correct that letter of law in taxing statute has to be interpreted in the sense it had been used and expressed. The provisions of section 12(18) of the Income Tax Ordinance, 1979 [as inserted by Finance Act, 1987] at the relevant time did not attract unless two conditions were answered. First that there was a "loan" received by an assessee and secondly that it was so claimed. Where any of the two requirements were not answered, the provisions were not attracted. Subsequent amendment in the year 1998 rather supports the case of the assessee/appellants that at the relevant time an advance, irrespective of its nature, could not be deemed as income of the assessee.

Share deposit money can--never be or amount to a "loan" which is necessarily a sum to be returned after a certain or uncertain period with or without interest.

In the present case at the relevant time the express mention of the word "loan" excluded all other similar or equivalent terms, transactions, or nature of the receipts. No maxim of law was of more general and uniform application than "expressio unius est exclusio alterius". Whenever a statute limits a thing to be done in a particular form, it necessarily includes in itself a negative, viz. that the thing shall not be done otherwise.

The purpose of introduction of the provisions of section 12(18) of the Ordinance at the relevant time was to cheek fictitious loans and it was after quite some time that it was realized that the scope of the provisions needed to be expanded. No addition of the kind could possibly be made nor the defence taken by the assessees rejected without recording a finding of fact that these sums were injected in the business and were used as capital, circulating or otherwise. In other words the defence of the assessees could have been demolished only by recording a finding of fact that the alleged share deposit monies were factually used in the business and therefore, could be taken as "loan" taken for catering the capital needs of the companies.

Generally an amendment is brought to bring out a change in the state of law unless the amendment was clarificatory or declaratory in nature. In the present case there is nothing to show that the amendment in section 12(18) by Finance Act, 1998 was brought about to clarify the earlier provision and not to bring a change in it. All the more so when the amendment was not given retrospective effect which normally clarificatory or declaratory amendments are given. The principle that where two interpretations are equally possible then the one favourable to the subject is to be adopted is attracted in the present case. The principle can also at times be extended to factual situations warranting application of deeming provisions. It means where the transaction can equally be placed within or outside the dividing taxing line, the one falling outside should be preferred against the one falling inside.

The provisions of section 12(18) of the Income Tax Ordinance, 1979 at the relevant time being not applicable the exercise of revisional jurisdiction as a consequence thereof is also found to be illegal as the original amendments were neither erroneous nor prejudicial to the interest of Revenue.

Exercise of power under section 66-A of the Income Tax Ordinance, 1979 and additions of the sums received by the companies and shown as share deposit money were set aside.

Black's Law Dictionary, 6th Edn., p.936; Shorter Oxford English Dictionary, Vol. I p.1227; Chamber's 20th Century Dictionary, p.739, Guarcharan Das and another v. Ram Rakha Mal AIR 1937 Lah. 81; Venkatakrishna Rice Company v. CIT (1987) 163 ITR 129; CIT v. Nathimal Gayalal (1973) 89 ITR 190; C.W.T. Southern Region, Karachi v. Abid Hussain 1999 PTD 2895; CIT; Patiala v. Piara Singh (1972) 83 ITR 678; Chairman, Evacuee Trust Property, West Pakistan, Lahore v. Muhammad Din and another PLD 1971 Lah. 217; Abdul Hameed Sahib and others v. Rehmat Bi AIR 1965 Mad. 427; Mian Abdul Hameed Puri and 5 others v. Federation of Pakistan PLD 1979 Lah. 252; C.I.T. North Zone (W.P.), Lahore v. Crescent Textile Mills Ltd. (1974) 29 Tax 242; Duggal & Co. v. C.I.T. (1996) 220 ITR 456; K.A. Ramaswamy Chettiar and another v. C.I.T. (1996) 220 ITR 657; Prime Commercial Bank and others v. Assistant Commissioner of Income-tax 1997 PTD 605 and K.G. Old, Principal, Christian Technical Training Centre, Gujranwala v. Presiding Officer, Punjab Labour Court, Northern Zone and 6 others PLD 1976 Lah. 1097 ref.

(b) Interpretation of statutes---

----Fiscal statute---Where two interpretations of a taxing statute are equally possible then the one favourable to the subject was to be adopted---Such principle could also at times be extended to factual situation warranting application of deeming provisions---Where the transaction could equally be placed within or outside the dividing taxing line, the one falling outside should be preferred against the one falling inside.

Syed Abrar Hussain Naqvi and M. Iqbal Hashmi for Appellants.

Shafqat Mehmood Chohan for Respondent

Date of hearing: 5th December, 2000.

2001 P T D 1188

[Lahore High Court]

Before Muhammad Nawaz Abbasi, J

Messrs MAPLE LEAF CEMENT FACTORY LIMITED through Director and 2 others

Versus

FEDERATION OF PAKISTAN through Secretary of Finance, Government of Pakistan, Islamabad and 4 others

Writ Petition No. 1261 of 2000, decided on 28th August, 2000

(a) Constitution of Pakistan (1973)----

----Art. 199---Constitutional jurisdiction of High Court---Judicial review—­Scope---Abuse of power and fraud on statute---Where the power conferred on Authority is exercised in bad faith or for any purpose against the concept of law, act of such Authority can be struck down by the High Court which is equipped with power of judicial review under the Constitution---Such power of judicial review is exercised within the Constitutional limits and care is taken not to encroach upon the domain of Constitutional authority of the Government.

(b) Constitution of Pakistan (1973)----

----Art. 199---Constitutional jurisdiction---Judicial review ---Scope--­Restraining public functionaries from discharging of their lawful business/duties---Power of judicial review can be exercised by the superior Courts against --act done, proceedings taken or order passed by a public functionary but the same cannot be exercised in the form of a prohibitory order restraining the Government or its functionaries from discharging their lawful business.

(c) Sales Tax Act (VII of 1990)---

----Sixth Sched.---Notification S.R.O. No. 580(1)/91, dated 27-6-1991--­Constitution of Pakistan (1973), Art. 199---Constitutional petition--­Maintainability---Apprehension of withdrawal of exemptions of sales tax--­Petitioners were running cement plants and apprehended withdrawal of exemptions extended to them under the Notification S.R.O. No. 580(1)/91, dated 27-6-1991, resulting in reduction of profit and private respondents with the expectation of more gain in business pleaded their individual interest---Validity---Gain and loss during the course of business due to act of Government done in public interest in good faith, would not be economic injustice---Constitutional petition having been filed without any substantial cause of action was not maintainable.

Jibendra Kishore Achharyya Chaudhry and 58 others v. The Province of the East Pakistan PLD 1957 SC (Pak.) 9; Waris Meah v. The State PLD 1957 SC (Pak.) 157; Government of Balochistan v. Aziz Ullah Memon PLD 1993 SC 341; Collector of Customs, Excise and 'Sales Tax, Peshawar and 3 others v. Messrs Flying Kraft Paper Mills (Pvt.) Limited 1998 SCMR 1041; Shahzada Muhammad Umar Beg v. Sultan Mahmood Khan and another PLD 1970 SC 139; Ahmad Din and others v. Faiz Ali and others PLD 1954 Lah. 414; Messrs Dwarka Prasad Laxmi Narain v. State of Uttar Pradesh and others AIR 1954 SC 224; Fasih Chaudhry v. Director­-General, Doordarshan and others AIR 1989 SC 157; Jugal Kishore v. State of Maharashtra and others AIR 1989 SC 159; Richpal Singh and another v. Raj Singh and others AIR 1981 SC 1960 and Messrs Elahi Cotton Mills Ltd. and others v. Federation of Pakistan through Secretary, Ministry of Finance, Islamabad and 6 others PLD 1997 SC 582 ref.

Raja Muhammad Akram and Nauman Akram Raja for Petitioners, Tanveer Bashir Ansari, Dy. A. G. for Respondents No. 1.

Farhat Nawaz Lodhi for the CBR.

Raja Muhammad Bashir for Respondent No. 4.

Date of hearing: 28th August, 2000.

20001 P T D 1206

[Lahore High Court], Before Nasim Sikandar and Jawad S. Khawaja, JJ

THE COMMISSIONER OF INCOME-TAX, GUJRANWALA ZONE, GUJRANWALA

Versus

MUHAMMAD HANIF FAISALA JAREER

C.T.R. No. 362 of 1991, decided on 20th November, 2000.

Income Tax Ordinance (XXXI of 1979)---

----S.111---Agreed assessment---Penalty---Concealment of income--Validity-­No penalty can be imposed when an assessment is made on the basis of an agreed figure of income---Principles.

An assessee cannot be put to surprise after having agreed to be assessed at a certain amount. In absence of a clear term of the agreement. to the contrary, the offer to be assessed at a particular amount must be taken as a package deal. If the Assessing Officer does not put an assessee at his guard and accepts the offer without any express reservation then he is not permitted to turn about and book him for the alleged admitted concealment. An Assessing Officer represents the State which is not expected to cheat its citizens. The doctrine of estoppel may not strictly be applicable in such situation but the essence of the principle can be borrowed to say that imposing penalty in such situation would amount to blackmailing of a citizen by the State. 1n the present case it is not the case of the revenue that the assessee either agreed to a penalty or that he was made aware of the fact that penalty proceedings, even in an agreed assessment, could follow. The compounding of offence in certain situations in criminal law is a known privilege of the State. An application of the principle stricto senso in tax matters does not appear quite relevant. However, the offer to be assessed at a particular income if accepted without indicating the possible off-shoot to these proceedings, will bind the Assessing Officer. His competency to initiate penalty proceeding is not in issue. It is if having accepted the offer for an agreed assessment, the Assessing Officer could ask for a premium over and above the price the assessee had already paid to purchase peace. Since an agreed assessment is always in black and white and witnessed by both the parties no penalty proceedings thereafter could be initiated on the ground of oral understanding or that the assessee had either been apprised orally or that he orally agreed to be subjected to penalty proceedings. An oral undertaking or understanding to face penalty proceedings or agreement to face penalty proceedings after an agreed assessment cannot be readily accepted.

An agreed assessment obviously serves the interest of Revenue as well as the assessee. For the assessee the first and foremost reason is to get rid of the agony of lengthy proceedings. At times he may honestly feel to have committed a mistake or taken a chance which was not worth it. In all such situations including the one in which he finds himself in a quagmire, he would like to be out of it at the earliest and at every cost. That cost is quid pro quo which he offers to be out of the malaise. If the cost offered is, not acceptable to the Revenue then obviously it could reject the same. However, it would be totally unreasonable and even immoral for a Revenue Collector to conceal the idea in the backyard of his .mind to recover the cost in phases without informing the unwary taxpayer. It is like trapping an assessee. The State acting through its functionaries does not entrap. It is only greed and at times foolishness of a person which makes him walk down to a door seemingly wide open. And in most cases he feels almost through it when something goes wrong somewhere. The temptation to an easy solution is common in all cases but the way it fails is peculiar to every attempt.

The Revenue by agreeing to accept an offer does not do any favour to the assessee. The ease with which it comes across ready money is sufficient consideration to match the desire of the assessee for a way out. It is often forgotten that an agreed assessment is not contemplated within the parameters of the Income Tax Ordinance. It is a marriage of convenience. Irrespective of who proposes to whom the fact remains that this marriage, though unusual, is nevertheless not illegal. Therefore, once it has happened, none of the couple can be allowed to exploit the other for more advantage than it was originally settled. It appears strange that after accepting an offer and framing an agreed assessment which is not provided for in the Ordinance, the Assessing Officer wishes to go back to the Ordinance to invoke penalty provisions which are normally discretionary.

At the time of framing of agreed assessment, the absence of a settlement with regard to the penalty proceedings is fatal for the Revenue as it could be for the assessee. In case an assessee in the guise of agreement succeeds in befooling the Revenue while offering tax on a small chunk and concealing a bigger part of it, the Revenue is not prohibited from bringing the untaxed amount to the net within the scheme of the Ordinance. A settlement is neither final nor sacrosanct if any of the parties keeps a bloody scythe under the cloak ready for a strike on the first opportunity available. The Assessing Officer, in any case, does not enjoy a lever against an assessee nor he can be allowed to keep his cards close to his chest and to come out with a fresh desire for more tax money which could very well be and in fact was the most relevant fact to be discussed and hammered out at the time the agreed assessment was framed. In the present case the offer of the assessee was accepted by the Revenue Officer without any reservation and, therefore, he could not re-open a closed chapter using the very agreement as admission of concealment on the part of the assessee. It was totally unjust and unrealistic.

An assessee could not have been vexed twice for the same default on which, after having been confronted, he agreed to be assessed at a particular sum. All the more so when at the time of framing of agreed assessment, nothing was brought into black and white as part of the deal to reserve the initiation of penalty proceedings. It, however, needs to mention here that recently in a number of tax references, High Court has maintained the imposition of penalty to which the assessees had consented at the time of agreed assessment but subsequently sought to challenge on hyper technical grounds. So has been the view in cases where though no fixed amount of penalty was settled at the time of agreed assessment but the assessee was properly informed of the contemplated penalty proceedings. Only the quantum of penalty in such cases will remain a moot point to be challenged on any available legal ground.

Shafqat Mehmood Chohan for the Revenue.

Nemo for Respondent.

2001 P T D 1222

[Lahore High Court]

Before Nasim Sikandar and Jawad S. Khawaja, JJ

Messrs MIAN MUHAMMAD ASLAM

Versus

C.I.T., LAHORE

C.T.R. No. 73 of 1992, decided on 31st January, 2001.

(a) Income Tax Ordinance (XXXI of 1979)--

----Ss. 27, 151 & 2(24)---Capital gain---Exemption---Sale of land by Company---Share of Director/shareholder of the Company in the sale proceeds of land of assessee-Company---Taxability---"Income" as defined in S.2(24), Income Tax Ordinance, 1979 included any income, profits or gains which were chargeable to tax under any provision of the Ordinance---Gains from transfer of immovable property being not so chargeable under S.27(2)(a)(ii), Income Tax Ordinance, 1979 as "income", provisions of S.151, Income Tax Ordinance, 1973 were otherwise not attracted---Bar on second exemption as contained in S.151 of the Ordinance was relatable only to an "income" which was exempt under any of the provisions of the Ordinance---Capital gains on immovable property being not income chargeable to tax under any provision of the Ordinance, treating them exempt and then restricting them to original recipient under S.151, Income Tax Ordinance, 1979 was wholly misconceived---Principles:

A capital gain on immovable property expressly stands excluded from the definition of word 'income' as contemplated in section. 27 of the Income Tax Ordinance, 1979. In the definition clause 2 (24) of the Ordinance, it is stated that the word "income" includes any income, profits or gains which are "chargeable to tax under any provision of this Ordinance". Therefore, since gains from transfer of immovable property are not so chargeable under section 27 (2)(a)(ii) as "income", provisions of section 151 were otherwise not attracted. The bar on second exemption as contained therein is relatable only to an "income" which is "exempt" under any of the provisions of the Ordinance. Since capital gains on immovable property are not income chargeable to tax under any provision of the Ordinance, treating them exempt and then restricting them to original recipient under section 151 was wholly misplaced. The "concession" granted by the Assessing Officer to the receipt in the hands of the Company and then declining to extend the exemption in the hands of the individual assessee was completely out-of context:

Department was misdirected to hold that capital gains were exempted from levy of income-tax and, therefore, by applying the principle contained in section 151 proceeded to disallow the alleged second exemption.

C.I.T., Punjab, N.W.F.P. & Bahawalpur v. Mrs. E.V. Miller PLD 1959 SC 219 distinguished.

C.I.T. v. E.V. Miller PLD 1959 SC 219; Messrs Julian Hoshang Dinshaw Trust and others v. Income Tax Officer, Circle XVII, South Zone, Karachi and others 1992 PTD 1 and Commissioner of Income-tax v. KaMal Behari Lal Singha (1971) 82 ITR 464 ref.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.151---Exemption, limitation of---Ratio settled in Re: C.I.T. v. MRs. E.V. Miller PLD 1959 SC 219 so far the grant of second exemption was concerned stood nullified by S.151, Income Tax Ordinance, 1979.

(c) Income Tax Ordinance (XXXI of 1979)---

----S.136---Reference to High Court---Question of law--Mere passing remarks with regard to the competency of the Commissioner (Appeals) to make an addition under S.13, Income Tax Ordinance, 1979 would not make it a legal controversy having arisen out of the order of the Tribunal.

Muhammad Iqbal Khawaja for Petitioner.

Shafqat Mehmood Chohan for Respondent.

2001 P T D 1286

[Lahore High Court]

Before Nasim Sikandar and Jawad S. Khawaja, JJ

COMMISSIONER OF INCOME-TAX, CENTRAL ZONE, LAHORE

Versus

Messrs INTERHOME IMPERIAL INTERNATIONAL LIMITED, LAHORE

C.T.R. No. 29 of 1991, heard on 14th November, 2000.

(a) Income-tax Act (XI of 1922)---

----S.10(2)(xvi)---Interpretation of S.10(2)(xvi), Income-tax Act, 1922--­Provision of S.10(2)(xvi) of the Act only prohibited claiming and allowing of an expenditure which was in the nature of capital expenditure or represented personal expenses of the assessee---Assessing Officer having failed to object to the expenses on the ground that these were not expended wholly and exclusively for the purpose of such business, profession or vacation; the disallowance could not be made.

(b) Income-tax Act (XI of 1922)---

----S.10(2)(xvi)---Allowable deduction---Provisions of S.10(2)(xvi), Income­tax Act, 1922 did not lay down that an expenditure was allowable only if there was any income.

Muhammad Ilyas Khan for Petitioner.

Nemo for Respondent.

2001 P T D 1325

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

COMMISSIONER OF INCOME-TAX, A-ZONE, LAHORE

versus

SOHAIL ASLAM, LAHORE

C.T.R. No.313 of 1991, heard on 8th November, 2000.

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss.58, 108 & 110---Wealth'statement---Non-compliance of requirement of filing wealth statement---Penalty---Validity---Penalty under S.108, Income Tax Ordinance, 1979 for default in submitting .wealth statement as required under S.58 of the said advance was not justified---Principles.

Penalty under section 108 of the Income Tax Ordinance, 1979 was not exactable - for default in submitting wealth statement with return as required under section 58 of the Ordinance. Provisions of section 108 specify the default with reference to specific sections and section 58 or any of its subsections does not figure out there. Penalty provisions must be construed strictly, particularly, in fiscal matters. Section 110 of the Ordinance makes a specific reference to section 58 and also provides for a mode of calculating penalty in case of default. On the other hand, the penalties provided under section 108. are fixed and have nexus with the default in terms of days. The penalty provided under section 110 of the Income Tax Ordinance is co-related with the amount of tax which would have been avoided if the income as returned by such person had been accepted as correct income. Therefore, in presence of a specific provision of law applicable to the situation, the Assessing Officer could not have resort to any other provision of law. All the moreso when the method of calculation of amount of penalty was totally different, from the applicable provisions of section 110 of the Ordinance.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.136---Reference to High Court---Scope---Question having not arising out of the order of the Tribunal, could not be referred to the High Court.

Kh. Muhammad Saeed for Petitioner, Nemo for Respondent.

2001 P T D 1329

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

COMMISSIONER OF INCOME-TAX, CENTRAL ZONE. LAHORE

versus

TAUHEED ELAHI

C. T. R. No. 350 of 1991, heard on 11th December, 2000.

Income Tax Ordinance (XXXI of 1979)----

----S.136---Hyderogenated Vegetable Oil Industry Act (Control and Development) Act (LXV of 1973), S.26---Reference to High Court ---Scope-­Assessee., an individual had shares in a limited company running the business of oil which was taken over by the Government---Receipt of minimum guaranteed return by assessee as a substitute for the compensation bonds for taking over the Oil Mill by the Government---Nature of receipt ---Taxability-­Assessing Officer issued a notice under S.34, Income-tax Act, 1922 on the ground that assessee had failed to indicate various amounts in each year received under S.26, Vegetable Oil Industries Act, 1963---Contention of the assessee that the amount represented minimum guaranteed return in the form of compensation and, therefore, did not represent income but casual gain,, was rejected---Appellate Tribunal had found that "admittedly minimum guaranteed return was received by the assessee as a substitute for the compensation bonds and was of capital nature"---Tribunal had found. as a fact that revenue had admitted that amounts received by the assessee represented a substitute for the compensation bonds---Revenue claimed that the amounts received amounted to income on compensation bonds which were given to the assessee--Revenue having not been able to controvert the facts as found by the Tribunal, question as framed that "the amount received by the assessee was of a capital nature -and as such. not taxable" did not arise out of the order of the Tribunal---Answer was declined by the High Court.

Shafqat Mehmood Chohan for Petitioner.

Nemo for Respondent.

2001 P T D 1333

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

COMMISSIONER OF INCOME-TAX, ZONE-A, LAHORE

versus

ABU BAKAR MAQSOOD

C.T.R. No. 103 of 1991, decided on 25th October, 2000:

Income Tax Ordinance (XXXI of 1979)---

----Ss.136 & 13(1)(d)---Reference to High Court---Scope--Purchase of property by assessee---Estimation of value by the Revenue Authorities cancelled by the Tribunal---Reasons which favoured with the Tribunal being that proper basis were not evolved to reject the declared values nor for their subsequent estimation---Tribunal, prima facie felt satisfied with the declared values after having gone through registered sale-deeds of similar properties sold in the area at the same point of time and had taken into consideration the fact that a sale-deed could not be registered at a sum lower than the rate fixed by the District Collector for various localities in the city keeping in view their market value; said, values at least gave the minimum price at which a property could be purchased through a registered sale­ deed---To reject the value and to enhance the same required various kinds of factual inquiries which were not approved by the Tribunal---Tribunal, in clear words had expressed its view that an Assessing Officer was competent to determine the market value of any property and that the price witnessed by a sale-deed was not sacrosanct--Tribunal was not satisfied with the basis on which the declared values were increased---Question involved, thus did not raise any legal controversy in circumstances.

Kh. Muhammad Saeed for Petitioner.

Nemo for Respondent.

2001 P T D 1348

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

COMMISSIONER OF INCOME-TAX, FAISALABAD

versus

ABDULJABBAR

C. T. R. No. 124 of 1993, decided on 18th January, 2001

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss.136 13(1)(aa) & Second Sched.---Reference to the High Court--

Scope---Individual member of an A.O.P. had disclosed the source of income which was claimed to be exempted---Assessing Officer on the basis of the fact that the source had been allowed only part of the income claimed as exempt, the individual was entitled to the proportionate share of the exempt income and nothing more, burdened the assessee with a penalty for concealment---First Appellate Authority found that the Assessing Officer could not curtail the claim from a source which was exempt from levy of income-tax---Assessing Officer had, thus, failed to bring sufficient material on the record to dispute that individual had recovered a certain sum as income which was exempt under Second Sched to the Income Tax Ordinance, 1979---Cancellation of assessment had a.. result of restoring the claim of the assessee as an individual to have enjoyed an exempt income to the extent of his share in the business of A.O.P.---No legal controversy which could be made a subject-matter of reference to the High Court existed-

--Imposition of penalty under S.111, Income Tax Ordinance, 1979 was absolutely unjustified in circumstances.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.111---Concealment of income---Penalty---Claim as share of exempt income was made by the assessee which was finally accepted in appeal--­Penalty for concealment---Validity---To prefer a claim for exemption of certain amount which was partially disallowed by the Revenue, would not in any case attract the provisions of S.111, Income Tax Ordinance, 1979.

Shafqat Mehmood Chohan for Petitioner.

Muhammad Iqbal Hashnu for Respondent

2001 P T D 1354

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

COMMISSIONER OF INCOME-TAX, RAWALPINDI ZONE; RAWALPINDI

versus

Messrs HEAVY MECHANICAL COMPLEX LTD. TAXILA, DISTRICT RAWALPINDI

C.T.R. No.359 of 1991, decided on 20th December, 2000.

Income-tax-

----Depreciation---"Plant"---Connotation---Word "plant" had much wider meaning when used in the context of factory--- "Plant" in its factual meaning included not only the main structure but also the ancillary ones which were in use as integral part of the factory---Roads and railway sidings in the factory premises of the assessee which was a public limited company, owned and financed by Government of Pakistan .and on the upkeep of which the assessee spent money out of its income, were a necessary part of the factory as without these facilities viz., roads and railway sidings it was not possible` for the assessee factory to transport the capital goods manufactured to and from its premises---Railway sidings and roads in the factory premises to transport capital goods manufactured to and from its premises being covered by the term "plant" was entitled to depreciation.

(1971) 82 ITR 376 and Income-tax Law by Palkiwala, 7th Edn., Vol. 1, pp. 375-376 ref.

Shafqat Mehmood Chohan for Petitioner.

Aurangzeb Mirza for Respondent.

2001 P T D 1366

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

IQBAL POULTRY FARM, FAISALABAD

versus

THE COMMISSIONER OF INCOME-TAX, FAISALABAD

C.T.R. No. 329 of 1991, decided on 23rd January, 2001.

Income Tax Ordinance (XXXI of 1979)---

----Ss. 65, 136 & 166---Re-assessment---Reference to High Court---Scope--­High Court while expressing an opinion had to confine itself to the question of law as framed by the Tribunal as also to the facts as fond by the Tribunal---Question of law as framed by the Tribunal, in the present case, clearly related only to the issue namely "if the reassessment made by the Income-tax Officer for the assessment year 1977-78 was barred by limitation"---View adopted by the Tribunal to the effect that the case of the assessee being still within the limitation as prescribed by S.34, Income-tax Act, 1922, the invocation of S.65, Income Tax Ordinance, 1979 was justified and in accordance with law, was fully supported by repealing and saving provisions of S.166 of the Income Tax Ordinance, 1979---No other issue or question which necessarily depended upon the appraisal of facts could either be introduced or be considered for the purpose of answering the question---High Court answered the legal question by holding that reassessment made by the Income-tax Officer for the assessment year 1977-78 was not barred by limitation in circumstances.

Zia, Haider. Rizvi for Petitioner.

Shafqat Mehmood Chohan for the Revenue.

2001 P T D 1371

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

THE COMMISSIONER OF INCOME-TAX, MULTAN ZONE, MULTAN

versus

Messrs MUHAMMAD SALEEM MUHAMMAD ARIF CONTRACTORS, MULTAN

C.T.R. No. 318 of 1991, decided on 12th December, 2000.

Income Tax Ordinance (XXXI of 1979)---

----Ss. 57, 55 & 59(1), Explanation [as added by Finance Act (V of 1985)]--­C.B.R. Circular No. 13, dated 4-11-1981, para. 2(6) & Circular No.11 of 1981, dated 6-8-1981---Self-Assessment Scheme for the year 1981-82--­Revised return filed under S. 57, Income Tax Ordinance, 1979 would not be deemed to be an amendment of the return under S. 55 and was not covered by the provision of S.59(1) of the Income Tax Ordinance,. 1979---Tribunal, in the light of C.B.R. Circular No. 13, dated 4-11-1981 was not justified to set aside the orders of the Assessing Authorities and direct that the assessment should be made under S.59(1) of the said Ordinance, if the case qualified to be assessed as such---Principles.

Only a return under section 55, Income Tax Ordinance, 1979 qualified for acceptance in accordance with the self-assessment scheme issued for the year 1981-82. The express mention of section 55 impliedly excluded the returns filed under any other section of the Ordinance. Through explanation added to subsection (1) of section 59 by Finance Act (I of 1985), Legislature declared that a return of total income furnished under section 55 did not include a return of total income furnished under section 57. Therefore, the Tribunal was not justified in interpreting provisions of section 59 under which no revised return of total income could be filed.

In the present case the said provision of the Ordinance was interpreted by the Revenue in the light of para. 5 of Circular No. 11 of 1981, dated 6-8-1981 through which the Self-Assessment Scheme for the year, 1981-82 was notified. In that para. it was clearly provided that "cases selected for detailed scrutiny will not be taken out of this list on the basis of revision upwards of income". It hardly needed emphasis that acceptance of return under section 59 of the Income Tax Ordinance was qualified by the provisions of the scheme notified for such purpose in respect of a particular assessment year. The provisions of section 59 clearly laid down that return would be accepted only if it qualified for acceptance in accordance with the provisions of a scheme of self-assessment made by the Central Board' of Revenue for that year. After the assessee had been apprised of the selection of his case, "for detailed scrutiny, his revision of the return. already filed clearly disentitled him to the benefit of the scheme in the light of the said Circular No. 11 of 1981. Therefore, the Tribunal was not justified in holding that revised return under section 57 could be deemed to be an amendment of the return earlier filed under section 55. Particularly in view of the aforesaid para of the Circular notifying Self-Assessment Scheme for the year under consideration. The findings earlier recorded by the Assessing Officer while rejecting the claim for immunity being fully supported by the aforesaid para of the Self-Assessment, Scheme, the Tribunal was also not justified in setting aside the assessment order directing for re-examination of the case if it qualified for acceptance under section 59 of the Income Tax Ordinance. The remand order was accordingly illegal and unjustified.

Muhammad Ilyas Khan for the Revenue.

Nemo for Respondent.

2001 P T D 1380

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

Messrs NAFEES COTTON MILLS, LTD., LAHORE

versus

INCOME-TAX APPELLATE TRIBUNAL, LAHORE and 2 others

I.T.A. No. 200 of 1997, decided on 23rd January, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.136---Appeal to the High Court---Scope---Only a question of law arising out of the order of the Tribunal can be a subject-Matter of appeal before High Court.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.136---Appeal to the High Court---Scope---Provision of 5.136, Income Tax Ordinance, 1979, providing an appeal to the High Court has not materially changed the exercise of advisory jurisdiction as available under the substituted provisions of S.136, providing for a reference to the High Court.

Iram Ghee Mills Ltd. v. Income Tax Appellate Tribunal 1998 PTD 3835 quoted.

(c) Income Tax Ordinance (XXXI of 1979)---

----S.136---Appeal to the High Court---Scope---Question of law when could be said to have arisen.

A question of law could be said to have arisen out of an order of the Tribunal only if the issue: was raised and it was ruled upon by the Tribunal. When none of the issues raised in the questions was ever raised before the Tribunal nor it was ruled upon by them, in absence of any finding recorded thereupon, no authoritative pronouncement on the alleged question of lave could be made.

(d) Income Tax Ordinance (XXXI of 1979)---

----Ss. 136, 61 & 62---Appeal to High Court---Scope---Tribunal had recorded a finding of fact that notice issued to the assessee. though captioned to be one under S.61 Income Tax Ordinance, 1979, was detailed enough to be taken as a notice under S.62(1) of the said Ordinance and rejected the contention against setting aside of the assessment and refused to accept the prayer of the assessee for annulment on account of that reason alone-----Finding of fact that notice issued to the assessee fulfilled the requirement of S.62(1) of the Ordinance had not been challenged on the ground that same was either not based on record or it was against the record---Such a factual controversy could not be a moot point before High Court.

(e) Income Tax Ordinance (XXXI of 1979)---

----S.136---Appeal to High Court ---Scope--Assessee had never claimed before the Tribunal that it could establish both admissibility as well as allowability of the total expenses claimed under the head "profit and loss account"--Tribunal had recorded as a fact that details of the expense which was claimed to have wrongly been disallowed, were not placed before the Tribunal---Refusal of the Tribunal to accept the contentions against the disallowance in such a situation, will always remain a question of fact.

Latif Ahmed Qureshi for Petitioner.

2001 P T D 1386

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

Messrs CRESCENT ART FABRICS (PVT.) LTD., LAHROE

versus

THE COMMISSIONER OF INCOME-TAX, COMPANIES, LAHORE

C.T.R. No.368 of 1991, decided on 20th December, 2000.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.136---Reference to High Court---Question of law or , fact--­Determination---Tribunal maintained rejection of accounts as made by the Assessing Officer and upheld by Commissioner of Income-tax (Appeals) on the ground that the defect of unverifiability of debit side of trading account could not be demolished even before them---In absence of real challenge to such findings of fact, same did not raise any legal controversy.

Printers Combine (Mercantiles) v. C.I.T. 1984 PTD 229 and C.I.T. Companies-III v. Krudd Sons Ltd. 1994 SCMR 229 ref.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.136---Reference to High Court---Question of fact---Estimation of cost of construction by the department as against the declared version could hardly be said to have given rise to a legal controversy to be resolved by the High Court.

(c) Income Tax Ordinance (XXXI of 1979)---

----S.13(l)(d)---Deemed income---Addition---Directors of assessee-company had transferred the land to the company at cost and evident intention appeared to be the allotment of shares of its value to them ---Assessee­ company had not yet started any business nor had paid any sale price for the land in question though subsequently shares of the equivalent value appeared to have been allotted---Revenue claimed and the Tribunal agreed that declared value of the property was not binding upon the Assessing Officer-­Validity---Assessing Officer, however, totally lost sight of the fact that under the provision of S.13(1)(d), Income Tax Ordinance, 1979 an addition could be made only if the assessee had made investment or was found in respect of any such year to be the owner of any valuable article and the amount expended on making such investment exceeded the amount recorded in that behalf in the books of account maintained by the assessee---Tribunal, therefore, was not justified in confirming the addition made under S.13(1)(d) of the Ordinance on account of lowness of cost of purchase of land discarding the assessee's plea that the Directors had sold the land at cost.

There was no doubt that the addition in land account was totally unjustified and against law. The Directors had transferred the land to the company at cost. Evident intention appeared to be the allotment of shares of its value to them. The assessee-company had not yet started any business nor had paid any sale price for the land in question though subsequently shares of the equivalent value appeared to have been allotted. The Revenue claimed and the Tribunal agreed that declared value of the property was not binding upon the Assessing Officer. To that proposition there was no denial. However, the Assessing Officer totally lost sight of the fact that under the provision of section 13(1)(d) an addition could be made only if the assessee had made investment or was found in respect of any such year to be the owner of any valuable article and the amount expended on making such investment exceeded the amount recorded in this behalf in the books of account maintained by him.

In the present case the Directors purchased the land from its owners and then transferred the same at cost to the assessee-company. For the assessee-company as well as the Directors there was absolutely no occasion or reason to understate the value. Even if it was believed that the Directors at the time of purchasing the land understated its value even then the addition of the kind could not be made in the hands of the assessee-company. Instead it ought to have been made in the hands of the Directors.

The Tribunal was not justified in confirming addition made under section 13(1)(d) of the Ordinance on account of lowness of cost of purchase price of land.

Mian Ashiq Hussain for Petitioner.

Shafqat Mehmood Chohan for the Revenue.

2001 P T D 1397

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

THE COMMISSIONER OF INCOME-TAX, FAISALABAD

versus

Messrs NOORANI GHAZI POULTRY HATCHERY AND BREEDING FARM, FAISALABAD

C.T.R. No. 104 of 1993, decided on 16th January, 2001

Income Tax Ordinance (XXXI of 1979)----

----S.136---Reference to High Court---Scope---Question of fact---Question whether an assessee achieved a particular rate of gross profit in a particular kind of business was necessarily a question of fact---Where, however, the Tribunal had given certain passing remarks and also referred to its earlier decision in which statedly it was found that an Assessing Officer could not lay his hand upon the source as also the income declared for source which was exempt under law, still such issue was not directly involved in the set of facts before High Court---Finding by Tribunal as against the order of the Assessing Officer that the declared G.P. rate could not be said to have been unachievable did not give rise to a question of law.

Shafqat Mehmood Chohan for the Revenue

Muhammad Iqbal Hashmi for Respondent

2001 P T D 1402

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

Messrs RAVI TENTAGE INDUSTRIES, LAHORE

versus

COMMISSIONER OF INCOME-TAX, ZONE-B, LAHORE

C.T.R. No. 19 of 1990, decided on 12th December, 2000.

Income Tax Ordinance (XXXI of 1979)---

----S.136---Reference to High Court---Scope---High Court declined to answer the question referred to it when the assessee at whose instance the question had been referred was absent.

Dada Bhai H. Mama & Sons, Karachi v. Commissioner of Income­tax (1967) 16 Tax 43 and M. M. Ispahani Ltd. v. Commissioner of Excess Profits Tax, West Bengal (1955) 27 ITR 188 fol.

Nemo for Petitioner Muhammad Ilyas Khan for the Revenue.

2001 P T D 1406

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

THE COMMISSIONER OF INCOME-TAX, LAHORE

versus

ALPHA MIAN & CO., LAHORE

C.T.R. No. 112 of 1993, decided on 16th January, 2001.

Income Tax Ordinance (XXXI of 1979)---

----S.136---Reference to the High Court---Scope---Question of fact--­Registration of a firm or existence or execution of partnership deed were necessarily a question of fact.

In re: Malik & Company 1974 PTD 142; The Commissioner of Income-tax, Rawalpindi v. Messrs Zamindara Flour Mills, Lyallpur 1970 SCMR 530 and Ratanchand Darbarilal v. C.I.T. (M.P. (1985) 155 ITR 720 ref.

Shafqat Mehmood Chohan for the Revenue. Nemo for Respondent.

2001 P T D 1409

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

THE COMMISSIONER OF INCOME-TAX, COMPANIES, LAHORE

versus

Messrs PUNJAB FLOUR MILLING CORPORATION LTD., LAHORE

C.T.R. No.78 of 1993, decided on 10th January, 2001.

Income-tax--

----Surcharge, levy of---Retained income---Taxes payable could be treated as retained income for the purpose of levy of surcharge.

C.I.T. v. Messrs Facto Sugar Mills Ltd:, Karachi and Commissioner of Income-tax v. Messrs Habib Sugar Mills Ltd. PLD 1993 SC 257 ref.

Shafqat Mehmood Chohan for the Revenue.

Nemo for Respondent.

2001 PTD 1414

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

THE COMMISSIONER OF INCOME-TAX, ZONE-A, LAHORE

versus

Mst. IQBAL BEGUM

C. T. R. No. 337 of 1991, decided on 11th December, 2000.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.136---Reference to the High Court---Scope---Question of fact--­Tribunal in the order recorded on appeal of the assessee had found it as a fact that Income-tax Officer of a specific Circle had no jurisdiction to make the assessment---Statement of the Court also showed that Tribunal had stated that admittedly the Income-tax Officer of the Circle had no jurisdiction to make an assessment---In presence of such findings of fact of the Tribunal which otherwise had not been controverted by the Revenue, High Court declined answer to the questions referred.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.136(5)---Reference to the High Court---Scope---High Court while exercising jurisdiction under S.136(5), Income Tax Ordinance, 1979 does not express opinion on matters of academic interest only.

Muhammad Ilyas Khan for Petitioner.

Nemo for Respondent.

2001 P T D 1419

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

THE COMMISSIONER OF INCOME‑TAX, RAWALPINDI

versus

Sh. GHULAM HUSSAIN

C.T.R. No.377 of 1991, decided on 22nd November, 2000.

Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑S.136‑‑‑Reference to the High Court‑‑‑Scope‑‑‑Question of law can be said to have arisen only if it was argued and ruled upon by the Tribunal‑‑­Where none of the issues put forth before the High Court were ruled upon by the Tribunal nor arose out of their order. High Court declined to answer question so referred.

Saadat Ali Khan for Petitioner.

Muhammad Ilyas Khan for the Revenue

2001 P T D 1425

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

COMMISSIONER OF INCOME‑TAX, ZONE‑B, LAHORE

versus

Messrs LAHORE AMERICAN SOCIETY SCHOOL, LAHORE

C.T.R. No.365 of 1991, decided on 20th November, 2000

Income Tax Ordinance (XXXI of 1979)---

‑‑‑‑S.136‑‑‑Reference to the High Court‑‑‑Scope‑‑‑Question of fact‑‑‑Material on the basis of which the First Appellate Authority found for the assessee and for similar reasons the Tribunal maintained these facts‑‑‑No legal controversy could be said to have arisen out of the order of the Tribunal.

Kh. Muhammad Saeed for the Revenue

Nemo for Respondent

2001 P T D 1433

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

THE COMMISSIONER OF INCOME‑TAX,CENTRAL ZONE, LAHORE

versus

Messrs PAK. INDUSTRIAL PROMOTORS LTD. LAHORE

C.T.R. No.83 of 1991, decided on 24th November, 2000.

Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑First Sched., Part II, Part A, cl. (1)(v)‑‑‑Rebate on super‑tax‑‑­Entitlement‑‑‑Processing, preserving and canning of food, vegetable, fruit, grain, meat, fish and poultry as mentioned in First Sched., Part II, Part A, Cl.(1)(v) of the Income Tax Ordinance, 1979 had restricted application which certainly could not be extended to . Ice Cream or its products‑‑­Principles‑‑‑Rebate on the super‑tax was allowable only to those companies which were engaged in processing, freezing, preserving and canning of food, vegetable, fruit, grain, meat and poultry.

"Processing, freezing, preserving and canning of food, vegetable, fruit, .grain, meat, fish and poultry" had restricted application which certainly could not be extended to Ice Cream or its products. The view that after the Ice Cream had been prepared and till it was distributed, the activity undertaken by the assessee amounted to "preserving" was not right. The idea was certainly far‑fetched and not relevant to the intention of the law for which the concession was allowed. A rebate in rate of tax takes the colour of exemption and, therefore, the same principles of interpretation are required to be adopted. These principles clearly indicate a strict interpretation of these provisions. Also that in case of an ambiguity, the interpretation has to be the one in favour of the Revenue.

To preserve a thing means to get it in a certain condition for a certain period of time to ensure the quality as well as utility of the food item after a certain period of time. In the present case it was only a distribution to various outlets where the retailers had their own refrigerators and other similar kinds of machinery to receive the item and to get it in a certain form till it actually reached the hands of buyers. The process in which the prepared ice cream was transported from factory to sale outlets was not of the kind of "preservation" contemplated by the provisions of the First Schedule of the Ordinance. View expressed by Ministry of Commerce in their letter dated 8‑10‑1987 wherein they had rated ice cream under the category of Dairy Industry was also not impressive. The assessee never crystallized the context in which that opinion was expressed. However, even if that view was correct in its own limited meaning, the concession of rebate was not given even to Dairy Products. It was meant for the purpose and to encourage an industry which was engaged in processing, freezing, preserving and canning of food, vegetable, fruit, grain, meat, fish and poultry. The assessee ­company was evidently not processing, preserving or canning any of the seven items given in the said clause. The use of words vegetable, fruit, grain etc. after the word "food" clearly specified and restricted the meaning of the word "food" in terms of the six categories which followed. Obviously the word "food" does not admit of a restricted meaning. One person's food may be a health hazard for the other. The. use of specific words in the clause after the use of general expression of "food" clearly indicated the intention of the Legislature that 10% rebate on the super‑tax was allowable only to those companies which were engaged in processing, freezing, preserving and canning of food, vegetable, fruit, grain, meat and poultry. Since the Ice Cream produced by the assessee‑company did not fall in any of the said categories, Tribunal was not correct in recording the finding. The meaning given by Ministry of Commerce had no relevancy to the concession claimed 'by the company.

Army Welfare Sugar Mills Ltd. v. Federation of Pakistan 1992 SCMR 1652 ref.

Crescent Sugar Mills and Distillery Ltd. v. C.I.T., Lahore 1981 PTD 43 distinguished.

Muhammad Ilyas Khan for Revenue. Nemo for Respondent.

2001 P T D 1437

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

THE COMMISSIONER OF INCOME‑TAX, MULTAN ZONE; MULTAN

versus

Messrs AL‑MAKHDOOM INDUSTRIES, MULTAN

C.T.R. No.35 of 1993, decided on 5th December, 2000.

Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.13(1)(c)‑‑‑Addition‑‑‑Variance between the quantities of stocks in the books of account and those shown in the "pledge statements" filed with the Bank‑‑‑Effect‑‑‑Assessing Officer was justified in making addition under S.13(1)(c) of the Income Tax Ordinance, 1979 on account of variance between the quantities of goods purchased and recorded in the books and those shown in the pledge statement filed with Bank.

Muhammad Ilyas Khan for the Revenue.

Nemo for Respondent.

2001 P T D 1439

[Lahore High Court]

Before Malik Muhammad Qayyum, J

ADIL BEVERAGE COMPANY (PVT.) LTD. through Sheikh Muhammad Ashraf, Managing Director

versus

DEPUTY COLLECTOR OF CENTRAL EXCISE AND LAND CUSTOMS and 2 others

Writ Petition No.5610 of 1988, heard on 15th February, 2001.

Central Excise Rules, 1944‑‑‑

‑‑‑‑Rr.53 & 53‑B [before substitution of R.53‑B in the Rules]‑‑‑Manufacture of soft drink by a beverage company‑‑‑Crown cork of a soft drink‑‑‑Not a "raw material"‑‑‑Manufacturer , was required to maintain record of "raw material" and not packing material‑‑‑Crown cork being not used in the manufacturing in aerated water but was only required at the time of packing of bottles, manufacturer could not have been asked, prior to the substitution of R. 53‑B of the Central Excise Rules, 1944 to have kept record of the crown corks.

Messrs Shahi Bottlers Ltd., Lahore v. Government of Pakistan and others PLD 1976 Lah. 1584 distinguished.

Zaheer Ahmed Khan for Petitioner.

Shahid Waheed for Respondents.

Date of hearing: 15th February, 2001.

2001 P T D 1444

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

THE COMMISSIONER'OF INCOME‑TAX, ZONE‑A, LAHORE

versus

Messrs AFZAL BROTHERS, LAHORE

C.T.R. No.45 of 1993, decided on 6th December; 2000.

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.136‑‑‑Reference to the High Court‑‑‑Scope‑‑‑Question of fact‑‑­Question whether a genuine firm was in existence, was necessarily a question of fact and, therefore, did not give rise to a legal controversy.

Commissioner of Income‑tax, Rawalpindi v. Zamindara Flour Mills, Lyallpur 1970 SCMR 530; Krishan Flour Mills v: Commissioner for Income‑tax, Bangalore (1962) 5 Tax 165 and Prem Family (Pvt.) (Specific) Trust v. Commissioner of Income‑tax 1998 PTD 241 ref.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.136‑‑‑Reference to the High Court‑‑‑Scope‑‑‑Inference of facts from proved facts was a question of fact which could be challenged only when it was not supported by any legal evidence or material and secondly, if the conclusion of fact drawn by the Appellate 'Tribunal was perverse and was not rationally possible‑‑‑Existence or genuineness of a firm was normally a question of fact and, therefore, could not be a subject‑matter of reference to the High Court under S.136(1), Income Tax Ordinance, 1979.

Additional Commissioner of Income‑tax v. Roshan Lal KuthiaIa (1977) 35 Tax 27 ref.

Shafqat Mehmood Chohan for the Revenue.

2001 P T D 1446

[Lahore High Court]

Before Jawwad S. Khawaja, J

Messrs PUNJAB BEVERAGE COMPANY (PVT.) LTD.

versus

CENTRAL BOARD OF REVENUE, C.B.R. HOUSE and 4 others

Writ Petition No. 18757 of 2000, heard on 30th January, 2001.

(a) Central Excises Act (I of 1944)‑‑‑

‑‑‑‑S.14‑‑‑Fresh inquiry‑‑‑Scope‑‑‑New information always justifies fresh inquiry even where earlier inquiries have been conducted with due diligence.

(b) Central Excises Act (I of 1944)‑‑‑

‑‑‑‑S.14‑‑‑Sales Tax Act (VII of 1990), S.37‑‑‑Inquiry‑‑‑Summoning of witness‑‑‑Powers of the Authorities‑‑‑Scope‑‑‑Authorities, under the provisions of S.14 of Central Excises Act, 1944 and S.37 of Sales Tax Act, 1990, have ample powers to summon witnesses for production of documentary evidence and also to testify in any proceedings before authorized Officer of the department.

(c) Central Excises Act (I of 1944)

‑‑‑‑S.14‑‑‑Sales Tax Act (VII of 1990), S.37‑‑‑Inquiry‑‑‑Anonymous complaint‑‑‑Validity‑‑‑Inquiry can be conducted on such complaint and the same cannot be dropped just for the reason that the contents of the anonymous complaint cannot be verified as the complainant is unavailable and has not furnished any documents in support of the facts alleged in the complaint.

(d) Central Excises Act (I of 1944)‑‑‑

‑‑‑‑S.14‑‑‑Sales Tax Act (VII of 1990), S.37‑‑‑Constitution of Pakistan (1973), Art. 199‑‑‑Constitutional petition‑‑‑Fresh inquiry‑‑‑Discovery of new material‑‑‑Issuance of show‑cause notice‑‑‑Earlier eight inquiries were conducted and the Authorities initiated another inquiry for the ninth time ignoring the results of earlier inquiries‑‑‑Validity‑‑‑Where the earlier inquiries were not termed as proper, diligent or complete, inquiries, fresh inquiry could be initiated.

Edulji Dinshaw Limited v. Income Tax Officer PLD 1990 SC 399; Messrs Julian Hoshang Dinshaw Trust and others v. Income Tax Officer, Circle XVIII, South Zone, Karachi and others 1992 SCMR 250; Attock Cement Pakistan Ltd. v. Collector of‑ Customs, Colleatorate of Customs and Central Excise, Quetta and 4 others 1999 PTD 1892; Al Abram Builders (Pvt.) Ltd. v. Income Tax Appellate Tribunal 1992 PTD 1761 and Messrs Central Insurance Co. and others v. The Central Board. of Revenue, Islamabad and others 1993 SCMR 1232 ref.

(e) Central Excises Act (I of 1944)‑‑‑

‑‑‑‑S.14‑‑‑Penal Code (XLV of 1860), Ss. 193 & 228‑‑‑Inquiry‑‑‑Nature o proceedings‑‑‑Inquiry undertaken by an authorized Central Excise Officer under the provisions of S.14 of Central Excises Act, 1944, is a judicial proceeding within the meaning of Ss. 193 & 228, P.P.C.

Messrs Lever Brothers Pakistan Limited through Company Secretary v. Federation of Pakistan through Secretary, Ministry of Finance Islamabad and 3 others 1999 MLD 1925 and Muhammad Irfan Khan v. The Superintendent, Central Excise, ‑Moradabad and another AIR 1960 All. 40: ref.

(f) Res judicata‑‑‑

‑‑‑‑Principles of‑‑‑Proceedings before Administrative Authorities‑‑‑Principle of res judicata‑‑Applicability‑‑‑Principle of res judicata cannot be applied to the proceedings before the Authorities with the same strictness which it is applicable before Courts or Judicial Tribunals‑‑‑Where formal decision ha been reached by any administrative forum, such decision does not constitute bar to reopening and reconsideration of the same matter where the earlier decision is clearly open to some objection or the same is not reached after proper inquiry or fresh evidence having a material bearing on the" point decided in the previous decision, becomes available.

Commissioner of Income‑tax v. Wahiduzzaman PLD 1965 SC 171; Commissioner of Income‑tax v. Pakistan Industrial Engineering Agencies Ltd. PLD 1992 SC 562 and Messrs Farrukh Chemical Industries Ltd. v. The Commissioner of Income‑tax, South Zone, Karachi PLD 1983 Kar. 269 ref.

(g) Central Excises Act (I of 1944)‑‑‑

‑‑‑.‑S.14‑‑Sales Tax Act (VII of 1990), S.37‑‑‑Constitution of Pakistan. (1973), Art. 199‑‑‑Constitutional petition‑‑‑Maintainability‑‑‑Issuance of Show‑cause notice‑‑‑Where the Authorities had jurisdiction to issue the show?cause notice and no mala fides had been alleged against the Authorities, the petitioner was not allowed to‑circumvent the statutory process.

Al Ahram Builders (Pvt.) Ltd: v. Income‑ Tax Appellate Tribunal 1992 PTD 1761 ref.

(h) Central Excises Act (I of 1944)‑‑‑

‑‑‑‑S.14‑‑‑Sales Tax Act (VII of 1990); S.37‑‑Constitution of Pakistan (1973), Art. 199‑‑‑Constitutional petition ‑‑‑ Maintainability ‑‑‑ Show‑cause notice, issuance of‑‑‑Efficacious remedy available‑‑‑Effect‑‑‑Where efficacious remedy under the relevant. statute is available, Constitutional jurisdiction of High Court cannot be exercised against mere issuance of notice by the Authority‑‑Constitutional jurisdiction of High Court can be invoked where the notice is issued by Authority lacking jurisdiction or where the appellate or revisional authority under such statute has already expressed its view on the controversy which is subject‑matter of the notice.

Adamjee Insurance Co. Ltd., Karachi v. The Central Board of Revenue, Islamabad and 3 others 1989 PTD 1090 ref.

Ch. Aitzaz Ahsan assisted by Uzair Karamat Bhandari for Petitioner.

A. Karim for Respondents.

Dates of hearing: 22nd, 23rd, 24th, 25th, 26th and 30th January, 2001.

2001 P T D 1467

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

Messrs SANDAL ENGINEERING (PVT.) LIMITED, FAISALABAD

versus

THE INSPECTING ADDITIONAL COMMISSIONER OF INCOME‑TAX/WEALTH TAX, RANGE‑I, COMPANIES ZONE‑I, FAISALABAD and 2 others

I.T.A. No‑253 of 2000, heard on 30th January, 2001.

Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.5 & 66‑A‑‑‑Jurisdiction of Income‑tax Authorities‑‑‑Powers of Inspecting Additional Commissioner to revise Deputy Commissioner order‑‑‑Scope and extent‑‑‑Expression "for the purpose of any proceedings is respect of such cases or persons" used in S.5(1)(c), Income Tax Ordinance 1979 does not in any manner mean or include only the proceedings as long a they continued‑‑‑Proceedings so contemplated include not only a pending assessment order but also a completed assessment order‑‑‑Reference to Deputy Commissioner and the Inspecting. Additional Commissioner shall remain a reference to Inspecting Additional Commissioner and the Commissioner‑‑‑Order recorded by an I.A.C. on being authorised under S.5(1)(c) of the Ordinance .continues to remain that of an I.A.C. though acting as an Assessing Officer‑‑‑Principles.

Section 5 of the Income Tax Ordinance, 1979 details the jurisdiction of various Income‑tax Authorities. Sub‑clause (c) of subsection (1) of section 5 provides that I.A.C. and the D.C.I.T. will perform their function in respect of such persons or classes .of persons or such cases as the Commissioner to whom they are subordinate, may direct. The Commissioners are allowed to make a general or special order directing that the powers conferred on the D.C.I.T. and I.A.C: under the Ordinance in respect of all or any proceedings relating to specified cases or classes of cases or specified persons or classes of persons, be exercised by the I.A.C: and the Commissioner respectively. The provision further goes to state that "for the purpose of .any proceedings in respect of such. cases or persons references in this Ordinance or in any rules made thereunder the Deputy Commissioner and Inspecting Additional Commissioner shall be deemed to be references to I.A.C. and Commissioner, respectively.

The use of word "for the purposes of any proceedings in respect of such cases or persons" in section 5(1)(c) of the Income Tax Ordinance, 1979 does not in any manner mean or include only the proceedings as long as they continued. The proceedings so contemplated include not only a pending assessment order but also a completed assessment order. Therefore, the reference to Deputy Commissioner and the Inspecting Additional Commissioner shall remain a reference to Inspecting Additional Commissioner and the Commissioner.

The provisions of section 66‑A, Income Tax Ordinance, 1979 detail the powers of an I.A.C. to "revise" Deputy Commissioner's order. As a rule revisional jurisdiction is never exercised by the same authority. The power to revise, be it suo motu or on the application of an aggrieved party, necessarily involves the consideration of the impugned order by a person or authority placed higher in the hierarchy to adjudge its legality and propriety. The jurisdiction so conferred normally has a colour of supervisory power to correct mistakes on administrative side. Once an authority has passed an order it cannot sit in revision on the same order to pick up faults and to interfere with by taking a different view of the issues involved. The power to revise an order is clearly distinguishable from review and rectification. Besides other things, one common feature of them being that both review and rectification are normally made by the same authority which had earlier passed the order in question.

To frame an assessment under the Ordinance is the privilege of Deputy Commissioner of the Income‑tax. However, this privilege can for certain reasons and in respect of certain classes of persons or, assessees be exercised by a person higher in the hierarchy of Tax Administration. However, when such power is exercised by a person higher in authority the order so framed continues to be that of the higher authority. An I.A.C. framing an assessment does not cease to remain an I.A.C. At best it can be said that he is both I.A.C. as well as Deputy Commissioner for a specific purpose and in respect of specific cases. An I.A.C. is certainly a persona designation as far as the provisions of section 66‑A are concerned, to revise the order of a "Deputy Commissioner". However, when an assessment or other order has been recorded by an I.A.C. and not a Deputy Commissioner, the power can only be exercised, with reference to provisions of section 5(1)(c) of the Ordinance by a Commissioner. It is simple enough to understand the purpose of section 66A which, inter alia, provides for calling and examining of record of any proceedings under the Ordinance if the conditions stated in the provisions ire answered. Obviously an authority equal in status cannot "call for" the record and "examine" the same. An assessment framed by an I.A.C. even though remains on the file of a D.C.I.T., still it continues to be the one framed by an I.A.C. and, therefore, a person equal in authority cannot call for the same. The title of the provision supports this view that the power so conferred on I.A.C. is "to revise the Deputy Commissioner's order". An order recorded by an I.A.C. on being authorized under section 5(1)(c) of the Ordinance continues to remain that of an I.A.C. though acting as an Assessing Officer. It is not comparable nor it can be stated to be that of Deputy Commissioner of the Income‑tax. The scheme of section 66‑A also gives an exceptional situation when an I.A.C., while revising the order of the Deputy Commissioner, can himself pass an assessment order substituting the earlier order. This is in addition to his power to cancel the assessment and to direct a fresh assessment to be made by D.C.I.T.

Powers conferred under section 5(1)(c) of the Ordinance simultaneously substitute an I.A.C. for the Commissioner of Income‑tax. That transfer or substitution remains intact till the possibility of exercise of any jurisdiction conferred on an I.A.C in respect of, completed assessment remains intact. It does not end with the completion of assessment or other proceedings undertaken by the I.A.C. as D.C.I.T.

I.A.C. who framed the original assessment in the present case was nevi designated as .special officer. According to order passed by C.I.T. under section 5(1)(c) of the Ordinance, 1979 (with the prior approval of R.C.I.T.) certain I.A.Cs. including the gentleman who framed the assessment in the present case were directed to exercise powers conferred on Deputy Commissioner of Income‑tax in respect of the classes of persons specified in the Schedule. The notification so made, it goes without saying, did make the I.A.C., a D.C.I.T. or an Assessing Officer but it did not divest him of his position in the hierarchy as an I.A.C. The power given is in addition to his status and not in its derogation.

Framing of an order under section 66‑A by the I.A.C. was not in accordance with law in circumstances.

Naveed A. Andarabi and Shahbaz Butt for Petitioner. Shafqat Mahmood Chohan for Respondents.

Dates of hearing: 29th and 30th January, 2001:

2001 P T D 1474

[Lahore High Court]

Before Malik Muhammad. Qayyum, J

MUHAMMAD JAMEEL and another

versus

THE COMMISSIONER OF INCOME‑TAX, ZONE B, INCOME‑TAX COMPLEX, LAHORE and another

Writ Petition No.6401 of 1996, heard on 18th October, 2000.

Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.19‑‑‑Income from property‑‑‑Property tax‑‑‑Income‑tax could not be levied merely on the ground that it was a valuable property and property tax was being paid on it unless some income was generated from such property.

Mian Ashiq Hussain for Petitioner.

Shafqat Mahmood Chauhan for Respondent.

Date of hearing: 18th October, 2000.

2001 P T D 1475

[Lahore High court]

Before Nasim Sikandar and Jawwad S Khawaja, JJ

THE C.I.T. RAWALPINDI

versus

SAIFULLAH

C.T.R. No. 299 of 1991, heard on 26th October, 2000.

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.65‑‑‑Additional assessment‑‑‑Scope and extent‑‑‑Proceedings initiated under S.65, Income Tax Ordinance, 1979 were not restricted only to the grounds and the reasons or the material on the basis of which a notice for re­opening was issued‑‑‑Proceedings under S.65, Income Tax Ordinance, 1979 were not to remain within the four corners of the reasons given in the show­ cause notice or the material pointed out therein‑‑‑Use of, the word "total income" used in S.65 was indicative of the fact that once the proceedings had been re‑opened these will not be restricted to a specific head of income or a specific sub‑head of the main head‑‑‑Words "or the tax payable by him" used in S.65 of the Ordinance point out that an additional assessment could be made not only with respect to total income of the assessee but also the tax payable by him if the requirements of S.65(1)(b) were answered which required of an Assessing Officer to go for additional assessment if the total income of an assessee had been under‑assessed or assessed at too low rates or had been the subject of excessive relief or refund under the Ordinance.

Section 65 of the Income Tax Ordinance, 1979 is titled as "additional assessment". After contemplating various situations, in which re‑assessment proceedings are .to be initiated, it is laid down that an Assessing Officer "may proceed to assessee or determine by an order in writing, the total income of the assessee or the tax payable by him, as the case may be, and all the provisions of this Ordinance shall, so far as may be, apply accordingly". These provisions do not in any manner go to point out that the proceedings initiated under section 65 are to be restricted only to the grounds and the reasons or the material on the basis of which a notice for re‑opening was issued. It is also not discernible from the provisions that the proceedings initiated thereunder are to remain within the four corners of the reasons given in the show‑cause notice or the material pointed out therein. The use of the words "total income" is also indicative of the fact that once the proceedings have been reopened, these will not be restricted to a specific head of income or a specific sub‑head of the main head. Also the succeeding words "or the tax payable by him further go to point out that an additional assessment can be made not only with respect to total income of the assessee but also the tax payable by him if the requirements of sub‑clause (b) of subsection (1) of section 65 are answered. That clause requires of an Assessing Officer to go for additional assessment if the total income of an assessee has been under­ assessed, or assessed at too low rates or has been the subject of excessive relief or refund under the Ordinance. All the three elements pointed out in sub‑clause clearly show that additional assessment can be made and proceedings for re‑opening of assessment can also .be made when either a lower rate of tax had been applied in respect of a particular head of income or excessive relief has been allowed to an assessee in relation to any claim to which he was not entitled as also for the reason that the amount of refund made was more than what was due to him.

Messrs Sutlej Cotton Mills Ltd., Okara v. C.I.T., North Zone (West Pakistan), Lahore PLD 1965 SC 443; Hind Wire Industries Ltd. v. C.I.T. 1996 PTD 562; V. Jagmahan Rai v. C.I.T. (1970) 75 ITR 373 and CST v. H.M. Esufali H.M. Andulali (1973) 32 STC 77 (SC) = (1973) 90 ITR 271 (SC) ref.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.136‑‑‑Reference to the High Court‑‑‑Scope‑‑‑Question of fact‑‑ ‑Finding of fact that enough material was not available on record to enhance the business income would not in any manner change the nature of the question if an Income Tax Officer could assess income from sources in the same year when income had previously been accepted under Self‑Assessment Scheme.

Muhammad Ilyas Khan for Petitioner. Nemo for Respondent.

Date of hearing: 26th October, 2000,

2001 P T D 1492

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

COMMISSIONER OF INCOME-TAX, FAISALABAD

versus

Haji MUHAMMAD ASHRAF

C.T.R. No.28 of 1992, heard on 6th February, 2001

(a) Income-tax---

----Assessment---Agreed amount---Appeal to Appellate Tribunal ---Scope--­Resorting to far-fetched technicalities by Appellate Tribunal and entertaining plea of non-availability of definite information and improper service of notice---Justification---Agreed assessment was binding both on the Revenue as well as the assessee---Far-fetched technicalities could not be resorted to interfere with agreed assessment---When the assessee had agreed to be assessed at a certain sum after he was found to have concealed his income, he owed a lot of explanation to be made before his appeal could be entertained by the Tribunal ---Assessee had to make a case that the agreement was got executed in a manner which amounted to coercion, misrepresentation or fraud on the part' of the Revenue and it was only on such three grounds or reasons that an agreed assessment could possibly be challenged before the First Appellate Authority or the Tribunal---Income Tax Appellate Tribunal, in circumstances, was not justified in annulling the assessment orders when these were made in agreement with the assessee and the assessee himself had offered for agreed assessment---Principles.

In the present case the A.C. in his order expressed his surprise as to how both the assessees as well as his counsel who signed the agreed assessment could possibly approach him (A.C.) complaining against the assessment order as framed. However, the Tribunal completely closed its eyes to the agreed assessment and entertained the objections with regard to lack of availability of definite information or improper service of notice in a manner which appears totally unusual to proceedings before the Appellate Tribunal. Far-fetched technicalities were resorted to interfere with the agreed assessment. It was absolutely unjustified. The assessee agreed to be assessed at a certain sum after he was found to have concealed his income. Therefore, he owed a lot of explanations to be made before his appeal could be entertained by the Tribunal and ruled upon as such. An agreed assessment is binding both on the Revenue as well as the assessee. Although the provisions of Civil Procedure Code are not strictly applicable to the proceedings before the Tribunal, however, the general principle contained in the Code can freely be invoked to do complete justice between the parties. One of such principle is contained in subsection (3) of section 90 of the Code. It states that no appeal shall be from a decree passed by the -Court with the consent of the parties. That principle was rightly invoked by the First Appellate Authority the A.C. The Tribunal rather went to the extent of allowing premium to an assessee who was caught in the middle of concealment and had offered to be assessed at a particular income. Before the Tribunal it was never. their case that the agreement was got executed in a manner which amounted to coercion, misrepresentation or playing fraud on the part of the Revenue. It is only on these three grounds or reasons for which an agreed assessment can possibly be challenged before the First Appellate Authority or the Tribunal. The sanctity attached to a completed. assessment with the agreement of the parties was outraged by a forum not less than that of second appeal.

In absence of a solid proof on record and the availability of any of the elements of coercion, misrepresentation or fraud on' the part of the Revenue appeal before the Tribunal was not competent.

(b) Income-tax---

---Assessment---Agreed assessment---Penalty proceedings ---Justification--­Agreed assessment amounts to a package deal between the Revenue and the assessee---In the absence of an express mention of penalty proceedings .in the agreement itself, penalty proceedings could not be resorted to subsequently using the agreed amount as admission on the part of the assessee.

An agreed assessment shall be taken to be a package deal between the Revenue and the assessee and that in absence of an express provision for that purpose an Assessing Officer cannot resort to penalty proceedings. An agreed assessment covered the interest of both the Revenue as well as the assessee, and therefore, they were bound by its terms and conditions. Also in absence of an express mention of penalty proceedings in the agreement itself, these provisions cannot be resorted to subsequently using the agreed assessment as admission on the part of the assessee.

CIT v. Muhammad Hanif C.T.R. No.362 of 1991 ref.

Shafqat Mehmood Chohan for the Revenue. Nemo for Respondent.

2001 P T D 1502

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

LALAZAR GLASS & SILICATE FACTORY, FAISALABAD

versus

THE COMMISSIONER OF INCOME-TAX, FAISALABAD

C.T.R. No.348 of 1991, heard on 13th November, 2000.

Income Tax Ordinance (XXXI of 1979)---

----S. 136---Reference to the High Court---Scope---If the assessee at whose instance the question was referred to the High Court was absent, High Court was not bound to answer the question so referred.

Dada Bhai H. Mama & Sons, Karachi v, Commissioner of Income ­tax (1967) 16 Tax 43 and M.M. Ispahani Ltd. v: Commissioner of Excess Profits Tax, West Bengal (1955) 27 ITR 188 ref.

Nemo for Petitioner.

Muhammad Ilyas Khan for Respondent.

Date of hearing: 13th- November, 2000.

2001 P T D 1504

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

COLONY SARHAD TEXTILE MILLS LIMITED

versus

COMMISSIONER OF INCOME-TAX, RAWALPINDI

P.T.R. No.21 of 1979, heard on 17th January, 2001.

(a) Income-tax Act (XI of 1922)---

----S.66(2)---Reference to High Court---Scope---Question of fact-- Assessee a company running a textile mill---Rejection of accounts---Addition--­Assessing Officer, after scanning the accounts had observed that there was heavy. fall in the yield shown in the relevant years---Corresponding increase in the wastage was also noticed ---Assessee when called upon to explain made vague and evasive answer---Claim of assessee that non-use of wastage resulted into an achievement of better quality was also found to be factually incorrect rather it was found that there was a decrease in the sale rate of year---Comparison of production results of the assessee in the earlier years showed fall in average count of yarn during the relevant year while there should have been a corresponding improvement in wastage---Heavy increase in the wastage shown as found to be unsubstantiated on account of absence of day to day record of wastage---Tribunal in its order had found that reasons mentioned by the Assessing Officer were sufficient to discard the disclosed version; that production of yield was not only low but in fact was lowest in the last 12 years and the only explanation put forth that wastage was not re­used during the relevant year was found to be factually wrong; that claim of wastage determined in the last six years when compared with one allowed by the revenues during the relevant year was still more than the similar claims made by the assessee in previous years and such finding of fact had not been questioned on any acceptable ground and it was not alleged that there was no material on record to support such findings---Rejection of account of assessee, in circumstances, had not raised any question of law.

(b) Income-tax Act (XI of 1922)---

----S. 66(2)---Reference to High Court---Scope---Finding of fact ---Assessee, a company engaged in business of textile mills---Rejection of accounts--­Stores consumption account---Claim of assessee was found by the Assessing Officer to be disproportionate and exclusively high when compared with the similar claims in the previous years---First Appellate Authority set aside the issue and the Tribunal maintained the same after having found itself in agreement with the revenue of its being in line with the history of the case--­No cogent reason at the bar had been stated against the finding so recorded by the Tribunal while maintaining the remand---View adopted by the Tribunal, in circumstances, did not give rise to any legal controversy.

(c) Income-tax Act (XI of 1922)---

----S. 66(2)---Reference to High Court---Scope---Finding of fact---Claim of sales tax liability---Tribunal had recorded a finding of fact that admittedly the claimed liability pertained to the assessment years 1959-60, 1960-61, 1963-64 to 1965-66, and therefore, could not be claimed in the current assessment year viz. 1971-72---Such findings of fact by the Tribunal did not give rise to an legal controversy.

In case of sales tax liability the Tribunal recorded a finding of fact that admittedly the claimed liability pertained to the assessment years 1959-60, 1960-61, 1963-64 to 1965-66 and, therefore, could not be claimed in the current assessment year viz, 1971-72. It was also noted that the amount claimed for the year 1965-66 as an expenditure even if accepted could not have been allowed in the year under review on account of demand having been created on 12-4-1971 which was after the end of the previous year. That sum was claimed as sales tax only for the reason that the return for the yei'1971-72 was filed after creation of the demand. Also it was noted by the Tribunal that in case of demand of earlier years, 1959-60 and 1963-64 the Department had created the liability before starting of the accounting period under review but no debt entry in respect thereof was either passed or recorded. It was further seen that out of the total claim of Rs.16,25,823 a sum of Rs.30,628 only was deposited by the company during the .accounting period towards the sales tax liability and the same was allowed by the Assessing Officer. No further amount on account of sales tax having been paid during the accounting period nor any entry as liability or provision having been brought from the previous year, the findings of fact so recorded by the Tribunal did not give rise to any legal controversy.

(d) Income-tax Act (XI of 1922)---

----S. 66(2)---Reference to High Court---Scope---Non-recording of finding on an issue could not be a subject-matter of reference to High Court under S.66(2), Income-tax Act, 1922---Principles.

Syed Raza Kazim for Appellant.

Shafqat Mahmood Chohan for Respondent.

Date of hearing: 17th January, 2001.

2001 P T D 1514

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

Mrs. YASMEEN HAMEED

versus

THE SPECIAL OFFICER OF WEALTH TAX, CIRCLE-34, ZONE-B, LAHORE

I.T.As. Nos.323 to 328 and 332 to 33'7 of 2000, decided on 1st February, 2001.

(a) Wealth Tax Act (XV of 1963)---

----S. 27---Appeal to High Court---Scope---Question of fact---Valuation of property---Determination---Contention of the assessee was that she was not owner of the property in question inasmuch as the same had been allotted to her with certain restrictions on. her right to dispose of the same and said conditions according to assessee being in derogation of the ownership rights, she was not owner of the property, and therefore, same was not liable to be taxed for wealth tax in her hands as an "asset "---Inspecting Assistant Commissioner estimated the value of the land as well as the constructed portion at a certain rate which was partly maintained by the Tribunal to the extent of the valuation of the land---Valuation so made by the Tribunal was at best a case of one estimated against the other and in such a situation, no question of law could be said to have arisen.

(b) Wealth Tax Act (XV of 1963)---

----S. 27---Appeal to High Court---Scope---Only a question of law arising out of order of the Tribunal could be a subject-matter of appeal before High Court.

(c) With Tax Act (XV of 1963)---

----S.27---Wealth Tax Rules, 1963, R. 8(3)---Reference to High Court--­Scope---Valuation of assets onless successfully demonstrated to be without a basis would not give rise to a question of law to be determined and answered by the High Court.

Ch. Anwar-ul-Haq for Appellant.

Shafqat Mahmood Chohan for the Revenue.

2001 P T D 1525

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

Messrs MONNOO INDUSTRIES LTD.

versus

THE COMMISSIONER OF INCOME-TAX CENTRAL ZONE, LAHORE.

C.T.R. No.322 of 1991, decided on"7th February, 2001.

(a) Income Tax Ordinance. (XXXI of 1979)---

----Ss. 66-A & 166---C.B.R. Circular No.1(48)/II/1/79, dated 17-2-1981--­Interpretation of S.66-A---Provisions of S.66-A of .Income Tax Ordinance, 1979 being not procedural in nature could not have retrospective effect to touch the completed assessments before its introduction on the statute book--­Principles.

Section 66-A of the Income Tax Ordinance, 1979 is not procedural in nature, and therefore, it could not have retrospective effect to touch the completed assessments before its introduction on the statute book. The interpretation made by the C. B. R. through the Circular No.1(48)/11-1-1979, dated 17-2-1981 appears to be more in consonance with law. Particularly in view of the fact that revisional provisions were not saved by section 166 of the Income Tax Ordinance providing for repeal and savings of the late Income-tax Act, 1922. The return being pending at the time of enforcement of the Income Tax Ordinance, 1979 had to be dealt with "as if the Income Tax Ordinance, 1979 had not come into force".

CIT v. Naseem Allahwala 1991 PTD 843 distinguished.

Ms. Anjuman Shaheen v. I.A.C. of Income-tax 1993 PTD 1232 and Adnan Afzal v. Capt.. Sher Afzal PLD 1969 SC 187 ref.

(b) Income Tax Ordinance (XXXI of 1979)---

----S. 166(2)(a)---Mere fact that an assessment was framed after July, 1979 would not by itself deny such an assessment the benefits of S.166(2)(a), Income Tax Ordinance, 1979.

(c) Income Tax Ordinance (XXXI of 1979)---

----Ss. 66-A(2)(a) & 166(2)(a)---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's Order---I. A. C. under S.66-A(2)(a) of the Ordinance can revise the order of the Deputy Commissioner after calling for and examining the record of any proceedings under the Income Tax Ordinance, 1979---Assessment having admittedly been framed under S.23(3), Income-tax Act, 1922 'it could not be said to have been a "proceedings under the Ordinance" when read with the provisions of S.166(2)(a) of the Ordinance.

Under section 66A(2j(a) of the. Income Tax Ordinance, 1979 an I.A.C. can revise the order of the Deputy Commissioner after calling for and examining the record "of any proceedings under the Ordinance". The assessment in the present case was admittedly framed under section 23(3) of late Act, 1922. Therefore, it could not be said to have been a proceeding under the Ordinance when read with the provisions of section 166(2)(a) of the Income Tax Ordinance, 1979.

Muhammad Iqbal Khawaja for Petitioner.

Shafqat Mehmood Chohan for the Revenue.

2001 P T D 1534

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

THE COMMISSIONER OF INCOME-TAX, FAISALABAD'

Versus

FAROOQ AKRAM CHEEMA

C.T.R. No.46 of 1992, heard on 30th November, 2000.

(a) Income Tax Ordinance (XXXI of 1979)---

----S. 136---Reference to High Court---Scope---Question of fact---Venture in, the nature of trade---Question whether a venture in the nature of trade was a question of fact and could not be a subject-matter of reference to the High Court.

(b) Income Tax Ordinance (XXXI of 1979)---

----S. 136---Reference to High Court---Scope---Conversion of question of fact into question of law---Principles---Tribunal had neither ignored any material on record nor had misconstrued the same in the light of a specific provision of law to claim that a question of law in the circumstances had arisen out of its order---In the absence of said two factors question of fact could not be converted into one of law merely because the Revenue or the assessee disagreed with the order of the Tribunal.

(c) Income-tax---

----Venture in the nature of trade---Determination---Transaction .has to be seen in the totality of facts which would determine if the transaction was actually in the nature of business as even a single transaction could be a venture in the nature of trade while a number of them may not.

(d) Income Tax Ordinance (XXXI of 1979)---

----S. 136---Reference to High Court--Scope---Question of fact---Tribunal had considered the facts and had come to the conclusion that the profit motive at the time of transfer of land from father to the assessee son was never established by the Assessing Officer---No question of law could be said to have arisen out of the order of the Tribunal.

(e) Income Tax Ordinance (XXXI of 1979)---

----Ss. 136 & 13(1)(aa)---Reference to High Court ---Scope---Question of fact---Deemed income---Determination---Addition---Whether any accretion in the wealth over the years had actually come into being was a question of fact to be determined in the light of the claim of the assessee of his income and other sources---Tribunal against the finding of the Assessing Officer expressed the view that the additions were totally uncalled for inasmuch as admittedly in the relevant year the assessee was purely an agriculturist therefore framing of the assessment in the said year on notional income under S.13(1)(aa) of the Income Tax Ordinance, 1979 was contrary to the letter and spirit of law and that S.13(1)(aa) of the Ordinance having been introduced by the Finance Ordinance, 1980, said provisions were not retrospective in operation to make the addition in the years 1971-72 to 1975-76---Such findings of the Tribunal were not challenged either as fact or on legal plane---No question of law, in circumstances, could be seen arising out of the order of the Tribunal.

Muhammad Ilyas Khan for Petitioner.

Nemo for Respondent.

2001 P T D 1548

[Lahore High Court]

Before Nasim Sikandar, J

Messrs BHATTI ICE FACTORY, BUCHEKE DISTRICT SHEIKHUPURA

versus

THE COMMISSIONER OF INCOME‑TAX. ZONE‑C, LAHORE and 2 others

Constitutional Petition No. 1376 of 1996, heard on 28th February, 2001

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss. 138, 136 & 62‑‑‑Constitution of Pakistan (1973), Art. 199‑‑­Constitutional petition ‑‑‑Maintainability‑‑‑Assessee an individual deriving income from an ice factory approached the Commissioner of Income Tax under revisional jurisdiction assailing the framing of assessment without issuing of notice under S.62, Income Tax Ordinance, 1979, insufficiency of meltage allowance and excessive application of G.P. rate ‑‑‑Revisional Authority, after hearing the assessee refused to interfere ‑‑‑Assessee in his Constitutional petition before High Court had stated that a number of questions of law had arisen out of the order of revisional Authority‑‑­Validity‑‑‑Said questions of law could not be ruled upon in exercise of Constitutional jurisdiction of High Court against a revisional order simple for the reason that the assessee had no further remedy available to him against such order‑‑‑All the grounds taken in the Constitutional petition anc the alleged questions of law as contended by the assessee were germane only to either the appellate or reference jurisdiction of the High Court under 5.136, Income Tax Ordinance, 1979‑‑‑Such issues needed to be ruled upon in the perspective of the assessment order and the revisional order which was not possible to be adjudged in exercise of Constitutional jurisdiction of High Court under Art.199 of the Constitution ‑‑‑Assessee (petitioner) had two sets of remedies available to him one was on the judicial side which included firs: appeal to the Additional Commissioner (Appeals) and second appeal to the Income Tax Appellate Tribunal and then a reference to High Court was also available to the assessee and finally an appeal to the Supreme Court lay against the order by the High Court in_ reference ‑‑‑Assessee, on the administrative side, had a choice to approach the Commissioner in revisional jurisdiction under S.138, Income Tax Ordinance, 1979‑‑‑Assessee having opted for the administrative remedy, could not be permitted to make up his failure to approach the judicial forum‑‑‑Only judicial defect could be looked into under the Constitutional jurisdiction by the High Court and such jurisdiction could not be given a colour of an appeal or revision or reference against the judgments of Revenue Authorities or . Tribunals of special jurisdiction.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss. 138, 136 & 62‑‑‑Constitution of Pakistan (1973), Art. 199‑‑­Constitutional petition‑‑‑Maintainability‑‑‑Principles‑‑‑Revisional order of the Income Tax Commissioner was assailed through a Constitutional petition by the assessee under Art. 199 of the Constitution containing that notice under S.62, Income Tax Ordinance, 1979 was not given; higher G.P. rate was applied and low meltage was allowed to the assessee (who was deriving his income from an ice factory)‑‑‑Validity‑‑‑Fact that Authority had gone "wrong in law" and went outside its jurisdiction could not be established by the assessee‑‑‑Mere fact that the claim of the assessee qua lack of notice or application of a higher G.P. rate or allowing a, low meltage was not accepted by the Authority could not amount to "going wrong in law".

Faqir Muhammad v. Nawab Bibi and another 1988 MLD 695; Utility‑ Stores Corporation of Pakistan Ltd. v. Punjab Labour Appellate Tribunal PLD 1987 SC 447 and Haidri Textile Mills v. The State Bank of Pakistan‑.1986 CLC 2197 ref.

(c) Constitution of Pakistan (1973)‑‑‑

‑‑‑‑Art. 199‑‑‑Erroneous decision by forum‑‑‑Constitutional jurisdiction of High Court under Art. 199 of the Constitution‑‑‑Scope.

If there was a jurisdiction to decide a particular matter merely because a decision was erroneous would not render the same to be without jurisdiction. Obviously if every erroneous decision can be subject‑matter of Constitutional jurisdiction then a right of appeal, revision or review provided for in every statute will have to be read alongwith the provisions of Article 199 of the Constitution. The scheme of the Constitution as well as the contours of laws providing for an approach to a higher forum do not permit such an interpretation to be accepted.

Haidri Textile Mills v. The State Bank of Pakistan 1986 CLC 2197 ref.

Moeen Qureshi for Appellant. Shafqat Mahmood Chohan for Respondents.

Date of hearing: 28th February, 2001.

2001 P T D 1633

[Lahore High Court]

Before Malik Muhammad Qayyum, J

Messrs HOME PLANNERS through Muhammad Azeem, Partner

versus

THE ASSISTANT COMMISSIONER OF INCOME‑TAX, CIRCLE‑06, COYS, ZONE‑III, LAHORE (NOW CIRCLE 14, COY ZONE‑II, LAHORE) and 4 others

Writ Petition No.3520 of 2001, decided on 15th March, 2001.

Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.65‑‑‑Constitution of Pakistan (1973), Art. l99‑‑‑Constitutional petition‑­Reassessment‑‑‑Requirements for issuing notice under S.65, Income Tax Ordinance, 1979‑‑‑Principles‑‑‑Where the requirements postulated in S.65, Income Tax Ordinance,. 1979 had not been met by the‑ department, High Court under its Constitutional jurisdiction, declared the order of reassessment to be without any lawful authority and of no legal effect with the observation that the department was at liberty to restart the proceedings, if it so desired, in accordance with law.

Section 65 of the Income Tax Ordinance, 1979 had postulated four situations under which a notice could be issued. The notice served in the present case was on printed form and it had not been made clear as to under which clause of section 65(1), the Assessing functionaries were acting. The power being statutory in nature had to be exercised by the concerned functionaries after due application of mind which should manifest itself from the notice for re‑assessment issued under section 65 of the Ordinance.

Subsection (2) of section 65 of the Ordinance provided that no proceedings under subsection (1) shall be initiated unless definite information had come into possession of the Deputy Commissioner and he had obtained previous approval of the Inspecting Additional Commissioner in writing to do so. This requirement did not appear to have been met with in the present case which did not disclose as to what information had come into possession of the Deputy Commissioner of Income‑tax which necessitated issuance of notice under section 65 of the Ordinance.

The impugned order was declared to be without any lawful authority and of no legal effect by the High Court. The department was, however, at liberty to restart the proceedings, if they so desired, in accordance with law.

Baby Own v. Income‑tax Officer 1997 PTD 47‑ref.

Siraj‑ud‑Din.Khalid for Petitioner.

Muhammad Ilyas Khan for Respondents

Date of hearing: 15th March, 2001.

2001 P T D 1647

[Lahore High Court]

Before Malik Muhammad Qayyum, J

USMAN SAEED BUTT

versus

THE DEPUTY COMMISSIONER, INCOME‑TAX, CIRCLE‑2 COM: ZONE‑I; LAHORE.

Writ Petition No.2519 of 2001, heard on 15th March, 2001.

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.56, 58 & 61‑‑‑Constitution of Pakistan (1973), Art.199‑‑­Constitutional petition‑‑‑Issuance of notices under Ss.56, 58 & 61 of the Income Tax Ordinance in the names of a dead person‑‑‑Fact that the person had died was within the knowledge of the Assessing Officer who instead of issuing notices in the names of the legal representatives issued notice to the deceased assessee through his legal representatives‑‑‑Neither the names nor the addresses of the legal representatives had. been mentioned in the notices, in question‑‑‑Validity‑‑‑Assessing Officer was duty‑bound to find out the names of‑the legal representatives of the deceased and issue notices to them‑‑­Assessee having died during the year 1993, there was no occasion for the Assessing Officer to have issued notice in his name in the year 2001‑‑­Notices in question were declared to be without lawful authority and of no legal effect by the High Court in circumstances.

Sahasranghsu Kanta Acharya v. Collector of Malda and others (1963) 47 ITR 754 ref.

(b) Income‑tax‑

‑‑Assessment .

‑‑‑Assessee having died, assessment could not be made against a person without naming him but describing him as successor‑in‑interest of dead person.

Sahasranghsu Kanta Acharya v. Collector of Malda and others (1963) 47 ITR 754 fol.

Syed Abrar Hussain Naqvi for Petitioner.

Muhammad Ilyas Khan for Respondent.

Date of hearing: 15th March, 2001.

2001 P T D 1649

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

Messrs ANSAR EXPORT ENTERPRISES LTI).

versus

COMMISSIONER OF INCOME‑TAX. ZONE‑B, LAHORE

P.T.R. No.42 of 1988, heard on 7th February, 2001.

(a) Income‑tax‑‑

‑‑‑‑Income‑‑‑Customs rebate was direct income of the assessee‑‑‑Principles‑‑­Rebate, discount and commission‑‑‑Connotation.

A rebate of tax when made with reference to actual amounts earlier paid by a taxpayer is different from the one given with reference to the exports made of specified goods and quantity. In the latter case it is more in nature of subsidy while in the former it is a drawback proper. Though the purpose to give incentive to exports remains the same, their treatment in accounts is not similar. While the revenue is traditionally hesitant to accept a declared version, the assessees also do not appear consistent. A custom rebate, which is returning of duties of certain kinds earlier entering into the cost of production, is normally treated by the exporters in two manners. In very few cases they deduct it from the cost of production and in that case it is a debit entry to purchase account. Others treat it a credit to sale account. In practical significance it also amounts to taking the rebate as income with the only difference that by adding it to sales only a part of it is offered for tax through application of a gross profit rate. Adding an amount of Rs.100 of rebate to sales will amount to offering for tax a sum of Rs.25 only if the gross profit rate is applied at 25%. Adamant revenue will, however, invariably insist. upon taking it to profit and loss account as direct income. A deduction from cost though increase gross profit rate is most realistic and correct manner to treat the rebate of the kind. Adding it to sales account or treating it as an item of profit and loss account is not warranted for at least two reasons. Firstly, it has no direct nexus with the sales or actual exports. Secondly no profit is earned by an assessee on a rebate. A compensatory rebate which is meant to "compensate" and is a lump sum amount bearing no direct connection with the cost of sales can fairly be taken to profit and loss account as income. Treatment of a rebate becomes a moot point only where accounts have been rejected for one reason or the other. In case of acceptance of accounts the issue that custom rebate was a direct income will not arise at all because then treating the rebate in trading account or an item of profit and loss account will not affect the gross profit figures.

Therefore, only the first kind of assessees treats the rebate and reflects its real impact in the books of accounts. The international accounting standard also supports the view that all taxes recoverable by the enterprise from the taxing authorities do not form part of cost of inventories. Therefore, these will have to be shown as deduction from cost.

The difference in treatment obviously affects the part of the balance ­sheet when it comes to compute the net profit. However, except for being a deduction to purchases, the other two treatments do not show a correct picture. To that extent the issue is clear as in final analysis it is the exact nature of the rebate which will determine its place in the accounts. Though some confusion or uncertainty may well‑remain in case of other kinds of rebates like compensatory etc. taking a rebate either to sales account or to an item of profit and loss account where it is only a return of duties already paid, is not in accordance with any recognized accounting principle.

However, in any subsequent year if the assessee can establish the nature of rebate to be different from the one found by the Tribunal in the year under‑consideration, it can very well‑treat it accordingly.

The word "rebate" is used in a number of situations to. indicate the return of a sum as a commercial practice It is a specific or unspecific amount which either reduced from the payment to be received or is handed back to payer after he had paid the total stipulated sum. In the former case it, is notional in the latter it is real. Though it has a colour of discount but can easily be distinguished. The term "rebate" is used more in relation to the taxes than in cases of dealing between an enterprise and its customers. Rebate means discount, deduction or refund of money. However, be it a transaction between two private parties or refund made by Taxing Authorities after the taxpayer had discharged his total liability towards payment of tax, the underlying idea of incentive remains common to both of them. In cases of buyers and sellers, the idea is either to attract advance payment or to compensation for full payment having already been made. Also it is an incentive to purchase more. The rebate of tax, however, contemplates a situation which invariably means return of the whole or part of the tax paid.

The term "rebate, discount and commission" are common usages of trade and commerce. These are frequently used to express the same meaning i.e. a concession given to a person to persuade. This persuasion is mostly motivated by the expected or realized benefit for the giver. In recent years, however, the term "rebate" is being used with a particular reference to taxes already paid while "commission" and "discount" have maintained an interchangeable identity.

The expression "commission" is understood as an allowance for service or labour in discharging certain duties such as for instance of an agent, 'factor, broker or any other .person who manages the affairs or undertakes to do some work or renders some service to another. Mostly, according to the learned Judge it is a percentage on price o y value or upon the amount of money involved. A "rebate" on the other hand, was explained to be a remission or payment back and of the nature of a deduction from the gross amount. In that sense, it can be equivalent to a discount or a draw­back. Further, a rebate is not confined to a transaction of sale and includes any deduction or discount from a stipulated payment, charge or rate. It need not necessarily be taken out in advance of payment but may be handed back to the payer after he has paid the stipulated sum. The repayment need not be immediate. It can be made later and in case of persons who have continuous dealing with one another it is nothing unusual to do so.

The term "rebate" was first used with specific reference to re­payment of direct taxes entering into cost of production through a scheme introduced in U.K. in 1964. Ever since it has almost assumed a definite reference to repayment of direct taxes already paid for the purpose of making an expert a more attractive buyer. This, does not, however, mean that the word "rebate" can no more be used in its conventional meaning as an alternate for discount.

Black's Law Dictionary, 6th Edn.; A Dictionary of Economics and Commerce by J. L. Hansan and Harihar Cotton Pressing Factory v. Commissioner of Income‑tax, Bombay North (1960) 39 ITR 594 ref.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.136‑‑‑Reference to High Court‑‑‑Scope‑‑‑High Court cannot go beyond the finding of facts as recorded by the Tribunal except when these are ex facie against the record.

Dr. Ilyas Zafar for Appellant.

M. Ilyas Khan for Respondent.

Dates of hearing: 6th and 7th February, 2001.

2001 P T D 1656

[Lahore High Court]

Before Malik Muhammad Qayyum, J

WELCON CHEMICALS

versus

COMMISSIONER OF INCOME‑TAX and others

Writ Petitions Nos. 13956 of 1999 and 20514 of 2000, heard on 2nd March, 2001.

Income Tax Ordinance (XXXI of 1979)‑‑

‑‑‑‑Ss.80‑C(4) & 50‑‑‑Deduction of tax at source ‑‑‑Assessee, deriving income from sale of pesticides‑‑‑Income‑tax was paid by the assessee under S.50(5) of the Income Tax Ordinance, 1979 at the time of import‑‑‑Department had asked the assessee to pay the income‑tax as a supplier under S.50(4) of the Ordinance ‑‑‑Validity‑‑‑Assessee having had paid the tax at the time of import of the goods, it amounted to final discharge of liability in terms of S.80‑C(4) of the Income Tax Ordinance, 1979‑‑‑Assessee having paid the tax under S.50(5) of the Ordinance could not be called upon to pay any further tax.

Commissioner of Income‑tax v. Messrs Sir E.H. Jaffer & Sons I.T.A. No.98 of 1998 and Messrs Elahi Cotton Mills and others v. Federation of Pakistan 1997 PTD 582 ref. , Dr. Ilyas Zafar for Petitioner.

Nemo for Respondents.

Date of hearing: 2nd March, 2001.

2001 P T D 1789

[Lahore High Court]

Before Malik Muhammad Qayyum, J

Messrs SONIA SILK, 108‑ANARKALI, LAHORE

through Sheikh Wajih‑ud‑Din Ahmad

Versus

THE CENTRAL BOARD OF REVENUE, through Chairman, Islamabad and 4 others

Writ Petition No. 5136 of 2001, decided on 6th April, 2001

Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.129(2)‑‑‑Constitution of Pakistan (1973), Arts. 199 &2A‑‑‑Constitutional petition‑‑‑Appeal to Appellate Additional Commissioner‑‑­Condition of deposit of tax amount‑‑‑Validity‑‑‑Condition to deposit a portion of the tax amount being contrary to Full Bench judgment in the case of Chenab Cement Product (Pvt.) Ltd. and others v. Banking Tribunal, Lahore and others PLD 1996 Lah. 672, High Court, in circumstances, directed that assessee's appeal shall be entertained without insisting upon any deposit.

Messrs Chenab Cement Product (Pvt.) Ltd. and others v. Banking Tribunal, Lahore and others PLD 1996 Lah. 672 ref.

Zia H. Rizvi for Petitioner.

M. Ilyas Khan for Respondents

2001 P T D 1998

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

MUHAMMAD SIDDIQUE

Versus

THE COMMISSIONER OF INCOME‑TAX, ZONE‑A, LAHORE

C.T.Rs. Nos.345, 3, 4, 50, 95, 380, 182, 363, ,115., 116, 378, 3.79, 381, 382, 383, 384, 310, 308,, 100, 97, 1‑81, 122, 17, 18, 43, 51, 70, 96, 310, 311, 129 357, 117 of 1991, 44, 51 of 1992, 65, 46, 121 of 1993 and 4 of 1995, 134 of 1998, I.T.As. Nos.22 of 1994, 162, 163; 164, 545 to 441 of 2000, decided on 14th March, 2001.

(a) Interpretation of statutes‑‑‑

‑‑‑‑ Words used in a statute should first be given ordinary and natural meaning, other appropriate meanings could be given only when ordinary meanings do not make sense.

CIT v. Administrator, Karachi PLD 1963 SC 137 ref.

(b) Income Tax Ordinance (XXXI of 1979)---

‑‑‑‑Ss.56 & 65‑‑‑Interpretation‑‑‑Both Ss.56 & 65 were placed in Chap: VII of the Income Tax Ordinance, 1979 which was headed as "Assessment", being procedural in nature were to be seen and understood to make the machinery workable.

A and B Food Industries v. CIT 1992 SCMR 663 ref.

(c) Interpretation of statutes‑‑‑

‑‑‑‑ If language of the statute was clear and unambiguous the Court was bound to give it effect without taking into consideration anything extraneous to the same.

A and B Food Industries v. CIT 1992 SCMR 663 ref.

(d) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.56 & .55‑‑‑Notice for furnishing return of total income‑‑‑Interpretation of Ss.56 & 55, Income Tax Ordinance, 1979‑‑‑Provision of S.56, Explanation of the Ordinance being directory in nature can be taken to be of retrospective operation‑‑‑Power vested in an Assessing Officer to call for a return under S.56, Income Tax Ordinance, 1979 is available to him both for the current as well as previous years‑‑‑Principles.

The contention that provisions of section 56 of the Income Tax Ordinance, 1979 need‑ to be interpreted in the light of the earlier and subsequent provisions can be granted without a difficulty. However, the contention that section 56 relates only to current assessment year is half truth., The language employed clearly suggests that the power vested in an Assessing Officer to call for a return is available to him both for the current as well as previous years. The use of words "at any time", "for any income year" and "for such year" cannot be read down to mean "during" and "for the current assessment year". It is also not correct to suggest that section 55 relates to current assessment year alone. It is not so confined and there is no bar under that section on filing of a return for any previous year or years. The dates mentioned for filing of returns in subsection (2) of section 55 do not in any manner control the provisions of subsection (1) thereof. The use of words "for any income, year" in subsection (1) again indicates the application of provisions to both current as well as previous years. There is, therefore, nothing either in the language of the provisions or even the scheme of the Ordinance which can possibly support the claim that both section 55 and section 56 relate to current year; the former providing for voluntary tiling of return and the latter 'covering cases where voluntarily return for the current year had not been filed.

No principle of interpretation of statutes requires that in one section or provisions only one kind of exercise of power is permissible. Contention that power of Assessing Officer under section 56 is exercisable only for the current assessment year and that the interpretation based upon a chronological order of sections does not permit a deviation therefrom is clearly fallacious. In one section or provision of law an authority can very well be permitted to do a number of acts and no rule of interpretation requires that a separate provision for every power exercisable by public authority should be made.

Interpreting a statutory provision with preconceived notions is replete with dangerous consequences. It blurs the vision and paints the picture in the colour of the glass through which it is being seen. In the present case it is the fear of the assessees which has driven them to give far?fetched and imaginary interpretation to sections 56 and 65 of the Ordinance. They feel that if the Assessing Officer gets a carte blanche to issue notice for previous years without any check or restrictions of the kind contemplated in section 65, the power will invariably be misused. That fear even if well ?based would still not be relevant to read the words completely out of their real context. It is the will of the Legislature which is backed by the strongest possible presumption of welfare and good to general public that has to prevail. Mere cause of difficulty or inconvenience to a particular class of persons has never been a good reason to read down an express provision of law or to mould it into a pattern making it soft and acceptable for all and sundry.

The recent addition of Explanation to section 56 makes it absolutely clear that an Assessing Officer could issue notice for previous years. Explanation is not an insignificant development.

The explanation being declaratory in nature can conveniently be taken to be of retrospective operation. There is no ambiguity either in the language or the purpose for which it has been added to the provision. Therefore, it speaks of the will of Legislature that powers of an Assessing Officer extend to require a return both for the current as well as previous years.

The contention that section 56 does not provide for a complete mechanism for framing of, assessments as similar provisions of section 65, 72 and 81 do, is also misplaced. It is correct that in sections 65, 72 and 81 which admittedly relate to previous years provide for application of "all the provisions of the Ordinance as far may be applicable". It is also correct that this phrase is absent in the case of section 56. However, the use of words "a return of total income for such year" is sufficiently indicative of the fact that a return filed will have to be treated and the income determined with reference to law applicable to that particular years. It will be seen that sections 65, 72 and 81 relate to peculiar situations and, therefore, there was perhaps a need to make an express mention for application of the provisions of the Ordinance. However, for normal situations as in section 55 of the Ordinance there is no mention of framing of assessment or application of other provisions of the Ordinance. The charging provision of section 9, when read with section 56 makes it clear that charge of income‑tax shall be with respect to each assessment year commencing on or after July 1, 1979 at the rate or rates specified in the First Schedule. Also it needs to be noted that both sections 55 and 56 are the first two machinery provisions of Chapter No. VII "assessment" which need to be considered with the rest of them in the Chapter.

Section 64 provides for limitation for assessment. Its three subsections contemplate three different situations in which an assessment could possibly be made. Subsection (3) of section 64 is relevant. It provides "No assessment under section 62 or section 63 shall be made after the expiration of two years from the end of the financial year in which notice under section 56, subsection (3) of section 72 or subsection (3) of section 81 as the case may be was served". This subsection also answers the objection of the assessees that section 56 does not provide for a mechanism for assessment as is done in the other case of sections 72 and 81. It makes it clear that in all the three cases covered by section 56, subsection (3) of section 72 and subsection (3) of section 81, assessments shall be made under section 62 or 63. The opening words of this sub‑clause are also relevant which provide that where "for any income year an assessee had failed to furnish return of total income" then assessment in his respect will not be made after the expiration of two years "from the end of the financial year in which a notice under these provisions was served". The limitation provided for in this subsection is also different from other situations contemplated in subsection (1) and subsection (2) of section 64. Therefore, mere lack of reference to application of other provisions of the Ordinance in section 56 does not support the interpretation of the assessee.

Section 166 of the Income Tax Ordinance. 1979 providing for repeal and savings for certain kind of pending proceedings does not contemplate issuance of notice under section 65 of the Income Tax Ordinance for a period dating back to days when the Act was in force. The two situations contemplated under sub-clause (c) of subsection (2) of section 166 do not cover a situation where a person had not filed a return before the enforcement of the Ordinance. The first situation relates to cases where a notice under section 34 of the repealed Act had already been issued before the enforcement of the Ordinance and second where the provisions of section 65 of the Ordinance needed to be invoked on the grounds stated therein. Since no saving clause provides for issuance of, a notice under section 56 in respect of any year prior to the enforcement of the Ordinance. a notice under section 56 cannot be issued for any assessment year prior to the date of enforcement of the Ordinance i.e. 1‑7‑1979.

(e) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.65‑‑‑Additional assessment‑‑‑Concept‑‑‑Words "definite information" and "escape"‑‑‑Connotation‑‑‑Additional assessment itself refers to the fact that the provision that follows is relatable to those cases only where an assessment bad already been completed‑‑‑Where, however, a person had never put in return and no assessment was framed in his respect, he was not entitled to any of the protections given to the completed assessments of an assessee‑‑‑Requirement of availability of "definite information" presupposes an information earlier provided by the assessee which is to be juxtaposed with the subsequent information of the Revenue‑‑‑Word "definite" refers to certainty of the subsequent information as also the contradiction that it contains against the earlier information given or provided by the assessee in the form of a return‑‑‑Word "escape" in S.65(1)(a), Income Tax Ordinance, 1979 by itself means that after having come in the net of Revenue a part or whole of income of an assessee was not taxed principles.

The word "additional assessment" itself refers to the fact that the provision that follows is relatable to those cases only where an assessment had already been completed. Sub‑clause (a) to subsection (l)'of section 65 Income Tax Ordinance, 1979 refers to any kind of income which had accrued to an assess but not been assessed to tax though it was so chargeable. Both sub‑clauses (a) and (b) of subsection (1) when read together make it quite clear that while sub‑clause (a), refers to airy source which though being chargeable to tax was not charged to tax while sub‑clause (b) contemplates the cases where the income had been underassessed, or assessed at too low a rate or had been the subject of excessive relief or refund under the. Ordinance: Sub‑clause (a) therefore, refers to both complete as well as partial escapement of income which ought to have been but was not faxed. The provisions in the later part of section GS controlling the power of an Assessing Officer to proceed are meant only to maintain and preserve the sanctity of a completed assessment. Where a person had never put in return and no assessment was framed in his respect, he is not entitled to any of the protections given to the completed assessments of an assessne. The requirement of availability of definite information also presupposes an information earlier provided by the assessee which is to be juxtaposed with the subsequent information of the revenue. The word "definite" refers to certainty of the subsequent information as also the contradiction that it contains against the earlier information given or provided: by the assessee in the form of a return. "Escapement" of income does not cover cases of non? assessees as well. The word "escape" according to 6th Edition of Black's' Law Dictionary inter alia means to flee from, to avoid, to get away, as, to flee to avoid arrest; the voluntary departure from lawful custody by a prisoner with the intent to evade the due course of justice; it is leaving physical confinement without permission, the departure or deliverance out of custody of a person who was lawfully imprisoned before he was entitled to the liberty by the process of law; voluntarily or negligently allowing any person lawfully in confinement to leave. The use of word "escape" in section 65 (1)(a), therefore, by itself means that after having come in the net of revenue a part or whole of income of an assessee was not taxed.

The reason could both be inadvertence on the pan of the assessee as well as revenue. It could equally be as a result of deliberate acts of commission and omissions again on the Part‑Of any of the two. Through a return an assessee is required to make a declaration of his total income during the period relevant to the return. Since the computation of total income is a complicated matter both bona fide as well as dishonest motives can be behind escapement of income. However, where an assessment was framed by the revenue law, provides certain safeguards to protect the assessee from a constant looming threat of interference by the revenue with a completed assessment. An assessment is a quasi‑judicial order which gives not only the conclusions but also the reasons on which these conclusions were reached. Since an assessment like an order is available in black and white, both the assessees as well as the revenue can agitate if anything in it had gone to their prejudice. An assessee is provided with a right of appeal or to file revision on judicial side and where the matter is only a mistake apparent from the face of the record both the assessee as well as the revenue can get the same corrected. However, if, from any fact coming to the knowledge of the revenue it transpires that the completed assessments suffered from any of the infirmities pointed out in section 65 it could move to bring back into the net what had gone out of it by reason of wrong claim both honest as well as dishonest on the part of the assessee. Also a default on the part of the revenue to have applied a wrong rate, excessable relief or refund can be remedied. The "escapement" of income can happen only once a return has been filed and an assessment framed. The filing of a return is like entering into the tax net. Having so entered if any income remains untaxed due to any reason be it the default of the assessee or the revenue, will result into escapement of income. It can very well be said that law having required filing of a return on accrual of chargeable income by every person, a default on part of such person will also amount to "escapement". However., that would more be an evasion of "tax" and not escapement of "income:" Obviously the words "income" and "tax" are not interchangeable. A person may attempt to evade tax by making wrong declarations in the return. However, his case cannot be compared with the one who had not filed a return.

(f) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑-S.136‑‑‑Reference‑‑‑Scope‑‑‑High Court, while hearing a Reference, cannot either strike down a provision of law or declare the same ultra vires of the Constitution‑‑‑Principles.

While hearing a reference High Court cannot either strike down a provision of law or declare it ultra vires of the Constitution: Any person desirous of a declaration of the kind can very well approach High Court in Constitutional jurisdiction. In reference under section 136 of the Income Tax Ordinance, 1979 High Court confines itself to the questions framed by the Tribunal or proposed by the appellant/petitioner and gives an opinion in the perspective of the facts as found by the Tribunal. It is only the interpretation of law and its application to certain facts what a reference is all about. To enter upon the constitutionality of a particular provision is not at all required in such matters.

(g) Income‑tax‑‑‑--

‑‑‑‑Payment of tax due‑‑‑Duty of assessee.

To pay a tax after it has become due is certainly a duty of every citizen but to seek the taxpayer is not a "duty" as such as the term in Jurisprudence. Such an interpretation will produce anomalous results that while a dishonest assessee will be protected while an honest assessee will remain exposed to harassment for quite some time due to reopening provisions.

(h) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.65‑‑‑Additional assessment‑‑‑Provisions of S.65, Income Tax Ordinance, 1979 are applicable only in respect of assessments already framed or deemed to have been framed‑‑‑Notice under S.65, Income Tax Ordinance, 1979 can be issued for the current as well as for any previous year after the enforcement of the Income Tax Ordinance, 1979‑‑‑Where an assessee has failed to tile return of his total income in the current as well as in the previous years, the issuance of notice under S.65 of the Income Tax Ordinance, 1979 is not required.

(i) Interpretation of statutes‑‑‑

‑‑‑‑ No principle of interpretation of statutes requires that in one section or provision only one kind of exercise of power is permissible.

(j) Interpretation of statutes‑‑‑

‑‑‑‑ Separate provision for every power exercisable by public authority was not required to be made.

(k) Interpretation of statutes‑‑‑

‑‑‑‑ Interpretation off, a statutory provision with preconceived notions is replete with dangerous consequences which can blur the vision and paint the picture in the colour of the glass through which the same is being seen.

(I) Interpretation of statutes‑‑‑

‑‑‑‑Held, it was will of the Legislature which was backed by the strongest possible presumption of welfare and good to general public that had to prevail‑‑--Mere cause of difficulty or inconvenience to a particular class of persons is not a good reason to read down an express provision of law or to mould into a pattern making same soft and acceptable for all and sundry.

(m) Interpretation of statutes‑‑‑

‑‑‑‑ Marginal heading of a section can be called in for help to interpret a provision.

‑‑‑‑Explanation to a section if declaratory in nature can be taken to be retrospective in operation.

Sirajuddin Khalid and Muhammad Ilyas Khan for Appellant

Shafqat Mahmood Chohan for Respondent

Dates of hearing; 23rd, 27th, 28th and 29th November, 2000

2001 P T D 2018

[Lahore High Court)

Before Malik Muhammad Qayyum, J

Messrs NAFEES DRY CLEANERS, WAHADAT ROAD, LAHORE

Versus

THE GOVERNMENT OF PUNJAB through Secretary Law and

Parliamentary Affairs Department, Lahore and another

Writ Petitions Nos.23053, 23048, 23049, 23052, 23054, 23055, 23056, 23057, 24420 of 2000 and 1636 of 2001, heard on 21st March, 2001.

(a) Punjab Sales Tax Ordinance (II of 2000)‑‑‑

‑‑‑‑S.3‑‑‑Constitution of Pakistan (1973), Fourth Sehed., Items, Nos.49, 59, Arts.25, 142 & 199‑‑‑Constitutional petition‑‑‑Levy of sales tax on the services rendered by the dry cleaners‑‑‑Pleas of discrimination on the ground that no such tax had been levied on any other services and that sales tax could only be levied by the Federal Government in view of Entry No.49, Fourth Sched. to the Constitution read with Art‑142, thereof ‑‑‑Validity‑‑­Held, taxes levied on services rendered by any person were not covered by Entry No.49 of the Fourth Sched. to the Constitution‑‑‑Article 142 of the Constitution provided that if a matter was not covered by any entry in the Fourth Sched. to the Constitution, the same shall be the domain of the Provincial Government to legislate on the subject‑‑‑Article 25, Constitution of Pakistan prohibited discrimination within a class of persons but did not prohibit the classification as such‑‑‑Principles.

On the face of it, taxes levied on services rendered by any person were not covered by item No.49 of Fourth Schedule to Constitution of Pakistan (1973) Income Tax Ordinance. Item No.49 of the Constitution did not deal with the taxes on services rendered at all. Item No.59 of the Schedule also could not be relied upon by the assessee as it could not be said that the levy of sales tax on services was matter of incidental or ancillary to any matter enumerated in the Fourth Schedule of the Constitution.

According to Article 142 of the Constitution if a matter was not covered by any entry in the Fourth Schedule, it shall be the domain of the

Provincial Legislature to, legislate on that subject. That being so the contention that as the Federal Government was empowered to levy tax on the sales and purchases of goods imported, exported, produced, manufactured or consumed, it could also levy tax on services rendered could not be accepted.

Article 25 of the Constitution prohibited discrimination within a class of persons but did not prohibit the classification as such. The dry cleaners were a class apart and they could not claim that if the sales tax was not being levied on the services rendered by some other category of persons they were being discriminated against.

Section 3 of the Punjab Sales Tax Act only trade the procedure prescribed by the Sales, Tax Act, 1990 applicable for the purposes o1 assessment and recovery of the sales tax. This is a procedural provision arc did not in any way militate against law.

(b) Constitution of Pakistan (1973)‑‑‑

---- Art.25‑‑‑Equality before law‑‑‑Discrimination‑‑‑Article 25, Constitution of Pakistan prohibited discrimination within a class but did not prohibit the classification as such.

(c) Punjab Sales Tax Act (II of 2000)‑‑‑

‑‑‑‑S.3‑‑‑Sales Tax Act (VII of 1990), Preamble‑‑‑Provision of S.3, Punjab Sales Tax Act, 2000 only made the procedure prescribed by the Sales Tax Act, 1990 applicable for the purposes of assessment and recovery of sales tax‑‑‑Provision of S.3, Punjab Sales Tax Act, 2000 being a procedural provision, did not in any way militate against law.

M. S. Babar and M. M. Akram for Petitioner. Ch. Muhammad Ashraf, Asstt. A.‑G. for Respondent No. 1. Khan Muhammad Virk for Respondent No.2.

Date of hearing: 21st March, 2001.

2001 P T D 2079

[Lahore High Court]

Before Amjad Ali, J

Messrs TAHSEEN (PVT.) LTD.

Versus

DEPUTY COLLECTOR OF CUSTOMS, DRY PORT, RAWALPINDI and 3 others

Writ Petitions Nos. 1555,. 1069, 2469 of 1997, 730 and 731 of 1998, heard on 28th April, 1998.

(a) Imports and Exports (Control) Act (XXXIX of 1950)‑‑‑

‑‑‑‑S.3‑‑‑Constitution of Pakistan (1973), Art. 199‑‑‑Constitutional petition ‑‑­'Import'‑‑‑Goods in transit‑‑‑Exemption from levy of duty‑‑‑Scope‑‑­Definition of the term 'import' as defined under the provisions of S.3 of Imports and Exports (Control) Act, 1950, is without any qualification or rider and is most relevant for the purposes of import‑‑‑Term 'import' does not exclude the goods which are later on transhipped to any other territory or country--‑‑Transhipped goods or goods in transit to any other territory may be allowed exemption from levy of any tax or duty but such goods do not loose the character of their "import" through Pakistan.

(b) Sales Tax Act (VII of 1990)‑‑‑

‑---‑S.3‑‑‑Constitution of Pakistan (1973), Art. 199‑‑‑Constitutional petition‑‑­Sales ‑ tax, exemption from‑‑‑Goods in transit‑‑‑Goods imported by the company were to be transhipped to the territory of Azad Jammu and Kashmir‑‑‑Effect‑‑‑Company could not claim exemption from levy of sales tax in circumstances.

Messrs Army Welfare Sugar Mills Ltd. and others v. Federation of Pakistan and others 1992 SCMR 1652 ref.

(c) Azad Jammu and Kashmir Interim Constitution Act (VIII of 1974)‑‑‑

‑‑‑‑Preamble‑‑‑State of Azad Jammu and Kashmir‑‑‑Status‑‑‑Treating the State at par with Afghanistan‑‑‑Territory of Azad Jammu and Kashmir has not formally been annexed with Pakistan, as its future status is to be determined in accordance with the wishes of the people of State of Jammu and Kashmir through democratic method of free and fair plebiscite as envisaged by United Nations Resolutions adopted from time‑‑‑Till the plebiscite is held, the territory known as Azad Jammu and Kashmir liberated by Pakistan shall be under the governance and control of Government of Pakistan as envisaged in the United Nations Resolution and more clearly explained in the Azad Jammu and Kashmir Interim Constitution Act, 1974, meaning thereby, that, it cannot be treated at par with Afghanistan which is an independent country and competent to enter into a transit agreement with Pakistan for transit of its goods through Pakistan and exemption of taxes and duties which are otherwise leviable thereon.

(d) Sales Tax Act (VII of 1990)‑‑‑

‑‑‑‑S.3‑‑‑Imports and Exports (Control) Act (XXXIX of 1950), S.3‑‑­Constitution of Pakistan (1973), Art.199‑‑‑Constitutional petition‑‑‑Sales tax, exemption from‑‑‑Goods in transit‑‑‑Transhipment to Azad Jammu and Kashmir‑‑‑Importer claimed exemption from sales tax on import of such goods in Pakistan‑‑‑Validity‑‑‑Sales tax under the provisions of S.3 of Sales Tax Act, 1990, was leviable on the goods entering in Pakistan, might be for the purpose of transhipment to any other State or territory‑‑‑Such goods were subject to levy of sales tax notwithstanding their ultimate destination being Azad Jammu and Kashmir, unless the goods were specifically exempted from levy of such tax by the Government of Pakistan in exercise of its statutory powers‑‑‑ High Court refused to grant any exemption in levy of sales tax on import of such goods‑‑‑Constitutional petition was dismissed accordingly.

Federation of Pakistan v. Jamaluddin and others‑1996 SCMR 727; Messrs Flying Board and Paper Products v. Central Board of Revenue, Government of Pakistan, Islamabad and 3 others PLD 1996 Lah. 718; Pakistan Textile Mill Owners' Association, Karachi and 2 others v. Administrator of Karachi and 2 others PLD 1963 SC 137 and East and West Steamship Co. v. The Collector of Customs and others PLD 1976 SC 618 ref.

Mian Abdul Ghaffar for Petitioner.

Farhat Nawaz Lodhi, Legal Advisor for Respondents Nos. l to 3.

Afrasiab Khan, Standing Counsel for Respondent No A.

Date of hearing: 28th April, 1998.

2001 PTD 2119

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

C. I. T., CENTRAL ZONE, LAHORE

Versus

Messrs ITTEFAQ TEXTILE MILLS LTD., LAHORE

C.T.R. No.334 of 1991, decided on 14th December, 2000.

Income‑tax Act (XI of 1922)‑‑‑

‑‑‑‑SA(1), Expln. .8‑‑‑Assessee, in the year 1976‑77 ran a textile mill and claimed interest expense of Rs.1,30,52,259 on account of over draft/loan availed by the .company‑‑‑Assessing Officer noted that the assessee had advanced a sum of Rs.33,79,391 to a subsidiary company on which no interest was charged‑‑‑Assessing Officer proceeded to curtail the claimed interest amount by a sum of Rs.5,40,050 being the ‑ proportionate amount of interest chargeable on the loan advanced to the said subsidiary company‑‑‑Validity‑‑‑Advance of Rs.33,79,391 made by the assessee to its subsidiary company in the year 1971 and outstanding since then was hit by the provisions of Explanation, SA(1) of the Income‑tax Act, 1922‑‑­Principles.

The Tribunal was not justified in holding that the provisions of Explanation 8 of subsection (1) of section 4 of the Income‑tax Act, 1922 were not attracted to the facts of the case.

A simple glance at the aforesaid Explanation makes it clear that after introduction of Explanation any loan, whether it was existing and had been brought from the previous years or was made during the assessment year 1976‑77 or thereafter, the Assessing Officer was required to deem accrual of interest at the specified rate. The wording of the Explanation did not in any manner expressly or impliedly provide an exemption to existing loan or those coming from the previous years. The mere fact that loan advanced to the subsidiary was being brought forward from year to year since 1971 did not allow exemption from the application of the Explanation introduced in the year 1976. The only requirement being that advancement of a loan is claimed in the year of introduction of the Explanation or any subsequent year

Muhammad Ilyas Khan for the Revenue.

Nemo for Respondent

2001 PTD 2133

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

THE COMMISSIONER OF INCOME-TAX, ZONE-B, LAHORE

Versus

Messrs HAKAM QURESHI, LAW ASSOCIATES, LAHORE

C.T.R. No.21 of 1994, heard on 6th February, 2001

Income Tax Ordinance (XXXI of 1979)---

----S.136---Reference to High Court---Scope---Finding of fact---Tribunal had recorded a finding of fact that the partner of the firm was a professional lawyer and even a positive date of his enrolment was given in the order of Tribunal---Counsel for the Revenue having not challenged finding of fact by the Tribunal, High Court declined answer to the Reference.

Shafqat Mehmood Chohan for Petitioner.

2001 P T D 2137

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

Mst. FARIDA BIBI

Versus

I.T.O., CIRCLE-14, LAHORE

C.T.R. No.73 of 1993, decided on 12th February, 2001.

Income Tax Ordinance (XXXI of 1979)-----

----S.136---Reference to High Court---Scope---Obligation of the High Court to decide the questions of law referred to it was contingent upon the hearing of the case---Hearing of the case could not be made unless the party at whose instance the questions had been referred to the Court was present and had argued the case---High Court, therefore, was not bound to answer the questions referred, if the party at whose instance the questions had been referred, had remained absent.

Dada Bhai H. Mamma & Sons, Karachi v. Commissioner of Income-tax (1967) 16 Tax 43 and M.M. Ispahani Ltd. v: Commissioner of Excess Profits Tax, West Bengal (1955) 27 ITR 188 ref.

Nemo for Petitioner.

Shafqat Mehmood Chohan for the Revenue.

2001 PTD 2141

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

MILKO (PVT.) LTD.

Versus

THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 16, COMPANIES ZONE-I, LAHORE and 2 others

I.T.A. No.339 of 1998, heard on 13th February, 2001.

(a) Income Tax Ordinance (XXXI of 1979)-----

----S.136---Appeal to High Court---Scope---Estimation of receipts application of G.P. rate profit treatment of a particular item in the balance sheet and profit and loss disallowances cannot be converted into question of Law--­and Rejection of accounts having not been contested before the Tribunal, node of the questions contested before the Tribunal as framed could possibly be ruled upon by High Court in its Appellate Jurisdiction.

(b) Income Tax Ordinance (XXXI of 1979)-----

----S.136---Appeal to High Court---Scope---Question of law--­- Determination---Question of law can be said to have arisen out of an order of the Tribunal only if the issue was raised and it was ruled upon by the Tribunal---No authoritative pronouncement with regard to the stated question of law could possibly be made in the absence of any finding recorded thereupon by the Tribunal.

Messrs Sultan Textile Mills Ltd. v. CIT, Central Zone-A 1990 PTD 241; Messrs Abbot Laboratories Ltd. v Commissioner of Income Tax, Central Zone, Karachi 1989 PTD 602; Sunderam & CO. (Pvt.) v. CIT, Madras (1967) 66 ITR 604; Bhanji Bagawandas v. CIT, Madras (1968) 67 ITR 18; Raza Textile Ltd. v. CIT (1972) 86 ITR 673; C.M. Francis & CO . (P.) Ltd. v. CIT, Kerala (1970) 77 ITR 449 and Dowager Maharani Saheb of Gondal v. CIT, Karnataka (1982) 135 ITR 393 ref.

Dr. Ilyas Zafar for Appellant.

Muhammad Ilyas Khan for Respondents.

Date of hearing 13th February, 2001.

2001 P T D 2154

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

COMMISSIONER OF INCOME-TAX, A-ZONE, LAHORE

Versus

BABAR MAQSOOD

C.T.R. No.37 of 1991, decided on 14th November, 2000.

Income Tax Ordinance (XXXI of 1979)-----

----S.136---Reference to High Court---Scope---Simple case of estimation of value by the Revenue of the properties purchased by the assessee and cancellation of valuation by the Tribunal would not raise a legal controversy---Answer to the Reference was declined by the High Court.

Muhammad Ilyas Khan for Petitioner.

Nemo for Respondent.

2001 PTD 2161

[Lahore High Court]

Before Nasim Sikandar and Jawwad S. Khawaja, JJ

THE COMMISSIONER OF INCOME‑TAX, COMPANIES, LAHORE

Versus

PUNJAB COOKING OIL LTD., LAHORE

C.T.R. No.5 of 1994, decided on 20th February, 2001.

Income Tax Ordinance (XXXI of 1979)‑‑--

‑‑‑‑S.13(1)(d)‑‑‑Deemed income‑‑‑Addition‑‑‑Two separate and independent approvals of the I.A.C. for making additions to the declared income of the assessee were necessary at the relevant time.

Shafqat Mehmood Chohan for the Revenue.

Muhammad Iqbal Khawaja for Respondent,

2001 PTD 2167

[Lahore High Court]

Before Malik Muhammad Qayyum, J

Messrs SYED BHAIS

Versus

CHAIRMAN, C.B.R. and others

Writ Petition No, 17624 of 1998, decided on 22nd March, 2000.

(a) Customs Act (IV of 1969)‑‑‑---

‑‑‑S.19‑‑‑Sales Tax Act (VII of 1990), S.3‑‑‑Constitution of Pakistan (1973), Art. 199‑‑‑Notification No. SRO 506(1)/94, dated 9‑6‑1994 [as amended by Notification No. SRO 384(1)/96, dated 13‑6‑1996]‑‑-Constitutional petition‑‑‑Exemption from customs duty and sales tax‑‑­Wrong mention of Notification‑‑‑Effect‑‑‑Customs Authorities denied benefit of exemption Notification to the importer, on account of mis description of Notification‑‑Validity‑‑‑Where a person was otherwise found entitled to the benefit of the Notification same could not be refused to him merely ° on account of wrong mention of the Notification‑‑‑Goods in question were exempted from customs duty partly and the sales tax wholly, when the same were imported‑‑Authorities were directed by High Court to allow the importer the benefit of Notification No.SRO 506(1)/94, dated, 9‑6‑1994 and Notification No.SRO 384(1)/96, dated 13‑6‑1996 accordingly.

Gatron (Industries) Limited v. Government of Pakistan and others 1999 SCMR 1072 fol.

(b) Customs Act (IV of 1969)‑‑‑-

‑‑‑‑S.19‑‑‑Exemption from customs duty‑‑‑Locus standi‑‑‑Goods were imported by another party and the exemption was claimed by some other party‑‑‑Validity‑‑‑Where name of the importer was changed with the consent of the Federal Government and bill of entry was filed by another party, such other party had a right to claim the exemption in circumstances.

(c) Sales Tax Act (VII of 1990)‑‑‑

‑‑‑‑S.3‑‑‑Sales tax, recovery of‑‑‑Doctrine of 'promissory estoppel' and 'vested right' When not applicable‑‑‑Where the importer had taken decisive steps and opened the letters of credit before the withdrawal of exemption, the importer could not be asked to pay sales tax on the theory of "promissory estoppel" and "doctrine of vested rights".