PTD 2002 Judgments

2002 P T D 1076

[241 I T R 471]

[Andhra Paradesh High Court (India)]

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

VOLTAS LTD.

(formerly Hyderabad Allwayn Ltd.)

Versus

DEPUTY COMMISSIONER OF INCOME‑TAX and another

Writ Petition No. 14455 of 1999: decided on 14th July, 1999

Income‑tax‑

‑‑Application for reference‑‑‑Delay of 26 days in filing application‑‑‑Section 256 allows condonation of delay up to 30 days after tine limit‑‑‑Provisions for condonation of delay to be liberally construed‑‑­Finding that delay was due to mistake of counsel‑‑‑Delay condoned‑‑‑Indian Income Tax Act, 1961, S.256.

There was a delay of 26 days in filing an application for reference under section 256(1) of the Income‑tax Act, 1961. The application for reference was tiled along with a petition to condone the delay. The Tribunal rejected the application for condonation of delay. On a writ petition filed for quashing the order

Held, that under section 256 of the Act, the application for reference has to be filed within 60 days from the date if was served and the proviso therein contemplates condoning the delay up to period of 30 days. It was evident from the affidavit that the delay had occurred due to misplacement and not tracing the original order in the office of counsel. The delay aspect had to be liberally considered so as to provide an opportunity to the parties to have a decision on the merits. In this case, the Tribunal fell into error in expecting an explanation for delay even for the days within the limitation period. Moreover, a, party should not suffer for the lapses on the part of counsel, specially when the delay is not too long. The explanation and the reasons given in the affidavit did not give scope for any doubt as to bona fides. The delay had to be condoned.

Y. Ratnakar for Petitioner

S.R. Ashok for Respondents,

2002 P T D 1690

[242 I T R 576]

[Andhra Pradesh High Court (India)]

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

COMMISSIONER OF INCOME‑TAX

versus

A.P. SMALL SCALE INDUSTRIES DEVELOPMENT CORPORATION

Case Referred No. 70 of 1990, decided on 27th August, 1998.

Income‑tax‑‑--

‑‑‑‑Business expenditure‑‑‑Disallowance‑‑‑Expenditure on advertisement or sales promotion‑‑‑ Government company incorporated for promoting industrial development‑‑‑Expenditure incurred on brochure, etc. was not on advertisement of sales promotion‑‑‑No disallowance under S.37(3‑A) can be made‑‑‑Indian Income‑tax Act, 1961, S.37(3‑A).

For the assessment year 1979‑80 the assessee, a Government company incorporated with the object of promoting industrial development in the State of Andhra Pradesh, incurred expenditure of Rs.42,059 towards publicity activity. The Income‑tax Officer allowed Rs.40,000 and disallowed 1/10th of the total advertisement expenses under section 37(3‑A) of the Income Tax Act, 1961. On appeal, the Commissioner (Appeals) held that the expenditure was not publicity expenditure but the expenditure incurred to promote the growth of industries in Andhra Pradesh and, therefore, the provisions of section 37(3‑A) were not attracted. On appeal by the Revenue, the Tribunal on a consideration of the brochure styled "Compendium of the A.P.S.S.I.D.C. Services" agreed with the view of the Commissioner (Appeals). On a reference:

Held, that the Tribunal on a consideration of the brochure found that the expenditure incurred, by‑ the assessee enabled the State to promote small scale industries and also enabled small scale industries to obtain loans and various other, facilities from the Corporation. The Tribunal found that the expenditure incurred was meant for notifying the entrepreneurs and small scale industries to participate in the industrial development of the State. The activity of the assessee could not be said to, be advertisement or sales promotion or publicity and so section 37(3A) was not applicable:

S. R. Ashok for the Commissioner.

Nemo for the Assessee.

2002 P T D 1702

[242 I T R 434]

[Andhra Pradesh High Court (India)]

Before P. Venkatarama Reddi and V. Eswaraiah, JJ

COMMISSIONER OF INCOME‑TAX

versus

LOHIYA TRADING CO.

Case Referred Nos.4 of 1991 and 110 of 199'7, decided on 3rd November, 1999.

Income‑tax‑‑‑

‑‑‑‑Penalty‑‑‑Firm‑‑‑Registered firm‑‑‑Failure to file returns in time‑‑­Quantum of penalty‑‑‑Computation of "Assessed Tax" under S.271(l)(b)‑‑‑Advance tax actually paid by firm is deductible and not advance tax payable treating firm as if it were unregistered‑‑‑Indian Income Tax Act, 1961, S.271.

Where a registered firm fails to furnish its returns in time, the quantum of penalty, according to subsection (2) of section 271 of the Income Tax Act, 1961, would be the same as would be imposable if the defaulting registered firm was treated as an unregistered firm. Thus, a fiction is introduced by subsection (2) for the purpose of the levy of penalty under subsection (1). The next question is what is the amount of penalty that would be payable by an unregistered firm if the registered firm is treated as an unregistered firm. Subsection (1)(i)(b) of section 271 quantifies the penalty at two per cent. of "Assessed tax" for every month of default. What then is the "assessed tax"? "Assessed tax" is defined by the Explanation itself. As per the Explanation, in arriving at the assessed tax, advance tax if any paid under Chapter XVII‑C should be deducted. It is on the remaining tax, that a sum equivalent to 2 per cent. per month should be calculated at the rate applicable to an unregistered firm. In the face of the express language, the Tribunal was not right in holding that the advance tax which was not actually paid, but which was require paid registered firm should be deducted.

CIT v. Palaniappa Transports (1980) 124 ITR 634 (Mad.) ref.

J.V. Prasad for the Commissioner

Nemo for the Assessee.

2002 P T D 1721

1242 I T R 357]

[Andhra Pradesh High Court (India)]

Before P. Venkatarama Redai and V. Eswaraiah, JJ

COMMISSIONER OF INCOME‑TAX

versus

LANCO INDUSTRIES LTD.

Income‑tax Tribunal Appeal No.26 of 1999, decided on 8th December, 1999.

Income‑tax----

‑‑‑‑Appeal to High Court‑‑‑Substantial question of law‑‑‑Income from undisclosed sources‑‑‑Finding that part of amount did not constitute income from undisclosed sources‑‑‑Finding of fact‑‑‑Investment in shares in the names of friends and relatives of Directors‑‑‑No finding that money invested belonged to Directors‑‑‑Addition made on account of share capital investment not justified‑‑‑Appeal to High Court was not justified‑‑‑Indian Income Tax Act, 1961, S. 260A.

A block assessment was made on the assessee‑Company for the years 1986‑87 to 1995‑96 and also for the period April 1, 1995, to September 27, 1995, as a result of the search and seizure operations conducted by the Department on September 27, 1995. Tax of Rs.9.27 lakhs was demanded treating the undisclosed income as Rs.1,14,88,410. On appeal to the Income‑tax Appellate Tribunal, the Tribunal partly allowed the appeal. An addition of Rs.16,82,100 made towards the alleged unaccounted commission to K, a non‑resident Indian, and the addition of Rs.95,93,200 made towards the alleged unexplained share capital investments in the names of friends and relatives of the Directors and the additions made to two other minor, items were deleted. The Assessing Officer was directed to re‑frame the assessment in the light of the appellate order. On an appeal to the High Court:

Held, dismissing the appeal that no substantial question of law arose in the case. As regards the first item, viz .,the commission paid to K, non‑resident, for the purpose of raising share capital from NRIs, although the agreement to pay the commission came to light from the material gathered in the course of search and the commission worth Rs. 10 lakhs was in fact sent to K, the Tribunal found that the cheque for Rs.10 lakhs acknowledged by K was returned alongwith his letter, dated April 3, 1994 i.e., long prior to the search operations, as his company in whose name the cheque was issued had no bank account in India. Later on, K addressed a letter, dated May 23, 1994 requesting for payment of the amount covered by the cheque as well as the balance amount of Rs,.6.82 lakhs. It was the case of the appellant that the company did not accept the request of K and no payment was made to him at all by the date of search or later. K denied having received any commission. On these facts, the conclusion reached by the Tribunal could not be said to be without evidence. The question of placing the burden ‑of proof to prove a negative fact did not arise. In fact the Revenue wanted the assessee to prove a negative fact that no payment was made after the cheque was returned. The second item was the unexplained share capital investments. If the ostensible shareholders failed to explain the means of investment, that should have been treated as unexplained income in their hands. In order to add it to the income of the assessee there must be a further finding that in fact the shareholders were mere name lenders and the money allegedly invested by them really belonged to the Directors of the assessee‑Company. In the absence of a finding that the persons to whom the share certificates were issued on receipt of consideration, as per the book entries were in fact dummies or stooges of the Directors of the assessee‑company, the same could not be treated as uncounted income of the assessee. There was `no such finding by the assessing authority. In this view of the matter, the ultimate. conclusion of the Tribunal could not be faulted in any case.

S.R. Ashok for the Commissioner.

Nemo appeared for the Assessee.

2002 P T D 1055

[241 I T R 446]

[Bombay High Court (India)]

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

G.M. BREWERIES LTD. and another

Versus

UNION OF INDIA and others

Writ Petition No.4989 of 1994, decided on 24th August, 1999

Income‑tax‑‑‑

‑‑‑‑Inquiry‑‑‑Powers of Income Tax Authorities under S.131‑‑‑Condition precedent for exercise of power‑‑‑Proceedings under Income‑Tax Act must be pending‑‑‑No pending proceedings‑‑‑No application of mind by ITO‑‑­Notice under S.131 was not valid‑‑‑Indian Income‑Tax Act, 1961, S. 131.

It is clear from a plain reading of section 131(1) of the Income‑Tax Act, 1961, that the powers there under can be exercised only "for the purposes of the Act". The expression "for the purposes of the Act" must mean for the purposes of proceedings under the Act pending before the concerned authority. The powers given to the Income‑tax Authorities under section 131(1) are powers of the Court of law. While exercising these powers, the income‑tax authorities act in a quasi‑judicial capacity. These powers must be exercised strictly for the purposes set out in subsection (1) of section 131 of .the Act and not for any extraneous purposes. The powers under‑section 131 can be exercised only if proceedings are pending before the authority concerned under the Income‑tax Act. The same is the position under the Wealth Tax Act and the Gift Tax Act.

Held, that, in the instant case, it was contended by the petitioners before the Income‑tax Officer that no proceedings whatsoever were pending before him for the purpose of which the books of account and documents called for could have been required. The jurisdiction of the Income‑tax Officer to issue the summons was also questioned. The Income‑tax Officer did not bother to consider the same. On the other hand, he directed the petitioners to comply with the same under the threat of penalty for non­compliance. None of the contentions of the petitioners in the writ petition had been challenged by the respondents by filing any affidavit nor had the records been produced. There was no appearance on behalf of the Revenue to oppose the writ petition. Even at the time of admission, the notice before admission issued by the Court went unattended. Hence the summons issued under section 131 of the Income Tax Act, 1961, section 37 of the Wealth Tax Act, 1957 and section 36 of the Gift Tax Act, 1958, directing the petitioner‑company to produce: the books of account and documents as specified therein as also the notices issued to show cause against imposition of penalty for non‑compliance with the same were liable to be quashed.

G.S. Jetley with Atul Tungare for Petitioners.

Nemo for Respondents.

2002 P T D 1230

[241 I T R 482]

[Bombay High Court (India)]

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

NATIONAL LEATHER CLOTH MANUFACTURING CO.

Versus

INDIAN COUNCIL OF AGRICULTURAL RESEARCH and others

Writ Petition No.3320 of 1987, decided on 7th October, 1999.

Income-tax---

----Reassessment---Scientific research---Donation to approved institution for scientific research---Claim for deduction under S.35(1)(ii) granted--­Withdrawal of approval with retrospective effect to institution to which donation was granted---Approval valid and subsisting at time of donation--­Assessee entitled to deduction---Notice to assessee to withdraw relief granted under S.35(1)(ii)---No escapement of income---Reassessment to withdraw deduction was not valid---Indian Income Tax Act, 1961, Ss.35(1)(ii), 147 & 148.

During the previous year relevant to the assessment year 1983-84 the assessee donated a sum of Rs.2,00,000 to an institution and claimed deduction under section 35(1)(ii) of the Income Tax Act, 1961, in respect of the above donation on the basis of the notification of the prescribed authority approving the said institution for the purpose of section 35. The claim of deduction was originally allowed but the Inspecting Assistant Commissioner subsequently issued notice under section 148 to withdraw the relief on the basis of the withdrawal of the approval by Notification, dated January 2, 1986, with retrospective effect from January 17, 1980. On a writ petition to quash the notice under section 148:

Held, that the assessee was entitled to relief on the certificate granted by the prescribed authority under section 35(1)(ii) of the. Act to the institution to which it donated the sum of money for claiming deduction under that section if it was subsisting and valid at the time the donation was made. The retrospective withdrawal or cancellation of the certificate would have no effect upon the assessee who had acted upon it when it was valid and operative. Accordingly, the impugned notice under section 148 was liable to be quashed.

Ramdas Maneklal Gandhi v. Union of India (2000) 241 ITR 437 (Bom.) fol.

Harsh Desai, instructed by V.L. Panjuani for Petitioners.

S.R. Rajguru for Respondents.

2002 P T D 1638

[242 I T R 289]

[Bombay High Court (India)]

Before A. P. Shah, J

POLYOLEFINS INDUSTRIES LTD. (IN LIQUIDATION)

versus

KOSMEK PLASTICS MANUFACTURING CO. LTD.

Company Petition No.44 of 1986, decided on 19th December, 1997.

(a) Income‑tax‑‑‑

‑‑‑‑Recovery of tax‑‑‑Company in liquidation‑‑‑Priority of debts‑‑‑Sale of assets in liquidation proceedings‑‑‑Revenue does not have precedence over workmen's dues in respect of capital gains tax‑‑‑Capital gains tax is not part of the cost of winding up‑‑‑Amount not payable under Ss.476 & 520 of the Companies Act‑‑‑Indian Companies Act, 1956, Ss.276, 520 & 529‑A‑‑‑Indian Income Tax Act, 1961, Ss.45 & 220.

(b) Income‑tax‑‑‑

‑‑‑‑Recovery of tax‑‑‑Company in liquidation‑‑‑Liability of liquidator under S.178‑‑‑Section 178 not applicable to income accruing to company after winding up order‑‑‑Sale of assets in liquidation proceedings‑‑­Liability for capital gains tax is not covered by S.178‑‑‑Indian Income Tax Act, 1961, S.178.

Parliament has brought about important and significant changes in the provisions of the Companies Act, 1956. By virtue of sections 529, 529A and 530, substantial rights and benefits are conferred on the workmen of the closed undertaking, the workmen getting rights pari passu with those of the secured creditors over the assets of the company in liquidation. A perusal, of section 530 makes it clear that (i) this provision is subject to the provisions of section 529A of the Companies Act and (ii) the Revenues, taxes, cess and rates must have become due and payable within the 12 months next before the relevant date which is the date of appointment of the provisional liquidator or the date of winding up, as the case may be, in order that they may be paid in priority to other debts. Where capital gains tax arises out of the sale of the assets of the company in liquidation the Income‑tax Department will have no priority over the workers' claim under sections 529 and 529A of the Companies Act. The, tax cannot be regarded as part of the costs of the winding up. The provisions of section 529A would override the provisions contained in sections 520 and 476 of the Companies Act. It is a well established principle of law that if there is an apparent conflict between two provisions of law, the special provisions must prevail.

The tax payment referred to in section 178 of the Income Tax Act, 1961, is in respect of income of a company accrued before its winding up. It has no application to the income accruing to the company after the order for its winding up. The Revenue cannot claim preferential payment over the workers' claims in respect of the capital gains tax arising upon the sale of the assets of the company in the liquidation proceedings.

Beni Felkai Mining Co., in re: (1934) 2 ITR 309 (Ch.D); (1934) 4 Com. Cas. 293 (Ch.D.); Giovanola Binny Ltd. (In Liquidation), In re: (1990) 182 ITR 134; 67 Com. Cas. 441 (Ker.); ITO v. Official Liquidator, Swaraj Motors (P.) Ltd. (1978) 111 ITR 77 (Ker.); 48 Comp. Cas. 11 (Ker.); Motilal Shivlal v. Poona Cotton and Silk Mifg. 'Co. Ltd. (1917) AIR 191.7,Bom. 151; (1917) 41 IC 246 (Bom.); (1918) ILR 42 Bom. 215; Regent's Canal‑Ironworks Co., In re (1876) 3 Ch. D. 411 (CA); Union of India v. India Fisheries (Pvt.) Ltd. (1965) 57 ITR 331 and 35 Comp. Cas. 669 (SC) ref.

K.B. Bhujle with Y.P. Trivedi for the Official Liquidator.

P.S. Gajwani with B.B. Parekh for the Workers.

T.U. Khatri for the Income‑tax Department.

2002 P T D 1644

[242 I T R 281]

[Bombay High Court (India)]

Before F.I. Rebello, J

SYNDICATE BANK and another

versus

OFFICIAL LIQUIDATOR, WESTER WORKS ENGINEERS LTD. and others

Company Applications Nos.116 and 117 of 1998 in Company Petitions No.459 of 1989, decided on 5th February, 1999.

Income-tax---

----Recovery of tax---Company I in liquidation---Priority of debts--­Secured creditors and workmen have priority over tax departments--­Indian Companies Act, 1956, S.529-A---Indian Income Tax Act, 1961, S.178.

The English common law doctrine which has been recognized in India is that in a winding up, the claims of the Crown prevail over the claims of unsecured creditors and not over secured creditors. Imperial. Chit Funds (P.) Ltd. v. ITO (1996) 219 ITR 498 (SC) is, therefore, an authority for the proposition that between unsecured creditors, the claim of tax dues under section 178 of the Income Tax Act, 1961, would have preference over all other claims of unsecured creditors. The question whether the claims of income-tax dues have preference over claims of secured creditors was not in issue.

If section 529-A of the Companies Act, 1956, is considered it is clear that it has overriding effect. Section 529-A was brought in by an amendment and was inserted in the Companies Act by the Act of 1985. The section makes it clear that notwithstanding anything contained in other provisions of the Act or any other law for the tithe being it force dues of workers and debts due to the secured creditors to the extent such debts rank under clause (c) of the provisions of subsection (1) of section 529 pari passu with such dues shall be paid in priority over all other debts. The Income-tax Act was brought in 1961. Both are central legislations. Therefore, looking at the literal language of the two sections it would be clear that the rights of the secured creditors would prevail over the rights of all other creditors. Therefore, both under the general law as well under the "provisions of the Companies Act read with the provisions of the Income-tax Act the rights of secured creditors and workers as set out under section 529-A of the Companies Act would override the claims of the Income-tax Authorities in respect of an order made under section 178 of the Income-tax Act.

Imperial Chit Funds (P.) Ltd. (In liquidation) v. ITO ((1996) 219 ITR 498 (SC); 86 Comp. Cas. 555 (SC) explained and distinguished.

Bank of India v. John Bowman (1955) AIR 1955 Bom. 305; Builders Supply Corporation v. Union of India (1965) 56 ITR 91 (SC); Collector of Aurangabad v. Central Bank of India (1968) 21 STC 10; (1967) AIR 1967 SC 1831; Givoanola Binny Ltd. (In liquidation), In re: (1990) 67 Comp. Cas. 441 (Ker.); ITO v: Official Liquidator (1975) 101 ITR 470 (AP); (1976) 46 Comp. Cas. 46 (AP); Manickam Chettiar v. ITO (1938) 6.ITR 180 (Mad.); Polyolefins Industries Ltd. v. Kosmek Plastics Manufacturing Co. Ltd. (2000) 242 ITR 269 (Bom.); (1999) 98 Comp. Cas. 481 (Bom.); Secretary of State in Council for India v. Bombay Landing and Shipping Co. Ltd. (1868-69) 5 Born. HC OC 23; Snowden Marshall (H.) v. People of the State of New York (1920) 65 Law Ed. 315; Starit India Ltd. (In liquidation), In re: (2000) .242 ITR 275 (Bom.); Superintendent and Remembrances of Legal Affairs v. Corporation of Calcutta (1967) AIR 1967 SC 997 ref.

Virag Tulzapurkar, instructed by Kanga & Co. for Applicants.

S.C. Gupta, Deputy Official Liquidator in person.

2002 P T D-1687

[242 I T R 582]

[Bombay High Court (India)]

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

COMMISSIONER OF INCOME-TAX

versus

Miss PIROJA C. PATEL

Income-tax Reference No. 554 of 1987, decided on 8th March, 1999

Income-tax---

----Capital gains---Deductions---Cost of improvement---Property sold to Bombay Municipal Corporation---Compensation paid for eviction of hutment dwellers from land---Removal of hutment dwellers improved value of lands---Expenditure incurred for vacating land amounted to cost of improvement under S.48(ii)---Expenditure allowable -Indian Income Tax Act, 1961, Ss.48 & 55.

The assessee, and other co-owners owned a certain piece of land at A. The property was notified for a public purpose under the Maharashtra Regional Town Planning Act, 1966, read with the Land Acquisition Act, 1894, and the property was subsequently sold to the Bombay Municipal Corporation by negotiation-cum-acquisition. The property was taken over by the Bombay Municipal Corporation for a consideration of Rs.14,33,190. In the computation of capital gains, the assessee claimed deduction of the expenditure incurred as compensation to the hutment dwellers for vacating the land. The Commissioner of Income-tax exercising his powers under section 263 of the Income Tax Act, 1961, disallowed the expenditure granted by the Income-tax Officer. The Tribunal held that it was allowable. On a reference:

Held, that by eviction of the hutment dwellers from the land, the value of the land increased and, therefore, the expenditure incurred for vacating the lands certainly amounted to cost of improvement. Accordingly, the expenditure incurred on payment of compensation was an allowable deduction.

CIT v. Shakuntala Kantilal (1991)' 190 ITR 56 (Bon.) and Hardiallia Chemicals Ltd. v. CIT (1996) 218 ITR 598 (Bon.) fol.

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

Nemo for the Assessee.

2002 P T D 1792

[242 I T R 669]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and Ms. Pratibha D. Upasani, JJ

MCKENZIES LTD. AND ORIENTAL TIMBER TRADING CORPORATION (P.) LTD.

versus

COMMISSIONER OF INCOME-TAX

Income-tax Reference No. 347 of 1984, decided on 5th November, 1998.

Income-tax---

----Penalty---Delay in submission of returns---Show-cause notice issued by ITO ---Failure by assessee to give reasons---Tribunal justified in confirming amount of penalty levied tinder S.271(1)(a)---Indian Income Tax Act, 1961, S.271(1)(a).

The assessee was a partnership firm The return of the assessee pertaining to the assessment year 1964-65 was due on June 30,.1964. The assessee submitted the return on June 30, 1965. The Income-tax Officer issued show-cause notice for imposition of penalty under section 271(1)(4) of the Income Tax Act, 1961, to which the assessee did not submit any explanation. The Income-tax Officer levied a penalty of Rs.47,808 at the rate of 2 per cent. of the net tax payable for every month of default in furnishing the return in time under section 271(1)(4) read with section 271(2). On appeal, the Appellate Assistant Commissioner recalculated the penalty and reduced the quantum of penalty to Rs.40,764. On further appeal to the Tribunal, the assessee contended that the difference between the tax assessed and advance tax paid being about Rs.2,597 only, no penalty ought to ,have been imposed. The Tribunal dismissed the appeal of the assessee. On a reference:

Held, that it was clear from the order of the Tribunal that the assessee did not submit any explanation whatsoever about a reasonable cause for the delay of 12 months in submission of the return. Therefore, the Tribunal was justified on the facts and circumstances of the case in coming to the conclusion that the provisions of section 271(1)(4), were attracted to the case of the assessee.

CIT v. Vegetable Products Ltd. (1971) 80 ITR 14 (Cal.) Jan Bombay Pipe Traders v. CIT (1995) 79 Taxman 363 (Bom.) ref.

J.D. Mistry instructed by Pathare Dhru & Co. for t e Assessee.

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

2002 P T D 2070

[243 I T R 683]

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

MADHAVRAO J. SCINDIA

Versus

COMMISSIONER OF INCOME-TAX

Income-tax Reference No.217 of 1988, decided on 24th February, 1999.

(a) Income-tax---

----Charge of tax---Dividend from companies in Ceylon---Gross dividend is chargeable to tax and not net amount after deducting tax at source and cost of foreign exchange entitlement certificate.

(b) Income-tax---

----Exemption---Special allowance or benefit---Daily allowance---Not a travel allowance ---Assessee received daily allowance for performing duties of his office as director---Exemption for daily allowance cannot be allowed under Expln. to S.10(14)---Indian Income Tax Act, 1961, S.10(14), Expln.

Held, (i) that the gross dividend declared by the companies in Ceylon was chargeable to tax and not the net amount after deducting the tax at source and-the cost of foreign exchange entitlement certificate.

Mrs. Meherbai N. Sethna v. CIT (1994) 209 ITR 453 (Bom.) fol.

(ii) That the head office of the company was situated at Bombay and the assessee was ordinarily a resident of Gwalior and as such he was coming from Gwalior for performing duties of his office as Director at Bombay. Therefore, he could not claim exemption under the Explanation to section 10(14) of the Income Tax Act, 1961, in respect of allowance received by him for performing his duties as Director in office at Bombay.

Ashok Kotangale instructed by Shobha Jagtiani for the Assessee.

B.M. Chatterjee for the Commissioner.

2002 P T D 1096

[252 I T R 337]

[Calcutta High Court]

Before Y.R. Meena and Arunabha Barua, JJ

STAR PAPER MILLS LTD.

Versus

COMMISSIONER OF INCOME-TAX

Income-tax Reference No. 194 of 1992, decided on 20th June, 2001.

Income-tax---

----Business expenditure---Royalty payable to State Government---State Government having unilateral power to fix royalty---Dispute regarding enhancement of royalty and lack of entry in accounts---Not relevant--­Enhanced royalty is a statutory liability---Deductible---Indian Income Tax Act, 1961, S.37.

The assessee-company was engaged in the manufacture and sale of paper. The main raw materials used by the assessee for manufacture of paper were eucalyptus wood and pine wood. The said raw materials were obtained from the forests of the Government of Uttar Pradesh. The terms and conditions on which such raw materials were supplied by the Government of Uttar Pradesh were that the assessee would pay the royalty as would be determined by the Government. Initially, royalty on eucalyptus wood supplied by the Government of Uttar Pradesh was fixed at Rs. 90 per volumetric ton (VMT). In terms of the Government order, the said royalty was revisable every two years. During the previous year relevant to the assessment year 1980-81 the assessee received an intimation, dated April 13, 1979, from the Government of Uttar Pradesh about the revision of royalty from the last fixed rate of Rs.90 per VMT to Rs.216 and Rs.290 per VMT. On representations made by the assessee, the said rates were revised by the Government of Uttar Pradesh by an order, dated November 15, 1979, to Rs.145 and Rs.156 in respect of the supplies made from October 1, 1976 to September 30, 1978, and October 1, 1978 to September 30, 1980, respectively. The assessee disputed the fixation of the royalty by way of a writ petition before the Allahabad High Court whereupon the High Court by an interim order directed the assessee to pay Rs.110 per VMT during the pendency of the writ petition. In its books of account for the relevant period the assessee made provision for the royalty on account of the said revision at the rate of Rs.110 per VMT. In the return the assessee claimed deduction of royalty at the rate of Rs.145 and Rs.156 per VMT. The Assessing Officer allowed deduction at the rate of Rs. 110 per VMT. 'This was confirmed by the Tribunal. On a reference:

Held, that in Gorelal Dubey v. CIT (2001) 248 ITR 3, the Supreme Court had held that royalty is a tax. The rate of royalty could be fixed unilaterally by the State Government and its recovery also can be made as in case of land revenue. Hence, it was not a contractual liability. It was a statutory liability and once it is statutory liability whether it is provided in the books or not, it does not make any difference. It was a certain liability and not a contingent liability. The additional liability of Rs. 1,17,20,456 on account of eucalyptus royalty was deductible.

Gorelal Dubey v. CIT (2001) 248 ITR 3 (SC) applied.

CIT v. Gorelal Dubey (1998) 232 ITR 246 (MP); Damodaran (A.) v. State of Kerala AIR 1976 SC 1533; Dulidhand Agarwal v. State of M.P. (1980) MPLJ 465; Indian Cement Ltd. v. State of Tamil Nadu (1991) 188 ITR 690 (SC); Kedarnath Jute Manufacturing Co. Ltd. v. CIT (1971) 82 ITR 363 (SC); (1971) 28 STC 672 (SC) and Sutlej Cotton Mills Ltd. v. CIT (1979) 116 ITR 1 (SC) ref.

Bajoria for the Assessee.

Mallick for the Commissioner.

2002 P T D 1216

[241 I T R 468]

[Calcutta High Court (India)]

Before Y.R. Meena and G. C. De, JJ

Smt. TAPATIPAL

Versus

COMMISSIONER OF INCOME‑TAX

Income‑tax References Nos. 127 and 128 of 1994, decided on 22nd September, 1999.

(a) Income‑tax‑‑‑

‑‑‑‑Penalty‑‑‑Concealement of income‑‑‑Legal representative‑‑Assessment completed on legal heir of deceased‑‑‑Penalty imposed on legal heir‑‑‑Legal heir is a deemed assessee‑‑‑Initiation of penalty proceedings against legal heir justified‑‑‑Indian Income Tax Act, 1961, Ss. 159 & 271(1)(c).

(b) Income‑tax‑‑‑

‑‑‑Appeal to Appellate Tribunal‑‑‑‑Powers of Tribunal‑‑‑Power to remand‑‑­New plea raised for first time before Tribunal in penalty proceedings that assessee was ill during relevant period‑‑‑Tribunal justified in remanding matter to Assessing Officer‑‑‑Indian Income Tax Act, 1961, S. 254.

T was the legal heir of Dr. N. Dr. N died and the assessments were completed on the legal heir T. Penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961, were initiated against the legal representative. The Commissioner of Income‑tax (Appeals) cancelled the penalties. On appeal to the Tribunal for the first time a plea was taken that the deceased was ill during the relevant period and hence the correct income could not be filed. The Tribunal restored the matter to the Assessing Officer to find out whether the assessee was ill. On a reference:

Held, (i) that since the plea of illness was raised for the first time before the Tribunal which required enquiry into facts the remand was justified;

(ii) that the heir was liable to pay the tax and treated as deemed assessee under section 159 of the Act after the death of her father and hence the initiation of penalty proceedings against the legal heir was justified.

2002 P T D 1241

[241 I T R 494]

[Calcutta High Court (India)]

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

COMMISSIONER OF INCOME‑JAX

Versus

CURRENCY INVESTMENT CO. LTD.

Income‑tax Reference No.204 of 1996, decided on 6th September, 1999.

Income‑tax‑‑‑

‑‑‑‑Business loss‑‑‑Loss on account of dealing in shares ‑‑‑ Identity of purchaser and seller not disputed‑‑‑Failure to produce broker through whom shares were sold does not affect genuineness of transactions‑‑‑Loss on account of share transactions‑‑‑Deductible‑‑‑Indian Income Tax Act, 1961.

The assessee, an investment company, claimed loss on account of share transactions. The assessee purchased and sold the shares but since the assessee could not produce the broker through whom the sales were made, with the books of account, the Income‑tax Officer treated the share transactions as bogus and not genuine and disallowed the loss. The Tribunal found that the loss on account of share transactions was genuine. On a reference:

Held, that the question whether the assessee suffered loss on account of share transactions was basically an issue based on finding of fact The identity of the share brokers and the person through whom the shares were purchased and shares were sold was not disputed. The payment was received by an account payee cheque and the payment was also made by account payee cheque when the shares were purchased. Merely because the assessee could not produce the broker through whom the shares were sold it did not affect the genuineness of the transactions when the assessee disclosed the identity of the persons from whom the shares were purchased and sold. Even when two opinions are possible if the view taken by the Tribunal is possible it cannot be said to be perverse. The loss was deductible.

2002 P T D 1260

[241 I T R 517]

[Calcutta High Court (India)]

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

HUKUMCHAND JUTE AND INDUSTRIES LTD.

Versus

COMMISSIONER OF INCOME‑TAX

Income‑tax References Nos. 17 of 1988 and 148 of 1992, decided on 8th September, 1999.

Income‑tax‑‑‑

‑‑‑‑Business expenditure‑‑‑Accounting‑‑‑Liability in respect of additional fuel surcharge for power consumption ‑‑‑Assessee following mercantile system of accounting‑‑‑Agreement between assesssee and Electricity Board that fuel surcharge would form part of monthly bill‑‑‑Deduction allowable for fuel surcharge in year of consumption of electricity and not in year of quantification ‑‑‑Assessee consuming electricity in previous year relating to assessment year 1981‑82‑‑‑Additional fuel surcharge allowable in assessment year 1981‑82‑‑‑Indian Income Tax Act, 1961, S.37.

The assessee was a public limited company. During the accounting year relevant to the assessment year 1981‑82, the assessee consumed electricity and received a notice of demand for additional fuel surcharge in September, 1983, relevant to the assessment year 1984‑85. In the original return for the assessment year 1981‑82, the assessee did not claim deduction in respect of the amount of Rs.25,48,047 on account of additional fuel surcharge for power consumption. But the assessee claimed it before the Inspecting Assistant Commissioner in the proceeding under section 144B of the Income Tax Act, 1961. The claim of the assessee was not allowed by the Inspecting Assistant Commissioner for the assessment year 1981‑82 on the ground that the amount of liability was not ascertained and quantified. An ad hoc provision of Rs.3,71,980 had been made by the assessee in the assessment year 1981‑82 for additional fuel surcharge. The Tribunal held that the liability for additional fuel surcharge accrued only after the assessee received the bill in September, 1983, i.e., after the liability was quantified by the Electricity Board and, therefore, the additional fuel surcharge was allowable in the assessment year 1984‑85. On a reference:

Held, that by virtue of clauses 19,20 and 25(9) of the agreement entered into between the Board and the assessee it was agreed that fuel charges would form part of the bill issued monthly and would depend upon the units consumed by the assessee during the month. Therefore, the liability accrued under the agreement when the. electricity was consumed by the assessee in the previous year relevant to the assessment year 1981‑82 though quantification was made later. Accordingly additional fuel charge liability was allowable in the assessment year 1981‑E2.

CIT v. Shri Sarvaraya Sugars Ltd. (1987) 163 ITR 429 (AP); CIT v. Swadeshi Mining and Manufacturing Ca. Ltd. (1978) 112 ITR 276 (Cal.); Kedarnath Jute Manufacturing Co. Ltd. v. CIT (1971) 82 ITR 363; (1971) 28 STC 672 (SC); Madras Industrial Investment Corporation Ltd. v. CIT (1997) 225 ITR 802 (SC); Shalimar Chemical Works (Pvt.) Ltd. v. CIT (1987) 167 ITR 13 (Cal.) and Standard Tea Exports v. CIT (1992) 198 ITR 573 (Ker.) ref.

J.P. Khaitan for the Assessee.

S.K. Mitra, R. Prasad, A.C. Moitra and S.K. Mukkerjee for the Commissioner.

2002 P T D 1310

[242 I T R 13]

[Calcutta High Court (India)]

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

TIRUPATI TRADING CO

Versus

COMMISSIONER OF INCOME‑TAX

Income‑tax References Nos.119 and 121 of 1992 and Matter No.2324 of 1992, decided on 17th August, 1999.

(a) Income‑tax‑‑‑

‑‑‑‑Business expenditure‑‑‑Disallowance of expenditure‑‑‑Amounts paid in cash in excess of specified limit‑‑‑Amount paid in cash for disbursement among Lorry drivers‑‑‑Payments reflected in account books‑‑‑Amounts could not be disallowed‑‑‑Indian Income Tax Act, 1961, S.40A(3)‑‑‑Indian Income Tax Rules, 1962, R.6DD, (b) Income‑tax‑‑‑

‑‑‑‑Interest on borrowed capital‑‑‑No evidence that amounts had been borrowed for purposes of business‑‑‑Interest was not deductible‑‑‑Indian Income Tax Act, 1961, S.36.

(c) Income‑tax‑‑‑

‑‑‑‑Business expenditure‑‑‑Travel expenses‑‑‑No finding on question whether travel was for purposes of business‑‑‑Matter remanded‑‑‑Indian Income Tax Act, 1961, S.37.

The assessee‑firm carried on the business of manufacturing, trading and export of cast iron. The assessee claimed deduction of payment of Rs.1,49,902 on transport. During the scrutiny, the Income­tax Officer found that out of that expenditure, the assessee had paid Rs.95,000 and the payments were in cash exceeding Rs.2,500 on different dates, and that therefore, that was hit by the provisions of section 40A(3) of the Income Tax Act, 1961. The case of the assessee was that this cash had been collected from the assessee in Calcutta and it was for the payment to drivers. The Tribunal confirmed the disallowance.

The assessee had claimed deduction of interest on a loan of Rs.8,60,000. The loan had been advanced immediately to a sister concern free of interest. The case of the assessee was that it was not in fact an interest free loan to P but an advance against a flat booked by the assessee in a building. The Income‑tax Officer disallowed the interest. The Tribunal found that the assessee had not produced any terms of the contract between the assessee firm and P. No construction had been undertaken by P. The entire story of the assessee that the money was advanced for booking flats was not supported by any material. The Tribunal upheld the disallowance.

The assessee had also claimed deduction of Rs.1,08,381 as travel expenses for purposes of the business. The Income‑tax Officer did not allow the deduction and the Tribunal confirmed the disallowance. On a reference:

Held, (i) that the assessment proceedings commenced in the month of September, 1985, and the assessment was completed by the middle of October, 1985. The assessee had its head office in Calcutta and the transporters, were in Jamshedpur. Therefore, it might not be possible to obtain the affidavit from those persons within such a short period. In para, 4 of the affidavit‑ of the transporters filed before the Commissioner (Appeals) they stated that they had to collect money in cash only since the same was required to be disbursed amongst different lorry owners. The break‑up of the amount had been given. The payments were reflected in the account books of the assessee. Hence, the amount of Rs.94,506 representing; payment made to the transporters could not be disallowed.

(ii) That the assessee had failed to prove that the flat was booked for the office. There was no evidence except the oral claim that the flat was booked for the purpose of the assessee‑firm. In the absence of any supporting evidence that the flat was booked for the purpose of the office and considering the finding of the Income‑tax Officer, Commissioner of Income‑tax (Appeals) as well as the Tribunal, there was no justification to interfere with the view taken by the Tribunal that the advance was not for the purpose of the business. The disallowance of interest was valid.

(iii) That no details were furnished before the Income‑tax Officer as to whom the partners of the firm had contacted abroad for the purpose of sales promotion, but there was evidence on record that the tour was for the purpose of the business, as per the permission of the Reserve Bank of India. If no sufficient evidence was produced to connect the foreign tour with the business, when the assessment was completed within one and half months, the Income‑tax Officer should give reasonable opportunity to bring sufficient material on record to give a finding whether the foreign tour was for the purposes of the business‑ or for sales promotion. (Matter remitted to Tribunal to give fresh finding and permit the assessee to adduce the evidence and bring on record the relevant materials to justify the claim of the assessee that the foreign tour was for the purpose of the business and sales promotion).

2002 P T D 1715

[242 I T R 404]

[Calcutta High Court (India)]

Before Y. R. Meena and G. C. De, JJ

COMMISSIONER OF INCOME‑TAX

versus

SIJUA (JHERIA) ELECTRICAL SUPPLY CO. LTD.

I. T. R. No. 131 of 1991, decided on 5th January, 2000.

Income‑tax‑‑‑

‑‑‑‑Other sources‑‑‑Deduction‑‑‑Business taken over by Government‑‑­Assessee continuing employment of some employees for earning interest income assessable under "other sources" ‑‑‑Salary and gratuity payments ‑‑‑Assessee entitled to deduction of gratuity payments against income from other sources‑‑‑Indian Income Tax Act, 1961, S. 57.

The assessee's business was taken over by the Bihar Government and compensation was paid in terms of the Ordinance and thereafter for earning interest income assessable under the head "other sources" the assessee continued the employment of some of the employees: During the accounting year relevant to the assessment year, the assessee paid gratuity in addition to salary and claimed it as a deduction against the income assessable under the head "other sources". The Income‑tax Officer disallowed the claim but the Tribunal allowed the claim. On a reference: , Held that the salary had been paid to the employees or earning the income assessable under the head "Income from other sources" and, hence, there was no justification to deny the claim of the assessee regarding deduction of gratuity payment made by the assessee to the two employees. Hence, the gratuity payments were allowable as deductions.

CIT v. Gemini Cashew Sales Corporation (1967) 65 ITR 643 (SC); CIT v. Rampur Timber and Turnery Co. Ltd. (1981) 129 ITR 58 (All.) and Vijaya Laxmi Sugar Mills Ltd. v. CIT (1991) 191 ITR 641 (SC) ref.

Mitra for the Commissioner.

2002 P T D 2034

[243 I T R 514]

[Calcutta High Court (India)]

Before Y. R. Meena and G. C. De, JJ

PARK HOTEL (P.) LTD.

Versus

COMMISSIONER OF INCOME‑TAX

Income‑tax Reference No.88 of 1986, decided on 2nd February, 2000.

Income‑tax‑‑‑

‑‑‑‑Business‑‑‑Income from business ‑‑‑Assessee not owner but a lessee of property‑‑‑Property sub‑leased to one S‑‑‑S putting up further construction on property ‑‑‑Assessee not incurring any expenditure for construction ‑‑‑Assessee not owner of property‑‑‑On 30‑9‑1977 S transferring the property to assessee for consideration‑‑‑Rent received by S from 1‑10‑1977‑‑‑Rental income not taxable in the hands of assessee from 1‑10‑1970 to 30‑9‑1977, that is, till date of retransfer to assessee‑‑­Indian Income Tax Act, 1961.

The Income‑tax Officer held that the income from leasehold property which was sub‑leased to one S was liable to be taxed in the hands of the assessee as income from house property. The Tribunal took the view that the income was liable to be assessed as business income. On a reference, it was held that the assessee was not the owner but only a lessee and, therefore, the income from the leasehold property which was in the possession and occupation of S was the business income of the assessee. On appeal the Supreme Court in CIT v. Park Hotel (P.) Ltd. (1996) 218 ITR 221 set aside the order of the High Court and the matter was remitted to the High Court for fresh disposal. The High Court called for a finding from the Tribunal‑ as to who constructed the building for the purpose of ownership. The Tribunal found as per the balance‑sheet of the assessee‑company for the year ending March 31, 1971, that the entire immovable property stood transferred to S for consideration for the period October 1, 1970, to September 30, 1977, S had put up construction and the assessee did not incur any expenditure for the same. On September 30, 1977, the entire leasehold land alongwith construction stood retransferred to the assessee‑company for consideration.

Held, that since the property was sub‑leased and the possession handed over to S and since S put up the construction of the multi­storeyed building and was collecting the rent the income could not be assessed in the hands of the assessee up to the date when the property was retransferred to the assessee. If income has not been taxed in the hands of .A who was liable to pay tax it could not be taxed in the hands of B when under the provisions it was not taxable in the hands of B.

CIT v. Podar Cement (Pvt.) Ltd. (1997) 226 ITR 625 (SC); Park Hotel (P.) Ltd. v. CIT (1987) 167 ITR 60 (Cal.) on appeal (1996) 218 ITR 221 (SC) and S.G. Mercantile Corporation (P.) Ltd. v. CIT (1972) 83 ITR 700 (SC) ref.

Dr. Debi Prosad Pal and A.K. Roy Chowdhury, S.K. Ray, S. Roy Chowdhury and Aniruddha Ray for the Assessee.

P.K. Mullick with J.C. Saha for the Commissioner.

2002 P T D (Trib) 300

[Customs, Excise and Sales Tax Appellate Tribunal]

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

Appeal No. 1259 of 2000, decided on 11th July, 2001

Sales Tax Act (VII of 1990)---

----Ss. 3, 6, 7 & 34---Scope of tax---Tax was charged on sale of plant and machinery, vehicles, furniture, office equipment, scrap etc., whereas assessee's normal business was supply of textile products, beverages, dairy products etc.---Validity---Assessee claimed input tax credit on most of these goods in terms of S.7 of the Sales Tax Act, 1990 and while claiming input tax credit, assessee's plea was that since the said goods were required for running their business they were entitled to deduct input tax from the output tax for determining their tax liability--­Assessee could not take a different stance which ran contrary to their earlier assertion---If the purchase of the said goods was in the course of their taxable activity, their sale could not be viewed differently as a transaction which was divorced from their normal business---Held, sale of plant and machinery, furniture, office equipment etc. was a taxable transaction and assessee was under a legal obligation to account for these transactions and pay sales tax thereon---Not just and fair to charge sales tax on sale of vehicles and such other goods which were not admissible for input tax deduction in terms of S. 8(1)(b) of the Sales Tax Act, 1990---"Sale and lease back" of machinery and other goods being a fictional transaction it did not fall within the purview of the tax net and. thus sales tax was not chargeable thereon---Controversy between the Department and the assessee related to interpretation of different legal provisions the imposition of additional tax and penalty had no justification and the same was accordingly waived.

Ali Sibtain Fazli, Noman Akram Raja, Mian Abdul Ghaffar, Sajid Mehmood Sheikh, Naveed Sohail Malik, Saood Nasrullah Cheema, Akram Gondal, Saqib Bashir, Anwar Bhatti and Rana Attaullah Khan, Consultant for Appellant.

Amer Ahmed, D.R. with Riasat Ali, Noor ud Din Ahmed and Abdul Lateef for Respondent.

Dates of hearing: 17th January; 15th February and 4th May, 2001.

2002 P T D (Trib.) 475

[Customs Excise and Sales Tax Appellate Tribunal]

Before Khalil Masood, Member (Technical) and Malik A.R. Arshad, Member (Judicial)

Appeals Nos. 1, 100 to 104 and 14 of 2000, decided on 27th October, 2000.

(a) Sales Tax Act (VII of 1990)---

----S.8(1)(b)---SRO 1053(I)/93, dated 20-10-1993---"Stock-in-trade"--­Definition---Definition of term "stock-in-trade" as goods and commodities purchased for sale or conversion into finished goods was an arbitrary definition as it excluded all taxable goods that were not used for conversion of goods into finished goods and it effectively meant that only raw materials were entitled for input tax.

(b) Sales Tax Act (VII of 1990)---

----S.10---"Adjustment"---Connotation---Word "adjustment" has not been defined in the Sales Tax Act, 1990 and it has the same connotation as "input tax deduction".

(c) Sales Tax Act (VII of 1990)---

----Ss.8, 7(2) & 10(2)---S.R.O. 1073(1)/81, dated 30-9-1981---S. R. O. 1111(1)/90, dated 1-11-1990---S.R.O. 1053(1)/93, dated 20-10-1993--­S.R.O. - 556(1)/96, dated 1-7-1996---S.R.O. 1307(1)/97, dated 10-12-1997---S.R.O. 578(1)/98, dated 12-6-1998---Tax credit not allowed---Components and spare parts of machinery---Adjustment of input tax credit on imported/locally purchased components/parts of plant and machinery was claimed---Refusal by the department- --Validity--­Accessories and spare parts of plant and machinery whether used as original equipment or as replacement parts for current use, have all along enjoyed input tax\ credit from the very inception of the Sales Tax Act, 1990 and all attempts to the contrary have been nullified in view of the substantive provisions of law---Order was set aside by the Tribunal.

Attock Cement (Pakistan) Ltd. v. Collector of Customs 1999 PTD 1892 rel.

Muhammad Usman, Consultant, S.M.A. Askari and Mrs. Navin Marchant for Appellants. .

Dr. Rafiquz Zaman Khan, Senior Auditors and Irshad Thaim D.S. for Respondents.

2002 P T D (Trib.) 822

[Customs, Central Excise and Sales Tax Appellate Tribunal]

Before Mian Abdul Qayyum, Member (Judicial) and

S. M. Kazimi, Member (Technical)

S.T.A. No.2046/LB of 2001, decided on 24th October, 2001.

Sales Tax Act (VII of 1990)‑‑‑

‑‑‑‑Ss. 56 . & 33(1)‑‑‑Non‑filing of tax return‑‑‑Show‑cause notice‑‑­Service‑‑‑Effectiveness‑‑‑Penalty‑‑‑Show‑cause notice for non‑filing of tax return was sent through registered post which was not received back undelivered‑‑‑Penalty for non‑filing of tax return was imposed on the presumption of service in terms of S.56 of the Sales Tax Act, 1990‑‑­Validity‑‑‑Adjudicating Officer could not have drawn any presumption of service on assessee merely on the basis of notice sent through registered post and not received back undelivered‑‑‑Order had been passed ex parte and in violation of the principle of law that no one is to be condemned unheard‑‑‑Order was set aside by the Tribunal and case was remanded for a fresh decision after hearing the parties.

M. Shahid Umer Khan for Appellant.

Amer Ahmad, D.R. for Respondents.

Date of hearing: 24th October, 2001.

2002 P T D (Trib.) 1445

[Customs, Excise and Sales Tax Appellate Tribunal]

Before Zafar Iqbal, Technical Member and

Sultan Ahmed Siddiqui, Judicial Member

Appeal No. 1834 of 1999, decided on 8th November, 2001.

Sales Tax Act (VII of 1990)‑‑‑

‑‑‑‑S.13‑S.R.O. No.109/(1)/94, dated 8‑2‑1994‑‑‑C.B.R. Letter C. No.3(6)GST‑1/93, dated 4‑4‑1994‑‑‑Exemption‑‑‑Accessory‑‑‑Floor mats‑‑‑Supply of, as accessories to a vehicle manufacturer ‑‑‑Taxability‑‑­Validity‑‑‑Floor coverings were admittedly used in all motor cars for comfort and beauty and accordingly goods were covered within phrase "accessory"‑‑‑"Accessory" falling within the framework of respective heading, that is in the corresponding classification stands exempt for payment of sales tax within the framework of S.R.O. 109(1)/94, dated 8‑2‑1994.

Webster's Third New International Dictionary ref.

Yaqoob Macco, Deputy Collector for Appellant. Nemo for Respondents.

Date of hearing: 8th November, 2001.

2002 P T D (Trib.) 1455

[Customs, Central Excise and Sales Tax Appellate Tribunal]

Before Abdul Majeed Tiwana, Chairman, Zafar‑ul‑Majeed, Member (Technical) and Masud Ahmad Daher, Member (Technical)

Appeal No. S.T.A. No.748/LB of 2001. decided on 1st August, 2001.

(a) Sales Tax Act (VII of 1990)‑‑‑

‑‑‑‑Ss. 33, 34 & 7‑‑‑Penalties‑‑‑Additional tax‑‑‑Where it was not clear from the assessment order as to which months the belated adjustment pertained and what was the quantum of each adjustment and how many total adjustments the assessee had made, neither the additional tax, nor the penalty could be calculated despite the fact that for the procedural lapse of belated adjustments at least some penalty would have been payable by the assessee to compel the compliance of the provisions of S.7 of the Sales Tax Act, 1990.

(b) Sales Tax Act (VII of 1990)‑‑‑

‑‑‑‑Ss. 7(1), 10 & 66‑‑‑Determination of tax liability‑‑‑Claim of input tax adjustment paid on purchases/imports made in the previous month‑‑­Disallowance of adjustment made out of tax period‑‑‑Demand‑‑­Validity‑‑‑No justification existed for the department to demand the payment of the entire amount of input tax belatedly adjusted by the assessee as they had claimed same as a matter of right conferred on them by S.7 of the Sales Tax Act, 1990 coupled with S.10 of the Sales Tax Act, 1990 providing for carrying over the unadjusted excess input tax and its refund besides their right of recovery under S.66 of the Sales Tax Act, 1990‑‑‑Such demand clearly amounted to double taxation which was an illegal exaction.

(c) Sales Tax Act (VII of 1990)‑‑‑

‑‑‑‑Ss. 3 & 8(1)(b)‑‑‑Scope of tax‑‑‑Tax on office equipment and fixed assets ‑‑‑Assessee was not liable to pay sales tax on sale of fixed assets nor they were liable to pay on certain goods on which deduction of sales tax was not admissible in terms of S.8(1)(b) of the Sales Tax Act, 1990.

Asim Zulfiqar for Appellant.

Amir Ahmad, D.R. for Respondent.

Date of hearing: 12th April, 2001.

2002 P T D (Trib.) 1525

[Customs, Central Excise and Sales Tax Appellate Tribunal]

Before S. M. Kazmi, Member (Technical) and

Raj Muhammad Khan, Member (Judicial)

Appeal No.ST‑2733/IB of 2001, decided on 9th March, 2002.

Sales Tax Act (VII of 1990)‑‑‑--S. 7(1)—C.R.R.’s Letter CNo. 1/10-STB/98, dated 12-6-1998-----Determination of tax liability---input tax---adjustment of, in tax returns filed subsequently to the returns to which the input tax invoice related---admissibility---input tax adjustments made by the assessee/appellant, after 1998 amendment in S.7 (1) of the Sales Tax Act, 1990 in the tax returns subsequent to the relevant tax period, were not lawful for the tax periods to which the appeal related and therefore, were inadmissible----By taking lenient view of the case being not That of evasion of tax Appellate Tribunal allowed the assesse/appellant to deposit the principal amount of tax by 30th March, 2002 without paying additional tax otherwise, the same was to remain payable by it.

S.T.A. No.67 of 2000; S.T.A. No.194 of 2000 and S.T.A. No. 748/LB of 2001 irrelevant/not good precedent.

PLD 1991 SC 963 ref.

Qazi Waheed‑ud‑Din for Appellant..

Nasir Mehmood, D.S., Pir Alam Shah, D.R. and Ishtiaq Ahmad, Law Officer of the Collectorate.

Dates of hearing: 9th, 16th, 22nd January and 6th March, 2002.

2002 P T D (Trib.) 2262

[Customs, Excise and Sales Tax Appellate Tribunal]

Before Mian Abdul Qayyum, Member (Judicial) and

Zafar‑ul‑Majeed, Member (Technical)

S.T.A. No. 2412/LB of 2001, decided on 4th May, 2002.

Sales Tax Act (VII of 1990)‑‑‑

‑‑‑‑Ss.8 & 7‑‑‑SRO 578(1)/98, dated 12‑6‑1998‑‑‑S.R.O. 722(1)/99, dated 16‑9-1999‑‑‑SRO 926(1)/99 dated 16‑6‑1999‑‑‑Tax ‑credit not allowed‑‑­Determination of tax liability‑‑‑Claim of input tax paid on purchase of furnace oil used in generators for production of electricity which was used for purpose of making taxable supplies during the period October, 1999 to September, 2000 was rejected‑‑‑Validity‑‑‑Goods used for the purpose of making taxable supplies were not included in the list of goods specified in a notification issued under S.8(1)(b) of the Sales Tax Act, i.e. SRO 578(1)/98 dated 12‑6‑1998‑‑‑Adjustment/refund of input tax paid thereon remained admissible‑‑‑Generators and furnace oil being two different items and the latter having • been specifically excluded from the ,list of goods specified vide SRO 578(1)/98, dated 12‑6‑1998, furnace oil purchased and used for generation of electrical energy, a taxable supply,. would be entitled to adjustment of input tax paid thereon‑‑‑Since exemption from sales tax on electricity was withdrawn with effect from 16‑8‑1999 vide SRO 722(1)/99 dated 16‑9‑1999 and subsequently by amendment in Sixth Sched. to the Sales Tax Act, 1990 vide Finance Ordinance, 2000, the assessees were well within their right to claim refund of input tax paid on furnace oil used for generation of electricity during the period October 1999 to September, 2000‑‑‑Department was directed by the Tribunal to work out the amount of input tax paid on furnace oil used‑ in the generation of electricity after necessary verification from record and allowed refund to the appellants.

Tariq Javed for Appellant.

Imran Tariq D.R. with Saeed Akhtar Khan, Auditor for Respondent.

Date of hearing: 20th February, 2002.

2002 P T D (Trib.) 2270

[Customs, Central Excise and Sales Tax Appellate Tribunal]

Before Mumtaz Ali, Member (Technical) and

Zafar Ali Warraich, Member (Judicial)

Appeal No. 112 of 1996, decided on 8th November, 1996.

Sales Tax Act (VII of 1990)‑‑‑

‑‑‑‑Ss.11 & 46‑‑‑S.R.O. 994(I)/92, dated 8‑10‑1992‑‑Assessment o tax‑­Goods exceeding the value of Rs.100,000‑‑‑Assessment of goods by the Assistant Collector‑‑‑Validity‑‑‑Assistant Collector had passed a quasi­ judicial order which was based certain quantities of goods manufactured and supplied by the appellant ‑Value of goods far exceeded ,the amount of Rs.100,000, Assistant Collector was not competent to pass order in the matter, as it fell in the jurisdiction of Collector of Sales Tax‑‑‑Appellate Tribunal set aside the order and remanded the case for de novo consideration to the Collector of Sales Tax‑‑‑Matter of short assessment shall be deemed to be pending proceeding before him which he shall dispose of by considering it afresh and affording appropriate opportunity of defence to the assessee/appellant.

PLD 1987 SC (AJK) 60; PLD 1988 Quetta 1992 and PLD 1988 Rev. 1952 ref.

Farhat Nawaz Lodhi for Appellant.

Siddique Awan, Deputy Superintendent for Respondent.

2002 P T D (Trib.) 2311

[Customs, Central Excise and Sales Tax Appellate Tribunal]

Before S. M. Kazmi, Member (Technical) and

Raj Muhammad Khan, Member (Judicial)

Appeals Nos. 7(1520)CE/IB and 7(1623)CE/IB of 2001(PB), decided on 6th April, 2002.

Central Excises Act (I of 1944)---

----Ss. 4(1) & 3(2)(3)---Central Excise Rules, 1944, 8.210---Sales Tax, Act (VII of 1990), Ss.2(46) & 33---Determination of value for the purposes of duty---Valuation of metal containers was assessed on the basis of market survey as well as prices fixed in, a meeting with the manufacturers and duty and sales tax was demanded alongwith the additional duty, additional tax and penalties equal to 3 % of the amount of sales tax involved---Validity---Method of determination of agreed prices could not sustain the test of law where the manufacturer(s) disagreed to any such agreement or when they did not assent to such agreement--­Fixation of a uniform price sounded like determination of "tariff value" or "fixed value", such a determination of "tariff value" and/or "fixed value" by the Superintendent or the Collector will not be lawful because only Central Board of Revenue could do so under S.3(2)(3) of the Central Excises Act, 1944' and/or under the proviso to S.2(46) of the Sales Tax Act, 1990---Application of such agreed or fixed value in a particular circle was discriminatory as the same proposed and agreed uniform value of such containers in a particular circle only and report from other circles showed that it had not implemented the agreed uniform value and, on the contrary, accepted assessments at prices even lower than those in the case of the assessee---Value determined was not based on any verifiable survey or on such a general consensus as could include the assessee's consent---Being neither a "tariff value" nor a "fixed value" notified by the Central Board of Revenue under S.3(2)(3;1 of the Central Excises Act, 1944 and/or under the proviso to S.2146) of the Sales Tax Act, 1990, the letter fixing the value issued by the Superintendent also lacked legal validity---Evidences of discrimination against the assessee during the relevant period favoured the assessee's case---Order was set aside by the Tribunal in circumstances.

Mian Nazir Azhar for Appellants.

Ishtiaq Ahmad, Law Officer of the Collectorate for Respondents.

Dates of hearing: 20th March and 1st April., 2002.

2002 P T D (Trib.) 2504

[Customs, Central Excise and Sales Tax Appellate Tribunal]

Before Raj Muhammad Khan (Judicial) and S. M. Kazimi, Member (Technical)

Appeal Case No. 7(718)ST/IB of 2001(PB), decided on 1st June, 2002

(a) Sales Tax Act (VII of 1990)---

----Ss. 7, 8 & 9---Determination of tax liability---Terms refund ---Scope-­Terminologies like repayment, re-imbursement, rebate, drawback, tax credit, reclaim or deduction (in terms of sections 7 and 8 of the Sales Tax Act, 1990), or adjustment (in terms of section 9 of he Sales Tax Act, 1990), were all covered by the generic terms "refund".

(b) Sales Tax Act (VII of 1990)---

----Ss.9 & 66---Sales Tax Refund Rules, 1996---Debt and credit note--­Refund to be claimed within one year---System of Debit and Credit Note under S.9 of the Sales Tax Act, 1990 read with Sales Tax Refund Rules, 1996, simply allow taking refund in a suo motu manner at the action of the taxpayer himself without filing of a formal refund claim while refund under S.66 of the Sales Tax Act, 1990 entails a formal refund claim by, the taxpayer and its sanction by the competent sales tax officer---Such facility of Debit and Credit Note, however, did not take away or alter the nature, colour and flavour of its being still covered by the generic term "refund".

(c) Sales Tax Act (VII of 1990)---

----S.3-B(1) & (2)---Collection of excess tax---Arrears of tax recoverable---Once any excess amount of tax had been charged and collected by any person and its incidence passed on to the consumer, such a tax had to be paid to the Federal Government in terms of S.3-B(1) of the Sales Tax Act, 1990 and it was deemed to be arrears of tax, recoverable accordingly---No claim for refund in respect of such amount was admissible in terms of S.3-B(2) of the Sales Tax Act, 1990.

(d) Sales Tax Act (VII of 1990)---

----Ss.3-B, 9 & 34---S.R.O. 696(1)96 dated 22-8-1996---Protection of Economic Reforms Act (XII of 1992)---Finance Supplementary (Amendment) Bill, 1997---Provisional Collection of Taxes Act (XVI of 1931), S.3---Collection of excess tax etc.---Debt and Credit note--­Charge and collection of sales tax at 18 % and depositing the same at 12.5 % by correction of sales tax invoices already issued by issuing debit notes for the increase in retail price but reduction in sales tax with retrospective effect---Demand of unpaid tax with additional tax--­Validity---Essence of S.3-B of the Sales Tax Act, 1990 was that whatever had been collected by a supplier, as sales tax or in the name of sales tax, should be paid to the exchequer and should not be appropriated by the supplier in any other manner---Tax having been collected from the consumers through a taxable supply, it could not be manipulated to keep the amount for the persons issuing the tax invoice by seeking retrospective effect of price changes---Tax collection by the assessee was a trust and should not be manipulated or appropriated in any manner to deprive the Government of even a penny which the consumer had paid or which the consumer had been charged or which had been collected from the consumer in the name of a tax---Claim for refund of such a tax amount had been barred under S.3-B(2) of the Sales Tax Act, 1990---Suo motu refund, in the style of a debit note under S.9, was also of no avail and the excess of fax, as charged and collected, had to be paid by the assessee into the Government treasury ---Assessee's action of revision of retail price with retrospective effect was a nullity in law and was done with intent and purpose to keep the portion of the tax for himself---Such an improper action could not be said to be lawful---Appellate Tribunal found that assessee's action of retrospective revision of retail price and appropriation from the amount of sales tax collected was neither lawful nor proper---Amount having been paid by the assessee under the head of account for central excise duty, the demand may not be pressed as the said amount was still with the Government, although, under a wrong head of account but the assessee should pay the balance amount of sales tax collected by it from the consignee/consumer---With regard to additional tax Appellate Tribunal directed that if the assessee paid the arrears of principal amount of sales tax up to the date specified by the Tribunal, the amount of additional tax should stand remitted as specified case, otherwise the assessee should pay the whole of additional tax under S.34 of the Sales Tax Act, 1990.

Blacks Law Dictionary (6th Edition); Chamber's Twentieth Century Dictionary; Webster's New Universal Un-Abridged Dictionary (Delux 2nd Edition); the Shorter Oxford English Dictionary (Second Edition) and The Law Lexicon (Reprint Edition, 1996 ref.

Qazi Waheeduddin for Appellant.

Alam Zaib Khan, Senior Auditor and Al-Haj Gul, D.R. for Respondents.

Date of hearing: 28th May, 2002.

2002 P T D (Trib.) 2751

[Customs, Excise and Sales Tax Appellate Tribunal]

Before S. M. Kazimi, Member (Technical) and

Raj Muhammad Khan, Member (Judicial)

Appeal Case No.7(44)ST/IB/2000(PB), decided on 15th June, 2002.

Sales Tax Act (VII of 1990)---

----Ss. 3, 2 (33)(a), 2(46), 45A, 33 & 34---S. R. O. 178(I), dated 29-3-2002---Scope of tax---Supply---Value of supply---Powers of the Board and Collector to call for records---Consumption of bagasse in fuel---Non-payment of sales tax---Show-cause notice---Determination of price/value---Admitted price of bagasse to be ranging between Rs.85 per tonne to Rs.300 per tonne (averaging 177.75 per tonne)---Central Board of Revenue fixed value of Rs.200 per tonne for in house consumption of bagasse during 1996-97 vide Notification No.S.R.O. 178(1)/2002, dated 29-3-2002 in terms of first proviso to S.2(46) of the Sales Tax Act. 1990---Applicability of---Appellant also challenged the legality of levy of sales tax on bagasse under S.3 of the Sales Tax Act, 1990, on the ground that burning the bagasse in their own boilers did not constitute "supply" within the meaning of S.2(33)(a) of the Sales Tax Act, 1990---Validity--­Appellant had not pressed the reasonings and arguments advanced in its written appeal which were otherwise rejected in view of the findings of Supreme Court of Pakistan---In para. 2 of the Notification No. S.R.O. 178(1)/2002, dated 29-3-2002 it is unambiguously stated that “This notification shall apply to cases disposed of by the said Appellate Tribunal in terms of the aforesaid judgment---Appellant's case having not been decided by the Appellate Tribunal's said judgment, dated 3-12-2001 was not covered by the said notification---Moreover, appellant's case was distinct from the cases involved in the said judgment, dated 3-12-2001 in the sense that those appellants did not have any agreed assessable price determined by a Committee constituted by the respective Collector under cl. (e) of S.2(46) of the Sales Tax Act, 1990, while the appellant had such a value (of Rs.310 per kg.) determined by such a Committee constituted by the Collector of Sales Tax---Price fixed by the Central Board of Revenue under the first proviso to S.2(46) of the Sales Tax Act, 1990 was not the final price and rather, in terms of the second proviso to the said S.2(46) of the Sales Tax Act, 1990, was deemed to be the minimum assessable price (unless otherwise directed by the Central Board of Revenue) and there was no Central Board of Revenue's direction to the contrary even in respect of S.R.O. 178(1)/2002, dated 29-3-2002---Appeal was dismissed and the impugned order was confirmed by the Tribunal ---However, this would not debar appellant from seeking, refund from the Collector in terms of S.66 of the Sales Tax Act, 1990, if they have any claim on merit and admissible under S.66 of the Sales Tax Act, 1990.

Civil Appeals Nos. 1805 to 1811 of 1998; 1392, 1417, 1418 of 1999, 2, 22, 129, 488, 489 of 2000; 386-L and 700-L of 2000 ref.

Malik Muhammad Aslam, Controller of Finance of the Appellant Group of Companies.

Ishtiaq Ahmad, Law Officer of the Collectorate for Respondent.

Date of hearing: 12th June, 2002.

2002 P T D (Trib.) 2764

[Customs, Central Excise and Sales Tax Appellate Tribunal]

Before Justice (Retd.) Abdul Majeed Tiwana, Chairman and

Sarfraz Ahmed Khan, Member (Technical)

Appeal No.302/LB of 2000, decided on 26th November, 2001.

Sales Tax Act (VII of 1990)---

----Ss. 3 & 4---Customs Act (IV of 1969), S.131---Scope of tax---Zero rating---Clearance for exportation---Supply of goods to Department of Local and Rural Development, Government of Azad Jammu and Kashmir without payment of sales tax---Demand of such evaded sales tax along-with additional tax besides proposing the imposition of penalties under the relevant provisions of law ---Assessee contended that territory of Azad Jammu and Kashmir not being one of the territories constituting Pakistan, and the Sales Tax Act, 1990, being applicable only to Pakistan and not to Azad Jammu and Kashmir, the goods supplied by the assessee to an official agency in Azad Jammu and Kashmir were not liable to be taxed under the Sales Tax Act, 1990, even if the Sales Tax Act, 1990 was, by any stretch of imagination, so applicable, the supply in question constituted to be the export which under S.3 of the Sales Tax Act, 1990 was not taxable but if it was taxable, it was zero-rated and the assessee was justified in not paying sales tax on the goods supplied ---Validity--­Assessee manufactured some goods and sold the same to the official agency in the liberated part of the State of Jammu and Kashmir and actually dispatched them to some destination in that part of the State but the question was, as to whether it constituted a lawful export---Imports and exports of goods in or from Pakistan were regulated by the Imports td Exports (Control) Act, 1950, and the Customs Act. 1969. and rules made and statutory notifications and orders issued there-under-­Chapter XIV of the Customs Act, 1969, prescribed detailed procedure for exportation, shipment and re-landing of goods and the assessee did not seem to have complied with any requirement thereof, including that of S.131 of the Customs Act, 1969 which had specifically been mentioned by the Adjudicating Officer in the order---Pakistan Customs Authorities had established a state warehouse at Bhimber (Azad Kashmir) which was working under the supervision of the Rawalpindi Customs Authorities and goods in that case, after their safe transportation from Karachi Port to Rawalpindi Dry Port, were deposited in the said warehouse with the permission of Dry Port Customs Authorities before they were ex-bonded by the importer at Bhimber---In the absence of the applicability of the Customs Act, 1969, to Azad Jammu and Kashmir though it was doubtful as how the Pakistan Customs Authorities could establish warehouse at Bhimber in Azad Kashmir and how Rawalpindi Customs Authorities could supervise the same yet it could not be argued by the assessee that no official machinery or arrangements existed in Pakistan for the exportation of goods by the assessees to their buyers in Azad Jammu and Kashmir and directly exported the goods without complying with the requirements of law on the subject ---Assessee could easily approach the Customs Authorities at Rawalpindi and on their refusal to allow export of goods to the said territory, they could take recourse to the writ jurisdiction of the High Court or pay the duty and taxes, including the sales tax, if demanded under protest and later could claim its refund but they did not adopt this course and incurred the liability they were now struggling against, for their thoughtless act--Appeal was dismissed by the Tribunal having no substance, however, the amount of penalty was reduced and entire amount of penalty imposed on the Chief Executive of the assessee-company was waived by the Tribunal.

PLD 1985 SC (AJ&K) 62; PLD 1966 SC 88 and PLD 1965 SC (AJ&K) 62 ref.

Messrs Tehseen (Pvt.) Ltd., Lahore v. Additional Collector of, Customs Dry Port, Rawalpindi 1998 PTD 2561 rel.

A. K. Dogar for Appellant.

Amer Ahmed, D. R. for Respondent.

2002 P T D 2967

[Customs, Excise and Sales Tax Appellate Tribunal]

Before Justice (Retd.) Abdul Majeed Tiwana Chairman/Member Judicial and Sarfraz Ahmad Khan, Member Technical

Excise Appeal No. 15/LB of 1999, decided on 12th March, 2002.

Central Excises Act (I of 1944)---

----S.3---Central Excise Rules, 1944, Rr. 210 & 226---Toilet soap--­Laundry soap---Seizure of books of accounts---Central excise duty was ordered to be paid on toilet soap which was cleared without payment during the last five years---Examination of samples---Soap was not proved to be toilet soap but laundry soap---Validity---From shape and smell and all other particulars visible to naked eye, all samples were of laundry soap and not of toilet soap which were exempt from central excise duty---Amount adjudged as central excise duty on soap by the adjudicating officer as held not to be payable---Resultantly, there was no justification for such a heavy penalty and the same was reduced to Rs.5,000 only since unaccounted for 662 cartons of toilet soap were found available by the central excise staff in the factory ---Assessee shall pay central excise duty involved on 662 cartons of toilet soap, however, the fine in lieu of confiscation was reduced since the soap in question was lying for the last more than nine years---Appeal was accepted to the extent and order was modified accordingly by the Tribunal---Appellate Tribunal deprecated the delay in deciding the matter observing that same could be avoided if those dealing with the case during investigation and then adjudication had bothered to look at the samples of the brands which figured in the private records ---Assessee had been contending since the time of detection that the brands shown in the private records were of laundry soap and not of toilet soap---Although the issue could be resolved just by visual examination and, may be, for further satisfaction through market inquiry if somebody still had doubts, laboratory tests could have given the specifications to determine the category of the soap---Mishandling of the case caused the assessee, to suffer for more than eight years and there were wild allegations of extortion of money against central excise officers.

Mian Abdul Ghaffar for Appellant.

Amer Ahmad, D.R. and Bahadur Ali for Respondent.

Dates of hearing: 6th and 12th March, 2002.

2002 P T D (Trib.) 3053

[Customs, Excise and Sales Tax Appellate Tribunal]

Before Zafar Iqbal, Member Technical

Appeal No. K-1899 of 2001, decided on 24th January, 2002.

(a) Customs Act (IV of 1999)---

----Ss. 32 & 209---Liability of principal and agent ---Determination--­False statement by importer---Issuance of show-cause notice---In order to ascertain relationship of agent and principal between agent and importer to create a liability on the part of the agent within the mischief of S.32 of Customs Act, 1969, show-cause notice and admitted nature of dealings between the customs, the importer and the agent have to be analyzed.

(b) Customs Act (IV of 1969)---

----Ss. 32 & 209---Liability of principal and agent ---Determination--­Principles---In order to implicate importer wand to bring his conduct within the fold of S.32 of Customs Act, 1969, it is necessary to find out the true purport and amplification of S.32 of Customs Act, 1969, the role of the agent in terms of S.209 of Customs Act, 1969, and ensuing liabilities of the parties and the impact of the order of the High Court in the case of United Refrigeration Industries, reported as 2000 CLC 1660.

United Refrigeration Industries case 2000 CLC 1660 ref.

(c) Customs Act (IV of 1969)---

----Ss. 32, 156(1)(14) & 209---Liability of principal and agent---False statement by importer---To attract the provisions of section 1.56(1)(14) of Customs Act, 1969, necessary factors are to make any declaration, notice, certificate to other document, to sign any declaration, etc. to cause to be made or signed any declaration, etc; to deliver or cause to be delivered any declaration etc, to an officer of Customs and to make any statement in answer to any question put to him by an officer of Customs, which he is required by or under Customs Act, 1969, to answer.

(d) Customs Act (IV of 1969)---

----S. 32---Declaration---Meaning---Word `declaration' refers to nature, description and value of goods so that Assessing Officer can apply appropriate tariff rates. for assessment and charging.

Vithoba Syamna v. Union of India AIR 1957 Bom. 321 ref.

(e) Words and Phrases-----

--"Claim"---Meaning---Claim means a demand for something supposed due to or demanded as a right.

(f) Customs Act (IV of 1969)---

----Ss. 32, 79, 80 & 209---Liability of principal and agent---Claim filed by agent---Assessment procedure---Provisions of S.32 of Customs Act, 1969-- -Applicability--- Rejection or acceptance of claim ---Effect--­Importer or his agent has to file a bill of entry for release of goods on which the Assessing Officer has to make assessment---Any claim made by importer is subject to scrutiny by the Assessing Officer who has been vested within unfettered powers to complete assessment---Claim is a request subject to approval by a competent officer and where competent Authority grants or rejects .the claim, no charge of fraud or otherwise can be linked to the agent or to his principal, whose duty is to submit relevant documents for processing of release application---Where claim filed by agent was rejected, no charge would be framed for violation of S.32 of Customs Act, 1969.

(g) Customs Act (IV of 1969)---

----Ss. 32, 79 &. 82---Customs General Order, 3 of 1996, dated 6-3-1996---Assessment of consignment---Procedure---Assessing Officer-­Powers---Central Board of Revenue vida its 4 Customs General Order No.3 of 1996, dated 6-3-1996, in terms of S.79 of Customs Act, 1969, prescribed form, manner and particulars of bill of entry to be filed by an intending importer---Format of bill of entry so prescribed required, submission and reporting of detailed information including descriptions of goods, its weight and value---After processing the information provided by importer, the Assessing Officer has to get the' goods examined or tested (as the case may be) for determining, nature, quantity and description of goods to assess the amount of duty and taxes leviable thereon---Assessment procedure as provided in S.80 of Customs Act, 1969, is quite exhaustive and detailed---Assessing Officer can call for all the relevant documents and any other information which he deems necessary, and still the Assessing Officer can put questions or require submission of additional information for the purpose of completing the assessment.

(h) Customs Act (IV of 1969)---

----S. 32---False'---Applicability---In order to bring an act or action within the framework of wordfalse' as use in S.32 of Customs Act, 1969, the act should either be a conscious wrong or culpable negligence and should signify knowingly or negligently untrue.

Muhammad Imtiaz Ahmed Sheikh v. Principal and Chairman, Academic Council and others PLD 1976 Kar. 1154 ref.

(i) Customs Act (IV of 1969)---

----Ss. 32, 156(1)(14)(86) & 180---Untrue statement --- Show-cause notice---Non-mentioning of specific act by agent with regard to filing of untrue statement---Assessing Officer levelled no specific charge against the agent in the show-cause notice---Contention of the agent was that instead of providing him with the specific evidence and. basis of the charge the authority held him guilty of the offence under S. 32 read with S.156(1)(14)(86) of Customs Act, 1969., without any basis ---Validity--­Such act of the Assessing Officer in itself violated the principles, of natural justice and applicability of S.32 of Customs Act, 1969, was void ab initio, wrong and the act of customs to malign the agent unnecessary and to issue him a show-cause notice was an act of abuse of power--­Mandatory duty on the part of Adjudicating officer under S.180 of Customs Act, 1969, to issue a show-cause notice before imposition of penalty, amongst other things the provisions of S-180 of Customs Act, 1969, provided that an affected person wall to be informed in writing of the grounds on which it proposed to impose penalty---Show-cause notice in the present case did not reveal grounds or a cause against the agent--­Show-cause notice only addressed grievance of the customs and that too against the importer---Grounds on which customs proposed to take action against were never revealed---Initiation of action against the agent was thus in violation of the provisions of S.180 of Customs Act, 1969--­Penalty imposed by the authorities against the agent was remitted--­Appeal was allowed in circumstances.

Maple Leaf Cement Factory Limitd's case 2002 YLR 1989; Vithoba Syamna v. Union of India AIR 1957 Bom. 321; Ali Harder v. Ijaz Hussain Malik and others 1968 PCr.LJ 127; Haji Abdul Razzaq v. Pakistan PLD 1974 SC 5 and Abdul Ghani v. Government of Pakistan 1984 PCr.LJ 540 ref.

(j) Customs Act (IV of 1969)---

---S. 209---Liability of principal and agent--Scope---Agent represents the principal or the importer or the exporter, and accordingly for all his acts including making of statement, submission of documents and for other doings the principal is responsible.

(k) Customs Act (IV of 1969)---

----Ss. 32, 156(1)(10-A), (14), (86) & 192---Customs General Order. 3 of 1996, dated 16-3-1996---Liability of principal and agent---Claim filed by clearing agent---Provisions of S.156(1)(10-A)(14)(86) of Customs Act, 1969---Applicability---Show-cause notice was issued against clearing agent for violating the provisions of S.32 of Customs Act, 1969---Validity---Neither .any violation of the terms and conditions of the relevant Notification was ever made by the appellant, nor it had been alleged in the show-cause notice, therefore, provisions of S.156(1)(10-A) of 'Customs Act, 1969 were not applicable---Imposition of penalty was provided under S.156(1)(14) of Customs Act, 1969, in case of offence under S.32 of Customs Act, 1969---No such fact or circumstances were present in the present case, whereby it could be assumed that offence under S.32 of Customs Act, 1969, did take place and that too on the part of agent---Any action under S.156(1)(14) of Customs Act, 1969 therefore, had no relevance to the facts of the present case--­Section 156(1)(86) of Customs Act, 1969 referred to reporting of a customs offence to the Customs Authority and the provisions were only applicable in cases of smuggling when the goods were brought through unauthorized routes---Where no such circumstances existed, provisions of S. 192 would not be attracted there was no offence as which the agent was under an obligation to report---Penalty imposed by the authorities against the agent were remitted---Appeal was allowed in circumstances.

Sardar M. Younus for Appellant.

Farhan, Appraising Officer for Respondent.

Date of hearing: 24th January, 2002.

2002 P T D 3077

[Customs, Excise and Sales Tax Appellate Tribunal]

Before Zafar Iqbal, Member Technical and Sultan Ahmed Siddiqui, Member Judicial

Messrs DAWLANCE (PVT.) LIMITED

versus

COLLECTOR OF CUSTOMS (ADJUDICATION), KARACHI-I

Appeal No.K-861 of 2001, decided on 8th October, 2001

Customs Act (IV of 1969)---

----Ss.25(1)(5), 16,,32(3), 156, Cl.(9) & 14---Value of imported and exported goods---Import of Microwave ovens model D.W.161H and D.W.121M---Goods were cleared on the basis of declared value--­Department in post import scrutiny, noticed that the same goods were imported previously at a higher price than the price declared and charged the amount of duty short levied with fine and penalty on the ground that importer did it 'deliberately and knowingly and with a mala fide intention to evade duty and taxes manipulated documents by showing units value on the lower side---Validity---Invoice value could not be routinely discarded except on the strength of a clear evidence that the invoice was not genuine and it did not show the real price as had been transacted between the importer and foreign supplier, and that something else had passed clandestinely between the importer and foreign supplier---Transactional value discarded by customs by4placing reliance mechanically on a contemporary invoice showing higher value without considering the `importers' plea that they were an old customer of the supplier; that they had placed order for four machines instead of one and on that- basis negotiated a somewhat lower price, was not justified; and the Collector's order loading their invoice value and imposing fine and penalty was erroneous---Transactional value could not be rejected on account of being some contemporaneous imports at higher price; it had to be shown that invoice price was not genuine and did not show the real price paid for the imports---Importer had produced the copies of L.Cs. opened and amended in consequence of revised agreement for the Customs Authorities---Documents clearly indicated the transactional value and actual price paid---Department had not been able to rebut such evidence---No evidence had been produced to justify any enhancement of invoice value of imported goods either, hence the enhancement was not tenable---New system treated each and individual transaction of sale of goods as a peculiar transaction having no relationship with any other transaction---In order to reject the transaction, there must be evidence to show that the transaction relied upon was fraudulent and was based on untrue statement in material particulars---No evidence to show that the disputed transaction was false or was an outcome of a fraudulent activity had been produced by the customs---Customs had only relied upon a previous transactional value having no relationship with the changed scenario between the importer and the exporter---No evidence existed to reject the commercial documents presented by the importer---Order of the Collector Adjudication was not tenable in circumstances---Importer had also been penalized for the violation of Cls.(9) & (14) of S.156(1) of the Customs Act, 1969, though there was no material on record to substantiate that an offence of illegal import or of making an untrue statement in material particular---N6 justification thus existed for imposing the fine or penalty---Even the charge of misstatement could not be substantiated on the basis of available record---Concept of valuation under GATT Code was entirely different from that of DBV--- In the later concept there used to be a notional value to maintain an equilibrium in the market economy---GATT concept was the transaction which had been protected unless evidence could substantiate a fraudulent transaction; that was why in the GATT system, it was the post import investigation which was more important than passing a value judgment on assumptions at the time of import---Order suffered from serious illegalities and the sate was set aside by the Tribunal---Case was remanded to appropriate authority to decide the issue of valuation in accordance with the governing principles of GATT's valuation.

Banaras, I.G.A. South Asia Ltd. v. Commissioner of Customs, New Delhi (2000) 126 ELT 1008; Commissioner of Customs, Calcutta v. Chem Crown (I) Ltd. (1998) 100 ELT, 126 and S.C.J. Master Batches v. Commissioner of Customs, New Delhi (2001) 127 ELT 585 rel.

Abdul Ghaffar Khan for Appellant.

Departmental Representative for Respondent

Date of hearing: 8th October, 2001.

2002 P T D 3083

[Customs, Excise and Sales Tax Appellate Tribunal]

Before Zafar Iqbal Member Technical and Sultan Ahmed Siddiqui, Member Judicial

Messrs ALI AHMED KHAN

versus

COLLECTOR-OF CUSTOMS (APPEALS), KARACHI

Appeal No. 146 of 1998, decided on 24th September, 2001.

(a) Customs Act (IV of 1969)---

----Ss.-2(s), 9 & 10---Smuggling---Explanation---First part of C1.(s) of S.2 of the Customs Act, 1969, a controlling part, qualifies and controls the categories of goods listed in sub-clauses (a) & (b) which means that goods which were brought into Pakistan, or were taken out of it, must either be prohibited or restricted goods or should be so brought in or taken out for the purpose of evading customs duty or taxes; either of these two conditions must be fulfilled by the categories of goods listed 'in sub-clauses (a) & (b)---Prohibited or restricted goods, if brought through unspecified routes become smuggled goods in terms of this sub-clause; and so, were also if -they were brought through such routes to evade customs duties or taxes---If the conditions laid down in the controlling part of S.2(s) of the Customs Act, 1969 were not fulfilled, the act of smuggling was not committed.

(b) Customs Act (IV of 1969)---

----Ss. 2(s) & ' 156(8)(9)---Smuggling---Punishment for offences--­Authorised agency detained and seized a vehicle on the ground that registration book found in the vehicle was not genuine---Book was found to be true---Vehicle was not released and the -matter was referred to .a Customs Adjudication Officer on the ground that the chassis number of the vehicle was found to be punctured and it was assumed that the seized goods were smuggled---Vehicle was confiscated within the framework of cl. (8) of subsection (1) of S.156 of the Customs Act, 1969---Validity--­Owner of the seized vehicle was called upon to show whether or not the seized- vehicle had been validly .imported---Produced registration documents were verified to be true, therefore, presumption as to whether vehicle was illegally imported would not arise---Order confiscating the vehicle was based on the fact that the chassis number had been punctured- --Question would arise as to whether there was any offence committed within the framework of Customs Act, 1969 and if any, what evidence was available to prove that offence---Such aspects had not been examined by the Adjudication Officer---Appellate Tribunal observed that neither evidence was properly examined nor any serious application of law was made by the officers who adjudicated the matter and also those who heard the first appeal---Orders suffering from procedural impropriety were set aside by the Tribunal and the case was remanded to the appropriate Adjudication Officer to decide the same afresh in the light of observations by the Tribunal.

PLD 1975 Kar. 482; PLD 1978 Kar. 774; PLD 1981 Quetta 1 and PLD 1979 Kar. 68 rel.

Asim Munir Bajwa for Appellant.

Major Hidayatullah, Pakistan Coast Guards for Respondent.

Date of hearing: 24th September, 2001.

2002 P T D 1060

[241 I T R 451]

[Delhi High Court (India)]

Before Arun Kumar and D. K. Jain, JJ

COMMISSIONER OF INCOME-TAX

Versus

GOYAL GASES (P.) LTD.

I. T. C. No.37 of 1998, decided on 3rd August, 1999.

(a) Income-tax---

----Reference----Penalty---Concealment of income---Returned income of about twenty five lakhs of rupees enhanced by nearly thirty eight lakhs---Tribunal deleting penalty without applying Expln. 1 to S.271(1)(c) for assessment year 1989-90---Question whether deletion of penalty . was justified was question of law to be referred to the High Court---Indian Income Tax Act, 1961, Ss. 256(2) & 271.

(b) Income-tax---

----Reference---Penalty---Concealment of income---Addition to income and levy of penalty on ground that transaction of lease was not genuine--­Tribunal remanding matter and fresh orders passed in consequence---Question whether Tribunal was right in setting aside order of penalty could not be referred---Indian Income Tax Act, 1961, Ss. 256 & 271.

For the assessment year 1989-90, the assessee had claimed a total depreciation of Rs. 1,97,51,631.85 which included depreciation on cylinders amounting to Rs.88.83.699. The profit -and loss account for the first period showed a profit of Rs. 23,77,274 on sale of cylinders. Since the depreciation chart furnished along with the return showed the total sale value of the cylinders sold during the period at Rs. 20,38,608, the Assessing Officer asked the assessee to explain the calculation with regard to the claim of depreciation on cylinders. After some proceedings, the assessee filed a revised statement of income in which it disclosed the sale value of the cylinders at Rs. 81,60,677 instead of Rs. 20,38,608 as shown earlier. Accordingly, the Assessing Officer enhanced the returned income by Rs. 37,44,795. This addition was upheld by the Commissioner of Income-tax (Appeals) and the Appellate Tribunal. It was claimed by the assessee that during the previous year it had purchased 15 computers for Rs. 50,26.200 which were leased out after accepting security deposit of Rs. 25,13,100. On these computers the assessee claimed depreciation amounting to Rs. 37,69,273. However, after detailed investigations, the Assessing Officer came to the conclusion that the entire transaction of leasing was sham and in fact the assessee never became the owner of these computers. He consequently disallowed the claim of depreciation. This disallowance was also upheld by the Commissioner of Income-tax (Appeals) and the Appellate Tribunal. Penalty was levied on both counts. The Tribunal deleted the penalty levied on account of, furnishing of incorrect particulars about the sale value of the cylinders but in so far as the levy of penalty for false claim of depreciation on computers was concerned, it set aside the penalty and remanded the case back to the Assessing Officer for fresh decision after giving an opportunity of hearing to the assessee. On application to direct reference:

Held, (i) that, with regard to the sale of cylinders it was evident that the Tribunal had failed to take into consideration Explanation 1 to section 271(1)(c), substituted by the Taxation Laws (Amendment) Act, 1975 with effect from April 1, 1976, and had wrongly applied the Explanation which had been inserted earlier by the Finance Act, 1964. The question whether, on the facts and circumstances of the case, the Tribunal was right in law in canceling the penalty imposed on the assessee under section 271(1)(c) of the Act in respect of the assessment year 1989-90 had to be referred.

(ii) That with regard to the claim of depreciation on computers, the Tribunal had set aside the entire issue for fresh adjudication by the Assessing Officer and pursuant to the said order, a fresh order had already been passed by the Assessing Officer. Hence, the question whether the Tribunal erred in setting aside the order tinder section 271(1)(c) despite the fact that it was established beyond doubt that the computers were never purchased never used, and never leased out could not be referred..

R.D. Jolly with Pr em Lata Barisal for Petitioner.

K.K. Wadhera with P.S. Bajaj and Ms. Mamta Saha for Respondent.

2002 P T D 1229

[241 I T R 481]

[Delhi High Court (India)]

Before Arun Kumar and Manmohan Sarin, JJ

S.V. MUZUMDAR

Versus

TAX RECOVERY OFFICER and others

C.M. No.147 of 1998 in C.W.P. No.954 of 1990, decided on 8th March, 1999.

Income-tax---

----Recovery of tax---Writ---Attachment and sale of property---Aggrieved person can appeal against order of attachment and proclamation of sale--­Writ would not issue to quash order---Indian Income Tax Act, 1961, S.220, Sched. II, R.86---Constitution of India, Art. 226.

The petitioner purchased a property after the property had already been attached by the Income-tax Department. On a writ petition against the attachment, dated February 18, 1988, and the proclamation of sale, dated February 26, 1990, by the Department.

Held, that the petitioner had the right of appeal under Schedule II, rule 86 of the Income Tax Act, 1961. Since the petitioner had the alternate statutory remedy against the impugned proclamation, the writ petition was not maintainable.

Ms. Rachna Rao for Petitioner.

R.D. Jolly with Ajay Jha for Respondents.

2002 P T D 1255

[241 I T R 509]

[Delhi High Court (India)]

Before Arun Kumar and D.K. Jain, JJ

COMMISSIONER OF INCOME-TAX

Versus

HINDUSTAN TIMES LTD.

I T.C. No.47 of 1998, decided on 2nd August, 1999.

(a) Income-tax-----

----Reference---Capital or revenue expenditure---Tribunal finding that expenditure had been incurred to maintain and preserve asset---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).

(b) Income-tax---

----Reference---Investment allowance---Fire-fighting equipment---Tribunal finding that fire-fighting equipment formed part of industrial undertaking for purposes of business of printing and publishing newspapers and magazines--­Tribunal was justified in holding that assessee was entitled to investment allowance in respect of such fire-fighting equipment---No question of law arose from its order----Indian Income Tax Act, 1961, Ss.32A & 256(2).

Held, dismissing the application to direct reference, (i) that the Tribunal found that the expenditure of Rs.31,56,117 was incurred by the assessee to preserve and maintain an already- existing plant, i.e., air conditioning plant and no new asset was brought into existence. Accordingly, the Tribunal allowed the entire said expenditure as revenue expenditure. No question of law arose from its order.

(ii) That the Tribunal found that the fire-fighting equipment formed part of the industrial undertaking for the purpose of business of the assessee, which was printing and publishing of newspapers and magazines and, therefore, the requirement under section 32A of the Income Tax Act, 1961, .was satisfied. Accordingly, it allowed the claim made by the assessee regarding investment allowance in respect of fire-fighting equipment. No question of law arose from its order.

R.D. Jolly with Ms. Prem Lata Barisal for Petitioner.

2002 P T D 1339

[242 I T R 45]

[Delhi High Court (India)]

Before Arun Kumar and D. K. Jain, JJ

COMMISSIONER OF INCOME-TAX

Versus

NIHAL CHAND REKYAN

Income-tax Reference No. 143 of 1978, decided on 20th July, 1999.

Income-tax---

----Revision---Commissioner---Scope of powers ---Penalty--­Commissioner directing Income-tax Officer to initiate penalty proceedings---Penalty proceedings are not part of assessment proceedings---Tribunal right in quashing direction given by Commissioner---Indian Income Tax Act, 1961, Ss. 263 & 271(1)(a).

While examining the records of an assessment order in exercise of powers of revision under section 263 of the Income Tax Act, 1961, if the Commissioner finds that the Assessing Officer had not initiated penalty proceedings, the Commissioner cannot direct initiation of penalty proceedings because penalty proceedings are not a part of assessment proceedings.

CIT (Addl.) v. J.K. D'Costa (1982) 133 ITR 7 (Delhi) fol.

Sanjiv Khanna for the Commissioner.

S.K. Aggarwal for the Assessee.

2002 P T D 1424

[242 I T R 129]

[Delhi High Court (India)]

Before Arun Kumar and D.K. Jain, JJ

COMMISSIONER OF INCOME-TAX

versus

DALMIA CEMENT (BHARAT) LTD.

I.T.C. No.24 of 1998, decided on 13th January, 2000.

Income-tax---

----Reference---Capital or Revenue expenditure-Interest on borrowed capital---Finding that capital had been borrowed for modernization of existing plant---Finding not challenged---Tribunal justified in allowing deduction of interest as a Revenue expenditure---No question of law arose---Indian Income Tax Act, 1961, Ss. 37, 43 & 256.

Held, dismissing the application for directing reference, that the Tribunal had relied on its earlier order wherein it was held that it was a case of existing business and the assessee was entitled to depreciation and investment allowance on the machinery installed in D and S. Thus, the finding arrived at by the Tribunal in respect of the same machinery in its earlier order was that the loan was raised for modernization and improvement of productivity with reference to the existing business. This was a pure finding of fact, which had not been specifically challenged by the Revenue. The Tribunal was justified in holding that the interest incurred by the assessee on the borrowings utilised for the purpose of the modernization project at D and beneficiation plant at S was for the purpose of the assessee's business and as such allowable as Revenue expenditure. No question of law arose from the order.

Challapalli Sugars Ltd. v. CIT (1975) 98 ITR 167 (SC); CIT v. Alembic Glass Industries Ltd. (1976) 103 ITR 715 (Guj.); CIT v. Modi Industries Ltd. (No.3) (1993) 200 ITR 341 (Delhi) and India Cements Ltd. v. CIT (1966) 60 ITR 52 (SC) ref.

R.D. Jolly with Ms. Prem Lata Bansal for the Commissioner.

Harihar Lal with Ms. Radha Rangaswamy, Ms. Mohana Madanlal, Ms. Pallavi Chaudhry for the Assessee.

2002 P T D 1710

[242 I T R 407]

[Delhi High Court (India)]

Before Arun Kumar and Manmohan Sarin, JJ

COMMISSIONER OF INCOME-TAX

versus

HIRA LAL & SONS

Income-tax References Nos.5 and 6 of 1982, decided on 22nd December, 1999.

Income-tax--

----Business expenditure---Disallowance---Entertainment expenditure--­Law applicable--- Expenditure incurred in India for stay of foreign customers in hotel---Not lavish or entertainment expenses---Hospitality necessary and expedient for business purposes---Eligible for deduction as business expenditure for assessment year 1975-76---Indian Income Tax Act, 1961, S.37.

The object of subsection (2-A) of section 37 of the Income Tax Act, 1961, is to disallow any lavish expenditure in the form of business expenditure. This is obvious from the several amendments made in the provision from time to time. It is so understood even in the circular issued by the Board. The object of the provision clearly is to allow deduction of the essential business expenditure incurred due to commercial expediency and according to the trade usage excluding lavish expenditure.

Section 37(2B) was inserted by the Finance Act, 1970, providing for disallowance of entertainment expenses incurred in India in computing the profits and gains of profession. The entertainment expenditure incurred outside India continued to be admissible for deduction as per limits of sections 37(2-A). The Finance Act, 1976, omitted the provisions with effect from April 1977. Thus, the said section 37(2-B) remained in operation for the assessment years 1970-71 to 1976-77. As a result of the omission of section 37(2-B) from the assessment year 1977-78 entertainment expenditure incurred in India is also admissible for deduction subject to limits in section 37(2-A).

For the assessment year 1975-76 the' assessee claimed a deduction in respect of expenditure incurred on foreign customers. The Income-tax Officer disallowed in on the ground that it was entertainment expenses under section 37(2-B). The Tribunal held that it was allowable as business expenditure. On a reference:

Held, that in the peculiar facts of the present case, where the expenditure of which deduction was- claimed, was incurred, prior to April 1, 1976, on the living expenses of the foreign customs of an exporter of brassware, it would be offering of hospitality necessary and expedient for the purposes of business and was not entertainment expenses. The nature of an exporter's business where foreign customers visit India for the purpose of business and are staying in a hotel where meetings are also held is expenditure which his customary and usual in the nature of the said business and trade. The Tribunal had duly considered these factors and permitted the deduction of the same. The Tribunal was right and the amount was deductible.

CIT v. Patel Bros. & Co. Ltd. (1977) 106 ITR 424 (Guj.) and CIT v. Patel Bros. & Co. Ltd. (1995) 215 ITR 165 (SC) ref.

Sanjeev Khanna for the Commissioner.

Nemo for the Assessee.

2002 P T D 435

[Federal Tax Ombudsman Secretariat]

Before Saleem Akhtar, Federal Tax Ombudsman

MUHAMMAD IMRAN KHAN

versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 1056-P of 2001, decided on 31st October, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.73---Succession to business, otherwise than on death---Assessment in the name of predecessor---Validity---Assessment in the name of predecessor was invalid, where the business was carried on by the successor and Return for that very year was also filed by the successor.

1987 PTD (Trib.) 534 ref.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.73(3)---Succession to business---Liability of successor---If the tax demand was created as a result of the assessments in the name of predecessor same was to be recovered only from the predecessor, the successor could have no possible grievance but the successor can become liable to pay the tax under S.73(3) of the Income Tax Ordinance, 1979 and his concern relating to such assessments, was thus quite legitimate.

(c) Income-tax---

----Appeal---Dismissal of in limine---Effect---Appeal dismissed in limine means that the assessments stand without having been in any way modified or affected by the appellate order.

(d) Income Tax Ordinance (XXXI of 1979)---

----Ss.138 & 73---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.11---Revision by Commissioner--­Succession to business---Recommendation by the Ombudsman--­Commissioner of Income-tax may exercise his suo motu powers under 5.138 of the Income Tax Ordinance, 1979 in order to reconsider the assessment with a view to ascertain the reasonableness of the income assessed particularly in the light of the history of the case and to ascertain whether for the relevant assessment year the business was actually carried on by the successor and if so to cancel the assessment in the name of predecessor with the direction that the assessment may be made in the successor's own name on the basis of the return filed by him.

Ghulam Shoaib Jally for the Complainant.

Shah Khan, ACIT for Respondent.

2002 P T D 824

[Federal Tax Ombudsman]

Before Justice (Rtd.) Saleem Akhtar, Federal Tax Ombudsman

Messrs POLY PACK (PVT.) LIMITED

versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaints Nos. 1570/L and 1567/L of 2001, decided on 31st December, 2001.

(a) Establishment of the Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

----S. 2(3)(ii)---Refund to assessee---Maladministration---Department's action of "deliberate withholding or non-payment of refund" was based on irrelevant grounds which fell under the definition of 'Maladministration' as per S.2(3)(ii) of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss. 102, 103 & 136(1)---Establishment of the Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9(ii)(a)---Power to withhold refund---Jurisdiction of Federal Tax Ombudsman---Refund had become payable as a result of the decision by the Appellate Tribunal and the same was withheld by the Department on the ground that reference had been proposed under S.136(l) of the Income Tax Ordinance, 1979--­Validity---Reference application to the Tribunal had not matured inasmuch as at the relevant time only proposal had been made on which a decision was yet to be taken requiring the Appellate Tribunal to frame a question of law for consideration by the High Court and at the time of filing of the complaint no order under S.103 of the Income Tax Ordinance, 1979 was in existence---Recommendations, in circumstances; were made by the Ombudsman that refund be issued to the assessee alongwith compensation Q 15% payable under S.102 of the Income Tax Ordinance, 1979 and instructions be issued to the Officers of the Department that action under 5.103 should be taken with .utmost caution and only in appropriate cases and the relevant provisions should not be abused to delay issuance of refund legally due.

In re: Unique Enterprises 1995 PTD 749 ref.

Syed Aqeel Raza, Chief Accountant for the Complainant.

Syed Mahmood Jafri, D.-C.I.T. for Respondent.

2002 P T D 1443

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

MUJAHID AKBAR BOZDAR

versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No.5‑L of 2002, decided on 28th February, 2002.

Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑S. 50‑‑‑S. R. O. No.144(I)/2001, dated 18‑6‑2001‑‑‑S. R. O. No.593(I)/91, dated 30‑6‑1991‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.9(1) & 11‑‑‑Exemption certificate‑‑Books imported by complainant/student for personal study‑‑­Authority insisted to charge income‑tax on such books‑‑‑Complainant applied to Commissioner Income Tax for issuance of exemption certificate under S.R.O. No.593(I)/91‑‑‑Such application was rejected on the ground that complainant was not borne on tax record, meaning thereby that in absence of any assessment record, relevant inquiries and verification, it was not possible to hold that complainant was not a commercial importer‑‑‑Validity‑‑‑Such issue could be resolved by Department by making inquiries/investigations as to whether complainant had been importing books for personal study or commercial purposes‑‑­Verification could also be made as to whether the conditions laid down under S.R.O. No. 593(1)/91 were fulfilled by complainant or not‑‑­Federal Tax Ombudsman recommended to Revenue Division to ask the complainant to file return of income suo motu in concerned Circle, and after getting such return processed through Commissioner Income‑tax of concerned Zone, if no tax liability was involved, then exemption certificate and refund of amount paid for clearance of such books be issued to the complainant within specified time.

Muhammad Farooq Khan for the Complainant.

Ghulam Rasool Malik for Respondent.

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202 P T D 1466

[Federal Tax Ombudsman]

Before Jusitce (Retd.) Saleem Akhtar, Federal Tax Ombudsman

MUHAMMAD LATIF

Versus

REVENUE DIVISION, ISLAMABAD

Complaint tvo.1516 of 2001. decided on 4th January, 2002.

Income Tax Ordinance (XXXI of 1979)---

----Ss. 62, 138 & 63---Assessment---Arbitiary assessment--Net income was estimated on the basis of past history of the case and normal progressive increase to the business---Validity---Neither there was any past history nor anything in the assessment order to show that any enquiry was conducted to find out expansion in the quantum of business-­-Income assessed thus had no basis---Order passed by the Assessing Officer, was arbitrary and estimate of income was highly excessive--­Assessment order was to be passed judiciously even where it was passed ex parte under S. 63 of the Income Tax Ordinance, 1979---Federal Tax Ombudsman recommended that the Commissioner of Income Tax should recall the order of Assessing Officer by invoking his jurisdiction under S.138 of the Income Tax Ordinance, 1979 and allow the due relief.

Dealing Officer: Muhammad Shahid Shafique, (Director Complainant, in person.

Haji Muhammad, I.A.C and Mazhar Iqbal, Special Officer

2002 P T D 1470

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

Messrs NATIONAL ENGINEERING SERVICES

PAKISTAN (PVT.) LTD. (NESPAK), LAHORE

versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Review Application No.39 in Complaint No. 1209-L of 2001, decided on 9th February, 2002.

(a) Estoppel---

----Principle involved in the concept of estoppel is that if a person cause another person to act in a particular manner on the basis of an3 declaration or action, then such declaration or action cannot be repudiated by the first mentioned person to the detriment of the second mentioned person.

(b) Estoppel---

----No. estoppel against a statute.

Maxwell on the Interpretation of Statutes by P.St. J. Langai Twelfth Edn. and Ocean Industries Ltd. v. IDBP PLD 1966 SC 738 ref.

(c) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

----Preamble---Object of the Ordinance---Establishment of Office o Federal Tart Ombudsman Ordinance, 2000, envisages a speedy dispose of complaints, references or motions---Proceedings under the Ordinance are not normally kept in abeyance as the same would unnecessarily jeopardize the interests of the complainant.

(d) Review---

----Power of---Scope---Conscious and deliberate decision on a point o law or fact would not normally be open to review---Power of review could not be invoked as a routine matter to re-hear a case, which hoc already been decided.

(e) Interpretation of statutes---

----What is excluded by express words could not be included on anj principle of interpretation.

(f) Wealth Tax Act (XV of 1963)---

----S. 31-A---Income Tax Ordinance (XXXI of 1979), S.77(2)-­--Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.9(2)(a) & 14(8)---Constitution of Pakistan (1973), Art. 199­Review petition---Federal Tax Ombudsman recommended that wealth tai recovered from the complainant be refunded as the same had beer illegally recovered against the wealth tax demand outstanding against the company of which complainant was one of the shareholders---Revenue Division sought review of such decision on the grounds that at the time of filing the complaint, the matter was already sub judice before High Court in a Constitutional petition filed by co-shareholder, and the executive determination should not pre-empt or anticipate judicial determination, thus, jurisdiction of the Office of Ombudsman was barred---Validity---Word "matters" had been used in S.9(2) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000 in the context of any' of the matters referred to in subsection (1) thereof, viz., matters relating to a specific allegation of mal-administration in a complaint, reference or motion---Word "matters" could not be considered to pertain to a matter not referred to in S.9(1) of the said Ordinance or to another case not referred to therein---Constitutional petition filed by co-shareholder before High Court involving the same matter, thus, could not oust the jurisdiction of the Office of Ombudsman in the present complaint by another shareholder---If Office of Ombudsman was aware of filing of Constitutional petition, then neither outcome of present complaint would have been different nor the investigation would have been held in abeyance ,till decision by High Court---Establishment of Office of Federal Tax Ombudsman Ordinance, 2000, envisaged a speedy disposal of complaints, reference or motions--­Proceedings under the said Ordinance were not normally kept in abeyance in such situations as the same would unnecessarily jeopardize the interest of complainant---Powers under the Ordinance were exercised in cases of 'mal-administration", which by definition included any decision or act which was contrary to law or was arbitrary or unjust--­Action of the Revenue Division was contrary to law and unfair and unjust to the complainant---Neither any material had been over­looked nor had there been any failure to consider an important aspect of the complainant's case---Jurisdiction of the Office of Ombudsman, in such circumstances, was not ousted in terms of S.9(2)(a) of the Ordinance---Review application was rejected in circumstances.

1993 SCMR 1513 and PLD 1998 SC 363 ref.

(g) Wealth Tax Act (XV of 1963)---

----S. 31-A---Income Tax Ordinance (XXXI of 1979), S.77(2)---Qanun­e-Shahadat (10 of 1984), Art. 114---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss-9 & 14(8)---Review petition---Ombudsman recommended that wealth tax recovered from complainant be refunded as the same had been illegally recovered against the wealth tax demand outstanding against the company of which complainant was shareholder---Revenue Division sought review of such decision on the ground that as the letter/notice issued by Deputy Commissioner of Income Tax/Wealth tax holding the complainant responsible for payment of wealth tax arrears has not been replied, thus, complainant was estopped from filing the complaint---Validity---Such letter/notice was defective---Wealth Tax demand was proposed to be taken under S.77(2) of Income Tax Ordinance, 1979 and for which statutory approval had been obtained under said section, but subsequently action was taken under S31-A of Wealth Tax. Act, 1963, which was the relevant provision not mentioned in the notice---Lack of response to such defective notice could not curtail the right of complainant to challenge validity of subsequent recovery of tax under S.3I-A of Wealth Tax Act, 1963---Section 31-A of Wealth Tax Act authorized recovery of wealth tax outstanding against a company from its shareholder, if the same could not be recovered from the company---As the company itself was holding valuable property, thus, recovery could not be effected from complainant/shareholder---Such basic condition as observed in, the decision had not been met---Action taken by Revenue Division was found contrary to law, thus, there could be no estoppel against complainant's right to challenge such action---Review application was rejected in circumstances.

(h) Wealth Tax Act (XV of 1963)---

----S. 31-A---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss. 9 & 14(8)---Review petition--­Ombudsman recommended that wealth tax recovered from complainant be refunded as the same had been illegally recovered against the wealth tax demand outstanding against the company of which complainant was a shareholder---Revenue Division sought review of such decision on the ground that words used in S.31-A of Wealth Tax Act, 1963 viz. "cannot be recovered" (from the defaulting company) gave discretion to Assessing Officer to determine whether recovery of outstanding tax from defaulting company was possible or not, thus, regarding such discretion no interference was called for from the Office of Ombudsman--­Validity---Relevant law and the Rules provided that if tax was not paid by defaulter, the same could be recovered through disposal of defaulter's property---Company was possessing valuable property and tax against, the same could be realized through sale/auction of such property­--Such patently incorrect assumption that wealth tax could not be recovered from such defaulting company definitely called for interference under Establishment of Office of Federal Tax Ombudsman Ordinance, 2000---Review application was rejected in circumstances.

(i) Wealth Tax Act (XV of 1963)---

----S. 31-A---Income Tax Ordinance (XXXI of 1979), S. 77(2)--­Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.2(3)(i)(a), 9 & 14(8)---Review petition---Ombudsman recommended that wealth tax recovered from complainant be refunded as the same had been illegally recovered against ,the wealth tax demand outstanding against the company of which complainant was a share­holder---Revenue Division sought review of such decision on the ground that impugned action was bona fide and for valid reasons, thus, did not fall within the definition of "mal-administration"---Validity---Even if no mala fide on the part of the Officer(s) was involved, the impugned action taken was obviously not for valid reasons---Recovery of tax had been made from complainant in violation of the provisions of S.31-A of Wealth 'fax Act, 1963, when the same could have been recovered from defaulting company---Such auction was perverse, unreasonable, unjust. and oppressive---Review application was rejected in circumstances.

(j) Wealth Tax Act (XV of 1963)---

----S. 31-A---Income Tax Ordinance (XXXI of 1979), S.77(2)--­Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.9(2)(b) & 14(8)---Review petition---Ombudsman recommen­ded that wealth tax recovered from complainant be refunded as the same had been illegally recovered against the wealth tax demand outstanding against the company of which complainant was a shareholder---Revenue Division sought review of such decision on the ground that the findings/decision involved interpretation of law, thus, was contrary to provisions of S.9(2)(b) of Establishment of Office of Federal Tax Ombudsman Ordinance, 2000---Validity---Provision of law contained in S.31-A of Wealth Tax Act, 1963, was quite clear and unambiguous--­Findings. rendered were that concerned officer had acted in violation of such provision---No interpretation of law was involved in the case--­Review application was rejected in circumstances.

(k) Words and phrases---

----"Matter "---Connotation.

Mian Ashiq Hussain and Muhammad Jamil Bhatti, Representatives for Applicant.

2002 P T D 1488

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

SHABIR AHMAD CHISHTI

versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 1237 of 2001, decided on 3rd January, 2002.

Reward Rules, 1973‑‑‑

‑‑‑‑Rr.2 & 3‑‑‑Reward to informant‑‑‑Customs‑‑‑Amendment of R.2 as on 5‑8‑1998 and R.3 as on 1‑10‑1998‑‑-Reward Policy announced through Press for distribution of 25 % the value of seized vehicles‑‑­Information was given as on 17‑9‑1998‑‑‑Payment of reward to the informer according to R.3 as amended on 1‑10‑1998 was a 15% of the admissible reward and not according to Reward Policy announced through Press‑‑‑Validity‑‑‑Reward Rules, 1973 amended up to 20‑3‑1999 provided that the advertised amendment providing for distribution of the amount of admissible reward equally between the informer and the seizing staff was never made by the Central Board of Revenue‑‑‑Prima facie it was case of mal-administration of the worst order‑‑‑Federal Tax Ombudsman recommended that Secretary, Revenue Division should order an enquiry to determine if the release order C.No.2(i) CUS­PRO/98 dated August 4, 1998 under the signature of Public Relations Officer, C.B.R. was duly authorized; whether the name(s) and designation(s) of officer(s) who approved the advertisement as well as of those who authorised its release for publication; to ascertain facts and circumstances which prevented the advertised amendment in the Reward Rules and instead, an amendment reducing the share of informer from 1/3rd to 15% of admissible reward was made on 11‑10‑1998 and findings to be reported under the signatures of the Secretary, Revenue Division within 7 days of the receipt of this recommendation.

Complainant in person. Saleem Ranjha, A.D. for Respondent.

2002 P T D 1493

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

DAEWOO PAKISTAN EXPRESS BUS SERVICE LTD.

versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 1293/L of 2001, decided on 13th December, 2001.

Sales Tax Act (VII of 1990)‑‑‑

‑‑‑‑Ss.34 & 34A‑‑‑S.R.O. No.6(68)DS(E&F)/98, dated 27‑5‑1999‑‑­Additional tax‑‑‑Import of buses‑‑‑Exemption from sales tax was under consideration‑‑‑Buses were cleared on giving an undertaking by the assessee‑Company that if at a later stage the decision of the C.B.R. goes against it the sales tax would be deposited‑‑‑Said undertaking was substituted by Bank guarantee subsequently‑‑‑Sales tax was paid by the company‑‑‑Levy of additional tax for delay in payment by due date which was the date when buses were cleared‑‑‑Validity‑‑‑Failure to pay the tax would arise when the demand was raised and was not paid but where under an arrangement with the consent of the Department Bank guarantee was taken or undertaking was obtained particularly in the circumstances when the exemption was under consideration, it would be harsh to bring such case within the purview of S.34(1) of the Sales Tax Act, 1990‑‑‑Section 34 of the Act contemplates default in payment which is willful, negligent or for any other reason‑‑‑Facts and circumstances of the present case, therefore, did not warrant the application of S.34A of the Sales Tax Act,, 1990‑‑‑Federal Tax Ombudsman recommended the Central Board of Revenue to consider the complaint case and in exercise of power under S.34A of the Sales Tax Act, 1990, grant relief to the assessee as deemed appropriate.

M.S. Babar for the Complainant.

Ashaad Jawwad, D.C.S.T. for Respondent.

2002 P T D 1500

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

PAKISTAN SERVICES LTD., KARACHI

versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 1320‑K of 2002, decided on 18th February, 2002.

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.102‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.22(1)‑Award of compensation for delayed payment of refund‑‑‑Where taxpayer's money is retained for unduly long period at the behest of Government or due to mal-­administration of the Revenue Division or tax employees, compensation can be claimed depending on the facts and circumstances‑‑‑Several financial statutes prescribe compensation as a matter of policy and Income Tax Ordinance, 1979 is no exception.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.102‑‑‑ Income‑tax Act (XI of 1922), S.10(2)(vii)‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.10(2)(3) read with Ss.9, 14(6) & 22(1)‑‑‑Complaint, time‑barred‑‑­Discretion of Ombudsman‑‑‑Complainant was allowed by Supreme Court deduction under S.10(2)(vii) of Income‑tax Act, 1922, for loss incurred by it on account of compulsory acquisition of its assets by Competent Authority in East Pakistan‑‑‑Complainant alleged 'mal-administration, pertaining to non‑payment of compensation under S.102 of Income Tax . Ordinance, 1979 and delay for more than 7 years in issuance of refund after said judgment of Supreme Court, and prayed for compensation under S.22(1) and action under S.14(6) of Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000‑‑‑Objection of Department was that complaint was hit by bar of limitation as per S.10(3) of Establishment of Office of Federal Tax Ombudsman, 2000‑‑‑In view of the special circumstances and important issue involved in the complaint, Federal Tax Ombudsman in exercise of discretion under S.10(2) of Establishment of Office of Federal Tax Ombudsman Ordinance, 2000, overruled such objection holding the same to be a fit case for conduct of investigations and resolution in the interest of justice.

(c) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss. 102, 129, 136, 137, 138 & 166(2)(L)‑‑‑Income‑tax Act (XI of 1922, S.10(2)(vii)‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.2(3), 9, 11, 14(6) & 22(1)‑‑‑Non­payment of compensation‑‑‑Assets left by complainant. in East Pakistan were acquired by that Government‑‑‑First Appellate Authority and Commissioner (Revision) agreed with Assessing Officer that complainant was not entitled to benefit of S.10(2)(vii) of Income‑tax Act, 1922, because such assets were not discarded/demolished/destroyed as were the requirements of said provision‑‑‑Constitutional petition filed by complainant was dismissed by High Court, but Supreme Court accepted its appeal and allowed the deduction under S.10(2)(vii) of Income‑tax Act, 1922 for. loss incurred in East Pakistan on account of compulsory "acquisition of assets by a Competent Authority"‑‑‑Complainant alleged `mal-administration' pertaining to non‑payment of compensation under 5.102 of Income Tax Ordinance, 1979 and delay for more than 7 years in issuance of refund after the judgment' of Supreme Court; and prayed for compensation under S.22(I) besides action under S.14(6) of Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000‑‑‑Department attributed such delay to ambiguity in law and contended that compensation demanded by complainant under S.102(2)(a) of Income Tax Ordinance, 1979, was not due, because said provision would come into play only where the refund was required to be made in consequence of an order on appeal or revision or in appeal to the High Court or Supreme Court in pursuance of 5.136 or 137 of the Ordinance, and was not relevant in case of Constitutional petition‑‑­Validity‑‑‑Section 102(2)(a) of Income Tax Ordinance, 1979 would apply when refund was required to be made in consequence of an order on an appeal or revision‑‑‑Complainant's case was not covered either by clause (a) or (b) of subsection (2) of 5.102 of Income Tax Ordinance, 1979, but was covered by residuary clause (c) thereof relating to "other cases", such as refund which might arise due to Constitutional petition or any other situation resulting in over‑payment by taxpayer‑‑‑Law had specifically laid down for such categories that refund would be deemed to have become due on the day on which refund order was made‑‑­Compensation to complainant (D 15% was allowable in terms of S.102(2)(c) read with S.106(2)(1) and 'not under S.102(2)(a)(b) of Income Tax Ordinance; 1979‑‑‑Department had not cared to examine the record carefully‑‑‑Order of Commissioner passed on revision petition under S.138 of Income Tax Ordinance, i979, had finality and no further appeal to Tribunal and subsequent reference to superior Courts was possible‑‑‑Any approach in such a situation to superior Courts could only be through a Constitutional petition, which fact was strikingly apparent from very title of the judgment of Supreme Court‑‑‑Expression or any refund falls due as used in S.166(2)(L) of Income Tax Ordinance, 1979, would also include a decision on Constitutional petition‑‑‑Had due regard and respect been shown to said judgment, Commissioner would have either revised his earlier order, or passed a fresh order under 5.138 of Income Tax Ordinance, 1979 directing implementation of Supreme Court decision, for which no period of limitation was prescribed in law‑‑­Alleged confusion as how to give effect to such judgment was ascribable to ignorance of law or proper application of mind‑‑‑Such lapses and acts of omission or commission squarely fell under the definition of "mal-administration" provided In S.2(3) of Establishment of Office of Federal Tax Ombudsman Ordinance, 2000‑‑‑Judgment of Supreme Court was relating to assessment year 1974‑75, whereas claim for refund of subsequent years were not before the Supreme Court, thus, complainant entitled to compensation for subsequent years under S.102(2)(c) of Income Tax Ordinance, 1979‑‑‑Ldng delay had occurred in modifying assessments for subsequent years to bring them in line with Supreme Court judgment, which had resulted in blocking up considerable sums of money for no fault of complainant‑‑‑Revenue Division was called upon to show‑cause under S.22(1) of Establishment of Office of Ombudsman Ordinance, 2000, as to why consolidated compensation be not awarded to complainant‑‑‑Refund order was passed on 24‑5‑2000‑‑‑Federal Tax Ombudsman recommended to Central Board of Revenue to pay compensation to complainant for delayed payment of refund @ 15 % per annum from 25‑8‑2000 till 21‑9‑2000.

1993 PTD 1047 = 1993 SCMR 1406 and (1991) 189 ITR 509 ref.

Masood Arif (of PSL) and Shahid Pervez Jami for the Complainant.

S. Riazuddin, IAC and M. Saleem, DCIT for Respondent.

2002 P T D 1539

[Federal Tax Ombudsman]

Before Justice (R) Saleem Akhtar, Federal Tax Ombudsman

Messrs OIL TRADE (PVT.) LTD., FAISALABAD

versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No.27 of 2002, decided on 12th March, 2002.

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.87 & 53‑‑‑Additional tax for failure to pay advance tax‑‑‑Appeal‑‑­Order for additional tax was set aside for .de novo proceedings‑‑‑Appeal to Tribunal by Department was dismissed‑‑‑De novo proceedings‑‑‑Order under Ss.87/135, Income Tax Ordinance, 1979 creating the same additional tax demand as before‑‑‑Complaint to Federal Tax Ombudsman on the ground that alleged default under S.53 of the Income Tax Ordinance, 1979 was not mentioned in the assessment order passed under S.62 of the Income Tax Ordinance, 1979‑‑‑Validity‑‑‑Plea that order under S.87 of the Income Tax Ordinance, 1979 was against the law could not be considered at this stage‑‑‑Complainant had nowhere denied that it had committed default under S.53 of the Income Tax Ordinance, 1979 and the plea regarding pending refund was also not relevant to the period during which the default was committed under S.53 of the Income Tax Ordinance, 1979‑‑‑No intervention was called for by the Federal Ombudsman in the circumstances.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.89, 104, 135 & 156‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Charge of additional tax for failure to pay tax or penalty‑‑‑Refund, adjustment of towards demand‑‑‑Assessment year 1990‑91‑‑‑Demand created was payable by 11‑6‑1991‑‑‑Refunds in respect of assessment years 1988‑89 and 1987‑88 were created as on 16‑2‑1991 and 29‑1‑1992 respectively‑‑­Adjustment‑‑‑Additional tax under S.89 for the period 11‑6‑1991 to 30‑3­1992 was charged ‑‑‑Validity‑‑‑On the due date of payment of demand for the assessment year 1990‑91 the refund had already been created and in the light of provisions of S.104 of the Income Tax Ordinance, 1979, the Assessing Officer should have adjusted this refund against the demand‑‑­Refund created on 29‑1‑1992 should also have been adjusted against the demand and since the refund was more than the demand, there was no default on the part of the assessee from 29‑1‑1992 onwards‑‑‑Additional tax payable under S.89 for the period from 11‑6‑1991 to 29‑1‑1992 on the tax demand for the assessment year 1990‑91 as reduced by the amount, of refund for the assessment year 1988‑89‑‑‑Federal Tax Ombudsman recommended that order under S:89, dated 30‑11‑2001 for the assessment year 1990T91 be rectified under S.156 in accordance with the above observations.

Sirajuddin Khalid, A.R., for the Complainant.

Amjad Khattak, IAC Range‑III, Companies Zone, Faisalabad for Respondent.

2002 P T D 1563

[Federal Tax Ombudsman]

Before Justice (R) Saleem Akhtar, Federal Tax Ombudsman

Messrs MUSARAT TEXTILE MILLS LTD., FAISALABAD

versus

SECRETARY REVENUE DIVISION, ISLAMABAD

Complaint No. 75 of 2002, decided on 12th March, 2002.

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.102, 156 & 80D‑‑‑C.B.R. Letter C.No.150 IT.JUD/99,dated 25‑2‑2000 Refund- Additional payment for delayed refund‑‑Additional payment under S.102 of the Income Tax Ordinance, 1979 was due in respect of refund over and above the refund adjusted later against demand under S.80D of the Income Tax Ordinance, 1979 up to the date of its final payment.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.102, 156 & 80D‑‑‑Extablishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑C. B. R. Letter C.No.150 IT.JUD/99, dated 25‑2‑2000‑‑‑Refund‑‑‑Additional payment for delayed refund‑‑‑Adjustment of refund against the demand under S.80D of the Income Tax Ordinance, 1979‑‑‑Demand, later on, was deleted being exempt unit and refund was again 'created under S.156 of the Income Tax Ordinance, 1979‑‑‑Compensation under S.102 of the Income Tax Ordinance, 1979 was claimed from the date when refund was first created‑‑‑Validity‑‑‑Order under 5.156 creating the demand under S.80D had a definite basis at that time and it could not be considered as ab initio void‑‑‑Complainant had not filed appeal against said order under S.156 of Income Tax Ordinance, 1979‑‑‑Federal Tax Ombudsman did not consider possible to recommend any further compensation under 5.102 in respect of refund which had already been adjusted against demand under S.80D of the Income Tax Ordinance, 1979.

Messrs Kohinoor Raiwind Mills' case 2000 PTD 3351 ref.

Mian Muhammad Ashfaq, Chief Executive with Hamid Masood, F.C.A., Authorized Representative for the Complainant.

Mian Munawar Ghafoor, IAC, Panel 04, Special Zone, Lahore for Respondent.

2002 P T D 1572

[Federal Tax Ombudsman]

Before Justice (R) Saleem Akhtar, Federal Tax Ombudsman

Messrs MALIK BROS. KHAD DEALERS, MIANWALI

versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 103 of 2002.

Income Tax Ordinance (XXXI of 1979)--

----S. 77(3)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9---Complaint before Federal Tax Ombudsman---Liability for payment of tax in cases of private companies, firms and associations of persons---Refundable amount of Association of Persons (AOP)---Adjustment of refund against partners liability--­Complainant/assessee accepted that the refund had been correctly worked out and also accepted in principle that tax liability of the member of the AOP was adjustable against the refund as provided by law---Department could make adjustment of the tax demand outstanding in the case of the member of the AOP against the AOP's refund, but only to the extent provided in S.77(3) of the Income Tax Ordinance, 1979 viz. only to the extent that the tax demand was in respect of the member of the AOP's share of income in the AOP---Federal Tax Ombudsman recommended that refund be paid to the complainant/assessee in 'the light of the recommendation.

Muhammad Saeed Rana for the Complainant.

Manzoor Ahmad, D.C.I.T., Circle 02, Sargodha for Respondent.

2002 P T D 1580

[Federal Tax Ombudsman]

Before Justice (R) Saleem Akhtar, Federal Tax Ombudsman

Raja MUKHTAR AHMAD KIANI, RAWALPINDI

versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No.60 of 2002.

Income-tax---

----Informer---Reward---Pending cases ---Finalization of---Federal Tax Ombudsman directed the Department that pending cases which had not been finalized out of list furnished by the informer/complainant may be assigned to a honest officer and reward in the cases be finalized and paid.

2002 P T D 1585

[Federal Tax Ombudsman]

Before Justice (R) Saleem Akhtar, Federal Tax Ombudsman

Messrs IHSAN YOUSUF TEXTILES (PVT.)

LTD., FAISALABAD

versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No.57 of 2002.

Sales tax---

Refund---Input tax---Department made out a case for recovery of refund received by the complainant-company on the ground that refund was claimed on the basis of fake/flying invoices issued by suppliers who did not exist---Department submitted before Federal Tax Ombudsman, that on investigation it was discovered that the invoices were issued by the genuine party and had paid sales tax on its supply made to the complainant-company and further, undertook to vacate the show-cause notice---Case of the complainant was closed by the Federal Tax Ombudsman for grievance having been redressed.

Abid Shafi, Manager (Taxation) on behalf of the Complainant Company.

Dr. Akhtar Hussain, Deputy Collector, Sales Tax, Faisalabad and Ch. Muhammad Jived, Deputy Collector (Adjudication), Faisalabad for Respondent.

2002 P T D 1593

[Federal Tax Ombudsman]

Before Justice (R) Saleem Akhtar, Federal Tax Ombudsman

Messrs ARSHI CARPETS through Shahid Abbas, C/o Nazir Law Associates, Lahore

versus

SECRETARY REVENUE, DIVISION, ISLAMABAD

Complaint No. 1174 of 2001, decided on 29th October, 2001.

Income Tax Ordinance (XXXI of 1979)----

----S.13(1)(b) & 156---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9---Addition---Application for rectification---Inaction of the Department---Misrepresentation and withholding of relevant facts by the Department from Appellate Tribunal Bench---Effect---Complainant/ assessee suffered due to inaction on his application under 5.156. of the Income TAX Ordinance, 1979 arid mal-administration on the part of Assessing Officer who passed an arbitrary order on the issue of addition under S.13(1)(b) of the Income Tax Ordinance, 1979 in total disregard of the fact that an application under S.156 on the issue was pending before the-Member (Judicial) C.B.R.---First Appellate Authority confirmed the addition disregarding the fact that assessee's application under S. 150 was deemed to have been decided in his favour in accordance with the provisions of S.156(3) of the Income Tax Ordinance, 1979---Validity---Federal Tax Ombudsman recommended that the complainant/assessee may move a miscellaneous application to Income-tax Appellate Tribunal under S.156 of the Income Tax Ordinance, 1979 for rectification of errors that have crept into its order due to misrepresentation and withholding of relevant facts from the Bench by the Departmental Representative and that the concerned Regional Commissioner of Income-tax, should hold an enquiry to find out as to what action was taken by the Commissioner of Income-tax and the concerned officers under him on his direction, why remand report was `not submitted to the. Income-tax Appellate Tribunal; to identify the officers responsible for inaction and propose action to be taken against the officers responsible for inaction.

2002 P T D 1599

[Federal Tax Ombudsman]

Before Justice (R) Saleem Akhtar, Federal Tax Ombudsman

Messrs CIROS ENTERPRISES, RAWALPINDI

versus

SECRETARY, REVENUE DIVISION, ISLAMABAD and another

Complaint No. 1349 of 2001, decided on 26th November, 2001.

Income Tax Ordinance (XXXI of 1979)---

---S.50(4)---Sales Tax Act, 1990, S.3A---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9--Contract Act (IX of 1872), S. 23---C.B.R. Letter C.No. 1(74) WHT/2000, dated 16-4-2001---Sales tax---Deduction of tax at source---Complaint before Federal Tax Ombudsman---Purchaser was liable to pay sales tax under an agreement with the supplier/complainant---Purchaser had charged Income-tax under S.50(4) of the Income Tax Ordinance, 1979 on the amount of Sales Tax reimbursed to the complainant and had deducted the amount from the bills payable to complainant/assessee under the instruc­tions of C.B.R. vide Letter C.No. l(74)WHT/2000, dated 16-4-2001--­Validity ---Withholding tax was an advance collection of Income-tax charged on payment made by recipient of supplies---Payment, in the present case, included Sales Tax as well---Complainant/supplier was relying on the arrangement with the purchaser but no one can contract out of a statute---Such contract or arrangement in violation of law was void and not enforceable---Complainant had not been able to produce any notification as provided by S.3A of the. Sales Act, 1990 in support of his plea---Complainant's case, thus had no merit and no mal-administration on the part of the Revenue Division had been established---Complaint was rejected by the Federal Tax Ombudsman.

Khurshid A. Sheikh for the Complainant.

Pervaiz Akhtar, Secretary (WHT), C.B.R. for Respondents.

2002 P T D 1610

[Federal Tax Ombudsman]

Before Justice (R) Saleem Akhtar, Federal Tax Ombudsman

Messrs DIAMOND INDUSTRIES LTD., GADOON AMAZAI

versus

SECRETARY, REVENUE DIVISION ISLAMABAD

Complaint No. 1484 of 2001, decided on 26th November; 2001.

Income Tax Ordinance (XXXI of 1979)---

---S.12(9A)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9---Deemed income---Assessment year 1999-1000---Unappropriated profits for the preceding years--­Assessee/company sustained losses for the assessment year 1999-2000--­Assessing Officer intended to assess the balance un-appropriated profits--­Assessee contended that the provisions of S.12(9A) of the Income Tax Ordinance, 1979 could be attracted for a specific assessment year only if profit had been earned during the relevant income year, and since the complainant/assessee did not earn any profit during the income year relevant to the assessment year 1999-2000, tax was not chargeable on such un-appropriated profit---Validity---Department conceded that the provisions of S.12(9A) of the Income Tax Ordinance, 1979 did not apply in the present case and the Assessing Officer was being directed to drop the proceedings---Such directions having not yet reached the Assessing Officer, the Federal Ombudsman recommended that the directions may be conveyed to the Assessing Officer at the earliest who may inform the complainant regarding the dropping of the proposed action under S.12(9A) of the Income Tax Ordinance, 1979.

Nemo for the Complainant.

Khawaja Sardar Ali, DCIT, Circle 2, Company Zone, Peshawar for Respondent.

2002 P T D 1612

[Federal Tax Ombudsman]

Before Justice (R) Saleem Akhtar, Federal Tax Ombudsman

SHAUKAT ALI

versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 1508-L of 2001, decided on 28th January, 2002.

Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

----S.14(4)---Filing of frivolous complaint---Jurisdiction---Record of a case was transferred to Quetta from Lahore, assessee's head office being at Quetta ---Assessing Officer at Lahore complained that records were transferred with mala fide' intention with a view to 'facilitate unearthing of concealment as he had identified a bank account---Validity---Complaint had been filed with personal motive to secure convenience to pursue claim for "cash reward" which resulted in loss of valuable time and energy of Federal Tax Ombudsman Secretariat as well as of the officers of Income-tax Department, in addition to the loss suffered by the State by way of TA/DA expended on travel of DCIT Quetta all the way to Lahore to represent the respondent and to present the record---Case was closed but invoking the provisions of S.14(4) of the Federal Tax Ombudsman Ordinance a sum of Rs.10,000 was imposed on the complainant as compensation to the Revenue Division for a frivolous complaint against functionaries simply to grind his own axe---Federal Tax Ombudsman recommended that C.B.R. should deduct the above amount from the "cash reward" which may become due to the Complainant/Assessing Officer, in addition to an amount equal to TA/DA payable to the DCIT Quetta for Lahore tour.

Shaukat Ali for the Complainant.

Parshotam Das, DCIT and Ahmad Ali, DCIT, Zone-B, Lahore for Respondent.

2002 P T D 1795

[Federal Tax Ombudsman]

Before Justice (R) Saleem Akhtar, Federal Tax Ombudsman

Messrs NUMAN INDUSTRIES, LAHORE

versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 1287 of 2001, decided on 15th January, 2002.

(a) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

----S.9(2)(b)---Jurisdiction, functions and powers of the Federal Tax Ombudsman---Scope---Cases where maladministration has been alleged the Federal Tax Ombudsman has jurisdiction to investigate into such cases irrespective of the fact whether a review, revision or appeal is provided by the statute.

(b) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

----S.10(3)---Procedure and evidence---Limitation---Condonation of delay---Delay was condoned on considering the facts and circumstances of the case and also that office of Federal Tax Ombudsman was a newly created institution and jurisdiction, which was not widely known.

(c) Income Tax Ordinance (XXXI of 1979)---

----Second. Sched., Part I, Cl. (121A)---C.B.R. Circular No.7 of 1984, dated 24-7-1984---C.B.R. Letter C. No.IT.JI.5(9)/84, dated 29-9-1986--­C.B.R.Circular No.6 of 1987, dated 5-7-1987---S.R.O. 173(1)/91, dated. 19-2-1991---S.R.O. 673(1)/91, dated 21-7-1991---S.R.O. 499(1)/95, dated 14-6-1995---C.B.R. Letter C. No. 1(II) Survey-1/97, dated 22-8-1998---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9---Exemption---Non-fulfilment of required conditions---Regional Commissioner of Income-tax in a detailed, order had dealt with non-compliance of the three conditions viz., the industry was based on highly sophisticated technology; the technology applied had fast obsolescence and the investment undertaken involved high risk---Reasons advanced by the complainant with regard to the said issues were rejected on tangible grounds---First two conditions required evidence of technological nature to determine whether the complainant had complied with them at all ---Complainant/assessee had not produced any documentary evidence or expert's opinion to show that they had complied with the first and second conditions. Department, with regard to the third condition had pointed out that in the final account submitted with the returns no investment/expenditure had been shown to have been incurred on R&D and since inception no machinery and equipment had been scrapped---Record showed that the complainant/assessee had produced ingots and had declared the sale at Rs.26,34,400 in the charge year 1997-98 and Rs.19,46,38,673 in the assessment year 1998-99 and no expenditure was shown to have been incurred on R&D which contradicted the claim of the claimant/assessee---Claim had been rejected on reasonable and legal grounds and the Department had not committed any maladministration---Claim of exemption was also rejected by the Federal Tax Ombudsman.

Anwarul Haq for the Complainant.

Anwarul Haq Gilani, DCIT for Respondent.

2002 P T D 1805

[Federal Tax Ombudsman]

Before Justice (R) Saleem Akhtar, Federal Tax Ombudsman

Messrs KASHMIR EDIBLE OILS LTD., LAHORE

versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No.950‑L of 2001, decided on 15th January, 2002

Sales Tax Act (VII of 1990)‑‑‑

‑‑‑‑Ss.10 & 76‑‑‑Establishment of Office of Federal Tax Ombudsman Excess amount to be carried forward or refunded‑‑‑Refund‑‑‑Department the refund on the ground who were said to have collected the tax, were not contactable and the retuned to the complainant/assessee could not be issued tilt verification was possible in spite of fulfilment of all requirements on the part of complainant i.e. the payments to the "registered ;Sales Tax) Persons" were made through Demand Drafts and the copies of proper invoices issued by the "registered (Sales Tax) Persons" had been filed with the Sales Tax .Department‑‑‑Validity‑‑‑Sales Tax. Department was caught in the cobweb of its own making‑‑‑When it was thought fit to authorize the suppliers as 'collecting agents' for input tax, a foolproof system should have been devised to ensure that such agents were reliable, known, verifiable, contactable and (above all) trustworthy so as to be entrusted with the responsibility of handling Government funds‑‑‑If precautions were not taken and full details, business particulars and their financial trustworthiness was not evaluated by the Government, it was not proper to compensate the loss by refusing to those who actually parted with their money in the hope that it would go to Government account and then paid back to them, when due‑‑‑If loss had accrued to Government due to loopholes in the system, the proper course would be to penalize those who designed the scheme but not the taxpayers who handed over the money in good faith‑‑‑Payments were proved as these were through demand graft supported by invoices issued by the "registered persons" and to require the complainant to physically produce a person whom the Government had itself 'registered' him under a specific law, was expecting too much from a taxpayer who had no coercive power to compel a person to abide by his wishes‑­Government was supposed to have long hands and wide powers to hunt and haunt those who hide from the law having defrauded the Government by collecting tax and then running away with it‑‑‑Federal Tax Ombudsman recommended that Secretary, Revenue Division should arrange to issue the refund of sales tax together with the additional amount due under S.76 of the Sales Tax Act, 1990‑‑‑Complaint accepted.

Naveed Andrabi for the Complainant.

Dr. Aftab Ahmed, Deputy Collector, Sales Tax, Multan for Respondent.

2002 P T D 1810

[Federal Tax Ombudsman]

Before Justice (R) Saleem Akhtar, Federal Tax Ombudsman

Malik MUHAMMAD SHANNAF, OFFICER OF

MUSLIM COMMERCIAL BANK LTD., SIALKOT

versus

SECRETARY, REVENUE DIVISION, ISLAMABAD.

Complaint No.715 of 2001, decided on 21st March, 2002.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.93(3)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000),,S.9---Recovery of tax---Modes---Arrest and detention of assessee is the harshest of all the three modes provided under S.93 of Income Tax Ordinance, 1979---Such mode should be resorted to as a last resort in cases, where assessee does not own any property or there is likelihood of his running away or disposing of the property with intention to delay or defeat the recovery.

(b) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

----S-9 Income Tax Ordinance (XXXi of 1979), Ss.50(1); 54, 85 & 93---Government Servants (Efficiency and Discipline) Rules, 1973, Rr.3 & 4--..Maladministration--- Grievance of complainant/Bank employee against Income-tax Inspector, Assessing Officer and Recovery Officer was about demand of illegal gratification for finalizing the assessment in cases, wherein deduction of tax had fallen short of actual tax--­Complainant did not pay the bribe, over which recovery proceedings were initiated against him and other- Bank employees, and he was arrested---Complainant protested against said behaviour of. respondents, but in vain---Validity---Respondents could attach salary and Bank account of the complainant if any, and above all recovery could be made from the Bank, which had short deducted the tax---Such harsh action of arrest and. detention of complainant was not justified---Complainant in support of his allegations filed 44 affidavits of other Bank employees, but respondents could not rebut or contradict their testimony in spite of. cross-examination---Income Tax Inspector did not produce any witness in his defence in spite of affording him an opportunity to produce the same---Allegations of demanding and charging of bribe and harassment against Income-tax. Inspector and that of frequent visits to Bank by other tax employees demanding money for finalizing and completing assessment was clearly established from evidence on record Entire action taken against complainant seemed to be a revenge against him by the respondents---Respondents had been contacting the assessee for bargaining as neither the assessment order of their circle was finalized nor was delivered to assessees---Such reprehensible practice seemed to persist though having been deprecated in another similar complaint filed by an employee of company, whereupon staff member of Income-tax Department was demoted and transferred---Federal Tax Ombudsman recommended to the Revenue to take disciplinary action against Income-tax Inspector under Government Servants (Efficiency and Discipline) Rules, 1973, to transfer the respondents to different Zone and to submit compliance report within specified time.

Complainant in person.

Behzad Saqlain, Income Tax Inspector, Sialkot.

2002 P T D 1823

[Federal Tax Ombudsman]

Before Justice (R) Saleem Akhtar, Federal Tax Ombudsman

Sheikh MUHAMMAD MANSOOR

versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 1132/IC of 2001, decided on 31st December, 2001.

Sales Tax Act (VII of 1990)‑‑‑

‑‑‑‑S.3A‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑S.R.O.1039(I)/99, dated 14‑9‑1.999‑‑­Special Procedure for Supply of Food Rules, 1999‑.‑Turntver tax‑‑­Notices for registration‑‑‑Non‑cooperation‑‑‑Coercive measures‑‑­Complaint against‑‑‑Primarily complaint related to the policies of the Federal Government to levy general sales tax and the documentation of the economy‑‑‑Shopkeepers Welfare Group, had attacked the policy of the Government and its implementation by the Sales Tax Department which was causing harassment‑‑‑Federal Tax Ombudsman recommended that: C.B.R. should nominate senior officers to hold meeting with the office‑bearers of the complainant's association and members to educate them and convince them of the legal obligations and duties and this exercise should be carried out to create awareness in the members of the Shopkeepers Welfare Group and other businessmen of the area; that Survey Forms should be filled in a transparent manner without forcing any person to affix his signature on any document and the signature on Survey Form would not amount to agreement and the, assessee was entitled to file objection that Survey Team should associate the office­ bearers of the Group and if they did not cooperate endeavour should be made to associate 'other shopkeepers and that C.B.R should issue necessary direction to resolve the genuine grievances of the complainant.

M. Mubeen Ahsan, Dealing Officer.

Abdul Hameed Memon, Deputy Collector of les Tax for Respondent.

2002 P T D 1828

[Federal Tax Ombudsman]

Before Justice (R) Saleem Akhtar, Federal Tax Ombudsman

Messrs S.M. ABDULLAH & SONS, RAWALPINDI

versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 1292 of 2001, decided on 17th November, 2001.

(a) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)‑‑‑

‑‑‑‑S.2(3)(i)(b)‑‑‑Maladministration‑‑‑Where arbitrariness of the officers was evident from their decisions, the same would fall under the term "Maladministration" as defined in S.2a(3)(i)(b) of Establishment of Office of Federal Tax Ombudsman Ordinance, 2000.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.129 & 134‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Federal Tax Ombudsman‑‑­Jurisdiction‑‑‑Complaint by assessee against excessive assessment of his income by Assessing Authority and grant of inadequate relief by First Appellate Authority‑‑‑Department objected to maintainability 'of complaint on the ground that its second appeal against order of First Appellate Authority was pending before Appellate Tribunal‑‑‑Validity‑‑‑Fact of filing appeal by Department before Appellate Tribunal would be inconsequential to present complaint, which had been received in the office of Federal Tax Ombudsman on 24‑8‑2001, whereas the Department had filed appeal before Tribunal on 30‑8‑2001.

(c) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.49, 129 & 138(1)(5)(e)‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.9 & 2(3)(i)(b)‑‑‑Mal­administration‑‑‑Complainant under Self‑Assessment Scheme filed his return for income derived from sale of cloth on wholesale basis, but Assessing Officer finalized the same under normal law‑‑‑Complainant being dissatisfied with the relief granted by First Appellate Authority, filed complaint alleging that both orders of Assessing Officer and Appellate Authority were perverse, arbitrary, unjust and oppressive, because neither any basis of exorbitant estimates was recorded nor the history of case had been followed nor the assessment of Survey Team regarding the sales had been taken, into account‑‑‑Validity‑‑‑Assessing Officer had estimated the sales on the ground that shop was located in the famous market, but had ignored the complainant's plea that market was known for lack of business on account of lying therein vacant large number of shops‑‑‑Assessing Officer had overlooked the assessment of sales made by Survey Team‑‑‑Complainant was an old man aged 72 years suffering from cardiac disorder‑‑‑Complainant had been availing immunity from audit under Self‑Assessment Scheme by declaring income higher by the required percentage, but due to loss of business due to strikes in relevant year, availing immunity from audit had not been possible for him any more‑‑‑Relief allowed by First Appellate Authority by reducing estimates of sales and total income was in sheer disregard of said facts‑‑‑Arbitrariness of the officers was evident from their decisions, which fall under the term of "maladministration" as defined in S.2(3)(i)(b) of Establishment of Office of Federal Tax Ombudsman Ordinance, 2000‑‑‑Federal Tax Ombudsman recommended to Regional Commissioner of Income‑tax to call for the records of assessment and appeal proceedings and consider, whether said facts warrant withdrawal of appeal instituted before Tribunal, and if he concludes that Department's appeal warrants withdrawal, then he may by invoking his jurisdiction under S.138(1)(5)(e) of Income Tax Ordinance, 1979, also consider to allow further relief as may be found due to complainant.

2002 P T D 1834

[Federal Tax Ombudsman]

Before Justice (R) Saleem Akhtar, Federal Tax Ombudsman

Messrs LEGHARI BEVERAGES (PVT.) LTD., LAHORE

versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint 'No.1364 of 2001, decided on 7th January, 2002.

(a) Income-tax---

----Every assessment year has an independent identity and has to be treated on the facts and circumstances prevailing or relevant to that year.

(b) Income Tax Ordinance (XXXI of 1979)---

---S. 5---Jurisdiction of Income Tax Authorities---Place of assessment--No provision exists in Income Tax Ordinance, 1979, offering a tax-payer to choose the place for his assessment---Taxpayers were previously assessable with reference to their head offices /regional offices, but after change in Notification, dated 4-8-1979 issued under S.5 of Income Tax Ordinance, 1979, all taxpayers except public companies became assessable with reference to their "place of business" ---Taxpayer has first to declare his "place of business or profession" or the "place of his residence", then Department has to entrust his case to Deputy; Commissioner of Income-tax on the basis of jurisdiction assigned through notification under S.5 of Income Tax Ordinance, 1979.

(c) Income Tax Ordinance (XXXI of 1979)---

-----S.5 -Establishment of Office of Federal Tax Mmbudsman Ordinance (XXXV of 2000), Ss. 2(3)(c) & 9---Maladministration---Bottling activity, carried on by complainant-company at place R came to halt after sale of factory during assessment year 2000-2001---Complainant filed its return for that year at place L, where its registered office was located, but the same was transferred' to place R---Representation filed by complainant was rejected by Central Board of Revenue on the ground that assessment in case of private companies was to be made at a place, where their business was carried on---Validity--Complainant during assessment year 2000-2001 had carried on business activity and for that activity, the "place of business or profession" was R, thus, their place of assessment had to be R as per Notification, dated 4-8-1979 issued under S.5 of Income Tax Ordinance, 1979---Arguments of the representative of Revenue had considerable force that after assessment at place R for year 2000-2001, record would be transferred to jurisdiction to which the case would belong on the criteria for jurisdiction prescribed under S.5 of Income Tax Ordinance, 1979 and notifications in this behalf--Complainant would face some inconvenience in attending hearings at place R, but no discrimination was involved, because taxpayers had to' undergo such hassle, when jurisdiction was specially assigned---Central Board of Revenue had rejected the request of complainant on valid, ground and had not transgressed any parameter of law---Such rejection had not resulted in "maladministration "---Complaint was dismissed in circumstances.

Hassan Mehmood Sial for the Complainant.

Muhammad Ali Khan, DCIT for Respondent.

2002 P T D 1854

[Federal Tax Ombudsman]

Before Justice (R) Saleem Akhtar, Federal Tax Ombudsman

Mirza MUHAMMAD NAZIR and another

versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaints Nos. 1433/L to 1435/L of 2001, decided on 15th December, 2001.

(a) Tax Amnesty Scheme, 2000‑‑

‑‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9(2)(a)‑‑Jurisdiction, functions and powers of the Federal Tax Ombudsman‑‑‑Complaint in respect of rejection of declara­tion filed under Tax Amnesty Scheme, 2000‑‑Maintainability‑‑Complaint did not focus on the validity, of the assessment or on the quantum of assessed income but primarily related to the acceptance/rejection of a declaration filed under the Scheme which substantially distinguished same from such cases as had been excluded from the jurisdiction of Federal Tax Ombudsman as per S.9(2) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000‑‑‑Such thin line that identifies "maladministration" as respect arbitrary rejection of a declaration was to be focused upon when appraising whether rejection of the claimant's declaration under the Amnesty Scheme against which no appeal was provided either in the Income Tax Ordinance, 1979 or the Tax Amnesty Scheme, 2000 was illegal, arbitrary and unjust as distinct from a dispute concerning the determination of income and the process of assessment‑‑‑Such a case fell in the domain of Federal Tax Ombudsman‑‑‑Objection in respect, of jurisdiction of Tax Ombudsman by the Department was overruled.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.13, 62, 65 & 59(1)‑‑‑Tax Amnesty Scheme, 2000‑‑‑C. B. R. Circular No. 14 of 2000, dated 28‑6‑2000‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑­Declaration filed was rejected on account of pendency of appeals before the Tribunal‑‑‑Validity‑‑‑Filing of declaration for any year shall not affect the pending assessment or reassessment for that years and the pending appeals will be heard and decided in the normal course ‑‑‑Pendency of appeal was not a bar to the filing of declaration nor the declaration was to effect the pending assess­ments ‑‑‑Condition imposed by C.B.R. Circular No.14 of 2000 that in a case that had been set aside and against which further appeal had been filed which was pending adjudication declaration could not be made under the Tax Amnesty Scheme, 2000‑‑‑Adverse conditions could .be imposed by amending the Scheme and not by way of clarification and explanation ‑‑‑C.B.R. Circular was a clarification in respect of pending proceedings and object of clarification or explanation was to remove obscurity or ambiguity in any expression or phrase in the main provision‑‑‑Explanation or clarification could not amend, limit or expand the scope and extent of the main provision‑‑‑Provision of Tax Amnesty Scheme, 2000 could not be restricted or limited by clarification through C.B.R. Circular‑‑‑Rejection of declaration was illegal and Federal Tax Ombudsman recommended that the declaration filed by the complainants under Tax Amnesty Scheme, 2000 be accepted and conveyed to the complainant as per requirement of para. 10(2) of C.B.R. Circular No.4 of 2000 and that Regional Commissioner of Income‑tax should take suo motu action to cancel all proceedings including assessment framed in consequence of the rejection of the declaration filed by the complainant.

Muhammad Naeem Shah for Appellant.

Ahmed Ali, D.C.I.T. and Liaqat Ali, S.O. for Respondent.

2002 P T D 1861

[Federal Tax Ombudsman]

Before Justice (R) Saleem Akhtar, Federal Tax Ombudsman

Messrs PAKTEL LTD., ISLAMABAD

versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 1365 of 2001, decided on 15th November 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

---S.136---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S. 9---Complaint---Maintainability--­Complaint could not be entertained in respect of an issue already under reference before High Court on the date of its filing, and further there was no other allegation of maladministration independent of the issue before High Court.

(b) Income Tax Ordinance (XXXI of 1979)---

---Ss.66(1)(c), 134 & 136---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S. 9---Maladministration--­Appellate Tribunal partly set aside the assessment framed for specified years--Department after filing reference before High Court refused to take decision on set aside issues---Complainant pleaded that S.66(1)(c) of Income Tax Ordinance, 1979, provided a period of limitation for making fresh assessment in case, where assessment had been set aside: order passed Dy Tribunal partially setting aside the assessments was received by Assessing Officer in April, 1999, as such fresh assessment on such issues had to be made before 1-7-2000; and as no reference had been filed before High Court in respect of issues set aside limitation would not stand extended---Validity---Assessment was to be made for the whole year and not piecemeal---Where appeal was filed in respect of particular year(s) and an assessment had been partly set aside, the provisions of S.66(1)(c) of Income Tax Ordinance, 1979, would not be attracted--­Fresh assessment would be made after the decision of High Court--­Complaint was dismissed in circumstances.

2002 P T D 1867

[Federal Tax Ombudsman]

Before Justice (R) Saleem Akhtar, Federal Tax Ombudsman

Messrs TECHNOCRATE TRADING, PESHAWAR

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 1564 of 2001, decided on 8th December, 2001.

(a) Sales Tax Act (VII of 1990)---

---S. 33(1)---Limitation Act (IX of 1908), S.4---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9---Delayed filing of monthly return---Imposition of penalty---Complainant filed return on 17-1-2000, as 16-1-2000 was a holiday, thus, claimed concession' provided by S. 4, Limitation Act, 1908---Department submitted that prescribed period for filing of monthly return for tax period of December, 1999 was 15-1-2000 and not 16-12-2000; and that complainant in spite of having been granted opportunity of hearing failed to appear before Adjudicating Officer, thus, ex parte decision imposing penalty was made---Validity---Adjudicating Officer had correctly imposed the penalty under S.33(1) of Sales Tax Act, 1990, as he had no discretion either to exempt or reduce or enhance the quantum of penalty for that period---Complaint was dismissed in circumstances.

(b) Taxation---

--- Tax Education Programme---Necessity---Tax Education Programme acquires greater significance in a country, where rate of literacy is deplorable low and tax reforms are being considered and are, in the process of implementation---Notifying in official Gazette only serves to provide at legal cover, but does not inform the public at large--­Occasional reminders about late date for filing of returns or tax payments appearing in newspapers are no substitute for a well orchestrated Tax Education Programme---Advisable for Central Board of Revenue to publish k monthly publication called the "Monthly Tax News" both in English and Urdu incorporating various SROs, Rules, Regulations, CGOs and incentive offered for supply of information regarding tax evasion---Such publication may be priced and available for sale not at Tax Offices, but also at various Book Stores.

Complainant in person.

Muhammad Saleem, Deputy Collector Sales Tax, Peshawar for Respondent.

2002 P T D 1872

[Federal Tax Ombudsman]

Before Justice (R) Saleem Akhtar, Federal Tax Ombudsman

Ch. MUHAMMAD RAMZAN

versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 1623 of 2001, decided on 16th January, 2002.

Administration of justice-----

---Allegation of payment of illegal gratification for release of seized car through an Advocate--- Allegation was conspicuously, absent from the original complaint and it was not understood as to why an Advocate should have paid a large sum of money to an official who had nothing to do with the seizure of the vehicle and subsequent proceedings---Complaint appeared to be false and frivolous---Federal Tax Ombudsman deprecated that a member of the Bar should indulge in immoral, illegal and shameful act of paying bribe---Claim for recovery of bribe amount allegedly paid, by complainant was illegal and against public policy---Complainant even if proved would have not entitled the claimant to recover any amount and such amount if recovered would have been deposited in the Government treasury--Copy of the complaint was ordered to be sent to the Secretary, Punjab Bar, Council for necessary action.

Nemo for the Complainant.

Muhammad Saleem Ranjha, Addl. Director, Customs Intelligence and Muhammad Sarwar, Intelligence Officer for Respondent.

2002 P T D 1875

[Federal Tax Ombudsman]

Before Justice (R) Saleem Akhtar, Federal Tax Ombudsman

Mehr MUHAMMAD AMIR, CHINIOT

versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 101 of 2002.

(a) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

----S.9---Income Tax, Ordinance (XXXI of 1979), Ss. 108, 116,139 & 156---Maladminisration---Grievance of complainant/Bank Manager was that Assistant Commissioner of Income-tax had indulged in mal-administration by imposing penalty under S.108 of Income Tax Ordinance, 1979 by overlooking the fact that complainant had already filed the statement under S. 139 of Income Tax Ordinance, 1979 on 21-11-1998 in response to first notice, dated 12-11-1998 issued under S.116 of Income Tax Ordinance, 1979---Department conceded that acknowledgments produced by complainant were signed by then Inspector Income-tax posted in the Circle, but said statement/letter was neither found in inward Dak Register of the Circle nor on record--­Complainant contended that once an official working in the Circle acknowledged the receipt of documents, then assessee would be considered to have duly discharged his liability and he could not be made to suffer for the malfunctioning of the Circle Office-Validity--­Complainant had not filed statement under S.139 Income Tax Ordinance, 1979 for the year ending on 30-6-1998 by the due date 1-9-1998, - but he had discharged his liability on 21-11-1998, thus, he remained a defaulter from-2-9-1998 to 20-11-1998 i.e. for a period of 80 days without any reasonable cause---Fact of non-availability on record the letters and statement submitted in reply to notices and delivered to Inspector of Income-tax established negligence, lack of supervision and failure to maintain administrative discipline and control, which clearly amounted to maladministration—Federal Tax Ombudsman recommended to the Revenue that Deputy Commissioner Income-tax concerned should rectify the order under S.156 of Income Tax Ordinance, 1979 by reducing the period as well as Penalty for the default accordingly; that enquiry be instituted regarding non-maintainability of complainant's letters, dated 21-11-1998 and 16-2-1999 and identify the persons responsible for such negligent act and that compliance be reported within specified time.

Khalid Mahmood, A.R. for the Complainant.

Ahmad Hussain Khan, D.C.I.T. Circle 7, Chiniot for Respondent.

2002 P T D 1918

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

Sh. SHAN-E-ELAHI

versus

SECRETARY, REVENUE DIVISION, C.B.R., ISLAMABAD

Complaint No. 1250 of 2001, decided on 27th December, 2001.

(a) Establishment of the Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

----S. 2 (3) (i)---Maladministration---Cognizance---Validity---Allegation that assessment order and demand notice were not served upon the complainant/assessee carried force as the signature of receipt on the Demand Notice did not tally with the complainant's signature on the Identity Card filed with the complaint---Since important documents such as the assessment order, the demand notice the IT-30 for the previous years were missing from the record and complainant's signatures on the demand notice appeared to be highly doubtful, it was difficult to brush aside the allegation of maladministration in the face of glaring acts of omission and commission which were contrary to law, the rules and office procedure, and was cognizable under S.2(3)(i) of the Federal Tax Ombudsman Ordinance, 2000.

(b) Establishment of the Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

----S.2(3)(i)---Maladministration---Declaration of sales by assessee 12 times of the capital---Validity---Declared sales worked out to be 12 times of the capital invested was quite normal and reasonable in retail .business ---Assessing Officer, in the present case, instead of showing appreciation, resorted to estimate sales at almost double the declared figure, it was therefore, obvious that the assessments were undoubtedly unreasonable, unjust, perverse, and oppressive, and therefore, attracted the provisions of S.2(3)(i) of the Federal Tax Ombudsman Ordinance, 2000--By act of omission or commission maladministration was established.

(c) Interpretation of statutes---

----Intention of Legislature---Statute to be expounded according to the intention of the Legislature or authority which made it.

(d) Establishment of the Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

--Preamble---Object and nature of the Ordinance---Object of establishment of the office of the Federal Tax Ombudsman Ordinance is to eradicate maladministration and. grant relief to the aggrieved parties---Ordinance is in the nature of a welfare legislation introducing accountability in tax administration for achieving good governance, healthy tax culture and providing clean and friendly atmosphere which may restore trust of taxpayers and confidence of investors, thereby increasing the Revenue---Federal Tax Ombudsman has to diagnose, investigate, redress and rectify any injustice done to a person through maladministration by functionaries administering tax laws.

(e) Establishment of the Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

----S.2(3)---Maladministration---Definition---Scope---Jurisdiction of the Federal Tax Ombudsman' extends to all acts of maladministration as defined in S.2(3) of the Establishment of the Office of the Federal Tax Ombudsman Ordinance, 2000---Definition of maladministration is wide and inclusive in nature and includes decision, process, recommendation, act of omission or commission which is contrary to law, rules or regulations or is perverse, arbitrary or unreasonable, unjust, biased, oppressive, or discriminatory or is based on irrelevant grounds or involves exercise of powers or refusal to do so for corrupt or improper motives such as bribery, jobbery, favouritism, nepotism and administrative excess ---Maladministration also includes neglect, inattention, delay, incompetence, inefficiency and inaptitude in the administration or discharge of duties and responsibilities---Wilful error in determination of refund, rebate or duty draw back, deliberate withholding or non-payment of determined refund, rebate or duty drawbacks, coercive method of recovery where default is not apparent on record and avoidance of disciplinary action in certain circumstances had been termed as maladministration, therefore, whenever on complaint or suo Motu or on reference after investigation it is found that maladministration had been committed, the Federal Tax Ombudsman had the jurisdiction to intervene.

(f) Establishment of the Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

----S. 9 (2) (a)---Jurisdiction, functions and powers of the Federal Tax Ombudsman---Scope---Bar on jurisdiction ---Applicability--?Section 9(2)(a) of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000 provided that matters which were sub judice before a Court of competent jurisdiction or Tribunal or Board or Authority on the date of the receipt of a complaint or motion, the Federal Tax Ombudsman would have no jurisdiction to investigate or inquire into the matter---Bar would apply where any complaint was received during the pendency of any matter---If, however, the complaint motion or reference had been reviewed in the Federal Tax Ombudsman Secretariat before the same matter became subject-matter of any proceeding in a competent forum, the bar would not apply---Even in matters which were sub judice prior ,to filing of complaint, if any allegation of maladministration had been made independent of the issues raised in the pending matter, then the Federal -Tax Ombudsman would have jurisdiction to investigate or inquire into such allegations.

(g) Establishment of the Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)----

----S.9(2)(b)---Jurisdiction, functions and powers of the Federal Tax Ombudsman---Scope---Not wide and literal---By considering the object of the Office of Establishment of Federal Tax Ombudsman Ordinance, 2000 and its historical background, the provisions of S.9(2)(b) could not be given wide and literal meaning as it will not only frustrate the very object of the Ordinance but will result in contradiction as it could never have been the intention of the Legislature to create an institution with the object to eradicate maladministration and yet to deny the jurisdiction for investigation and granting relief under the Ordinance.

(h) Interpretation of statutes---

----Principles---Plain, literal and grammatical construction is applied subject to the. qualification that the language is to be subordinate or is given a restricted meaning when it is opposed to the object or scheme of the statute or may lead to illogical, absurd or unconstitutional result--?Where the Legislature taking notice of a particular situation enacts a law to provide relief, then the legislative intent must be given effect to and cannot be ignored---For determining the intention of the Legislature one has to look to the preamble and if necessary to the history of the legislation.

(i) Income Tax Ordinance (XXXI of 1979)---

----Ss.129 & 138---Establishment of the Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9(2)(b)---Jurisdiction, functions and powers of the Federal Tax Ombudsman---Department pleaded that assessments in question were appealable under S.129 of the Income Tax Ordinance, 1979 and the complainant/assessee was entitled, to file revision petition also under S.138 of the Income Tax Ordinance, 1979, therefore, the complaint fell outside the jurisdiction of the Federal Tax Ombudsman as provided by S.9(2)(b) of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000---Validity---In cases where allegations of maladministration had been made the Federal Tax Ombudsman will have jurisdiction to investigate---Bar to the jurisdiction in respect of investigation in assessment of income or wealth, determination of, liability of tax or duty, classification or valuation of goods, interpretation of, law, rules, regulation relating to such assessment, determination, classification or valuation in respect of which remedies specified were available but there was no bar against investigation in respect of allegations of maladministration which were completely independent of the specified proceedings.

(j) Income Tax Ordinance (XXXI of 1979)---

----Ss.138 & 62---Establishment of the Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.2(3) & 9---Non-service of assessment order---Loss, of assessment order, IT-30s and Demand Notice ---Maladministration---Assessee alleged that the assessments under S.62 for the years 1999-2000 and 2000-2001 were based on preceding assessments for the years 1997-98 and 1998-99 and assessment orders for those years were never served on him---Documents regarding assessments for the years 1995-96 to 1997-98 made ex paste were also not available on Department's record---Validity---Federal Tax Ombudsman recommended that: the Commissioner of Income-tax to invoke suo motu provisions of 5.138 of the Income Tax Ordinance, 1979 for the years 1997-98 to 2000-01 and pass order to meet the ends of justice and that inquiry be initiated and responsibility 'be fixed for the loss of assessment orders, IT-30s and the Demand Notice for the years 1995-96 to 1997-98 from the file.

Nemo for the Complainant.

Ahmad Ali, D.C.I.T. and. Anwarul Haq, Special Officer for Respondent.

2002 PTD 1970

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

SAIF NADEEM ELECTRO LTD. (ASHFAQ AHMED, ATTORNEY) LAHORE CANTT.

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 1447-L of 2001, decided on 13th February, 2002.

Establishment of the Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

----S. 2(3)---Customs Act (IV of 1969), S.179---Maladministration--­Delay in passing fresh orders---Adjudicating Authority was under a legal obligation- to decide the case within 45 days but in the present case, no outcome was evident even after a lapse of 5 years and it was regrettable that Officers of the Revenue so blatantly disregard the .law, rules, regulations and instructions as respects facility to the taxpayers---Care was understandably to be exercised to protect Government revenue but not at the cost of convenience to the taxpayers which was also to be kept in view---Delay in adjudication was denial of justice to a citizen who had waited for too long in getting finality to the case which was a classic example of "maladministration" caused by indifference of the concerned Authorities--- Federal Tax Ombudsman recommended that the matter be decided within three weeks.

Ashfaq Ahmad for the Complainant.

Sadiq Ullah Khan, D.C., Customs for Respondent.

2002 P T D 1974

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

Messrs BUSINESS SECURITY TECHNOLOGY (PVT.) LTD., ISLAMABAD

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 1522 of 2001, decided on 28th November, 2001.

(a) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

----S. 9---Federal Tax Ombudsman declined interference with the assessment orders as the matter was sub judice before the Tribunal and the same questions had been raised in the complaint.

(b) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

---- S. 2(3)---Maladministration---Directions and recommendations were made by the Ombudsman to the Central Board of Revenue that letters written by the assessee or any person should at least be acknowledged within two weeks and replied within three Weeks---Such directions which were of general application, were found to have been violated and not complied with by the Central Board of Revenue itself which reflected upon the conduct of business and the treatment meted out to the tax­payers and which amounted to maladministration.

(c) Income Tax Ordinance (XXXI of 1979)--

----Ss. 80C, 61 & 66A---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of. 2000), S.9---Security service business---Assessment---Proceeding under S.66A of the Income Tax Ordinance, 1979 holding that nature of business of company/assessee was such which could not be classified under the head "service rendered", and therefore, assessment was to be made under S.80C of the Income Tax Ordinance, 1979---Representations were made to Central Board of 'Revenue, Commissioner of Income Tax and Finance Minister that non-inclusion of security services amongst the professions of providing service was due to lack of proper understanding about the concept, scope and operation of such services---Non-response by Central Board of Revenue and keeping quiet over the matter and failure to reply the complainant's letter was a deliberate omission in performance of its duties and responsibilities---Such representations deal with policy matters which had collective effect and must be discussed with the party and if necessary with other relevant persons and should not be discarded or rejected unilaterally--- Federal Tax Ombudsman recommended Chairman, Central Board of Revenue or Member of Central Board of Revenue to hear the complainant's representation, give him full opportunity to explain the case and then make order on the representations made by the complainant and Chairman, Central Board of Revenue to explain the reasons, for not replying the afore-stated letter addressed to him.

Brig. (R) Aftab Ahmed.

Qasim Samad Khan D.C.IT. for Respondent.

2002 P T D 1978

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

FAQIR MUHAMMAD NASIR, LAKKY MARWAT

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 1754 of 2001, decided on 31st January, 2002.

Income Tax Ordinance (XXXI of 1979)---

---Ss.85 & 138---C.B.R, Circular Letter C. No.7(2)Dt. 14/94, dated 24­1-1994--Establishment of Office of Federal Tax Ombudsman. Ordinance (XXXV of 2000), Ss. 9. & 2(3)(ii)---Demand notice ---Assessee had died and assessment of entire property income was made in the hands of one legal heir/complainant and tax was demanded from him ---Validity--­Assessment had been framed in a very careless and casual manner---Assessment order served on the complainant did not bear any date, while the demand notice was served on the complainant alongwith the assessment orders---Recovery notice was served before the service of demand notice---Assessment framed foisting the entire liability of the estate of the deceased on the complainant was illegal---All the legal heirs of the original assessee should have been brought on record and demand notice under S.85 of the Income Tax Ordinance, 1979 should have been served after completion of assessment proceedings on the heirs before the issuance of the recovery certificate---Federal Tax Ombudsman recommended that the Commissioner Income Tax should cancel the illegal assessment creating an illegal demand on the complainant in exercise of powers vested in him under S.138 of the Income Tax Ordinance, 1979; if the limitation period permits, reassessment proceedings should be initiated in accordance with law on all the legal heirs according to their respective shares in inheritance of property and that disciplinary proceedings may be initiated under the Efficiency and Discipline Rules, 1973 against Assessing Officer for his acts of omission and commission who had little regard for the instructions issued by the Central Board of Revenue vide Circular C. No.7(2)(Dt 14/94, dated 24-1-1994.

Begum Nusrat Bhutto v. Income-tax Officer 1981 SCMR 1192 and Syed Ghulam Abbas Shah v. Income-tax Officer, Mirpur 1985 CLC 1581 rel.

Sher Mast Khan for the Complainant.

Faridullah Jan, D.C.I.T. for Respondent.

2002 P T D 1989

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

Messrs GULISTAN TEXTILE MILLS LTD., KARACHI

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 1315-K of 2001, decided on 26th November, 2001.

Custom Act (IV of 1969)----

----Ss. 18B & 195---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss. 2 (3) (v) & 9---Pre-Shipment Inspection charges ---Refund---Maladministration---Claim of refund of 2% Pre-Shipment Inspection charges levied under S. 18B of the Customs Act, 1969 was declared ultra vires of the powers of the Federal Legislature by the Supreme Court of Pakistan ---Department neither sanctioned the refund nor indicated as to why the claims had not been sanctioned in spite of lapse of more than four years---Validity---Plea that no action was taken on the refund applications for four years had substance---Even after receipt of ruling from Ministry of Law and Justice Division and C.B.R.'s directive, no action was taken which portrayed a serious flaw in the administration of the Customs Department and endorsed the general public image about the want of responsiveness of the Customs Authorities to the letters, requests, reminders and personal pleas of the dealing public ---Appraisement Collectorate had undertaken special efforts to dispose of the pending claims under a crash programme---Sustained system of responsiveness to the various problems and difficulties of the importers and exporters and monitoring thereof at the higher level should be introduced in all Sections of the Department---Two such-like refund claims had already been disposed of and the cheques had also been issued to the applicants---Federal Tax Ombudsman, in circumstances, recommended that Central Board of Revenue should direct the Collector of Customs (Appraisement) to re-examine the propriety of the decision under S.195 of the Customs Act, afford opportunity of hearing to the complainant to represent his case, and decide the case on merits within four weeks.

Zamir Siddiqui, Representative for the Complainant.

Ashhad Jawwad, Deputy Collector of Customs (Appraisement ­Law) for Respondent.

2002 P T D 1993

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

Messrs MIAN SONS COTTON FACTORY (PVT.) LTD., RAHIM YAR KHAN

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 1282 of 2001, decided on 30th November, 2001.

Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.80D & Second Sched., Part I, cl. (118A)‑‑‑C.B.R. Letter C.No.2(98)IT‑JUD/94, dated 18‑1‑2001‑‑‑Protection of Economic Reforms Act (XII of 1992), S.6‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Turnover tax‑‑‑Refund‑‑­Claim of the refund of the tax paid under S.80D of the Income Tax Ordinance, 1979 being the income of complainant/assessee which was exempt under cl. (118A) of the Part‑I of the Second Schedule of the Income Tax Ordinance, 1979‑‑‑Validity‑‑‑Since the provisions of Protection of Economic Reforms Act, 1992 were subsequent in time and having been introduced by a special statute, they would prevail over the provisions of S.80D of the Income Tax Ordinance, 1979, which was enacted through Finance Act, 1991, which was an earlier statute and part of a general statute ‑‑‑Assessees who fulfilled the conditions of the notifications referred to in the Sched. to S.6 of the Protection of Economic Reform Act, 1992, were entitled to the protection‑‑‑Since cl. (118A) was inserted much before the insertion of S.80D in the Income Tax Ordinance, 1979 and since it was not included in the notification referred to in the Sched. to S.6 of the Economic Reform Act, 1992, the ratio of the Supreme Court judgment in PLD 1997 SC 582 = 1997 PTD 1555 could not be considered as applicable in the complainant's case‑‑‑Complaint was dismissed by the Federal Tax Ombudsman.

PLD 1997 SC 582 = 1997 PTD 1555 rel.

Mirza Muhammad Waheed Baig for the Complainant.

Habib Ahmad, D.C.I.T. for Respondent.

2002 P T D 2007

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

MUHAMMAD KHALID

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No.C‑1398‑K of 2001, decided on 29th December, 2001.

(a) Sales tax‑‑‑

‑‑‑‑ Show‑cause notice‑‑‑Order passed after a lapse of more than one year from the date of issue of show‑cause notice‑‑‑Validity‑‑‑Was imperative on the part of the Deputy Collector to have issued a fresh show‑cause notice before passing the said order and he was also required before passing the order to ascertain as to whether the notice for hearing was properly served on the complainant or not.

(b) Sales Tax Act (VII of 1990)‑‑‑

‑‑‑‑S.33(1)‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Penalty for non‑filing of return‑‑­Allotment of new Sales Tax No.‑‑‑Various show‑cause notices on old Sales Tax No.‑‑‑Such show‑cause notices were duly replied‑‑‑Nobody bothered to look into such replies‑‑‑Federal Tax Ombudsman observed that; (1) assessee had been unduly harassed and punished for an offence which was not committed by them; (ii) Computer Section of the Collectorate is gradually becoming a white elephant where the honoured taxpayers are treated as subject, where the, routine services are performed as a matter of favour, and where such lapses are not only deliberate but contumacious‑‑‑Federal Tax Ombudsman recommended that (a) Central Board of Revenue to direct for an enquiry to fix the responsibility of the officials who have shown extreme negligence and carelessness in issuing show‑cause notices to the complainant with old sales tax registration number and ignored the replies furnished by the complainant‑‑‑Appropriate disciplinary action may be taken against the deliquent officials: (b) Deputy Collector (Adjudication. III) who passed the order, dated 25‑6‑2001 be called upon to explain as to why the said order was passed without issuing a fresh show‑cause notice and without ascertaining proper service to the notice of hearing of the case on 28‑8‑2000. Appropriate action may also be taken against him if he fails to explain the aforesaid irregularities satisfactorily.

Complainant in person.

Miss Shahnaz Maqbool D.C. (Adjudication) for Respondent.

2002 P T D 2011

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

M.A. RAZA

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No.C‑772/L of 2001, decided on 30th November, 2001.

Reward Rules, 1973‑‑‑

‑‑‑Rr. 2 & 3‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Reward to informer‑‑‑Detection of evaded taxes‑‑‑Share of detecting staff and that of informer‑‑­Complainant who was member of detecting staff had not disclosed the identity of the informer who had provided information to him and also failed to show as to whether it was sent and received in the office of the Collector Customs or otherwise‑‑‑No sufficient evidence on record was available to prove that the matter was initially processed on the basis of information of informer and the complainant had any specific role in detecting evasion of tax‑‑‑Application annexed with the complaint, showed that the complainant was retired from service on 16‑4‑1994 whereas the demand‑cum‑show‑cause notice was issued on 22‑9‑1994 much after his retirement ‑‑‑Circumstances hardly proved any role of the complainant in investigation and detection of tax‑‑‑Complainant on his own showing was not an informer, as such he could not claim any reward as informer‑‑‑Complaint was rejected by the Federal Tax Ombudsman.

Complainant in person.

Imtiaz Ahmed Khan, Additional Collector Custom, Rawalpindi for Respondent.

2002 P T D 2019

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

AL‑GHAZI TRACTORS LTD.

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 1246‑K of 2001, decided on 27th December, 2001.

(a) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

‑‑‑S.2(3)‑‑‑Maladministration‑‑‑Delay in adjudication and issuing refund‑‑‑Stereotyped and hackneyed explanation that delay was caused due to frequent transfer of officers and regrouping were hardly convincing and deserved to be rejected straightaway‑‑‑No reasonable explanation existed for neglect and wilful delays in the disposal of the claim of about six years which made it a clear case of maladministration requiring proper investigation of delay which seemed to be deliberate and wilful.

(b) Sales Tax Act (VII of 1990)‑‑‑

‑‑‑‑S. l3‑‑‑Ministry of Production Letter O.M. No. 19(3)/PACO/88/Pt. dated 16‑3‑1988‑‑‑Ministry of Industries Letter C.No.10(13)/1/85‑P/IV, dated 5‑5‑1988‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Exemption‑‑‑Custom duty and sales tax was paid with the understanding that the same would subsequently be refunded as the matter of granting exemption was in process‑‑‑Claim of refund had become due and the same was not released despite lengthy and protracted correspondence and lapse of nearly 12 years‑‑‑Department stated that claim was time‑barred while the claimant insisted that the claim was filed immediately after special exemption from duty/taxes was allowed to it‑‑‑Validity‑‑‑Exemption from duty/taxes had been allowed and even the Ministry of Production and Industries had allowed refund which the Central Board of Revenue forwarded to the Collector to implement and it was the duty of the Collector to have implemented same instead of investigating the claimants' entitlement to refund‑‑­Objection regarding limitation was raised and instead of deciding same it was referred to Central Board of Revenue‑‑‑Issue was simple and a person holding post of Collector being senior in position was expected to have the ability and knowledge to decide such routine minor issue‑Intention seemed to be to delay the refund due to lack of confidence which could not be attributed to a senior official besides there were sufficient grounds to condone the delay‑‑‑Once exemption had been granted recovery or withholding of exempted duty/taxes paid in peculiar circumstances was illegal and refund of such claim could not be barred by limitation‑‑‑Government Treasury could not be filled by the collecting or withholding illegal recoveries‑‑‑Federal Tax Ombudsman recommended that the Collector of Customs, should calculate the refundable amount and pass order for refund of the same before specified date.

S.A. Naseer Dealing Officer.

Inam Muhammad, D.C. of Customs (Appraisement).

2002 P T D 2024

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

Lt.‑Col. (R) NAJAM HAMEED, FAISALABAD

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No.37 of 2002, decided on 20th March, 2002.

(a) Civil Service---

‑‑‑‑Civil servant‑‑‑Charge of corruption‑‑‑Simultaneous initiation of departmental proceedings as well as criminal, proceedings against such civil servant‑‑‑Duty of department‑‑‑Where illegality and irregularity involving corruption are committed by civil servant, which is punishable under law, the department is duty bound to take prompt action for his prosecution, because departmental proceedings is no substitute for criminal proceedings.

(b) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)‑‑‑

‑‑‑‑S.9‑‑‑Income Tax Ordinance (XXXI of 1979), Ss.66A & 143B‑‑­Removal from Service (Special Powers) Ordinance (XVII of 2000), Ss.5 & 6‑‑‑Maladministration‑‑‑Complainant after filing statement under S.143B and issuance of notice under S.66A of Income Tax Ordinance, 1979 came to know that without his notice and knowledge, fraudulent assessments had been framed, manipulations and forgery had been committed; heavy amounts of refund had been drawn and cheques had been encashed through fictitious Bank account; and that his status had been fraudulently changed from individual to "Association of Persons"‑‑­Complainant in his reply to notice denied all such allegations, over which Department held inquiry and confirmed the fraud, forgery and withdrawal of refund, thus, cancelled the assessment and dismissed the Inspector from service, who fraudulently got encashed the refund and initiated disciplinary proceedings against another Officer under Removal from Service (Special Powers) Ordinance, 2000‑‑‑Department on complainant's suspecting foul-play in other cases probed into the matter and found that assessments had been made without knowledge of complainant‑‑‑Department found involved in the fraud its employees and a Bank‑‑‑Validity‑‑‑Fraud and embezzlement had been committed, in which officers named had been found involved either deliberately or negligently‑‑‑Notice for removal had been issued only in respect of one officer, while no information had been given about other four officers identified in report submitted to Central Board of Revenue‑‑‑Dismissal of one officer did not relate to the present case, but to some other case, which did not mean that he should have been excluded and no action should have been taken against him‑‑‑Department without producing record contended that special power conferred on second officer had been withdrawn and criminal proceedings were in progress, whereas no action in respect of fraud and embezzlement detected in the case had been taken against him‑‑‑Fourth officer had retired; against whom no action had been taken‑‑‑Department seemed to safeguard and protect its employees, although their role had been identified in commission of fraud, forgery arid embezzlement‑‑‑Non‑production of any document to show reference of case to police for investigation was another act of Department to protect its officials involved in the episode‑‑‑Fraudulent withdrawal of fund by identified members of the staff was a crime, but Department seemed to be satisfied with disciplinary action taken against them‑‑‑In case there was illegality and irregularity involving corruption punishable under law, Department was bound to take prompt action for their prosecution‑‑‑Federal Tax Ombudsman recommended to Revenue that assessments with regard to disputed periods be re‑framed within specified time, if any refund was payable., the same would be paid within specified periods, but fraudulent refund made would not affect complainant's right to claim and receive any refund, which might be found due under re‑assessment; that status of assessee be corrected and restored as individual; that Central Board of Revenue was required to lodge report within specified time .against six persons identified in inquiry report and also against persons having received cheques from department and encashed them and Bank involved in opening the account from where cheques had been encashed and Central Board of Revenue was directed to submit report regarding action taken and proceedings initiated against named persons with relevant record within specified time.

Lt.‑Col. (R) Najam Hameed and Lt.‑Col. (R) Shahid Hameed for the Complainant.

Muhammad Aslam Bhatti, I.A.C. and Javed Badar, A.C.I.T. for the Department.

2002 P T D 2072

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

RAIS KHAN, SUPERINTENDING ENGINEER, CENTRAL CIVIL CIRCLE, PAKISTAN PWD, LAHORE

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 1440‑L of 2001, decided on 16th. January, 2002.

(a) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)‑‑‑

‑‑‑‑S.9‑‑‑Income Tax Ordinance (XXXI of 1979), S.56‑‑‑Wealth Tax Act (XV of 1963), S.17‑‑‑Complaint‑‑‑Filing of complaint‑‑‑Complaint mentioning names of ten officers including complainant without having authority from remaining nine officers‑‑‑Validity‑‑‑All ten officers had levelled serious allegations against the functionaries of Income‑tax Department‑‑‑Complainant at the time of heating was accompanied by another officer, whose name was also mentioned in the list of complainants and to whom notices were issued‑‑‑Both said officers were senior in their Department, thus, other eight persons naturally had confidence in them to put forth their point of view.

(b) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)‑‑‑

‑‑‑‑S.9(2)(b)‑‑‑Income Tax Ordinance (XXXI of 1979), S.56‑‑‑Wealth Tax Act (XV of 1963), S.17‑‑‑Jurisdiction of Federal Tax Ombudsman‑‑­Scope‑‑‑Misuse of official position by functionaries of Income‑tax Department‑‑‑Notices. under S.56 of Income Tax Ordinance, 1979 and S.17 of Sales Tax Act, 1963, were issued to complainant and his colleagues being officials of Pak PWD‑‑‑Object behind such notices was to force the complainant and his colleagues to execute some illegal civil/ electrical/mechanical works of the officers of Income‑tax Department‑‑­Validity‑‑‑Complainant had made allegations of maladministration cognizance of which could be taken by Federal Tax Ombudsman, thus, same did not fall out of jurisdiction by virtue of S.9(2)(b) of Establishment of Office of Federal Tax Ombudsman Ordinance, 2000.

(c) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)‑‑‑

‑‑‑‑S.9‑ ‑Income Tax Ordinance"(XXXI of 1979), Ss.50 & 56‑‑‑Wealth Tax Act (XV of 1963), S.17‑‑‑Maladministration‑‑‑Misuse of official position by officers of Income‑tax Department‑‑‑Officers of Income‑tax Department in order to get some illegal works executed through complainant and nine other officials of Pak PWD issued them notices under S.59 of Income Tax Ordinance and S.17 of Wealth Tax Act, 1963‑‑‑Complainant alleged such notices to be selective, targeted and mala fide‑‑‑Authority contended that complainant while posted within its jurisdiction failed to file his returns of income and wealth, thus, issuance of notices was legal, and that duty of Pak PWI) was to look after Income‑tax Department like other Government buildings and to do civil works where necessary‑‑‑Validity‑‑‑No‑Objection Certificate with regard to new lift installed in the building by a private company could not be demanded from complainant‑‑‑No documentary evidence was produced by complainant in support of allegation that civil work at official residence had also been demanded‑‑‑Ten officials from one department had been targeted for issuance of said notices just to use as a tool for pressurizing them to yield to the demand of Income‑tax Department‑‑­Out of said ten officials; four had already filed returns of income and were existing assessees one had since been transferred; and three had come on transfer and were regularly assessed on their earlier place of postings‑‑‑Notice to one official had not yet been issued‑‑‑Targeted officers of Pak PWD were all salaried persons from whom tax was deducted at source under S. 50 of Income Tax Ordinance, 1979‑‑‑If there was genuine anxiety to have complete record at the present jurisdiction, it would have been far better for Deputy Commissioner of Income‑tax to dispatch inquiry letters requesting to provide their National Tax Numbers‑‑‑Said notices had been selectively issued even ignoring that all income‑taxpayers were not wealth tax assessee also‑‑‑Circumstances evidenced from correspondence presented by complainant clearly gave out that Deputy Commissioner of Income‑tax was acting under the influence of his seniors or taking action in collaboration with them‑‑‑Deputy Commissioner of Income‑tax by issuing said notices had not transgressed his jurisdiction, but the element of mala fide intention was clearly visible on the face of record‑‑­Impugned action and proceedings were in ala fide, biased and discriminatory amounting to maladministration ‑‑‑Federal Tax Ombudsman recommended to Revenue Division that impugned notices and proceedings taken in pursuance thereof be cancelled; and instructions be issued to functionaries of the department not to resort to discriminatory or retaliatory actions as it was bound to generate ill‑will against functionaries of Income‑tax Department vis‑a‑vis taxpayers of whatever category.

Complainant in person.

Ghulam Rasool, D.C T. and Aurangzeb, S.O. for Respondent.

2002 P T D 2085

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

ESQUIRE GARMENTS

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. C-1585-K of 2001, decided on 26th January, 2002.

Customs Act (IV of 1969)---

----S.37---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9---S.R.O. 172(I)/99, dated 22-8-1999, Scheds. I & IV ---S.R.O. 412(I)/2001, dated 18-6-2001---Duty drawback on goods used in the manufacture of goods which were exported---Duty drawback claimed on the export of Cotton Dyed Knitted Ladies Trousers' and 'children Biker Shorts'--- Payment was made at lower rate applicable to Legging---Classification of goods---Determination of---Non-adjudication of representation by the exporter---No opportunity of hearing--­Complainant in respect of delay in balance payment---Department had not given any reason or explanation for not responding to the letters of the complainant, keeping the claims pending and delaying their disposal, and not allowing him opportunity to submit evidence in justification for duty drawback on the exported goods in the category of garments---Such was a classification problem, which could have been decided if the authorities had acted in an impartial and pragmatic manner---Federal Tax Ombudsman recommended that Central Board of Revenue should constitute a committee under the Collector of Customs (Appraisement) with the representatives of the Export Collectorate and the Knitware Association as members to examine the samples, afford opportunity of hearing to the complainant and decide the classification within one month; that C.B.R. should direct the Collector of Customs (Exports) to finalize the disposal of the duty drawback claims on the basis of the said Committee's ruling within forty-five days.

M. Mubeen Ahsan, Dealing Officer.

Nadeem Ahmad Mirza, Attorney for the Complainant.

Feroze Junejo, A.C. of Customs (Exports) for Respondent.

2002 P T D 2098

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

Messrs AWAIS LAW ASSOCIATES, LAHORE

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 1348-L of 2001, decided on 30th November, 2001.

(a) Income Tax Rules, 1982---

---R.158---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9---Appointment of Receiver --­Remuneration of the Receiver is payable by the defaulter---Where the Receiver runs the business, makes transactions and recover money he is entitled to deduct expenses and charges and in such situation remuneration is borne by the defaulter but in the present case the Recovery Officer negotiated with the assessee and compromised by recovering Rs. 20 millions---Recovery Officer at such a situation was obliged to consider the payment of fee of the Receiver/complainant, which should have been either separately recovered or included in the amount received by the Department---Department contended that in recovery process and obtaining the amount, Receiver had no role to play, therefore, the responsibility lay on the Department to have included the remuneration of the Receiver while fixing the amount to be paid by the defaulter---Contention that the Receiver may pursue his claim with the defaulter/assessee did not stand to reason and justice, particularly when the department had excluded the complainant/Receiver while settling the matter with the assessee/defaulter.

(b) Income Tax Rules, 1982---

----R.158---Contract Act (IX of 1872), S.70---Establishment of the Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9---Appointment of Receiver---Remuneration---Certificate of com­mendation was issued but no remuneration was paid on the ground that no role was played by the Receiver/complainant for recovery of dues--­Validity---Claimant (Receiver) had rendered services for which the Commissioner of Income-tax had issued certificate .of commendation--­Such certificate was not issued for ineffective service or role played by any person for recovery of dues---If Rules did not permit for payment to the claimant, as a Receiver, then under general principles of law a person who had lawfully rendered service and not gratuitously or voluntarily, was entitled to compensation for the services rendered by him---Section 70 of the Contract Act, 1872 provided that where a person lawfully did anything for another person, not intending to do gratuitously and such other person enjoyed the benefit thereof, the latter was bound to make compensation to the former in respect of the thing so done---Receiver, in circumstances, was entitled to remuneration for the service rendered as commended and acknowledged by the Commissioner of Income-tax.

(c) Income Tax Rules, 1982---

----R.160---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9---Powers and remuneration of Receiver---Fixation of---Rule 160 of the Income Tax Rules, 1982 provides that the Tax Recovery Officer may by general or special order, fix the amount to be paid as remuneration for the services of the Receiver which should be commensurate to the service rendered by the Receiver---Instead of fixing a uniform formula for the fee of the Receiver, in the present case, everything had been left to the discretion of Recovery Officer which was an undesirable method which could lead to favouritism, improper exercise of discretion and open the door for serious irregularity---Receiver was appointed by the Court, which have uniform Rules for determining the fee of the Receiver unless it was a case of special nature---Central Board of Revenue was directed to look into the matter and instead of fixing a flat rate of 5% should fix the remuneration commensurate to the service rendered for which a scale be provided fixing the maximum amount.

(d) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

----S.2(3)---Maladministration---If in the procedure or process adopted by Central Board of Revenue for recovery of tax there exists any illegality or irregularity causing prejudice or injustice depriving a person of his legitimate right it will amount to maladministration committed by the Revenue Authorities while administering tax laws.

(e) Income Tax Rules, 1982---

----R.158---Establishment of Officer of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss. 2 (10) & 9(3)---Appointment of Receiver---Tax employee---Jurisdiction of Federal Tax Ombudsman--­Claim of remuneration by Receiver---Complaint to Federal Tax Ombudsman---Department contended that complainant who was appointed as receiver was an employee of the department, and therefore, his claim was barred under S.9(3) of the Establishment of the Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---Validity--­Provision of S.9(3) prohibited exercise of jurisdiction in case of a complaint by or on behalf of a Tax Employee in respect of any personal grievance relating to his service---Tax Employee has been defined in S.2(10) of the Ordinance which means an employee of the Revenue Division and includes an officer and any other functionary serving in, or any office subordinate to, the said Division---Receiver, in the present cases did not fall in the definition arid could not be termed as a Tax Employee---Complainant/Receiver had been resorting to various remedies and had even approached Supreme Court, from where he withdrew his petition for filing the suit---Valid reasons did exist to entertain the complaint of the Receiver for remuneration in circumstances.

(f) Income Tax Rules, 1982----

----Rr.158, 159, 161 & 117---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9---Receiver was appointed on remuneration @ 5% of the amount recovered from the defaulter--­Defaulter was detained in jail for payment of utilities bills--­Receiver/complainant served warrant of arrest on the Superintendent, Jail for detention of the defaulter for payment of income-tax---Tax was recovered after negotiations between the defaulter and the Tax Authorities---Receiver claimed remuneration of the recovered amount on the ground that if he would have not made these efforts, defaulter would have been released as he had paid the utility bills---Department denied that complainant/Receiver had played any role for recovery and thus he was not entitled to receive any remuneration from the Department and further, pleaded that his appointment was not made under 8.159 of the Income Tax Rules, 1982---Validity---Complainant was entitled to remuneration for service he had rendered---Federal Tax Ombudsman recommended that: the Central Board of Revenue should pay. Rs.25,000 to the complainant/Receiver for the service rendered by him and that Central Board of Revenue to frame fresh Rules relating to the remuneration of the Receiver providing therein a scale of such remuneration/fee etc.

Awais Sheikh for the Department.

2002 P T D 2110

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

MUNIR HUSSAIN

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 1431-L of 2001, decided on 20th February, 2002.

Income Tax Ordinance (XXXI of 1979)--

----Ss.66A & 59(1)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order--­Assessments were finalized under Self-Assessment Scheme---Refund was determined---Request for issuance of refund---Commissioner of Income­tax instead of giving approval, suggested action under S.66A of the Income Tax Ordinance after noting discrepancies regarding the ratio of declared income and the capital employed---Show-cause notice--­Cancellation of assessments---Withholding of refund ---Validity--­Assessment of facts and the contentions raised made clear that the action under S.66A of the Income Tax Ordinance, 1979 was taken and proceedings were started before the filing of the complaint and much before the notice was sent by, the Department to the asset/ complainant---Objection that some proceedings were initiated to circumvent the proceedings in the complaint were not justified---Action under S.66A of the Income Tax Ordinance, 1979 was taken on legal grounds and for that reason, the refund was withheld---Order under S.66A of the Income Tax Ordinance, 1979 had been passed cancelling the assessments for both the years, fresh assessments had to be framed after affording an adequate opportunity to the assessee of pleading his case---Federal Tax Ombudsman recommended that as a result, if any refunds became due, the same should be determined and paid forthwith.

Shaukat Ali Babar for the Complainant.

Miss Laila Ghafoor, D.C.I.T. for Respondent.

2002 P T D 2129

[Federal Tax Ombudsman]

Before Justice (Recd.) Saleem Akhtar, Federal Tax Ombudsman

EXCEL LABORATORIES

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 1639-L of 2001, decided on 29th January, 2002.

Income Tax Ordinance (XXXI of 1979)---

----Ss.62/132, 138 & 13(l)(aa)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.9 & 2(3)(i)(a)---Assessment on production of accounts, evidence etc.---Setting aside of---Direction in respect of disallowance of salary---Initiation of proceedings in excess of specific direction of Commissioner of Income-tax (Appeals) ---Validity--­Where case was remanded with specific directions or for deciding a particular issue, the officer concerned had to restrict the proceedings within the four corners of the directions---Any attempt to ignore, cross, exceed, or reduce the directions will be illegal unauthorized and beyond his jurisdiction---Assessing Officer had to follow the directions and could not act contrary to them if the direction was to reconsider a particular issue, then the concerned officer had to restrict the proceedings to that issue and could not reopen the whole case---Such acts of omission and commission amounted to maladministration ---Commissioner of Income­tax while passing order under S.138 of the Income Tax Ordinance, 1979 failed to notice that the Assessing Officer, while passing assessment order after remand, had not followed the directions given by the Commissioner of Income-tax (Appeals)---Assessing Officer would restrict the proceedings to the extent of the remand order passed under S.132 of the Income Tax Ordinance, 1979---Federal Tax Ombudsman recommended that the Assessing Officer should hear the case afresh on the issue as per directions contained in the remand order passed by the Commissioner of Income-tax (Appeals) under S.132 of the Income, Tax Ordinance, 1979; the Assessing Officer to hear and decide the case in terms of above observations after affording proper opportunity to the complainant to produce evidence and opportunity of being heard within 30 days.

(1981) 127 ITR 453 and (1959) 35 ITR 673 (AP) rel.

Sikandar Hayat Khan for the Complainant.

Raza Munawar, Special Assistant for Respondent.

2002 P T D 2140

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

Hafiz GULZAR AHMAD, FAISALABAD

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 1609-L of 2001, decided on 20th February, 2002.

Establishment of Office of Federal' Tax Ombudsman Ordinance (XXXV of 2000)---

----Ss.9 & 14(4)---Complaint against officials of Income-tax Department alleging harassment, bribery and corruption---Withdrawal of such complaint through a letter---False and frivolous complaint---Federal Tax Ombudsman observed that complainants must realize not to make frivolous and false applications and after making complaint not to withdraw on false grounds or under pressure of the persons concerned--­Officers concerned should be fair and adopt a policy of not to meddle in investigation by pressurizing anyone directly or indirectly---Serious view could have been taken in the matter but considering the present state of the complainant, Federal Tax Ombudsman awarded Rs.1,000 cost to the department to be realized from the complainant as arrears of the land revenue and be deposited in the Government Treasury.

2002 P T D 2143

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

RAO & COMPANY, KARACHI

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Review Application No. 29-K in Complaint No. 849-K of 2001, decided on 24th November, 2001.

(a) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

---Ss.14(8) & 9---Complaint to Federal Tax Ombudsman ---Review--­Recall of order-- -Service of notice after expiry of date of hearing--­Review application was allowed and the order passed in the absence of complainant was recalled on the ground that notice was served much after the expiry of the date of hearing as was evident from the various postal stamps on the envelope.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss. 62, 65 & 13(1)(dd)---Income Tax Rules, 1982, R.207-A---C.B. R. Circular No.3 of 1967, dated April, 1967---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.9 & 2(3)--­Stamp Act (II of 1899), S.27A---Additional-assessment---Definite infor­mation ---Stamp duty valuation---Collector's valuation table---Value of property was assessed on which stamp duty was paid and accepted by the Registrar---Copies of sale agreement and transfer sales were filed at the time of assessment---Proceedings under S.65 of the Income Tax Ordinance were initiated on the ground that the department was in possession of definite information that the value of the plot declared was understated as the minimum value determined under R.207A of Income Tax Rules, 1982 read with S.13(2) & (3) of Income Tax Ordinance, 1979 on the basis of Collector's Rate was higher than the declared value--­Validity---At the time of making assessment in the presence of existing Rules it was open for the Assessing Officer to have evaluated the property on the basis of Collector's value instead of stamp duty valuation---Assessing Officer had made conscious decision by accepting the stamp duty value---Registrar, in case of doubt about the price of property, could make reference to the Collector to determine the value upon which stamp duty was to be paid but he failed to do so---Neither any definite information was with the Department nor misdeclaration was noticed and it was merely a change of opinion---Assessing Officer in wealth tax assessment had valued at the Collector's valuation much after the assessment had been framed by the Income-tax Officer---Subsequent order by the Wealth Tax. Officer valuing a property at Collectors Valuation rate which though available with the Income-tax Officer but was not adopted would not tantamount to definite information---Action taken by the Department was illegal and not according to law which fell within the category of mal-administration---Federal Tax Ombudsman recommended that notice under S.65 and proceedings in consequence thereof initiated against the complainant were illegal and of no legal effect and the same be closed and cancelled.

Central Insurance Co. and others v. C.B.R. 1993 PTD 766 = 1993 SCMR 1232; Republic Motors Ltd v. Income Tax Officer 1990 PTD 889 and Philips Electrical Company of Pakistan v. Income Tax Officer and another 1990 PTD 389 rel.

Nizamuddin, ITP for the Complainant.

Ahmed Saeed, IAC, Range-III, Zone C.

Hamid Saeed Khan, Special Officer for the Department.

2002 P T D 2149

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

Messrs SALMAN NOMAN ENTERPRISES LTD., LAHORE

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 1360-L of 2001, decided on 9th February, 2002.

Customs Act (IV of 1969)---

----Ss.33, 80, 83 & 193---S.R.O.458(I)/88, dated 26-6-1988- C. B. R. Notification No. S.R.O. 1076(I)/95, dated 5-11-1995---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9--Refund--Claim of Exemption—Department rejected the claim as the goods were locally manufactured---Admitted fact was that the goods were locally manufactured were released under Ss.80 & 83 of the Customs Act, 1969 and were neither provisionally released nor under the orders of Court of law---All the three ingredients mentioned in the S.R.O.1076(I)/95, dated 5-11-1995 had to be satisfied before claiming any refund---Fact that goods were not provisionally released and were manufactured locally being a relevant consideration---Complainant was not entitled to any refund.

Nishat Textile Mills's case PLD 1989 SC 222 and PLD 1963 SC 382 ref.

Salman Akram Raja for the Complainant.

Farid Iqbal Qureshi, Deputy Collector, Customs and Masud Javed, Appraiser for Respondent.

2002 P T D 2153

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

Messrs KAMRAN WEAVING FACTORY, FAISALABAD

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No.72 of 2002, decided on 27th April, 2002.

Sales Tax Act (VII of 1990)---

----Ss.7, 8, 22, 23, 33 & 34 --S.R.O. 124(I)/2000, dated 15-3-2002, Cl.7---Sales Tax General Order No.8/1999, dated 18-9-1999--­Establishment of Office of .Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.9 & 2(3)---Determination of tax liability---Adjustment of tax claimed to be paid on input electricity bills which were neither in the tame of the registered person nor connection holder of the electricity Was a partner in the business---Recovery of tax alongwith additional tax-­Validity---Sales Tax General Order No.8/1999, dated 18-9-1999 required all commercial and industrial enterprises, registered with the Sales Tax Department. to, urgently intimate, the billing section of the relevant electric-supply companies, full and correct names of business enterprises (registered person), addresses at which taxable activities were conducted alongwith sales tax registration number for insertion in their computer program---Registered persons were required to pursue such correction with the respective billing companies and unsure that same was entered by 31-10-1999 positively---Central Board of Revenue had given a reasonable time to the registered persons to ensure proper corrections of their particulars with the electric supply companies which the complainant did not avail---No evidence was available with regard to maladministration in denying the adjustment of tax claimed to have been paid on input of electricity--Complaint did not warrant any recommendation and file was closed by the Federal Tax Ombudsman.

Muhammad Ahmed Nizami for the Complainant.

Dr. Akhtar Hussain, Deputy Collector of Customs and Sales Tax, Faisalabad for Respondent.

2002 P T D 2163

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

Malik MASOOD UL HASSAN

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No.460 of 2001, decided on 3rd November, 2001.

(a) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

-----Ss.2(3) & 9---Maladministration---Auction was held by the Customs Authorities one day before the date intimated to the complainant---Authorities had informed the complainant fixing the. date of auction as 2nd June, 1999, but they auctioned the car on 1st June, 1999---Such date was intimated to the complainant under the order of Wafaqi Mohtasib---Department tried to justify its action on the ground that notice had been published in two daily newspaper for auction on 1-6-1999 and 2-6-1999---Validity---Mere issuing of public notice was not sufficient to justify the change of date as the complainant had specifically been informed that the auction will be held on 2nd June, 1999---Public notice issued in the normal course changing the date of auction different from the one intimated to a party, could not exonerate the customs Authorities from committing such irregularity---Complainant protested and pointed out that the date of auction intimated to him was 2nd June, 1999 and he had to arrange money for the auction bid---Fact that the complainant visited the office on the 1st June and time was allowed up to 12-30 p.m. but he did not turn up by itself was not sufficient to justify the irregularity--Auction. according to the Department was fixed for two days i.e. 1st June, 1999 and 2nd June, 1999, as the complainant had been advised the date of auction as 2nd June, 1999---Proper course for the department was to hold the auction on 2nd June, 1999--­Rushing with the auction on 1-6-1999 was not necessary because it was possible that the complainant might not have been able to collect bid money in such a short period ---Maladministration on the part of the Department by their acts of omission and commission was completely established in circumstances.

(b) Customs Act (IV of 1969)---

----S.169---Confiscation of vehicle---100% redemption fine-in lieu of confiscated vehicle in addition to the Customs duty and other taxes payable thereon was levied---Fine was reduced to 30% besides payment of the duty and taxes by the Appellate Tribunal---Vehicle was -sold out by the Department in an auction without implementing the order of the Tribunal---Validity---Department was bound to obey and implement the order of Wafaqi Mohtasib---Vehicle was to be released on payment of 30% fine as determined by the Customs Appellate Tribunal and the Customs Duty and Sales Tax on the depreciated value of the vehicle---Department, instead of releasing the car in the terms of the order of the Tribunal agreed to auction the vehicle---Order of Wafaqi Mohtasib and the Appellate Tribunal had to be implemented to its logical conclusion-- Federal Tax Ombudsman directed that out of the auction proceeds after deducting 30 percent. fine as decided by the Tribunal and the Customs Duty and Sales Tax, the balance amount to be refunded---Central Board of Revenue was directed to submit a list of all such vehicles which had been detained for being illegally imported giving their full details including the chassis number, the date of detention, the location where they were stocked and the name of officers or offices to whom the vehicles had been given on "Superdari" and Central Board of Revenue to supply all notifications, rules, circulars and orders relevant and applicable to such vehicles, which had been detained or confiscated.

2002 P T D 2223

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

Dr. ZAHID AHMAD KHAN, RADIOLOGIST, SERVICE HOSPITAL, LAHORE

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 1189-L of 2001, decided on 25th September, 2001.

Establishment of Office of Federal Tax Ombudsman Ordinance (XXX V of 2000)--- ----Ss.2(3) & 9---Maladministration---Issues constituting "maladministra­tion" raised before appellate forum---Adjudication of---Effect---Issues constituting "maladministration" pending before the appellate forum at the time of filing of complaint were not entertained by the Federal Tax Ombudsman and. the case was closed with clarification that where appeal or revision was pending and the issue of "maladministration" had not been raised there, the same could be agitated before the Federal Tax Ombudsman.

Ahmad Shuja Khan for the Complainant.

Ms. Fouzia Fakhar, D.C.I.T. Com-Zone-I, Lahore for Respondent.

2002 P T D 2228

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

HIDAYAT ULLAH DAR

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No.3 of 2002, decided on 18th February, 2002.

Income Tax Ordinance (XXXI of 1979)-------First Sched., Part I, Para. (A), proviso (b)(iv)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9--­Senior citizen rebate---Income declared at Rs.5,000 was assessed at Rs.85,000 which was reduced by the First Appellate Authority at Rs.65,000---Federal Tax Ombudsman recommended that complainant was entitled to the senior citizen rebate admissible in the First Sched., Part 1, para. (A) proviso (b)(iv) of the Income Tax Ordinance, 1 979 which may be allowed on furnishing of requisite evidence---Inspecting Additional Commissioner agreed to take necessary action to ;Aow rebate admissible to the assessee under the law.

Complainant (absent).

Imtiaz Anwar, I.A.C., Sialkot Range on behalf of Respondent.

2002 P T D 2237

[Federal Tax Ombudsman]

Before Justice (Retd. Teem Akhtar, Federal Tax Ombudsman

Messrs MASSECO

Versus

SECRETARY, REVENUE DIVISION, KARACHI

Complaint No.C-1473-K of 2001, decided/on 23rd January, 2002..

Sales taX Act (VII of1990)-----Ss. 6, 7, 3, 2(44), 33(2)(7), 34 & 36---C.B.R. Circular No.9-S dated 2-8-1997---S.R.O. 800(1)/87---S.R.O. 1195(1)/90---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9--­Time and manner of payment---Storage tank was developed and temporarily installed for six months for storage of chemicals---Invoice showed that tank was a sample and not for sale---Sample was rejected and deal was not finalized---Tank was subsequently sold to another buyer after one year at less than the cost price and sales tax was paid thereon---Department demanded sales tax, additional tax and penalties' after a period of three years without considering the tax already paid on the basis of invoice made for sample and not for sale---Validity---Sale of tank within the meaning of taxable supply of the storage tank under the Sales Tax Act, 1990 took place when the storage tank was supplied and sales tax was paid---No justification existed to charge sales tax at a value higher than the actual price or to demand additional tax and penalty as the tax was paid on the day of sale and the delay in the adjudication process was neither relevant nor attributable to the complainant---Order passed by the Department was declared to be arbitrary, unjust and based on irrelevant grounds which had no legal validity---Federal Tax Ombudsman recommended that Central Board of Revenue set aside order passed by the Deputy Collector (Adjudication-III), that directions should be issued to the Collector of Sales Tax to finalize the assessment on the basis of transaction value of the storage tank as on 1-12-1999 when the t able supply actually took place.

Khushnooa d A. Khan, Attorney for the Complainant.

Imtiaz Ahmad Shaikh, Deputy Collector of Sales Tax (East), Karachi.

2002 P T D 2245

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

Messrs SIDDIQSONS WEAVING MILLS (PVT.) LIMITED, KARACH

Versus

SECRETARY. REVENUE DIVISION, ISLAMABAD

Complaint No. C-1373-K of 2001, decided on 23rd January, 2002.

Customs Act (IV of 1969)-------S. 219---Deferment of Import Duty Rules, 1991, R.6---S. R. O. 490(1)/85, dated 23-5-1985 [as amended by S. R. O. 432(1)/87]--­Establishment of Office of Federal Tax Ombudsman Ordinance, 2000, S.9---Facility of deferred payment was availed and Bank guarantees were furnished against such facility---Non-payment of instalments---Bank guarantees were not encashed by the Customs Authorities in time but after the period of six years on receipt of information from the Appraising Intelligence Branch---Surcharge on principal amount and compound surcharge on accrued surcharge was demanded by the Customs Authorities for late payment---Validity---Tax liability was covered by Bank guarantees---Failure to pay the first instalment should have triggered the alarm bells and action to enforce the guarantees should have been taken immediately---Action was actually taken after six years when Appraising Intelligence Branch received the information--For this neglect and abnormal delay the responsibility squarely lay on the Customs Authorities---Bank discharged its liability by paying thi guaranteed amount on demand by the Customs---No justification existe,' to demand surcharge on the deferred amount and surcharge on surcharge from the assessee or the Bank for failure of the Department to encash the guarantees in time---Federal Tax Ombudsman recommended that Central Board of Revenue should direct the Collector of Customs to identify the officials responsible for negligence and take necessary action against them; return Bank guarantee documents to the Bank; direct the Collector of Customs that levy of surcharges as demanded by the Department had no legal validity and the notice issued to the complainants and the Bank be withdrawn/cancelled.

Muhammad Afzal Awan, Advocate.

Ashhad Jawwad, Deputy Collector of Customs.

2002 P T D 2257

[Federal Tax Ombudsman]

Before Justice (Recd.) Saleem Akhtar, Federal Tax Ombudsman

MUHAMMAD NAZIR

Versus

SECRETARY, REVENUE DIVISION ISLAMABAD

Complaint No. 1569-L of 2001, decided on 30th March, 2002.

Wealth Tax Act (XV of 1963)---

--Ss.17-B, 16(3) & Second Sched., Cl. .(12(2))---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000). Ss.2(3) & 9---Powers of Inspecting Assistant Commissioner of Wealth Tax to revise Deputy Commissioner's order---Exemption---Two joint shops--­Assessment was framed under Ss.16(3)/17B of the Wealth Tax Act, 1963 in pursuance to the order passed by the Appellate Tribunal---Show-cause notice was issued again under S. 17B of Wealth Tax Act, 1963 for cancellation of assessment on the ground that exemption allowed to one shop was never occupied by complainant for his own business as it was demolished and 15 new shops were constructed and afterwards sold out---Validity---No efforts were. made by the Department to verify the date of demolition of shop---Inspecting Additional Commissioner hurriedly issued show-cause notice for cancellation of the assessment framed in pursuance of the order passed by the Appellate Tribunal--­Action by the Inspecting Assistant Commissioner to issue show-cause notice was without lawful authority .particularly when the assessment order framed by the Assessing Officer under Ss.16(3)/17-B of the Wealth Tax Act; 1963, had been passed to implement the decision made by the Appellate Tribunal---If the Department felt that. the decision by the Appellate Tribunal was based on wrong reporting of fact, a review or recall request could be made to the Tribunal---Action by the Inspecting Assistant Commissioner was contrary to law and fell within the definition of "maladministration" as per S.2(3) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000---Federal Tax Ombudsman recommended that the notice under S.17-B of the Wealth Tax Act, issued by the Inspecting Assistant Commissioner be withdrawn.

Habib-ur-Rehman for the Complainant.

Laila Ghafoor, D-CIT for Respondent.

2002 P T D 2265

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

Messrs INTERNATIONAL BOTTLERS (PVT.) LTD,.

HYDERABAD through. G. A. Khan & Advocates; Karachi

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No C-944-K of 2001, decided on 27th .November, 2001.

(a) Establishment of Office, of Federal Tax Ombudsman Ordinance (XXXV of 2000)-----

--S.9---Jurisdiction of Federal Tax Ombudsman ---Maladministration--­If any "matter is sub judice before any authority and allegations of maladministration are made Which are -not directly raised in the proceedings before that Authority, the Federal Tax Ombudsman will have jurisdiction to entertain and decide the complaint.

(b) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)------

----Ss.2(3)(ii) &.9---Maladministratioh---Delay in deciding the issue- in spite of the judgment passed by the High Court directing the Central Board of Revenue to decide the case in terms of the judgment of the Supreme Court---Directions of the Supreme Court were yet to be carried out---Inaction and delay without sufficient cause could not be made a ground for not implementing the order of the High Court---Central Board of 'Revenue had committed maladministration- in terms of Cl. (ii) of. subsection (3) of S.2 of the Establishment of the Office of the Federal Tax Ombudsman Ordinance; 2000 which- was established insofar as neglect inattention and delay in discharge of duties and responsibilities' was concerned---Federal Tax Ombudsman .recommended that Central Board of Revenue, after hearing the complainant and the. Department,, record its findings in terms of remand order passed by the High Court on or before specified date.

Ghulam Ahmad Khan for the Complainant.

Zaheer Ahmad Khan representing 'G.A. Khan & Co.' for Petitioner.

Mumtaz Ali Khoso, Deputy Collector, Customs; Sales Tax and Central Excise, Hyderabad for Respondent.

Muhammad. Aslam Khan, Deputy Superintendent.

2002 P T D 2272

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

SULTAN MANZOOR AHMAD

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No.207 of 2002, decided on 25th April, 2002.

Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000).----

---S.9---Maladministration---Issuance of certificate to Returning Officer that the complainant had not paid the tax within 7 days as required--­Original demand notice was produced `from which it was clear that no date was fixed for payment of tax and in the certificate it was in-correctly stated that the arrears were to be paid within 7 days, was incorrect---Inspecting Additional Commissioner and Assessing Officer admitted that it was issued under mistake and the intention was only to provide list of persons who were in arrears--Assessing Officer had regretted on this mistake and even apologized to the complainant--­Complainant was satisfied with Assessing Officer's statement of truth and repentance and desired that case might be closed in order to create a harmonious and friendly atmosphere between the taxpayers and the tax administrators---Before closing, Federal Tax Ombudsman recommended that tax administrators and officers should be more careful in issuing certificates particularly in cases where vested rights are likely to be affected---Complaint was closed.

Safdar Hussain Shah for the Complainant.

Muhammad Azam, I. T.O. , Jehlum for Respondent.

2002 P T D 2274

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

MUHAMMAD AKHTAR KHAN

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 1750 of 2001, decided on 27th April, 2002.

Finance Act (V of 1989)---

----S.7(1)(7)(8)---Capital Value Tax Rules, 1990, R.8---Wealth Tax Act (XV of 1963), S.32---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9---Purchase of agricultural land---Non-payment of Capital Value Tax---Demand of Capital Value Tax with additional tax---Validity---Department under S.7(7), Finance Act, 1996 could only demand actual. capital value tax from the complainant---Additional tax might be recovered from the registering authority as provided under S.7(8) of the said Act---Notice was required to be revised---Federal Tax Ombudsman recommended that the Commissioner of Wealth Tax should revise the recovery notice in accordance with subsections (7) & (8) of the Finance Act, 1989.

Complainant in person.

Manzoor Ahmed, D.C.I.T., Circle –02 Sargodha for Respondent.

2002 P T D 2281

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

IFTIKHAR AHMED

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No.260 of 2002, decided on 29th April, 2002.

Income-tax---

---Establishment of Office of Federal Tax. Ombudsman Ordinance (XXXV of 2000), S.9---Assessment---Income was assessed at Rs 300,000 on the basis of Tax Profile prepared by PRAL while the income was declared in survey form at Rs30,000---Assessment was cancelled by the Commissioner of Income-tax for de novo proceedings on the basis of assessment record as well as information provided by the complainant-- -Grievance been redressed by, the Commissioner's timely action---Such mistakes were occurring in many cases causing embarrassment to the Assessing Officers and harassment to the assessees---Federal Tax Ombudsman recommended that Central Board of Revenue should ensure that PRAL was properly manned with knowledgeable staff under the supervision of experts.

Ms. Shazia Abid for the Complainant.

Mian Muhammad Akram for Respondent.

2002 P T D 2282

[Federal Tax Ombudsman]

Before Justice (Retd.). Saleem Akhtar, Federal Tax Ombudsman

Syed IKRAM UD DIN

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 191 of 2001, decided on 27th April, 2002.

Income Tax Ordinance (XXXI of 1979)-----

---Ss.108(b), 139, 50(1)(8); 116&-2(34)(x)---Income Tax Rules, 1982, 8.197---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.9 & 10(4)---Penalty---Non-filing of statement by Branch Manager of the Bank on the ground that the same could have been obtained from Regional or Zonal Office of the Bank and filing salary statement was not the responsibility of the Branch Manager,--­Validity---Prescribed -statement comprised of 43 Columns; Columns 41 and 42 required the date on which the tax deducted from the salary had been deposited and the number of treasury challan on which it had been deposited which had to be verified by the person responsible for paying salary under his own signature and designation for the obvious reasons the payment of salary, deduction of tax out of salary paid and deposit of tax so deducted could be verified only by the persons responsible for performing the three functions---Complainant, on the admitted facts, was the person responsible for paying salaries to Branch Staff and to deduct as well as to deposit the tax so deducted---Contention .that he was not responsible to file the statement prescribed under the law had no substance---Complainant, therefore, did not warrant any action--- Federal Tax Ombudsman closed the file accordingly.

Nemo for the Complainant.

Ahmad Hussain Khan, D.C.I.T. for Respondent.

2002 P T D 2287

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

FAISAL ISHAQUE LODHI, PROPRIETOR, TAIF

TRADING COMPANY, ISLAMABAD

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 120 of 2002, decided on 24th April, 2002.

Income Tax Ordinance (XXXI of 1979)---

----Ss.80C 143B, 50(5)(4), 55, 102 & Second Sched., Part IV, Cl.(9B)--­S.R.O. No.97(I)/2002 dated 12-2-2002---Establishment of Office .of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9--Tax deducted on supplies under S.50(4) of the Income Tax Ordinance, 1979 was claimed as refund being the tax deducted under S.50(5) of the Income Tax Ordinance, 1979 on the same goods was the final discharge of tax liability-- Department refused the claim of the complainant on the ground that conditions in the said clause had not been fulfilled because no Return had been filed by the complainant under S.55 and no irrevocable option was filed with the Return and thus, tax deducted under S.50(4) was covered by the provisions of S.80C of the Income Tax Ordinance, 1979 . Validity---Mere import of goods was not an income-generating activity and collection of income-tax at import stage had been provided in law in anticipation of the fact that the goods would be sold subsequently to generate income---Collection at import stage had been deemed to be a final discharge of tax liability---Was against the scheme of presumptive taxation to again tax the proceeds from the same goods when these were actually supplied by the importer---Complainant, having only made supplies, was not required to file Return under S.55 of the Income Tax Ordinance, 1979---Clause (9B) of Part IV of Second Sched., Income Tax Ordinance, 1979 was in conformity with the discussion, Court rulings and complainant's view and cl. (9B) was not retrospective in nature--­Even in the context to the earlier clause, said clause did not apply to the complainant's case a he was not required to file a Return under S.55 and that the complainant had acted in accordance with law by filing a statement under S.143B and by claiming a refund of fax paid under S.50(4) of the Income Tax Ordinance, 1979---Clause (9B) only states an existing legal position in clear terms and that the complainant had rightly claimed the refund of tax deducted under S.50(4) in respect of supply of goods on which tax had already been paid under S.50(5) at the import stage---Refund would, however, be due from the date on which the refund order was made and no additional sum was due under S.102 of the Income Tax Ordinance, 1979---Federal Tax Ombudsman recommended that the tax deducted under S.50(4) on supply of goods on which tax had already been paid under S.50(5), be refunded to the complainant.

2002 PTD (Trib.) 532; 2001 PTD 1656; 1997 PTD (Trib.) 1143; Messrs Elahi Cotton Mill's case 1997PTD 582 and 2002 PTD 187 rel.

Bashir Ahmad and Mansoor Sattar, A.Rs. for the Complainant.

Mrs. Fareena Mazhar, I.A.C. for Respondent.

2002 P T D 2299

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

Messrs CITY HEART PLAZA

versus

SECRETARY, REVENUE DIVISION, ISLAMABAD.

Complaint No.484 of 2001, decided on 8th December, 2001.

Income Tax Ordinance (XXXI of 1979)---

----Ss.13(1)(aa), 62, 134(3), 138 & 156---Establishment of office of Federal Tax Ombusman Ordinance (XXXV of 2000), S.9---Addition was made in the hands of members of the A.O.P. in violation of the directions of the First Appellate Authority and Tribunal's order and it was categorically stated that the order of Tribunal had not been received by the Department whereas it was actually received as borne out by the receipt and Dispatch Register---Validity---Fact remained that the order of the Tribunal was received by the Commissioner and yet in flagrant violation of law, the Assessing Officer passed order .under S.62 in the case of five members of the A. O. P. ---Department submitted before the office of the Federal Tax Ombudsman that the order of the Tribunal was not received which made the matter even worse---Federal Tax Ombudsman recommended that Chairman, Central Board of Revenue should order an inquiry under Efficiency and Discipline Rules, 1973 against the person responsible, who passed the order under S.62 without complying with the directions given by the Tribunal; the Director ­General Inspection (Direct Taxes), Central Board of Revenue, to hold an inquiry as to whether the Commissioner Income-tax at the relevant time failed to have the order of the Tribunal forwarded to the circle concerned, and if it was duly forwarded and received by the Assessing Officer, in addition to the copy of the order given to him by. the complainant by hand as-deposed in the affidavit that only compounded the gravity of the maladministration, those found responsible may be proceeded against under the Efficiency and Discipline Rules, 1973 and the Zonal Commissioner, in exercise of revisional powers under S.138 of the Income Tax Ordinance, 1979 to suo motu cancel the order passed by the Assessing Officer in the case of the members of the A.O.P. and direct the Assessing Officer to complete assessments in the light of the orders given by the Income-tax Appellate Tribunal after affording a reasonable opportunity of being heard to the assessees.

Muhammad Ashraf Hashmi for the Complainant.

Muhammad Saleem, D.C.I.T. Circle 14-Faisalabad.

2002 P T D 2307

[Federal Tax Ombudsman]

Before Justice (Recd.) Saleem Akhtar, Federal Tax Ombudsman

MUHAMMAD RAMZAN, PROPRIETOR, AL-MURTAZA HOTEL, 19A ABBOTT ROAD, LAHORE

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No.6-L of 2002, decided on 6th March, 2002.

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss.103, 129 & 134--C. B. R. Circular No.4 of 1979, dated 23-8-1979-­Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9---Power to withhold refund in certain cases---Payment: of tax equal to 15 % of the total demand with first appeal----Appeal was accepted---Refund was created---Second appeal by the Department--­Refund was withheld till the decision of appeal---Validity---Letter of approval by the Commissioner suffered from legal infirmity---No order under S.103 of the Income Tax Ordinance, 1979 could be passed for indefinite period and it was imperative on the part of the Commissioner of Income-tax to stipulate the period for which the refund was to be withheld while according approval to the Assessing Officer under S.103 of the Income Tax Ordinance, 1979---Apprehension that assessee would run away after obtaining the refund and the recovery of taxes would be impossible had also not been expressed---Issue of refusal to refund was not the subject-matter of appeal before Tribunal, which had not granted any stay to withhold the refund of Complainant---No justification existed for the Department to withhold the refund and such unjustified and unlawful withholding of refund amounted to maladministration ---Federal Tax Ombudsman recommended that the refund due be issued within 30 days of the receipt of the order if no stay order was obtained from the Income Tax Appellate Tribunal till then.

1995 PTD 749 rel.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.103---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S. 9(2)(a)--- Jurisdiction, functions and powers of the Federal Tax Ombudsman---Withholding of tax without stay from Tribunal---Complaint against---Objection regarding jurisdiction of the complaint in terms of S.9(2)(a) of the Federal Tax Ombudsman Ordinance, 2000 was raised as second appeal had been filed before the Income-tax Appellate Tribunal---Validity---Department had not obtained any stay order from the Tribunal to withhold the refund of the complainant which had already been determined---Provision of S.103 of the Income Tax Ordinance, 1979 had not been invoked properly for withholding refund---Issue in the complaint was refusal to refund which was not the subject-matter of appeal---Issue involved in the complaint, therefore, was completely independent of the matter in appeal before the Tribunal- --Objection to jurisdiction was not tenable and was rejected by the Federal Tax Ombudsman.

Iftikhar Shabbir, I.T.P. for the Complainant.

Miss Laila Ghafoor, D.C.I.T. Circle 24, Zone A, Lahore for

2002 P T D 2316

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

Mrs. NASEEM-E-SEHAR

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No.29-L of 2002, decided on 2nd March, 2002.

Wealth Tax Act (XV of 1963)---

-----S. 31-C---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9---Additional payment for delayed refund---Compensation---Validity---Refund had been created on the completion of Wealth Tax Assessment as on 3I-12-1997 which had been paid after a long delay on 19-1-2002---Department stated that refund due was not withheld and the delay was due to long leave of the concerned Inspecting Assistant Commissioner was not possible to believe that the office of the I.A.C. remained vacant from December, 1997 to December, 2001---No justification, existed for withholding the refund for such a long period---Complainant was entitled for compensation under S.31-C of the Wealth Tax Act; 1963---Federal Tax Ombudsman recommended that additional payment for delayed refund be worked out and paid to the complainant as provided in S.31-C of the Wealth Tax Act, 1963 within 30 days of the receipt of the order.

Fazal Muhammad Firdousi, Circle 15, Zone `B', Lahore for the Complainant.

Ghulam Rasood, D.C.I.T. for Respondent.

2002 P T D 2321

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

Messrs IHSAN YOUSUF TEXTILES (PVT.) LTD., FAISALABAD

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 107 of 2002, decided on 30th April, 2002.

(a) Sales tax---

---- Term `search"---Meaning and interpretation---Term "search" implies some exploratory investigation, or invasion and quest, a looking for, seeking out---Quest may be secret, intrusive or accomplished by force--­Search could be by applying force, prying into hidden places for that which is concealed and that the object searched for has been hidden or intentionally put out of the way.

(b) Words and phrases---

----"Search"---Meaning.

(c) Sales Tax Act (VII of 1990)---

----Ss.38, 40 & 40-A---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.2(3) & 9---Authorised officers to have access to premises, stocks, accounts and records--­Excessive use of force and harassment to the Director and staff of the Company for purposes of an investigative .audit and taking into possession sales tax, income'-tax and accounting record pertaining to current and past years after breaking each and every locked door and table drawers in search of these documents---Validity---Expressions used in Ss..38, 40 & 40-A of the Sales Tax Act, 1990, when viewed against the actual course of events clearly pointed out that it was not a visit -by the authorized officer or his team as claimed by the Department under S.38 of the Sales Tax Act, 1990, but it was a search of the business premises which explained as to why the locks of the doors and drawers were broken open or ordered to be broken open---Such was a search without a statement as contemplated under S.40A of the Sales Tax Act, 1990---If search was intended to be made the procedure provided by law should have been followed---Department in the present case, had conducted a number of audits as a result either the company had paid the tax demand or contested the cases in the relevant forum of appeal--­Complainant did not have any track record of resisting any audit and had always adopted a very cooperative attitude---Assistant Collector Sales Tax heading the team had crossed the limits of law and coercion was so much that even the shift of workers which was to leave the factory premises, was not allowed to go out when the search was in progress--­No signed receipt was given before removing the record taken in custody from the factory premises, as required by S.38 of the Sales Tax Act, 1990---Neither any signed statement in writing as required by S.40-A of the Sales Tax Act, 1990 was left at the place of search nor delivered to the occupier---Entire .operation carried out by .the Department was abuse of power amounting to 'maladministration ---Department having referred the case for adjudication the relevant Authority would decide the case on merits according to law---Federal Tax Ombudsman recommended that Assistant Collector Sales Tax (HQ) be proceeded against under the Efficiency and Discipline Rules, 1973, inquiry be conducted by Director­ General (Enquiries) who shall also examine the complainants and from amongst the witnesses/employees of the complainants, who had filed affidavits.

M. Aslam, Chief Accountant and Abid Shafi, Manager Taxation for the Complainant.

Dr. Akhtar Hussain, Deputy Collector for Respondent.

2002 P T D 2332

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

Prof. Dr. IQBAL AHMAD CHAUDHRY

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 1573‑L of 2001, decided on 3rd April, 2002.

Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)‑‑‑

‑‑‑‑Ss.2(3) & 9‑‑‑Maladministration‑‑‑Repetition of enquiries on the same issue at the behest of brother‑in‑law of the assessee‑‑‑Validity‑‑‑When more than one enquiries had admittedly not discovered any damaging evidence, some finality should be conferred on proceedings instead of dangling a sword permanently as this must be distracting and distressing for a taxpayer‑‑‑Unless there was proof of glaring neglect or laxity on the part of those who conducted earlier investigations or some new facts emerged the repetition of enquiries appeared meaningless and tended to support the allegation that it was being done .to harass the complainant at the behest of some official of the Department‑‑‑Such repeated inquiries based on irrelevant and false grounds caused harassment to the taxpayers and amounted to maladministration ‑‑‑Federal Tax Ombudsman recommended that if in future any further complaint, was received, it should be carefully gone through by the Regional Commissioner of Income‑tax and if there were no fresh facts or tangible evidence warranting inquiry same should be filed without summoning the assessee; that Department to report whether any action had been initiated against the complainant for filing complaints which were found to be incorrect and baseless; if action had been taken full details be provided and if proceedings had not been taken reasons be submitted for not taking any action.

Complainant in person.

Muhammad Naeem, D.C.I.T. for Respondent.

2002 P T D 2346

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

Messrs FAISAL ENGINEERING, F. B. AREA. KARACHI

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 149‑K of 2001, decided on 8th April, 2001.

Sales Tax Act (VII of 1990)‑‑‑

‑‑‑‑Ss.15 & 17‑‑‑Voluntary Registration and De‑registration Rules, 1996‑‑‑S.R.O.550(I)/96, dated 1‑7‑1996‑‑‑Standing Order No. 1 of 2000, Part 1(d)(ii)‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.2(3) & 9‑‑‑Application for registration‑‑­Non‑issuance of Sales Tax Registration Certificate on the ground that the complainant had submitted copy of agreement without specified date, and that he failed to submit duly attested copy of National Tax Number‑‑­Validity‑‑‑Non‑submission of NTN and absence of date on the tenancy agreement were too minor points to hold up the registration in the first instance and cause delay of approximately three months‑‑ ‑Department did not even follow Standing Order 1 of 2000 as survey and inspection was carried before the issuance of the certificate and not after the receipt of certificate by the complainant as required‑‑‑Non‑observance of the Standing Order had caused further delay which was a case of maladministration ‑‑‑Department had not acted in a business friendly manner‑‑‑ Voluntary Registration and De‑registration Rules provided an elaborate application form and the check list of the documents prescribed in Part 1 of the Standing Order No. 1 of 2000 should have been in conformity with the Rules besides the fact that this part should have been published in the form of the public notice‑‑‑Federal Tax. Ombudsman recommended that Central Board or Revenue should consider updating the Registration Rules, 1996 by adding acceptable elements of Part 1 of the Standing Order 1 of 2000 and deleting Part I of the Standing Order and to direct the Collectors of Sales Tax to ensure registration of the sales tax units expeditiously and avoid delay on minor deficiencies which could be quickly rectified.

Tariq Ahmad, Consultant.

Ms. Sayeeda Anjum, Assistant Collector (Registration).

2002 P T D 2436

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

ATTIQ‑UR‑REHMAN

versus

SECRETARY, REVENUE DIVISION, C.B.R., ISLAMABAD

Complaint No. 1438‑L of 2001, decided on 9th March, 2002.

Wealth Tax Act (XV of 1963)‑‑‑

‑‑‑‑Ss.3, 4(3) & 16(5)‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.9 & 2(3)‑‑‑Charge of wealth tax‑‑‑Net wealth to include certain assets‑‑‑Ex parte assessment‑‑­Bald lump sum estimation of value of movable assets‑‑‑Validity‑‑‑Was not clear as to what kind and what quantity of "movable assets" were the subject‑matter of estimate‑‑‑Ex parte assessment though entailed an element of guess‑work, still it was mandatory to make a "best judgment" and an honest estimate of the value of each asset and each item claimed as liability, and as close to the real value as possible‑‑‑Caution had to be exercised to be fair and just, warding off even a remote possibility of arbitrariness or illegality ‑‑‑Legal infirmities which beset the assessment rendering them "arbitrary unreasonable, and unjust" amounted to maladministration‑assessment orders thus were illegal and arbitrary and consequently were of no legal effect‑‑‑To meet out substantial justice by removing oppressiveness in the dispensation of justice, Federal Tax Ombudsman recommended that the Assessment orders being illegal and of no legal effect, Wealth Tax Officer was to reassess/re‑compute the value of each movable asset after evaluating the explanation offered and evidence tendered by assessee for which fresh opportunity was to be provided.

In re: Sakhi Contractors & Engineers, Multan 1981 PTD 210 ref.

Complaint No. 1250 of 2001 rel.

Zahid Pervez for the Complainant.

Ghulam Rasool, D.C.I.T. for Respondent.

2002 P T D 2451

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

Messrs ARZOO TEXTILE MILLS LTD., FAISALABAD

versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 1345 of 2001, decided on 14th February, 2002.

Sales Tax Act (VII of 1990)‑‑‑

‑‑‑‑Ss.36, 11, 3, 7, 33, 34, 45 & 3‑‑‑Sales Tax Refund Rules, 1996‑‑­Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Recovery of amount of tax not levied or short levied or erroneously refunded‑‑Show‑cause notice for recovery of amount refunded alongwith penalty and additional tax on the ground that the same was obtained against fake invoices and sales tax had not been paid on such invoices by the suppliers‑‑‑Validity‑‑‑Complainant had discharged its duty by paying sales tax to the supplier, credit for which was claimed in the monthly sales tax returns and allowed by the Sales Tax Department‑‑‑Suppliers had failed to meet their legal responsibility, by not depositing the sales tax recovered from the complainant‑‑‑Section 3 of the Sales Tax Act, 1990 clearly places the responsibility for payment of sales tax at the prescribed rate on the registered suppliers‑‑­Functionaries of Sales Tax having failed to detect the payment of sales tax by the supplies/registered persons' plausible reason that would come to the mind was that the sales tax returns tiled monthly gave particulars indicating the total tax deposited, without giving the details of the sales transactions party‑wise with names and addresses, tax invoices numbers, value of goods sold and the output tax audit was only after audit was carried out when the records/account books of the parties were physically checked that such evasion came to the light‑‑‑Such lacuna in the procedure laid down by the Central Board of Revenue required to be rectified and Complainant did not appear to be at fault‑‑‑Federal Tax Ombudsman recommended that the Collectorate of Sales Tax should pursue recovery of sales tax from the companies on which legal responsibility lay under S.3 of the Sales Tax Act. 1990. being suppliers, Additional Collector (Adjudication) may examine reconciliation between the yarn consumed and the quantity of goods exported to satisfy himself that yarn was physically transferred from the suppliers account to the complainant's account and the lacuna‑identified in the procedure prescribed for payment of sales tax and claim of adjustment in the monthly sales tax returns be rectified.

Tahir Razzaque, F.C.A. for the Complainant.

Abdul Rasheed Sheikh, Additional Collector Sales Tax for Respondent.

2002 P T D 2468

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

Messrs KHALID CONSTRUCTION CO. (PVT.) LTD., ISLAMABAD

versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaints 'Nos. 1456 and 1457 of 2001, decided on 29th November, 2001.

Wealth Tax Rules, 1963

‑‑‑‑R.8(3)‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Valuation of land and buildings‑‑­Valuation on the basis of Annual Letting Value‑‑‑Contention that the value of the plot be excluded from the value of the property adopted on the basis of Gross Annual Letting Value had been considered at length by the Income‑tax Appellate Tribunal, which had found that since the building was on rent its maximum value could be adopted at ten time of the Gross Annual Letting Value under the rules and that there was no provision for exclusion of the value of the plot from the value of the property worked out in said manner‑‑‑Contention was repelled by the Federal Tax Ombudsman‑‑‑Regarding the plea for adjustment of excess income‑tax payment against wealth tax demand, the complaint was advised to make an application to the concerned Assessing Officer, giving relevant particulars, who may then take necessary action if any income tax refund was found actually due to the complainant.

1999 PTD 1060 rel.

Khalid Malik, Managing Director and Syed Pervez Kosar, General Manager for the Complainant.

Nadir Mumtaz, D.C.I.T. for Respondent.

2002 P T D 2562

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

Mst. RUKHSANA AMJAD

versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No.50‑L of 2002, decided on 3rd June, 2002.

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.65‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.9 & 2(3)(i)‑‑‑Additional assessment‑‑­Maladministration‑‑‑Harassment‑‑‑Second show‑cause notice under S.65 of the Income Tax Ordinance, 1979 on the same grounds‑‑­Second round of harassment was said to have started with the initiation of proceedings under S.65 of the Income Tax Ordinance, 1979 through a show‑cause notice which was based on the information received although an earlier show‑cause notice issued for the same reason as now, was abandoned considering the explanation submitted by the complainant as satisfactory‑‑‑No new, or definite information, had fallen into the hands of the Assessing Officer on the basis of which he could justify initiation of proceedings under S.65 of the Income Tax Ordinance, 1979‑‑‑Entire exercise was allegedly based on mala fides which attracted the provisions of S.2(3)(i) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.59(1) & 62‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Self‑assessment‑‑­When assessment under S.59(1) of the Income Tax Ordinance, 1979 stood finalized, it was beyond controversy that assessment under S.59(1) of the Income Tax Ordinance, 1979 was as good as assessment as the one framed under S.62 of the Income Tax Ordinance, 1979 after due deliberation and examination.

(c) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)‑‑‑

‑‑‑‑Ss.2(3)(iv)‑‑‑Maladministration‑‑‑Wilful error, committed in the determination of refund, constituted "maladministration" as envisaged by the provision of S.2(3)(iv) of the Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000).

(d) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)‑‑‑

‑‑‑‑Ss.9 & 2(3)(iv)‑‑‑Jurisdiction‑‑‑Maladministration‑‑‑Where allega­tions of maladministration had been made, the Federal Tax Ombudsman had the jurisdiction to investigate because the bar in S.9 of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000 was in respect of "assessment of income or wealth, determina­tion of liability of tax or duty, classification or valuation of goods, interpretation of law, rules, regulations relating to such assessment, determination, classification or valuation in respect of which legal remedies were available", but there was no bar against investigation in respect of allegations of "maladministration" which were completely independent of the specified proceedings.

(e) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.65, 59(1) & 103‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.9 & 2(3)(i)‑‑‑Additional assessment‑‑‑Definite information‑‑‑Show‑cause notice‑‑‑Refund Issuance of show‑cause under S.65 of the Income Tax Ordinance, 1979 thrice without there being any definite and fresh information just to delay for issuance of rightful claim of refund despite in presence of reliable document on record‑‑‑Federal Tax Ombudsman recommended that Special Officer, concerned be admonished for committing wilful error in the preparation of IT‑30 in an attempt to deny the payment of refund to the Complainant Assessing Officer concerned be warned for causing inordinate delay of more than two years for the payment of refund to the complainant; concerned Assistant Commissioner of Income‑tax be directed to drop the proceedings initiated under S.65 of the Income Tax Ordinance, 1979 and be suitably reprimanded for causing unnecessary harassment to the complainant by issuing notice under S.65 of the Income Tax Ordinance, 1979 in the absence of any fresh and definite information concerned Commissioner of Income and I.A.C. be advised to act as vigilant supervisory officer.

Shahid Abbas for the Complainant. .

Ms. Nabila Iqbal, DCIT alongwith Muhammad Umar Zulfiqar, ACIT for Respondent.

2002 P T D 2575

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

NOKHAIZ KANWAL, PROPERTY OWNER, KHARIAN

versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaints Nos. 1644‑L, 1645‑L & 1646‑L of 2001, decided on 9th March, 2002.

Wealth Tax Act (XV of 1963)‑‑­

‑‑‑‑Ss.3A & 16(2)‑‑‑Income Tax Ordinance (XXXI of 1979), Ss.59D & 13‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑CBR Circular No.4 of 2000, dated 1‑3‑2000, paras. 2 & 8(2)‑‑‑CBR Circular No. 9 of 2000, dated 31‑5‑2000‑‑‑CBR Circular No.11 of 2000, dated 8‑6‑2000‑‑‑Tax Amnesty Scheme, 2000‑‑‑Inherited property‑‑‑Declaration of under Tax Amnesty Scheme‑‑‑Claim of exemption from wealth tax‑‑­Rejection of declaration on the ground that since the property shown in the declaration had been inherited and had not been created out of undisclosed income, the same was not covered, by Tax Amnesty Scheme, 2000‑‑‑Issuance of notice under S.16(2) of the Wealth Tax Act, 1963 for the previous years‑‑‑Validity‑‑‑Undisclosed income for the purpose of Tax Amnesty Scheme was income which could not be charged to tax under the Income Tax Ordinance, 1979 and it did not relate to any assets/other than those representing concealed income which might have escaped taxation under the Wealth Tax Act, 1963‑‑­Only such assets could be considered as covered by the Scheme as represented deemed income under S.13 of the Income Tax Ordinance, 1979 or any other deemed income‑‑‑Property shown as inherited by the complainant, and reflected in the declaration did not admittedly represent any undisclosed income or deemed income and it was, therefore, not covered by Tax Amnesty Scheme, 2000‑‑‑Property declared did not constitute "undisclosed assets declared in accordance with the scheme" for which there was an exemption under para. 8(2) of Circular No.4 of 2000, dated 1-3‑2000‑‑‑Action leading to the rejection of the declaration under Tax Amnesty Scheme, 2000 may be questionable but the fact remained that the declaration filed by the complainant was outside the scope of the scheme and that in any case the assets on which wealth tax exemption had been claimed, had not been declared in accordance with the said Scheme‑‑Assets shown in the declaration did not, therefore, qualify for any exemption under the Wealth Tax Act, 1963 and the withdrawal of the notice issued under the Wealth Tax Act, 1963 could not be recommended‑‑‑Complaint was dismissed by the Federal Tax Ombudsman.

Shaukat Ali Babar for the Complainant.

Jafar Nawaz, DCIT for Respondent.

2002 P T D 2580

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

Messrs SPECIALITY PRINTERS (PVT.) LTD., KARACHI

versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No.C‑1743‑K of 2001, decided on 28th February, 2002.

Customs Act (IV of 1969)‑‑‑

‑‑‑‑S.25‑B‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Inspection, Valuation and Assessment of Imported Goods Rules, 1994 [S.R.O. No.1108(I)/94, dated 14‑11‑1994], R.8(2)(c)‑‑‑C.B.R. Letter C. No.2(2)S(Va1)/96, dated 14‑3‑1996‑‑‑Fixation of value for imports and exports‑‑‑Clean report of finding (CRF)‑‑‑Pre‑shipment inspection (PSI) ‑‑‑Refund‑‑­Assessment of value of goods under S.25‑B of the Customs Act, 1969 ignoring the clean report of finding (CRF) issued by the pre‑shipment inspection (PSI) company‑‑‑Validity‑‑‑Dispute about the customs values was not referred to the dispute resolution forum prescribed by the Central Board of Revenue and the Federal Export Promotion Board (FEPB)‑‑‑Refund applications were not processed and the complainant was denied the opportunity to examine and contest the evidence of higher values, and the claims were pending finalization since 1996 and this was a case of maladministration‑‑‑When a dispute resolution mechanism was in place, Department's action to ignore the same and introduce a higher price without even informing the importer of its basis was highly arbitrary and against all norms of administration of tax laws‑‑‑If there were instances of higher values, the evidence was not disclosed to the importer nor was he given the opportunity to rebut the same which, he had now done by identifying numerous cases where declared and CRF/assessable values were in the same range as those of the complainant‑‑‑Complainant was in fact denied the opportunity to present his case and rebut the evidence of enhanced value at the time of assessment and the refund claims had not been decided for more than five years which reflected adversely on the administration of the Department‑‑‑Federal Tax Ombudsman recommended that Central Board of Revenue to direct the Collector of Customs (Appraisement) to finalize the refund claims on the basis of assessment at the CRF price quoted by the PSI Company and accepted by the importer and ensure payment of the excess amount to the complainant within two weeks.

PTCL 1985 CL 100 ref.

Shabbir Ahmad, Project Manager.

Muhammad Irfan Sarfraz, Assistant Collector of Customs (Appraisement).

2002 P T D 2585

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

Messrs THAL JUTE MILLS LTD., KARACHI

versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 1542‑K of 2001, decided on 7th February; 2002.

(a) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)‑‑‑

‑‑‑‑S.2(3)(i)‑‑‑Maladministration‑‑‑Processing and dealing with the claim of refund in very casual and irresponsible manner by the officers of the Department amounted to maladministration and delinquent officials deserve to be reprimanded.

(b) Customs Act (IV of 1969)‑‑‑

‑‑‑‑Sched. I‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Pre‑shipment inspection fee‑‑­Claim and refund of‑‑‑Levy of service charges @ 2% on all goods specified in Sched. I of the Customs Act, 1969 was declared unlawful by the Supreme Court and complainant‑company claimed refund of such amount paid as pre‑shipment inspection fee‑Department informed the complainant that only those importers were entitled to the refund who had not passed on the incidence of 2% service charge to their clients‑‑‑Complainant‑company furnished a certificate issued by a Chartered Accountant that complainant‑company had not passed the incidence of payment of 2% pre‑shipment inspection service charges to others/public‑‑‑Department, during the pendency of complaint, rejected the claim of refund, without considering such certificate, by stating that complainant had failed to furnish proof in respect of 2% pre‑shipment service charges‑‑‑Validity, ‑‑Officer representing the Department had promised to furnish documents but nothing was supplied instead the order was passed in haste, ignoring the documents which had been received by the Department‑‑­Document in question was a certificate from a Chartered Accountant certifying that 2% pre‑shipment inspection charges had not been passed on to its customers or anybody else‑‑‑In the face of such 'certificate there was` no occasion to reject the claim of refund‑‑‑Only two possibilities existed either the Deputy Collector of Customs did not examine the certificate of the Chartered Accountant or he completely ignored it as he had already resolved to reject the claim‑‑­Delay in the disposal of the claim seemed to be motivated and mala fide otherwise the grounds stated in the order were available to Deputy Collector from the very beginning and he could have passed this order much earlier‑‑‑Delay in making the order was also an attempt to forestall the present complaint‑‑‑Order in the face of the certificate by the Chartered Accountant was mala fide illegal and contrary to law and facts‑‑‑Officer responsible for deciding cases where rights of the parties were involved was expected to be fair, just and free from mala fides and bias‑‑‑Delay in deciding the case was not based on any reasonable or just ground‑‑‑Such delay caused complaints of serious nature and motives were attributed which in many cases turned out to be correct‑‑‑If the Department had to build image of a credible institution in which persons dealing with it should have faith then they must work hard, to show their honesty and integrity even in small and routine matters not to talk of huge claims‑‑‑Federal Tax Ombudsman recommended that the order passed by the Deputy Collector of Customs (Appraisement) be cancelled; refund be allowed to the complainant after examining the certificate issued by the Chartered Accountant and Deputy Collector of Customs (Appraisement) reprimanded for the manner in which the case was dealt with and decided by him.

Qamar Abbas, Manager. Finance and Khalid Mahmood Siddiqui.

Dr. Nasir Khan, D.C Custom Appraisement Customs House, Karachi.

2002 P T D 2591

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

Messrs KHANIAN ORIENTAL CARPETS & RUGS, ISLAMABAD

versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 1752 of 2001, decided on 26th March, 2002.

Sales Tax Act (VII of 1990)‑‑‑

‑‑‑‑Ss.19 & 14(1)(ii)‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.9 & 10(4)‑‑‑Compulsory registration‑‑‑Requirement of‑‑‑Arbitrary registration by Spot Survey Team without determining the value of supplies during the last twelve months‑‑‑Validity‑‑‑Expression "value of supplies in any period during the last twelve months ending any tax period" connotes that the Collector in order to register a retailer under S.19 of the Sales Tax Act, 1990 shall have to satisfy himself that value of retailer's supplies exceeds five million rupees in any of the 12 tax periods ending during the month in which compulsory registration of the retailer was intended and its preceding eleven months‑‑‑Collector had to work back the value of supplies for periods of 12 months from each tax period ending during the last 12 months‑‑‑Before adopting such a view, an opportunity of being heard had to be provided to the complainant as well as the Department‑‑‑Liability of the complainant to be registered under S.19 of the Sales Tax Act, 1990 having not been determined as required under S.14(1)(ii) of the Sales Tax Act, 1990, Federal Tax Ombudsman recommended that the Collector or such other officer as may be authorized by him in this behalf, after such enquiry may satisfy himself if the complainant was required to be registered‑‑‑If the said functionary was satisfied that the complainant was not required to be registered, he may cancel the registration of the complainant by invoking his jurisdiction under proviso to S.19 of the Sales Tax Act, 1990.

Malik Ghulam Hussain for the Complainant

Sultan Haider, Assistant Collector, Headquarters for Respondent.

2002 P T D 2594

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

Messrs FATEH FOOD (PVT.) LTD., LAHORE

versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 154-L of 2002, decided on 8th June, 2002.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.12(18)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9---Assets of the Association of persons taken over by the company---Treatment as share deposit money---Addition---Validity---Amount later. shown in the company's balance-sheet as share deposit money was statedly invested in the Association of Persons before the formation of the company---In the case of A.O.P. its assets consisted of -fixed capital assets and capitalized expenses which were later taken over by the company at the time of its incorporation---Investment taken over by the company was not a "sum" but it represented fixed assets and capitalized .expenses of the Association of Persons---Section 12(18),of the Income Tax Ordinance, 1979 applied in the case of a "sum" and since no such "sum" was claimed to have been received by the company, the provisions of S.12(18) of the Income Tax Ordinance, 1979 were clearly not applicable at least to the extent of amount originally invested by the complainant/assessee in the Association of Persons and later taken over by the company.

2002 PTD 63; Black's Law Dictionary 7th Edn. and Concise Oxford Dictionary, 9th Edn. ref.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss.12(18) & 13---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9---Addition---Sum claimed or shown---Section 12(18) of the Income Tax Ordinance, 1979 as a whole and particularly its reference, to S.13 of the Income Tax Ordinance, 1979 shows that the situation envisaged in the said section was that if the sum was "claimed or shown" by the assessee himself as a loan or advance or gift while explained an investment (which may attract the provisions of S.13 of the Income Tax Ordinance, 1979).

(c) Income Tax Ordinance (XXXI of 1979)---

----S.12(18)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9---CBR Circular No.3 of 1992, dated 27-1-1992---CBR Circular No. l of 1992, dated 4-5-1992---CBR Circular No. 12 of 1992, dated 19-5-1992---CBR Circular No. l of 1993, dated 11-1-1993---Addition---Share deposit money---Amount was invested from foreign currency account in a project in the status of Association of Persons---Subsequently, such investment was taken over by -the company in the shape of assets without any cash having been received by the company---Assessing Officer treated such investment as share deposit money (advance) and taxed the same under S.12(18) of the Income Tax Ordinance, 1979 when neither the said amount had been received in cash by the company nor was it claimed as such---Validity---In order to properly understand the provisions of S.12(18) of the Income Tax Ordinance, 1979, it was necessary to consider that the intention behind the provisions was to check the introduction of fictitious loans---Department did not appear to be right in saying that the original, intention was no longer relevant after the substitution of the old subsection (1.8) by anew subsection containing a reference to "advance of gift" in addition to' "loan"--­Fact, however, was that whereas the old subsection was meant to check only fictitious loans the scope was later expanded and the new subsection applied to fictitious advances and fictitious gifts also---In the- present case, however, there was no fictitious element in the investment; maladministration had been found particularly with regard to the addition actually invested in the Association of Persons---Department's preliminary objections were not accepted by the Federal Tax Ombudsman and it was recommended that the Revenue Division may cause the whole matter to be re-examined under the provisions of S.138 of the Income Tax Ordinance, 1979 and if it was correct that Rs.8,561,000 were originally invested in the Association of Persons and not in the complainant-company, such amount at least should be excluded from the amount added under S.12(18) of the Income Tax Ordinance, 1979; with regard to remaining amount also the matter should be re-examined in the light of the observations and the tax demand in the case be kept in abeyance in the meantime.

Mirza Muhammad Wasim Adviser, Dealing Officer.

2002 P T D 2603

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

FAKIR S. AYAZUDDIN, PARAMOUNT AVIATION (PVT.) LTD., KARACHI

Versus

COMMISSIONER OF INCOME-TAX, COMPANIES-I, KARACHI and another

Complaint-No.C-1607-K of 2001, decided on 19th March, 2002.

(a) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

----Ss.9(2)(b) & 2(3)---Income Tax Ordinance (XXXI of 1979), S.138--Jurisdiction---Maladministration---Jurisdiction was ousted in respect of matters which related to assessment of income in respect of which legal remedies of appeal, revision or review were available--­Complaint in the present case related to an order passed under S.138 of the Income Tax Ordinance, 1979 against which no such remedy was available---Where allegations of maladministration had been made the Federal Tax Ombudsman will have the jurisdiction to investigate into the allegations of maladministration independent of the proceedings relating to assessment ---Maladministration had not only been established but impliedly admitted by the Department complaint in circumstances, could be entertained and investigated--­Objection in respect of jurisdiction was thus overruled by the Federal Tax Ombudsman.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.65---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9---Additional assessment---Definite information---Suit for recovery of amount of sale of Air tickets against complainant---Assessing Officer, on such information, issued notice under S.65 of the Income Tax Ordinance, 1979 alleging that commission had been received on such amount---Complainant contended that cheques were neither. encashed nor credited to his account but were returned to the Airline to be subsequently managed for deposit, withdrawal and get it remitted through General Sales Agent i.e. the company---Assessing Officer, however, made addition in the income of the complainant---Validity---Evidence on which proceedings under S.65 of the Income Tax Ordinance, 1979 were initiated related to income alleged to have been received through cheque---No proof existed to show that the cheques were encashed and the proceeds were received by the complainant---Only a presumption was available that the cheques were received by the complainant and were encashed in USA which could hardly be treated a "definite information" ---Assessing Officer added income on the basis of photocopy of cheques alone which was not a sound basis or evidence for such treatment---Department had rightly commented that the remittance could not be held as income, unless it was proved that it was encashed or appropriated by General Sale Agent---No such proof was available on record---Federal Tax Ombudsman appreciated the frank and honest opinion expressed by he Commissioner---Before any action was taken against the complainant, it should have been established that he had received the alleged amount in his personal capacity and appropriated the same---Any amount received on behalf of company should not be treated as his personal income---No enquiry seemed to have been made in that regard as well---Patent illegality in the entire proceeding was clear and obvious on the face of the record---No definite information was found on record to justify action under S.65 of the Income Tax Ordinance, 1979---Such illegality was neither noticed nor a proper investigation was made to bring the case within the four corners of the provision of S.65 of Indian Income Tax Ordinance, 1979---Absence of jurisdictional facts rendered the entire proceedings null and void---Impugned proceedings taken under S.65 of the Income Tax Ordinance, 1979 and orders made by the Commissioner and Assessing Officer were arbitrary, illegal and with no evidence on record---Proper course for the Department should. have been to wait for the final judgment of the High Court wherein the rights and liabilities of the complainant and the Airline were to be decided---Mistake being apparent from record, Federal Tax Ombudsman recommended the Commissioner to rectify the impugned order in the light of the aforestated observations; all proceedings, orders leading to the order passed by the Commissioner of Income-tax under S.138 of the Income Tax Ordinance, 1979 being arbitrary, illegal, null and void could not be enforced against the complainant and fresh proceedings if permissible under law may be initiated in the light of the final judgment in the suit pending before the High Court.

Athar Saeed for the Complainant.

Basharat Ahmed Qureshi, I.A.C.

Dr. Nasir Gunjua, DCIT.

2002 P T D 2617

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

MUHAMMAD AMJAD SALEEM

versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 161.8-L of 2001, decided on 16th April, 2002.

(a) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

----S.2(3)---Maladministration---Non-service or unreasonable delay in service of order---Any order passed without notice to the affected party rendered the same illegal---Unreasonable delay in sending copy of the order or not serving same at all on the assessee was a serious lapse and amounted to maladministration.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.66A---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Detailed order---No mala fides---Delay in sending the order passed under S.66A of the Income Tax Ordinance, 1979 to the complainant after hearing the complainant's Authorized Representative and also considering the written arguments submitted by him---Such detailed order apparently did not suffer from mala fides.

(c) Income Tax Ordinance (XXXI of 1979)---

----Ss.96 & 102---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9---Admitted refund---Non-issuance of---Federal Tax Ombudsman recommended that the refund admittedly due to the complainant be issued alongwith compensation as provided by S.102 of the Income Tax Ordinance, 1979 and that warning be issued to the officers /officials for reporting incorrect facts and figures to the Regional Commissioner of Income-tax, who may also be advised to be careful in submitting report to the Federal Tax Ombudsman.

Tahir Warraich, ITP for the Complainant.

Ghulam Rasul Malik, DCIT for Respondent.

2002 P T D 2626

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

Ch. MUHAMMAD BASHIR

versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 1769 of 2001, decided on 7th February, 2002.

Income Tax Ordinance (XXXI of 1979)---

----S.93(2)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV. of 2000), S.9---Recovery of tax by Tax Recovery Officer---Issuance of invalid notice of demand---Outstanding demands---Assessing Officer admitted that the basic responsibility for issuance of the invalid notice was his and that he had already received a letter of warning from the Commissioner in that regard---According to department's reply income-tax .0-r ears were outstanding against the complainant for the assessment years 1991-92 to 1997-98---Record also showed that substantial arrears were outstanding from different dates---Said arrears had neither been recovered nor otherwise settled during all. these years which reflected the Assessing Officer's lack of control over the affairs of the Circle as well as the total absence of supervision by the higher officers---Complainant was actually a Bank employee and could have been easily contacted at the time when any tax demand was found to lave remained unpaid instead of allowing the demand to accumulate over the years without ascertaining its status in fact it was supposed to be customary for the Inspecting Additional Commissioner and Commissioner of Income-tax to hold regular meeting with the Assessing Officer to discuss major items arrears in their circles---One of the advantages of such meetings was that all such bogus arrears where the demand had been set aside or reduced or had already, been paid were eliminated while effective steps were taken for recovery of arrears which stood ascertained--­Revenue Division was, therefore, once again asked to pay adequate attention to the problem resulting from lack of supervision and to take effective remedial steps in. that connection---Complainant's grievance stood. redressed and the concerned Assessing Officer had been warned and the matter was closed by the Federal Tax Ombudsman.

Nemo for the Complainant.

Ms. Shazia Abid, DCIT arid Ahsan Ali Shah, ACIT for Respondents.

2002 P T D 2632

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

SULTAN MUHAMMAD through G.A. Jehangir & Associates, Islamabad and others

versus

SECRETARY, CENTRAL BOARD OF REVENUE, ISLAMABAD

Complaints Nos. 1640 of 2001, 115 to 119 of 2002, decided on 27th February, 2002.

(a) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

----S.10(3)---Limitation---Condonation of delay---Commencement of period of limitation---Period of six months commences from the date on which the person aggrieved first had the notice of the matter alleged in the complaint---Where special circumstances existed the Federal Tax Ombudsman had been empowered to entertain the complaint which he deemed proper in the interest of justice ---Delay could be condoned where such circumstances existed and justice so demanded.

(b) Customs Act (IV of 1969)---

---S.19---Sales Tax Act (VII of 1990), S. 13(l) --- Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.9 & 10(3)---Pakistan Afghanistan Transit Trade Agreement, 1965, dated 2-3-1965---S.R.O. No.1162(I)/94, dated 21-1-1994 (21-12-1994)---S.R.O . No.109(I)/95, dated 13-12-1995 (13-2-1995) --- S.R.O. No.368(I)/95, dated 2-5-1995---Rules of Business, 1973---Chief Executive's directive, dated 15-1-2000---General powers to exempt from customs duty---Condonation of delay---Department was adamant not to release the consignments in spite of the judgment of the Supreme Court and the directive issued by the Chief Executive Validity---Petitions/complaints were filed when the complainants living in war torn area of Afghanistan came to know about the Chief Executive's directive allowing goods to be released---Facts and circumstances of the case justified extension-of time and condonation of delay---Case was not an ordinary one of the traders but related to international agreement between the two sovereign States in which goodwill and relations at governmental level were also involved--­Unreasonable attitude of the Customs Department and Central Board of Revenue in insisting not to release the goods in violation of Supreme Court judgment and blatant breach of Chief Executive's Directive established maladministration on their part---Federal Tax Ombudsman recommended the Central Board of Revenue to implement Directive of the Chief Executive and release consignments to the complainants/petitioners within three weeks from the date of the decision.

Jehangir Khan for the Complainant.

Rizwan Basharat, AC for Respondent.

2002 P T D 2638

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

Messrs LATIF COTTON MILLS LTD., KARACHI

versus

SECRETARY, REVENUE DIVISION, CENTRAL BOARD OF REVENUE, ISLAMABAD

Complaint No.C‑40‑K of 2002, decided on 19th March, 2002.

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.156‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑C.B.R.'s Letter C.No.4(6)IT.3/88, dated 17‑2‑1991‑‑‑Rectification of mistake‑‑‑Inordinate delay‑‑‑Maladministration‑‑‑Inordinate delay in passing order under S.156 of the Income Tax Ordinance, 1979 without any justification was certainly unreasonable, unjust and amounted a mal‑administration‑‑­Central Board of Revenue had also been issued instructions from time to time stressing on prompt disposal of rectification.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.156(2)‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Rectification of mistake‑‑­Opportunity of being heard‑‑‑Order under S.156 of the Income Tax Ordinance, 1979 rejecting the complainant's request to carry forward the loss without providing an opportunity of being heard to the complainant as provided in S.156(2) of the Income Tax Ordinance, 1979 had no legal sanctity as the complainant had been deprived of its statutory right of being heard and this was a glaring example of maladministration committed by the Assessing Officer.

(c) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)‑‑‑

‑‑‑‑Ss.9(2)(b) & 2(3)‑‑‑Income Tax Ordinance (XXXI of 1979), S.156‑‑‑Jurisdiction‑‑‑Maladministration‑‑‑In presence of gross mal­administration committed by the Assessing Officer, objection regarding jurisdiction in terms of S.9(2)(b) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000 was not tenable.

(d) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.156 & Second Sched., Cl (118D)‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑C.B.R.'s Letter C. No.4(6)IT.3/88, dated 17‑2‑1991‑‑‑Rectification of mistake‑­Assessing Officer accepted the claim of exemption under Cl. (118D) of the Second Sched. of the Income Tax Ordinance, 1979 but declared that business loss and unabsorbed depreciation were not carried forward‑ ‑Application to rectify the mistake and carry forward the declared business and depreciation losses‑‑‑Assessing Officer rejected the application and refused to carry forward the determined loss without providing opportunity of being heard‑‑‑Validity‑‑‑Federal Tax Ombudsman recommended that the order passed under S.156 of the income Tax Ordinance, 1979 be cancelled under S.138 of the Income Tax Ordinance, 1979 with the directions to the Assessing Officer to pass a fresh order after providing reasonable opportunity of being heard to the complainant.

Rehan Hasan Naqvi and Ms. Lubna Pervez for the Complainant.

Shaheen Aziz Niazi, IAC, Special Zone and Mrs. Lubna Ayub Asif, DCIT Circle, Special Zone, Karachi for Respondents.

2002 P T D 2646

[Federal Tax Ombudsman]

Before Justice (Recd.) Saleem Akhtar, Federal Tax Ombudsman

Messrs KHYBER SPINNING MILLS, GADOON

versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Petition No. 1‑P of 2002, decided on 20th February, 2002.

(a) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)‑‑‑

‑‑‑S.9(2)(a)‑‑‑Jurisdiction, functions and powers of the Federal Tax Ombudsman‑‑‑Pre‑condition for ouster of jurisdiction of Federal Tax Ombudsman was that the matter should be sub judice before any Court, Tribunal or Authority on the date when petition was filed under the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000‑‑‑Authority had not been able to satisfy that petition for leave to appeal/appeal had been filed challenging the judgment of the High Court in the Supreme Court‑‑‑Complaint was filed on 31‑12‑2001 while the Authority moved and issued instruction for filing appeal to the Supreme Court on 16‑1‑2002 and their own showing the appeal had not been filed before the complaint was presented to the Federal Tax Ombudsman‑‑‑Representative of the Department was asked to state in clear terms and' provide proof whether petition for leave to appeal had been filed in the Supreme Court, but he was unaware and could not provide any particulars or any information about the same‑‑‑Objection to jurisdiction was misconceived in circumstances.

(b) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)‑‑‑

‑‑‑‑S.9‑‑‑Jurisdiction‑‑‑Claim of cost of litigation before High Court‑‑Cost of litigation was claimed before the High Court but the High Court refused to grant the same‑‑‑Interference by the Federal Tax Ombudsman did not seem proper in circumstances.

(c) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑S.14‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S. 9‑‑‑S.R.O. 108(I)/95, dated 12‑2‑1995‑‑‑Exemption‑‑‑Claim of exemption had been allowed by High Court‑Execution of High Court judgment‑‑‑Claim depended upon the execution of the judgment of the High Court‑‑‑Federal Tax Ombudsman recommended that if any stay had not been granted by the Supreme Court the Department should execute and implement the judgment of the High Court within a period of 30 days.

Haider Yahya and Nija‑ud‑Din, Law Officer for the Complainant.

Sadiqullah Khan, Deputy Collector, Peshawar for Respondent.

2002 P T D 2650

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

Messrs NEW AMJAD FAROOQ COTTON INDUSTRIES, DERA GHAZI KHAN

versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 1562‑L of 2001, decided on 4th April, 2002.

Sales Tax Act (VII of 1990)‑‑‑

‑‑‑‑S.34‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.9 & 2(3)‑‑‑S.R.O. 1349(I)/99, dated 7‑12‑1999‑‑‑Additional tax‑‑‑Levy of additional tax without any order except a "computer print out" which had no calculations, details or specific order‑‑‑Validity‑‑‑Such course of action exposed "mal­administration" inasmuch as a substantial demand was shown to be payable by the complainant when he had already cleared all the tax demand at the relevant time‑‑‑Revenue was at a loss to establish the validity or even the origin and the basis of the demand shown to be outstanding against the complainant in a "computer print out"‑‑­Posting in the accounts, as shown in the computer print out, were expected to be a consequence of some decision or order‑‑‑Principle of audi alteram partem was so deeply enshrined in the modern legal system that it was to be read in every statute‑‑‑Pocket of a subject should not be touched without first confronting him with the action envisaging a financial burden‑‑‑Federal Tax Ombudsman recommended that the Collector Sales Tax may in exercise of powers vested in him under S.45‑A(4) of the Sales Tax Act, 1990 examine the issue as to how an amount was demanded when there was neither any order on record as conceded by the Departmental Reformation nor was there any reason to raise such a demand; that Officer found guilty for neglect and harassment may be proceeded against under the E & D Rules, 1973; that if an amount was deposited in the Bank but did not find mention in the Monthly Returns filed under S.26 of the Sales Tax Act, 1990 may be given credit for and that sales tax refund paid on electricity bills may be examined if found legally due after adjustment as input tax which may be refunded.

Sh. Ghulam Asghar for the Complainant.

Aftab Ahmad Bhatti, Deputy Collector Customs/Sales Tax, Multan for Respondent.

2002 P T D 2667

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

Messrs HASSAN BEARINGS, LAHORE

versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 1429‑1 of 2001, decided on 7th December, 2001.

Customs Act (IV of 1969)‑‑‑

‑‑‑S.25(1)‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑S.R.O. No.1108(I)/94, dated 4‑12‑1994‑‑‑Clean report of finding (CRF)‑‑‑Normal price‑‑‑Assessment of value at 10% loading on declared value‑‑‑Complainant/importer contended that declared value was discarded without providing any widentiary invoice and also no evidence was available for raising the declared value by 10%‑‑‑Validity‑‑‑In order to establish that the value of imported goods being determined, at a figure other than the declared value, by the Customs Authorities, was the "normal price" the‑onus to be discharged by them was to place on record authentic documentary evidence to support the finding that around the relevant date, such goods were fetching the same price in the open international market on sale between a buyer and seller who were independent of each other‑‑‑Burden of proving that the declared value was not normal, lies on the Customs Authorities‑‑‑Where the declared value was' rejected, the Customs Authorities while determining the value, must confront the importer with the material available with them‑‑‑Failure to do so, renders the valuation so determined illegal‑‑Determination of value, in the present case, suffered from illegality as at no stage, the complainant was confronted with the evidence the Customs Authorities had in their possession and relied upon for rejecting the declared value ‑‑‑In spite of consent order passed by the High Court, the proper and legal course as provided by law was not followed and maladministration .was committed by the Customs Authorities‑‑‑Federal Tax Ombudsman recommended that the relevant authority to assess the value after confronting the complainant with the evidence relied upon for rejecting the declared value and pass order for refund if it was found due on such determination of value.

Muhammad Aslam for the Complainant.

Zulfiqar Ch., Deputy Collector, Customs and Ms. Tayyeba Kayyani, Assistant Collector, Customs for Respondent.

2002 P T D 2671

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

Mst. SHAMIM AKHTAR

versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 134‑L of 2002, decided on 29th April, 2002.

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.13(1)(e), 13(2), 61 & 62‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Unexplained investment etc. deemed to be income‑‑‑Addition‑‑‑No notice‑‑‑Proceedings through order‑sheet entries‑‑‑No reasonable opportunity of being heard‑‑­Assessments were framed without actually issuing any statutory notice under Ss.61, 62 or 13 of the Income Tax Ordinance, 19'19 and conducted the entire proceedings through order‑sheet entries and made lump sum addition under S.13(1)(e) of the Income Tax Ordinance, 1979 to cover up estimated expenses‑‑‑Validity‑‑‑If it was accepted that in lieu of normal notices under Ss.61 & 62 of the Income Tax Ordinance, 1979, adequate opportunity of being heard was provided to the complainant it was obvious that the statutory requirements of both Ss.13(1) & 13(2) of the Income Tax Ordinance, 1979 had not been met‑‑‑Mere writing that the assessee had been confronted with addition under S.13(1)(e) of the Income Tax Ordinance, 1979 in the presence of Inspecting Additional Commissioner did not amount to giving a reasonable opportunity to the complainant as required by S.13 of the Income Tax Ordinance, 1979‑‑­Order sheet did not even record as to what the reply. of the complainant was‑‑‑Since the additions were made purely on estimate it could be inferred that for making the estimate the provisions of S.13(2), Income Tax Ordinance, 1979 had been invoked‑‑‑Section 13(2) of the Income Tax Ordinance, 1979 envisaged issuance of proper notice to the assessee allowing him a definite time for responding to the notice‑‑‑Only by writing on the order sheet that the assessee had been confronted with the additions under S.13(1)(e) of the Income Tax Ordinance, 1979, requirements of law were not satisfied‑‑‑Even S.13(1) of the Income Tax Ordinance, 1979 clearly envisaged , the calling of the assessee's explanation on the relevant points which could only be done through a proper notice‑‑‑Assessments were found to be totally invalid and since definite maladministration was involved in the assessment Federal Tax Ombudsman recommended that the income‑tax assessments for the years 1999‑2000 and 2000‑2001 be set aside by the Commissioner under S.138 of the Income Tax Ordinance, 1979 with the directions that re­assessments be made after affording the complainant a proper opportunity of being heard and that no addition be made under S.13(1)(e) of the Income Tax Ordinance, 1979 without serving a proper notice on the complainant and without giving due consideration to the complainant's contentions in that regard.

(b) Wealth Tax Rules, 1963‑‑‑

‑‑‑‑R.8(3)‑‑‑Wealth Tax Act (XV of 1963), S.31(b)‑‑‑Establishment of Office of the Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Enhancement of value of rented out portion on the ground that no rent deed was furnished and only an affidavit was filed in this regard--Charge of additional tax‑‑‑No approval for enhancement of value‑‑­Validity‑‑‑Was not explained as to why the value of the portion of the self‑occupied house had been adopted for the assessment years 1997‑98 to 1998‑99 when the entire house was self‑occupied during the said years and no portion had been let out‑‑‑With regard to the assessment years 1999‑2000 and 2000‑2001 also it could not be explained as to why the declared value based on declared Annual Letting Value had been accepted in the corresponding income‑tax assessments‑‑‑Could also not be explained as to why the furnishing of a rent deed was considered essential and the affidavit was rejected when the portion had been let out by the complainant to an Association of Persons consisting of herself and her husband and the rent was obviously an internal arrangement‑‑‑Approval of Inspecting Additional Commissioner should have been obtained before enhancing the Annual Letting Value and consequently the valuation, which was not done‑‑‑Wealth tax assessment for the years 1996‑97 to 2000‑2001 and the additional tax based on the assessments were found to be quite invalid as definite maladministration was involved in the wealth tax assessments‑‑‑Federal Tax Ombudsman recommended that in the wealth tax assessments for the years 1996‑97 to 1998‑99 the value of immovable property adopted at Rs.480,000 be deleted by the Commissioner by invoking his powers under S.25 of the Wealth Tax Act, 1963; that for the wealth tax assessment years 1999‑2000 and 2000‑2001 powers under S.25 of the Wealth Tax Act, 1963 be invoked by the Commissioner to reduce the valuation of immovable property from Rs.480,000 in each year to Rs.360,000 in each year and that consequential effect be given with regard to additional tax levied in the complainant's case.

M. Shahid Abbas for the Complainant.

Ms. Sadia Gillani, DCIT, Circle 10, Zone C, Lahore for Respondent.

2002 P T D 2659

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

Hafiz ABDUL QAYYUM

versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 1558 of 2001, decided on 18th January, 2002.

Wealth Tax Act (XV of 1963)‑‑‑

‑‑‑‑S.16‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Assessment‑‑‑Agricultural land‑‑‑Inclusion of in the net wealth contrary to finding of First Appellate Authority for the previous years by stating that no proof was furnished to show that the land was agricultural in nature‑‑‑Validity‑‑‑Order was quite invalid insofar as it related to the land owned by the complainant as in the said order the clear findings of the First Appellate Authority for the immediately preceding years had been totally ignored without giving any basis for including and valuing the said land for the purpose of wealth tax‑‑‑Federal Tax Ombudsman recommended that assessment for the two years be set aside by the Commissioner of Wealth Tax under S.25 of the Wealth Tax Act, 1963 with the directions that the findings of the Commissioner of Wealth Tax (Appeals) for the earlier years be‑ also followed in the assessment years 1999‑2000 and 2000‑2001, unless there was definite material to show that the nature of the property had changed and that for reasons to be recorded it could no longer be treated as agricultural land‑‑‑Evidence available with the complainant be given proper consideration and he be allowed full opportunity of being heard.

Complainant in person.

Jafar Nawaz, DCIT for Respondent.

2002 P T D 2694

[Federal, Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

Messrs PIONEER TRADERS, LAHORE

versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No.54‑L of 2002, decided on 24th April, 2002.

Income Tax‑ Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.156 & 96‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Rectification of mistake ‑‑‑Refund‑‑­Complaint against unnecessary delay in rectification of I.T. 30 and issuance of refund‑‑‑Validity‑‑‑Admitted position was that assessment record had since been received and as soon as evidence of payment was provided by the complainant, necessary rectification would be made and refund issued‑‑Delay in rectification and issuance of refund was without reasonable cause and due to negligence of the Department and therefore maladministration had taken place‑‑‑Federal Tax Ombudsman recommended that the case of the complainant be taken up and after notice be decided within 45 days.

Nemo for the Complainant.

Ghulam Rasul Dat for Respondent.

2002 P T D 2700

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

ABDUL HAFEEZ QURESHI and others

Versus

SECRETARY, REVENUE DIVISION, CENTRAL BOARD OF REVENUE, ISLAMABAD

Complaint No. 1494/K of 2001, decided on 6th March, 2002.

Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)‑‑‑

‑‑‑‑S.9‑‑‑Illegal demand of gratification by the clerk of the factory for completion of assessment and delivery of assessment order of the factory's employees‑‑‑Grievance that clerk of the factory had been demanding illegal gratification for getting the assessment of the complainant and employees finalized could not be without any basis‑‑­Every possibility existed that factory clerk might be making demands as alleged either without the knowledge .of the Tax Employees or with their connivance‑‑‑Such demand of money for getting the assessment of the factory employees finalized or to obtain it from Department and deliver to them brings bad name to the Department‑‑‑Federal Tax Ombudsman recommended that the Commissioner of Income‑tax to ensure that the assessment of the complainants and all other employees and workers of the factory be completed within one month; that the assessment order be delivered to the complainant and other assessee personally or through registered post A/D and not through any intermediary or employee of the factory and that such procedure should be followed in future as well.

Abdul Hafeez Qureshi Complainant.

Mujeebuddin Khan, DCIT/Special Officer‑II, RCIT Office Southern Region, Karachi.

2002 P T D 2716

[Federal Tax Ombudsman]

Before Justice (Recd. J Saleem Akhtar, Federal Tax Ombudsman

SECRETARY, REVENUE DIVISION, ISLAMABAD

Versus

ZAHEERUDDIN and others

Review Application No.1 of 2002 in Complaints Nos. 582 to 603, 663 to 670, 1233 and 1236 of 2001, decided on 2nd April, 2002.

(a) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

----Ss.9 & 2(6)---Documentation of National Economy Ordinance (XV of 2000), Preamble---Cases of survey---Jurisdiction of Federal Tax Ombudsman---Contention was that jurisdiction of the Federal Tax Ombudsman extended to relevant legislation as defined by S.2(6) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000 and as Documentation of National Economy Ordinance, 2000 did not fall within the relevant legislation no jurisdiction could be exercised in this regard thus cases of survey did not fall within the jurisdiction of the Federal Tax Ombudsman---Validity---Federal Tax Ombudsman had been vested with jurisdiction under S.9 of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000 which provided that Federal Tax Ombudsman might; on complaint by any aggrieved person, or on a reference by the President, the Senate or the National Assembly, as the case may be; or on a motion of the Supreme Court or a High Court made during the course of any proceedings before it or of his own motion, investigate any allegation of maladministration on the part of the Revenue Division or any Tax Employee---Jurisdiction of the Federal Tax Ombudsman extended to all acts of omission or commission of the Revenue Division or the tax employees which fell within the category of "maladministration"---Under S.2(7) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000 "Revenue Division" meant the administrative unit responsible for the conduct of business of the Federal Government in matters relating directly or indirectly with the collection of revenue from federal taxes, levy of taxes, duties, cesses or fees and declared as such by the Federal Government, and included all its subordinates and the Revenue Division and its agencies which were in any manner directly or indirectly responsible for collection and levy of federal taxes fell under the jurisdiction of the Federal Tax Ombudsman--­"Tax employee" had been defined under S.2(10) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000, as an employee of Revenue Division and includes an officer and any other functionary serving in, or any office subordinate to the said Division---All matters of maladministration committed by the Revenue Division, its subordinate offices, agencies and employees were governed by the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000 and fell within the jurisdiction of Federal Tax Ombudsman---Documentation of National Economy Ordinance, 2000 was intended to check and curb the practice of non-reporting and under reporting of assets held, income earned, taxable activity carried out for which documentation was provided---To begin with a survey was to be carried out by a team consisting of officials from the Departments working under Central Board of Revenue and such other persons as the Central' Board of Revenue might deem fit to include---Members of Armed Forces were also to form part of all survey and registration activities---Information collected through three forms as set in the First, Second and Third Schedules to Documentation of National Economy Ordinance, 2000 shall be deemed to be information collected for the purposes of assessment and determination of turn over, value or tax liabilities under the laws administered by the Central Board of Revenue---Information collected through survey activity conducted by the team formed by the Central Board of Revenue could be used or utilized for the purpose of collection revenue and thus directly related to the duties performed by the Revenue Division---In discharge of such duties under the Documentation of National Economy Ordinance, 2000 any maladministration as defined under S.2(3) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000 was identifying the Federal Tax Ombudsman will have the power and authority to exercise his jurisdiction and proceed accordingly---Under S.9(2)(b) of the Establishment of Office of Federal Tax Ombudsman Ordinance; 2000, the jurisdiction to investigate , or enquire was ousted in matters which related to assessment of income or wealth, determination of liability of tax or duty, classification or valuation of goods, interpretation of law, rules, and regulations relating to such assessment, determination, classification or valuation in respect of which legal remedies of appeal, review or revision were available under the relevant legislation--­Section 9(2)(b) imposed bar of jurisdiction in specified cases in which remedy, of appeal or review was available under the relevant legislation, therefore, the bar existed in respect of relevant legislation only--­Documentation of National Economy Ordinance, 2000 was not included in the relevant legislation and there was no bar as pleaded by the Department---Section 9(2)(b) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000 could not be a bar to the jurisdiction if any maladministration was identified in the matters mentioned in S.9(2)(b) and the Federal Tax Ombudsman will have jurisdiction to investigate and provide redress in respect of maladministration and the objection to the jurisdiction had no force.

(b) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)----

----S.9---Review petition against recommendation that - the signatures against all the three items containing figures filled by the survey team could not be treated as an agreement with the assessee---Validity--­Review petition was rejected by the Federal Tax Ombudsman with the remarks that the recommendation was made after due consideration and with a conscious mind dealing with all the objections and pleas raised by the parties and there was no error apparent on the face of the record.

Mian Rafiq Saigol and another v. Bank of Credit and Commerce International (Overseas) Ltd. PLD 1997 SC 865 rel.

Muhammad Nazim Saleem, Chief (Sales Tax), C.B.R.

Abdul Hameed Memon for Applicant.

2002 P T D 2734

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

Messrs ARID FLOUR MILLS, LAHORE

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 65-L of 2002, decided on 14th May, 2002.

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss.66-A, 5(5) & 59(1)---Establishment of Office of Federal Tax Ombudsman Ordinance, (XXXV of 2000), Ss.9 & 2(3)---Issuance of show-cause notice under S.66-A. of the Income Tax Ordinance, 1979 pointing out that the assessee made under S.59(1) of the Income Tax Ordinance, 1979 was erroneous insofar as it was prejudicial to the interest of Revenue because the Assessing Officer who finalized the assessment, was not vested with the jurisdiction over the case---Protest was lodged with the Commissioner of Income-tax requesting to drop the proposed proceedings and simultaneously complaint was lodged with the Federal Tax Ombudsman---Show-cause notice for action under S.66- A of the Income Tax Ordinance, 1979 was cancelled by the Commissioner of Income Tax before the hearing of complaint---Remarks of Federal Tax Ombudsman to the effect that since the complainant's grievance stood redressed, the investigations on the issue could be closed had not the scrutiny of record exposed some serious deficiencies/maladministration-­Inspecting Additional Commissioner on inspection of record noted that the Assessing Officer who completed the assessment had no jurisdiction over the assessee he therefore, presumed that the order was erroneous' but made no effort to see how the same was "prejudicial to the interest of Revenue" as well-- -Simultaneous existence of the two elements was a sine qua non to vest jurisdiction in the Inspecting Additional Commissioner for resort to S.66-A of the Income Tax Ordinance, 1979-­Inspecting Additional Commissioner's lack of knowledge of law was betrayed by his failing to recall the provisions of S.5(5) of the Income Tax Ordinance, 1979---As soon as an assessee files return in a jurisdiction he is debarred from challenging the same---Filing of return had vested jurisdiction in the Assessing Officer who made the assessment under S.59(1) of the Income Tax Ordinance, 1979---Noerroneousness' existed as such in the assumption of jurisdiction and the framing of assessment---Show-cause notice contained absolutely no mention, of instance of prejudice to the Revenue---Record further revealed that on receipt of show-cause notice, the complainant approached the Commissioner of Income Tax for help but he conveniently ignored taxpayer's appeal for help till summons from the Federal Tax Ombudsman Secretariat was served---Such was not an isolated instance of indifference by the tax officials towards the predicament of taxpayers who were then compelled to knock at the doors in search for a fair dispensation.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss. 65 & 66-.A---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9---Initiation of proceedings under Ss.65 & 66-A of the Income Tax Ordinance, 1979---Federal Tax Ombudsman remarked that it had been noted time and again that whenever an assessee approaches the Department for issuance of refund, the Inspecting Additional Commissioner mostly issue show-cause for action under S.66-A alleging erroneousness and prejudice to the Revenue, or cause the Assessing Officer to initiate proceedings under S.65 of the Income Tax Ordinance, 1979 for additional assessment---Such-like actions were obviously intended to forestall the claim for refund---Revising of assessment under S.66-A of the Income Tax Ordinance, 1979, if based on genuine and valid grounds, had a serious and hitherto unattended dimension inasmuch as it exposes the inefficiency or .indifference of the Assessing Officer who routinely. passes so many "erroneous" orders which are "prejudicial to the interest of Revenue" thus knowingly or otherwise cause loss to the Government it was to be ascertained whether Inspecting Additional Commissioners of Income Tax or the Regional Commissioners of Income Tax have ever taken notice working of the officers, or simply issue notice to the taxpayers for retrieving the suspected/presumed loss---Inspecting Additional Commissioner's efficiency for invoking S:66-A of the Income Tax Ordinance, 1979 was to be evaluated by his superiors and it could be safely presumed that no such cognizance had been taken .systematically and the practice of `preventive steps' blocking the issue of refunds had gained widespread currency---Similar was the position with respect to action for reopening of assessment, under S.65 of the Income Tax Ordinance, 1979, a well focused study of the, percentage of success of such proceedings was necessary to establish the bona fides of action under S,65 or 5.66-A of the Income Tax Ordinance, 1979---Federal Tax Ombudsman recommended that report stating the number ox cases initiated under S.65 and S.66-A of the Income Tax Ordinance, 1979 showing their success or failure at the enquiry stage or appellate stage during the past two year and monthly inspection reports of Inspecting Additional Commissioners, of each Zone for the period January, 2001 to May, 2002 be submitted and progress reported.

Nemo for the Complainant.

Ghulam Rasool Malik, DCIT for Respondent.

2002 P T D 2740

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

HABIBULLAH MULLAH

Versus

SECRETARY, REVENUE DIVISION

Complaint No. 210 of 2002, decided on 30th April, 2002

(a) Income-tax---

----Improper service of assessment order/demand notice---Effect---In the absence of proper service of the assessment order/demand notice the assessee could not agitate the legality of the assessment order before the Appellate Authority.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss. 65, 63 & 13(1)(aa)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9---Non-service of notice and non-maintenance of-record properly---Various. notices assessed had either not been properly served or had been served on persons totally unconcerned and unauthorized---Additions under S.13(1)(aa) of the Income Tax Ordinance, 1979 admittedly had not been made with the prior approval of Inspecting Additional Commissioner and the addition made by the Assessing Officer was, therefore; untenable and illegal--­Assessing Officer having jurisdiction of the case of the assessee had admitted in clear words that assessment order under Ss.65/63 of the Income Tax Ordinance, 1979, demand notice and IT-30 were not served on the complainant/assessee and for this reason regretted the omission and inconvenience caused to the complainant inevitable conclusion was that the records had not been maintained properly, there was ample evidence of maladministration in the proceedings conducted right from the issuance of notice under S.65 of the Income Tax Ordinance, 1979 till the finalization of the assessment under Ss.65/63 of the Income Tax Ordinance, 1979---Federal Tax Ombudsman recommended that the Commissioner of Income Tax who had powers vested in him under S.138 of the Income Tax Ordinance, 1979 should cancel the assessment order for the year 1998-99 which suffered from patent illegality and mal­administration fresh assessment for the year should be finalized in accordance with law and fact after providing the complainant adequate opportunity to explain his case.

Habibullah Mullah, the Complainant.

Farooq Memon, DCIT, Hyderabad Zone.

2002 P T D 2768

[Federal Tax Ombudsman]

Before Justice (Recd.) Saleem Akhtar, Federal Tax Ombudsman

ALLAH DITTA ZAHID

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No.755-K of 2001, decided on 26th January, 2002.

Income Tax Ordinance (XXXI of 1979)--

----S. 12(3)(6), 17 & 50(2)---Public Debt (Central Government) Act (XVIII of 1994), S.2---Regular Income Certificate Rules, 1993, R.9-­C.B.R. Letter No: SMO 1(8) WHT/94, dated 27-2-1995---C.B.R. Letter C.No.1 (8)/WHT/94, dated 27-2-1995---C.B.R. Letter. C. No.4(7)/ Insp/2000, dated 12-2-2000---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9---Income deemed to accrue or arise in Pakistan---Interest on securities---Deduction of withholding tax on profits of various Schemes of National Savings Centre from account holders of Tribal Areas . of Pakistan--­Validity---Term "income deemed to accrue or arise in Pakistan" had been defined in S.12 of the Income Tax Ordinance, 1979 and according to that definition any income accruing or arising, whether directly or indirectly; through or from (a) any business connection in Pakistan, (b) any assets, property or source of income in Pakistan, shall be deemed to accrue in Pakistan---Section 12(3) of the Income Tax Ordinance, 1979, further provides that any income by way of interest except those specified therein payable by "a person. who was a resident, shall be deemed to accrue or arise in Pakistan---Question was whether Government having paid the interest, could be treated as a person resident in Pakistan---Such aspect had been taken care of by, S.12(6) of the Income Tax Ordinance, 1979 which expressly states that this term includes Government--Cumulative effect of such provisions was that the interest paid by the Government on certificates issued by or under the National Savings Scheme shall be deemed to accrue or arise to a resident in Pakistan whether interest was paid in the Tribal Area or outside Pakistan---Same treatment will be given to a non-resident as he was a recipient of income accruing or arising from an asset or source of income in Pakistan---Fact that the Income Tax Ordinance, 1979 was not applicable to Tribal Areas did not affect the chargeability as by fiction of law such income was deemed to accrue in Pakistan which would mean an area where Income Tax Ordinance, 1979 was applicable---Total income of every person, including payment of interest by the Government on the Saving Certificates or on Schemes issued by the National Saving Centre was chargeable to income-tax---Profit earned on Regular Income Certificate was subject to Withholding Tax at the rate of 10 % at source under R.9 of the Regular Income Certificate Rules, 1993---Where on Saving Certificate or similar securities, interest was paid by the Government to a person residing in Tribal Area as such income shall be deemed to accrue to him in Pakistan--­Once it was established that income arising from such payment of interest was deemed to accrue or received in Pakistan, tax will be chargeable because the basis of chargeability of tax in such cases was the place of accrual of income and not the residence of the assessee---Compliant had no merit and was closed by the Federal Tax Ombudsman.

Pervaiz Akhtar, Secretary (WHT), Central Board of Revenue.

2002 P T D 2776

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

Messrs CHENAB FIBRES LTD., FAISALABAD

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 1748 of 2001, decided on 11th February, 2002.

Income Tax Ordinance (XXXI of 1979) ---

----Ss. 96,50,156 & 102---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9---Refund---Claim, that nil tax demand was shown after giving credit of tax payable out of total tax payments and credit of remaining amount was not given deliberately to avoid creation of refund whereas neither the evidence of tax payment or tax deduction was furnished by the complainant with the return nor was furnished during the hearing---Validity---Was not possible to recommend immediate issuance of refund since there was no evidence of any tax deduction or payment available on record nor had such evidence been provided by the complainant---No verification appeared to be available from the department record also---Matter of evolving a system through which it was ensured that all tax- payments, whether through deduction or otherwise, were duly reflected in the taxpayer's records had been taken up separately with the Revenue Division, but in the present case Federal Tax Ombudsman recommended that the Assessing Officer should verify the payments claimed by the complainant from ail relevant sources, including the deducting entities and also with the help of any evidence available with the complainant, refund, if any, should be, paid immediately after verification the explanation of She officer who passed the order for the year 1999-2000, dated 30-6-2000 and gave credit of Rs.2,837,604 apparently without verification be called and furnished with the comments of the Revenue Division and the Assessing Officer should explain as to why the credit for Rs.5,086,230 was not given if the payment was considered as verified or why credit of Rs.2,837,604 was allowed if the payment was not considered as verified.

Hamid Masood, F.C.A. for the Complainant.

Muhammad Shahid Zaheer, Inspecting Additional Commissioner, Special Zone, Lahore for Respondent.

2002 P T D 2793

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

Messrs INDUS JUTE MILLS LIMITED, KARACHI

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No.C-100-K of 2002, decided on 27th March, 2002.

(a) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

----S.9---Jurisdiction---Withdrawal of Constitutional petition--­Acceptance of complaint---Complainant withdrew the Constitutional petition and a certified copy of the order of the High Court had been furnished---Objection -of the respondents stood removed and the complaint was disposed of on merits by the Federal Tax Ombudsman.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss. 96 & 102---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9---Refund---Retention of balance amount of refund for partial verification and adjustment against sales tax liabilities ---Assessee. had paid such amount of sales tax---No application for adjustment of such refund ---Assessee contended that in the absenct, of any application from the company/assessee for adjustment of refund against sales tax liability and any order passed by the Assessing Officer under 5.103 of the Income Tax Ordinance, 1979, the balance amount of refund should have been paid by the Department---Federal Tax Ombudsman recommended that the refund for the balance amount be issued to the complainant, within 30 days of the receipts of the order of the Ombudsman and the claim of compensation be worked out strictly in accordance with the provisions of S.102 of the Income Tax Ordinance, 1979 and paid along-with the refund.

Rana M. Shamim and Mrs. Munawwar Sultana for the Complainant.

Rana Jawaid Iqbal, I.A.C. Range-11, Cos. Zone-II and Dr. Malik Muhammad, DCIT, Circle 7, Cos. Zone-II for Respondents.

2002 P T D 2804

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

Messrs KHAIR-UL-SANAT COTTON GINNERS, PRIVATE LIMITED

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 234 of 2002, decided on 1st July, 2002.

Income Tax Ordinance (XXXI of 1979)---

----Ss.96 & 102---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.2(3) & 22---Refund---Additional Payment for delayed refund---Complaint was made for non-payment of refund for four. years which amounted to maladministration and compensation @ 15% was also claimed for delay of refund ---Validity--­Representative of the Department appeared without the assessment record but; at the same time, readily conceded that refund was due to the complainant; when asked to get confirmation from the concerned Assessing Officer whether the claim of refund had been settled after making necessary verification as per specific instructions of the Regional Commissioner of Income-tax to resolve the issue by 2-5-2002, the Representative of the Department admitted that the matter had not so far been settled---Such glaring indifference to the instructions of superiors coupled With obvious attempt to unnecessarily drag the matter very much amounts to maladministration ---Federal Tax Ombudsman recommended that necessary verification be made and the refund due to the complainant be issued within 15 days of the receipt of the order that compensation be awarded as per provisions of S.102 of the Income Tax Ordinance and the officer (person not the office) be reprimanded for sleeping over the direction by the Regional Commissioner of Income-tax and the `counseling" recorded in the ACR.

None appeared for the Complainant.

Habib Ahmad, D-CIT for Respondent.

2002 P T D 2806

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

RIAZ GUL

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint ho. 375/L of 2002, decided on 31st July, 2002.

Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑Second Sched., Part I, Cl. (78E)‑‑‑S.R.O 278(I)/2002, dated 20‑5‑2002‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Amount of special saving certificates purchased from conversion of foreign currency account were reinvested in the same certificates on the maturity and exemption was claimed on income made on such certificates under Cl. (78E) of Part I of the Second Sched. of the Income Tax Ordinance, 1979‑‑‑Exemption was denied by the Department on account of amendment made in Cl. (78E) of Part I of the Second Sched. of the Income Tax Ordinance, 1979 vide S.R.O. 278(I)/2002, dated 20‑5‑2002‑‑‑Validity Word "created" governs the entire Cl. (78E) of the Part I of Second Sched. of the Income Tax Ordinance, 1979 and "created" means to produce something‑‑‑Under Cl. (78E), Part I of the Second Sched. of the Income Tax Ordinance, 1979 the certificate should be created or produced by the conversion of the foreign currency accounts‑‑‑Word "created" thus limits the extent of protection‑‑‑Certificates were purchased from the funds realized on the maturity of the certificates‑‑‑Technically speaking the funds reinvested in certificates were not created out of the amount realized by conversion of a foreign currency account‑‑‑No doubt the reinvested certificates were purchased from the amount of conversion of foreign currency account but certificate obtained by reinvestment could not be said to have been created by conversion of foreign currency account‑‑‑Complainant was not entitled to the benefit of exemption‑‑‑Complaint was accordingly Closed by the Federal Tax Ombudsman.

Chamber 21st Century Dictionary Revised Edition and Excellent Legal words and Phrases ref.

2002 P T D 2809

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

NEW SAKHAWAT JEWELLERS

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No.233‑L of 2002, decided on 9th July, 2002.

Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.65 & 59(1)‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9(2)‑‑‑Additional Assessment‑‑Change of opinion‑‑Jeweller‑ Purchase and sale‑‑‑Labour charges‑‑‑Assessment completed under S.59(1) Income Tax Ordinance, 1979 was reopened on the ground that nature of business shown on the face of the return was labour charges' but no receipts from such source were declared and the entire declared income was shown to be frompurchase and sale of jewellery‑‑‑Assessee contended that nature of business was inadvertently written as labour charges'‑‑‑Return was filed declaring income as per computation chart which‑ certainly was examined and seen by the Assessing Officer and this was a mistake or irregularity but could not be said concealment of income in terms of S.65(2) of the Income Tax Ordinance, 1979‑‑‑No, new fact was available on record except the material which already was available before the Assessing Officer andthus proposed action amounted to change of opinion which was prohibited in law‑‑‑Validity‑‑‑Proceedings under S.65 of the Income Tax Ordinance, 1979 were mala fide because no labour charge's received by the complainant were unearthed by the Assessing Officer on the basis of which it could be said that the complainant had not declared correct income‑‑‑No income had escaped assessment which could be treated as a basis for invoking the provisions of S.65 of the Income Tax Ordinance, 1979‑‑‑Proceedings initiated under section 65 of the Income Tax Ordinance, 1979 were obviously illegal, amounting to "maladministration" thus vesting Federal Tax Ombudsman to investigate the matter‑‑‑Federal Tax Ombudsman recommended that the Commissioner of Income‑tax should cancel the assessment framed under section 63/65 of the Income Tax Ordinance, 1979 by taking suo motu resort to S.138 of the Income Tax Ordinance, 1979 and to restore the order passed under S.59(1) of the Income Tax Ordinance, 1979.

Khawaja Riaz Hussain and Mr. Moeen‑ud‑Din for the Complainant.

Haroon Waqar Malik, A‑CIT for Respondent.

2002 P T D 2813

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax‑Ombudsman

Haji ABDUL KAREEM

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No.516 of 2002, decided on 31st July, 2002.

Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑First Sched., Part I, Para A & S.59(1)‑‑‑CBR‑ Circular No.7(55)S. Asst/99, dated 27‑9‑1999‑‑‑Universal Self‑Assessment Scheme for the assessment, year 1999‑2000‑‑‑Return was filed under Universal Self‑Assessment Scheme‑‑‑Out of total tax payable on declared income, a rebate of 50% was claimed and balance tax was paid‑‑­Assessing Officer took the return of USAS and passed regular order accepting the declared income while claim of rebate as senior citizen was rejected‑‑Validity‑ Assessing Officer had admitted in the assessment order that the case was being processed under the normal law and not under Universal Self‑Assessment Scheme therefore quoting the circular relating to Universal Self‑Assessment Scheme in the case which was treated under the normal law was not correct legally‑‑Further para. AA, Part I of the First Schedule to the Income Tax Ordinance, 1979 was inserted through Finance Act, 1999 for the purpose of Self‑Assessment Scheme‑‑‑Notice under S.61 of the Income Tax Ordinance, 1979 was issued and case admittedly was processed under normal law ‑‑‑CBR Circular No.7(55)S.Asst/99, dated 27‑9‑1999 would have been applicable if the case had been finalized under the Self‑Assessment Scheme‑‑‑Declared income was accepted while processing the case under normal law therefore, the thx was payable under para. A of Part I of the First Schedule to the Income Tax Ordinance, 1979 which includes the provision of 50% tax rebate for persons aged 65 years or above‑‑­Federal Tax Ombudsman recommended that rectification be made by the Assessing. Officer to recalculate the tax on the complainant's assessed income in accordance with the provision of para A of Part I of the First Schedule to the Income Tax Ordinance, 1979.

Muhammad Saeed Rana for the Complainant. Manzoor Ahmad; DCIT for Respondent. Muhammad Saeed Rana for the Complainant.

Manzoor Ahmad, DCIT for Respondent.

2002 P T D 2816

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

SECRETARY, FEDERAL BOARD OF INTERMEDIATE & SECONDARY EDUCATION, ISLAMABAD

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No.217 OF 2002, decided on 24th June, 2002.

Income Tax Ordinance (XXXI of 1979)‑‑

Second Sched., Part. I, Cls. (185A), (86), (9b) & S.50(2A)‑‑­Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9(2)(b)‑-‑Federal Board of the Intermediate and Secondary Education Act (LXVIII of 1975), Ss.3, 5, 9, 11, 12 & 15‑‑‑Service Tribunals Act, (LXX of 1973), S.2A‑‑‑General Clause Act (X of 1987), S.3(31)‑‑‑Exemption‑‑‑Assessee, Federal Board of Intermediate & Secondary Education, Islamabad, was granted exemption from withholding tax under S.50(2A) of the Income Tax Ordinance, 1979 and was also exempted from capital value tax in‑respect‑of its vehicles‑‑­Subsequently, exemption was withdrawn on the ground that assessee, Federal Board of Intermediate & Secondary Education, Islamabad, was neither Government nor local authority and was asked to prove its legal status regarding exemption from Income Tax Ordinance, 1979 and exemption under S.85(a), 86 and 90 of the Second Schedule of the Income Tax Ordinance, 1979 was refused‑‑‑Validity‑‑‑Perusal of Ss.3 & 5 of the Board of Intermediate and Secondary Education Act, 1975 made it clear that the Federal Government had established the Board and its members were also employees and representatives of Federal Government‑‑‑Under S.15 of the Federal Board of Intermediate & Secondary Education Act, 1975, the Accountant General of Pakistan audits the accounts of the Federal Board of Intermediate and Secondary Education, Islamabad‑‑‑Federal Government controls the Federal Board of Intermediate & Secondary Education, Islamabad like any other Government department‑‑‑Even in case of dissolution of the Board all its assets were to be transferred to the Federal Government‑‑‑Federal Board of Intermediate & Secondary Education, Islamabad consists of and is managed by Federal Government employees which were nominated by the Government‑‑‑Federal Board of Intermediate & Secondary Education, Islamabad performs functions on behalf of the Federal Government‑‑­Schools and colleges of Federal Government and affiliated educational institutions were involved in teaching process whereas the Federal Board of Intermediate & Secondary Education, Islamabad conducts examination for them for maintaining uniformity and standard of education; thus a very important duty of the. educational institution was performed by Federal Board of Intermediate & Secondary Education, Islamabad‑‑­Department by granting exemption continuously for a very long period has established a practice which could not be changed without any cogent and clear reasons‑‑‑By mere change of opinion, the long established practice which otherwise did not offend any provision of law, could not be reversed and the maladministration was clearly established‑‑‑Federal Tax Ombudsman recommended that the competent authority should‑order to cancel the recovery proceedings initiated against the complainant and to grant exemption from withholding tax and capital value tax.

Muhammad Ashraf, Deputy Secretary Finance (FBISE) for Respondent.

Ms. Fareena Mahzar, Additional Commissioner, Islamabad for Respondent.

2002 P T D 2821

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

SOFIA NAVEED

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 392 of 2002, decided on 13th July, 2002.

(a) Income Tax Ordinance (XXXI of 1979)‑--

‑‑‑‑S.59‑‑‑Establishment of Office of, Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9(2)(b)‑‑‑Jurisdiction‑‑‑Self‑Assessment Scheme‑‑­Exclusion of case from, Self‑Assessment Scheme‑‑‑Determination of validity of such exclusion‑‑‑Matter squarely fell within the competence of the Federal Tax Ombudsman to determine whether a case had been rightly excluded from the Self‑Assessment Scheme.

(b) Income‑tax‑‑‑

‑‑‑‑Principle place of business ‑‑‑Assessee cannot have one principal place of business for one type of tax and another principal place for a different tax.

(c) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.59‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Self assessment ‑‑‑CBR Circular No.21 of 2000, dated 11‑9‑2000, para. 6 (Self‑Assessment Scheme 2000‑2001)‑‑­Balloting of returns qualifying for Self‑Assessment Scheme‑‑‑Returns filed under Self‑Assessment Scheme were to be selected for audit through computer balloting which meant that only those returns were to be included in the computer ballot which qualified under Self‑Assessment Scheme.

(d) Income Tax Ordinance (XXXXI of 1979)‑‑‑

‑‑‑‑S.59‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Self assessment ‑‑‑CBR Circular No.21 of 2000, dated 11‑9‑2000, para. 6 (Self‑Assessment Scheme 2000‑2001‑‑­Acceptance of return under Self‑Assessment‑‑‑Limitation‑‑‑Provision of S.59(4) of the Income Tax Ordinance, 1979 had .though been omitted for the assessment year 2000‑2001 but it would not be reasonable to assume that the question of acceptance of a return under the Self‑Assessment Scheme could be kept open indefinitely particularly when subsection (4) was reinserted through Finance Ordinance, 2001.

(e) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.50‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Self‑Assessment‑‑‑CBR Circular No.21 of 2000, dated 11‑9‑2000 (Self‑Assessment Scheme 2000‑2001)‑‑‑Prorating of expenses‑‑‑Adjustment of‑‑‑Within the frame work of Self‑Assessment Scheme there was room for making the relevant adjustment on account of prorating of expenses without excluding the return from Self‑Assessment Scheme.

1999 PTD (Trib.) 2884 ref.

(f) Income Tax Ordinance, (XXXI of 1979)‑‑‑

‑‑‑‑Ss.59(1)(3)(4), 11(20(b) & 143‑B‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.19 ‑‑‑ CBR Circular No. 12 of 1991, dated 30‑6‑1991‑‑‑Self‑Assessment‑‑‑CBR Circular No.21 of 2000, dated 11‑9‑2000, para. 4(h), 5(a) & 6 (Self-­Assessment Scheme 2000‑2001)‑‑‑ Return was filed under Self­Assessment Scheme alongwith statement under S.143B of the Income Tax Ordinance, 1979‑‑‑Initial Security of the return was made and fed the return to computer for balloting which was not selected for total audit‑‑‑Subsequently, a notice was issued for exclusion of the return from Self‑Assessment Scheme on the ground that expenses had not been correctly prorated and had the same been correctly done by the assessee the income would have been increased instead of declared income and provision of para. 4(j) of the Self‑Assessment Scheme relating to concealment of income were attracted‑‑‑Validity‑‑‑In computation chart expenses were duly prorated in respect of commission covered by S.80C of the Income Tax Ordinance, 1979 but no expenses were allocated to supplies which could not be considered as a misrepresentation of facts which could amount to concealment or would disqualify the return from the Self‑Assessment Scheme 2000‑2001 in the light of its para. 4(h) or otherwise as the prorating of expenses was largely a matter of opinion and estimate rather than a matter involving "legally inadmissible deduction" ‑‑‑Claim that at best the Assessing Officer could have made adjustments in the declared income under S.59(3) of the Income Tax Ordinance, 1979 was right‑‑‑Federal Tax Ombudsman recommended that the Assessing Officer to treat the complainant's return for assessment year 2000‑2001 as covered by the Self‑Assessment Scheme but may make necessary adjustment in accordance with S.59(3) of the Income Tax Ordinance, 1979 after considering the complainant's version in this regard.

1996 PTD (Trib.) 734 and 1999 PTD Trib.) 2884 ref.

Mian Masood Ishaque, Advocate and Nasir Khurshid, ITP for the Complainant.

Ahsan Raza, ACIT for Respondent.

2002 P T D 2904

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

Messrs SUFI RESTAURANT, MELODY MARKET MAIN CIVICS CENTRE, ISLAMABAD

Versus

SECRETARY, REVENUE DIVISION, CENTRAL BOARD OF REVENUE, ISLAMABAD

Complaint No. C‑711 of 2001, decided on 26th December, 2001.

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.65‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Additional assessment‑‑‑Pre‑show‑cause notice‑‑­Recommendation was made that Central Board of Revenue should initiate proper disciplinary proceedings against the Special Officer for initiating action under S.65 of the Income Tax Ordinance, 1979 without obtaining the previous approval of Inspecting Additional Commissioner‑‑­Assessing Officer explained that the show‑cause notice under S.65 of the Income Tax Ordinance, 1979 was a pre‑show‑cause notice for purpose of ascertaining the facts and to seek clarification after which proper show cause notice as required under S.65 of the Income Tax Ordinance, 1979 would have been served on the assessee and according to the First Appellate Authority such practice was in vogue since long and no‑one had objected to it‑‑‑Validity‑‑‑Section 65 of the Income Tax Ordinance, 1979 provides that no proceedings under the said provision shall be initiated unless "definite information" had come into possession of the Assessing Officer and he had obtained prior approval of the Inspecting Additional Commissioner in writing to do so‑‑‑Mandatory for Assessing Officer to have obtained "definite information", before initiating any proceedings against an assessee and obtain prior approval in writing of the Inspecting Additional Commissioner‑‑‑Without obtaining prior approval, no action under S.65 of the Income Tax Ordinance, 1979 could be taken‑‑‑Show‑cause notice which was stated to be a pre‑show‑cause notice for ascertaining the correctness of information obtained by Assessing Officer was completely illegal and unwarranted‑‑‑Department may call it a pre‑show‑cause notice but, in fact, it amounts to initiation of proceedings under S.65 of the Income Tax Ordinance, 1979‑‑‑Such action was illegal, void and without jurisdiction‑‑‑Without prior approval in writing of the Inspecting Additional ‑Commissioner, in the present case, following the illegal practice, notice was issued to the complainant‑‑‑Commissioner of Income Tax justified the explanation of the Assessing Officer on the basis of such practice‑‑‑Validity‑‑‑Any practice which was contrary to the provision of law could not be accepted nor can such practice validate any illegal act‑‑‑Federal Tax Ombudsman recommended that the Commissioner of Income Tax should issue warning to the Special Officer for issuing notice under S. 65 of the Income Tax Ordinance, 1979 without prior approval of the Inspecting Additional Commissioner in writing and Central Board of Revenue to issue directions to all officers of the Income Tax Department not to adopt the practice of issuing "pre‑show‑cause Notice" under S. 65 of the Income Tax Ordinance, 1979 and all such notices issued be withdrawn and cancelled.

(b) Practice and procedure‑‑‑

‑‑‑‑ Any practice which was contrary to the provision of law could not be accepted nor can such practice validate any illegal act.

2002 P T D 2935

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

SUO MOTU COMPLAINT IN MATTER OF DETENTION OF SKIMMED MILK POWDER AT KARACHI BALAGAMWALA OIL MILLS (PVT.) LTD.

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 809 of 2002, decided on 31st July, 2002.

Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)‑‑‑

‑‑‑‑S. 9‑‑‑Import of substantial quantity of adulterated and , sub­standard skimmed milk powder‑‑‑Samples for testing and result was awaited‑‑‑Complaint against‑‑‑Federal Tax Ombudsman recommended that the Customs Authorities to expedite the matter with the Ministry of Food and Agriculture and finalize the case within 15 days.

Muhammad Latif and Tariq Khuda, Additional Collector for Respondent.

2002 P T D 2938

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

Messrs BRISTAL FLOUR MILLS (PVT.) LIMITED, FAISALABAD

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No.552 of 2002, decided on 18th July, 2002.

Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S. 62‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXV of 2000), S.9‑‑‑Assessment‑‑‑Complainant/assessee leased out its flour mill‑‑‑Lease Agreement‑‑‑Authenticity of the lease agreement was rejected by the Assessing Officer on the ground that agreements for purchase of wheat with District Food Controller were executed by the complainant Company itself through its Managing Director in spite of explanation that under lease agreement, the lessee was permitted to use the name of the complainant/assessee for the purpose of obtaining wheat quota etc. and assessment proceedings had also been completed under section 62 in the hands of lessee in which the same basis for determination of income (viz. production per electricity units consumed) was being adopted as in the case of the complainant‑‑­Validity‑‑‑Genuineness of a lease arrangement was a question of fact which had to be verified with reference to the situation on the ground‑‑­Assessment order for the two years showed no mention anywhere that the Assessing Officer had made any inquiries to ascertain whether the lease arrangement was genuine and whether the business was in fact being carried on by the complainant Company or by the lessee‑‑­Assessing Officer had, on the other hand, based the assessments entirely on the inference drawn from the fact that the wheat purchase agreements had been signed by the complainant Company although the complainant had pointed out that such an arrangement was quite in accordance with the terms of the lease agreements‑‑‑Assessments based on a mere inference could not be considered as valid‑‑‑Federal Tax Ombudsman recommended. that the income tax assessment for the years 1999‑2000 and 2000‑2001 be set aside by the Commissioner under S. 138 of the Income Tax Ordinance, 1979 with the directions that fresh assessments be made after making proper inquiries in the case, particularly with regard to the leasing arrangement and after confronting the complainant with the result of the inquiries.

Muhammad Bashir Malik. A.R. for the Complainant.

Rajabuddin, I.A.C. Range‑I, Companies Zone for Respondent.

2002 P T D 2945

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

Messrs UCH POWER LTD., ISLAMABAD

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 262 of 2002, decided on 6th May, 2002.

Customs Act (IV of 1969)‑‑‑‑

‑‑‑‑S.18B‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)‑‑‑Levy of service charge ‑‑‑Pre­-shipment inspection fee‑‑‑Non‑refund of ‑‑‑Mal‑administration‑‑Complainant claimed refund of payment made as pre‑shipment inspection charges alongwith mark‑up at the rate of 15% ‑‑‑Department contended that refund claims were lodged in the Air Freight Section of the Preventive Directorate, Karachi although the subject consignments were imported through Sea Port and no claims were filed in the Appraisement Collectorate and in absence of any particular material, it was not possible to locate the subject claims‑‑‑Validity‑‑Department apparently had not been able to locate die claims filed by the claimant‑‑‑Complainant had submitted copy of letter referring to its earlier letter requesting for refund of Pre‑shipment Inspection Service Charges‑‑‑Records of Customs Department were completely silent over the subject‑‑‑Even if the letter had been addressed to wrong section of the Customs Department, it was the duty of that section to forward same to the proper section or return to the complainant with advice to follow the proper course‑‑‑Nothing was done which shows complete negligence in performance of duty and discharge of responsibilities which amounts to maladministration‑‑­Simple courtesy of acknowledging receipt of the claim was not even shown‑‑‑All these acts of omission and commission amount to maladministration‑ ‑‑Claim for 15% mark‑up could be made either under the agreement or as provided by law‑‑‑Neither there was any agreement nor any provision in the Customs Act, 1969 for payment of mark‑up in such a situation‑‑‑Federal Tax Ombudsman recommended that the complaint copy of which had been supplied to the Collector of Custom be treated as application for refund, that the concerned authority after hearing the complainant and examining such further documents as might be produced or required to be produced, pas, a speaking order within thirty days and that Central Board of Revenue to issue instruction to all its department that where any claim or application is delivered or received in a wrong section the same be forwarded to the section dealing with such cases under intimation to the complainant/applicant.

Nemo for the Complainant.

Imran Ahmed, Assistant Collector, Customs (Appraisement) for Respondent.

2002 P T D 2954

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

MUHAMMAD YOUNAS and another

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No.514 of 2002, decided on 9th July, 2002.

Income Tax Ordinance (XXXI of 1979)‑‑‑‑

‑‑‑‑Ss. 12(1) & 50‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑C.B.R. Circular No.1(41)IT‑J/94, dated 28‑11‑1994‑‑‑Income deemed to accrue and arise in Pakistan‑‑‑Salary income‑‑Deduction of Tax from salaries of employees of National Fertilizer Marketing Ltd, working in Gilgit as their pay and allowances were prepared and issued from Head Office at Lahore‑‑‑Complainant contended that there was no legal or moral sanctity for imposition of any tax in the Northern Area territory as all private institutions working in such areas have been exempted from paying income tax on their salaries ‑‑‑Validity‑­Contentions of the Department were based on the assertion that salaries paid by National Fertilizer Marketing Ltd., a State enterprise, were covered by the provisions of S.12(1) of the Income Tax Ordinance, 1979 and thug even if the Income Tax Ordinance, 1979 was not applicable to the Northern Areas, salaries paid by the State enterprise would be taxable in view of the S.12(1) of the Income Tax Ordinance, 1979‑‑‑In the absence of the complaints the employer's view that payment of salaries by National Fertilizer Marketing Ltd, amounts to payment by the Government had remained uncontroverted‑‑‑No adequate reason had been found for intervention‑‑‑Complaint was dismissed by the Federal Tax Ombudsman.

Nemo for the Complainants.

Malik Ghulam Rasool, DCIT, Circle 15, Zone `B', Lahore for Respondent.

2002 P T D 2973

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

MUHAMMAD ISHAQ

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 671 of 2001, decided on 19th March, 2002.

Central Excises Act (I of 1944)---

----S.3---Central Excise Rules, 1944, R.10---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9--­S.R.O.455(I)/96, dated 13-6-1996---C.B.R. Letter C. No.1(3)CEB/99 dated 7-1-2002---Remission in excise duty to manufacturer-cum-supplier of tin (metal) containers to ghee mills---Allowance---Subsequently, it was inferred that the remission in excise duty was being wrongly allowed on metal containers used by ghee mills as the melting point of vegetable ghee was much higher than 10°C and Law Division also clarified that the duty was short-levied---Validity---According to Law Division a wrong interpretation was placed on S.R.O.455(I)/96, dated 13-6-1996 whereby excise duty was wrongly considered as short levied and was sought to be recovered on tin containers supplied to vegetable ghee mills---Was also evident that the Law Division considered the amendment brought about on 18-6-2001 to be only by way of abundant precaution reiterating an already existing position---Since the opinion of the Law Division had been accepted by the Central Board of Revenue and circulated to its offices there appears to be no longer any basis for recovery action against the complainant---Collector Adjudication would of course, decide the matter accordingly and there was no need, therefore, to go into the question whether the responsibility of paying the short levied duty was 'with the complainant or with the ghee mills--­Complaint was disposed of accordingly by the Federal Tax Ombudsman.

Muhammad Anwar Bhatti, A.R. for Petitioner.

Muhammad Ashraf Khan, Collector Customs and Central Excise for Respondent.

2002 P T D 2980

[Federal Tax Ombudsman]

Before Justice (Retd.) Sadeem Akhtar, Federal Tax Ombudsman

Dr. Sayed JAVAID HUSSAIN SHAH---Complainant

Versus

SECETARY, REVENUE DIVISION; ISLAMABAD---Respondent

Complaint No.1615-P of 2001, decided on 18th February, 2002.

Customs act (IV of 1969)---

----S. 224---Auction Rules, 1996 (S.R.O. 663(2)/96, dated 7-8-1996), Rr.21 & 22---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9---Extension of time limit---Forfeiture of earnest money---Balance payment was made after due date by pay order after adjustment of an amount being refundable, paid in an earlier bid--­Non-acceptance of---Validity---Customs Authorities were justified in forfeiting the earnest money when successful bidder failed to deposit the balance three-fourth amount by due date---Rules 21 & 22 of the Auction Rules, 1996 were very clear in this regard having no room for any relaxation or waiver or refund of any amount, once the earnest money was deposited in the case of successful bidder and balance amount was not paid by the due date---Complainant was not entitled to any refund of the earnest money---Federal Tax Ombudsman recommended that the Chairman Central Board of Revenue should order an inquiry into the circumstances leading to the sale of inferior quality 725 Kgs. of Black. Tea which were found to be unfit for human consumption by the PCSIR test report, when the complainant returned the tea to the Customs Authorities, the same tea was disposed of in small quantities to other persons without caging for the health of the innocent citizens and if the inquiry revealed that the contentions of the complainant were correct in this regard, suitable action should be taken against the officers responsible for playing with the health and life of the citizens.

Messrs Pfizer Laboratories Ltd. v. Federation of Pakistan PLD 1998 SC 64 ref.

Dr. Sayed Javaid Husain Shah for the Complainant.

Dr. Sadiqullah Khan, D.C. Customs for Respondent.

2002 P T D 2984

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

Messrs MODERN BABY CYCLE STORE

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 140-L of 2002, decided on 16th May, 2002.

(a) Income Tax Ordinance (XXXI of 1979)---

----S. 65--Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.9 2(b) & 2(3)---Jurisdiction--­Maladministration---Complaint against issuance of notice under S. 65 of the Income Tax Ordinance, 1979---Department pleaded that legal remedies within the framework of the Income Tax Ordinance, 1979 were available for the complainant to pursue and, therefore, the complainant fell out of the jurisdiction as per provisions of S.9(2)(b), Establishment of Office of Federal Tax Ombudsman Ordinance, 2000---Validity--­Where maladministration had been alleged independent of the controversy in the matter, the fact that remedy under the: statute had been provided, will not be a bar to exercise of jurisdiction of the Federal Tax Ombudsman to investigate into the. allegations of maladministration--­Federal Tax Ombudsman could investigate into allegations of maladministration without enquiring into the merits of the case---Even in cases which were sub judice, the allegations of maladministration, if independent of the issues raised in the pending case before any authority, the Federal Tax Ombudsman could investigate into allegations of maladministration ---Department stated that according to a decision of the President on a representation it had been observed that the jurisdiction of Ombudsman was confined to the cases of maladministration and not to decide appeal on merits---Establishment of Office of Federal Tax Ombudsman Ordinance, 2000 no doubt had defined the term "Maladministration" and the jurisdiction of the Federal Tax Ombudsman was to investigate and made recommendation as provided under the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000, but where maladministration was alleged and established, the Federal Tax Ombudsman shall be within his jurisdiction to give his recommendation and finding which may even affect the merits of the case and the proceedings will be completely different in nature and could not be treated as appeal---Observation on the representation thus did not debar the Federal Tax Ombudsman from looking into the issues of maladministration, which were ingrained and reflected in the proceedings ---Maladministration was usually committed in the proceedings and once the same was established, recommendations were made to remove or rectify it without which the proceedings will be incomplete---Federal Tax Ombudsman was authorized not only to investigate but to give relief and redress to the taxpayers and rectify an injustice done to a person. through maladministration by functionaries administering tax laws---Such recommendations were binding and in terms of S. 12(2) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000 it shall be the duty of the Revenue Division and the Tax Employee to implement the finding mad under Ss.11 & 12 of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000 and there was no merit in the objection.

(b) Income Tax Ordinance (XXXI of 1979)---

----S. 65---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S. 2(3)---Additional assessment ---Assessee pleaded that notice issued under S.65 of the Income Tax Ordinance, 1979 had not been "ticked" indicating the reasons which had been made the basis for re-opening of the assessment and consequently the proceedings were void ab initio---Validity---In the proceedings under S.65 of the Income Tax 'Ordinance, 1979, notice was issued in a prescribed form which contained the reasons for issuing the notice---Notice under S.65 could be issued on three grounds, and the purpose of mentioning these grounds was to inform the assessee on which ground the case was to be opened so that he may be in a position to explain and put up a proper defence by issuing a blank notice without indicating the grounds for re-opening the case, no proper defence could be put up---All the three conditions are independent from each other and on any one of the grounds notice could be issued---If the notice did not indicate an specific reason then it will be difficult for the assessee to meet the case­ Just and proper procedure would be that while issuing notice it should be indicated on which of the grounds the assessee had to submit his reply-: If all the three grounds were to be taken up for re-opening the case the same should also be indicated---Practice of issuing blank notice without any specific reasons was unjust and a bad practice leading to injustice and creating confusion which amounts to maladministration --- Failure to mention or indicate the reasons for initiating proceedings under S.65 of the Income Tax Ordinance, 1979 will not vitiate the notice as void ab initio provided all the preconditions for issuing notice have been satisfied---Federal Tax Ombudsman recommended that the Central Board of Revenue should issue circular directing all the officers of the Income Tax Department that while issuing notice under S. 65 of the Income Tax Ordinance, 1979 the reasons and the grounds on which it was sought to be issued should be clearly indicated in the prescribed notice form.

Ch. Muhammad Siddiq for the Complainant.

Zain-ul-Abideen for Respondent.

2002 P T D 3003

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal flax Ombudsman

Messrs ABSON DIFFUSION (PVT.) LTD, Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 212/L of 2002, decided on 30th March, 2002.

Income Tax Ordinance (XXXI of 1979)---

----S.65---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.11---Additional assessment- --Controversy was as to whether the proceedings under S. 65 of the Income Tax Ordinance, 1979 could be initiated in the assessee's case---Both the parties agreed that the case might be fixed for hearing before the Assessing Officer---Federal Tax Ombudsman directed that Assessing Officer to hear the case on 15-2-2002 and afford, full opportunity to the petitioner of being heard and pronounce the order by dealing with all the contentions raised in the reply to the notice dated 6-3-2002 and such other contentions which may be raised during hearing orally or in writing and order be a speaking order that order be passed within two weeks of the hearing and copy of the order be supplied to the Secretariat of Federal Tax Ombudsman and the petitioner within one week of the date of order.

1997 PTD 1143 and 2000 PTD 2193 ref.

Saadat Farooq Ahmed, Additional Commissioner of Income-tax for the Department.

Dr. Ilyas Zafar for the Complainant.

2002 P T D 3010

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

Messrs AL-MAKKAH COLD STORAGE

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 147 of 2002, decided on 30th April, 2002.

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss.59(1) & 104---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9---Self-assessment---Adjustment of previous years refund---Validity---Self-Assessment Schemes were framed by the Central Board of Revenue under S.59(1) of the Income Tax Ordinance, 1979 but the schemes have to operate within the general framework of the Income Tax Ordinance, 1979 and it was totally wrong to say that adjustment of refund against admitted tax liability could not be allowed because the Self-Assessment Scheme did not .contain such a specific provision as it was quite unnecessary to include such a provision in the Self-Assessment Scheme in the presence of the clear provisions of S. 104 of the Income Tax Ordinance, 1979.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss.104 & 59---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9---Adjustment of refund---Self­-assessment---Refund adjustment mentioned in the Scheme for one year and not in the Scheme for other years did not mean, that S.104 of the Income Tax Ordinance, 1979 had ceased to operate in the context of the Self-Assessment Schemes for those other years.

(c) Income Tax Ordinance (XXXI of 1979)---

----Ss. 59(1), 61, 62 & 104---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9---Self-assessment---C.B.R. Circular No.4 of 2001 dated 18-6-2001---Self-Assessment Scheme--­Adjustment of earlier years refund---Return was excluded from Self-­Assessment Scheme on the ground that tax had not been fully paid under S.54 of the Income Tax Ordinance, 1979 with the return and adjustment of earlier years refund was not permissible under the Self-Assessment Scheme---Validity---Assessing Officer was not justified in excluding the complainant's income-tax return for the year 2001-2002 from the Self-­Assessment Scheme---Federal Tax Ombudsman recommended that the complainant's return for the assessment year 2001-2002 be accepted under Self-Assessment Scheme.

Javed Iqbal for the Complainant.

Zafar Abbas, DCIT and Zulfiqar Ahmad, S.O. Circle II, Sahiwal for Respondent.

2002 P T D 3043

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

NATIONAL BEVERAGES (PVT.) LTD., KARACHI

versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. C‑823/K of 2001, decided on 10th April, 2002.

Central Excises Act (1 of 1944)‑‑

‑‑‑‑S.3‑D‑‑‑Central Excise Rules, 1944, R.11‑‑‑Production capacity (Aerated Water) Rules, 1990, R.7A(i)‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Collection of excess duty, etc.‑‑‑Refund of‑‑‑Claim for refund of excess charged excise duty paid under the Production Capacity Rules, 1990 in view of High Court judgment‑‑‑Department contended that refund claim was barred by limitation as it was filed after one year from the date of High Court judgment and refund was also not admissible under S.3‑D of the Central Excises Act, 1944 as the incidence to tax had been passed on to the consumers‑‑‑Validity‑‑‑Section 3‑D of Central Excises Act, 1944 contemplates that every person, who had collected or collects any duty under misapprehension of any provision of the Act or which was not payable as duty or which was in excess of duty actually payable, was bound to pay the amount so collected to the Federal Government provided the incidence of same had been passed on to the consumer‑‑­Any person collecting any duty incidence of which had been passed on to the consumer could not retain the duty so collected and he was duty bound‑to deposit the same in the Government Treasury‑‑‑Burden of proof of passing the incidence of such duty to the consumer shall be on the person collecting the duty‑‑‑Complainant was not the collecting agent nor the person who had collected any duty, in fact it had paid duty in excess to the Federal Government which was being claimed as refund‑‑‑If the department chose to press the objection that the incidence of duty had passed on the consumer, the burden of proof shall be on the department to establish the same‑‑‑Stand that similar matter in the cases of two other beverage companies was sub judice was no ground to reject the complaint or stay the proceedings for recovery of refunds already paid‑‑­Federal Tax Ombudsman recommended that Central Board of Revenue should direct the concerned Collector of Sale Tax & Central Excise to decide the refund claim within thirty days.

Muhammad Usman, Consultant.

G. M. Farooq, Secretary and Chief Accountant.

Imtiaz Ahmad Shaikh, Deputy Collector, Sales Tax and Central Excise (West), Karachi.

2002 P T D 3087

[Federal Tax Ombudsman]

Before Justice Retired Saleem Akhtar, Federal Tax Ombudsman

Messrs NADEEM TEXTILE MILLS LIMITED

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complainant No.C‑1781‑K of 2001, decided on 28th February, 2002.

Customs Act (IV of 1969)‑‑‑

‑‑‑‑S.205‑‑‑Establishment of 'Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Amendment of documents‑‑­Application for amendment in bill of entry to classified goods, spindles and Bolsters under H.S. Code 8448.3900 instead of H.S. 8438.3300 on the basis of ruling of Supreme Court and High Court as customs duty was‑10% instead of 20 % on such goods‑‑‑Department contended that judgments related to the classification of Bolsters only whereas in the present case the goods were complete sets consisting of Spindles, Bolsters and knee brakes and complete set of Spindles with Bolsters were appropriately classifiable under heading 8448:3300 leviable to duty at 20%‑‑‑Application was rejected without hearing‑‑‑ Validity‑‑‑ Department had not submitted any previous classification ruling on the subject and the complainant had built his case on the order of the Supreme Court‑‑­Department's contention that the importer had not yet exhausted higher legal forums available under law was not borne out by the fact that even at the original stage an , ex parte decision was taken without affording him proper hearing the two applications submitted by his agent remained unanswered, and the complainant was faced with a fait accompli, the ruling of the apex Court notwithstanding‑‑‑Complainant did not receive any document against which he could file an appeal or on basis whereof he could approach the unexhausted legal forums‑‑‑Federal Tax Ombudsman recommended that the Member (Customs), Central Board of Revenue to examine the case, provide opportunity of hearing to the importer, and decide the classification under intimation to the importer within one month; (ii) ensure payment of consequential refund of duty and taxes, if any.

Gulshan Spinning Mills Limited v. Government of Pakistan 1992 CLC 1579 ref.

Afzal Awan and Saeed Mustafa Mirza, Law Officer for the Complainant.

Ashhad Jawwad, Deputy Collector of Customs (Appraisement) for Respondent.

2002 P T D 2040

[243 I T R 540]

[Gauhati High Court (India)]

Before A. K. Patnaik, J

EVEREADY INDUSTRIES INDIA LTD.

Versus

JOINT COMMISSIONER OF INCOME‑TAX (ASSESSMENT) and others

Civil Rule No.6491 of 1998, decided on 16th March, 2000.

Income‑tax‑‑

‑‑‑‑Reassessment‑‑‑Law 9 applicable‑‑‑Effect of amendment w.e.f. 1‑4‑1989‑‑‑‑Condition precedent for reassessment‑‑‑Reason to believe that income had escaped assessment‑‑‑Prima facie conclusion based on specific information or material‑‑‑Notice under S.148 issued on basis of subsequent information that payments of Rs.27,25,000 made by assessee ­company to R and G may not be genuine‑‑‑No definite or specific material or information to show that payments made to R and G were fictitious and not genuine‑‑‑Initiation of reassessment proceedings without jurisdiction‑‑‑Indian Income Tax Act, 1961, Ss. 147 & 148.

Sections 147 and 148 of the Income Tax Act, 1961, have undergone substantial amendments by the Direct Tax Laws (Amendment) Act, 1987, and the Direct Tax Laws (Amendment) Act, 1989, with effect from April 1, 1989. A bare reading of section 147 as it now stands, shows that in all cases where the Assessing Officer intends to take action under section 147 of the Act, he must have reason to believe that any income chargeable to tax has escaped assessment for any assessment year. From the language of section 147, it is clear that the power of the Assessing Officer' under section 147 is to be exercised subject to the provisions of section 148 of the Act. Under subsection (1) of section 148, the Assessing Officer is required to serve on the assessee a notice before making assessment, reassessment or recomputation under section 147 of the Act, Subsection (2) of section 148, however, provides that before issuing any notice under subsection (1) of section 148, the Assessing Officer has to record his reasons for doing so. The reasons to be recorded by the Assessing Officer under subsection (2) of section 148 must relate to his belief under section 147 that any income chargeable to tax has escaped assessment for any assessment year. Thus the reasons for the belief of the Assessing Officer that any income chargeable to tax has escaped assessment for any assessment year must exist and must be recorded before any notice under section 148(1) is issued to the assessee and before making any assessment, reassessment or computation under section 147. It is clear from the two decisions of the Supreme Court in Chhugamal Rajpal v. S.P. Chaliha (1971) 79 ITR 603 and ITO v. Lakhmani Mewal Das (1976) 103 ITR 437 that for initiating action under section 147 and for issuing notice to the assessee under section 148(1) of the Act, the Assessing Officer must have in his possession specific information or material to show that the particular transactions of "the assessee were not genuine or were fictitious and the Assessing Officer must have arrived at a prima facie conclusion on the basis of such specific information or material that the particular transactions were not genuine or were fictitious.

A company, N, the assessee, owned two tea estates and carried oil business of growing green tea leaves in the two estates and of manufacturing black tea out of the green tea leaves grown by it. Under a scheme of arrangement, the aforesaid tea business of the company was transferred to another company which then stood merged with the petitioner with effect from April 1, 1996. For the assessment year 1991‑92, N, filed its return alongwith its profit and loss account, audit balance‑sheet and audit report. The assessment was completed under section 143(3) of the Act. On November 2, 1988, the petitioner received notice under section 148 of the Act on the ground that income had escaped assessment and the income had to be reassessed. The reason for the notice as disclosed in the additional affidavit‑in‑opposition was that the company, N, had made payments amounting to Rs.27,25,600 during the financial year 1990‑91 relevant to the assessment year 1991‑92 to two companies, R and G for rendering some services, but in a survey conducted by the Investigations Wing, it was revealed that another company had also made huge payments to R and G for rendering services like‑cow‑dung supply, labour quarters repairing, fencing, etc., and the said two companies claimed that they were getting services rendered through other parties. But a common director of three of these other parties had admitted on oath that no services were rendered from supply of cow dung, labour quarters repairing, fencing, etc., as claimed by G and R and that payments made to G and R were mere accommodation entries and the amounts paid through cheques were ultimately returned in cash after routing them through four or five bank accounts. On a writ petition filed to quash the impugned notices under section 148:

Held, that in the additional affidavit‑in‑opposition filed by the Assessing Officer there was no specific information indicated in the reasons disclosed that the particular‑transactions of Rs.13,96,000 between N and R and the particular transaction between N and G were fictitious and not genuine. The Assessing Officer, therefore, could not possibly entertain a belief that the income of the said company had escaped assessment warranting initiation of action under section 147 of the Act. Accordingly, the impugned notices under section 148 and .section 142 for the assessment year 1991‑92 were liable to be quashed.

Bhadarmal Hazarimal v. ITO (1975) 100 ITR 159 (Gauhati); Calcutta Discount Co. Ltd. v. ITO (1961) 41 ITR 191 (SC); Chhugamal Rajpal v. Chaliha (S.P.) (1971) 79 ITR 603 (SC); Coca‑Cola Export Corporation v. ITO (1998) 231 ITR 200 (SC); CIT v. Bihar Cotton Mills Ltd. (1986) 160 ITR 275 (Patna); Ganga Saran & Sons (P.) Ltd. v. ITO (1981) 130 ITR 1 (SC); ITO v. Lakhmani Mewal Das (1976) 103 ITR 437 (SC), ITO v. Madnani Engineering Works Ltd. (1979) 118 ITR 1 (SC); Kalyani Mavji & Co. v. CIT (1976) 102 ITR 287 (SC) and Narayanappa (S.) v. CIT (1967) 63 ITR 219 (SC) ref.

Dr. Debi Pal and Dr. A.K. Saraf, K.K. Gupta and S.K. Agarwal for Petitioner.

K.P. Sarma and D. Sur for Respondent

2002 P T D 841

[241 I T R 355]

[Gujarat High Court (India)]

Before R. Balia and A.R. Dave, JJ

SHREE NIKETAN

­versus

COMMISSIONER OF INCOME‑TAX

Income‑tax Reference No.84 of 1984, decided on 10th November, 1998.

Income‑tax ‑‑­

‑‑‑‑Property‑‑‑Deduction‑‑‑Unrealised rent ‑‑‑Institution of legal proceedings against tenant is sufficient‑‑‑No obligation on assessee to prove decrees Notice to tenant to vacate in March, 1972‑‑‑Suit instituted during previous year relevant to assessment year 1975‑76‑‑‑Deduction allowable only in assessment wear 1975‑76‑‑‑Indian Income Tax Act, 1961, S. 24‑‑‑Indian Income tax year 1962, R. 4.

Rule 4 of the Income‑tax Rules, 1962, says that to claim deduction in respect add unrealised rent, either the defaulting tenant should have vacated or steps should have been taken to compel the tenant to vacate the property. The first part of the rule requiring that the assessee must take necessary steps to institute legal proceedings for recovery of arrears before he claims deduction would be rendered otiose if it were taken that tiling or institution of legal proceedings would itself disentitle the assessee to urge that tire arrears have become unrealisable. Institution of legal proceedings cannot be equated to termination of legal proceedings. Institution of legal proceedings denotes mere v commencement and not its culmination. The emphasis is that before laying claim the assessee must make reasonable efforts to recover the rent and lie must establish that he made such efforts and failure of such effort in yielding results until tie claim is made should lead to a reasonable conclusion that the estimation of the assessee about irrecoverability of the rent is plausible. No further condition can be read into the rules to enjoin an obligation upon the assessee to prove a decree for vacation.

In the computation of income from house property the assessee claimed deductions in respect of unrealised rent. Both the Income‑tax Officer and the Tribunal rejected tire assessee's claim. The Tribunal found that the assessee had issued notice to revoke the licence and for terminating the tenancy in March, 1972 and a fruit had been filed for recovery of arrears in December, 1973. The Tribunal held that it could not be said that the arrears of rent could not be realised or had become irrecoverable at the time the legal proceedings were started and hence disallowed the assessee's claim. On a reference:

Held, that since the suit was filed only on December 13, 1973, in the previous year relevant to the assessment year 1975‑76 the condition as to taking of steps necessary for instituting legal proceedings had been fulfilled in the previous year relevant to the assessment year 1975‑76 only and not prior to that inasmuch as mere notice terminating licence and demanding arrears of rent do not suffice to hold that the assessee had taken all steps to get the property vacated and accordingly the claim for deduction was allowable only in respect of the assessment year 1975‑76.

J.P. Shah for the Assessee.

R.P. Bhatt for the Commissioner

2002 P T D 1301

[242 ITR 22]

[Gujarat High Court (India)]

Before Brijesh Kumar, C. J. and P. G. Agarwal, J, B AND A PLANTATIONS AND INDUSTRIES LTD

Versus

COMMISSIONER OF INCOME-TAX

Income-tax Reference No. l of 1996, decided on 10th December, 1999.

(a) Income-tax---

----Capital or Revenue expenditure---General principles---Expenditure on interior decoration of newly-constructed premises obtained on lease--­Revenue expenditure---Indian Income Tax Act, 1961, S.37.

(b) Income-tax---

----Income---Interest---Loan given interest-free to sister concern---No Interest due or collected---Notional amount could not be assessed on ground that interest ought to have been charged---Indian Income Tax Act, 1961.

(c) Income-tax---

----Appeal to Appellate Tribunal---Limitation---Effect of Explanation to R.9 of Income-tax (Appellate Tribunal) Rules, 1963---Income-tax Department furnished with. copy of order of CIT---Time taken to obtain certified copies of order could not be excluded in computing limitation--­Indian Income Tax (Appellate Tribunal) Rules, 1963, R.9.

The general principles applicable in determining whether a particular expenditure is capital or Revenue expenditure are as follows: (1) Outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business, or for a substantial replacement of equipment; (2) Expenditure may be treated as properly attributable to capital when it is made not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade. If what is got rid of by a lump sum payment is an annual business expense chargeable against Revenue, the lump sum payment should equally be -regarded as a business expense, but if the lump sum .payment brings in a capital asset, then that puts the business on another footing altogether; (3) Whether for the purpose of the expenditure, any capital was withdrawn, or, in other words, whether the object of incurring the expenditure was to employ what was taken in as capital 7f' the business. Again, it is to be seen whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital:

Held, that, in the instant case, the assessee had taken newly constructed premises on lease. The wall papers, partition walls, marble flooring provided to the premises would not be assets when the premises were vacated. The expenditure incurred on interior decoration of the premises was a Revenue expenditure.

CIT v. Madras Auto Service (P.) Ltd. (1998) 233 ITR 468 (SC) applied.

The assessee had advanced Rs.19,58,256 free of interest to its sister concern. The case of the assessee was that it did not charge interest on that advance and in consideration of the same the assessee got the premises at a very low rent of Rs.2 per sq. ft. in the prime locality of Calcutta. The Assessing Officer added a notional interest of 18 per cent. on the advance and added the income as the amount of interest. The said addition was approved by the Commissioner of Income-tax (Appeals) and the Tribunal. On a reference:

Held, that there was no provision in the Income-tax Act empowering the income-tax authorities to include in the income, interest which was not due or not collected. If_ the assessee had not bargained for interest, or had not collected interest, it. was not open to the Income-tax Authorities to fix a notional interest and assess it.

Highways Construction Co. (P.) Ltd. v. CIT (1993) 199 ITR 702 (Gauhati) fol.

When the Explanation to rule 9 of the Income-tax (Appellate Tribunal) Rules, 1963, provides that the copy supplied to the appellant as well as the photostat thereof shall be treated as certified copies for the purpose of filing the appeal before the Tribunal, the period taken to furnishing the certified copy becomes irrelevant:

Held, that, in the instant case, the appeal ultimately filed by the Revenue before the Tribunal against the order of the Commissioner of Income-tax (Appeals) was on the strength of a copy of the order received under section 250(7) of the Act. Till the filing of the appeal no certified copy was obtained or furnished tot Revenue in view of the deeming provisions, the copy of the order received from the Commissioner of Income-tax (Appeals) is good enough for filing the appeal within time. Such a copy is deemed to be a` certified copy and the limitation will run from the date on which such copy is received by the party. In the instant case, the appeal was not filed within time and no prayer for condonation of delay was made and as such the appeal was barred by limitation. Hence the question regarding the date of assessment and depreciation could not be considered.

R. Gogoi and R.K. Joshi for the Assessee.

U. Bhuyan for the Commissioner.

2002 P T D 1336

[242 I T R 86]

[Gujarat High Court (India)]

Before B. C. Patel and K. M. Mehta, JJ

COMMISSIONER OF INCOME-TAX

Versus

EMTICI ENGINEERING LTD.

Income-tax Application No.216 of 1999, decided on 24th November, 1999.

Income-tax--

----Reference---Capital or Revenue expenditure---Donation to cricket club---Tribunal right in holding that contribution to cricket club cannot be treated as capital in nature and directing Assessing Officer to allow it as Revenue expenditure --No question of law arose---Indian Income Tax Act, 1961, Ss. 37, 80G & 256.

The assessee which had given a sum of Rs.2,50,000 as donation to the Gujarat Cricket Club claimed 100 per cent. deduction on the ground that the expenditure was in the nature of staff welfare activity. The assessee claimed the expenditure on the ground of commercial expediency and stated that the amount had been spent in order to facilitate the carrying on of the business indirectly, by satisfying the needs of executives and staff. The Assessing Officer held that a benefit of enduring nature accrued to the assessee-company. On appeal, the Commissioner (Appeals) was not satisfied with regard to the finding of fact recorded by the Assessing Officer and held that out of 12 seats in the event of any event or game, the assessee could reserve six seats for directors, members of their family or their distinguished guests and directed the Assessing Officer to verify the claim and allow deduction under section 80G of the Income Tax Act, 1961. On further appeal, the Tribunal held that in the absence of any. evidence that seats were reserved for the directors or their family members only, merely on the basis of apprehension that they could be used only by them, the Department could not disallow the claim The Tribunal further held that an expenditure could be considered as capital in nature only when any capital asset had been created by the assessee by the expenditure. The Tribunal held that the assessee had no proprietary right on the seats which had been promised by the association to be allotted at the time of any event or game and, therefore, that the capital structure of the company had not been increased by the said contribution and hence the donation could not be treated as, capital expenditure. On an application to direct reference:

Held, on the facts, that the Tribunal was right in holding that the amount of Rs.2,50,000 contributed by the assessee to the Gujarat Cricket Association could not be treated as of capital nature and directing the Assessing Officer to allow the same as Revenue expenditure. No question of law arose.

Empire Jute Co. Ltd. v. CIT (1980) 124 ITR 1 (SC) and Commissioner of Taxes v. Nchanga Consolidated Copper Mines Ltd. (1965) 58 ITR 241 (PC) fol.

B.B. Nayak with Manish R. Bhatt for the Commissioner.

R.K. Patel for the Assessee.

2002 P T D 1390

[242 I T R 173]

[Gujarat High Court (India)]

Before Rajesh Balia and A.R. Dave, JJ

ARVIND MILLS LTD.

versus

DEPUTY COMMISSIONER OF INCOME­-TAX (ASSESSMENT)

Special Civil Applications Nos. 3357, 7143 and 7279 to 7281 of 1993, decided on 9th December, 1998.

Income-tax---

--Re-assessment---Limitation---Effect of proviso to S. 1477 --- Limitation of four years applies where there is no failure to file return or to disclose fully and truly material facts necessary for assessment---Re-assessment on ground that refund, of excise duty had not been included in original assessment because matter was sub judice---No failure to file return or to disclose material facts necessary for assessment---Limitation of four years applied---Indian Income Tax Act, 1961, Ss. 147, 148 & 149.

The clear import of the proviso to section 147 of the Income Tax Act, 1961, is that where there is no default on the part of the assessee in filing the return as required under the Act, either under section 139 or in pursuance of notice under subsection (1) of section 142 or section 148 or there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the assessment-year in question notwithstanding the fact that the reason for escape of income from assessment exists, action cannot be taken after the expiry of four years from the end of the. relevant assessment year.

Held, that, in the instant case, the reasons recorded by the Assessing Officer clearly disclosed that the Assessing Officer did not entertain any belief that income had escaped assessment because there had been any failure on the part of the assessee to file a return. Regular assessment had been made under section 143. The reasons also disclosed that the Assessing Officer believed that income had escaped assessment in the original assessment on account of not including the amount of refund of excise duty during the assessment year in questionbecause the Assessing Officer had accepted the plea of the assessee that since the matter about refund was sub-judice and the question of refund had not become final, liability to pay excise duty had not come to an end as the assessee was maintaining accounts on mercantile basis, and the said amount could not be brought to tax under section 41. However, subsequent to that, as a result of the Allahabad High Court judgment m Swarup Vegetable Products v. CIT (1991) 187 ITR 412, the Assessing Officer thought that his earlier decision had been erroneous as a result of which the income had escaped assessment. The case was squarely covered by the proviso to section 147 and not section 149. Initiation of proceedings under the proviso being clearly barred by time, the Assessing Officer could not have assumed jurisdiction by issuing notice under section 148 in March, 1993, in respect of the assessment year 1982-83.

Swarup Vegetable Products v. CIT (1991) 187 ITR 412 (All.) ref.

J.P. Shah for Petitioner. B.B.

Naik and M.R. Bhatt for Respondent.

2002 P T D 1653

[242 I T R 290]

[Gujarat High Court (India)]

Before C. K. Thakkar and M. C. Patel, JJ

VIKRAM MILLS LTD. (now known as Amruta Mills Ltd

versus

COMMISSIONER OF INCOME-TAX

Income-tax References Nos.72 and 73 of 1984, decided on 24th June 1998.

(a) Income-tax---

----Business expenditure---Betterment charges---Not deductible--- Indian Income Tax Act, 1961, S.37.

(b) Income-tax---

----Capital or Revenue expenditure---Bank guarantee commission--­Revenue expenditure---Indian Income Tax Act, 1961, S.37.

Held, (i) that the Tribunal was right in law in holding that the betterment charges were not deductible in the computation of total income.

CIT (Addl.) v. Rohit Mills Ltd. (1976) 104 ITR 132 (Guj.) and Arvind Mills v. CIT (1992) 197 ITR 422 (SC) fol.

(ii) that the bank guarantee commission paid by the assessee was a Revenue expenditure and hence allowable as a deduction in computing the total income.

CIT (Addl.) v. Akkamaba Textiles Ltd. (1997) 227 ITR 464 (SC) and CIT v. Sivakami Mills Ltd. (1997) 227 ITR 465 (SC) fol.

CIT (Addl.) v. Akkamba Textiles Ltd. (1979) 117 ITR 294 (AP); CIT v. Bharat Suryodaya Mills Co. Ltd. (1993) 202 ITR 942 (Guj.); CIT v. Vallabh Glass Works Ltd. (1982) 137 ITR 389 (Gui.) and Sivakami Mills Ltd. v. CIT (1979) 120 ITR 211 (Mad.) ref.

Manish J. Shah for J.P. Shah for the Assessee. P.G. Desai with Manish R. Bhatt for the Commissioner.

2002 P T D 1661

[242 I T R 501]

[Gujarat High Court (India)]

Before C. K Thakker and M. C. Patel, JJ

KUSUMBEN M. PARIKH and another

versus

CENTRAL BOARD OF DIRECT TAXES and another

Special Civil Applications Nos. 5305 and 5306 of 1991, decided on 2nd July, 1998.

(a) Income‑tax‑‑‑

‑‑‑‑Refund‑‑‑Application for refund‑‑‑Delay in filing application for refund exceeding ten thousand rupees‑‑‑Application to CBDT for condonation of delay under S.119‑‑‑Rejection of application without giving reasons‑‑‑Not justified‑‑‑Indian Income Tax Act, 1961, S.119.

(b) Income‑tax‑‑‑

‑‑‑‑Central Board of Revenue‑‑Power of CBDT‑‑‑Powers under S.119 are quasi‑judicial ‑‑‑Power must be exercised in conformity with principles of natural justice‑‑‑Indian Income Tax Act, 1961, S. 119.

The petitioner paid a sum of Rs.14,300 as advance tax for the assessment year 1982‑83, but on account of various unavoidable factors, she could not file her return of income for the assessment year 1982‑83 or for the subsequent few years. When belatedly returns were filed, no interest or penalty was levied. It was the contention of the petitioner that meanwhile the Government of India declared the Amnesty Scheme under which all those assessees who had not filed returns were permitted to file the returns. Under the said scheme, she submitted the returns on March 31, 1987. The petitioner was entitled to refund of Rs.14,280. Since there was delay in submitting the returns, the petitioner was advised to make an application for refund in accordance with the provisions of section 119(2)(b) of the Income Tax Act, 1961. The petitioner stated that as per Circular issued by the Board, if the amount in question exceeded Rs.10,000 an application for refund of tax could be entertained by the Central Board of Direct Taxes and not by the Income­tax Officer. An application was, therefore, made to the Board. The petitioner prayed for a direction to the Income‑tax Officer to process the return under the Amnesty Scheme and in the alternative to direct refund under section 119(2)(b). The Board rejected the application. On a writ petition against the orders:

Held, that the order of the Board was cryptic in nature and except stating that the Board declined to interfere in the matter, no reason or ground whatsoever had been recorded in support of the decision. Even if the Amnesty Scheme was not applicable to the cases on hand, from the application made by the petitioners, it was clear that the Board was also requested to, exercise power under clause (b) of subsection (2) of section 119 of, the Act and it was incumbent on the Board to consider the application in the light of that prayer and to pass appropriate order. There was nothing on record to show that the Board applied its mind to the facts and circumstances of the case. The orders, therefore, required to be quashed and set aside.

Anantharamaiah (H.S.) v. CBDT (1993) 201 ITR 526 (Kar.); CIT v. Kesoram Industries and Cotton Mills Ltd. (1993) 204 ITR 154 (Cal.); Jaswant Rai v. CBDT and Revenue (1998) 231 ITR 745 (SC) and Kishan Lal v. Union of India (1998) 230 ITR 85 (SC).

S.N. Soparkar for Petitioner.

B.B. Naik for R.P. Bhatt for Respondents.

2002 P T D (Trib.) 54

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Sharif Chaudhry, Accountant Member and Muhammad Tauqir Afzal Malik, Judicial Member

W.T.As-Nos. 845/LB and 846/LB of 1996, decided on 28th June, 2001.

(a) Wealth Tax Rules, 1963---

----R.8(3)---Determination of value of land and building with fixtures and fittings---Principles---Rule 8(3) of the Wealth Tax Rules. 1963 prescribes the method for determination of value of lands and buildings and in assessing value of lands and buildings under the said Rule, only the rent charged for land and building could be taken into consideration and not the rent charged for fixtures and fittings---Only one exception to the said Rule was the case where fixtures and fittings were an integral part of the land and building and rent charged for the same could not be separated from the rent of the building---Assesses, in the present case was charging separate rent for fixtures and fittings and the same had been provided in the lease agreement itself---List of accessories had been produced and from a glance at the list one could easily see that these accessories or fittings were not integral part of the building and were separable from, the .same---Rent charged for fixtures and fittings could not, in circumstances, be clubbed with the rent of the building for computation of value of assessee's property on the basis of ALV under R.8(3) of the Wealth Tax Rules, 1963.

(b) Wealth Tax Rules, 1963---

----R. 8(3)---Valuation of fixtures and fittings---Determination--­Connivance of lessor with lessee---Effect---Items of fittings, value of which had been declared at Rs. 1,25,000 could not obviously fetch a rent of Rs. 1,20,000 in a year---Rent of these items, according to a fair and independent assessment, could not be more than Rs. 3,000 per month in any case---Allegation of the Department that rent had been allocated in the agreement deed with connivance of the lessee obviously could not be ruled out in circumstances.

Shahid Zaheer, D.R. for Appellant.

Shahid Abbas for Respondent.

Date of hearing: 20th June, 2001.

2002 P T D (Trib.) 58

[Income-tax Appellate Tribunal Pakistan]

Before Fazalur Rehman Khan, Judicial Member and Mrs. Abida Ali, Accountant Member

W.T.A. No. 392/PB of 1999-2000, decided on 31st. May, 2001.

(a) Wealth Tax Act (XV of 1963)---

----S.2(m)---Protection of Economic Reforms Act (XII of 1992), S.5(1)(2)---Net wealth---Exemption---Foreign currency account in Pakistan---Exemption allowed in respect of foreign currency account in Pakistan from the charge of wealth tax by the Appellate Authority was upheld by, the Appellate Tribunal.

(b) Wealth Tax Act (XV of 1963)---

----S.2(m)--- Protection of Economic Reforms Act (XII of 1992), S.5(1)(2)---Net wealth---Exemption---Assets of an assessee "wherever located" whether in or outside Pakistan was taxable under the Wealth Tax Act, 1963---Section 5(1) of the Protection of Economic Reforms Act, 1992 grants immunity from enquiry or probe into the sources, only those foreign currency accounts which had been maintained in Pakistan while S.5(2) of the Protection of Economic Reforms Act, 1992 exempts from the payment of income-tax and wealth tax such accounts in Pakistan and not located outside Pakistan.

(c) Wealth Tax Act (XV of 1963)---

----Second Sched., Cl.(8)---Exemption---Balances only in Foreign Currency Account maintained in Pakistan are exempt from the levy of income-tax and wealth tax.

1995 PTD 540; 1971 PTD 2000 and (1992) 86 Tax 296 (SC) distinguished.

(d) Protection of Economic Reforms Act (XII of 1992)----

----S. 5(2)---Immunity granted to Foreign Currency Accounts---Intention of Legislature---By enacting subsection (2) of S.5, Protection of Economic Reforms Act 1992 the intention of the Legislature is to attract more Foreign Currency Accounts to the country in order to boost up economic activities and if the exemption from income tax and wealth tax is also allowed to foreign currency accounts, outside Pakistan, which play no role in the economic activities in Pakistan, then this will run counter to the purpose which was obviously not the intention of the Legislature.

(e) Interpretation of statutes---

---- Fiscal statutes to be strictly interpreted and in case of substantial deficiencies in the wordings, such statute is to be interpreted liberally in favour of the assessee.

G. A. Jally for Appellant.

Dr. Ikram Ghani, D.R. for Respondent.

Date of hearing: 19th May, 2001.

2002 P T D (Trib.) 81

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Sharif Chaudhry, Accountant Member and Muhammad Tauqir Afzal Malik, Judicial Member

W.T.As.993/LB and 992/LB of 1996, decided on 27th June, 2001.

Wealth Tax Rules, 1963---

----R. 8(2)(c)(i)(ii)---Valuation of bonus shares---Method---Cost of bonus shares in general parlance may he zero but such shares have a definite value for the purpose of wealth tax---Law does not differentiate between ordinary shares and bonus shares---Method of valuation of ordinary shares as prescribed by R.8(2)(c)(i)(ii) of Wealth Tax Rules, 1963 is applicable to the valuation of bonus shares as well---Assessing Officer was directed by the Appellate Tribunal to obtain details of bonus shares and balance sheets of the companies in which such bonus shares were being held and then determined the value of bonus shares of the assessee strictly in accordance with R.8(2)(c)(i)(ii) of the Wealth Tax Rules, 1963.

1992 SCMR 1935 distinguished.

Shahid Zaheer, D.R. for Appellant.

Kh. Muhammad Iqbal and Faisal Iqbal for Respondent.

Date Of hearing: 14th June, 2001.

2002 P T D (Trib) 99

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Sharif Chaudhry, Accountant Member and Rasheed Ahmed Sheikh, Judicial Member

I.T.As. Nos. 2220/LB to 2222/LB of 2001, decided on 31st August, 2001.

Income Tax Ordinance (XXXI of 1979)---

----SS. 66A(IA), 62 & 135---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Issue whether the assessee was an importer and supplier or he was an indenter and had earned commission, was adjudicated by the Appellate Authority and 'assessment order was passed by the Assessing Officer in accordance with the direction of the Appellate Authority---Cancellation of assessment by Inspecting Additional Commissioner---Validity---Since the issue had been the subject-matter of appeals and Appellate Authority had already adjudicated upon the said issue, action under S. 66A of the Income Tax Ordinance, 1979 would not lie on the basis of the issue as the same had been ruled out by subsection (1 A) of S. 66A of the Income Tax Ordinance, 1979---Assessment made by the Assessing Officer under Ss. 62/135 of the Income Tax Ordinance, 1979 in accordance with the directions of the Appellate Authority could not be treated as erroneous and prejudicial to the interest of Revenue---Order passed by the Inspecting Additional Commissioner under S. 66A of the Income Tax Ordinance, 1979 cancelling the assessments was declared illegal and without jurisdiction by the Appellate Tribunal.

Zia Hailer Rizvi for Appellant. Javed-ur-Rehman, D.R. for Respondent.

Date of hearing: 22nd August, 2001.

2002 P T D (Trib) 107

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Munir Qureshi, Accountant Member and Muhammad Tauqir Afzal Malik, Judicial Member

I.T.As. Nos. 240/LB and 304/LB of 1999, decided on 23rd December, 2000.

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss. 23(1) & 30---Company---Deduction---Interest income---Interest income earned by the company did not constitute the company's business income and no expenses, therefore, were allowable under S.23(1) of the Income Tax Ordinance, 1979.

(b) Income Tax Ordinance (XXXI of 1979)---

----S. 80-D & Second Sched., Cl. (118-D)---Minimum tax on income of certain persons---Exemption---Principles---Minimum tax under S.80-D on turnover of exempt unit under Cl. (118-D) Second Schedule of the Income Tax Ordinance, 1979---Validity---Exemption available to the company in terms of Cl. (118-D) of the Second Sched. of the Income Tax Ordinance, 1979 could not be allowed to be defeated by recourse to the provision of S.80-D of the Income Tax Ordinance, 1979---Turnover which S.80-D seeks to tax was the sale of its manufactured product--­Income of the enterprise was nothing but gross profit realized from sale of manufactured products, less all indirect expense and depreciation incidental to manufacturing activity---If sales were taxed that would in effect not be allowing exemption to the company's income in the manner envisaged under .Cl. (118-D) of Second Sched. of the Income Tax Ordinance, 1979---Turnover tax under S.80-D, thus was not leviable on the company's sales.

Elahi Cotton Mills Ltd. I.T.As. Nos. 2444 to 2450/1,13 of 1998 and I.T.As. Nos. 2295 to 2301/1,13 of 1998 ref.

1998 PTD (Trib) 1379 rel

I.T.As. Nos. 2942 and 2943/LB of 1997 distinguished

Nemo for Appellant/Assessee.

Mian Javed-ur-Rehman, D.R. for Respondent/Department

Date of hearing: 14th November, 2000.

2002 P T D (Trib.) 111

[Income-tax Appellate Tribunal Pakistan]

Before Sajid Hussain, Member (Judicial) and Zafar Iqbal, Member (Technical)

Appeal No. 2331 of 1999, decided on 29th April; 2001.

(a) Sales Tax Act (VII of 1990)---

----S. 8(1)(a)(b)---Provisions of S.8(1)(a)(b), Sales Tax Act, 1990 are restrictive in nature and restrictions so placed are given in cis. (a) & (b) of subsection (1) of S.8 of the Sales Tax Act, 1990---Goods used for a purpose other than production of taxable supplies or the goods specified by the Federal Government as not qualified for input tax adjustment are prohibited for claiming the input tax adjustment.

(b) Sales Tax Act (VII of 1990)---

----Ss. 8 & 2(16)---"Produce"---Connotation---Process of embossing-­Anything which directly contributes to the production of a taxable supply falls within the ambit of S.8 of the Sales Tax Act, 1990---Word "produce" has been defined in S.2(16) of the Sales Tax Act, 1990 which includes the process of printing, publishing, lithography and engraving and it also includes preparation of goods by changing same or transforming it---Process of embossing changes and transforms the goods, and thus embossing machinery directly contributes to the production of goods meant for a taxable supply.

(c) Sales Tax Act (VII of 1990)---

----S. 7---Tax liability---Determination of---Input tax adjustment--­Principles---If any items of goods were purchased by a tax payer as being intended for use as machinery, plant, equipment, tool, spare-parts etc. for the production of goods meant for taxable supply, they would be eligible for extension of benefit of input tax adjustment.

Chowgule & Co. (Pvt.) Ltd. v. Union of Inaia AIR 1961 SC 1013 and Attock Cement Pakistan Ltd. v. Collector of Customs, Quetta 1999 PTD 1892 rel.

(d) Sales Tax Act (VII of 1990)---

----Ss. 7 & 8---Tax liability---Determination of---Tax credit not allowed-­Input tax adjustment---Embossing plates---Department allowed input tax refund in respect of transfer foil but did not allow the same on embossing plates on the ground that embossing plates did not form part of any taxable supply as these were machinery parts and therefore, input tax was inadmissible---Validity---Department failed to discuss the issues involved and to provide the reasons on the basis of which they assumed that the tax paid on goods in question could not be reclaimed or deducted as input tax assuming that machinery part did not contribute towards the production of goods capable for a taxable supply was not correct as such very narrow and restrictive application of law had been made by the tax officials---Intention of statute appears to be that except the restriction placed vide cls. (a) & (b) of 5.8(1) of the Sales Tax Act, 1990, there is no other operative restriction for allowing or claiming input tax where it is permissible---Tax paid on the goods used for the purpose for producing taxable supplier is deductible---Conclusion arrived at by the Sales Tax Authorities was not based on the correct interpretation of law-­Order was set aside by the Tribunal and input tax deduction made by the assessee was declared to be in order.

Attock Cement Pakistan Ltd. v. Collector of Customs, Quetta 1999 PTD 1892 and Braodhead Peel & Co. v. The Commissioner (1984) VATTR 195 rel.

Mohiuddin Siddiqui for Appellant.

Ghulam, Appraiser for Respondent.

Date of hearing: 24th April, 2001.

2002 P T D (Trib.) 130

[Income-tax Appellate Tribunal Pakistan]

Before Zafar Ali Thaheem, Judicial Member and Muhammad Sharif Chaudhry, Accountant Member

M.As. Nos. 421/LB and 356/LB of 2001, decided on 17th September, 2001.

Income Tax Ordinance (XXXI of 1979)---

----S.156---Rectification of mistakes---Contradictions between order of Division Bench and Larger Bench of Income-tax Appellate Tribunal in respect of valuation of property- --Order of the Larger Bench would prevail upon the Division Bench---Order of Division Bench, in circumstances, was modified by following the decision of Larger Bench and valuation of property was fixed accordingly.

Moin-ud-Din and Kh. Riaz Hussain for Appellant. Ahmed Kamal, D.R. for Respondent.

Date of hearing: 11th September, 2001.

2002 P T D (Trib.) 132

[Income-tax Appellate Tribunal Pakistan]

Before Zafar Ali Thaheem, Judicial Member and Mazhar Farooq Sherazi, Accountant Member

W.T.A. No. 736/LB of 1995, decided on 9th April, 2001

Wealth tax---

----Valuation of property---Land and construction---Valuation--­Assessment Year 1994-95---Cold storage---Value of land was adopted at Rs. 40,000 per Marla and construction rate Rs. 80 per sq. ft.---First Appellate Authority reduced the value to Rs. 20,000 per Marla and construction rate Rs. 50 per sq. ft.---Value of land opposite to the property was notified at Rs. 85,000 per Marla by the District Collector--­Appellate. Tribunal fixed the value at Rs. 30,000 per Marla and rate of construction at Rs. 65 per sq. ft. in circumstances.

Javed Aziz, D.R. for Appellant. Demo for Respondent, Date of hearing: 6th April, 2001.

2002 P T D (Trib) 134

[Income-tax Appellate Tribunal Pakistan]

Present: Muhammad Mujeebullah Siddiqui, Chairman, Shariq Mahmood, Accountant Member and Muhammad Tauqir Afzal Malik, Judicial Member

W.T.As. Nos. 635/LB to 645/LB of 1998, decided on 26th September, 1998.

(a) Wealth Tax Act (XV of 1963)---

----S.16(3)---Assessment---Inclusion of value in net wealth of inherited properties under litigation for partition and possession ---Assessee showed only his share in the properties and no value was attached to these properties being belonging to his late father and assessee being not in the possession of the same---Assessing Officer discarded the assessee's stand and added the value to the properties on the ground that the assessee was in joint possession of the properties---Such addition was deleted by the First Appellate Authority with the observation that properties continued to be in the name of the assessee's father and in possession/occupation of his younger brother---Validity---Parties were co-heirs and co-owners of the joint suit properties and were still in its joint possession as co-owners and co-heirs---Even otherwise the legal position was that immediately after ,the death of the father of the assessee the asses had become owner in the inherited property to the extent of his share envisaged in Shariat Law and also retained its constructive possession---Deletion of valuation of the disputed property from the hands of the assessee by First Appellate Authority was uncalled for as he had become joint owner in the legacy of the deceased father---Guideline for valuation of property could be inferred from the value written for the purpose of jurisdiction of the Court---Assessing Officer thus rightly included the share owned by the assessee in the properties left by his father---Findings of First Appellate Authority were vacated and treatment given by Assessing Officer was restored by the Tribunal.

(b) Interpretation of statutes---

---- Plea of hardship and harshness cannot provide justification for ignoring the law as enacted by the Legislature---When a law enacted by the Legislature is very clear then the consideration of hardship and harshness cannot impede the implementation thereof by the Court.

Sameera Yasia, D.R. for Appellant. Rashid Sarwar, F.C.A. for Respondent.

Date of hearing: 12th September, 1998.

2002 P T D (Trib.) 141

[Income-tax Appellate Tribunal Pakistan]

Before Jameel Ahmad Bhutto, Accountant Member and Karamat Hussain Niazi, Judicial Member

I.T.As. Nos. 1465/IB to 1467/113 of 1999-2000, decided on 29th May, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----S. 66A---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Applicability of S. 66A, Income Tax Ordinance, 1979---Inspecting Additional Commissioner could always probe into the matter and judge the exact nature of a receipt or any entry in any of the documents relating to the record of proceedings under the Income Tax Ordinance, 1979.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss. 12(18), 66A & 59A---Addition---Assessment years 1996-97, 1997-98 and 1998-99---Assessee obtained house building advance from his company being a director and employee of such company which was termed as loan by the Inspecting Additional Commissioner and made addition under S.12(18) of the Income Tax Ordinance, 1979 for three years---Validity---Inspecting Additional Commissioner failed to appreciate that the provision of S.12(18) existing at the relevant time and applicable to the income years pertaining to the assessment years under appeal was not attracted because two conditions had to be simultaneously satisfied, first, that there was a "loan" received by the assessee and, secondly, that it was, "claimed" or "shown" by him as such---Letter of law in the taxing provision of the Income Tax Ordinance, 1979 had to be interpreted in the sense in which it was used and could not be ignored as to cause injustice to the assessee---Since the two requirements of S.12(18) as it stood before its substitution through Finance Act, 1998, were not fulfilled the provision of section 12(18) was not attracted; especially when the subsequent amendment made in the year 1998 supported the assessee that at the relevant time an advance, irrespective of its nature and use, could plot be deemed as income of the assessee under S.12(18) of the Income Tax Ordinance, 1979---Provision of S.12(18) of the Income Tax Ordinance, 1979 was not applicable at the relevant time for relevant income years and the exercise of revisional jurisdiction by the Inspecting Additional Commissioner was illegal--­Impugned order was cancelled and original assessment orders were restored by the Tribunal.

I.T.As. Nos. 156, 157, 158 and 167/LB of 1993-94 ref.

2001 PTD 1180 anti Prime Commercial Bank and others v. Assistant Commissioner of Income-tax 1997 PTD 605 rel.

(c) Interpretation of statutes---

---Where two interpretations are equally possible then the one favourable to the subject is to be adopted.

(d) Interpretation of statutes---

---- Fiscal statute---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.

Akhtar Hussain for Appellant. Muhammad Tahir Khan, D.R. for Respondent.

Date of hearing: 23rd May, 2001.

2002 P T D (Trib.) 159

[Income-tax Appellate Tribunal Pakistan]

Before Syed Masood ul Hassan Shah, Judicial Member and Mahmood Ahmad Malik, Accountant Member

I.T.A. No. 676/IB of 1997-98, decided on 20th June, 2001.

(a) Interpretation of statutes----

---- Fiscal statute---Where liability of the assessee was created under a law when that was in force during the assessment year under consideration such liability cannot be done away with if later on such law was repealed/omitted from the statute book and was not in existence at the time when the assessment was framed by the Assessing Officer.

(b) Interpretation of statutes---

-----Fiscal statute---Rights and liabilities accrued and created under a provision of law cannot be taken away when that law is repealed/ omitted subsequently.

(c) Income Tax Ordinance (XXXI of 1979)----

----S.12(18A)--C.B.R. Circular No. 14 of 1992, dated 1-7-1992--­C.B.R. Circular No. 10 of 1996, dated 16-7-1996---Deemed income--­Loan---Assessment year 1995-96---Assessee failed to repay loan within five years by 30-6-1994---Such loan was assessed as `deemed income' of the assessee for the assessment year 1995-96 which was confirmed by the First Appellate Authority ---Assessee's contention was that provision of S.12(18A) was not applicable to the assessee's case as such provision of law was not the part of law at the time of framing of assessment same having been deleted by Finance Act, 1996---Validity---Repealed/omitted S.12(18A) of the Income Tax Ordinance, 1979 would be taken to be as available and applicable to the case of assessee which was a case for the assessment year 1995-96 and the assessee failed to repay the said loan within the time as prescribed in the omitted provision of law--­Assessment was to be framed in accordance with the law which was applicable for the said assessment year---No concession was available if the assessment was not framed within the time when the law was in force because proceedings could continue for a longer period and then finalized and till that time there could be many changes in the law---Such position will create a complex situation if the law at the time of framing of assessment was made applicable irrespective of the fact as to what law was in force during the assessment year under consideration---Order of two Authorities below was confirmed by the Appellate Tribunal.

1992 PTD 1367; 2000 PTD (Trib.) 466; 1993 SCMR 73; I.T.A. No. 497/IB of 1999-2000; Messrs Elahi Cotton Mills Limited and others v. Federation PLD 1997 SC 582 = 1997 PTD 1555 and PLD 1970 SC 29 ref.

Bashir Ahmed for Appellant.

Abdul Jalil, D.R. for Respondent.

Date of hearing: 20th June, 2001.

2002 P T D (Trib) 166

[Income-tax Appellate Tribunal Pakistan]

Before Inam Ellahi Sheikh, Chairman and Javed Iqbal, Judicial Member

I.T.A. No. 444/KB of 2000-2001, decided on 27th July, 2001.

Income Tax Ordinance (XXXI of 1979)---

----Ss. 52, 86 & 2(6)(43)---Liability of persons failing to deduct or pay tax---Additional tax---Refund---Adjustment of---Tax payable under S.52 of the Income Tax Ordinance, 1979 was allowable adjustment against the refund due to the assessee.

Vishno Raja Qavi, D.R. for Appellant.

A.R. Nizami and Yaqoob Ali, C.A. for Respondent.

Date of hearing: 24th July, 2001

2002 P T D (Trib.) 168

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Munir Qureshi, Accountant Member and Syed Nadeem Saqlain, Judicial Member

W.T.As. Nos. 1381/LB to 1384/LB of 1996, decided on 21st June, 2001.

(a) Wealth Tax Act (XV of 1963)---

----S.17---Wealth escaping assessment---Limitation---Notice under S.17.(1)(a) of the Wealth Tax Act, 1963 could be issued within a period of 5 years from the close of financial year in question---Notices issued on 31-7-1994 for the assessment years 1986-87, 1987-88 and 1988-89 were hit by limitation as such notices could be issued by 30-6-1992, 30-6-1993 and 30-6-1994 respectively.

(b) Wealth Tax Act (XV of 1963)---

----Ss. 17 & 16(5)---Wealth escaping assessment---Notices under S.17 of the Wealth Tax Act, 1963 were issued calling for returns---Opportunities were given to the assessees to file returns---Non-compliance--­Assessment was finalized under S.16(5) of the Wealth Tax Act, 1963--­Assessee contended that S.16 of the Act governs assessment proceedings only in those cases where returns had been filed under S.14 of the Wealth Tax Act, 1963 and not where the return of net wealth was filed under S.17 of the Wealth Tax Act, 1963---Assessment should have been finalized under S.17 of the Wealth Tax Act, 1963---Validity--­Assessment under Wealth Tax Act, 1963, whether current assessment or arrear assessment, was governed by the provision of S.16 of the Wealth Tax Act, 1963---Section 17 of the Wealth Tax Act, 1963 was relevant only for the purpose of calling of return of net wealth where escapement/ under-assessment or assessment at too low a rate was detected---When provisions of S.17 were invoked, the provisions of Wealth Tax Act, 1963 so far as might, were to be applied as if the notice had been issued under S.14(2) of the Wealth Tax Act, 1963---Assessment of net wealth pursuant to issuance of notice under S.17 was also governed by the provision of S.16 of the Wealth Tax Act, 1963.

(c) Wealth Tax Act (XV of 1963)---

----S.17---Wealth escaping assessment---Definite information---"Any information"--Connotation---Scope--Issuance of notice--Section 17(1)(b) of the Wealth Tax Act, 1963 stipulates that notice under S.17 might be issued in consequence of "any information" in the Assessing Officer's possession indicating that assessee's net wealth chargeable to tax had escaped assessment for any year whether by reason of under-assessment or assessment at too low a rate or otherwise.

Anwar-ul-Haq, D.R. for Appellant.

Sh. Sharif Hussain for Respondent.

Date of hearing: 20th June, 2001.

2002 P T D (Trib.) 183

[Income-tax Appellate Tribunal Pakistan]

Before S. Hasan Imam, Judicial Member and Muhammad Mehboob Alam, Accountant Member

I.T.A. No. 685/KB of 2000-2001, decided on 31st May, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----S. 65---Additional assessment--" Definite information"---Information received by the Assessing Officer about discount, after the original assessment is a "definite information".

(b) Income-tax---

----Gross profit rate---Glass business---4% G.P. rate assessed against 2.38 % declared was reduced to 3.5 % by the Appellate Tribunal.

(c) Income Tax Ordinance (XXXI of 1979)---

----Ss. 156 & 132---Rectification of mistake---Appeal before Appellate Tribunal---Argument in respect of rectification made by First Appellate Authority---Validity---Argument that original order passed under S.132 of the Income Tax Ordinance, 1979 had been rectified under S.156 of the Ordinance and the Assessing Officer did not file appeal against the same had no validity because the original order under S.132 had been vacated by the Appellate Tribunal and the matter was remanded to the First Appellate Authority to decide the matter on the grounds taken by the assessee.

Abdul Tahir, I.T.P. for Appellant.

Mahfooz-ur-Rehman Pasha, D.R. for Respondent.

Date of hearing: 13th April, 2001.

2002 P T D (Trib.) 214

[Income-tax Appellate Tribunal Pakistan]

Before Inam Ellahi Sheikh, Chairman and Javaid Masood Tahir Bhatti, Judicial Member

I.T.A. No. 1933/KB of 1999-2000, decided on 2nd June, 2001

Income Tax Ordinance (XXXI of 1979)---

----Ss. 30, 22 & 72---Income from other sources---Interest income---No business income---Business expenses---Set-off against interest income--­No notice for discontinuation of business---First Appellate Authority found that business expenses could be set-off against income under S.30 of the Income Tax Ordinance, 1979---Validity---Assessing Officer without issuing notice to the assessee under S.72 of the Income Tax Ordinance,. 1979 was not justified in not setting off the business loss on account of expenses against the other income because the assessee had not discontinued its business but was under temporary lull in the business and the expenditure incurred by the assessee were incurred in carrying on the business, and were allowable and the Assessing Officer had erred in not assessing business loss under the provision of S.22 of the Income Tax Ordinance, 1979---First Appellate Authority rightly directed to allow all the business expenses which were verifiable and necessary to maintain registered office of the assessee and had been incurred in execution of statutory obligation of the company---Order of the First Appellate Authority was upheld and the departmental appeal was dismissed by the Tribunal.

Kirk & Randle Limited v. Dunn 8 TC 663 and (1969) 72 ITR 114 ref

(1935) 3 ITR 350 rel.

(1996) 73 Tax 10 (Trib.) and Messrs Zaheer Sancho (Pvt.) Ltd.'s case I. T. As. Nos. 1669 to 1671 /KB of 1998-99 distinguished.

Zaki Ahmad, D.R. for Appellant.

Naveed Hyder, A.C.A. for Respondent

Date of hearing: 26th May, 2001.

2002 P T D (Trib.) 221

[Income-tax Appellate Tribunal Pakistan]

Before Khalid Waheed Ahmed, Judicial Member and Mrs. Safia Chaudhry, Accountant Member

M.As. (Stay) Nos. 483/LB to 487/LB and W.T.As. Nos. 1253/LB to 1257/LB of 2001, decided on 28th July, 2001.

(a) Wealth Tax Act (XV of 1963)---

----Ss. 31-B, 35, 16 & 2(21)---Additional tax ---Assessment--­Rectification---Assessment was rectified under S.35 of the Wealth Tax Act, 1963 enhancing the liability of tax and charging---Additional tax-­Assessee contended that additional tax under S.31B 1)(b) of the Wealth Tax Act, 1963 could only be charged through an order passed under S.16 of the Wealth Tax Act, 1963 and not through the order passed under S.35 of the Wealth Tax Act, 1963---Validity---Assessment framed under S.16(3) of the Wealth Tax Act, 1963 was rectified under S.35 of the Wealth Tax Act, 1963---Liability of tax was also to be re-determined as consequence of change made in the assessment through order of rectification---Assessee was liable to pay additional tax under S.31B alongwith the demand of wealth tax determined on the basis of amended assessment of wealth tax.

(b) Wealth Tax Act (XV of 1963)---

----S. 31-B, proviso---Proviso, added to S.31-B, Wealth Tax Act, 1963, by Finance Act, 1998---Retrospective effect---Amendment brought through the insertion of the proviso to S.31-B(1)(b) of the Wealth Tax Act, 1963, though being a part of substantial law yet was effective retrospectively in the case of pending assessment being remedial in nature.

CIT v. Shahnawaz Limited and others 1993 SCMR 73 rel.

(c) Wealth Tax Act (XV of 1963)----

----S. 31-B, proviso---Additional tax---Calculation---Additional tax should not be charged for a period more than the period mentioned in the proviso added to S.31-B(1)(b) of the Wealth Tax Act, 1963 through Finance Act, 1998.

CIT v. Shahnawaz Limited and others 1993 SCMR 73 rel.

Tanveer Aslam, I.T.P./A.R. for Applicant.

Muhammad Asif, D.R. for Respondent.

Date of hearing: 24th July, 2001.

2002 P T D (Trib.) 228

(Income-tax Appellate Tribunal Pakistan]

Before Inam Ellahi Sheikh, Chairman and Javed Masood Tahir Bhatti, Judicial Member

1. T. A. No. 1883/KB of 1999-2000, decided on14th June, 2001.

Income Tax Ordinance (XXXI of 1979)---

----Ss. 80-C, 143-B, 59A & 50(4)---C.B.R. Circular No.11 of 1998, dated 25-7-1998---C.B.R. Circulai No.8 of 1999, dated 27-7-1999--­Income from services performer? as stevedore and other labour services to shipping lines---Filing of statement being tax deducted Q 5 % on contracts and Q 3.5 % on supplies---Tax was determined Qa 6 % on the contract receipts being total receipts exceeding Rs. 30 millions under S.59A of the Income Tax Ordinance, 1979---Validity---Order passed under S.59A of the Income Tax Ordinance, 1979 after making inquiries and confronting the assessee could not be equated with an order deemed to have been passed under S.80-C(7) of the Income Tax Ordinance, 1979, even if the statement was filed under S.143-B of the Income Tax Ordinance, 1979 and the income was not properly chargeable under S.80-C of the Income Tax Ordinance, 1979--­Proper course for .the Assessing Officer was to summon the return under S.56 of the Income Tax Ordinance, 1979 and then to make the assessment under the normal law---Order of the Assessing Officer was annulled by the Tribunal being passed without proper jurisdiction.

Muhammad Wakeel Ahmed, I.T.P. for Appellant.

Zaki Ahmad, D.R. for Respondent.

Date of hearing: 14th June, 2001.

2002 P T D (Trib.) 231

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Munir Qureshi, Accountant Member and Syed Nadoem Saqlain, Judicial

Member 1. T. A. No.4279/LB of 2000, decided on 24th January, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss. 65 & 61---Additional assessment---Revised returns---Notice under S.61 of the Income Tax Ordinance, 1979---Contention was that assumption of jurisdiction by issuing notice under S.61 of the Income Tax Ordinance, 1979 without first invoking the provisions of S.65 of the Income Tax Ordinance, was illegal---Validity-Revised returns of income were filed suo motu and thus there was no cause to issue notice under S.65 of the' Income Tax Ordinance, 1979---Revised returns indicated that original returns too must have been filed earlier---When such returns were available with the Assessing Officer there was no point in invoking the provisions of S.65 of the Income Tax Ordinance, 1979­Assumption of jurisdiction was declared in order by the Tribunal.

(b) Income Tax Ordinance (XXI of 1979)----

----S 13(1)(aa)-Deemed income---Gold brought into Pakistan--­Personal effects---Nothing was brought on record to establish that gold brought into Pakistan was ever cited as "personal effects" under Personal baggage Rules---Gold bullion brought into Pakistan could not qualify as "personal effect" or "household item".

(c) Income Tax Ordinance (XXXI of 1979)---

----Sched. 11, Cl. (130A)---Exemption---Assessment year 1995-96--­Clause (130A) of the Second Sched. of the Income Tax Ordinance, 1979 could only be relevant to assessment years 1991-92 and 1992-93 and not to assessment year 1995-96.

(d) Income Tax Ordinance (XXXI of 1979)---

----S. 13(1.)(aa)---Deemed income---Purchases outside Pakistan---Source of investment---Explanation of---Contention that provisions of Income Tax Ordinance, 1979 were not applicable to the purchase of gold outside Pakistan---Validity---Purchase made outside Pakistan conferred no special privilege with regard to applicability of the provisions of the Income Tax Ordinance, 1979 at the time of assessment of assessee's total income in Pakistan.

(e) Income Tax Ordinance (XXXI of 1979)----

----S. 13(1)(aa)---Protection of Economic Reforms Act (XII of 1992)--­Deemed income---Gold---"Import of gold" or "brought into Pakistan"--­Difference in the two expressions not material---Source of investment--­Explanation of---Not material whether gold was seen as having been "imported" into Pakistan or simply "brought into Pakistan" ---Material fact was that in the context of assessment of assessee's total income, the acquisition of gold by the assessee was indeed relevant and unless the assessee was able to offer a satisfactory explanation with regard to source of investment, the provisions of S.13 of the Income Tax Ordinance, 1979 were liable to be invoked---Term "import" need not be interpreted narrowly and in its broader sense, the act of bringing the gold into Pakistan did seem to constitute "import" ---Protection of Economic Reforms Act, 1992 also offers no protection to assessee in the context of levy of income-tax on assessee's income from undisclosed sources.

(f) Income-tax---

----"World income"---Exemption---Tax payer is required to declare total world income and in case income-tax had been paid abroad, credit for the same is available in terms of avoidance of double taxation.

Mian Ashiq Hussain for Appellant. Shoukat Ali Sh., D.R. for Respondent.

Date of hearing: 19th January, 2001.

2002 P T D (Trib.) 237

[Income-tax Appellate Tribunal Pakistan]

Before Khalid Waheed Ahmad, Judicial Member and

Muhammad Munir Qureshi, Accountant Member

I.T.A. No.3316/KB of 1992-93, decided on 30th June, 2001.

Income Tax Ordinance (XXXI of 1979)---

----Ss.108 & 55---Failure to furnish return of total income ---Penalty--­Penalty imposed under S.108 of the Income Tax Ordinance, 1979 for late filing of return was challenged on the ground that since the return figure was in loss the assessee was not required to file return under the provisions of S.55 of the Income Tax Ordinance, 1979---No penalty could be imposed under S.108 of the Income Tax Ordinance, 1979 for non-submission of return which was not due under S.55 of the Income Tax Ordinance, 1979---Validity---Only the person whose income exceeded the maximum amount which was not chargeable to tax was required to file return under provision of S.55---Provisions of S.55 had clearly expressed so leaving no room for any interpretation through which the meanings of word "income" used in the section could be stretched to.include loss on the basis of speculation---In the event of loss declared by the assessee the income declared did not exceed the maximum amount which was not chargeable to tax in terms of S.55 of the Income Tax Ordinance, 1979---Penalty imposed was deleted by the Tribunal.

(1987) 169 ITR 221 and (1989) 177 ITR 445 distinguished.

Muhammad Younas Ghazi, F.C.A. for Appellant. Muhammad

Asif, D.R. for Respondent.

Date of hearing: 10th April, 2001.

2002 P T D (Trib.) 239

[Income-tax Appellate Tribunal Pakistan]

Before Mahmood Ahmed Malik, Accountant Member and

Muhammad Tauqir Afzal Malik, Judicial Member

I.T.As. Nos.3834/L13 and 3835/1-13 of 1998, decided on 9th September, 1999.

Income Tax Ordinance (XXXI of 1979)---

----S.14 & Second Sched., Part I, Cl. (118E)---Workers' Welfare Fund Ordinance, 1971, S.4-Exempt income---Levy of workers' welfare fund---Validity---Income of the assessee was exempt under Cl. (118E) of the Second Sched. of the Income Tax Oriiinance, 1979-Section 4 of the Workers' Welfare Fund Ordinance, 1971 had not provided that workers' welfare fund will be charged in case of such assessees whose income was exempt under the provision of S.14 read with Second Sched. to the Income Tax Ordinance, 1979---Workers' Welfare Fund levied was deleted by the Tribunal.

1989 PTD (Trib.) 1004 and 1989 PTD (Trib.) 617 ref.

Muhammad Asif, D.R. for Respondent.

Date of hearing: 8th September, 1999.

2002 P T D (Trib.) 242

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Daud Khan, Accountant Member and

Muhammad Tauqir Afzal Malik, Judicial Member

I.T.A. No. 1502/KB of 1999-2000, decided on 18th December, 2000.

Income Tax Ordinance (XXXI of 1979)---

----S.80-CC & First Sched., C1.CCCC(a)--C.B.R. Letter No.F-1. (WHT)/82, dated 1-12-1998---Rate of tax on export of cotton yarn---Tax charged at 1 % was reduced to 0.75 % by the First Appellate Authority--­Validity---Clarification issued by the C.B.R. were not binding on the Tribunal---Clarification will not alter the rate or the view of the Court---Rate of tax applied by the First Appellate Authority was upheld and the appeal of the Department was dismissed by the Tribunal.

Writ Petition No. 12504 of 1999 rel.

Muhammad Umer Farooq, D.R. for Appellant. Syed Ashraf

Ali for Respondent. Date of hearing: 9th December, 2000.

2002 P T D (Trib.) 244

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Tauqir Afzal :b1alik, Judicial Member

I.T.As. Nos.753/LB to 755/1-13, 1395/1-13 and 1401/LB to 1406/LB of 1999, decided on 6th July, 2000.

(a) Income Tax Ordinance (XXXI of 1979)---

-----Ss. 30, 22 & Second Sched: Part-I, Cl. (118A)---Lease income--­Industrial undertaking---Exemption---Lease income was not part of the profits and gains derived from an industrial undertaking contemplated in Cl. (118A) of the SeCOnO Sched. of the Income Tax Ordinance, 1979 and the same was assessable under S.30 and not under S.22 of the Income Tax Ordinance, 1979. [p. 246] A .

PLD 1990 SC 68; 1993 PTD 69 distinguished.

Deputy Commissioner of Income-tax, Circle 33, Multan v. Mian Sons Cotton Factory Sadiqabad I.T.A. No.361/LB of 1994 rel.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.24---Inadmissible deduction---Add back---Deletion of---Deletion of machinery repairs add back was upheld by the Tribunal as the same had been done in view of the expense having been incurred by the assessee for its own property for preserving the same by added precaution. [p. 247] B

(c) Income Tax Ordinance (XXXI of 1979)---

----S. 88---Additional tax---Show-cause notice---Speaking order--­Necessity---Additional tax cancelled by the First Appellate Authority was restored by the Tribunal as there was no need of issuance of show-cause notice of passing a speaking order. [p. 247] C & D

(d) Income Tax Ordinance (XXXI of 1979)---

----S. 110---Penalty for non-compliance with notice, etc. ---Cancellation of penalty, levied under S.110 of the Income Tax Ordinance, 1979, by the First Appellate Authority was upheld by the Tribunal as the reply to the notice was given on due date. [p. 247] E

Mirza Muhammad Waheed Baig for Appellant. Nemo for Respondent.

Date of hearing: 21st March, 2000.

2002 P T D (Trib.) 250

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Daud Khan, Accountant Member and Muhammad Tauqir Afzal Malik, Judicial Member

I.T.A. No. 1373/KB of 1999-2000, decided on 18th December, 2000.

Income Tax Ordinance (XXXI of 1979)---

----Ss. 23(1)(vii) & 30---Deduction---Borrowed capital---Interest income---Interest payable---Deduction whether admissible---Department taxed the amount of interest income on borrowed money deposited temporarily and did not allow any deduction against interest payable on such borrowed capital---Validity---No exception could be taken to levy of tax on interest income under S.30 of the Income Tax Ordinance, 1979---Assessee was not entitled to deduction of any expenditure against the same---Order of the Assessing Officer was maintained by the Tribunal.

I.T.As. Nos. 2863/KB of 1991-92; 114/KB of 1991-92; 1301 and 1302/KB of 1997-98 and 1999 PTD (Trib.) 708 rel.

Muhammad Umer Farooq, D.R. for Appellant.

Shabbar Zaidi, F.C.A. and Abid Ali Huda, A.C.A. for Respondent.

Date of hearing: 9th December, 2000.

2002 P T D (Trib.) 252

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Munir Qureshi, Accountant Member and Muhammad Tauqir Afzal Malik, Judicial Member

W.T.A. No. 932/LB of 1999, decided on 30th November, 2000.

Wealth Tax Act (XV of 1963)---

----Ss. 2(16)(ii) & 17-B---Net wealth---Liabilities---Bank loan was obtained against an asset/project---Entire project was not offered for taxation having been partly sold out---Entire liabilities claimed were allowed by the Assessing Officer---Inspecting Additional Commissioner cancelled the assessment under S.17-B of the Wealth Tax Act, 1963 on the ground that entire project was assumed to be liable to levy of wealth tax and when the entire project did not actually suffer wealth taxation, the liabilities claim too was required to be curtailed---Validity---Assets against which liability contrived by obtaining Bank loan was secured must be actually available for levy of wealth tax in order that the liability be admitted for set off against the total assets declared and provisions of S.2(16)(ii) of the Wealth Tax Act, 1963 were quite explicit on that point---Wealth tax was not payable on such part of the assets of the assessee as these assets had been sold out prior to the valuation date and as a result of sale of these assets, the assessee did not suffer wealth taxation on these assets which was violative of the fundamental requirement of taxability of assets against which liabilities were secured---Was not enough that these assets be "chargeable" to wealth tax---Law required that said assets be available for charge of wealth tax and where the assets were not available for any reason, wealth tax demand could not possibly be raised against them and the liability claim must be restricted to that extent as per statutory stipulation i.e. S.2(16)(ii) of the Wealth Tax Act, 1963---Provision of S.17-B of the Wealth Tax Act, 1963 had rightly been invoked by the Inspecting Additional Commissioner in circumstances.

Naeem Akhtar Sh., F.C.A. for Appellant.

Mian Javed-ur-Rehman, D.R. for Respondent.

Date of hearing: 2nd November 2000.

2002 P T D (Trib.) 257

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Daud Khan, Accountant Member and Muhammad Tauqir Afzal, Judicial Member

I.T.A. No. 795/KB of 1999-2000, decided on 15th December, 2000.

Income Tax Ordinance (XXXI of 1979)---

----Ss. 66-A & 23---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Deduction---Payment made to secure the market free from competition---Business expenditure--­Amortization of expenditure for three years--- -Addition was made out of such expenditure by the Inspecting Additional Commissioner under S.66-A of the Income Tax Ordinance, 1979---Validity---Payment was made to secure the market free from competition by the assessee for the specified number of years and thereby to ensure good profits for the succeeding period and proper establishment of the business---Expenditure was not in the nature of capital as no assets of enduring nature had come into existence---Expenses could not be amortized as there was no concept of amortization of expenses in the income-tax law---Order of the Inspecting Additional Commissioner was vacated by the Tribunal.

1998 PTD (Trib.) 1935; (1959) 1 Tax (111-101); CIT, Bombay v. C.I.B.A. of India Limited 69 ITR 692 (SC India) and 58 ITR 241 rel.

Asif Ali Khan, A.C.M.A. and Muhammad Irshad, I.T.P. for Appellant.

Muhammad Umer Farooq, D.R. for Respondent.

Date of hearing: 9th December, 2000.

2002 P T D (Trib.) 260

[Income-tax Appellate Tribunal Pakistan]

Before Syed Nadeem Saqlain, Judicial Member and Muhammad Munir Qureshi, Accountant Member

I.T.As. Nos. 880/LB, 881/LB, 890/LB of 1996 and 4423/LB to 4425/LB of 1998, decided on 24th August, 2000.

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss. 66-A & 80-D---Turnover---Assessee, a travel agent ---Commis­sion---Gross receipts---Sale of assets ---Inspecting Additional Commissioner directed the Assessing Officer to charge tax under S. 80D of the Income Tax Ordinance, 1979 on the gross turnover received by the assessee as an agent on behalf of its principal and sale of assets and. other income was also directed to be considered as part of gross turnover of the assessee for the purpose of charging of tax under S. 80D of the Income Tax Ordinance, 1979---Validity---Turnover of a travel agent was to be taken as commission income only and not turnover on behalf of the principal and sale proceeds of assets were also not relevant for adoption of gross turnover for the purpose of charging tax under S. 80D of the Income Tax Ordinance, 1979---Revisional order passed by the Inspecting Additional Commissioner was vacated and original order, passed under S.62 of the Income Tax Ordinance, 1979 by the Assessing Officer was restored by the Tribunal.

1994 PTD (Trib.) 758 and 1997 PTD (Trib.) 1120 rel.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss. 156, 66-A & 62---Assessment---Revision of assessment under S.66-A of the Income Tax Ordinance, 1979---Assessment, after the revision, was rectified under 5.156 of the Income Tax Ordinance, 1979 by the Assessing Officer---Validity---Since original assessment order passed under S.62 of the Income Tax Ordinance, 1979 stood merged with revisional order passed under S.66-A of the Income Tax Ordinance, 1979, the Assessing Officer could not exercise his powers under S.156 of the Income Tax Ordinance, 1979 to rectify the original assessment order for the reason that those orders were not holding the field.

1996 PTD (Trib.) 492, rel.

Yousaf Ali, I.T.P. for Appellant.

Anwar ul Haq, D.R. for Respondent.

Date of hearing: 6th June, 2001.

2002 P T D (Trib.) 267

[Income-tax Appellate Tribunal Pakistan]

Before Khawaja Farooq Saeed, Judicial Member and Mazhar Farooq Sherazi, Accountant Member

I.T.A No. 2477/LB of 2001, decided on 7th July, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss. 66-A & 59---Self-assessment for the year 1999-2001---"Income last declared or assessed whichever is higher"---Words "last declared or assessed" as used in Self-Assessment Scheme---Meaning---Assessment which stood completed under S.59(4) of the Income Tax Ordinance, 1979 was cancelled by the Inspecting Additional Commissioner under S. 66A of the Income Tax Ordinance, 1979 on account of its being less than the last highest income assessed for the assessment year 1996-97---Validity---"Last declared or assessed whichever is higher", in the assessee's case would mean relevant to assessment year 1998-99---If assessment for the assessment year 1998-99 had not been finalized for any reason the assessed income of 1997-98 shall be the base if the same was higher from the declared income of 1998-99---Same formula shall apply if in the earlier two years the declared income could not be assessed and the assessed income of third year was higher than the declared income of the two subsequent years---Last assessed income in the assessee's case did not mean highest of any of the earlier years--­Assessed income of 1996-97 could only be made base if for the years 1997-98 and 1998-99 the assessments had not been framed until the date of filing of return for the year 1999-2000---Ordinary dictionary meanings of "last" was also interpreted to be, "coming at the end, most recent, after all others etc. "---Assessee's case was considered fit for acceptance under Self-Assessment Scheme---Order of Inspecting Additional Commissioner was cancelled by the Tribunal.

(b) Words and phrases---

---- Word "last"---Meaning.

Mian Muhammad Ashiq for Appellant.

Javed Aziz, D.R. for Respondent.

Date of hearing: 16th June, 2001

2002 P T D (Trib.) 272

[Income-tax Appellate Tribunal Pakistan]

Before Syed Nadeem Saqlain, Judicial Member and Muhammad Munir Qureshi, Accountant Member

W. T. As. Nos. 1909/LB to 1914/LB of 1999, decided on 20th June, 2001.

(a) Wealth Tax Act (XV of 1963)---

----S.16(2)---Use of word "shall" in S.16(2) of the Wealth Tax Act, 1963 made the issuance of the notice upon the assessee mandatory.

(b) Wealth Tax Act (XV of 1963)---

----S.16(2)---Notice---Non service of---Effect---Setting aside or cancellation of assessment---No notice under S.16(2) of the Wealth Tax Act, 1963 having been served upon the assessee, which was a mandatory requirement under the law, order setting aside the assessment by the First Appellate Authority was vacated and assessment order of the Assessing Officer was cancelled by the Tribunal.

M. Jamil Khan v. Commissioner of Income-tax/Wealth Tax 1995 PTD 1239 and Commissioner of Income-tax/Wealth Tax v. Fazal­ur-Rehman PLD 1964 SC 410 rel.

S. Zafar Shah, F.C.A. for Appellant.

Mrs. Iram Adrian, D.R. for Respondent.

Date of hearing: 16th May, 2001.

2002 P T D (Trib.) 278

[Income-tax Appellate Tribunal Pakistan]

Before Mahmood Ahmed Malik, Accountant Member and Muhammad Tauqir Afzal Malik, Judicial Member

I. T. As. Nos. 3902/LB and 3903/LB of 1999, decided on 9th September, 1999.

Income Tax Ordinance (XXXI of 1979)---

----S. 66-A, Explanation ---C.B.R. Circular No. 14 of 1992, dated 1-7-1992---C.B.R. Circular C.No. 2(1) DTA-2 of 1994, dated 19-2-1994---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Where order passed by the Assessing Officer was without jurisdiction and was cancelled by the Inspecting Assistant Commissioner being erroneous and prejudicial to the interest of Revenue, such order of I.A.C. was maintained by the Appellate Tribunal with the observation that the order passed by Assessing Officer was rather made in haste and without proper appraisal of the facts of the case.

San Paulo (Brazilian) Railway Company Limited v. Carter (Surveyor of Taxes) Tax Cases Vol. III, p.407; I.T.A.T. No. 448/LB of 1998; I.T.H. No. 449/LB of 1998 and I.T.A. No. 450/LB of 1998 distinguished.

Anwar Shaukat and Muhammad Azhar Siddique for Appellant.

Shahbaz Butt and Muhammad Asif, D.R. for Respondent.

Date of hearing: 28th August, 1999.

2002 P T D (Trib.) 283

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Akhtar Nazar Mian, Accountant Member and Syed Kabirul Hasan, Judicial Member

I.T.As. Nos. 1486/KB to 1488/KB of 2000-2001, decided on 21st August, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.66-A---Power of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Objection raised in Audit Report--­Proceedings based on material which was before Assessing Officer--­Legality---Notwithstanding the fact that the Audit Report had drawn attention towards the Assessing Officer's orders being erroneous and prejudicial to the interest of Revenue, yet the Inspecting Additional Commissioner while proceeding under S.66-A of the Income Tax Ordinance, 1979 examined only that record on which the Assessing Officer had based his assessment and therefore, no illegality was committed by the Inspecting Assistant Commissioner in circumstances.

Ganga Properties v. I.T.O. (1979) 118 ITR 447; J.P. Sarivastava & Sons v. CIT (1998) 111 ITR 326 and 1990 PTD (Trib.) 914 distinguished.

(b) Income Tax Ordinance (XXXI of 1979)---

----S. 66-A---Erroneous order---Auditors' Report ---Revision---Validity-­When order made by the Assessing Officer was "erroneous" and mere pointing such error by the Auditor would not mean that order "has become erroneous" on .he basis of such Report of the Auditor.

(c) Income Tax Ordinance (XXXI of 1979)---

----S. 66-A---Power of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Jurisdiction---Examination of record--­Inspecting Assistant Commissioner had examined only those records which were before the Assessing Officer while framing the assessment Inspecting Assistant Commissioner had not gone beyond his jurisdiction.

(d) Income Tax Ordinance (XXXI of 1979)---

----S. 66-A---Change of opinion---Order of the Inspecting Additional Commissioner could not be hit by the concept of change of opinion on the part of Assessing Officer as he, while exercising his supervisory jurisdiction could come to a different conclusion on the basis of same points of law and facts which were available to the Assessing Officer.

1986 PTD 408 rer.

(e) Income Tax Ordinance (XXXI of 1979)---

----S. 156---Rectification of mistake---Change of opinion--­Inadmissibility---Once a finding had been given by the Assessing Officer regarding the nature of loss then notwithstanding as to whether the finding was correct or otherwise, the same Authority could not legally take different view under S.156 of the Income Tax Ordinance, 1979, otherwise it would be a case of change of opinion which was inadmissible under law.

(f) Income Tax Ordinance (XXXI of 1979)---

----Ss. 66-A & 156---Change of opinion---Initiation of proceedings under S.156 of the Income Tax Ordinance, 1979 by the Assessing Officer and subsequently under S.66-A by the Inspecting Additional Commissioner on the same point---Merger---For change of opinion on the same matter action could be taken only by the Inspecting Additional Commissioner if he found that the order passed by the Assessing Officer was erroneous insofar as it was prejudicial to the interest of Revenue---Supervisory Officer having taken up the revisionary proceedings, the action proposed by the Assessing Officer under S.156 of the Income Tax Ordinance, 1979 stood merged with the order of Inspecting Additional commissioner.

(g) Income Tax Ordinance (XXXI of 1979)---

----Ss. 66-A & 116---Inspecting Additional Commissioner's direction to Assessing- Officer to issue notice under 5.116 of the Income Tax Ordinance, 1979---Validity---Mere direction for issuing notice under S.116 of the Income Tax Ordinance, 1979 will not make Inspecting Assistant Commissioner's order invalid if the Assessing Officer's order was erroneous insofar as it was prejudicial to the interest of Revenue.

(h) Income Tax Ordinance (XXXI of 1979)---

----Ss. 66-A, 34, 36 & 37---Order prejudicial to the interest of Revenue--­Setting off of loss incorrectly---If it was found that the loss was incorrectly set off against the business income, order of the Assessing Officer having adversely affected the Assessing Officer was prejudicial to the interest of Revenue.

(i) Income Tax Ordinance (XXXI of 1979)---

----S. 66-A---Change of opinion---Order recorded by the Inspecting Additional Commissioner under 5.66-A of the Income Tax Ordinance, 1979 would not be hit by the concept of "change of opinion" as he exercised supervisory jurisdiction and could give a different conclusion on the basis of same points of law and facts which were available with the Assessing Officer---Inspecting Additional Commissioner had jurisdiction to exercise his powers under S.66-A to appreciate the law and facts in the light of his own experience and legal knowledge and he may come to a different conclusion than that of the Assessing Officer.

1990 PTD (Trib.) 914 and 1986 PTD 408 rel.

(j) Income Tax Ordinance (XXXI of 1979)---

----S.27---Capital gain---Stock in trade---Income from--Head of income-­Words "held by an assessee" as used in the context of capital assets means the property in possession of an assessee and naturally when the property was stock in trade, it was not necessarily to be retained--­Person dealing on his own in stocks and shares, such stock in trade was a capital asset and once the asset was held to be a capital asset the income on its transfer had to be computed as income under the head "Capital Gain" under S.27 of the Income Tax Ordinance, 1979.

The Chamber's Dictionary rel.

(k) Income Tax Ordinance (XXXI of 1979)---

----Ss. 34, 37, 9, 2(12)(24)(44) & Second Sched., Part I, CI. (116)--­C.B.R. Circular No. 2-IT of 1972, dated 1-7-1972---Set off of loss---Loss from dealing in stocks and shares---Capital loss---Loss from dealing in stocks and shares was computable under the head "Capital Gain", as it was not liable to be set off against income, under any of the other heads as provided in S. 34 of the Income Tax Ordinance, 1979 and was liable to be carried forward in the light of provisions of S.37 of the Income Tax Ordinance, 1979.

CIT v. Bagla Brothers (1972) 84 ITR 20; Kershandas v. CIT (1969) 71 ITR 256; New Era Agencies Private Ltd. v. CIT (1968) 68 ITR 585; CIT v. Dalmia Jain & Company Ltd. (1972) 83 ITR 438 and CIT v. Ashoka Marketing Company 1972 ITR 439 distinguished.

(l) Income Tax Ordinance (XXXI of 1979)---

----S. 66-A & 59(1)(3)---Power of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Self-assessment---Failure of the Assessing Officer in resorting to S.59(3) of the Income Tax Ordinance, 1979 made his order erroneous and prejudicial to the interest of Revenue and was liable to be revised under S.66-A of the Income Tax Ordinance, 1979.

1991 PTD 217 distinguished.

(m) Income Tax Ordinance (XXXI of 1979)---

----Ss. 66-A & 116---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Penalty proceedings---Inspecting Additional Commissioner modifying and not cancelling the order of the Assessing Officer for de novo proceedings---Validity---Initiation of penalty was beyond the scope of S.66-A of the Income Tax Ordinance, 1979 because while proceedings under S.66-A the Inspecting Additional Commissioner could either enhance or modify the assessment or cancel .the assessment with the direction to make fresh assessment---When all the facts had already been brought on record by the tax payer and nothing had been concealed, then there was no occasion to initiate penalty proceedings for concealment.

(1985) 156 ITR 603; (1983) 142 ITR 606 and (1982) 133 ITR 7 rel.

(n) Income Tax Ordinance (XXXI of 1979)---

----Ss. 66-A, 62, 59(1), 34, 36, 37, 116, 156 & Second Sched., C1. (116)---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Assessment---Self-assessment---Set off of loss---Capital loss was set off against other income---Revision of such order by the Inspecting Additional Commissioner and penalty proceedings---Validity---Inspecting Additional Commissioner was justified in proceeding under S.66-A of the Income Tax Ordinance, 1979 because orders passed under Ss. 62 & 59(t) of the Income Tax Ordinance, 1979 were erroneous insofar as these were prejudicial to the interest of Revenue as the profit or loss from dealing in shares and stocks even if temporarily retained was to be computed under the head "Capital Gains"---Such loss was not computable under S.34 of the Income Tax Ordinance, 1979 but had to be carried forward in accordance with the provisions of S.37 of the Income Tax Ordinance, 1979, notwithstanding the exemption as far as it might be available under C1. (I 16) of Part I of the Second Schedule to the Income Tax Ordinance, 1979---Directions of the Inspecting Additional Commissioner to the Assessing Officer for initiating penalty proceedings were omitted and the order under S.66-A of the Income Tax Ordinance, 1979 as such was maintained by the Tribunal in circumstances.

I.T.A. No. 2328/KB of 1992-93 ref.

Muhammad Nasim for Appellant.

Javed Iqbal Rana, I.A.C. for Respondent.

Date of hearing: 16th August, 2001.

2002 P T D (Trib.) 303

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Mahboob Alam, Accountant Member, Syed Kabirul Hasan and Junaid Masood Tahir Bhatti, Judicial Members

I.T.A. No. 432/KB of 2000-2001, decided on 19th April, 2001.

(a) Words and phrases----

----"Any"---Meanings---Word "any" has a diversity of meaning as may be employed to indicate "all' or "every" as well as "some" or "one" and its meaning in a given statute depends upon the context and subject-­matter of the statute.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss. 24(b) & 50(7D)---Inadmissible deduction---Expression "instrument of any kind" used in S.50(7D) of the Income Tax Ordinance. 1979--­Connotation---Lease business---Loan agreements---Financial charges--­Disallowance of---Financial charges were disallowed by the Assessing Officer on the ground that the tax was not deducted under S.50(7D) of the Income Tax Ordinance, 1979 which was confirmed by the First Appellate Authority---Validity---Loan agreements fall within the definition of "instrument of any kind" because the words used could not be restricted to only those instruments which were negotiable instruments---Loan agreements or T.F.Cs. are instruments which fall within the definition of "instrument of any kind" within the meaning of S.50(7D) of the Income Tax Ordinance, 1979, and therefore, the tax was deductible by the assessee---Orders of Authorities below were upheld by the Tribunal.

I. T. A. No. 154/KB of 1998-99 disapproved.

I. T. A. No. 1627/KB of 1998-99 approved.

1992 SCMR 563 and PLD 1995 SC 281 ref.

(c) Interpretation of statutes---

---- Word "any" used in an enactment---Connotation.

Khalik Waggan, A.C.A. and Irfan Saadat for Appellant Shaheen Aziz Niazi, D.R. for Respondent.

Date of hearing: 15th February, 2001.

2002 P T D (Trib.) 309

[Income-tax Appellate Tribunal Pakistan]

Before Shaheen Iqbal, Accountant Member and S. Hasan Imam, Judicial Member

I.T.As. Nos. 1882/KB and 1881/KB of 1994-95, decided on 5th September, 2001.

Income Tax Ordinance (XXXI of 1979)---

----Third Sched., R.8(5)---Sale proceeds ---Addition---Addition was made on the ground that sale consideration was shown lesser than the fair market value of the assets sold---First Appellate Authority directed to delete the said addition as the Assessing Officer had failed to evolve any basis of his estimate of the fair market value and even had not made any physical enquiries and the same was upheld by the Tribunal.

1983 PTD 429 and 1998 PTD 2989 ref.

Muhammad Umer Farooq, D.R. for Appellant (in. I.T.A. No. 1882 of 1994-95)

Z.H. Jaffari for Respondent (in I.T.A. No. 1882 of 1994-95)

Z.H. Jaffari for Appellant (in I.T.A. No. 1881 of 1994-95).

Muhammad Umer Farooq, D.R. for Respondent (in I.T.A. No. 1881 of 1994-95). .

Date of hearing: 5th September, 2001.

2002 P T D (Trib.) 316

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Daud Khan, Accountant Member and Syed Kabirul Hassan, Judicial Member

W.T.A. No. 533/KB of 1999-2000, decided on 31st May, 2001.

(a) Central Board of Revenue Circulars---

----Circulars/instructions by Central Board of Revenue of beneficial nature, are binding on the field officers.

(1992) 65 Tax 102 (SC Pak.) rel.

(b) Wealth Tax Act (XV of 1963)---

----Second Sched., Part I, C1.7(ii)---Exemption---Remittances not proved through normal banking channel---Sale of Foreign Exchange Bearer Bonds---No exemption for the assets created out of sale proceeds of F.E.B.Cs. in any manner whatsoever in case remittance of foreign currencies through normal banking channel is not proved.

2000 PTD 322 rel

(c) Wealth Tax Act (XV of 1963)---

----Second Sched: Part I; el. 7(ii)---Central Board of Revenue Circular Letter No. 8(9) WT/IT-5/79, dated 30-6-1985---Central Board of Revenue Circular No. 8/12 W.T, dated 30-6-1985---Exemption---Foreign remittances---Number of conversions--Sale proceeds of Foreign Exchange Bearer Bonds---Assets created out of sale proceeds of F.E.B.Cs. purchased out of foreign currencies remitted to Pakistan shall enjoy exemption for a period of 6 years from the date of original remittance irrespective of the number of conversions which they undergo during the period but exemption will be restricted to original value of remittance only.---[1997 PTD (Trib.) 1928 reversed].

1997 PTD (Trib.) 1928 reversed.

1999 PTD (Trib.) 1494; 1991 PTD (Trib.) 135 and PLD 1991 Kar. 320 ref.

Akbar G. Merchant and Ms. Yasmin Ajani, F.C.As. for Appellant.

Muhammad Umer Farooq, D.R. for Respondent.

Date of hearing: 12th May, 2001.

2002 P T D (Trib.) 329

[Income-tax Appellate Tribunal Pakistan]

Before Sajid Hussain, Member (Judicial) and Zafar Iqbal, Member (Technical)

Appeal No. K-30 of 2001, decided on 22nd May, 2001.

Sales Tax Act (VII of 1990)---

----S. 5(b) & Sixth Sched.---S.R.O. No. 922(1)/99, dated 16-8-1999--­Customs Act, 1969, Ss. 32(2) & 79(2)(4)---Change in the rate of tax--­Exemption---Crude oil---Import of---Exemption from sales tax--­Presentation of Bill of Entry as on 7-8-1999---Delivery of manifest as on 12-8-1999---Sales tax was levied as on 16-8-1999 vide S.R.O. No. 922(1)/99, dated 16-8-1999---Bill of Entry was completed for final assessment and payment exempting the goods from sales tax being not chargeable, when the manifest for vessel was delivered---Show-cause notice after lapse of more than two years---Sales tax was levied on the ground that Bills of Entry were filed after issuance of the said S.R.O.--­Validity---Demand raised by the Department was declared to be illegal by the Tribunal in the circumstance.

Ataullah Khan, Consultant for Appellant.

Nihar Khan, Appraising Officer for the Department.

Date of hearing: 22nd May, 2001.

2002 P T D (Trib.) 333

[Income-tax Appellate Tribunal Pakistan]

Before Inam Ellahi Sheikh, Chairman and Javed Iqbal, Judicial Member

I.T.As. Nos. 771/KB to 774/KB of 2000-2001, decided on 4th October, 2001.

(a) Income-tax----

----Assessment, setting aside of---Justification---First Appellate Authority was not justified in setting aside the assessments second time when the assessee had been non-cooperative and provided no information on the issue involved in the re-assessment proceedings, despite the fact that the assessee was provided a number of opportunities.

(b) Income Tax Ordinance (XXXI of 1979)----

----S. 24---Inadmissible deduction---Head Office expenses--­Disallowance of---Relationship between branch and Head Office­--Disallowance of Head Office expenses by the Assessing Officer was maintained by the Tribunal as there was no evidence to establish the relationship of branch and Head Office to justify the claim of Head Office expenses.

(c) Income-tax---

Exchange gain---Receipts---Application of---G. P. rate---Exchange gain should be treated as part of the receipts of the assessee for the purpose of application. of G.P. rate.

(d) Income Tax Ordinance (XXXI of 1979)---

----S. 52---Liability of persons failing to deduct or pay tax---Assessing Officer was not justified to proceed in a stereotype manner by invoking the jurisdiction under S.52 of the Income Tax Ordinance, 1979 to the total amounts of supplies or expenditure without specifying the payment, which attracted the deduction---Assessing Officer even failed to specify the name of the assessee in the main body of the order---Appeal of the department was dismissed by Tribunal.

Imtiaz Ahmed Barakzai, D.R. for Appellant.

Abid Sherazi for Respondent.

Date of hearing: 22nd September, 2001.

2002 P T D (Trib.) 337

[Income-tax Appellate Tribunal Pakistan]

Before Inam Ellahi Sheikh, Chairman and Javed Iqbal, Judicial Member

I.T.As. Nos. 457/KB to 460/KB of 2000-2001, decided on 29th September, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss. 66-A & 134-B---Statement under S.143-B of the Income Tax Ordinance, 1979 was not an "order" so as to attract the provisions of S-66-A of the Income Tax Act Ordinance, 1979.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.156(2)---Rectification of mistake---Notice---Non-issuance of---Effect---Vacation or setting aside of order---Vacation of order passed under S.156 of the Income Tax Ordinance, 1979 by the First Appellate Authority for non-issuance of notice under subsection (2) of S.156 of the Income Tax Ordinance, 1979 was declared to be justified by the Tribunal for the provision of S.156(2) was mandatory in nature.

2000 PTD 2872; 1999 PTD 1655 and (2001) 83 Tax 221 ref.

(c) Income Tax Ordinance (XXXI of 1979)---

----Ss. 143-B & 55---Statement under S.143-B of the Income Tax Ordinance, 1979 could not be equated with a Return filed under S.55 of the Income Tax Ordinance, 1979.

(d) Income Tax Ordinance (XXXI of 1979)---

----Ss. 143-B & 52---Department could resort to the provisions of S.52 of the Income Tax Ordinance, 1979, if there was any shortfall in the deduction/payment of tax.

(e) Income Tax Ordinance (XXXI of 1979)---

----Ss. 156 & 143-B---Rectification of mistake---Where the Tribunal had declared that there was no "order" in existence, the rectification of the same under S.156 of the Income Tax Ordinance, 1979 was beyond the authority of the Assessing Officer.

(f) Income Tax Ordinance (XXXI of 1979)---

----Ss. 156, SOC & 22(c).---Rectification of mistake---Assessing Officer invoked the provisions of S.22(c) of the Income Tax Ordinance, 1979 and applied a normal rate of tax to the deemed income in the form of "tax on tax"---Income of the assessee would fall within the ambit of S. 80C of the Income Tax Ordinance, 1979 and such provisions of law exclude the application of any other provisions of' the Income Tax Ordinance, 1979---Rectification of such order, in the case, fell outside the scope of 5.156 of the Income Tax Ordinance, 1979.

(g) Income Tax Ordinance (XXXI of 1979)---

----S. 80C---Provisions of S. 80C of the Income Tax Ordinance, 1979 exclude the application of the normal assessment provisions of the Income Tax Ordinance, 1979.

Provisions of section 80C of the 1979-Ordinance exclude the application of the normal assessment provisions of the 1979-Ordinance.

Any amount on which tax is deductible under subsection (4) of section 50 of the 1979 Ordinance, whether actual or deemed, is chargeable under section 80C of the 1979-Ordinance and the application of the other provisions of the 1979---Ordinance, including the provisions of section 22 of the 1979---Ordinance, have been made inapplicable.

(h) Income Tax Ordinance (XXXI of 1979)---

----Ss. 80C, 50(4) & 22(c)---Tax on income of certain contractors and importers---Exclusion of other provisions---Where tax was deductible under S.50(4) of the Income Tax Ordinance, 1979, whether actual or deemed, and was chargeable under S. 80C of the Income Tax Ordinance, 1979, there the application of other provisions of the Income Tax Ordinance, 1979, including the provisions of S.22 of the Income Tax Ordinance, 1979, had been made inapplicable.

(i) Income Tax Ordinance (XXXI of 1979)---

----Ss. 22(c), 23, 80C & 143-B---Income from business or profession--?Crossing up the receipt of "tax on tax" ---Department treated the assessee's tax liability paid by the owner as income under S.22(c) of the Income Tax Ordinance, 1979---Validity---Philosophy of grossing up the receipt for "tax on tax" was that the assessee receiving the payment was deemed to have received gross amount, before deduction of tax, for rendering services or for execution of contracts---If provisions of S.22(c) were applied to the element of tax on tax, then the Department might face the question of allowing expenses under S.23 of the. Income Tax Ordinance, 1979 and allocation thereof between amounts covered by the presumptive tax regime and otherwise for which there was no provision in the law or any. rules---Provisions of S.22(c) of the Income Tax Ordinance, 1979 were not applicable to the amounts in question in circumstances.

Vishno Raja Qavi, D.R. for Appellant.

Hassan Naeem, I.T.P. for Respondent.

Date of hearing: 22nd August, 2001.

2002 P T D (Trib.) 345

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Akhtar Nazar Mian, Accountant Member and Syed Kabirul Hasan, Judicial Member

W.T.As. Nos. 608/KB and 609/KB of 1999-2000, decided on 13t: August, 2001.

Wealth Tax Act (XV of 1963)---

----Ss. 5(1)(xv)(ii) & 17-B---C.B.R. Letter C.8(9)-WT/IT-V/79, date 30-6-1985---C.B.R. Letter ITJ/(42) of 1985, dated 22-8-1985-­Exemption---Assessee had created immovable assets out of foreign remittances received and had claimed exemption---Assets were partially disposed of in the subsequent assessment years but assessee had claimed that exemption was still available to the extent of receipt of foreign remittances which the Assessing Officer allowed---Inspecting Additional Commissioner, revised the assessment order on the ground that the exemption was available only on the first conversion of foreign remittances into assets and that no exemption was available if an asset created out of foreign remittances was .converted into another fore subsequently---Validity---Exemption was available under S.5(1)(xv) of the Wealth Tax Act, 1963 to all assets fulfilling the conditions require( therein for those years irrespective of number of conversions such asset had undergone---Order of the Inspecting Additional Commissioner was set aside by the Appellate Tribunal with the direction that Assessing Officer may allow the exemption to the 'extent the foreign remittance were received by the assessee during these years or the relevant previous years so that the effect of exemption did not go beyond the year in which the remittance was received and the five succeeding years notwithstanding the number of conversions of assets that take place in these years.

1999 PTD (Trib.) 135; 1997 PTD (Trib.) 1928 and (1999) 7! Tax (Trib.) 150 distinguished.

W.T.A No. 533/KB of 1999-2000 rel.

Iqbal Abadan, C.A. for Appellant. Dr. Fazal Abrejo, D.R. for Respondent.

Date of hearing: 9th August, 2001.

2002 P T D (Trib.) 350

[Income-tax Appellate Tribunal Pakistan]

Before Jameel Ahmed Bhutto, Accountant Member and Karamat Hussain Niazi, Judicial Member

I.T.A. No. 79/IB of 1998-99, decided on 18th August, 2001

(a) Income Tax Ordinance (XXXI of 1979)---

-----Ss. 111, 13(1)(aa) & 138E---Penalty for concealment of income etc.--­Addition---Settlement---Addition made under S.13(1)(aa) of the Income Tax Ordinance, 1979 was reduced by the Income Tax Settlement Commission with the consent of the assessee---Assessing Officer initiated penalty proceedings for concealment ---Assessee contended that settlement was an agreement with the Department and in view of the agreement between the Department and assessee, the right of Department to impose penalty was automatically waived off---Validity---Penalty was rightly imposed on the admitted amount of deemed income under S.13(1)(aa) of the income Tax Ordinance, 1979 settled at the level of Income Tax Settlement Commission---Nothing in the order of the Settlement Commission was available to show that besides reducing the quantum of deemed income, there was any settlement on the question of penalty under S.111 of the Income Tax Ordinance, 1979---Proceedings for assessment of income which included addition under S.13(1)(aa) were independent in their nature and could not be equated with the penalty proceedings---Settlement reached with the Income-tax Settlement Commission had not placed any bar on the penalty proceedings to spite of the agreement of the assessee on the quantum of deemed income as terms of settlement did not include the penalty to question in the order of the Settlement Commission---No agreement existed with the Income Tax Department or with any competent Income-tax Authority about the quantum of deemed income---Penalty for concealment of income was required to be considered independently under S.111 of the Income Tax Ordinance, 1979 in circumstances.

(1998) 42 Tax 87 (Trib.) distinguished.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.138-E---Disposal of applications by the Settlement Commission--­Settlement---Agreement----Settlement reached by the assessee at the level of the Income-tax Settlement Commission could not be treated as an agreement with the Income-tax Department.

Sh. Anwar-ul-Haq for Appellant.

Muhammad Tahir Khan, D.R. for Respondent

Date of hearing: 18th August, 2001

2002 P T D (Trib.) 358

[Income-tax Appellate Tribunal Pakistan]

Before Inam Ellahi Sheikh, Chairman and Munsif Khan Minhas, Judicial Member

I.T.As. Nos. 726/KB, 1668/KB and 1669/KB of 2001-2002, decided on 13th October, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.66-A---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Jurisdiction---Assessment modified under S. 66A of the Income Tax Ordinance, 1979 was cancelled by the Tribunal as the assessment was made by an officer of the same rank i.e. Inspecting Additional Commissioner.

2001 PTD 1467 rel.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss. 66-A, 62 & 34---Protection of Economic Reforms Ordinance (XII of 1992), Preamble---Set-off of loss---Foreign exchange gain and loss--­Assessee showed foreign exchange gains as exempt under the Protection of Economic Reforms Ordinance, 1992. and exchange loss was claimed as an expense which was allowed by the Assessing Officer---Inspecting Additional Commissioner modified the assessment on the ground that assessee had set off exchange gain and losses for the accounts purposes whereas for the income-tax purposes the assessee had claimed exemption on the exchange gain and had separately claimed the exchange loss and addition was made on account of exchange fluctuation ---Validity--­Assessee had made the payments from the foreign currency deposits the exchange gain from which had been covered against the exchange losses in the books of accounts---Since the notional exchange gain on transaction of payments due to time lag was emanating from the same source i.e. foreign currency deposits, the accounting treatment was accurate treatment and the assessee had no case for the allowance of exchange loss from such transaction separately---Exchange gain on foreign currency deposits should not be considered separately and independently as compared to the exchange loss incurred/recorded at the time of payments.

Naveed Haider, A.C.A. for Appellant.

Shaheen Aziz Niazi, D.R. for Respondent.

Date of hearing: 11th October, 2001.

2002 P T D (Trib.) 364

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Sharif Chaudhry, Accountant Member and Muhammad Tauqir Afzal Malik, Judicial Member

I.T.As. Nos. 4082/LB and 4148/LB of 2000, decided on 25th June 2001.

Income Tax Ordinance (XXXI of 1979)---

----Ss. 24(fff) & 16(2)(e)---Salary paid to Directors ---Deductions--­Admissibility---Salary paid in cash to the Directors of the company was disallowed by the Assessing Officer being not paid through a crossed cheque or transferred to the employee's Bank account as provided in S.24(fff) of the Ordinance, 1979---Assessee contended that Director was not an employee of the company for the purpose of S.24(fff) of the Income Tax Ordinance, 1979 rather he was a shareholder and owner of the company---Validity---Word "employee" as defined in S.16(2)(e) of the Income Tax Ordinance, 1979 includes a Managing Director or any other individual who, irrespective of his designation, performs any duties or functions in connection with the management of affairs of the company---Directors of the assessee-company were, no doubt, performing duties or functions in connection with the management of the affairs of the company and were being paid salaries and remunerations for their services---Revenue was justified to treat the Directors of the company as "employees" and to disallow the salaries paid to these Directors under S.24(fff) of the Income Tax Ordinance, 1979 because the conditions of payment of salaries through crossed cheques or through transfer to their Bank accounts as required by law, had not been fulfilled.

(1977) 36 Tax 223 and 2000 PTD (Trib.) 2883 distinguished.

Muhammad Saleem Ch. for Appellant (in I.T.A. No. 4082/LB of 2000).

Shahid Zaheer, D.R. for Respondent (in I.T.A. No. 4082/LB of 2000).

Shahid Zaheer, D.R. for Appellant (in I.T.A. No. 4148/LB of 2000).

Muhammad Saleem Ch. for Respondent (in I.T.A. No. 4148/LB of 2000)

Date of hearing: 30th May, 2001

2002 P T D (Trib.) 373

[Income-tax Appellate Tribunal Pakistan]

Before Syed Masood ul Hassan Shah, Judicial Member and Saeed Ahmad Zaidi, Accountant Member

M.A. (R) No. 3/IB of 2001-2002 in I.T.A. No. 676/IB of 1997-98, decided on 4th September, 2001.

Income Tax Ordinance (XXXI of 1979)---

----Ss. 156, 135 & 12(18A)---Rectification of mistake---Disposal of appeal by the Appellate Tribunal---Reported case of Income-tax Appellate Tribunal in a reference application---Rectification on the basis of said reported case----Obiter dictum of the Tribunal in a reported case of a reference application could not be made basis for settling a proposition of law by way of rectification application aimed at rectifying an order passed in the main appeal dealing with that proposition---No apparent mistake liable to be rectified within the ambit of provisions of S.156 of the Income Tax Ordinance, 1979 existed---Rectification application was rejected by the Tribunal.

2001 PTD (Trib.) 2065 and I.T.A. No. 497/IB of 1999-2000 ref.

Bashir Ahmed for' Appellant.

Nadir Mumtaz Warraich, D.R. for Respondent

Date of hearing: 4th September, 2001

2002 P T D (Trib.) 458

[Income-tax Appellate Tribunal Pakistan]

Before Rasheed Ahmad Sheikh, Judicial Member and Javed Tahir Butt, Accountant Member

M. A. Stay Nos.640/LB to 642/LB of 2001, decided on 3rd November, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.134(6)---Civil Procedure Code (V of 1908): S.151---Appeal to the Appellate Tribunal---Re-assessment proceedings, stay of---Tribunal, according to S.134(6) of the Income Tax Ordinance, 1979 is empowered to stay recovery proceedings in a case where an appeal against the impugned order has been filed before it---Stay of recovery of outstanding tax demand cannot be granted beyond the period of six months in aggregate by the Tribunal---Yet the fact remains that in view of 5.151, C.P.C. the Court is vested with inherit powers to grant stay of ancillary proceedings in order to meet .the ends of justice or to prevent abuse of process of the Court---Where an Act confers jurisdiction, it impliedly also grants the powers of doing all such acts or employing such means as are essentially necessary, to its execution.

1985 PTD 375; 1986 PTD 92; NTR 1991 HC 75; 1991 PTD 872; 1997 PTD (Trib.) 902; 98 ITR 39; 110 ITR 79; 194 ITR 507 and 1981 TR 623 rel.

(b) Income-tax----

---Interim order---Interim order is part of working of judicial system and for that purpose no separate or specific provision is necessary -to empower a Court to issue an interim order---Even in the absence of any such specific provision, a Court has power to grant an interim relief in the appropriate cases as the same is ancillary and incidental to the power to grant final relief---Where a Court has power to pass an order finally it will generally have the power to grant interim relief unless such power is either expressly or by necessary implication excluded.

1985 PTD 375; 1986 PTD 92; NTR 1991 HC 75; 1991 PTD 872; 1997 PTD (Trib.) 902; 98 1TR 39; 110 ITR 79; 194 ITR 507 and 198 ITR 623 rel.

(c) Income Tax Ordinance (XXXI of 1979)---

----S.134(6)---Appeal to Appellate Tribunal---Stay of re-assessment proceedings---Scope---Open to the Tribunal under the scope and ambit of the appellate jurisdiction conferred under S.134(6) of the Income Tax Ordinance, 1979 to stay operation of any proceedings initiated by the lower Authorities where the appeal against the impugned order or direction is pending for disposal before the Tribunal---If the Tribunal finally declares the order passed by the lower Authority ,as passed in flagrant violation of law, then the whole exercise made by the Assessing Officer in finalizing the re-assessment would be futile---Tribunal is empowered to pass an interim order restraining the lower Authority to implement the orders or directions made by their higher Authorities where the appeal in that case is pending for adjudication before the Tribunal.

(d) Income Tax Ordinance (XXXI of 1979)---

----Ss.134(6) & 66A---Appeal to Appellate Tribunal---Cancellation of original assessment---Re-assessment proceedings by the Assessing Officer---Validity---Order of the Inspecting Assistant Commissioner regarding cancellation of the original assessment order was the subject of appeal before the Tribunal on, legal as well as on factual grounds--­Tribunal directed the Assessing Officer to refrain from initiating reassessment proceedings till the final disposal of the assessee's appeal by the Tribunal.

1985 PTD 375; 1986 PTD 92; NTR 1991 HC 75; 1991 PTD 872; 1997 PTD (Trib.) 902; 98 ITR 39; 110 ITR 79; 194 ITR 507 and 198 ITR 623 rel.

Asif Bhatti, I.T.P. for Appellant.

Javed-ur-Rehman, D.R. for Respondent.

Date of hearing: 3rd November, 2001.

2002 P T D (Trib.) 503

[Income-tax Appellate Tribunal Pakistan]

Before Khawaja Farooq Saeed, Judicial Member and Muhammad Munir Qureshi, Accountant Member

R.A. No.349/LB of 2001, decided on 29th September, 2001.

Income Tax Ordinance (XXXI of 1979)--­

----Ss. 59, 59-A & 136---C.B.R. Circular No. 5 of 1997, dated 12-7-1997---C.B.R. Letter No. C. No. 7(27)/S. Asstt/1996,dated 27-1I-1996---Broad-Based Self-Assessment Scheme ---Reference---Assessment year 1997-98---Assessee's case was excluded from Broad­Based Self-Assessment Scheme'on the ground that assessee's case for the assessment year 1996-97 was accepted under S.59-A and not under S.59(1) of the Income Tax Ordinance, 1979 and immunity for the assessment year 1997-98 was available only to those cases covered under S.59(1) and not to cases accepted under S.59-A of the Income Tax Ordinance, 1979---Validity---Requirement for qualification under the Scheme was that the tax paid on the basis of income declared for the assessment year 1997-98 was not less than the, tax payable for assessment year 1996-97---Assessee's return being covered within the relevant provision the question that the same was not finalized under Self-­Assessment Scheme 1996-97 and was otherwise accepted under S.59 of Income Tax Ordinance, -1979 became irrelevant---No reason existed to select the case of assessee for normal assessment and the finding of the Tribunal was clear in all respects---Reference was refused to be sent to the High Court by the Tribunal.

Muhammad Asif, D.R. for Appellant.

Malik Muhammad Bashir for Respondent.

Date of hearing: 22nd September, 2001.

2002 P T D (Trib.) 532

[Income-tax Appellate Tribunal Pakistan]

Before Inam Ellahi Sheikh, Chairman and Syed Nadeem Saqlain. Judicial Member

I.T.As. Nos.6872/LB of 1996. 1930/LB and 4265/LB of 2000, decided on 4th July, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----5.12(18)--.-Deemed income- --Assessment year 1991-92---Addition made under S.12(18) of the Income Tax Ordinance, 1979, was deleted by the Tribunal on the ground that the said provision was not attracted in the assessment year 1991-92.

I.T.A. No.853/LB of 1999 rel.

(b) Finance Act (XII of 1991)---

----S.12(8)---Corporate Assets Tax--Additional tax---Additional tax levied was deleted by the First Appellate Authority being time-barred--­Deletion was maintained by the Tribunal on account of confusion created in the minds of taxpayers as a result of multiple Circulars issued by the Central Board of Revenue and not for the reasons recorded by the First Appellate Authority.

I. T. A. No. 1872/LB of 1997 and I.T.A. No.2411 of 2001 rel.

(c) Income Tax Ordinance (XXXI of 1979)---

----Ss.80-C, 50(5) & 50(4)---Presumptive tax---Import---Double taxation---Deduction of tax at import stage as well as on supply of same goods---Validity---Appellate Tribunal upheld the deduction of tax under S.50(5) read with S.80-C of the Income Tax Ordinance, 1979 and directed to delete the tax deducted under S.50(4) of the Income Tax Ordinance, 1979 for the reason that assessee could not be subjected to taxation twice.

2000 PTD (Trib.) 2853 rel.

Khawaja Muharnmad Iqbal for Appellant.

Anwar ul Haq, D.R. for Respondent

Date of hearing: 30th May, 2001.

2002 P T D (Trib.) 546

[Income-tax Appellate Tribunal Pakistan]

Before' Khawaja Farooq Saeed, Judicial Member and Muhammad Munir Qureshi, Accountant Member

W.T.As. Nos.453/LB and 454/LB of 1996, decided on 11th September, 2001.

Income Tax Ordinance (XXXI of 1979)---

----S. 80-D---Turnover Tax---Provision for taxation---Reserve to balance­sheet---Determination---Amount of provision for taxation to be correct determined---Keeping unlimited and unbridled reserves in balance-sheet could change the scenario and it has to be the liability proper and not merely a spurious figure.

Commissioner of Wealth Tax, Lahore v. Mst. Fouzia Mughis 1988 PTD 629 and 1992 PTD 671 rel.

Muhammad Asif, D.R. for Appellant.

Muhammad Iqbal Khawaja and Faisal Iqbal Khawaja, C.A. for Respondent.

Date of hearing: .8th February, 2001.

2002 P T D (Trib.) 560

[Income‑tax Appellate Tribunal Pakistan]

Before Javed Iqbal, Judicial Member and

Muhammad Akhtar Nazar Mian, Accountant Member

I.T.A. No. 1211/KB of 1995‑96, decided on 15th November, 2001.

Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S. 63 & Second Sched., Part I, Cl. 54‑A(b)‑‑‑Best judgment assessment‑‑‑Salary income‑‑‑Lump sum addition‑‑‑Validity‑‑‑Authorities below were bent upon making some additions .only because the orders were being made ex parte‑‑‑Validity‑-‑Whenever the Assessing Officer proceeded ex parte, the onus shifted on him to justify his estimates of income against the declared income and mere an ex parte order was no justification for making ad hoc additions‑-‑Assessing Officer was directed by the Tribunal to delete the lump sum addition and also to allow the exemption available to the assessee as per Cl. 54‑A of Part I of Second Sched. of Income Tax Ordinance, 1979.

Abdul Waheed, I.T.P. for Appellant.

Muhammad Umar Farooq, D.R. for Respondent.

Date of hearing: 15th November, 2001.

2002 P T D (Trib.) 580

[Income-tax Appellate Tribunal Pakistan]

Before Javed Iqbal, Judicial Member and

Muhammad Akhtar Nazar Mian, Accountant Member

I.T.As. Nos. 1067/KB/DB and 1068/KB/DB of 2000-2001, decided on 24th November, 2001.

Income Tax Ordinance (XXXI of 1979)---

----Ss. 108(b), 139 & 142---Submission of statements to an officer having no jurisdiction---Penalty---Validity---Admittedly the statements were not submitted to the competent officer, submission of the statements to an officer having no relevance or jurisdiction over the case could not be termed as the compliance of the statutory provisions--­Penalty imposed was confirmed by the Tribunal.

(1981) 43 Tax 51 (Trib.) ref.

Mudassar Shah for Appellant

Muhammad Umar Farooq, D.R. for Respondent

Date of hearing: 23rd November, 2001.

2002 P T D (Trib.) 582

[Income-tax Appellate Tribunal Pakistan]

Before Munsif Khan Minhas, Judicial Member and

Muhammad Akhtar Nazar Mian, Accountant Member

W.T.As. Nos. 181/KB/DB and 182/KB/DB of 2000-2001, decided on 17th October, 2001.

(a) Wealth Tax Rules, 1963---

----S. 8(3)---Valuation of land and building---Procedure---Steps to be taken by Assessing Officer for valuing the lands and buildings stated.

Assessing Officer has to take following steps for valuing the lands and buildings:----

Assessing Officer is to determine the value of lands and building with due regard to the nature and size of the property, the amenities available and the price prevailing for similar property in the same locality or in the neighbourhood of the said locality.

Assessing Officer is to determine the gross annual rental value (GARY) of the property which means the sum for which the property might reasonably be expected to let from year to year.

If G.A.R. fixed by the Assessing Officer is higher than the rent actually paid or payable by the tenants of the building, then the Assessing Officer has to seek approval of his I.A.C. for taking this amount of G.A.R.V. of the building.

Assessing Officer is to compare the value determined by him with the G.A.R.V. as fixed by him according to the prescribed procedure and where the value of the building is higher than 10 times of the G.A.R.V. he is to seek the approval of Commissioner for taking this value.

(b) Wealth Tax Act (XV of 1963)---

----S. 3A(6)---Wealth Tax Rules, 1963, R.8(3)---Valuation of assets for wealth tax purpose---Value of property was declared 10 times of the rent received---Assessing Officer had valued the property on the lines the value of undisclosed asset was made under S.3A(6) of the Wealth Tax Act, 1963---Validity---Assessment was set aside with the direction that assessment will be re-framed by valuing the said property in accordance with the procedure explained in R.8(3) of Wealth Tax Rules, 1963.

Raees-ul-Hassan for Appellant.

Rehmatullah Wazir, D.R. for Respondent.

Date of hearing: 17th October, 2001.

2002 P T D (Trib.) 586

[Income-tax Appellate Tribunal Pakistan]

Before Inam Ellahi Sheikh, Chairman and Javaid Iqbal, Judicial Member

W.T.A. No. 375/KB of 2000-2001, decided on 31st August, 2001.

Wealth Tax Rules, 1963---

----R. 8(3), proviso---Wealth Tax Act (XV of 1963), Ss.2(16), 2(24), 3, 7 & Second Sched.---C.B.R. Circular No. 11 of 1994, dated 17-7-1994-­Net wealth---Valuation of land and building---Valuation on the basis of actual rent received---Self-occupied house was rented out 8 days before the valuation date i.e. 22-6-1999---Rent was admittedly realized only for 8 days during the assessment year---Exemption for self-occupied house was claimed as the house remained under the occupation of assessee even up to the date of valuation i.e. 30-6-1999 due to repairs and renovation to be carried out as per lease agreement---Assessing Officer adopted the Gross Annual Rental Value on the basis of annual rent on the valuation date---Validity---Rule 8(3), proviso, Wealth Tax Rules, 1963 puts some restrictions on the power of the Assessing Officer in estimating the gross annual rental value at a sum higher than the rent paid or, payable by the tenant---Superficially it would show that if the assessee's tenant had paid rent of a period shorter than a year, say for 8 days as in the present case, then Assessing Officer could not expand such amount to cover the whole year on that basis, in other words, it would appear that by virtue of R.8(3), proviso the Assessihg Officer was obliged to estimate annual rental value equal to the actual rent of 8 days only---Only actual rent received for 8 days be counted for the purpose of net wealth of assessee as for remaining period the house was in self­-occupation of the assessee.

2001 PTD (Trib.) 22 rel.

I. T. A. No.255/KB of 1998-99; 1994 PTD (Trib.) 1403; 1996 PTD (Trib.) 404; W.T.A. No.472/KB of 1999-2000 and 1988 PTD 605 ref.

Mian Mukhtar, I:T.P. for Appellant.

Agha Hadayatullah, D.R. for Respondent.

Date of hearing: 16th August, 2001.

2002 P T D (Trib.) 598

[Income-tax Appellate Tribunal Pakistan]

Before Munsif Khan Minhas, Judicial Member and Jameel Ahmed Bhutto, Accountant Member

W.T.As. Nos. 1004/113 of 1999-2000 and 32/113 of 2000-2001, decided on 4th October, 2001.

(a) Interpretation of statutes---

---- Principle that "where two equally reasonable constructions are possible, one strict and other beneficial to the assessee, the later should be preferred in a taxing statute---Cardinal principle of interpretation of a fiscal statute that all charges upon the subject are to be imposed by clear and unambiguous words, would apply only to charging sections and not to machinery sections or to the provisions which give relief to the taxpayer.

1993 PTD 69; PL D 1977 Lah. 292 and 1993 SCMR 274 = 1993 PTD 69 ref.

(1985) 153 ITR 11 rel.

(b) Wealth Tax Act (XV of 1963)---

----S. 2(1)(16)(ii)---Net wealth---Debt owed---Admissibility---Loan obtained against foreign currency US dollar account in respect of which wealth tax was not payable under the law---Such amount was claimed as debt owed being the amount out of which advance was made to a company and assessee declared such advance as taxable asset in the return---Assessing Officer rejected the claim of the assessee on the ground that assessee had obtained loan by offering foreign currency account as security and since this asset was exempt from wealth tax, the loan obtained against the same was not deductible---First Appellate Authority set aside the assessment for de novo decision on the ground that claim of liability had been rejected without proper rebuttal of the arguments of the assessee---Validity---Asset against which loan from the Bank was secured was the foreign currency US dollar account in respect of which wealth tax was not payable under the Wealth Tax Act, 1963--­Assessee could not be given double benefit by allowing such loan as a deductible debt and maintaining the tax-exempt status of the foreign currency account which also gave further benefit to the assessee in terms of appreciation/profit on US dollar remaining exempt under Part I of the Second Sched. to the Wealth Tax Act, 1963---Liability to the extent of assets created out of the Bank loan also could not be granted---If the said liability is allowed, then the asset created out of Bank loan will not become taxable but would be offset against the corresponding liability thus neutralizing the effect of taxation in respect of the net wealth of the assessee---Assessee's claim of debt representing loan from Bank obtained upon the security of the exempt asset was rightly disallowed by the Assessing Officer being an inadmissible debt in terms of S.2(1)(16)(ii) of the Wealth Tax Act, 1963---First Appellate order was vacated and that of the Assessing Officer was restored by the Tribunal.

1996 PTD (Trib.) 1; (1987) 66 ITR 338; (1980) 123 ITR 464; (1990) 186 ITR 91; (1982) 134 ITR 315; (1985) 153 ITR 11; CIT v. Rajam (1982) 133 ITR 75 and 2002 PTD (Trib.) 252 rel.

Aslam Anwar for Appellant (in W. T. A. No. 1004/IB of 1999-2000).

Abdul Jaleel, D.R. for Respondent (in W.T.A. No. 1004/IB of 1999-2000).

Abdul Jaleel, D.R. for Appellant (in W.T.A. No.32/IB of 2000-2001)'

Aslam Anwar for Respondent (in W.T.A. No. 32/IB of 2000-2001).

Date of hearing: 4th October, 2001.

2002 P T D.(Trib.) 616

[Income-tax Appellate Tribunal Pakistan]

Before Jameel Ahmad Bhutto, Accountant Member and

Karamat Hussain Nizai, Judicial Member

I.T.A. No. 141/113 of 1998-99, decided on 17th August, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss. 108 & 5(1)(c)---Penalty---Jurisdiction of Tax Recovery Officer--­Scope---Tax Recovery Officer had proper and lawful jurisdiction to consider imposition of penalties under S.108(b) of the Income Tax Ordinance, 1979.

I.T.As. Nos.361 and 362/19 of 1997-98 rel.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss. 108(b), & 139 to 142---Penalty---Penalty was imposed for non-filing of monthly statements ---Assessee contended that taxable payments having not been made statements on monthly basis were not required to be filed---First Appellate Authority set aside the order of penalty and ordered de novo consideration of the matter---Validity---No serious prejudice had been caused to the Department, as the Tax Recovery Officer or any other officer of competent jurisdiction would have full authority to make de novo decision after proper consideration of factual and legal position of the case and after giving proper opportunity of being heard to the assessee---Provisions of Ss. 139 to 142 of the Income Tax Ordinance, 1979 had been amended through the Finance Act, 1995 and the requirement of filing annual statements in the prescribed form and verified in the prescribed manner ' alongwith the date of 1st September of each year had been dispensed with.

(c) Income Tax Ordinance (XXXI of 1979)---

----S.108(b)---S.R.O. No.1018(1)/98, dated 3-10-1998---S. R. O. No.1050(I)/98, dated 13-10-1998---S. R. O. No.1355(I)/98, dated 2-12-1998---Penalty---No penalty could be imposed under S.108(b) of the, Income Tax Ordinance, 1979 for non-filing of monthly statements before the amendments were made in the Rules through S.R.O.1018(I)/98, dated 3-10-1998 and S.R.0.1050(I)/98, dated 13-10-1998.

I.T.A. No.384(IB) of 1999-2000 rel.

Muhammad Tahir Khan, D.R. for Appellant.

Riffat Hussain Malik for Respondent.­

Date of hearing: 16th August; 2001.

2002 P T D (Trib.) 620

[Income‑tax Appellate Tribunal Pakistan]

Before Khawaja Farooq Saeed, Judicial Member and Imtiaz Anjum, Accountant Member

I.T.A. No. 4206/LB of 20u0, decided on 29th October, 2001.

Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Second Sched., cl.(118‑C(1))‑‑‑C.B.R. Circular No.5 of 1991, dated, 103‑1991‑‑‑ Exemption‑‑‑Date of setting up or commencement of industrial undertaking, date of commencement of semi‑finished product and date of commencement of fully manufactured product‑‑‑Distinction drawn between semi‑finished and fully manufactured product would not in any way prove that the industrial undertaking had not gone into production.

1979 PTD 612 and 1998 PTD (Trib.) 3742 rel.

Wasim Siddiqui, C.A. for Appellant.

M. Asif, D.R. for Respondent.

Date of hearing: 25th August, 2001.

2002 P T D (Trib.) 625

[Income‑tax Appellate Tribunal Pakistan]

Before Rasheed Ahmad Sheikh, Judicial Member and

Javed Tahir Butt, Accountant Member

I. T. As. Nos. 2812/LB of 2001 and 210/LB of 1997, decided on 29th October, 2001.

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.134‑‑‑Appeal to Appellate Tribunal‑‑‑Issuance of certificate of pendency of departmental appeal before filing of appeal‑‑‑Effect‑‑‑Filing of appeal by the Department subsequent to issue a certificate to Member judicial, Central Board of Revenue regarding factum of having pendency of the Departmental appeal and decision of the same by the Member, C.B.R., amounted to evil intention or mala fide act of the Department in order to frustrate dispensation to the assessee.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.8 & 134‑‑‑All Officers to follow the orders of the Central Board of Revenue‑‑‑Appeal to Appellate Tribunal after decision of the Member Judicial, Central Board of Revenue in revision petition ‑‑‑Validity‑‑­Assessing Officer had ‑acted in flagrant violation of law by filing the appeal before the Tribunal once the order had been made by the Member Judicial; Central Board of Revenue on the revision petition‑‑‑Person responsible for filing the appeal had disregarded the order passed by his higher authority in the Income‑tax hierarchy‑‑‑Order passed by the Member Judicial was binding on the subordinate Officer.

(1982) 136 ITR 652 rel. .

(c) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S. 134‑‑‑Appeal to the Appellate Tribunal ‑‑‑Member Judicial, Central Board of Revenue had decided the revision petition when the departmental appeal was not pending for adjudication before the Tribunal‑‑‑Filing of appeal subsequently before the Tribunal was not maintainable and the same was dismissed by the Tribunal.

Khalid Maqbool for Appellant (in I.T.A. No.2812/LB of 2001).

Sajjad Ali, D.R. for Respondent (in, I.T.A. No.2812/LB of 2001).

Sajjad Ali, D.R. for Appellant (in I.T.A. No.210/LB of 1997).

Khalid Maqbool for Respondent (in I.T.A. No.210/LB of 1997).

Date of hearing: 27th October, 2001.

2002 P T D (Trib.) 639

[Income‑tax Appellate Tribunal Pakistan]

Before Inam Ellahi Sheikh, Chairman and Rasheed Ahmad Sheikh, Judicial Member

I.T.A. No. 3804/LB of 1999, decided on 28th November, 2001.

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.68(4)‑‑‑Registration of firm‑‑‑Refusal of registration‑‑‑Order under S.68(4) of the Income Tax Ordinance, 1979 was not merely for granting of registration but under the same provision of law the Assessing Officer was also entitled to refuse the registration of a firm if he was satisfied that a genuine firm as shown in the instrument of partnership was not in existence in the relevant income year, and that it had not fulfilled the requirements as laid down in subsections (2) & (3) of S.68 of the Income Tax Ordinance, 1979.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.68‑‑‑Registration of firm‑‑‑Application for registration‑‑‑In order to qualify for being a registered firm an application had to be made by the firm and the department cannot on its own grant the registration to a. firm.

(c) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss. 68 & 69‑‑‑Registration of firm‑‑‑Department, till the assessment year 1985‑86, could treat an unregistered firm (i.e. a firm which had not even applied for registration) as registered firm for the purpose of levy of tax as laid down in sub‑clause (ii) of cl. (b) of subsection (1) of S.69 of the Income Tax Ordinance, 1979 but due to insertion of proviso to S.69 this power had been taken away from the Department‑‑‑Natural corollary of such change in law by the Legislature was that the assessee was entitled to claim status of an unregistered firm for the purposes of levy of tax at concessional rates.

(d) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑; S.68‑‑‑Registration of firm‑‑‑Claim of status as an "Association of Persons" from "registered firm" ‑‑‑Validity‑‑‑Assessee was legally well within its right to claim the status of an "Association of Persons" irrespective of the fact whether the firm had' been dissolved or was intact as the claim of registration under S.68 of the Income Tax Ordinance, 1979 was the privilege for which the assessee could apply after fulfilling the requirements enumerated thereunder.

(e) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.68(4) & (5)‑‑‑Registration of firm‑‑‑Status‑‑‑Change of‑‑‑Provision of S.68(4) of the Income Tax Ordinance, 1979 to treat a .firm as "registered" in all subsequent assessment years, if once registered, was only mandatory on `the Department and not on the assessee ‑‑‑ Provisions of S.68(5) of the Income Tax Ordinance, 1979 for cancellation of registration of firm were also binding on the Department ‑‑‑Assessee had the privilege and prerogative to be taxed at a concessional, rate if the law had been so amended.

(f) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.68‑‑‑Registration of firm‑‑‑Status‑‑‑"Registered firm" ‑‑‑Change –of status ‑‑‑Validity‑‑‑Assessee can change its status from a "registered firm" to that of an "unregistered firm" or "Association of Persons" or "individual" for the purpose of availing concessional rate of tax.

(g) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.59‑‑‑C.B.R. Circular No: 5 of 1997, dated 12‑7‑1997‑‑‑C. B. R. Circular No. 12 of 1997, dated 17‑9‑1997‑‑‑Self‑assessment‑‑­Assessment year 1997‑98‑‑‑Immunity, from special audit‑‑‑Tax paid was more than 25% as compared with the last year's tax‑‑‑Income was less than the income previously declared‑‑‑Change of status from "registered firm" to "Association of Persons" ‑‑‑Assessing Officer refused to accept the assessee's return under Self‑Assessment Scheme for the reason that comparison of income and tax paid thereon was not possible owing to change in status of the firm‑‑‑Validity‑‑‑While setting apart the assessee's return out of the parameters laid down for special audit, the Assessing Officer had mistakenly involved himself in making comparison of the income‑returned as well as the status claimed by the assessee with those of the immediately preceding assessment year‑‑‑Making comparison on such basis amounted to denial of benefits of Self‑Assessment Scheme to the assessee‑‑‑Case of. the Department was not that the assessee had paid less tax in the year which was required to be paid in order to avail amnesty from special audit‑‑‑First Appellate Authority rightly ordered for acceptance of the returned income under the Self‑Assessment Scheme as, the case was not hit by any disqualification enumerated in the Scheme‑‑‑Departmental appeal was dismissed by the Tribunal.

CIT v: Khatija Begum 1965 PTD 540 and PLD 1961 SC 119 ref.

Muhammad Aslam; D.R. for Appellant Nemo for, Respondent.

Date of hearing: 12th April, 2001

2002 P T D (Trib.) 650

[Income‑tax Appellate Tribunal Pakistan]

Before Khawaja Farooq Saeed, Judicial Member and

Imtiaz Anjum, Accountant Member

I. T. A. No. 3469/LB of 1996, decided on 29th September, 2001.

Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.66-A & 59‑A‑-‑Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order‑‑‑Assessment on the basis of return‑‑Self‑Assessment Scheme‑‑‑Non‑filing of wealth statement‑‑­Effect‑‑‑Assessment by operation of law‑‑‑Cancellation of assessment under S.66‑A of the Income Tax Ordinance, 1979 for de novo assessment as condition precedent of filing of wealth statement had not been fulfilled‑‑‑Return filed should have been processed under normal: law‑‑‑Action under S.59‑A by the Assessing Officer was thus erroneous insofar as it was prejudicial to the interest of Revenue ‑‑‑Validity‑‑‑Non­observance of the terms and conditions of. the Self‑Assessment Scheme under S.66‑A, Income Tax Ordinance, 1979 was not sustainable for the reasons that limitation for any action under S. 59‑A had expired on 30‑6‑1992; obligation on the part of Assessing Officer in terms of para. 3, Circular No.22 of 1991‑92 was not discharged and Assessing Officer on his own dislodged the requirement of wealth statement by accepting return under S.59‑A of the Income Tax Ordinance, 1979‑‑­Order under S.66‑A of the Income Tax Ordinance, 1979 was declared without jurisdiction by the Tribunal in circumstances.

1986 PTD (Trib.) 790; 1988 PTD 16; 1986 PTD 843 and 1988 PTD (Trib.) 987 rel.

Mian Muhammad Azeem for Appellant.

Muhammad Asif, D.R. for Respondent.

Date of hearing: 1st September, 2001.

2002 P T D (Trib.) 676

[Income‑tax Appellate Tribunal Pakistan]

Before Khalid Waheed Ahmed, Judicial Member and

Mrs. Safia Chaudhry, Accountant Member

W.T.As. Nos.592/LB to 597/LB of 2001, decided on 31st May, 2001.

Wealth Tax Act (XV of 1963)‑‑‑

‑‑‑‑S. 17B & Second Sched., Part I, Cl. 12(1)‑‑‑Powers of Inspecting Assistant Commissioner to revise Wealth Tax Officer's order‑‑­Exemption‑‑‑House ‑‑‑Exemption. allowed of one self‑occupied house at Lahore was cancelled by the Inspecting Assistant Commissioner on the ground that assessee was employed in Faisalabad and thus was not residing in her house at Lahore‑‑‑Validity‑‑‑House was used for her residence since she lived therein during days off and further her so who was a student of Medical College at Lahore also lived therein‑‑‑‑l lore than one house can be under the occupation of the assessee for' ,the purpose of his residence and exemption under Cl. 12(1) of Part I" of Second Sched. of Wealth Tax Act, 1963 was ‑allowed for `one residential house'. only‑‑‑Inspecting Assistant Commissioner was not justified in taking action under S.17B of the Wealth Tax Act, 1963 on the ground that since the assessee was posted at Faisalabad the house at Lahore was not in her occupation‑‑‑Order of the Inspecting Assistant Commissioner, was vacated and original assessment framed by the Assessing Officer was restored by the Tribunal.

Shahid Abbas for Appellant.

Muhammad Asif; D.R. for Respondent.

Date of hearing: 31st May, 2001.

2002 P T D (Trib.) 710

[Income‑tax Appellate Tribunal Pakistan]

Before Inam Ellahi Sheikh, Chairman and

Munsif Khan Minhas, Judicial Member

I.T.As. Nos.966/KB and 967/KB of 2000‑01, decided on 10th November, 2001.

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss. 66‑A, 80‑C, 143‑B & 59‑A‑‑‑Power of Inspecting Additional Commissioner to revise. Deputy Commissioner's order‑‑‑Statement under S. 143‑B of Income Tax Ordinance, 1979 was filed‑‑‑IT‑30 and notice of nil demand was issued under S.59‑A of the Income Tax Ordinance, 1979‑‑‑.No source for investment for purchase of plot, vehicle and bungalow was explained by the assessee‑‑‑Inspecting Additional Commissioner cancelled the assessment ‑‑‑Assessee contended that invoking of provisions of S.66‑A of the Income Tax Ordinance, 1979 was wrong as there was no order in‑ the field‑‑‑Assessment could be made only on the basis of .return filed and, in the present case no return had been filed and order made was invalid which could not be cancelled‑‑‑Validity‑‑‑Inspecting Additional Commissioner had proposed to cancel the order passed under S.59‑A of the Income Tax Ordinance, 1979 whereas in fact there was no such order‑Inspecting Additional Commissioner had proceeded on the basis of presumptive provision in S.80‑C of the income Tax Ordinance, 1979 which provides that an order under S.59‑A shall be deemed to have been passed and such order could not be equated with an actual order for invoking jurisdiction under S.66‑A of the Income Tax Ordinance, 1979‑Order of the Inspecting Additional Commissioner was cancelled by the Tribunal in the circumstances.

2000 PTD 2193 and 1998 PTD 1201 rel.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S. 66‑A‑‑‑Power 'of Inspecting Additional Commissioner to revise Deputy Commissioner's order‑‑‑Evasion of tax‑‑‑Disregard of provision of law‑‑‑Evasion or any lapse on the part of the assessee did not provide licence to the Inspecting Additional Commissioner to disregard the provisions of law.

Muhammad Mehtab Khan for Appellant.

Syed Riazuddin, D.R. for Respondent.

Date of hearing: 6th November, 2001.

2002 P T D (Trib.) 713

[Income‑tax Appellate Tribunal Pakistan]

Before Javed Iqbal, Judicial Member and

Muhammad Akhtar Nazar Mian, Accountant Member

I.T.A. No.840/KB/DB of 2000‑01, decided on 14th November, 2001.

Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S. 111‑‑‑Penalty for concealment of income etc:‑‑‑Mens rea‑‑­Maintenance of accounts on mercantile system of accountancy‑‑‑Interest on Government securities‑ ‑‑Declaration of interest on cash basis‑‑­Assessing Officer pointed out that interest on Government securities as declared was less than that as worked back on the basis of claim of tax deduction under S.50(2) of the Income Tax Ordinance, 1979‑‑‑Mistake was rectified and revised return was submitted‑‑‑Punitive proceedings for furnishing; inaccurate particulars of income in original return were initiated and penalty was imposed ‑‑‑Validity‑‑‑ Declaration of income pertaining to interest on Government securities on cash basis had no bearing on final quantum of tax because the Department had all along been taking different modes of calculation of income under the said head i.e. mercantile system of accounting and, therefore there could possibly be no intention of making incorrect declaration of income on cash basis‑­Penalty proceedings being quasi‑criminal in nature, it was sine qua non to establish mens rea for imposing penalty‑ Department having failed to guilty intent on the part of the assessee penal action was not justified in circumstances‑‑‑ ‑Penalty imposed was deleted by the Tribunal.

1994 PTD (Trib.) 688; 2000 PTD 3471; 1986 PTD (Trib.) 446; 1991 PTD (Trib.) 319; 1980 PTD 227 and I.T.As. Nos.404 to 413 of 1991‑92 ref.

I.T.A. No. 179/HQ of 1988‑89 distinguished.

E.U. Khawaja, C.A. for Appellant Muhammad Umar Farooq, D.R, for Respondent

Date of hearing: 14th November, 2001.

2002 P T D (Trig.) 716

[Income‑tax Appellate Tribunal Pakistan]

Before Zafar Ali Thaheem, Judicial Member and

Muhammad Sharif Chaudhry, Accountant Member

I.T.As. Nos. 7111/LB to 7118/LB of 1996, decided on 19th September, (a) Income‑tax‑‑‑

‑‑‑‑Precedent‑‑‑Each enactment has its own objectives, philosophy and mechanism and decisions made under it are not binding on the functionaries working under another enactment until and unless the Legislature specifically so directs, although benefit can be derived from such decisions if the latter does not provide, arty guidance on the issues under contention.

(b) Income T~7 Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S. 19‑‑‑Income from house property‑-‑Annual Letting Value ‑‑‑ALV assesses' by Provincial and Taxation Department under Property Tax Ac; for the purpose of levying property tax was not binding on the Assessing Officer for the purpose of income‑tax under Income Tax Ordinance, 1979.

(c) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S. 19‑‑‑West Pakistan Urban Immovable Property Tax Act (V of 1958), S.6‑‑‑Income from house property‑‑‑Annual Letting Value‑‑‑If the Assessing Officer suspects that the rent had been understated by the landlord with connivance of the tenant, then he could make a fair assessment of the Annual Letting Value of the property keeping ‑in view the relevant factors after discarding the rent declared.

(d) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss. 19, 20 & 21‑‑‑Income front house; property‑ Annual Letting Value‑‑‑Assessing Officer had based his assessment of income of assessee's property on the original PT‑I Forms issued by the Excise and Taxation Department whereas the First Appellate Authority had accepted assessee's appeals and directed the Assessing Officer to adopt declare6 GALV of assessee's property which was based on revised PT‑I Form issued by the said Department‑‑‑Validity‑‑‑Orders of both the officers below were vacated by the Tribunal and the matter was remanded to the Assessing Officer for de novo action with the direction to give reasonable opportunity of being hearse (4) the assessee and make fresh assessments keeping in view the provisions of law contained in Ss.19 to 21 of the Income Tax Ordinance, 1979‑‑‑Assessee should be asked to provide rent deeds or any other documents like receipts issued to the tenants in evidence of rent received‑‑‑Tenants could be contacted to verify the rent declared by the assessee‑‑‑If, there was some connivance between the assessee and the tenants, then fair estimate of ALV of assessee.'s property should be made keeping in view the market position and rent paid in respect of similar properties in the vicinity.

Ahmad Kamal, D.R. for Appellant.

Nemo for Respondent.

Date of hearing: 19th September, 2001.

2002 P T D (Trib.) 760

[Income‑tax Appellate Tribunal Pakistan]

Before Muhammad Akhtar Nazar Mian, Accountant Member and

Javed Iqbal, Judicial Member

W.T.As. Nos.314/KB to 319/KB of, 2000‑2001, decided on 29th November, 2001.

(a) Wealth Tax Act (XV of 1963)‑‑‑

‑‑‑‑S. 31B(1)(b)(ii), proviso‑‑‑Additional wealth tax‑‑‑Calculation of‑‑­Assessment years 1993‑94 to 1998‑99‑‑‑Returns were filed on 18‑2‑1999 and assessments were completed on 4‑3‑1999‑‑‑Period of pendency of assessment was not covered by the proviso to S.31B (1)(b)(ii) of the Wealth Tax Act, 1963‑‑‑Additional tax as per order of Commissioner Wealth Tax (A) was to be calculated on 80% of the tax demand payable as a result of completion of assessments under S.16 of the Wealth Tax Act, 1963 from the date it was payable in the respective years under S. 14A (i.e. the date prescribed for submission of returns for the respective assessment years) to the date of completion of relevant assessments under S.16 of the Wealth Tax Act, 1963.

W.T.A. No.165/KB of 1999‑2000 ref.

(b) Wealth Tax Act (XV of 1963)‑‑‑

‑‑‑‑S. 2(16)‑‑‑Net wealth‑‑‑Debt owed‑‑‑Cumulative wealth tax liability‑‑­Assessment years 1994‑95 to 1998‑99‑‑‑Cumulative wealth tax liability remained in arrears was allowed as "debt owed" while computing the net wealth for the subsequent years.

Commissioner of Wealth Tax v. Mst. Fozia Mughis 1988 PTD 629 and Commissioner of Wealth Tax v. Hoor Bai Ibrahim 1982 PTD 671 rel.

A. H. Faridi for Appellant.

Muhammad Umar Farooq, D.R. for Respondent

Date of hearing: 28th November, 2001

2002 P T D (Trib.) 764

[Income‑tax Appellate Tribunal Pakistan]

Before Khalid Waheed Ahmed, Judicial Member and

Amjad Ali Ranjha, Accountant Member

1.T.As. Nos. 2519/LB to 2522/LB of 1999, decided on 31st October, 2001.

(a) Income‑tax‑‑‑

‑‑‑‑Appeal to Appellate Tribunal‑‑‑Grounds of appeal‑‑‑Issue raised by the assessee at the Appellate stage without having the same agitated through specific grounds of appeal would not arise out of the orders of both the Authorities below, same could not be raised before the Tribunal in appeal.

(b) Income‑tax‑‑

‑‑‑‑Profit and loss expenses‑‑‑Disallowance of‑‑‑History of the case‑‑­Relevance‑‑‑Admissibility of claim of 'expenses under each‑ head for every year is to be considered independently on the basis of facts available for that year‑‑‑Expense disallowed for one year for non­-production of evidence in support of the claim could be allowed for another year when the claim is substantiated with the evidence‑‑ ‑History of the case may be relevant for estimating the quantum of an expense to be allowed in case the claim is not substantiated with any material but it cannot be a sole deciding factor for admissibility or non‑admissibility of the claimed expenses.

(c) Income‑tax‑‑‑

‑‑‑‑Profit and loss expenses‑‑‑Sale promotion and advertisement expenses‑‑‑Five per cent. disallowance of expenses by referring to history of the case without mentioning any other reason was confirmed by the First Appellate Authority‑‑‑Validity‑‑‑Such disallowance made and confirmed was not sustainable‑‑‑Case was remanded to the Assessing Officer for de novo consideration and decision on the issue of claim of expenses under the head sale promotion and advertisement expenses with the direction that the assessee be specifically confronted on the issue specifying the reasons for addition to be made if any out of the claim under said head and the opportunity to substantiate, its claim be also provided.

1998 PTD (Trib.) 1935; 1988 PTD (Trib..) 1027: 1972 SCMR 39 and 149 ITR 131 ref.

Syed Abrar Hussain Naqvi for Appellant.

Mrs. Iram Adnan, D.R. for Respondent.

Date of hearing: 13th October, 2001.

2002 P T D (Trib) 769

[Income-tax Appellate Tribunal Pakistan]

Before Zafar Ali Taheem, Judicial Member and

Muhammad Sharif Chaudhry, Accountant Member

I.T.A. No.392/LB of 1995, decided on 31si October, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----S. 55(3)---Extension of date for filing of return---Central Board of Revenue could not take away, by issuing a Circular, the powers of extending the date of filing of return vested in the Assessing Officer by S; 55(3) of the Income Tax Ordinance, 1979 unless the law was 'got amended.

(b) Income Tax Ordinance (XXXI of 1979)---

----S. 55(2) & (3)---Return of total income---Self-Assessment Scheme--­`Due date'---Extension of---No doubt the Assessing Officer had been given power by S.55(3) -to allow extension to an assessee who was unable to file his return of income within the date specified under S.55(2) on his request, but the date extended under S.55(3) would not be called due date for the purpose of filing return of income under the ambit of Self-Assessment Scheme.

(c) Income Tax Ordinance (XXXI of 1979)---

----Ss. 59 & 55(3)---C.B.R. Circular No.9 of 1993, dated 1-7-1993--C.B.R. Letter No. C. No.7(16) DT-1493, dated 25-7-1993, para. 1(a)--­Self-assessment---Assessment year 1993-94---Return filed within the extended date allowed by the Assessing Officer---Availability of benefit of Self-Assessment Scheme---Return filed by the assessee within date extended by the Assessing Officer did not make an 'assessee eligible to avail the benefit of Self-Assessment Scheme---Such return could not be deemed or considered to have been filed within `due date' because the expression "due date" means the date specified under S.55(2) and not the date extended by the Assessing Officer under S.55(3) of the Income Tax Ordinance, 1979.

(d) Income Tax Ordinance (XXXI of 1979)---

----Ss. 59 & 55---Self-assessment---Conflict between the provision of S.55 of the Income Tax Ordinance, 1979 and Self-Assessment Scheme framed under S.59 of the Income Tax Ordinance, 1979---Effect---If there is such a conflict, the provisions of Self-Assessment Scheme in case of a taxpayer claiming eligibility under such Scheme would prevail on the general provisions of Income Tax Ordinance,, 1979.

1997 PTD (Trib.) 183 rel.

(e) Income Tax Ordinance (XXXI of 1979)---

----Ss. 59 & 55(3)---Due date---Meaning---Expression "due date" means the date specified under S.55(2) of the Ordinance and not the date extended by the Assessing Officer under S.55(3) of the Income Tax Ordinance.

Muhammad Asif, D.R. for Appellant.

Javed Iqbal for Respondent.

Date of hearing: 18th October, 2001.

2002 P T D (Trib.) 773

[Income-tax Appellate Tribunal Pakistan]

Before Inam Ellahi Sheikh, Chairman and Munsif Khan Minhas, Judicial Member

W.T.A.,No.2321KB of 2000-01, decided on 10th November, 2001.

Wealth Tax Act (XV of 1963)--- -

----Ss.17B & 2(1)(16)(ii)---Powers of Inspecting Assistant Commissioner to revise Wealth Tax Officer's, order---Net wealth---Liabilities not against any assets created by the assessee---Disallowance of---Inspecting Assistant Commissioner revised the assessment by adding .the liabilities on the ground that such liabilities were not against any assets created and offered for wealth tax and were not allowable---Validity---Law did not require that a taxable asset must represent a liability---Law clearly provided that a liability, which was incurred for acquiring an asset which was not taxable, or which was secured on an asset which was not taxable, will not be allowed as a deduction---Person may incur a liability which was not for acquiring any asset or the assets acquired out of such liability may have been destroyed etc. ---Provision of S.2(1)(16) of the Wealth Tax Act, 1963 provided that such liability had to be allowed as a deduction from the total value of assets includible in net wealth---Order of the Inspecting Assistant Commissioner was cancelled by the' Tribunal.

Muhammad Mehtab Khan for Appellant:

Syed Riazuddin, D. R. for Respondent.

Date of hearing: 6th November, 2001.

2002 P T D (Trib.) 779

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Akhtar Nazar Mian, Accountant Member and

Javed Iqbal, Judicial Member

I. T. A. No. 1227/KB/DB of 2000-01, decided on 20th November, 2001.

Income Tax Ordinance (XXXI of 1979)---

----Ss. 20 & 19---Deductions---Income from house property---Salary arid allowances---Electricity expenses---Tenant's burden borne by the landlord---Salaries paid to office staff had nothing to do with the property income and was not a business expenditure---Salary of electrician was covered by the allowance of repair allowed against the property income---Salaries paid to watchman and sweepers were adjustable against the annual value and in the present case could not be adjusted because the annual value has to be equal to the rent received--­No adjustment of salaries and allowances was permissible against the property income.

1985 PTD (Trib.) 240 ref.

A. H. Faridi for Appellant.

Muhammad Umar Farooq, D.R. for Respondent..

Date of hearing: 20th November, 2001.

2002 P T D (Trib.) 783

[Income-tax Appellate Tribunal Pakistan]

Before Mazhar Farooq Sherazi, Accountant Member and

Khawaja Farooq Saeed, Judicial Member

I.T.As. Nos.2539/LB to 2541/LB of 1999, decided on 17th April, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----S. 30, Second Sched., Part I, cl. (176)---Income from other source----Supply of electricity---Interest income on delayed payment of electricity bills---Taxability---Interest income is not to be considered as part and parcel of the business income and its assessment under S.30 of the Income Tax Ordinance, 1979 was quite justified---Such amount of interest was distinct and separate insofar as the exemption was con­cerned and could not be considered income from power generation--Exemption refused by the Department was confirmed by the Tribunal.

1998 PTD (Trib.) 3319 ref.

(b) Interpretation of statutes---

---- Fiscal statute---Exemption provision ---Assessee has to prove himself to be within the four corners of the exemption provisions---Unlike charging provision when an exemption clause is interpreted the doubt is resolved in favour of the Department.

(c) Income Tax Ordinance (XXXI of 1979)---

----Ss. 31 & 23(1)(vii)---Deduction---Interest earned on delayed payment of electricity bills---Interest paid on borrowed capital---Deduction of interest earned---Validity---Earning of interest and payment of interest in the present- case was corresponding financial arrangement---Borrowed capital if remains unpaid on account of delay by the customer, did not disentitle the assessee from the proportionate interest paid by him to the Bank on account of such delay ---Assessee was entitled to the interest paid by him to the Bank in circumstances.

1999 PTD (Trib.) 708 distinguished.

Kh. Muhammad Iqbal for Appellant.

Muhammad Asif, D.R. for Respondent.

Date of hearing: 3rd February, 2001.

2002 P T D (Trib.) 789

[Income-tax Appellate Tribunal Pakistan]

Before Munsif Khan Minhas, Judicial Member and

Muhammad Akhtar Nazar Mian, Accountant Member

I. T. A. No. 1691/KB/DB of 2001, decided on 18th October, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss. 80-B(1) & 80-B(2)(bb)---Income from encashment of Foreign Exchange Bearer Certificates---Taxability in the hands of company or registered firm---Validity---Amount received -on encashment of FEBCs was deemed to bean income under S.80-B(1) read with S.80-B(2)(bb) of the Income Tax Ordinance, 1979 in the hands of an individual, URF, AOP, HUF /or an artificial juridical person but not in the hands of a company or a registered firm.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss. 80-B(2)(bb), 143-B, 50(5B), 13, 62, Second Sched., Part I, cl. (171) and Part IV, cl. (6D)---Assessee a company---Income from encashment of Foreign Exchange Bearer Certificates ---Taxability--­Principles.

Provisions of section 80-B of the Income Tax Ordinance, 1979 were not applicable to the assessee, being a company, in respect of the amount received on encashment of FEBCs on which tax was deductible under section 50(5B) of the Income Tax Ordinance, 1979.

Amount invested in FEBCs could not be probed in the hands of the assessee in view of clause (6-D) of Part IV of the Second Schedule to the Income Tax Ordinance, 1979.

In the case of a company it was only the profit, if any, on encashment of FEBCs which was taxable at normal rates in the hands of the assessee.

Principal amount on FEBC received on encashment was from a source originating from the purchase of FEBCs to which the provisions of section 13 were inapplicable. In this view of the matter no tax could be levied on the principal amount received on encashment of FEBCs.

Salman Pasha and-Nadeem Dawoodi for Appellant.

Bakhat Zaman, D.R. for Respondent.

Date of hearing: 18th October, 2001.

2002 P T D (Trib.) 794

[Income‑tax Appellate Tribunal Pakistan]

Before Khawaja Farooq Saeed, Judicial Member and

Imtiaz Anjum, Accountant Member

I.T.As. Nos.871 and 872 of 2001, decided on 17th August, 2001.

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Second Sched., cl. (129)‑‑‑C.B.R. Circular No. 20 of 1988, dated 8‑10‑1988‑Exemption‑‑‑Words "subject to such conditions as may be specified therein" and "where it is so specified" in cl. (129), Second Sched. of Income Tax Ordinance, 1979, and C.B.R. Circular No.20 of 1985‑‑‑Effect‑‑‑Words "subject to such conditions as ‑may be specified therein" 'and "where it is so specified" in the Second Sched. and the Circular makes it clear that the exemption available in the Sched. is subject to the condition specified therein and if there is no‑condition specified obviously the exemption allowed is without any strings.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss. 156, 14(1) & Second Sched., cl. (129)‑‑‑C.B.R. Circular No.20, dated 8‑10‑1988‑‑‑Rectification application‑‑‑Calculation of export, rebate‑‑‑Inclusion of wealth tax for determining the total income for purpose of calculation of export rebate‑‑‑Wealth tax paid could only by added for the purposes of determining the tax rates‑‑‑Export rebate was to be calculated after reducing wealth tax from the total income‑‑­Mistake having been committed‑‑‑Application for rectification was maintainable and‑should have been accepted.

Shaukat Amin, F.C.A. for Appellant.

Muhammad Asif; D.R. for Respondent. .

Date of hearing: 16th August, 2001..

2002 P T D (Trib.) 827

[Income‑tax Appellate Tribunal Pakistan]

Before Khawaja Farooq Saeed, Judicial Member and

Imtiaz Anjum, Accountant Member

I.T.A. No.3301/LB of 2001, decided on 13th November, 2001.

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S. 12(18)‑‑‑Deemed income‑‑‑If an assessee was able to prove that the amount paid by him was through cross cheque the other requirements i.e. to intimate the National Tax Number were not to be invoked‑‑‑Language of relevant law is disjunctive and not conjunctive.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss. 66‑A & 12(18)‑‑‑Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order‑‑‑Deemed income‑‑‑Share deposit money was received through cross cheque‑‑‑Inspecting Additional Commissioner cancelled the order of Assessing Officer on the ground that the requirement of its receipts from a National Tax Number holder was not fulfilled‑‑‑Validity‑‑‑Effect of the use of word 'or' between the words "otherwise than by a cross cheque drawn on a Bank" and "through a banking channel from a person holding a National Tax Number" was that it should be either through cross cheque or through other normal banking channels, provided the money‑lender was the National Tax Number holder, which means that the payment through cross cheque was not required if it was from a National Tax Number holder‑‑‑Amount in the present case having been paid through cross cheque there was no reason for cancellation of the order by holding that National Tax Numbers of the payers were not available‑‑‑Appellate Tribunal cancelled the order of I.A.C. and restored that of the Assessing Officer.

2000 PTD 118 rel.

M. A. Hadi, F.C.A. for Appellant.

Anwar Ali Shah, D.R. for Respondent.

Date of hearing: 3rd November, 2001.

2002 P T D (Trib.) 882

[Income‑tax Appellate Tribunal Pakistan]

Before Muhammad Tauqir Afzal Malik, Khalid Waheed Ahmed, Judical Members and Mrs. Safia Chaudhry, Accountant Member

W.T.A. No.788/LB of 1996, decided on 9th August, 2001, Wealth Tax Rules, 1963‑‑‑

‑‑‑‑R. 8(3)‑‑‑Valuation of property‑‑‑Bald estimation by the Assessing Officer in view of Inspector's report‑‑‑Reduction in value by First Appellate Authority on the ground that exact location of the property (plot) had not been given'‑‑‑Validity‑‑‑Being one bald estimation against the other, the Tribunal normally would not interfere‑‑‑Finding of the First Appellate Authority was upheld by the Tribunal.

Muhammad Asif, D.R. for Appellant.

Nemo for Respondent.

Date of hearing: 1st August, 2001.

2002 P T D (Trib.) 885

[Income‑tax Appellate Tribunal Pakistan]

Before Muhammad Tauqir Afzal Malik, Judical Member and Amjad Ali Ranjha, Accountant Member

I.T.As. Nos.3820/LB to 3824/LB of 1999, decided on 29th September, 2001.

Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S. 66‑A‑‑‑Second Sched., Part IV, para. B(2)‑‑‑Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order‑‑­Private company or public company‑‑‑Determination of Status ‑‑‑Assessee contended that assessee‑Company and the company which produced the fertilizer were one entity as the management of the said company was under the Government of Pakistan‑‑‑Validity‑‑‑Majority shareholder of NFC was not the Government ‑‑‑Assessee‑Company, therefore, did not fall within definition of the 'public company'‑‑‑Status given by the Inspecting Additional Commissioner to such company as private limited company was upheld by the Appellate Tribunal.

C.B.R. and another v. S.I.T.E. PLD 1985 SC 97; Messrs Rice Export Corporation of Pakistan Ltd. v. Karachi Metropolitan Corporation, Fire Stone Tyre and Rubber Co. Ltd. All ELR 561; Smith Stone and Knight Ltd. v. Lord Mayor Aldermen and Citizens of the City of Birmingham 4 All ELR 116; All ELR 462; DHN Food Distributors 1998 PTD (Trib.) 273 rel.

Asad Munir for Appellant.

Imran Raza Kazmi, D.R. for Respondent

Date of hearing: 11th September, 2001

2002 P T D (Trib.) 900

[Income‑tax Appellate Tribunal Pakistan]

Before Muhammad Tauqir Afzal Malik, Judicial Member and Mrs. Safia Chaudhry, Accountant Member

I.T.A. No.2128/LB of 2000, decided on 3rd February, 2001.

Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss. 66‑A, 15, 24, 62 & Second Sched., Cl. (116)‑‑‑Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order‑‑‑Disallowance of proportionate expenses against exempt income‑‑­Assessed was a company having income from various sources including exempt income of capital gains from the sale of shares of the quoted companies‑‑‑Total. expenses claimed was allowed by the Assessing Officer‑‑‑Inspecting Additional Commissioner modified the assessment on the ground that total expenses were to be apportioned towards expenses incurred for earning the exempt income ‑‑‑Validity‑‑‑Assessee intended to get the benefit of exemption on the gross capital gain receipts whereas the benefit was only admissible to the assessee to the extent of the net capital gain under the law‑‑‑Assessing Officer should have computed the net income under both the heads. separately after allowing the expenses against such incomes, but he erroneously assessed gross capital gain as exempt income instead of net gain, which resulted into the loss of revenue‑‑‑Assessment was proved to be erroneous and prejudicial to the interest of Revenue which assessment as modified was upheld by the Tribunal.

1992 PTD (Trib.) 1141; 1998 PTD 66; 1984 PTD 341; 1984 PTD 390; CIT v. PICIC (1965) 56 ITR 77 and Commissioner of Income­tax v. Industrial Investment Trust Company Ltd. (1968) 67 ITR 436 distinguished.

(1984) 49 Tax‑ 35; (1984) 50 Tax 7 (Trib.); 1997 PTD 902; 1992 PTD 1610; 1996 PTD 750; ITA No. 1913/KB; (1993) 203 ITR 108; Palkhiw ala Page 482; (1976) 33 Tax 23 (Trib. ); 1992 PTD (Trib.) 1141; 1993 PTD (Trib.) 472; 1997 PTD 180; 1986 SCMR 1917; 67 ITR 436; 56 ITR 77; 1988 PTD 626; 6 ITR 636; 127 ITR 1; 42 Tax 122; 82 Tax 565 (SC India); 221 ITR 861; 1998 PTD 703; 1996 PTD 360 and 208 ITR 202 ref.

Siraj‑ul‑Haq and Yousaf Saeed, F.C.A. for Appellant.

Shafqat Mahmood Chohan, L.A., Farooq Tahir, D.R Safdar Hussain, .I.A.C. for Respondent.

Date of hearing: 3rd February, 2001.

2002 P T D (Trib.) 912

[Income-tax Appellate Tribunal Pakistan]

Before Rasheed Ahmed Sheikh, Judicial Member and

Javed Tahir Butt, Accountant Member

I.T.A. No.3773/LB of 1999, decided on 15th November, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.59(4)---Self-assessment=--Assessment after lapse of limitation--­Validity---Corollary of non-passing the order in terms of S.59(4) of the Income Tax Ordinance, 1979 would be that no order could be made subsequent to the said period of limitation which would result into acquiring a vested right of escaping assessment which cannot be taken away---If any order is passed subsequent to the lapse of period of limitation that would be a void order and as such would be non-existent in the eye of law and any building erected on such order must crumble down.

PLD 1963 SC;, 322; 1993 PTD 332 and 1993 PTD (Trib.) 1421 rel.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss.59(4) & 59A---Self-Assessment Scheme---Assessment under S.59A of the Income Tax Ordinance, 1979 after expiry of time limit provided under S.59(4) of the Income Tax Ordinance, 1979---Validity---No justification existed for the Assessing Officer to have passed order under S.59A of the Income Tax. Ordinance, 1979 when time limit provided under S.59(4) of the Income Tax Ordinance, 1979 for acceptance of return under Self-Assessment Scheme had lapsed.

(c) Income Tax Ordinance (XXXI of 1979)---

----Ss.59A & 59(4)---Assessment on the basis of return---Self-­assessment---To pass an, order under S.59A of the Income Tax Ordinance, 1979 by Assessing Officer after the expiry of period of limitation prescribed for completion of assessment under the Self Assessment Scheme in terms of S. 59(4) of the Income Tax Ordinance, 1979 was a fraud upon the statute and such acts were always deprecated which amounted to putting premium to Assessing Officer to camouflage his neglect to the prejudice of the assessee.

(d) Income Tax Ordinance (XXXI of 1979)---

----Ss.59A & 59(4)---Assessment on the basis of return ---Self-­assessment---Assessment year 1993-94---Assessment in excess- of jurisdiction---Effect---Order under S.59A of the Income Tax Ordinance, 1979 having been passed by the Assessing Officer in excess of jurisdiction or without jurisdiction, was void and void order had always been treated as nullity in law---No finality could be attached to such order which was passed by an authority in excess of its jurisdiction or suffered from want of jurisdiction and should be ignored for all practical purposes and any edifice constructed on the basis of void order should crumble down---Order. under S.59A of the Income Tax Ordinance, 1979 having been made on 20-6-1996 and not on 30-6-1994 in accordance with S.59(4) of the Income Tax Ordinance, 1979 was clearly time-barred and the assessee had acquired vested right of escaping assessment.

(e) Income Tax Ordinance (XXXI of 1979)--

----Ss.65(2), 62 & 59A---Additional assessment---Definite information--­Assessment order made under Ss.62/65 of the Income Tax Ordinance, 1979 merited cancellation on the ground that information relied upon by the Assessing Officer for invocation of S.65 of the Income Tax Ordinance, 1979 irrespective of its character was already in possession of the Department at the time of completion of assessment under S.59A of the Income Tax Ordinance, 1979.

1990 PTD 155; NTR 1993 SC 1 and 1994 PTD (Trib.) 1063 rel.

(f) Income Tax Ordinance (XXXI of 1979)---

----S.65---Additional assessment---Notice issued-was withdrawn---Fresh notice on . the same set of - facts---Assessment---Validity---Assessing Officer was debarred to issue a fresh notice under S.65 of the Income Tax Ordinance. 1979 for reopening the assessment on the same set of facts---Such act of the Assessing Officer amounted to change of opinion and as such the order passed under Ss.62/65 of the Income Tax Ordinance, 1979 was not sustainable in law.

(g) Income tax

----"Business capital"---"Net assets"---Two different connotations--­Phrases "business capital" and the "net assets" have altogether different connotations and by no stretch of imagination can come at par with each

(h) Income Tax Ordinance (XXXI of 1979)---

----Ss.62, 65, 59 & 59A---C.B.R. Circular No.9 of 1993, dated 1-7­1993---Additional assessment---Self-Assessment Scheme---Assessment was re-opened on the ground that "net assets" of assessee were in excess of ratio prescribed in para. 7 of Circular No.9 which prescribed that in case of a new taxpayer it shall be presumed that his "business capital" at the end of the year shall be taken as three times of the business income declared by the assessee---Validity---If the Assessing Officer was of the opinion that capital "employed in business" was more than the required ratio, the Assessing Officer should have called for explanation of the assessee regarding excess capital---If the explanation filed was found to be unsatisfactory, the return could have been excluded out of the purview of the Self-Assessment Scheme---Such an exercise having not been done by the Assessing. Officer despite the fact that prior to finalization of assessment under S.59A of the Income Tax Ordinance, 1979, a notice was issued to him calling for explanation for declaring net assets and no adverse inference was drawn in this regard---Blame thus could not be fastened at the assessee's door that the "business capital" of the assessee was in excess of the prescribed ratio of I to 3 between income declared and the capital as on the prescribed date i.e. 30-6-1993---Re-assessment order made under Ss.62/65 of the Income Tax Ordinance, 1979 was cancelled by the Tribunal and return under Self Assessment Scheme was accepted.

(1963) 7 Tax 42 (SC Pak.); 1993 PTD 332; 199,3 PTD (Trib.) 1421 and 1993 PTD 322 rel.

M. S. Babar and M.M. Akram for Appellant.

Javed-ur-Rehman, D.R. for Respondent.

Date of hearing- 10th October, 2001.

2002 P T D (Trib.) 925

[Income‑tax Appellate Tribunal Pakistan]

Before Muhammad Tauqir Afzal Malik, Judicial Member and Amjad Ali Ranjha, Accountant Member

I.T.A. No.2336/LB of 2001, decided on 29th September, 2001.

(a) Income‑tax‑‑‑

‑‑‑‑C.B.R.'s circulars issued subsequently to the date of assessment order were not applicable retrospectively.

(b) Income‑tax‑‑‑

Company‑-‑Provision for diminution in value of investment of share‑­Inadmissible ‑‑‑Assessee was liable to distribute dividends i.e. 40% of the profits before the provision for diminution in the value of investment of shares.

(c) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss. 12(9A), 66‑A, (59) & Second Sched., Part I, cl. (176)‑‑‑C. B. R. Letter No.F/12/(9A)/ITP/99, dated 16‑6‑2001‑‑‑Assessee/company declared dividends on the profit calculated after creating a provision of diminution in value of investment in shares which was accepted by the Assessing Officer‑‑‑Inspecting Additional Commissioner modified the assessment by adding such provision in the profit and taxed the excess of reserves over 50% of the paid‑up capital under S.12(9A) of the Income Tax Ordinance, 1979‑‑‑Assessee contended that IAC was not justified to add the provisions for the diminution in the value of investment as the same had been made in accordance with the international accounting standards‑‑‑Validity‑‑‑Decline in the value of shares was not drastic which only appeared for the year 1999‑‑‑Loss for which provision had been made was not actual but a notional loss‑‑‑Provision was created only to reduce the profits in order to avoid proper taxation under S.12(9A) of the Income Tax Ordinance, 1979‑‑‑Order of Inspecting Additional Commissioner was upheld by the Tribunal being in accordance with law.

PLD 1991 SC 857; Jain Bros. v. Union of India 77 ITR 107 (SC); Stevens v. Durban Roodprott Goldmining % TC 402 (407); Laxmipat Singhania v. CIT 72 ITR 291; Corpus Juris Secundum, Vol. 84; Black's Law Dictipnary; Words and Phrases and Commissioner of Income‑tax, ‑West Bengal v. Gangadhar Banerjee & Co. (Private) Ltd. $7 ITR 176 (SC) ref.

(d) Workers Welfare Fund Ordinance (XXXVI of 1971)‑‑‑

‑‑‑‑S. 4‑‑‑Income Tax Ordinance (XXXI of 1979), Second Sched., Part I, cl. (176)‑‑‑Unit being specifically exempt under the Ordinance, thus, application of workers welfare fund made on IT‑30 Form was uncalled for and deleted by the Tribunal.

Jamil Akhtar Baig, F.C.A. for Appellant.

Noor‑ul‑Amin Hotiana, D.R. for Respondent.

Date of hearing: 25th September, 2001.

2002 P T D (Trib.) 937

[Income-tax Appellate Tribunal Pakistan]

Before Rasheed Ahmed Sheikh, Judicial Member

I.T.As. Nos..398.1/LB to 3983/LB, 3032/LB, 2993/LB and 2994/LB' of 1997 decided on 36th June. 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss. & 116---Penalty---Concealment of income by assessee--­Department's duty to observe mandatory obligations in conducting such proceedings---Principles.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss.111 & 116---Penalty---Concealment of income---Agreed assess­ment ---Penalty without prior approval of Inspecting Additional Commissioner and notice---Validity---Penalty order revealed. that penalties had been imposed by the Assessing Officer in a slipshod manner i.e. without obtaining prior approval from the Inspecting Additional Commissioner and penalty orders available on record were not signed by the Assessing Officer---Such orders could not be held to be legally made---Inspecting Additional Commissioner was deprived of his jurisdiction and as such the penalty order could not be considered-to have been passed with the sanction of law and the same was cancelled by the Tribunal.

1981 PTD (Trib.) 15 ref.;

Irfan Aslam for Appellant.

Javed-ur-Rehman, D.R. for Respondent.

Date of hearing: 13th June, 2001.

2002 P T D (Trib.) 946

[Income‑tax Appellate Tribunal Pakistan]

Before Muhammad Tauqir Afzal Malik, Judicial Member and Amjad Ali Ranjha, Accountant Member

M.A. No.221/LB of 2001, decided on 31st August, 2001.

Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S. 156‑‑‑Rectification of mistake‑‑‑Application for rectification of mistake being against the record and history of the case was dismissed, by the Tribunal.

1998 PTD (Trib.) 1935 rel.

Syed Abrar Hussain Naqvi for Applicant Shahid Zaheer, D.R. for Respondent.

Date of hearing: 15th August, 2001

2002 P T D 983

[Income‑tax Appellate Tribunal Pakistan]

Before S. Hasan Imam, Judicial Member and Shaheen Iqbal, Accountant Member

I.T.A. No. 1045/KB of 2000‑2001, decided on 30th October, 2001.

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.27‑‑‑Capital gains‑‑‑Taxation‑‑‑Principles‑‑‑Right to carry on a business in a capital asset‑‑‑Profits and gains from transfer of intangible assets are chargeable to tax as capital gains under S.27 of the Income Tax Ordinance, 1979‑‑‑Profits and gains on sale, exchange or transfer of an asset can be computed for purposes of S.27 of the Income Tax Ordinance, 1979 even if the cost of acquisition of the asset is nil.

I.T.A. No.698 of 1998‑99 rel.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.27 & 30‑‑‑Capital gains‑‑‑Income from other sources‑‑‑Receipt in terms of compensation for termination of distributorship agency was taxed under S.30 of the Income Tax Ordinance, 1979‑‑‑Validity‑‑­Compensation received was for transfer or relinquishment of a right 'i.e. distributorship of two products‑‑‑Such right was clearly a capital asset and the compensation received for its transfer was chargeable to tax under S.27 of the Income Tax Ordinance, 1979 as it was not specifically excluded from the purview of S.27(2)(b)(i), (ii), (iii) & (iv) of the Income Tax Ordinance, 1979‑‑‑Such receipt were chargeable to tax as "capital gains" under S.27 of the Income Tax Ordinance, 1979 and not as casual income‑‑‑Orders of two officers below were modified accordingly by the Tribunal.

1998 PTD (Trib.) 11.03 distinguished.

1999 PTD (Trib.) 2356 and I.T.A. No.698 of 1998‑99 rel:

(c) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.50(5) & (4)‑‑‑Deduction of tax at source‑‑‑Supply of imported goods‑‑‑Assessing Officer treated the tax deducted under S.50(4) of the Income Tax Ordinance, 1979 on, supplies of imported goods as part of final discharge of tax liability which action was maintained by the First Appellate Authority‑‑‑Validity‑‑‑Once the goods had suffered incidence of tax under S.50(5) of the Income Tax Ordinance, 1979 at the import stage, it would amount to full and final discharge of tax liability and no further deduction could be made under S.50(4) of the Income Tax Ordinance, 1979 on supplies of the same goods‑‑‑Order of the First Appellate Authority was vacated by the Tribunal being contrary to law.

1997 PTD 1143 rel.

Javed Zakariya and Jan‑e‑Alam, A.R, for Appellant Fahimul Haq, D.R. for Respondent.

Date of hearing: 16th October, 2001.

2002 P T D (Trib.) 993

[Income-tax Appellate Tribunal Pakistan]

Before Syed Kabirul Havan, Judicial Member ,and Agha Kafeel Barik, Accountant Member

I.T.A. No.877/KB/DB of 2000-2001, decided on 1st December, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.80C(5A) [as inserted by Finance Act (IV of 1999) and omitted by Finance Ordinance (XXI of 2000)]---Applicability of S.80C(5A), Income Tax Ordinance, 1979---Section 80C(5A) of Ordinance was applicable from the assessment year 2000-2001 and its omission from the statute book would be effective from the assessment year 2001-2002.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.80.C(5A) [as inserted by Finance Act (IV of 1999)]---Nature of S.80C(5A), Income Tax Ordinance, 1979 is procedural and charging provision---Addition of subsection (5 A) in S. 80C of the Income Tax Ordinance, 1979 caused extra tax burden on the assessee, therefore, such provisions is as a charging provision---Section 80C of the Income Tax Ordinance, 1979 was both ' a charging as well as procedural section.

1998 PTD 2769; PLD 1969 SC 599; PLD 1998 SC 161; 1999 PTD 221 and I.T.A. No.2781/LB of 1998 rel.

(c) Income Tax Ordinance (XXXI of 1979)---

----S. 80C(5A) [as inserted by Finance Act (IV of 1999)] & Second "Sched., Part IV, cl. (9)---Assessment year 1999-2000---Difference of amount between tax worked out under S.80C 'of the Income Tax Ordinance, 1979 and under normal law as per S.80C(5A) of the Income Tax Ordinance was charged by the Assessing Officer to be paid by the assessee---Validity---Insertion of sub-section (5A) in S.80C of the Income Tax Ordinance,. 1979 would be applicable from the date it was enacted i.e. 1st July, 1999 onwards and the assessment period would be 2000-2001, therefore, said section would not apply to assessment year 1999-2000---Action taken under sub-section (5A) of S.80C of -the income Tax Ordinance, 1979 was not proper and addition made on such basis was deleted by the Tribunal.

1998 PTD 2769; PLD 1969 SC 599; PLD 1998 SC 161; 1989 PTD 221 and I.T.A. No.27811LB of 1998 rel.

Iqbal Naeem Pasha for Appellant.

Jafar Ali Khawaja, D.R. for Respondent..

Date of hearing: 10th November, 2001.

2002 P T D (Trib.) 1000

[Income-tax Appellate Tribunal Pakistan]

Before Inam Ellahi Sheikh, Chairman and

Muhammad Tauqir Afzal Malik, Judicial Member

I.T.As. Nos. 443/LB and 605/LB of 2000, decided on 3rd January. 2002.

(a) Income-tax---

----Method of accounting---Change of---Rejection of changed method of accounting---Validity---Assessing Officer could not reject the change in the accounting policy simply because he had found the same to be against the interest of the Revenue.

1992 S C M R 763 ref.

(b) Income-tax---

----Addition---Interest/mark-up in respect of subsidiary company--­Assessee had not charged any interest thus, there was no real income ;accruing to the assessee---Deeming provision, under which such interest could be calculated, `shad already been withdrawn from the relevant Statute---Income could not be deemed to have been earned without specific provisions of the law----Addition was deleted by the Tribunal.

(c) Income-tax---

Financial charges---Notional charge of interest---Interest on capital work in progress---Disallowance of---Validity---Addition had been made in respect of notional charge of interest---Fact that assessee had invested his own funds in the capital work in. progress had not been examined at the assessment stage---Matter was remanded to Assessing Authority by the Tribunal with the direction that assessee should be provided proper Opportunity to substantiate the claim that no borrowed funds were involved.

1993 P T D 758 = 1993 S C M R 1224 distinguished.

(d) Income-tax---

--Addition---Suppressed production---Providing no opportunity to explain----Validity ---Declared production is subsequent years had been accepted----Issue regarding suppressed production required further examination at the assessment stage and the same was set aside by the Tribunal on the ground that no addition could be made without confronting the assessee with the same.

(e) Income-tax---

-----Charity and donation---Disallowance---Issue was set aside by the Tribunal since assessee was not confronted with the same.

Syed Aftab Hameed, F.C.A. for Appellant (in I.T.A. No. 443/LB of 2000).

Muhammad Asif, D.R. for Respondent (in I.T.A. No. 443/LB of 2000).

Muhammad Asif, D.R. for Appellant (in I.T.A. No. 605/LB of 2000).

Syed Aftab Hameed, F.C.A. for Respondent (in I.T.A. No. 605/LB of 2000).

Date of hearing: 21st December, 2001.

2002 P D (Trib.) 1009

[Income-tax Appellate Tribunal Pakistan]

Before Khalid Waheed Ahmed, Judicial Member and Mazhar Farooq Shirazi, Accountant Member

I.T.A. No. 272/LB and M.A. (Stay) No.49/LB of 2002, decided on 6th February, 2002.

Income Tax Ordinance (XXXI of 1979)

-----Ss. 65, 13(1)(d) & 59(1)---Additional assessment---Definite information---Purchase of property at a cheaper price---Re-opening of assessment---Addition---Assessee contended that information regarding purchase of property at a cheaper price did not amount to definite information as required under the provision of S.65 of the Income Tax Ordinance, 1979---Validity---No definite evidence being available with the Assessing Officer to prove that the assessee invested more amount than the one declared by him for the purchase of property, the action taken under S.65 of the Income Tax Ordinance, 1979 was unjustified--­Proceedings initiated under S.65 of the Income Tax Ordinance, 1979 being without any definite information were cancelled and assessment framed under S.59(1) of the Income Tax Ordinance, 1979 was restored by the Tribunal.

1997 PTD (Trib.) 1097; P.T.R. No. 17 of 1997 and 1997 PTD (Trib.) 1133 rel.

Shahid Abbas and Ahsan Imdad Sh., I.T.P. for Appellant.

Mrs. Iram Adnan, D.R. for Respondent.

Date of hearing: 6th February, 2002

2002 P T D (Trib.) 1016

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Akhtar Nazar Mian, Accountant Member and Syed Kabirul Hasan, Judicial Member

I.T.As. Nos.581 and 582-KB/DB of 2000-2001; decided on 24th September, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----S. 80C(2)(a)(ii) & First Sched., Part IV, Para. B---Tax on income of certain contractors and importers---Manufacturing---Industrial undertaking---Imported finished goods were subjected to process of labelling, packing and putting on conveyor belt to reduce moisture before packing---Taxability of, under presumptive tax regime i.e. under S.80C of the Income Tax Ordinance, 1979---Validity---Industrial undertaking, whose imports of raw material for its own consumption had been excluded from the ambit o£ S.80C of the Income Tax Ordinance, 1979, was such a business concern which was engaged in manufacture of goods and material or subjecting of goods and materials to any process, which substantially changed their original scope---Import, thus, should be of raw material which ought to be so processed that the final product should be, substantially different from the raw materials used but this exercise did not cover the process of labelling or repacking of the same goods or re-packing followed after physical process of placing the goods on conveyor belt for reducing moisture---Such finished goods were not out of the ambit of S.80-C of the Income Tax Ordinance, 1979.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.80-C---Tax on income of certain contractors and importers--­Industrial undertaking---Import of raw material for own consumption---Manufacturing of such raw material through tool manufacturing under an agreement between the parties at fixed charges---Tax was charged under S.80-C of the Income Tax Ordinance, 1979 on the ground that import of such raw material was not for own consumption of the industrial undertaking ---Validity---Assessee himself was engaged in a manufacturing activity, and such toll manufacturing was resorted to by him in addition to or beyond his own capacity or available facilities but under his specifications and controls and without divesting himself of the ownership of the raw materials or entitlement to the end products which themselves were subject to his quality control---Such manufacturing could be said to be its own manufacturing---Processing charges received by the processor had also been accepted for assessment purposes by the Department in his case---Effect---Application of provisions of S.80-C of the Income Tax Ordinance, 1979 was not justified and orders of the Authorities below were set aside, holding that such raw material was imported for own consumption and assessment ought to be made under the normal procedure of determining business income.

(c) Income-tax---

----Disallowance---Principle---Disallowance out of profit and loss account on the basis of history without giving any reason---Validity---No disallowance could be made without pointing out defects in the maintenance of account.

Irfan Saadat Khan for Appellant.

Basharat Qureshi, D.R. for Respondent

Date of hearing: 19th September, 2001

2002 P T D (Trib) 1021

[Income-tax Appellate Tribunal Pakistan]

Before S. Hasan Imam, Judicial Member and Shaheen Iqbal, Accountant Member.

I. T. A. No. 1051/KB of 2000-2001, decided on 18th October, 2001

Income Tax Ordinance (XXXI of 1979)---

----S.53(4)---C.B.R. Circular No.4 of 1995, dated 9-7-1995---Advance payment of tax---Compensation---Assessment year 1995-96---­Compensation on advance tax under S.53(4) of the Income. Tax Ordinance, 1979 paid during the financial year 1994-95 was not allowed---Validity---Any circular or amendment in law, if provided withdrawal of the facility from a particular date or time, the. Revenue Officers on their own accord could not draw any analogy to give same a retrospective or prospective effect---Order introducing retrospective effect contrary to essence and purpose of circular amounted to frustrate the relief made available to assessee and law also did not permit such practice, same being illegal, unlawful and without any justification--­Order of the two Authorities below was annulled and compensation on advance tax under S.53(4) of the Income Tax Ordinance, 1979 was allowed by the Tribunal.

Faisal Abdul Sattar, A.C.A. for Appellant.

Fahimul Haque, D.R. for Respondent.

Date of hearing: 17th October, 2001.

2002 P T D (Trib.) 1029

[Income‑tax Appellate Tribunal Pakistan]

Before Inam Ellahi Sheikh, Chairman and Muhammad Ashfaque Baluch, Judicial Member

I.T.A. No. 1599/KB of 1995‑96, decided on 11th December, 2001.

Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S. 24(e)‑‑‑Deductions‑‑‑Admissibility‑‑‑Head Office expenses‑‑­Assessee a non‑resident company ‑‑‑Assessee claimed Head Office expenses in the computation chart and not in the profit and loss account‑­Admissibility ‑‑‑Assessee was not entitled to claim Head Office expenses as the same had not been shown as an expenditure in its own books of account and the Assessing Officer was not justified to allow any part of such expenses‑‑‑Income of the assessee was enhanced by disallowing the Head Office expenses in toto by the Tribunal.

Abdul Khaliq Khatri for Appellant.

Fahimul Haque, D.R. for Respondent.

Date of hearing: 11th December, 2001.

2002 P T D (Trib.) 1186

[Income‑tax Appellate Tribunal Pakistan]

Before Agha Kafeel Barik, Accountant Member and Jawed Masood Tahir Bhatti, Judicial Member

I.T.A. No.396/KB of 1999‑2000, decided on 29th September, 2001.

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.54, 66‑A, 59(1) & 134‑‑‑C.B.R. Circular No.18 of 1999, dated 11‑9‑1999, para. 12(a)‑‑‑Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order‑‑‑Universal Self‑Assessment Scheme‑‑‑Assessment year 1999‑2000‑‑‑Short payment of tax‑‑‑Loss of Revenue‑‑‑Inspecting Additional Commissioner cancelled the assessment order passed under S.59(1) of the Income Tax Ordinance, 1979 on the ground that tax paid under S.54 of the Income Tax Ordinance, 1979 was short as compared to the total tax payable on declared income and directed the Assessing Officer to proceed the case under normal law‑‑­Validity‑‑Admittedly tax due was not paid alongwith the return and a part thereof was paid even after the order passed under S.66A of the Income Tax Ordinance, 1979‑‑‑Since tax paid was short and the Assessing Officer did not take cognizance of the matter, his order under S.59(1) of the Income Tax Ordinance, 1979 was prejudicial to the interest of Revenue‑‑‑Appellate Tribunal upheld the order of the Inspecting Additional Commissioner passed under S.66A of the Income Tax Ordinance, 1979 in circumstances.

I.T.A. No.372/KB of 1997‑98 and 1991 PTD 968 distinguished.

(b) Income‑tax‑‑‑

‑‑‑‑Condonation of delay‑‑‑ Short payment of tax‑‑‑Loss of Revenue‑‑­Short payment of tax was definitely and admittedly loss of Revenue and should not be condoned particularly in exercise of discretion of the Assessing Officer.

1991 PTD 968 distinguished.

Muhammad Fareed for Applicant.

Inayatullah Kashani, D.R. for Respondent

Date of hearing: 29th September, 2001.

2002 P T D (Trib.) 1192

[Income-tax Appellate Tribunal Pakistan]

Before S. Hasan Imam, Judicial Member and Shaheen Iqbal, Accountant Member

I.T.As. Nos. 553/KB and 554/KB of 1999‑2000, decided on 6th September 2001.

Wealth tax----

‑‑‑‑Status of land‑‑Conversion of status of land‑‑‑Conversion of agricultural land into non‑agricultural Sikni‑‑‑Residential land‑‑‑Entries in record of rights/Form VII or Form II‑‑‑Valuation‑‑‑Land declared as agricultural land was in the process of conversion into `Sikni' land and it had to be surveyed and demarcated‑‑‑Assessing Officer, in view of the entries in Form VII of Sindh Revenue Department, observed that the land had been converted into non‑agricultural land vide order, dated 18‑7‑1995 passed by the Mukhtiarkar, Central Karachi and valued the plots at Collector's rate‑‑‑First Appellate Authority deleted the addition observing that estimated value of agricultural land at Collector's rate was illegal‑‑‑Validity‑‑‑Assessing Officer failed to distinguish the term "Sikni" and "residential"‑‑‑Revenue Authorities could convert agricultural land into "Sikni" but have no powers to convert the "Sikni" land as "residential", "commercial" or "industrial" ‑‑‑Entries in record of rights/Form VII or Form II were simply recorded for the purposes of maintaining a record and would not be sufficient to declare or change in the status or nature of land as residential‑‑‑Payment for conversion of land had been made on 17‑7‑1997 in the head "outer development charges of land" which showed that till that time process was incomplete‑‑Appellate Tribunal maintained the order of the First Appellate Authority which had deleted the addition made on account of valuation of land at Collector's rate.

Agha Hidayatullah, D.R. for Appellant.

Makhdoom Hasamul Haq for Respondent.

Date of hearing: 30th August, 2001.

2002 P T D 1512

[Income‑tax Appellate Tribunal Pakistan]

Before Syed Nadeem Saqlain, Judicial Member and

Mrs. Safia Chaudhry, Accountant Member

W.T.As. Nos.2280/LB to 2284/LB of 1999, 1013/LB to 1016/LB of 2000, 268/LB to 272/LB, 1325/LB and 1326/LB of 2000, decided on 17th May, 2001.

(a) Wealth tax‑‑‑

Ownership‑‑‑Possession‑‑‑Person can be treated as an owner of a property even though he has no‑ possession over it provided other incidents of ownership are complete i.e. title etc.

(b) Wealth Tax Act (XV of 1963)‑‑‑

-------Ss. 17 & 2(16)‑‑‑Wealth escaping assessment‑‑‑Assessment years 1991‑92 to 1995‑96‑‑‑Gold confiscation of ‑‑‑Compensation‑‑Ownership‑­ Value for purpose of assessment‑‑‑Gold confiscated in 1958 by the Customs Authorities was not declared by the assessee in the wealth tax return‑‑‑Appellate Authorities decided in favour of assessee in November, 1985 and directed that compensation Q Rs.43.43 per tola be paid in lieu of the gold confiscated from the assessee‑‑‑High Court in further appeal, directed the Customs Authorities either to return the confiscated gold to the assessee or he should be paid compensation at the fair market value‑‑‑Supreme Court upheld the order of the High Court‑‑‑Compensation was paid to assessee in pursuance of High Court order‑‑‑For the period relevant to assessment years 1991‑92 to 1995‑96 Assessing Officer, as a compensation receivable by the assessee from Government, assessed the value of gold on the basis of market value‑‑­ First Appellate Authority directed the Assessing Officer to assess the value of gold adopted by the Customs Appellate Authorities @ Rs.43.43 i per tola‑‑‑Validity‑‑‑Waith regard to value of gold, the findings recorded by the First Appellate Authority were unexceptionable for the reason that compensation @ Rs.43.43 per tola had already‑been offered by the Department and that was the value which would have been paid to the assessee, to settle the dispute with the Department, had he opted for it‑‑­After receipt of the compensation by the assessee in lieu of gold and for the fact that no gold was m existence, it was the amount received by the assessee which was taxable and that too in the assessment year. in which the same was paid to the assessee‑‑‑Order of the First Appellate Authority was modified by the Tribunal to that extent.

1996 PTD (Trib.) 905; B.D. Avari v. CIT, 1989 PTD 670; Mehran Associate Ltd. v. CIT, Karachi 1993 PTD 69;‑ (1985) 153 ITR 201; (1983) 144 ITR 304; (1982) 135 ITR 742 and Woodrock v. Temp. State Housing Commission 148 M.Y.S. 2d 849 Misc. 2d 1045 ref.

(c) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S. 91‑‑‑Penalty for non‑payment of tax‑‑‑Penalty was imposed upon assessee's failure to pay the demand, although the appeals were pending before the First Appellate Authority against the said demand‑‑‑Validity‑‑‑Since litigation was still going on the assessee's appeals, and assessee was contesting the original assessment before the appellate forum, there was no willful default on the part of the assessee‑‑‑Imposition of penalty was premature and not in consonance with the law laid down by the superior Courts‑‑‑Penalty imposed was deleted by the Tribunal.

1979 PTD 603 rel.

(d) Wealth tax‑‑‑

‑‑‑‑Refund‑‑‑Assessable asses‑‑‑Amount of refund was received in July, 1996‑‑‑Assessing Officer included the amount of refund and compensation thereof in the total wealth of the assessee for the assessment year 1996‑97 and the same was deleted by the First Appellate Authority‑‑‑Validity‑‑‑Effect to the High Court's order, dated 7‑7‑1994 pertaining to the assessment year 1997‑98 on the income‑tax side was given on .11‑7‑1996 under S.136(5) of the Income Tax Ordinance 1979‑‑‑No refund had yet been created on the relevant valuation date i.e. 30‑6‑1996 so as to constitute entitlement of the assessee to receive the amount‑‑‑Question of determination as to the exact amount due to the assessee was still pending on 30‑6‑1996, although the issue had been settled in assessee's favour by the High Court and a consequent order has been passed by the Income‑tax Appellate Tribunal‑‑‑Such issue had been later on decided on 11‑7‑1996‑‑‑Order of the First Appellate Tribunal was upheld by the Tribunal in circumstances.

S.A. Khan for Appellant.

Ahmad Kamal, D.R. for Respondent.

Date of hearing: 16th March, 2(101.

2002 P T D (Trib.) 1523

[Income‑tax Appellate Tribunal Pakistan]

Before Javed Tahir Butt, Accountant Member and

Muhammad Tauqir Afzal Malik, Judicial Member

I.T.As. Nos.4256/LB and 4257/LB of 2001, decided on 25th January, 2002.

(a) Income‑tax‑‑‑

‑‑‑‑Ex parte decision‑‑‑Principle‑‑‑Merits of the .case to be considered‑‑­First Appellate Authority should have examined the merits of the case to thrash out the issue agitated by the assessee, even though the ex parte decision by the Assessing Officer was justified.

(b) Income Tax Ordinance (XXXI of 1979)--‑‑

‑‑‑Ss.52, 86, 50(4), 80C, 80CC & 143‑B‑‑‑S.R.O. No. 368(1)/94, dated 7‑5‑1994‑‑‑Order passed by the Assessing Officer under Ss.52/86 of the Income Tax Ordinance, 1979 was declared without lawful jurisdiction on the ground that the capital of the company was below 1.5 million‑‑‑Order passed by the First Appellate Authority was vacated while the order by the Assessing Officer was cancelled by the Tribunal.

2001 PTD (Trib.) 1480 rel.

Muhammad Ajmal Khan for Appellant. Nemo for Respondent.

Date of hearing: 4th January, 2002.

2002 P T D (Trib.) 1531

[Income‑tax Appellate Tribunal Pakistan]

Before Khalid Waheed Ahmed, Judicial Member and

Mazhar Farooq Shirazi, Accountant Member

I.T.As. Nos.3355/LB and 3738/LB of 2000, decided on 21st February, 2002.

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Second Sched., Cl. (118‑C)‑‑‑Exemption‑‑‑Past history‑‑‑Refusal of exemption to the income of industrial undertaking earned through lease‑‑‑Exemption refused on the basis of history of the assessee confirmed by First Appellate Authority was upheld by the Tribunal.

(b) Income‑tax‑‑‑

‑‑‑Disallowance of expenses‑‑‑Machinery repairs‑‑‑Industrial under­taking‑‑‑Lease agreement‑‑‑‑Machinery repairs expenses of lessor/ assessee not covered under any para./point of the agreement disallowed by First Appellate Authority was not disturbed by the Tribunal since the assessee had failed to substantiate his claim.

(c) Income‑tax‑‑‑

‑‑‑‑Addition‑‑‑Lease income‑‑‑Lease agreement ‑‑‑Lessor/assessee declared lease income according to lease agreement‑‑‑Assessing Officer enhanced the same on the ground that assessee had failed to substantiate same‑‑‑Validity‑‑‑First Appellate Authority deleted the addition keeping in view the past history of the case and directed to accept the declared lease income and the same was upheld by the Tribunal.

1991 PTD 488 rel.

Mirza M. Waheed Bai‑g, A.R. for Appellant (in I.T.A. No.3355/LB of 2000).

Iram Adrian, D.R. for Respondent (in I.T.A. No.3355/LB of 2000).

Iram Adrian, D.R. for Appellant (in I.T.A. No.3738/LB of 2000).

Mirza M. Waheed Baig, A.R. for Respondent (in I.T.A. No.3738/LB of 2000).

Date of hearing: 29th January, 2002.

2002 P T D (Trib.) 1543

[Income‑tax Appellate Tribunal Pakistan]

Before Mrs. Safia Chaudhry, Accountant Member, Khalid Waheed Ahmad and Syed Nadeem Saqlain, Judicial Members

W.T.As. Nos. 1251/LB to 1256/1.13 of 2000, decided on 26th June, 2001.

Wealth Tax Act (AV of 1963)‑‑‑

‑‑‑‑Ss. 2(5)(ii), 14(2) & 17(1)‑‑‑Wealth Tax Rules, 1963, R.8(3)‑‑­C.B,R. Circular No.7 of 1994, dated 10‑7‑1994‑‑‑C:B.R. Circular No. 11 of 1994, dated 17‑7‑1994‑‑‑Assessee, a private limited company, purchased a plot for the purpose of construction thereon for sale or letting out but the purpose was not carried "out due to change of circumstances after lapse of 25 years‑‑‑Taxability of plot being held for the purpose of construction and sale and for letting out the property‑‑-Validity‑‑‑Plot in question was purchased on 14‑5‑1976, and since the incorporation of the Company even after lapse of almost 25 years no other transaction except purchase of the said plot had been conducted by the assessee‑‑‑No further steps had been taken for its construction or its use in such a manner which could be treated as business activity‑‑‑Main object of the Company as per Memorandum of the Association was to acquire, purchase or take on lease pieces of land any where in Pakistan and to construct building and structure thereon for any purpose, and generally to deal in or carry on business related to main object but the fact that nothing was done ever since the company was formed went a long way to prove that merely mentioning of business of the nature could not be made basis to attract wealth tax proceedings‑‑‑Appellate Tribunal found that plot under construction was not being held by the assessee­ Company for the purposes of construction or letting out during the years under consideration and was not a taxable asset as defined in S.2(5)(ii) of the Wealth Tax Act, 1963.

Civil Appeal No.K‑104 of 1981; 1998 PTD 2017; 1989 PTD 1044; 2001 PTD (Trib.).1790; 1987 PTD (Trib.) 1; 1988 PTD (Trib.) 437; (1999) 79 Tax 76 (Trib.) and (59) Tax 108 ref.

1996 PTD 360; 1992 PTD (Trib.) 1187 and 1997 PTD (Trib.) 1034 rel.

Asim Zulfiqar and Zulfiqar Ahmad, A.C.As. for Appellant.

Yousaf Umar, Muhammad Asif, D.R. and Amjad Iqbal, DCIT for Respondent.

Date of hearing: 19th June, 2001.

2002 P T D (Trib.) 1567

[Income‑tax Appellate Tribunal Pakistan]

Before Syed Nadeem Saqlain, Judicial Member and

Muhammad Munir Qureshi, Accountant Member

W.T.As. Nos. 1366/LB to 1369/LB of 2000, decided on 30th November, 2001.

(a) Wealth tax‑‑‑

‑‑‑‑ Property‑‑‑Title, divestment of‑‑‑Effect‑‑‑If a person had already been divested of his title in the property, the property could not be considered to be belonging to him.

(b) Wealth Tax Act (XV of 1963)‑‑‑

‑‑‑‑Ss. 3, 2(m) & 17‑‑‑Charge of wealth tax‑‑‑Net wealth‑‑‑Wealth escaping assessment‑‑‑Property/land of the assessee was acquired by the Development Authority and assessee was promised exemption of 30% of the acquired land which was supposed to be allotted to the assessee‑‑­Assessee did not disclose the same in wealth tax return‑‑‑Department added the value of the exempt share of land in the net wealth of the assessee‑‑‑Validity‑‑‑Assessee was not owner of the land acquired by the Authority for wealth tax purposes, hence the Assessing Officer misdirected himself while treating the property acquired by the Authority as a part of wealth of the assessee‑‑‑After acquisition of land by the Authority, the property in question did not belong to the assessee and the same was not chargeable to wealth tax under S.3 of the Wealth Tax Act, 1963‑‑‑Appellate Tribunal rejected the appeal of the Department.

(1985) 155 ITR 277 and W.T.A. No.363/LB of 1995 ref.

1996 PTD (Trib.) 905 and 1997 PTD (Trib.) 1034 rel.

Mehboob Alam, D.R. for Appellant.

M. Anwar Pasricha for Respondent.

Date of hearing: 23rd November, 2001.

2002 P T D (Trib.) 1581

[Income‑tax Appellate Tribunal Pakistan]

Before Khawaja Farooq Saeed, Judicial Member and

Imtiaz Anjum, Accountant Member

I.T.As. Nos. 987/LB, 988/LB of 1994; 2988/LB, 2989/LB, 3643/LB, 3644/LB of 1995 and 3286 of 1996, decided on 4th December, 2001.

Finance Act (XII of 1991)‑‑‑

‑‑‑‑S. 12‑‑‑Corporate Assets Tax‑‑‑Work in progress ‑‑‑Taxability‑‑­Appellate Tribunal directed the Assessing Officer to charge Corporate Assets Tax on the work in progress after obtaining the details of assets from the assessee.

D.C.I.T. v. Messrs Fatima Enterprises, Multan I.T.A.T. No. 897/LB of 1998 ref.

Tahir Yazdani for Appellant.

Anwar, Ali Shah, D.R. for Respondent.

Date of hearing: 4th December, 2001

2002 P T D (Trib) 1583

[Income‑tax Appellate Tribunal Pakistan]

Before Syed Nadeem Saqlain, Judicial Member end

Amjad Ali Ranjha, Accountant Member

I.T.A. No. 4403/LB of 2001, decided on 31st December, 2001.

Income Tax Ordinance (XXXI of 1979)‑‑-

‑‑‑Ss. 62(1), 129 & 134‑‑‑Assessment on production of accounts, evidence, etc. ‑‑‑Assessing Officer failed to confront the assessee in terms of provisions of S.62(1) of the Income Tax Ordinance, 1979 in respect of the defects found in the books of accounts‑‑‑First Appellate Authority set aside the assessment for de novo decision with the direction that Assessing Officer should confront the assessee with the specific defects noted by him in the books of accounts of the assessee‑‑‑Validity‑‑‑First Appellate Authority had erred in law while setting aside the case instead of annulling the assessment when the Assessing Officer failed to confront the assessee with the defects found by him in the books of accounts which was mandatory provision of law for framing the assessment‑‑‑Order of the Assessing Officer was vacated by the Appellate Tribunal being in violation of S.62 of the Income Tax Ordinance, 1979.

1999 PTD (Trib.) 3892 and 1985 PTD (Trib.) 178 rel, Abdul Rasheed Gill, I.T.P. far Appellant.

Mehboob Alam, D.R. for Respondent.

Date of hearing: 11th December, 2001.

2002 P T D 1818

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Sharif Chaudhry, Accountant Member and Zafar Ali Thaheem, Judicial Member

W.T.As. Nos. 1769/LB and 1770/LB of 2000, decided on. 16th February, 2002.

(a) Wealth tax---

---- Natural justice, principles of---Applicability---Opportunity of being heard ---Assessee had not only been afforded proper opportunity of hearing but his views and explanations had also been specifically considered and discussed on each issue involved in the assessment-­Assessment order passed was a speaking order and every issue involved had been properly discussed---No complaint could be entertained from the assessee regarding lack of opportunity of being heard in the circumstances.

(b) Wealth Tax Act (XV of 1963)---

----Second Sched., Part 1, Cl. (1)---Zakat and Ushr Ordinance (XVIII of 1980), S.25(1)---Exemption---Plots were claimed as exempt from levy of wealth tax on the plea that the same had been purchased out of encashment proceeds of NIT Units on which Zakat was deducted during the period relevant to the-.assessment year---Validity---Both the Zakat & Ushr Ordinance, 1980 and Wealth Tax Act, 1963 exempt only those assets from the levy of wealth tax on which Zakat had been paid and not the assets which had been created out of sale/encashment proceeds of Zakat paid assets and no Zakat had been paid on such assets---Claim of assessee in, respect of exemption of plots from wealth tax was rejected by the Tribunal in circumstances.

(c) Wealth Tax Rules, 1963---

----R.8(3)---Valuation of plot---Assessing Officer had not made any valuation of assessee's plots under Wealth Tax Rule 8(3), rather he had merely adopted the value which was declared by the assessee himself--­Contention of the assessee that value of plots as assessed without prior approval of Commissioner of Income-tax was illegal which was declared as misconceived by the Tribunal.

Iqbal Anwar Mehdi, I.T.P. for Appellant.

Ahmed Kamal, D.R. for Respondent.

Date of hearing: 29th January, 2002.

2002 P T D 1826

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Tauqir Afzal Malik, Judicial Member and Javed Tahir Butt, Accountant Member

W.T.A. No. 582/LB of 1996, decided on 11th March, 2002.

(a) Wealth Tax Act (XV of 1963)---

----Ss.24, 16(3), 23 & 5(1)(i)---Appeal to Appellate Tribunal---Appeal had become infructuous and was dismissed as the assessment order in consequence of the appellate order was passed which was also under appeal and even appellate order was passed by the First Appellate Authority for the year under appeal.

(b) Practice and procedure---

---- No proper assistance was rendered to Tribunal by the Department Tribunal directed that such lapse on the part of the Department bee brought to the notice of Authorities concerned as such practice was harmful to the interest of Revenue.

Muhammad Ishtiaq for Appellant.

Anwar Ali Shah, D.R. for Respondent

Date of hearing: 9th March, 2002.

2002 P T D (Trib.) 1831

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Tauqir Afzal Malik, Judicial Member and

Javed Tahir Butt, Accountant Member

I.T.As. Nos.3977/LB to 3979/LB of 1996, 2462/LB to 2466/LB 'of 1998, 408/LB to 410/LB, 6600/LB, 7017/LB of 1992-93, 4666/LB to 4668/LB of 1997, 128/LB. 2480/LB and 2481/LB of 1998, decided on 31st December, 2001.

Income Tax Ordinance (XXXI of 1979)---

---First Sched., Part II---Super tax---Rebate---Entitlement---Income Tax Appellate Tribunal applying the rule laid down by the Supreme Court in Union Council Ali Wahan, Sukkur v. Associated Cements (Pvt.) Ltd. 1993 SCMR 468 held that assessee was not entitled to 5 % rebate on super-tax.

1993 SCMR 468 fol.

Zia Haider Rizvi for Appellant (in I.T.As. Nos.3977/LB to 3979/LB of 1996 and 2462/LB to 2466/LB of 1998).

Nemo for Respondent (in I.T.As. Nos.3977/LB to 3979 of 1996 and 2462/LB to 2466/LB of 1998).-

N.emo for Appellant (in I.T.As. Nos.408/LB to 410/LB, 6600/LB, 7017/LB of 1992-93, 4666/LB to 4668/LB of 1997, 128/LB, 2480/LB and 2481./LB of 1998).

Zia Haider Riavi for Respondent (in I.T.As. Nos.408/LB to 410/LB, 6600/LB, 70'17/LB of 1992-93, 4666/LB to 4668/LB of 1997, 128/LB, 2480/LB and 2481/LB of 1998).

Date of hearing: 22nd December, 2001.

2002 P T D (Trib.) 1841

[Income-tax Appellate Tribunal Pakistan]

Before Imtiaz Anjum, Accountant Member and Khawaja Farooq Saeed, Judicial Member

I.T.A. No.3084/LB of 2001, decided on 26th November, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss.65, 12(18) & 80C(4)---Additional assessment---Jurisdiction under S.65 of the Income Tax Ordinance,: 1979 was assumed on the ground that since amount exceeding authorized capital was to be treated as loan being chargeable as deemed income under S.12(18) of the Income Tax Ordinance, 1979 additional assessment under S.65 of the Income Tax. Ordinance, 1979 was warranted---First Appellate Authority turned down the explanation of assessee summarily---Validity---Assessing Officer as well as First Appellate Authority fell in error as both the Authorities did not consider and adjudicate upon the objection of assessee pointing out the bar for invoking provisions under S.12(18) in view of the provisions of S.80C(4) of the Income Tax Ordinance, 1979.

(b) Income Tax Ordinance (XXXI of 1979)---

-----Ss.65 & 80C(4)---Additional assessment--Final discharge of tax liability--- Immunity---If objection of the assessee regarding immunity of proceedings under S.65 of the Income Tax Ordinance, 1979 was not legally acceptable in view of subsection (4) of S.80C of the Income Tax Ordinance, 1979, it should have been discarded after referring to the contentions and provisions of law.

(c) Income Tax Ordinance (XXXI of 1079)---

----Ss.12(18) & 65---Deemed income---Additional assessment---Share deposit money in excess of authorized capital---Share deposit money received in advance before the substitution of S.12(18) through Finance Act, 1998, its excess of authorised capital, though the authorized capital was enhanced subsequently with effect from the date of share deposit money, was treated as loan and addition was made, which was maintained by the First Appellate Authority---Validity---Appellate Tribunal observed that orders were not sustainable on facts and law for the reasons that the Assessing Officer failed to assume jurisdiction under S.65 of the Income Tax Ordinance, 1979 in a lawful manner; that the Assessing Officer failed to reject/rebut the objections raised by the appellant in response to show-cause notice; that the First Appellate Authority disposed of the contention of appellant summarily inasmuch as two grounds had almost been ignored; that the case-law had been heavily relied upon by Assessing Officer without drawing a comparison or parallel of the two cases and that the case-law relied upon by the assessee reported in 2002 PTD (Trib.) 141 had been found applicable on all fours.

2001 PTD (Trib.) 2880 distinguished.

2002 PTD (Trib.) 141; 2001. PTD 1180 and Civil Petition No.984-L of 2001 rel.

.

Muhammad Bashir for Appellant. Anwar Ali Shah, D.R. for Respondent.

Date of hearing: 23rd October, 2001.

2002 P T D (Trib.) 1898

[Income-tax Appellate Tribunal Pakistan]

Before Khawaja Farooq Saeed, Judicial Member and Muhammad Sharif Chaudhry, Accountant Member

I.T.A. No.2449/LB of 1999, decided on 12th April, 2000.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.17---Interest on securities---Accrued interest ---Taxability--­Contention of assessee that charge of tax on accrued interest was contrary to provisions of S.17 of the Income Tax Ordinance, 1979 which authorises levy of tax on Government securities on receipt basis was rejected by the Tribunal in the light of judgments reported as (1994) 69 Tax 1992 (Trib.) and 1998 PTD (Trib.) 1878.

3 iTR 464; 22 ITR 12 and 1962 Tax (Supplement) 2 ref.

1994 PTD (Trib.) 1051 and 1998 PTD (Trib.) 1878 rel.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.23(1)(x)---Deduction---Bad debts---Concept of premature writing off as bad debt---State Bank not agreeing for such treatment ---Effect--­Bad debts claimed by assessee, a Bank to have been written off was disallowed on the ground that the accumulated bad debts was a provision hence could not be called as actually written off and .the same was also without certification from the State Bank---Validity---Disallowance made and confirmed- under the argument that the State Bank of Pakistan had not confirmed it was not a valid reason as law did not impose any such restriction--- Such argument might be used as a support but could not be considered as an embargo ---Bank/assessee itself was the best judge to determine as to what part of its bad debt required written off---Under no stretch of imagination a businessman of an ordinary prudence specially a bank would write off a debt only to save the taxes as that way he would loose more than what he appeared to gain---Provision of law protects it in a very rightful manner i.e. if such written off bad debts were subsequently received they could be added in income and were taxable--­Appellate Tribunal directed that bad debts claimed by the assessee should be allowed.

CIT v. Jwala Prasad Tiuwari (1953) 24 ITR 527 (Bom.); Associated Banking Corporation of India Ltd. v. CIT (1958) 35 ITR 557 (Bom.); Begg Dunlop & Company Ltd. v. CEPT (1954) 25 ITR 276; CIT v. National Bank of Pakistan (1967) 34 Tax 158; Grindlay Bank Ltd 's case 1991 PTD 569 and 158 ITR 102 ref.

Begg Dunlop and Ltd. v. CEPT (195.4) 25 ITR 276 (Cal.); CIT v- Jwala Prasad Tiwari (1953) 24 ITR 537 (Bom.); Vithaldas H. Dhanjibhai Bardanwala v. CIT (1981) 130 ITR 95 (Guj.); CIT v. Srivinayaga Pictures (1986) 161 ITR 65 (Mad.); CIT v. Union Carbide India Ltd. (1995) 78 Tax 605 (Cal.) and Punjab Natiohal Bank v. IAC (1989) 30 ITD 245 (Delhi) rel.

(c) Income-tax---

----Addition---Interest credited t suspense account---Assessee contended that amount of interest credited to suspense account had already been offered for taxation while the department pleaded that actual accounts submitted did not prove assessee's contention---Appellate Tribunal set aside the finding on the issue observing that same required appreciation of accounts which could be decided at the stage of Assessing Officer--­Assessing Officer was directed by the Tribunal to decide the issue after due consideration of the condition of the assessee on the basis of account and if, the assessee's claim of having shown the same in accounts was correct, there was no reason for making the addition again.

(d) Income Tax Ordinance (XXXI of 1979)---

---First Sched., Part V, para. D(a)---Rate of income-tax for companies-­Dividend---Taxability---Charge of tax @ 30%, which had earlier been set aside by the First Appellate Authority, was directed by the Tribunal, to be reduced to 5 %.

I. T. As. Nos. 1,7 and 18/LB of 1998,99 rel.

(e) Income Tax Ordinance (XXXI of 1979)---

----S.- 24 (i) & Second Sched., Part IV, Cl. (3)---Deductions not admissible---Allowance of perquisites paid by certain Corporations--­Allowances and perquisites---Addition of---Bald estimation ---Validity--­Addition was set aside by the Tribunal being estimate of Assessing Officer and merely bald and rather just an arbitrary one and Assessing Officer was directed to call for the details and only then addition would be made which came within the purview of S.24(i) of the Income Tax Ordinance, 1979 or any other such provision.

(f) Income-tax---

----Accrued interest---Deduction at source---Tax liability was created without giving effect to deductions at source made on accrued interest--­Validity--Once interest income was to be assessed in the hands of the assessee on accrual basis the deduction at source made on this amount up to 30th June of the relevant assessment year shall be allowed as a deduction---Assessing Officer was directed to allow the same after verification of the challans etc.

I..T.As. Nos.3056/LB and 3057/LB of 1998-99 ref.

Ikramul Haq for Appellant.

Sh. Muhammad Hanif, D.R., Shafqat Mehmood Chohan, L.A. and Dr. Samra Ashraf, DCIT for Respondent.

Date of hearing : 11th September, 1999.

2002 P T D (Trib.) 1930

[Income-tax Appellate Tribunal Pakistan]

Before Khawaja Farooq Saeed, Judicial Member and Javed Tahir Butt, Accountant Member

I.T.As. Nos. 2613/LB to 2619/1 13 of 2001, decided on 13th October; 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----Eighth Sched., Part 'I, S. No.9(xi)---Bed linen---Export of---Rate of tax. deduction---Assessment years 1994-95 to 2000-2001---Bed linen was part of Part I and entire Part I was entitled to deduction at the rate of 0.50%--Charge of deduction @ 0.75%, therefore, was not justified.

(b) Income 'Tax Ordinance, (XXXI of 1979)--

---Ss.80CC, 14313, 62, 50(5), 52 & Eighth Sched., Part I, S.No.9(xi)--­Assessment under S.62 of the Income Tax Ordinance, 1979 and rate of withholding tax charged @ 0.75 % on export proceeds were challenged to be unjustified---Validity---Assessee had gone through many rounds of litigation and facts regarding filing of statement under S. 143B or a return under S.55 of the Income Tax Ordinance, 1979 were also .not very clear---Facts showed that for the assessment year 1994-95 assessee had a claim of exemption under the Second Schedule of Income Tax Ordinance, 1979 which was quite confusing---Tribunal found that `bed linen' were chargeable to withholding tax @ 1/2% hence a finding on such issue would only be academic.

1988 PTD (Trib.) 1206 ref.

(c) Income Tax Ordinance (XXXI of 1979)---

---Ss.86, 88, 80CC, 143-B & 50---Additional tax- --Additional tax was charged on excessive tax calculated on the basis of difference between tax deducted and deductable---Validity---Deduction of tax @ l/2% was correct and charge of additional tax could not be maintained---Contention that charge was not consequent and it was to be separately adjudicated as a separate proceeding, academically might be correct but 1/2% deduction was a correct deduction, the additional tax for calculated default of 0.25%o tax could not be maintained and even if there be any default it was not on the part of' assessee---Assessee should not have been penalized-on the default of withholding agent---Charge of additional tax under Ss.86 and 88 of the Income Tax Ordinance was declared to be unjustified by the Tribunal.

PTCL 1995 CL 1 (SC of Pakistan) and PTCL 1997 CL 213 ref.

(d) Income Tax Ordinance (XXXI of 1979)---

----S.50---Deduction of tax at source---Custom rebate and Professional tax-- -Withholding tax---Validity---Deduction was to be made on account of export proceeds from the foreign exchange receipt by the withholding agent---Custom rebate was neither a part of export receipts nor was paid in foreign exchange same being basically a compensation or rebate on export performance by the Government, of Pakistan---Such amount wits neither export proceed nor fell through the withholding agent thus, there was no question of any deduction on the same---Charge created was declined by the Tribunal.

(e) Income-tax---

----Professional tax---Charge of by the Assessing Officer---Validity-._ Professional tax did not come under the ambit of Central Board of Revenue in any manner for it was a Provincial charge created by the Government of Punjab and Income - tax Department did not find any place in it in any manner---Charge of professional tax was a total misconception which could not be supported by the Tribunal.

M. Siraj Khalid and Ehsan Sheikh, I.T.P. for Appellant.

Muhammad Asif, D.R. for Respondent.

Date of hearing :26th September, 2001.

2002 P T D (Trib.) 1941

[Income-tax Appellate Tribunal Pakistan]

Before Inam Ellahi Sheikh, Chairman and Jawaid Masood Tahir Bhatti, Judicial Member

I.T.A. No. 2069/KB of 1999-2000, decided on 31st August, 2001.

Income Tax Ordinance (XXXI of 1979)---

----S.66A---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Issue of status was specifically agitated and adjudicated by the First Appellate Authority---Re-opening of same issue under S.66A of the Income Tax Ordinance, 1979 by the Inspecting Additional Commissioner---Validity---Jurisdiction of Inspecting Additional Commissioner under S.66A of the Income Tax Ordinance, 1979 could not be extended to portion of the order or issues decided or modified by the First Appellate Authority---Proper course for the Department was to file appeal against the order of the First Appellate Authority before the Tribunal and not to invoke jurisdiction under S.66A of the Income Tax Ordinance, 1979---Assessment order had already merged into Appellate order on account of theory of merger and there was no order in the field for the, Inspecting Additional Commissioner to exercise jurisdiction---Appellate Tribunal vacated the order of the Inspecting Additional Commissioner and the assessment order as modified in accordance with the direction of the First Appellate Authority.

1999 PTD (Trib.) 2294; 1996 PTD (Trib.) 492 and 1999 PTD (Trib.) 401 rel.

Syed Hassan Naeem, I.T.P. for Appellant.

Muhammad Umer Farooq, D.R. for Respondent.

Date of hearing: 21st June, 2001.

2002 P T D (Trib. )1949

[Income-tax Appellate Tribunal Pakistan]

Before Syed Nadeem Saqlain, Judicial Member and Mrs. Safia Chaudhry, Accountant Member

I.T.As. Nos. 3462/LB of 2001, decided on 14th March, 2001.

Income-Tax Ordinance (XXXI of 1979)---

---Ss. 66-A & 59(1)---C.B.R. Circular No.18 of 1999, para. 12(a)--­Powers of Inspecting Additional Commissioner' to revise Deputy Commissioner's order---Assessment year 1999-2000---Copy of return was constituted as assessment order under S.59(1) of the Income Tax Ordinance, 1979---Assumption of jurisdiction under S.66-A of the Income Tax Ordinance, 1979 by the Inspecting Additional Commissioner---Validity---Order passed under S.66-A of the Income Tax Ordinance, 1979 was without any legal basis since there was no formal order holding the- field---Invocation of S.66-A of the Income Tax Ordinance, 1979 was without jurisdiction and nullity in the eye of law and void( ab initio---Order was annulled by the Tribunal.

(1990) 80 Tax 43 (Trib.) and 1993 SCMR 1232 rel.

Syed Abid Raza Kazmi for Appellant.

Ahmad Kamal, D.R. for Respondent.

Date of hearing: 13th March, 2001.

2002 P T D (Trib.) 1952

[Income-tax Appellate Tribunal Pakistan]

Before Khawaja Farooq Saeed, Judicial Member and Imtiaz Anjum, Accountant Member

I.T.As. Nos. 4204/LB of 2000, 442/LB, 1239/LB, 1240/LB of 2001, decided on 14th November, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss. 24(c) & 156---Inadmissible deductions ---Salary---Rectification--­Balance payment with return---Expenses of salary allowed--­Disallowance by way of rectification ---Validity---Company/assessee having filed return after settlement of the accounts by its employee with the Tax Department by payment of tax as per return filed, the rigors of S.24(c) of the Income Tax Ordinance. 1979 became inapplicable----Purpose behind the legislation was not to disallow verifiable expenses but to ensure prompt and timely payment of taxes by the people who receive salary---Spirit of law should not be ignored as such provisions should also only be invoked when they apply in letter and spirit on the facts and circumstances of the case---Rectification was a void action and its disapproval by the First Appellate Authority was quite justified.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.24(c)---inadmissible deduction---Word "sum"---Interpretation---Key words used in S.24(c) of the Income Tax Ordinance, 1979 were "any sum paid to any person"---Word "sum" could not be interpreted as to include delivery of goods---"Sum" represents payment made in cash and not in kind and did not represent anything other than cash.

1968 PTD 724 rel.

(c) Interpretation, of statutes---

---- Spirit of law should not be ignored as such provisions should also only be invoked when they apply in letter and spirit on the facts and circumstances of the case.

(d) Income Tax Ordinance (XXXI of 1979)---

----Ss. 24(c), 50(4)(a) & 156---Inadmissible deduction---Commission and discount---Payment of, in kind---Disallowance on account of non­-deduction of tax---Validity---"Sum paid" means cash payment and not the payment in kind---Distribution of ball point pencils to its distributors on their good performance free of cost could trot be considered as "sum paid" and thus the provisions of S.50(4)(a) and of S.24(c) of the Income Tax Ordinance also remained inapplicable---Issue set aside by the First Appellate Authority was considered as insufficient relief as the case was that of cancellation of the rectification order under 5.156 of the Income Tax Ordinance, 1979---Order was declared void and illegal ab initio and the same was cancelled by the Tribunal.

I.T.As. Nos.3526 and 3527/LB of 1998 and 1994 PTD (Trib.) 1278 ref.

1968 PTD 724 rel.

(e) Income-tax---

----Appeal---Limitation---Condonation of delay---Limitation starts running from the date of ~ service of the order on assessee and the Commissioner respectively and not from service on another person--­Appeal in the present case, apparently was within time but the same was not clear from the record---Putting reliance on the affidavit of the assessee which was further supported by an application and unequivocal statement of the Authorised Representative at the Bat, Tribunal condoned the delay and decided the issue on merits.

1984 PTD (Trib.) 143 and 2000 PTD 344 rel.

Syed Zafarullah Shah, F.C.A. for Appellant/Assessee.

Anwar Ali Shah, D.R. for Respondent/Department.

Date of hearing: 14th November, 2001.

2002 P T D (Trib.) 1957

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Sharif Chaudhry, Accountant Member and Zafar Ali Thaheem, Judicial Member

I.T. A. No. 2025/LB of 2001, decided on 28th February, 2002.

(a) Income Tax Ordinance (XXXI of 1979)---

---S.59---C.B.R. Circular No.9 of 1998, dated 21-7-1998, para. 5(b)--- Self-assessment---Salary income 50% or more of the total income---No exemption from, selection for special audit---Persons whose income from salary was at least 5096 of their total income were not required to pay tax for the year 1998-99 equal to or more than tax payable for the assessment year 1997-98---However, no concession or exemption or immunity had been given to such persons for selection of cases of such persons-for special audit in individual capacity or as a class.

(b) Income Tax Ordinance (XXXI of 1979)--

---Ss. 59 & 62---C.B.R. Circular No.9 of 1998, dated 21-7-1998, Para. 5(b)---Self Assessment---Doctor---Salary income was more than 50% of total income ---Selection of case for total audit---Assessment under S.62 of Income Tax Ordinance, 1979---First Appellate Authority directed the Assessing officer to accept the case under Self-Assessment Scheme as selection of case was not justified as salary income was more than 50% of his total income---Validity---Central Board of Revenue was within, its jurisdiction when it had selected cases of doctors as a class--­Doctors may have their income 10086 from medical profession or they may have 50% income from salary and 50% income from medical practice or they may have 90% income from salary and 10% income from medical practice, that did not make any difference ---Assessee's case had been rightly assessed under S.62 of the Income Tax Ordinance, 1979 as he was a member of a class of persons who had been selected for special audit.

I. T. A. No. 1176/LB of 2000 fol.

1997 PTD (Trib.) 183 ref.

Ahmed Kamal, D. R. for Appellant

Nemo for Respondent.

Date of hearing: 21st February, 2002

2002 P T D (Trib.) 1962

[Income-tax Appellate Tribunal Pakistan]

Before Khawaja Farooq Saeed, Judicial Member

I.T.A. No. 3068/LB of 1994, decided on 26th February, 2002.

(a) Income Tax Ordinance (XXXI of 1979)--

---Ss. 13(1)(aa), 129 & 134---Unexplained investment ---Assessee claimed to have purchased house in constructed form and produced certificates of Property Tax Department and Secretary of Housing Society and proof of installation of telephone---Assessing Officer finalized the assessment by making addition under S.13(1)(aa) of Income Tax Ordinance, 1979, presuming that plot was purchased earlier and construction was raised thereon during the assessment year---First Appellate Authority deleted the addition finding that house was purchased in constructed form--­House being not in the name of assessee, could not be assessed in his hands'---Department could always initiate proceedings, thus set aside was of no help to Department and would only be triggering another round of litigation in case of present assessee---Assessing Officer had option to initiate penalty proceeding against assessee for his non-cooperative behavior or/and to start independent proceedings against his wife, but could not make a harsh assessment or add an income not belonging to assessee---Appeal filed by Department was rejected in circumstances.

(b) Income-tax---

---Assessment proceedings---Non-cooperative attitude of assessee--­Effect---Department is equipped with penal provisions to meet such situation---Assessing Officer under the garb of non-cooperative behavior of assessee cannot make a harsh assessment or add an income not belonging to assessee.

Muhammad Asif, D.R. for Appellant.

Shahid Umer for Respondent.

Date of hearing: 26th February, 2002.

2002 P T D (Trib.) 1964

[Income-tax Appellate Tribunal Pakistan]

Before Khalid Waheed Ahmed, Syed Nadeem Saqlain, Judicial Members and Mrs. Safia Chaudhry; Accountant Member

I.T.As. Nos. 9821/LB and 9781/LB of 1992-93, decided on 24th May 2001.

(a) Income-tax---

----Rejection of accounts-- -Declared version was rightly rejected as the defects in the accounts pointed out by the Assessing Officer namely non­-maintenance of stage-wise production record and un-verifiability of wastage remained un-rebutted.

(b) Income-tax---

----Claim under the head BMR---Restriction on claim to the extent of cost of machinery ---Assessee's claim under the head BMR included not only the cost of machinery but also incidental expenses which under the explicit instructions of Central Board of Revenue were not to be included under the head BMR---Restriction to the extent of cost of machinery being fully in accordance with the Rules had rightly been confirmed by the First Appellate Authority.

(c) Income-tax---

----Profit and loss expenses---Travelling, conveyance, telephone and telex expenses---Disallowance of---Validity---Disallowance in the various forms of heads was made for urvouched and unverifiable and personal nature of the expenses and disallowance under the head telephone was only at 15% of the claim ---Disallowances being reasonable were restored by the-Tribunal.

(d) Income-tax---

----Cotton and polyester yarn---Yield rate---Acceptance of declared yield rate on the basis of history of the case---Appellate Tribunal directed the department to accept the declared yield rates for cotton and polyester yarn at 84.56% and 98.32% respectively as the same rates were fixed by the First Appellate Authority which remained unchallenged before any higher forum in the immediately preceding year---Non-maintaining of production record and wastage record did not mean that the declared yield rate could be discarded by the Assessing Officer---Incumbent upon the Assessing Officer to give his own cogent reason while adopting the yield rate---History of the case on the issue could not be brushed aside unless there were strong reasons which were not found by the Tribunal in the case.

Muhammad Asif, D.R. for Appellant.

Nemo for Respondent.

Date of hearing: 16th May, 2001.

2002 P T D (Trib.) 1971

[Income-tax Appellate Tribunal Pakistan]

Before Khawaja Farooq Saeed, Judicial Member and Imtiaz Anjum, Accountant Member

I.T.As. Nos. 1856/LB to 1858/LB of 2001, .decided on 10th January, 2002.

Income Tax Ordinance (XXXI of 1979)---

---Ss. 52 & 50(1)---Liability of persons failing to deduct or pay tax--Assessee in default ---Assessee had provided rent-free un­furnished/furnished accommodation to his employees---Assessing Officer considered its rental value as more than 45% of the basic pay which if added would have resulted in more than declared income ---Assessee was declared as "assessee in default" under S.52 of the Income Tax Ordinance, 1979 on account of failure of deduction of tax from such deemed addition in its income---Validity---Holding the assessee as assessee in default on the basis of such estimates and presumptions that the rent-free accommodation could fetch more rent in open market and that this could have increased assessee's income was just a far-fetched presumption which had no leg to stand so far as S.50(1) of the Income Tax Ordinance, 1979 was concerned ---Deduction having not been made on average basis, even if there was some short deduction, the provision of S.52 of the Income Tax Ordinance, 1979 did not come into picture--­Withholding tax was a mode of recovery and could not be equated with the charge or tax demand after assessment---Section 52 of the Income Tax Ordinance, 1979 could only, come into picture if there was default under S.50(1) of the Income Tax Ordinance, 1979 which in the present case, had not been established ---Assessee was not liable to be subjected to any further deduction---Order of the Assessing Officer was cancelled by the Tribunal.

Yousaf Saeed, F.C.A. for Appellant.

Muhammad Asif, D.R. for Respondent.

Date of hearing: 10th January, 2002.

2002 P T D (Trib.) 1982

[Income-tax Appellate Tribunal Pakistan]

Before Khawaja Farooq Saeed, Judicial Member and Imtiaz Anjum, Accountant Member

W.T.A. No. 1338/LB of 2000, decided on 30th January, 2002.

(a) Finance Act (XII of 1991)---

----S. 12(1)(9)(10)---Wealth Tax Act (XV of 1963), S.17A---Corporate Assets Tax---Limitation period provided for assessment ---Assessee's contention was that the assessment of Corporate Assets Tax was time-­barred having been finalized in deviation from the provisions of S.17A of the Wealth Tax Act, 1963---Validity---Provisions of S.17A of the Wealth Tax Act, 1963 were not applicable to Corporate Assets Tax as nothing could be imported beyond the intendments of the legislature---No bar on Legislature to declare that all the provisions of the Wealth Tax Act were applicable to the assessments under Corporate Assets Tax--­When it specifically mentions certain section in S.12(9) & (10) of the Finance Act, 1991 no other provision could be applied on the proceedings of Corporate Assets Tax---Providing limitation for assessment under Finance Act, 1991 was quite unnecessary as it was a one time levy and not year to year charge---No limitation for making an assessment under Corporate Assets Tax, therefore, was provided.

(b) Finance Act (XII of 1991)---

---S.12(7)---Corporate Assets Tax---Penalty for non-filing of return--­When return was proved to have been filed in time penalty was ordered to be cancelled by the Tribunal.

I.T.As. Nos.6872/LB of 1996 I.T.A. No.2141 and 2141 of 2001 rel.

(c) Finance Act (XII of 1991)---

---S. 12(8)---Corporate Assets Tax---Additional tax---Levy of--­Validity---Additional tax was deleted by the Tribunal on the ground that Central Board of Revenue was not clear on a number of points.

I.T.As. Nos.6872/LB of 1996; 2411/LB of 2001; 1872/LB of 1997, I.T.A. No-2141 of 2001 and 2001 PTD (Trib.) 2964 rel.

Kh. Muhammad Iqbal and Kh. Faisal Iqbal, F.C.A. for Appellant.

Muhammad Asif, D.R. for Respondent.

Date of hearing: 19th January, 2002.

2002 P T D (Trib.) 1997

[Income-tax Appellate Tribunal Pakistan]

Before Khawaja Farooq Saeed, Judicial Member and Imtiaz Anjum, Accountant Member

I.T.As. Nos. 2983/LB and 3901/LB of 2001, decided on 7th February, 2002.

Income Tax Ordinance (XXXI of 1979)---

---S. 23(1)(vii)---Deductions---Interest on short term borrowings used for purpose of business---Loan/advance was given to the sister concern by the assessee from his own sources---Disallowance of interest paid on short term borrowing proportionately to the amount paid to the sister concern as loan/advance---Validity---Bank loan obtained by an organization for the purpose of a particular business if utilized in the same spirit, interest paid on the said amount becomes an allowable expense ---Assessee had advanced loan to the sister concern but it had got nothing to do with that of the Bank advances---Entire amount of loan had been utilized for the assessee's own business and the eventuality which could disentitle him did not exist---Requirement of law was that the loan should have been obtained for the purpose of business and it should have been invested for that purpose---Interest paid in such circumstances thus become had allowable deduction---Observations that capital had not generated profit, or assessee himself had enough capital or he was not in need of loan from Bank or he had given loan to some other company from his own sources without interest or at a lesser interest, all were alien to the requirements of law---Assessing Officer's entire exercise revealed that assessee was not prudent businessman---In converse position, where borrowed capital had not been utilized and the business had been conducted with own resource the claim of-interest would be disallowed---Facts of present case did not warrant any proportionate disallowance ---Assessee had utilized the entire amount of short term Bank loan for the purpose of business and the money he lent to the sister concern had no nexus with the capital he borrowed from the Bank--­Disallowance of interest claimed under the head "Financial Expenses" was without any reason and the same was deleted by the Tribunal.

1995 PTD (Trib.) 677; 1986 SCMR 968 and Margalla Textile Mills Ltd.'s case I.T:A. No. 134 of 1998 ref.

Packages Limited v. CIT (1993) SCC 107; 1986 SCMR 968; 1995 PTD (Trib.) 677; CIT v. Pakistan Industrial Engineering Agencies Ltd. (1962) Tax 136 (SC Pak). 1991 PTD 53; 1957 PTD 147; 1987 PTD 149; 1984 PTD 341; PLD 1957 (W.P.) Pak. 130; CIT v. Pudukothai 84 ITR 788; East India Industries v. CIT 31 ITR 803, Birla v. Commissioner of Income-tax 58 ITR 462; Amna Bai v. Commissioner of Income-tax 51 ITR 135 and Rawkishan v. Commissioner of Income-tax 56 ITR 723 rel.

Muhammad Iqbal Khawaja and Faisal Iqbal, F.C.A. for Appellant.

Muhammad Asif, D.R. for Respondent.

Date of hearing: 12th January, 2002.

2002 P T D (Trib.) 2014

[Income-tax Appellate Tribunal Pakistan]

Before Khawaja Farooq Saeed, Judicial Member and Imtiaz Anjum, Accountant Member

W.T.A. No. 2083/LB of 2000, decided on 26th January, 2002.

(a) Wealth tax---

----Reserve---Definition and explanation---Expression "reserve" has not been defined in the Income Tax Ordinance, 1979---Concept of reserve being applicable to companies only, expression has to be understood in its ordinary meaning, which would govern through construction for the purposes of both the enactments, the Income Tax Ordinance, 1979 and the Companies Ordinance, 1984---Reserve---Surplus---Distinction--­Reserve was an appropriation of profits, the asset or assets by which it represented being retained to form part of the capital employed in the business---Definition of "reserve" was negative in form and not exhaustive in the sense that it only specified certain amount which were not to be included in the term "reserve"---If retention of appropriation of sum was not a provision, i.e. it was not designed to improve depreciation, renewal or diminution in the value of asset or any notional liability the same was not necessarily a "reserve"---Question whether a particular amount could be called "reserve" or not will have to be decided by having regard to the true picture and character of the sum appropriated.

(b) Wealth tax---

---"Reserve"---Meaning and import---Amount, which was kept for utilization, as a business capital and not to be distributed as dividend, could be called a reserve.

Metal Box Co. of India Ltd. v. Their Workmen (1969) 73 ITR 53 and 39 Comp. Cas. 410 (SC) rel.

(c) Wealth Tax Rules, 1963---

----R.8(2)(c)(ii)---Companies Ordinance (XLVII of 1984), S.235--Break­up value of shares---Surplus on revaluation of fixed assets---Inclusion of for calculating the break-up value---Validity---Surplus was neither a "sum" nor an "amount", it. was only a tangible addition in the value of assets that had only increased the notional value and had no effect in actuality--Section 235 of the Companies Ordinance, 1984 gave a picture in which the surplus of revaluation of assets could not be covered within the definition of "reserve"---Such provision clearly directs for its separate apportionment in the balance sheet and directs for keeping it aside as separate from reserve and was not to be utilized for giving dividend---Surplus on revaluation of assets was not in a tangible 'form hence its distribution into dividend was beyond comprehension and there was no question of its distribution in any manner---Share of a company were to be determined by adding up specific items before reducing liabilities---For purpose of R.8(2) (c)(ii) of the Wealth Tax Rules, 1963 increase in net book value arising out of revaluation of fixed assets was to be credited under the head of revaluation surplus, which was only a book adjustment and could not be termed as "reserve"---Determination for the purpose of break-up value share surplus calculated on revaluation of assets was not to be added for the simple reason that it was not "reserve" in terms of R.8(b)(c)(ii) of the Wealth Tax Rules, 1963--­Exclusion of the same by the First Appellate Authority was declared fully justified by the Tribunal.

Metal Box Co. of India Ltd. v. Their Workmen (1969) 73 ITR 53; 39 Comp. Cas. 410 (SC); W.T.A. No.214/LB of 1999; Messrs Sultan Tobacco Co. Ltd. v. CIT ITR 579 (SC); (1981) 44 Tax 148 (HC) and 1983 SCMR 77 rel.

Muhammad Asif, D.R. for Appellant.

Kamran Sial, I.T.P. for Respondent.

Date of hearing: 26th January, 2002.

2002 P T D (Trib.) 2106

[Income-tax Appellate Tribunal Pakistan]

Before Rasheed Ahmad Sheikh, Judicial Member and, Javed Tahir Butt, Accountant Member

I.T.A. No.3041/LB of 1994, decided on 18th April, 2002.

(a) Income-tax----

----Gross profit rate---Deviation from case history ---Validity---Assessing Officer had deviated from history of the case while applying gross profit rate of 17.5% to the contractual receipts--Perusal of the facts revealed that the gross-profit rate of 15% was applied to the declared payment in the preceding assessment years---Departure from history of the case had been made without any plausible reasonings, Appellate Tribunal directed the Assessing Officer to apply gross profit rate of 15% to the declared payment for the year under appeal as well.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.13(1)(a)---Deemed income---Filing of wealth statement alongwith reconciliation statement---Unexplained amount---Addition of---Validity--­Assessing Officer had acted in flagrant violation of law in making addition under S.13(1)(a) of the Income Tax Ordinance, 1979 as the said provisions clearly, envisaged that where any sum was found to be credited in the books of account of an assessee maintained for any income year and the assessee offered no explanation about the nature and sources of such sum or, the explanation offered by him was not of satisfactory, the sum so credited shall be deemed to be the income of the assessee---Assessee admittedly was not maintaining any books of accounts therefore the addition made under S.13(1)(a) of the Income Tax Ordinance, 1979 was not sustainable in law for the simple reason also that the Legislature had intentionally catered six eventualities in S.13 of the Income Tax Ordinance, 1979 i.e. cls. (a), (aa), (b), (c), (d) & (e) in order to treat and tax deemed income of the assessee in the section otherwise only S.12 could have been introduced by; the Legislature to cover all the situations referred to in those clauses---Case being not that of quoting wrong clause of S.13 of the Income Tax Ordinance, 1979 but ­being that of applying incorrect clause, such act of the Assessing Officer was certainly unlawful---Case being a no account case, Appellate Tribunal deleted the addition instead of setting aside the same on the sole ground that the addition had not been lawfully made by the Assessing Officer.

Azhar Ehsan Sheikh for Appellant.

Javed-ur-Rehman, D.R. for Respondent.

Date of hearing: 2nd April, 2002.

2002 P T D (Trib.) 2133

[Income-tax Appellate Tribunal Pakistan]

Before Rasheed Ahmad Sheikh, Judicial Member and Javed Tahir Butt, Accountant Member

I.T.A. No. 1557/LB of 2000, decided on 18th April, 2002.

(a) Income Tax Ordinance (XXXI of 1979)----

----S.12(18)---Deemed income---Share deposit money---Treatment of share deposit money as loan---Amount admittedly had been shown as share deposit money and had not been claimed or shown as loan in the balance-sheet but in reality that may be a loan, the deeming provisions contained in S.12(18) of the Income Tax Ordinance, 1979 were not attracted in such an eventuality---No law can be allowed to be circumvented by use of wrong expression or incorrect terminology because that would amount to allowing perpetual fraud on the law with impunity-- -Where two interpretations were equally possible, the one favourable to the subject was to be adopted- -Letter of law in taxing statute had to be interpreted in the sense it had been used and expressed-­Terminology used as share deposit money in the balance-sheet could not take place that of a "loan" because the expression "loan" had always inherent characteristic to be repaid or returned after a certain or in some cases uncertain limit of time with or without interest---Provisions of S.12(18) of the Income Tax Ordinance, 1979 were not attracted where the assessee had claimed or shown share deposit money in the balance-­sheet-unless otherwise controverted by the department with unequivocal evidence:

(b) Interpretation of statutes----

---.-Two interpretations possible---Principles---No law can be allowed to be circumvented by use of wrong expression or incorrect terminology because that would amount to allowing perpetual fraud on the law with impunity---Where two interpretations were equally possible, the one favourable to the subject was to be adopted---Letter of law in taxing statute had to be interpreted in the sense it had been used and expressed.

(c) Income Tax Ordinance (XXXI of 1979)---

----S.12(18)---Deemed income---Share deposit money---Payment was made by the Directors of the company to the suppliers of goods for the creation of the assets of the company---Such amount was shown as share deposit money of the Directors in the balance-sheet---Assessing Officer treated the same as loan and addition was made under S.12(18) of the Income Tax Ordinance, 1979---Validity---Amount in question was share deposit money and not the loan for the simple reason that immediately after introduction of share deposit money in the balance-sheet, the share capital was increased by passing a resolution in this regard and after making necessary fee for enhancement in share deposit capital---Even if such amount was deemed to be advance, the same amount could not be treated as income on account of non-applicability of S. 12(18) as the word "advance" was brought on statute book on 1-7-1998, relevant to assessment year 1999-2000 in order to expand the operation of the provisions---Revenue had nothing to do with the arrangements made by the company for making payments on its behalf to a third party--­Intention and motives of the .person who had made the payment were always to be kept in view and to be seen as to what entry had been incorporated in the company's books of accounts---Addition made under S.12(18) of the Income Tax Ordinance, 1979 was deleted by the Tribunal.

I. T. A. T. No. 1206/LB of 1995-96 ref.

1999 PTD (Trib.) 2315; CIT, North Zone (West Pakistan), Lahore v. Crescent Textile Mills Limited, Lahore 1973 PTD 375; 2001 PTD 1180 and No. TR 33 of 1997 rel.

Azhar Ehsan Sheikh for Appellant.

Javed ur Rehman, D.R. for Respondent.

Date of hearing: 2nd April, 2002.

2002 P T D 2142

[Income-tax Appellate Tribunal Pakistan]

Before Syed Kabirul Hasan, Judicial Member and Abdul Ghafoor Junejo, Accountant Member

M. As. (Stay) Nos.169/KB and 170/KB of 2001-2002, decided on 11th April, 2002.

Income Tax Ordinance (XXXI of 1979)---

----S.134(6)---Appeal to Appellate Tribunal---Grant of stay ---Condition-­Fact that assessee had paid 15% of the total demand had to be verified before the stay would be allowed till the hearing of the main appeal and challan of said payment was to be shown to the Registrar.

Abdul Tahir, I.T.P. for Appellant.

Nemo for Respondent.

Date of hearing: 11th April, 2002.

2002 P T D (Trib.) 2148

[Income-tax Appellate Tribunal Pakistan]

Before Syed Kabirul Hasan, Judicial Member and Abdul Ghafoor Junejo, Accountant Member

M. As. (Stay) Nos. 165/KB to 168/KB of 2002, decided on 11th April, 2002.

Wealth Tax Act (XV of 1963)---

----S.24---Stay---Grant of ---Assessee had agreed to pay 15% of the total demand for grant of stay for the relevant assessment years---Appellate Tribunal granted stay of demand on the payment of said, 15% of the total demand-Proof of payment was to be shown to the. Registrar---Stay will operate from the date of such payment till the date of hearing.

Abdul Tahir, I.T.P. for Appellant.

Respondent (absent).

Date of hearing: 11th April, 2002.

2002 P T D (Trib.) 2151

[Income‑tax Appellate Tribunal Pakistan]

Before S. Hasan Imam, Judicial Member and Agha Kafeel Barik, Accountant Member

M.As. (Rect) Nos.80/KB, 81/KB of 2002 in Reference I.T.As. Nos.685 and 712 of 2000‑2001, decided on 9th May, 2002.

Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.156 & 13(1)(aa)‑‑‑Rectification of mistake‑‑‑Rectification applications filed by the Department were dismissed by the Tribunal as the Tribunal did not find any mistake apparent from the orders of the Tribunal.

Sultan Wazir, D.R. for Appellant.

Abdul Tahir, I.T.P. for Respondent.

Date of hearing: 9th May, 2002.

2002 P T D (Trib.) 2156

[Income‑tax Appellate Tribunal Pakistan]

Before Jawaid Masood Tahir Bhatti, Judicial Member and Muhammad Akhtar Nazar Mian, Accountant Member

M. As. (Rect.) Nos. 34/KB to 36/KB of 2002 in I. T. As. Nos. 1486/KB to 1488/KB of 2000‑2001, decided on 2nd February, 2002.

Income‑tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.156, 34, 37, 2(12), (24), (44), 14, 16, 17, 19, 22, 23, 27, 28, 30, 49, First Sched. Part IV, Para. A, Cl.(4) & Second Sched., Part I, Cl. (116)‑‑‑Rectification of mistake‑‑‑Set‑off of loss‑‑‑Loss from dealing in stocks and shares‑‑‑Loss from dealing in stocks and shares was computable under the head "capital gain" as it was not liable to be set‑.off against income under any other heads as provided in S.34 of the Income Tax Ordinance, 1979 and was liable to be carried forward in the light of provisions of S.37 of the Income Tax Ordinance, 1979‑‑‑Assessee moved for rectification for the same on the ground that notwithstanding the provisions of S.34 of the Income Tax Ordinance, 1979, the loss under the head capital gains will have to be included in the total income if it had arisen by disposal of assets within 12 months in view of cl. (4) of para. A of Part IV of the First Sched. to Income Tax Ordinance, 1979‑‑‑­Validity‑‑When the capital loss was not allowed to beset‑off against income under other heads, then the total income computed in accordance with law, would not contain any portion as the said income pertained to capital gain and there would, practically be no applicability of cl. (4) of para. A of Part IV of the First Sched. to the Income‑tax Ordinance, 1979‑‑‑No mistake apparent from record existed so far as the orders of the Tribunal were concerned‑‑­Applications for rectifications were disposed of accordingly by the Tribunal.

2002 PTD (Trib.) 283 maintained.

Aminuddin Ansari and Muhammad Aleem for Appellant.

Mahfooz‑ur‑Rehman Pasha, I.A.C. and Inayatullah Kashani, D.R. for Respondent.

Date of hearing: 1st February, 2002.

2002 P T D (Trib.) 2159

[Income‑tax Appellate Tribunal Pakistan]

Before Khawaja Farooq Saeed, Judicial Member and Mazhar Farooq Sherazi, Accountant Member

I. T. A. No. 124/LB of 2002, decided on 4th April, 2002.

(a) Income Tax Ordinance (XXXI of 1979)---

‑‑‑S.66‑A‑‑‑Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order‑‑‑Excessive use of electricity as compared to previous year‑‑‑Cancellation of assessment ‑‑‑Validity‑‑­Word "erroneous" as used in S.66‑A of the Income‑tax Ordinance, 1979 included prejudicial to the interest of revenue‑‑‑Error be that of fact or of law, by no means could be stretched to include that with more utilization of electricity the assessee's income had increased‑‑­Cancellation of assessment order was disapproved by the Tribunal and the order of the Assessing Officer was restored.

(1997) 95 Tax 75 (Trib.) and (1984) 48 Tax 34 (H.C.A.J.K) rel.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.66‑A & 24(c)‑‑‑Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order‑‑‑Non‑deduction of tax on rent and commission‑‑‑Cancellation of assessment ‑‑‑Validity‑‑­Assessee had deducted and paid tax in respect of rent while the commission had been paid to a person who had paid tax thereon‑‑­Order of the Inspecting Additional Commissioner by no means could be considered as a correct appreciation of the jurisdiction .under S.66‑A of the Income‑tax Ordinance, 1979‑‑‑Cancellation of the order was disapproved by the Tribunal and the order of the Assessing Officer was restored.

1999 PTD 2172 rel.

Munir Ijaz and Shahid Abbas for Appellant.

Mrs. Sabiha Mujahid, D.R. for Respondent.

Date of haring: 4th April, 2002.

2002 P T D (Trib.) 2185

[Income‑tax Appellate Tribunal Pakistan]

Before Khawaja Farooq Saeed, Judicial Member and Imtiaz Anjum, Accountant Member

I.T.As. Nos. 3498/LB to 3501/LB of 2001, decided on 11th December, 2001.

Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.66‑A & Second Sched. Part I, Cls. (118C) & (118H)‑‑‑C.B.R. Letter C. No. 1(84) DTP‑II/94, dated 22‑8‑1998‑‑‑Companies Ordinance (LVIII of 1984), S.33‑‑‑Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order‑‑‑Exemption‑‑‑Assessment allowing exemption to assessee was cancelled by the Inspecting Additional Commissioner being erroneous and prejudice to the interest of revenue on the ground that entire share capital of the company/assessee was owned and controlled by a company, which had resulted in a subsidiary status of the company/ assessee‑‑‑Industrial undertaking was not exclusively handled by the assessee as a number of services were undertaken by the holding company on a cost sharing arrangement for which the assessee‑company made payment to the holding company‑‑­ Validity‑‑‑No provision of law provided that companies formed to undertake manufacturing process should not be formed by a holding company or its subscribers/directors should not have similar positions in any other company working in Pakistan‑‑‑Formation of new company with machinery, having not been used in Pakistan‑‑‑Company could be owned by another limited company ‑or could employ staff of a sister concern‑‑‑Utilization of electricity in co-action with another company or owner of other companies, which were not exempt was not barred‑‑­Requirements, of Cl.(118C) of Second Sched., Part I basically were that the company should be formed exclusively for one purpose and the machinery installed should not have been earlier used for such purpose or any other purpose in Pakistan‑‑‑If the view of Inspecting Additional Commissioner was accepted then all such companies which were formed under Economic Reforms Act could be excluded if among its subscribers and directors those persons were included who were also attached to other companies‑‑‑Entire proceedings by the Inspecting Additional Commissioner were based upon misconception‑‑‑Basic requirement for such exemption was that the industrial undertaking that claimed exemption must be owned and managed by a company, registered under the Companies Ordinance, 1984‑‑‑Was immaterial as to who had floated such company and who was running its affairs‑‑‑Law had not put any embargo in any form whatsoever as to who shall or should not be behind the running of the affairs of the industrial undertaking‑‑‑Concept of lifting the veil, was an irrelevant argument if it was a sister concern of an already existing company and the affairs of said company were being managed by those people who had been running certain other industrial undertakings in the near vicinity‑‑‑Once a company was allowed an incorporation certificate by the Registrar Corporate Law Authority no third person could challenge its validity on his own‑‑‑Industrial undertaking in the present case, being managed by the validly incorporated company could not be deprived of the rights to which it was entitled under Cl. (118C) or (118D) of the Second Sched., Part‑I of the Income Tax Ordinance, 1979 on the ground that same was actually being controlled by some other company‑‑‑If a company could legally float another company as one of its subscribers, no one could deny the benefits which may accrue, to the new incorporated company‑‑‑Exempt units were subsequently permitted to expand themselves and exemption was extended to the expanded units under Cl. (118H) of the Second Sched. of Income Tax Ordinance, 1979‑‑‑Companies who claimed exemption must demonstrate that their claim was within all the fours of the requirements thereof, but when an Assessing Officer on .the same fact had formed a bona fide opinion revising authority could not simply jump in by calling same an error'‑‑‑Substitution of opinion could not be made a basis for cancellation of an earlier order‑‑‑No reason existed to say the order of the Assessing Officer was "erroneous" as there was nothing wrong with his order‑‑‑Assessing Officer had allowed exemption after careful consideration of all the facts on record‑‑‑ Inspecting Additional Commissioner had exceeded his jurisdiction and order as such was not sustainable and the same was cancelled by the Tribunal.

1997 PTD (Trib.) 2137; United Builders Corporation and CIT v. Gabriel India Ltd. 203 ITR 108; 2001. PTD (Trib.) 3810; PLD 1991 SC 280 and 2000 PTD (Trib.) 2133 ref.

1997 PTD (Trib.) 2137 and 1984 PTD 137 rel.

Faleh Ali Villani for Appellant.

Javed‑ur‑Rehman, D. R. for Respondent.

Date of hearing; 27th October, 2001.

2002 P T D (Trib.) 2192

[Income‑tax Appellate Tribunal Pakistan]

Before Javaid Iqbal, Judicial Member and Muhammad Mehboob Alam, Accountant Member

I.T.As. Nos. 521/KB to 525/KB of 2001, decided on 14th March, 2002.

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.130(1)‑‑‑Form of appeal‑‑‑Limitation‑‑‑Filing of ‑appeal without payment of appeal fee‑‑‑Effect‑‑‑Question whether the right to file an appeal could be exercised by an assessee even without payment of the prescribed appeal fee was answered by the Tribunal observing that a memorandum of appeal could be filed but the appeal would not be held to have properly been filed unless the appeal fee had been paid.

1961 ITR 163 rel.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.129, 134 & 130‑‑‑Appeal to Appellate Additional Commissioner‑‑­Non‑payment of appeal fee‑‑‑Dismissal of appeal without pointing out the deficiency and giving opportunity of being heard ‑‑‑Validity‑‑­Memorandum of appeal was presented within time, but the required appeal fee in terms of S.130(1) of the Income Tax Ordinance, 1979 was not deposited‑‑‑Appeal filed suffered from a deficiency which ought to have been pointed out by the office‑‑‑If despite the pointation of deficiency the assessee had failed to pay the prescribed .amount, the validity of appeal for hearing could have been called in question‑‑‑No such notice was given within the limitation period, the dismissal of appeal on account of non‑payment of the fee was, therefore, not maintainable‑‑‑Deficiency being that of non‑payment of appeal fee at the time of filing the Memorandum of Appeal which having not been pointed out to the assessee, requirements of justice were not fulfilled by dismissing the appeal in limine‑‑‑Appellate Tribunal vacated the order of the First Appellate Authority and remanded the case for re‑adjudication on merit on payment of appeal fee by appellant within 15 (fifteen) days from the receipt of the order of the Tribunal.

PLD 1984 SC 289 and Muhammad Nawaz Khan's case 1970 SCMR 319 rel.

Afzal Hashmi, ITP for Appellant.

Muhammad Ali Indhar, D.R. for Respondent.

Date of hearing: 12th March, 2002.

2002 P T D (Trib.) 2198

[Income‑tax Appellate Tribunal Pakistan]

Before Muhammad Mahboob Alam, Accountant Member and Syed Kabirul Hasan, Judicial Member

I. T. A. No. 1052/KB of 2000‑2001, decided on 31st October, 2001.

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.4(1)(2), 4A [as substituted by Finance Act III of 1998], 5(1)(1)(c) & 2(17A)‑‑‑C. B. R. Circular No.11 of 1998, dated 25‑7‑1998‑‑­Appointment of Income‑tax Authorities‑‑‑Appointment of firms of accountants‑‑‑Assessment year 1997‑98‑‑‑Assessment on the basis of report of Chartered Accountant‑‑‑Appointment of Chartered Accountant‑‑­‑Legality‑‑‑Assessee's contention was that appointment of Chartered Accountant for the year 1997‑98 had been made under S.4(2) of the Income Tax Ordinance, 1979 for which there was no provision in law; appointment of Chartered Accountant could only be made under the provisions of S.4A of the Income Tax Ordinance, 1979 [as substituted by Finance Act, 1998] ‑and that appointment having been made without any sanction of law, assessment based on the report of an illegally appointed person was not maintainable‑‑‑Validity‑‑‑Appointment had been made on the basis of directions issued by the Central Board of Revenue, no illegality, therefore, was committed by the Commissioner of Income‑tax as there was no other way in which the appointment could be made in view of directions of the Central Board of Revenue‑‑‑Other notification issued on the same date assigning jurisdiction to the special officer under S.5(1)(c) of the Income Tax Ordinance, 1979 enabled the said special officer to exercise his functions and jurisdiction in accordance with provisions of Income Tax Ordinance, 1979‑‑‑While the said notification mentioned the appointment of Chartered Accountant as a special officer, the other notification issued under S.5(1)(c) of the Income Tax Ordinance, 1979 specified his jurisdiction without which the said officer could not proceed to conduct the specific investigative audit for which purpose he was appointed‑‑‑Series of events leading to the selection of Chartered Accountant as a special officer by the Central Board of Revenue and communication made in this regard to .Regional Commissioner of Income‑tax and subsequent directions issued by the Regional Commissioner of Income‑tax for issuing the order under S.4(2) duly authorized the Commissioner of Income‑tax to issue the notification appointing the Chartered Accountant as special officer‑‑‑Other notification on the same date under S.5(1)(c) of the Income Tax Ordinance, 1979 specified the jurisdiction of the special officer‑ ‑‑Person of special officer having been included in the definition of Deputy Commissioner of Income‑tax and Deputy Commissioner of Income‑tax being subordinate to the Commissioner of Income‑tax invoking of provision of S.4(2) of the Income Tax Ordinance, 1979 by the Commissioner of Income‑tax for the appointment of the special officer was not invalid‑‑‑Appointment of Chartered Accountant was, therefore, not in contravention of any law‑‑‑Appointment of the Chartered Accountant being not illegal, order of the First Appellate Authority was not interfered by the Tribunal.

Regional Commissioner of Agriculture Income‑tax v. B.W.M. Abdul Rehman, Manager, Tak Bara Taraf Wards Estate 1973 SCMR 445; 1997 PTD (Trib.) 1928; 1999 PTD (Trib.) 2949 and 1998 PTD (Trib.) 62 ref.

(b) Central Board of Revenue Rules, 1967‑‑‑

‑‑‑‑Rr.4 & 3‑‑‑Notification for appointment of a Chartered Accountant as special officer was issued under the signature of Director of the Directorate of Intelligence & Investigation (Direct Taxes) Central Board of Revenue and not under the signature of the Secretary ‑‑‑Validity‑‑­Business of Central Board of Revenue was transacted under Rule 3 of the Rules by a Member‑‑‑No evidence was available to the effect that copy marked by the Director to the Member was at any subsequent point of time disapproved by him‑‑‑Letter issued with the approval and sanction of the Member was sufficient to make it a validly issued letter by the Central Board of Revenue even under the Central Board of Revenue Rules, 1967‑‑‑Technical objection relating to the communication issued by the Central Board of Revenue intimating the selection of the special officer was not valid and the letter issued under the signatures of the Director did not suffer from the deficiency being attributed to it by the assessee‑‑Plea of the assessee was dismissed by the Tribunal.

Rehan Hasan Naqvi for Appellant.

Umer Faroque, D.R. for Respondent.

Date of hearing: 18th August, 2001.

2002 P T D (Trib.) 2210

[Income‑tax Appellate Tribunal Pakistan]

Before Khawaja Farooq Saeed, Judicial Member and Mazhar Farooq Sherazi, Accountant Member

I.T.As. Nos.. 1535/LB to 1537/LB of 2001, decided on 21st November, 2001.

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.80C/156, 50(5) & 50(4)‑‑‑S.R.O. 593(1)/91, dated 30‑6‑1991, Cl. (iv)‑‑‑Tax on income of certain contractors and importers‑‑­Exemption‑‑‑Tax was not deducted by the Customs Authorities on‑import of machinery by an exempt unit;‑‑On maturity of letter of credit, for payment, financial arrangement was made with the Leasing Company for sale and lease back of such plant and machinery‑Assessee was assessed under Ss. 156/80C of the Income Tax Ordinance, 1979 and demanded tax @ 2% under S.50(5) of the Income Tax Ordinance, 1979 on the ground that the assessee had sold those assets to leasing company thus, transaction fell under the category of commercial import liable to tax under S.50(5) read with S.80C of the Income Tax Ordinance, 1979‑‑­Validity‑‑‑Under S.50(4)(a), Income Tax Ordinance, 1979 the deduction was to be made on supply of goods for `services rendered to or the execution of a contract‑‑Transaction in question was not covered by any of the said categories‑‑‑Machinery had been imported by the assessee for its own use and lease back through such financial arrangement was not a commercial transaction ‑‑‑Assessee's business was neither import nor sale of such machinery nor any such impression could be gathered from such transaction 'which was not even permitted by the objective clause o1' the Company‑‑‑Business of the Company was manufacturing of polyester filament yarn and said object was being carried out till this day with the same machinery, which was presumed to have been sold‑‑‑No reason existed to hold that it was chargeable either under S.50(5) or S.50(4) of the Income Tax Ordinance, 1979 and consequently assessable under S.80(c) of the Income Tax Ordinance, 1979‑‑‑Assessment under Ss.80(c)/156 of the Income Tax Ordinance, 1979 was cancelled and original order was restored by the Tribunal in circumstance.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.52, 50(4), (5) & 62‑‑‑Liability of person failing to deduct or pay tax ‑‑‑Assessee in default‑‑‑Non‑deduction of tax at import stage ‑‑‑Effect­‑‑Assessee was treated in default on import by applying the provision of S.50(4) of the Income Tax Ordinance, 1979‑‑‑Validity‑‑‑Assessee categorically stated that figure represented import on which the provisions of S.50(4) did not apply as the same had to be supply of goods and not import by the assessee‑‑‑Fact that the documents were furnished to the Assessing Officer and raising of such issue before the First Appellate Authority was a‑ matter of record which had been mentioned by the First Appellate Authority in its order lout had not specifically given a direct finding‑‑‑Issue had not been dilated upon ill the required manner and the order was not a speaking one ‑‑‑Assessee had not only mentioned the L.C. number but had also given the weight and the amount, which could easily be verified from the record‑‑‑Tribunal had already taken a serious notice that S.52 was being used as substitute for regular charging provisions‑‑‑Issue was a serious example of such practice‑‑‑If no tax in the case of import, had been deducted it was not the assessee who was defaulter‑‑‑Notwithstanding the fact that assessee was an exempt unit, if any tax was deductible it was under S.50(5) of the Income Tax Ordinance, 1979‑‑‑Default in deduction of the same would have made the withholding agent as defaulter and not assessee‑‑‑By holding assessee in default on import by applying the provision of S.50(4) should not have been supported by the First Appellate Authority‑‑‑Appellate Tribunal did not agree with the Department on the plea that assessee failed to satisfy the Assessing Officer that this was not direct purchase and only an import‑‑‑Mentioning in unequivocal terms of the L.C. Number and corresponding purchase entry in the books was enough proof which could be verified at all stages of assessment either under S.62 or under S.52 of the Income Tax Ordinance, 1979 as the case may be‑‑‑Addition made under S.52. by holding assessee in default was without any justification and the same was deleted by the Tribunal in circumstances.

(c) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.52 & 50(4)‑‑‑Liability of person failing to deduct or pay tax‑‑­ Assessee in default‑‑‑Exemption period‑‑‑Non‑deduction of tax‑‑­Exemption certificate‑‑‑Proof of non‑acceptance of tax had not been furnished regarding payment made after availing the exemption certificate‑‑‑Validity‑‑‑Facts showed that payments were made after 30th of June, the poof of which was furnished before the Assessing Officer‑‑­Without going into the issue that .whether exemption certificate was applicable on the transaction or not, holding the same as chargeable to deduction was not justified at all‑‑‑Law did not provide for hypothetical estimate for charging an assessee in default‑‑‑Provision of law was a sort of penal action which should not be taken unless definite evidence with regard to purchase/supply was available‑‑‑Principle that doubt was to be resolved in favour of the assessee may also be kept in mind though in the present case such situation did not arise‑‑‑Amount had been paid after 30th of June, the charging of tax on the same, by no means could be considered as justified and the .same was deleted by the Tribunal.

(d) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.52 & 50‑‑‑Liability of person failing to deduct or pay tax‑‑­Assessee in default‑‑‑Payment of commission‑‑‑Non‑proof of payment of commission and non‑deduction of tax‑‑‑Commission agent deducted his commission froth the main payment ‑‑‑Assessee produced NTN of commission agent and assessment order before First Appellate Authority which was not accepted‑‑‑Validity‑‑‑By producing NTN the assessee had fulfilled the requirement‑‑‑First Appellate Authority should not‑have refused to entertain the copies of the order‑‑‑If the figure was obtaining thereon and the tax had been paid on the basis of the receipts by the said recipient holding the assessee in default was not justified‑‑‑Order was set aside by the Tribunal on the point for verification as to whether such amount of commission had been charged to tax in their account or not‑‑­Assessing Officer on confirmation was to accept assessee's contention and if the evidence did not satisfy the requirement of law, the Department should be at liberty to charge tax on the basis of the same:

(e) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.52 & 50(4)‑‑‑Liability of person failing to deduct or pay. tax‑‑­Assessee in default‑ Payment to building contractor‑‑‑Non‑deduction of tax as each amount was less than threshold i.e. Rs.25,000‑‑‑Validity‑; ‑List could not be checked and verified by the Tribunal and the determination as to whether the amounts were less than thresh hold and were counter‑purchases, was only possible at the assessment stage‑‑­Tribunal could not go into the details and check the veracity of each one of them‑‑‑Even otherwise the assessee also had not furnished any such copy to the Tribunal so as to involve in such a working‑‑‑Issue was set aside by the Tribunal with the direction that the finding in a Tribunal's order in Chenab Fabrics Limited, Faisalabad vide I.T.A. No.749/LB of 1997, dated 27‑5‑1998, be applied in its letter and spirit in which the sale and supply had been distinguished.

I.T.A. No.749/LB of 1997 rel.

Mirza Anwar Baig for Appellant.

Javed Aziz, D.R. for Respondent

Date of hearing: 6th June, 2001.

2002 P T D (Trib.) 2230

[Income-tax Appellate Tribunal Pakistan]

Before Rasheed Ahmad Sheikh, Judicial Member and Javed Tahir Butt, Accountant Member

I.T.As. Nos. 3332/LB and 3333/LB of 2001, decided on 3rd April, 2002.

(a) Income Tax Ordinance (XXXI of 1979)-------66-A(1A)---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Issue not the subject-matter of appeal or reference---Revising Authority according to S.66-A(lA) of the Income Tax Ordinance, 1979 is vested with the powers, though limited and qualified, to invoke S.66-A to the point or issue which has not been subject-matter of appeal or reference---Revising, Authority can give only such direction as will be independent of, and not inconsistent with or not in derogation of, any determination made by the Appellate Authorities.

1996 PTD (Trib.) 492 distinguished.

(b) Income Tax Ordinance (XXXI of 1979)-------S. 66-A---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Doctrine of merger---Issues raised by the Inspecting Additional Commissioner were not the subject-matter of appeal before the First Appellate Authority---Doctrine of merger did not apply to the facts of the case.

(c) Income Tax Ordinance (XXXI of 1979--------Ss. 66-A & 156---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Depreciation not correctly allowed---Rectification---Depreciation was a statutory allowance and no expenses were actually incurred---Where depreciation had not been correctly allowed that could be rectified by passing, an order to this effect in terms of 5.156 of the Income Tax Ordinance, 1979 and not by invoking the provisions of S.66-A of the Income Tax Ordinance, 1979.

(d) Income Tax Ordinance (XXXI of 1979)-------S. 66-A---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Allowing sales tax as an expense of Profit and Loss Account---Cancellation of assessment ---Validity--­Assessment cancelled by the Inspecting Additional Commissioner on the ground that sales tax claimed had illegally been allowed as an expense of Profit and Loss Account whereas that was an item of trading account and was to be deducted from the gross sales after recasting the accounts, was upheld by the Tribunal to be justified.

(e) Income-tax------Gross profit rate---Recasting of trading account---Parallel cases Inspecting Additional Commissioner applied higher Gross Profit rate than prevailing in other parallel cases---Appellate Tribunal directed to recast the trading account and thereafter apply Gross Profit rate as was available in the parallel cases to the resultant sales.

2002 PTD 275 and I.T.As. Nos.9371 and 9594/LB of 1992-93 ref.

Shahid Abbas and Muhammad Hamid for Appellant.

Javed-ur-Rehman, D.R. for Respondent.

Date of hearing: 2nd April, 2001.

2002 P T D (Trib.) 2241

[Income‑tax Appellate Tribunal Pakistan]

Before Zafar Iqbal, Member (Technical) and Sultan Ahmed Siddiqui, Member (Judicial)

Appeal No.H‑60 of 2000, decided on 7th November, 2001.

Sales Tax Act (VII of 1990)-----Ss. 3 & 2(22), (30)‑‑‑Scope of tax‑‑‑Advance payment in respect of taxable supply to be made in 'future‑‑‑Department interpreted that advance payment received was subject to deduction of sales tax and payable to Department‑‑‑Demand was enforced‑‑‑Validity‑‑‑No provision of Sales 'fax Act had purported to deem the receipt of, money to be a sale‑‑ ‑Department's interpretation had no basis in the text of the Sales Tax Act, 1990 and that it sought to change the nature of the tax from levy on the supply of goods to a tax on the mere bailment of money‑‑­None of the provisions of the Sales Tax Act, 1990 provided that bailment of ,money could be deemed to be a sale or a supply of a goods‑‑­Provision of S.2(30) of Erie Sales Tax Act, 1990 had only employed the legislative device of deeming so as to crystallise the point of time at which sales tax was payable with respect to a supply that had already been made and Sank could not be employed to the extent of conceiving that the payment of money had been made so as to change the scope of word "supply" beyond the provisions of S.2(22) of the Sales Tax Act, 1990, read with S.3 of the Sales Tax Act, 1990 which was the charging section‑‑‑Section 2(30) would not in any way alter the scope and nature of the charging section‑‑‑Where Legislator, could have expressly specified as‑ regard the charging of a tax but had chosen not to specify, the same must not be read into the text or the statute by way of intendment so a.3 to circumvent the scope of the charging provisions‑‑­Demand raised by the Department was thus not legal‑‑‑Order was set aside by the Tribunal.

Maple Leaf Cement Factory Limited v Federation of Pakistan 1999 PTD 3907; Elahi Cotton Mills Ltd. v. Federation of Pakistan and others PLD 1997 SC 582; B. N. Syed v. Afzal Jahan Begum PLD 1970 SC 29: Siraj Din v. Sardar Khan 1993 SCMR ‑745 and Mehran Associates Ltd. v. The Commissioner of Income Tax, Karachi 1993 SCMR 274 ref.

A.N. Khokhar, Consultant for the Appellant.

M.R.K. Warsi, Superintendent for Respondent

Date of hearing: 7th‑ November, 2001.

2002 P T D (Trib.) 2276

[Income‑tax Appellate Tribunal Pakistan]

Before Abdul Ghafoor Junejo, Accountant Member and

Syed Kabirul Hasan, Judicial Member

W.T.As. Nos. 523/KB to 527/KB of 2001, decided on 10th April, 2002.

Wealth Tax Act (XV of 1963)‑‑‑

‑‑‑Ss.17(1)(b), 16(4)!,5) & 14(2)‑‑‑Wealth escaping assessment Initiation of proceedings under Ss. 14 & 16, Wealth Tax Act, 1963 on complaint without proper issuance of notice under S.17 of the Act ‑­Validity‑‑‑Complaint had been lodged and in consequence of cognizance the Assessing Officer had obtained Bank statements‑‑‑Notice under S.17(1)(b) of the Wealth Tax Act, 1963 was not issued which was legally necessary‑‑‑Assumption of jurisdiction without issuance of specific statutory notice under S.17(1)(b) of the Wealth Tax Act, 1963, had made the assessment under S.16(5) of the Wealth Tax Act, 1963 illegal, invalid and void‑‑‑Assessment was annulled by. the Tribunal with the remarks that if the Department wanted to pursue its proceedings against the assessee/appellant, it would be at liberty to do so but only after issuing proper notices as per law.

I.T.As. Nos. 286, 287 and 288/KB of 2000‑2001 rel.

2002 PTD (Trib.) 168 ref.

A. S. Jafri for Appellant.

Sajjad Ahmed, D.R. for Respondent.

Date of hearing: 12th March, 2002.

2002 P T D (Trib.) 2285

[Income-tax Appellate Tribunal Pakistan]

Before Khawaja Farooq Saeed, Judicial Member and

Imtiaz Anjum, Accountant Member

I.T.As. Nos.2951/LB and . 2952/LB of 1995, decided on 9th February, 2002.

Income Tax Ordinance (XXXI of 1979)---

----Ss.11. 2(44), 13, 62, 63 &- 59(1)---Total income ---Scope--­Assessment on production of accounts, evidence etc. ---Self-assessment--­Total audit---Declaration of capital by availing benefit provided by Self-Assessment Scheme---Probe---Assessment---First Appellate Authority cancelled the order with direction that capital declared by the assessee could not be probed---Validity---Once a case was selected for total audit the provisions of Income Tax Ordinance, 1979 including its Ss.62 & 63 of the Ordinance came into operation---Under S.62 of the Income Tax Ordinance, 1979, the Department was to assess the "total income" and "total income" includes income from all sources---Section 2(44) of the Income Tax Ordinance, 1979 defines total income `and S.11 defines the scope of total income and once an assessee is selected for normal assessment in consequence to the selection for total audit, the provisions of S.11 of the Income Tax Ordinance., would apply -in all fours--Department had rightly invoked the provisions of S.13 of the Income Tax Ordinance, 1979, as the assessee could not explain the sources of the capital employed in business---Appellate Tribunal directed the Assessing Officer to give a chance to the assessee to review his claim regarding capital as he had shown the figure- of capital to avail the benefit provided by Self-Assessment Scheme and once he was deprived of the same, he should also be allowed to review his claim---Matter was set aside with the direction that Assessing Officer shall allow the assessee redetermine his claim regarding capital---If the assessee still insists upon the amount of capital/wealth he had shown earlier, the Assessing Officer shall be at liberty to assess the same keeping in view the sources and explanation filed by the assessee in support thereof.

I.T.A. No.3074/LB of 1995 rel.

Muhammad Asif, D.R. for Appellant.

M.A. Malik, F.C.A. for Respondent.

Date of hearing: 8th February, 2002.

2002 P T D (Trib.) 2292

[Income-tax Appellate Tribunal Pakistan]

Before Syed Nadeem Saqlain, Judicial Member and

Amjad Ali Ranjha, Accountant Member

W.T.As. Nos. 124/LB to 126/LB of 2002, decided on 26th February, 2002.

Wealth Tax Act (XV of 1963)---

----Ss.17-B, 16(3) & 2(16)---Wealth Tax Rules, 1963, R.8(3)---C.B.R. Circular No. 11 of 1994. dated 17-7-1994, para. 1 (b)(1)---Powers of Inspecting Assistant Commissioner to revise Wealth Tax Officer's order---Purchase of property through agreement to sell---Advance payment---Declaration of such agreement in wealth tax return--- Property was in civil litigation on account of agreement to sell with another party by the seller---Assessing Officer rejected the declared version. And adopted higher value on the basis of preceding assessment years--­ Inspecting Assistant Commissioner cancelled the assessment on the ground that value of the property in question had been adopted without taking into account the provisions of R.8(3) of, the Tax Rules, 1963 as he inferred from the contents of power of attorney at since the seller had no interest whatsoever in the property under consideration, he was no more owner of the property---Civil suit had no bearing on agreement to sell and possession of the assessee and other co-sharers--­ Validity---orders passed by the Inspecting Assistant Commissioner while exercising his revisional powers under S.17-B of the Wealth Tax Act, 1963 and cancelling the assessment order framed under S.16(3) of theta Wealth Tax Act, 1963, were not sustainable in the eye of law-; -Assessee admittedly' purchased the property in question through. an agreement to sale---Agreement to sell though was registered, with the Sub-Registrar but, it. would not be considered equivalent to a registered sale-deed which transfers the title of the property from seller to the purchaser and without which a mutation in the Revenue Record could not take place Agreement to sell could not confer any right on the assessee and he could not be considered to be a full owner of the property---Mere possession of the property or declaration by the assessee in his wealth tax return was not sufficient to bring the property within the definition of "net wealth" as defined in section 2(16) of the Wealth Tax Act, 1963---Inspecting Assistant Commissioner also lost sight -of the fact that a similar agreement to sell had Also been executed in favour of other person who had initiated litigation in a Civil Court which had stopped the assessee from dealing with the property as an independent and full owner---If a person cannot deal with the property or cannot dispose of freely, he could not be considered as full owner--- Appellate Tribunal vacated the orders passed by the inspecting Assistant Commissioner under S. 17-B of the Wealth tax Act 1963 in circumstances.

1996 PTD 905 2000 PTD 1 and 1991 PTD 650 rel.

Rizwan Bashir F.C.A for appellant.

Mehboob Alam D.R for Respondent

Date of hearing : 19th February 2002.

2002 P T D (Trib.) 2302

[Income-tax Appellate Tribunal Pakistan]

Before Jawaid Masood Tahir Bhatti, Judicial Member and

Muhammad Akhtar Nazar Mian, Accountant Member

I.T.A. No.2245/KB of 2001, decided on 9th April, 2002.

(a) Income-tax---

----Bank employee---Compensation; Leave encashment; G. P. Fund and Medical Allowance--Taxability---Taxability under such heads was upheld by the Tribunal.

(b) Income Tax Ordinance (XXXI of 1979)---

---S. 14 & Second Sched., Part I, Cl. (26)---Exemption---Pension commutation---Addition made under the head pension commutation was deleted by the Tribunal as such amount had been received out of pension fund approved by the Commissioner of Income-tax and the same was covered by exemption available under Cl. (26) of the Second Sched of the Income Tax Ordinance, 1979.

(c) Income Tax Ordinance (XXXI of 1979)----

----Second Sched., Part I, Cl. (26A)---Exemption---Benevolent fund--­Taxability---Addition made in respect of benevolent fund was set aside by the Tribunal with the direction to verify the bona fides of the certificate and if it was proved that the payments had been received from a fund established .as per provision of C1.26(A) of the Second Sched. of the Income Tax Ordinance, 1979 then the same may be allowed--­Consequential relief, if any, was also allowed.

Abdul Tahir Ansari, I.T.P. for Appellant.

Inayatullah Kashani, D.R. for Respondent.

Date of hearing: 9th April, 2002.

2002 P T D (Trib.) 2318

[Income-tax Appellate Tribunal Pakistan]

Before Khawaja Farooq Saeed, Judicial Member and

Imtiaz Anjum, Accountant Member

I.T.A. No.4071/LB of 2000, decided on 7th February. 2002. of 19

(a) Income-tax----

----Acknowledgment slip being the intent of the Legislature was a statutory mandate.

(b) Income Tax Ordinance (XXXI 79)---

----S.66-A---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Opportunity of being heard---Physical appearance---Opportunity of being heard as used in S.66-A of the Income Tax Ordinance, 1979 did not mean that if the assessee or his Authorised Representative did not physically show appearance and replied through a letter the requirement of law was not fulfilled.

(c) Income Tax Ordinance (XXXI of 1979)---

----S.66-A---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Quality of assessment---In-depth inquiry---Cancellation of assessment---Validity---Quality of assessment was not a valid reason for considering the order as erroneous and prejudicial to the interest of Revenue and likewise the suspicion and presumption that in-depth inquiry in the case would have resulted in more Revenue had, no basis---Such style of cancelling the order was against the spirit of law.

(d) Income Tax Ordinance (XXXI of 1979)---

----S.66-A---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Depreciation not claimed---Cancellation of assessment---Validity---Taxpayer was not legally bound to claim depreciation in the sense that the law had prescribed a procedure for the claim---If the claim was not made in the prescribed manner the Assessing Officer had the power to disallow the same---If the assessee said that he purchased the asset/car at the fag end of the year, practically there was no depreciation and he therefore, opted not to claim the same---Claim for deprecations would have resulted in lesser income, which did not cause prejudice to the interest of Revenue---Neither on purchase of asset/car nor on the issue of depreciation the Inspecting Additional Commissioner could establish the order to be erroneous nor he could justify that it had caused prejudice to the interest of Revenue---Cancellation of order was not .justified and the same was disapproved by the Tribunal.

Sher Muhammad Gondal for Appellant.

Anwar Ali Shah, D.R. for Respondent.

Date of hearing: 22nd November, 2001.

2002 P T D (Trib.) 2329

[Income-tax Appellate Tribunal Pakistan]

Before Syed Nadeem Saqlain, Judicial Member and

Muhammad Sharif Chaudhry, Accountant Member

W.T.As. Nos. 1308/LB to 1311/LB of 1998, decided on 22nd March, 2001.

Wealth Tax Act (XV of 1963)---

----Ss.18, 14, 15, 16(3) & 17---Penalty for concealment---Voluntarily filing of Wealth Tax Return---Assessment---Assessment order did not show the attention of Assessing Officer regarding initiation of penalty proceedings---Penalty proceedings were initiated at a later stage by forging the copy of order available in the record whereas at the time of original assessment penalty proceedings were never initiated ---Validity--­Order passed under S.16(3) of the Wealth Tax Act, 1963 was silent about the fact the returns were furnished in response to notice under Ss.14(2)/17 of the Wealth Tax Act, 1963 though this had been claimed by the Assessing Officer in the penalty order passed under S.18 of the Wealth Tax Act, 1963---Assessment order passed under S.16(3) of the Wealth Tax Act, 1963 also did not show the attention of the Assessing Officer whether the penalty proceedings were being initiated---Penalty proceedings as per S.18 of the Wealth Tax Act, 1963, could only be invoked if a ,person failed to furnish return under S.14(1) & (2) or S.17 of the Wealth Tax Act, 1963 whereas in the present case these notices under said provisions were never issued nor entered on the order sheet-­First Appellate Authority categorically recorded that the Revenue had not been able to controvert and rebut these assertions- --First Appellate Authority after admitting and making observations in favour of the assessee, set aside the case and remanded same back for de novo penalty proceedings but the reason given was not sound---First Appellate Authority specifically issued notice to know the 'view-point of the Department but the Assessing Officer did not attend the office on the fixed date---Case, in circumstances, was remanded back so that Revenue could also put forward their view-point---Appellate Tribunal did not. consider it a valid. reason for remanding the case since it was very much evident from the order that the Assessing Officer was given a specific notice but he did not bother to appear ---Assessee should not be made to suffer for the lack of interest shown by the Revenue Officials---Even otherwise the observation made by the First Appellate Authority did show that the case of the assessee warranted acceptance on merits--­Appeals. were accepted and penalties imposed were deleted by the Tribunal in circumstances.

1989 PTD (Trib.) 1221 and Commissioner. of Income-tax, Lahore v. Freezit, Lahore and others 1975 PTD 56 ref.

Naeem Shah for Appellant.

Muhammad Aslam Bhatti, D. R. and Shafqat Mehmood Chohan for Respondent.

Date of hearing: 16th December, 2000.

2002 P T D (Trib.) 2335

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Munir Qureshi, Accountant Member and

Khawaja Farooq Saeed, Judicial Member

I.T.As. Nos. 3811/LB to 3815/LB of 1997, decided on 23rd June, 2000.

(a) Income-tax---

----Commercial plaza---Association of persons---Alienation of shares of individual members---Status---Alienation of shares of individual members did not change the basic character of the A.O.P. which was that of a collective effort by all members to construct a commercial plaza and dispose of the same on strictly commercial hires.

(b) Income Tax Ordinance (XXXI of 1979)---

--S.66-A---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Incorrect/improper interpretation appraisal of law and facts, could not debar the Inspecting Additional Commissioner from taking remedial action under S.66-A of the Income Tax Ordinance, 1979 especially when the misconceived decision of Assessing Office ha without (doubt resulted in heavy loss of Revenue.

(c) Income Tax Ordinance (XXXI of 1979)---

----Ss.66-A, 62 & 13(2)(d)---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Income of Commercial plaza---Assessment of share income in the hands of individuals rather than in the hands of Association of Persons (AOP) on the ground that share in the property was definite and ascertainable--­Assessment was cancelled by the Inspecting Additional Commissioner on the ground that direction by the Assessing Officer was detrimental to Revenue as the property had been constructed as a single unit collectively by the individual members of A.O.P. duly approved by L. D.A. ---Construction of plaza being a commercial venture was required to be assessed to income-tax globally on the total income emanating froth sale/rent of shops, offices---Income emanating from A.O.P. assessed m the hands of members of the A.O.P. in their respective shares caused a revenue loss---Validity---Looking at the matter in its totality, Appellate Tribunal came to the conclusion that plaza was indeed an A.O.P. made up of 7 members and that this A.O.P. was collective enterprise set up to commercially exploit the multi-storey building---Order of the Inspecting Additional Commissioner under S.66-A of the Income Tax Ordinance, 1979 was found to be in order as the Assessing Officer had passed an order under S.62 of the Income Tax Ordinance, 1979 directing that income realized from such commercial plaza be assessed in the hands of individual members only and not globally in the hands of the A.O.P., which direction was, prima facie, detrimental to the interests of Revenue and, therefore, also erroneous in terms of the express statutory stipulation contained in S.66-A of the Income Tax Ordinance, 1979.

(1971) 23 Tax 223 (SC Pak.), (1964) 10 Tax 175 (SC. Ind.); 1992 PTD 102; 1992 PTD '104; 1993 PTD Note 197 at p.271; 1992 PTD Note 40 at p.43, 1970 PTD 34; (1997) 223 (SC Pak.); (1993) 200 ITR; (1973) 88 ITR 2930 (SC Ind.); (1994) 209 ITR 888; I.T.A. No. 1198 of 1996-97 and 1978 PTD 54 = 43 ITR 14 = I.T.A. 06 of w 1998 ref.

Shahbaz Butt alongwith Ch. Anwar-ul-Haq for Appellant.

Shafqat Mehmood Chohan, L.A. alongwith Mrs. Talat Altaf, D. R. for Respondent.

Date of hearing: 21st June, 2000.

2002 P T D (Trib.) 2350

[Income‑tax Appellate Tribunal Pakistan]

Before Khawaja Farooq Saeed, Judicial Member and

Imtiaz Anjum, Accountant Member

W.T.As. Nos. 816/LB to 818/LB of 2001, decided on 31st January, 2002.

Wealth Tax Act (XV of 1963)‑‑‑

‑‑‑‑S.17‑B & Second Sched., Cl.(7)(i), (ii)‑‑‑Powers of Inspecting Assistant Commissioner to revise Wealth Tax Officer's order‑‑­Exemption‑‑‑Foreign remittances were received in the account of husband of assessee‑‑‑Property/house was purchased from such foreign remittances in the name of wife/assessee‑‑‑Exemption of such property/house was claimed on the plea that it was purchased out of foreign remittances which was allowed by the Assessing Officer‑‑­Inspecting Assistant Commissioner cancelled the order on the ground that account in which said foreign remittances had been received was not in the name of the assessee but was in the name of her husband and hence the assessment was erroneous and prejudicial to the interest of Revenue‑‑‑Validity‑‑‑Husband and wife are independent assessee in law and each of them being entitled to two basic exemptions in terms of one million or a residential house it could not be said that one could be allowed the benefit of the other‑‑‑Foreign remittances being in the name of husband it was only he who was entitled to the benefits of Cls.(7)(i) & (7)(ii) of Second Sched to the Act and none else‑‑‑Wife, son, real brother or parents could not be allowed to take benefit of such remittance in terms of Cl.(7) of the Second Sched. of the Wealth Tax Act, 1963 if the same was not in his own name‑‑‑Order of the Inspecting Assistant Commissioner under S. 17‑B of the Wealth Tax Act, 1963 was well within his .legal jurisdiction‑‑‑Allowance of exemption was an error and the same had caused prejudice to the interest of Revenue also‑‑‑Appeal was dismissed by the Tribunal being without merits.

1969 PTD (Trib.) 144; (2001) 83 Tax 197 (SC Ind.); 2001 PTD (Trib.) 2919; 1990 PTD (Trib.) 524; (1997) 75 Tax 20; (2000) 81 Tax 29; 2001. PTD 795; 1984 PTD 381 and 1984 PTD 326 ref.

Ahmed Shuja Khan for Appellant.

Muhammad Asif, D.R. for Respondent.

Date of hearing: 12th January, 2002.

2002 P T D (Trib.) 2355

[Income‑tax Appellate Tribunal Pakistan]

Before Zafar Ali Thaheem, Judicial Member and

Muhammad Sharif Chaudhry, Accountant Member

I.T.A. No.2758/LB of 1995, decided on 19th March, 2002.

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss. 88, 116 & 54‑‑‑Charge of additional tax for failure to pay tax with return‑‑‑Mandatory‑‑‑Opportunity of being heard‑‑‑Provisions of S.116, Income Tax Ordinance, 1979. provide that reasonable opportunity of being heard, would be given to Assessee and that Assessing Officer had discretion not to impose penalty if the defaulter provided sufficient cause for his failure to comply with a particular provision of the Ordinance‑‑‑Such type of discretion was not available to the Assessing Officer while imposing additional tax under Ss.86, 87, 88 & 89 of the Income Tax Ordinance, 1979‑‑‑If, however, assessee failed to make due payment of income tax within prescribed time, the Assessing Officer would impose additional tax under the said provisions of the Income Tax Ordinance, even if the assessee had put up sufficient cause in his defence‑‑‑Assessing Officer, in case of assessee's failure to make payment of due tax under the Income Tax Ordinance, 1979 will charge additional tax although the demand of tax had been stayed by the Income Tax Authorities‑‑‑Appellate Tribunal rejected the plea of assessee that charge of additional tax under S.88 of the Income Tax Ordinance, 1979 was discretionary and not mandatory.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.88 & 156‑Charge of additional tax for failure to pay tax with return‑‑‑Opportunity of being heard‑‑‑Object‑‑‑Right of being heard should be given to assessee before imposition of additional tax under any provision of Income Tax Ordinance, 1979‑‑‑Right of being heard could not be denied to a taxpayer in any case‑‑‑Demand of additional tax had been created by the Assessing Officer as a part of his assessment order which was passed after providing reasonable opportunity of being heard to the assessee‑‑‑Assessing Officer passed rectification order under S.156 of the Income Tax Ordinance, 1979, after hearing the assessee for the year under consideration and imposition of additional tax under S.88 of the Income Tax Ordinance, 1979, was maintained by the First Appellate Authority‑‑‑First Appellate Authority rejected assessee's contention that additional tax had wrongly been imposed under S.88 of the Income Tax Ordinance, 1979‑‑‑Facts clearly showed that the additional tax in question had been imposed by the Assessing Officer and it had been maintained by the First Appellate Authority after hearing the assessee‑‑­ Object of providing reasonable opportunity of being heard in the case of imposition of additional tax was that the assessee should be able to express his view point regarding the amount of tax due, period of tax, delay etc. so that the computation of additional tax should :tot be made on wrong basis‑‑‑Such objective having been achieved in the present case contention of the assessee having not been heard was rejected.

(c) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.54, Expln.‑‑‑Provision of explanation to S.54, Income Tax Ordinance, 1979 is retrospective in operation ‑‑‑Assessee contended that explanation to S.54 of the Income Tax Ordinance, 1979 could not be applied retrospectively to the return of income tiled by the assessee for the year 1992‑1993‑‑‑Validity‑‑‑Contention of assessee was misconceived as explanation added to S.54 of the Income Tax Ordinance, 1979, which interprets the words "Tax Payable" as used in the section was placed on the statute book by Finance Act, 1993, with a clear mention that explanation shall always be deemed to have been so added‑‑‑Since the explanation in question had been clearly intended by the Legislature to have retrospective effect, the objection by the assessee was ill‑founded and was rejected by the Tribunal.

(d) Income Tax Ordinance (XXXI of 1979)‑‑‑--

‑‑‑‑Ss. 86, 87, 88, 89 & 54‑‑‑Charge of additional tax‑‑‑Due tax ‑‑‑Non­payment of‑‑‑Discretion to levy additional tax‑‑‑Opportunity of being heard‑‑‑Charge of additional tax under Ss.86 to 89 of the Income Tax Ordinance, 1979 was obligatory if a taxpayer had failed to make payment of due tax within the prescribed period and Assessing Officer had no discretion to waive or remit or forego the levy ‑‑‑Appellate Tribunal found that reasonable opportunity of being heard should be provided before imposing additional tax and in the present case such opportunity had already been so provided‑‑‑Explanation to S.54 of the Income Tax Ordinance, 1979 was retrospective in nature and had rightly‑been applied by the Assessing Officer in the case of assessee‑‑‑Appeal filed by the assessee/appellant was rejected and order of the First Appellate Authority was maintained by the Tribunal.

Mamy Beverage v. Naseem 1995 PTD 91; PLD 1978 SC 89; Sales Tax Appeal No.46/LB of 1999 and Koro v. The State PLD 1963 Kar. 256 irrelevant.

Messrs Elahi Cotton Mills Ltd. and others v. Federation of Pakistan (1997) 76 Tax 5 (SC) rel.

M. Iqbal Hhshmi for Appellant.

Ahmad Kamal, D.R. for Respondent

Date of hearing: 9th February, 2002.

2002 P T D (Trib.) 2364

[Income‑tax Appellate Tribunal Pakistan]

Before S. Hasan Imam, Judicial Member and

Agha Kafeel Barik, Accountant Member

I.T.As. Nos. 653/KB and 654/KB of 2000‑2001, decided on19th March, 2002.

(a) Income‑tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.66(1)(c), 134 & 136‑‑‑Limitation for assessment in certain cases‑‑­Time consumed in appeal before High Court‑‑‑Consideration of determined limitation‑‑Assessee contended that time consumed in appeal to High Court, could not be taken into consideration‑‑‑Validity‑‑‑Section 66(1)(c) of the Income Tax Ordinance, 1979 shall be applicable in cases where no remedy was exhausted either under S.134 or under S.136 of the Income Tax Ordinance, 1979‑‑‑Facts of the present case did not support the contention of the assessee as mere filing of appeal before the High Court was sufficient for determination of the limitation period, besides S.66 of the Income Tax Ordinance, 1979 had nothing to do with the result of the appeal or reference and grounds of dismissal, the only requirement of law was to see whether appeal or reference had been filed in the High Court‑ ‑‑Assessing Officer of his own accord could not presume the result of the appeal or reference pending before the High Court so as to conclude the assessment‑‑‑No question of any earlier time frame limitation arose as argued by the assessee‑‑‑Time limit for finalization of assessment was to come to an end en 30‑6‑2000 as order was received on 17‑5‑1999, therefore, assessments made on 29‑6‑2000 and 28‑6‑2000, respectively were within time‑‑‑Contention that assessments had been made in violation of law of limitation had no merit.

1998 PTD 3835; 1999 PTD 4158 (SC) and 2000 PTD 306 distinguished.

1998 PTD (Trib) 1238; 1993 PTD 332 and 1997 PTD 851 irrelevant.

(b) Income‑tax‑‑‑

‑‑‑‑Statement/document‑‑‑No cross‑examination‑‑‑Admissibility as evidence‑‑‑Any statement wherein opportunity of cross‑examination had not been provided was an inadmissible document and could not be relied for determination of any fact.

(c) Income‑tax‑‑‑

------Service of notice‑‑‑Regular attendance of proceedings by assessee‑‑substituted mode of service against ordinary course‑‑‑Validity‑‑‑Without making service through ordinary course, the Assessing Officer tried to serve through substituted mode of service which was declared improper by the Tribunal as the assessee had regularly attended the proceedings for about 2 years.

(d) Income‑tax‑‑‑

‑‑‑‑Setting aside of order‑‑‑Opportunity of cross‑examination‑‑‑Order set aside by the First Appellate Authority was confirmed by the Tribunal as the same was set aside with the specific directions to comply with the orders given by the Tribunal to provide an opportunity of cross ­examination to the assessee.

(1999) 80 Tax 204 (Trib.) rel.

Aminuddin Ansari for Appellant.

Nemo for Respondent.

Date of hearing: 2nd March, 2002.

2002 P T D (Trib.) 2370

[Income‑tax Appellate Tribunal Pakisan]

Before Zafar Ali Thaheem, Judicial Member and

Muhammad Sharif Chaudhry, Accountant Member

W.T.‑As. Nos. 986/LB of and 1123/LB 2000, decided on 19th March, 2002.

(a) Wealth Tax‑‑‑

‑‑‑‑Lease‑‑‑Meaning‑‑‑"Lease" means a contract authorizing the use and possession of land and/or building for a fixed time and for specified rent or fee to rent a building or property by contract for a fixed time and rental‑‑‑" Rent" means compensation, fee or payment made at intervals to the owner of ' a property by the tenant or user‑‑‑Rent, as term of economics means the return from agricultural land in excess of production costs or revenue or yield from land as production factor‑‑­Rent also means to let on lease, to be leased or let for rent‑‑‑No difference between 'rent' and "lease" as both the terms are interchangeable.

20th Century Oxford Dictionary; New Webster Dictionary; Concise Oxford Dictionary and Concise Law Dictionary by F. G. Osborn ref.

(b) Wealth Tax Act (XV of 1963)‑

‑‑‑‑S. 2(5)(ii), Expln. (i)‑‑‑Income Tax Ordinance (XXXI of 1979), Ss. 19 & 30(2)(d)‑‑‑Assets‑‑‑Assessee, a Private Limited Company ‑‑­Immoveable property/factory given on lease‑‑‑Charge of wealth tax ‑‑­A4sessee contended that factory was given on lease and since lease was different from rent, therefore, S.2(5)(ii) of the Wealth Tax Act, 1963 was not applicable and only that immoveable property could be charged to Wealth Tax of whose income if let out, was chargeable to tax under section 19 of the Income Tax Ordinance, 1979 and not under S.30 of the Income Tax Ordinance, 1979‑‑‑Validity‑‑‑Expression" let out" means to permit to enter, to rent or lease, letting for hire‑‑‑Both the activities 'lease' as well as 'rent' were included in letting out‑‑‑Such fact was also supported by the Income Tax Ordinance, 1979 as it uses the word let out in S.19 in connection with income from house property as welt as to S.30(2)(d) to connection with income from letting out of building and machinery ‑‑‑Assessee company had let out its immovable property and so, the provisions of S.2(5)(ii) read with Expin. (i) of the Wealth Tax Act, 1963 was attracted ‑‑‑Assessee had been letting out its immovable property for quite a few years and this very act of the assessee established beyond any shadow of doubt that the property in question was being held for the purpose of letting out ‑‑‑Assessee company was liable to pay wealth tax on such an assets.

20th Century Oxford Dictionary; Mitro's Legal & Commercial Dictionary; W.T.A. No.588/LB of 1999; 1988 PTD (Trib.) 1022; New Webster Dictionary; Concise Oxford Dictionary and Concise Law Dictionary ref.

(c) Wealth Tax Rules, 1963‑‑‑

‑‑‑‑R. 8(3)‑‑‑Valuation of land and buildings‑ ‑‑Lease out property‑‑­Valuation of‑‑‑Expression "gross annual rental value" of property used in R.8(3) of the Wealth Tax Rules, 1963 means the sum for which the property might reasonably be expected to let out from year to year‑‑­Letting out includes leasing‑‑‑Assessing Officer was justified to multiply the lease money received by the assessee by 10 times in order to make valuation of assessee's immovable property.

(d) Wealth Tax‑‑‑

‑‑‑‑Proportionate liabilities ‑‑‑Allowability‑‑‑Assessing Officer was directed by the Tribunal to allow assessee's claim of liabilities relating to immovable assets as deducted from the value of the assets of the company and also as determined by him in his assessment orders.

(e) Words and phrases—­

‑‑‑‑"Lease"‑‑‑Meaning.

(f) Words and phrases‑‑‑

--------"Rent"‑‑‑Meansing.

Ahmad Kamal, D.R. for Appellant.

Javed Ahmad Qureshi for Respondent.

Date of hearing: 16th January, 2002.

2002 P T D (Trib.) 2390

[Income‑tax Appellate Tribunal Pakistan]

Before Zafar Ali Thaheem, Judicial Member and

Muhammad Sharif Chaudhry, Accountant Member

W.T.As. Nos. 248/LB, 249/LB, 486/LB and 487/LB of 2001, decided on 28th March, 2002.

(a) Wealth Tax‑‑‑

‑‑‑‑Valuation‑‑‑Valuation by bank for loan purpose‑‑‑Adoption of‑‑­Validity‑‑‑Neither the value of assessee's godown could be assessed on the basis of bank report nor it could be estimated in accordance with the history of the case without any cogent reason.

(b) Wealth Tax Rules 1963‑‑‑

‑‑‑‑R.8(3)‑‑‑Wealth Tax Act, 1963, Ss.7 & 46‑‑‑Valuation of land and building‑‑‑Value of godown was assessed by the Assessing Officer as adopted by the Bank for purpose of advancing loan‑‑‑Validity‑‑‑Method of valuation of assets and properties is prescribed by law according to its objective‑‑‑Valuation of assessee's godown as assessed by banker under banking laws for the purpose of advancing bank loan is neither binding on the Assessing Officer nor it has any persuasive value under the Wealth Tax Act, 1963‑‑‑Wealth Tax Act, 963 prescribed its own‑method of valuation of assets of the wealth tax assessees and binds wealth tax officers to follow the method in assessments‑‑‑Section 7 of the Wealth Tax Act. 1963 prescribes the method for determination of value of assets and states that the value of any asset, other than cash for the purpose of Wealth Tax Act, shall be estimated by the Assessing Officer in accordance with the Rules made under S.46 of the Wealth Tax Act, 1963‑‑‑Value of lands and building according to the Rules shall be estimated with due regard to the nature and size of the property, the amenities available and the price prevailing for similar property in the same locality or in its neighbourhood‑‑‑Value of any immovable pro­perty (other than an open plot of land) could not be determined by the Assessing Officer at a sum higher than 10 times the gross annual rental value of such property except, with the approval of the Commissioner‑‑­Assessing Officer had based his assessment of value of assessee's godown on the report of the Bank and had not made a fair estimate of the Annual Letting Value of the said property after confronting the asses­see‑‑‑Assessing Officer although had mentioned in his assessment order about the approval of the Commissioner but it was not known how the approval had been taken when no fair estimate of the Annual Rental Value of the property was made and when it was not indicated as to how many times the Annual Letting Value was multiplied‑‑‑Assessment made by the Assessing Officer was set aside by the Tribunal for de novo action‑‑‑Assessing Officer was directed to make a fair estimate of Annual Letting Value of the property and the matter be confronted to the assessee‑‑‑If the Assessing Officer intends to multiply the estimated Annual Letting Value by more than 10 times he should specifically indi­cate this fact and get the approval from his Commissioner ‑‑‑Assessee's view point should also be incorporated in the assessment order‑‑‑Order should he speaking one and transparent ‑‑‑Assessee who was affected by the order should know and also the Commissioner who was giving approval should know about the fair estimate of Annual Letting Value of the property in question and they should also know as to how many times the Annual Letting Value was being multiplied.

(1996) 74 Tax 154 (Trib.) rel.

(c) Wealth Tax Act (XV of 1963)‑‑‑

‑‑‑‑S.2(16)(2)(ii)‑‑‑Debts‑‑‑Assessee got loan from bank against mortgage/pledge of wife's property‑‑‑Such liability was claimed by the assessee‑‑‑Disallowance‑‑‑Validity‑‑‑Liability relating to the property of the wife of the assessee should not be allowed to the assessee‑‑­Section 2(16)(ii) of the Wealth Tax Act. 1963, states .that while determining net wealth of an assessee, debts which were secured on, or which had been incurred in relation to, any asset in respect of which the wealth tax was not payable under the Wealth Tax Act were not to be excluded from the .total assets of an assessee held by him on the valuation date‑‑‑Debt in question had been secured on assets of his wife by the assessee and that asset had not been offered for wealth tax in the hands of the assessee, and therefore, the said debt could not be allowed to the assessee.

Ahmed Kamal for Appellant.

Khurshid Ahmed for Respondent.

Date of hearing: 1st March, 2002.

2002 P T D (Trib.) 2395

[Income‑tax Appellate Tribunal Pakistan]

Before Muhammad Mujeebullah Siddiqui, Chairman and

Muhammad Daud Khan, Accountant Member

I.T.A. No. 185/KB of 1998‑99, decided on 26th July, 1999.

Income Tax Ordinance (XXXI of 1979)‑‑‑‑

‑‑‑‑Ss.52, 50 & 86‑‑‑Liability of person failing to deduct or pay tax‑‑­Assessee in default‑‑‑Short deduction on account of not considering Central Excise Duty for purpose of deduction of tax under S.50 of the Income Tax Ordinance, 1979 which was paid subsequently by the supplier itself‑‑‑First Appellate Authority set aside the order for de novo proceeding, the Department's order under S.52 of the Income Tax Ordinance, 1979 treating the assessee to be in default for short deduction‑‑‑Validity‑‑‑Amount in question had already been paid by the supplier‑‑ Assessing Officer was not justified to treat assessee as in default for such amount because the same amount could not be collected from two persons‑‑‑Assessing Officer, at the most, could have charged additional tax under the provisions of S.86 of the Income Tax Ordinance, 1979 ‑from the date of default/short deductions to the date of payment by the supplier/recipient‑‑‑Order of the First Appellate Authority was upheld and departmental appeal was dismissed by the Tribunal.

Syed Riazuddin, D.R. for Appellant.

Z. H. Jaffery for Respondent.

Date of hearing: 20th July, 1999.

2002 P T D (Trib.) 2399

[Income‑tax Appellate Tribunal Pakistan]

Before Javaid Iqbal Judicial Member and

Muhammad Mahboob Alam, Accountant Member

W.T.As. Nos.548/KB to 552/KB of 2001, decided on 10th April, 2002.

Wealth Tax Act (XV of 1963)‑‑‑-

‑‑‑‑Ss.2(1)(5)(ii) & ,16(3)‑‑‑Income Tax Ordinance (XXXI of 1979)‑‑­Assets‑‑‑Leased out assets‑‑‑inclusion of such assets in net wealth‑‑­Property was included in Net Wealth on the ground that it had been let out to another concern using the space as storage godown‑ ‑Asses see contended that the property in question had not been leased out but given on licence to cite other concern and was not held for the purpose of letting out and thus slid not fall under the definition of "assets" as an immovable property held for the purpose of letting out or business of letting out under S.2(1)(5)(ii) of the Wealth Tax Act, 1963 and income from such property was being assessed under S.30 instead of S.19 of the Income Tax Ordinance. 1979‑‑‑Validity‑‑‑Both the exclusive possession and right of uninterrupted enjoyment of space had been allowed to the other party though the indenture was described as a licence it was nevertheless a demise as in substance it purports to give exclusive possession of the godown space to the alleged licensee‑‑‑Looking at the substance of the transaction and not merely nomenclature used by parties the document described as licence in fact confers and imposes on the grantee in substance rights and obligations of a ‑tenant and on the grantor in substance right and obligations of the landlord so the document purported to be a license agreement must be treated as a tenancy agreement as distinct from a licence‑‑‑Immovable property thus, was to be included in the "Net Wealth" of the assessee and was taxable as such‑‑‑Order of the First Appellate Authority was confirmed by the Tribunal.

(1989) 59 Tax 50 (Trib.) distinguished.

M.D. Gangat for Appellant.

Bishrat Ahmed Qureshi for Respondent.

Date of hearing: 10th April, 2002.

2002 P T D (Trib.) 2407

[Income‑tax Appellate Tribunal Pakistan]

Before Raj Muhammad Khan, Member (Judicial) and S.M. Kazimi, Member (Technical)

S. Tax. A‑325/PB of 2001. decided on 1st June, 2002.

(a) Sales Tax Act (VII of 1990)‑

‑‑‑‑Ss.66 & 8‑‑‑S.R.0.578(1)/98, dated 12‑6‑1998, S.No.4‑‑‑C.B.R. Letter C.No.3(17)STP/99 (Pt.III) dated 21‑10‑1999‑‑‑Refund to be claimed within one year‑‑‑Tax credit not allowed‑‑‑Electric appliances‑‑­Split type air‑conditioners of 2.5 tones‑‑‑Input tax credit‑‑‑Claim of refund, rejection of‑‑‑Validity‑‑‑Split type air‑conditioners of 2.5 tones each had been installed in the mills Laboratory meant for testing and quality control‑‑‑Air‑conditioners were electric appliances specified at Sr.No.(4) of the Notification No.S.R.O. 578(I)/98 dated 12‑6‑1998; were not of a special type; were of ordinary capacity (2.5 tones) mostly used by domestic consumers; were not used directly for production or with any machinery in the productions line of the mills and were installed in the laboratory‑‑‑Such air‑conditioners were not stock‑in­trade‑‑‑Rejection of refund claim of sales tax on such air‑conditioners was conformed by the Appellate Tribunal.

PTCL 2002 CL 80 rel.

(b) Sales Tax Act (VII of 1990)‑‑‑

‑‑‑‑Ss.66 & 8‑‑‑S.R.O. 578(I)/98 dated 12‑6‑1998, S.No.4‑‑‑C.B.R. Letter C.No.3(17)STP/99 (Pt.III) dated 21‑10‑1999‑‑‑C.B.R. Letter No.2(77)/STP/95, dated 19‑10‑1999‑‑‑Refund to be claimed within one year‑‑‑Tax credit not allowed‑‑‑Electric appliances‑‑‑Heavy duty high voltage wire and cable‑‑‑Input tax credit‑‑‑Claim of refund‑rejection of‑­Validity‑‑‑Such heavy duty high voltage cables, if of 440 volts and above and used for transmission of electrical power from power house to transformer and on the production plant, were eligible for input tax credit being acquisition of stock‑in‑trade like the machinery itself Appellate Tribunal remanded the case of refund on high voltage cables to the Assistant Collector of Sales Tax (Refund) for decision de novo and sanction of refund, if otherwise due, admissible and in order, after satisfying himself that these cables were really high voltage cables and not the ordinary type of cables used for buildings and ordinary electrical fitting and have actually been installed for transmission of electrical power needed by the plant and machinery installed in the factory for production of taxable goods‑‑‑Order was modified to such extent by the Tribunal.

PTCL 2001 CL 509 and Appeal No.STA/1972/LB of 2001 rel.

Usman Gul, Manager (Accounts) for Appellant.

Alam Zaib Khan; Senior Auditor and Al‑Haj Gul, D.R. for Respondents.

Date of hearing : 28th May, 2002.

2002 P T D (Trib.) 2413

[Income‑tax Appellate Tribunal Pakistan]

Before Zafar Ali Thaheem, Judicial Member and Muhammad Sharif Chaudhry, Accountant Member

W.T.A. No. 107/LB of 2001, decided on 11th April. 2002.

Wealth Tax Act (XV of 1963)‑‑‑‑

‑‑‑‑Second Sched. C1. (7)(i), Ss. 2(4)(24) & 3‑‑‑Exemption‑‑‑Foreign Remittances‑‑‑Creation of assets‑‑‑Expiry date of exemption was 31‑12‑1997‑‑‑Rejection of claim of exemption for the assessment year 1998‑99‑‑‑Validity‑‑‑Wealth Tax Act, 1963 creates the charge of wealth tax on the assets of an assessee on the basis of concept of valuation date and financial year‑‑‑Wealth Tax Act did not admit the concept of calendar year or the year comprising a period of 12 months from the date of receipt of remittances as done by the Assessing Officer‑‑‑Word used in cl. (7)(1) of the Second Sched. to the Wealth Tax Act, 1963 means, financial year or assessment year relevant to the corresponding valuation date ‑‑‑Assessee received foreign remittances on 29‑12‑1992 and the relevant valuation date for the assessment of his assets fell on 30‑6‑1993­‑First year of exemption for his remittances under cl. (7)(i) of the Second Sched. of the Wealth Tax Act, 1963 would be assessment year 1993‑94‑­Remittances would be exempted from wealth tax for a period of following 5 years up to assessment year 1998‑99, the year which is under consideration‑‑‑Word "year" used in cl. (7)(i) of the Second Sched. to the Wealth Tax Act, 1963 means "assessment year" and the remittances received by the assessee were thus exempt from Wealth Tax Act, 1963.

(1997) 76 Tax I (Trib.) distinguished.

M.H. Qamar, I.T.P. for Appellant.

Ahmed Kamal, D.R. for Respondent.

Date of hearing: 26th March, 2002.

2002 P T D (Trib.) 2422

[Income-tax Appellate Tribunal Pakistan]

Before S. Hasan Imam, Judicial Member and Agha Kafeel Barik, Accountant Member

I.T.As. Nos. 2304/KB to 2307/KB of 1996-97, decided on 27th April, 2002.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.156---C.B.R. Circular No.23 of 1988, dated 8-11-1988--­Rectification of mistakes---Rectification of order in view of C.B.R. Circular No.23 of 1988. dated 8-11-1988 was not only unjustified but also bad in law as the clarification of the said Circular had been declared ultra vires of the law.

1992 PTD 570 rel.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.156(2), Third Sehed., R.3A---C.B.R. Circular No.23 of 1988, dated 8-11-1988, para. 2 (ii) & (iii) ---C.B.R. Circular No. 21 of 1988, para. 2---Rectification of mistakes---Assessment year 1991-92--­Unabsorbed depreciation---Carry forward of losses-=-Adjustment through rectification in view of R.3A of the Third Sched. of the Income Tax Ordinance, 1979 with retrospective effect ---Validity--­Assessing Officer in view of amendment in R.3A of the Third Sched. to the Income Tax Ordinance, 1979 brought in 1992, rectified the order for the assessment year. 1991-92---Amendment brought in 1992 could not be given retrospective, effect to implement same in the assessment, year 1991-92---Law should be read as it stood and any Circular and amendment in law, if proposed, the Revenue Officers on their own accord, could not draw any analogy to give the law retrospective or prospective effect---Assessing Officer while passing order under S.156 of the Income Tax Ordinance, 1979 on his own accord gave retrospective effect to the amendment, although the amendment itself was silent in that respect---In assessment year 1991-92, the assessee had also filed appeal before the First Appellate Forum, thus assessment order merged with the order of the Appellate Authority and left no corner for rectification--­First Appellate Authority rightly deleted the adjustments made in the order through rectification, as the Assessing Officer had not only overridden the statutory limitation concerning the very matter of depreciation which cropped up and got barred admittedly in the assessment year 1986-87, but resort to S.156 of the Income Tax Ordinance, 1979 was absolutely uncalled for in a controversial issue involving no mistake apparent on record---Assessment orders besides being time-barred were misuse of S.156 of the Income Tax Ordinance, 1979,, as there was no mistake apparent from record---Order of First Appellate Authority did not warrant interference.

1992 PTD 570; PTCL 1994 CL 222 and 1999 PTD (Trib.) 1588 rel.

Imtiaz Ahmed Barakzai, D.R. for Appellant.

Arshad Siraj for Respondent.

Date of hearing: 18th April, 2002.

2002 P T D (Trib.) 2428

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Akhtar Nazar Mian, Accountant Member and Jawaid Masood Tahir Bhatti, Judicial Member

I.T.A. No. 1442/KB/DB of 2001, decided on 24th April, 2002.

Income Tax Ordinance (XXXI of 1979)---

----First Sched., Part I, para. CCC & Ss.52A & 88---Rate of tax--­Assessing Officer passed order under S.52A of the Income Tax Ordinance, 1979 calling upon the assessee to deposit the short payment alongwith additional tax by considering that since contracts with each payee exceeded 30 Million, tax at the rate of 6% was to be deducted under para. CCC of Part I of the Income Tax Ordinance, 1979--­Assessee contended that Assessing Officer misinterpreted the law that where contractual receipts from one payer exceed Rs.30 million, the rate of deduction under S.50(4) of the Income Tax Ordinance, 1979 and of assessment under S.80C of the Income Tax Ordinance, 1979 was to be taken at 6% of the income representing payments on account of execution of contracts and further contended that as per sub-clauses (i) and (ii) of cl. (a) of sub-para. (i) of para. CCC it was the value of the contract which was material, notwithstanding the amount of payments received in respect of that contract or in respect of receipts from the same payer relating to different contracts that word contract in para. CCC (i) (ii) had been used in singular which meant that the higher rate of 6% was to be applied on payments if the value of the overall contract exceeded Rs.30 million---Validity---Appellate Tribunal agreed with the submissions made by the assessee and observed that the value of a contract was the determining factor for application of rate of 5% or 6% as the case may .be on the income representing the payments on account of execution of contracts---Each of the contract in the present case, the amount not exceeding Rs.30 million---Payments received during the year regarding said contracts were to be subjected to the tax rate of 5 % and not 6% .

Muhammad Siddique, I.T.P. for Appellant.

Inayatullah Kashani, D.R. for Respondent.

Date of healing: 24th April, 2002.

2002 P T D (Trib.) 2431

[Income-tax Appellate Tribunal Pakistan]

Before Syed Kabirul Hasan, Judicial Member and Abdul Ghafoor Junejo, Accountant Member

I.T.As. Nos.902/KB/DB to 904/KB/DB of 2000-2001,decided on 20th March, 2002.

Income Tax Ordinance (XXXI of 1979)---

----Ss.66-A(2), 62 & 156---Second Sched: Cl. (6-A)---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Rectification of mistake---Exemption---Limitation---Assessing Officer allowed exemption under Cl. (6-A) of the Second Sched. of the Income Tax Ordinance, 1979 by rectifying the original order passed under S.62 of the Income Tax Ordinance, 1979 which was not applicable in the case of assessee---Inspecting Additional Commissioner modified the order passed under S.156 of the Income Tax Ordinance, 1979 and income exempted was included in the income of the assessee---Assessee contended that order passed under S.66-A of the Income Tax Ordinance, 1979 was barred by limitation as the limitation started from the date of main order under S.62 of the Income Tax Ordinance, 1979 and not from the date of rectified order under S.156 of the Income Tax Ordinance, 1979---Validity---Contention of the assessee was generally correct but there were distinguishable features in the case, the relief on exemption of income was not granted in original assessments but was only granted in the order passed under S.156 of the Income Tax Ordinance, 1979 and actual grievance of the Department had come into being on the date of order passed under S.156 of the Income Tax Ordinance, 1979 by the Assessing Officer---Period of limitation will start from the date of rectified order---Normally the order passed under S.66-A would be within the period of four years of the main assessment order passed under S.62 of the Income Tax Ordinance, 1979 but where such order was silent on points, which were taken into the orders subsequent to order under S.62 of the Income Tax Ordinance, 1979 were passed by the Assessing Officer, may also be considered---Under S.156 of the Income Tax Ordinance, 1979, the changes could be brought in assessment orders which relate to creating new burden on the assessee or new relief to the assessee as the issues were not discussed in order under S.62 of the Income Tax Ordinance, 1979---Period of limitation provided under S.66A of the Income Tax Ordinance, 1979 would start from the new order passed under S.156 of the Income Tax Ordinance, 1979 and not from the order originally passed under S.62 of the Income Tax Ordinance, 1979---Period of limitation was available to the Inspecting Additional Commissioner and this order was within the time provided under S.66-A of the Income Tax Ordinance, 1979 and the same was held proper by-the Tribunal---Appeals were dismissed by the Tribunal.

(1999) 79 Tax 273 (Trib.) I.T.A. No.150/KB of 1996-97; (1992) 66 Tax 126 SC Pak. and (1998) 78 Tax 343 (Trib) ref.

Hassan Naeem, ITP for Appellant.

Imtiaz Barakzai, D.R. for Respondent.

Date of hearing: 21st February, 2002.

2002 P T D (Trib.) 2496

[Income-tax Appellate Tribunal Pakistan)

Before Mian Abdul Qayyum, Member (Judicial) and Zafarul Majeed, Member (Technical)

S.T.A. No. 2754/LB of 2001, decided on 1st March, 2002

(a) Sales Tax Act (VII of 1990)---

----S.36---Recovery of tax not levied or short levied or erroneously refunded---Show-cause notice---Limitation---Provision of S.36 of the Sales Tax Act, 1990 as it existed at' the relevant time, provided that show-cause notice could be issued within 5 years from 1-1-1991 which ended on 1-1-1996 for the relevant period from 1-10-1991 to 30-11-1992---Show-cause notice having been issued on 16-5-1999, was barred by time as the same had been issued three years, four months and fifteen days after the prescribed time limit and the result was that like in the suit for recovery of money after lapse of time prescribed by law of limitation, the intended recovery had become unenforceable.

(b) Sales Tax---

----Question of limitation and jurisdiction---Cognizance by Court--­Contention that since the plea of delay in issuing the show-cause notice had not been taken in the grounds of appeal, therefore, the same could not be raised during arguments was without any merit because the question of limitation and jurisdiction were the important aspects of the case which every officer, Tribunal or Court dealing with the matter had to consider itself although the .same had not been raised in pleadings or urged in arguments.

(c) Sales Tax Act (VII of 1990)---

----S.34---Additional tax---Show-cause notice based on incorrect fact--­Demand of arrears and additional tax---Validity---Show-cause notice carried misstatement to the effect that it was mentioned that sale tax was payable by the assessee alongwith additional tax and penalty and the order also directed the assessee to pay on account of short paid amount of sales tax alongwith additional tax and penalty---Admitted factual position was against the facts mentioned in the show-cause notice and similarly the determination of an amount against the assessee as arrears on account of sales tax was incorrect because the assessee had already deposited the entire amount of sales tax---Show-cause notice having been issued on incorrect facts, could not be said to be a legal notice and consequently the order raising demand of arrears of sales tax was patently illegal.

Naeem Akhtar Sheikh for Appellant.

Tariq Imran, D.R, with Riasat Ali, Senior Auditor for Respondent.

Date of hearing : 26th February, 2002.

2002 P T D (Trib.) 2500

[Income-tax Appellate Tribunal Pakistan]

Before Mian Abdul Majeed, Member (Judicial) and Zafarul Majeed, Member (Technical)

Appeal No.S.T.A. 2201/LB of 2001, decided on 8th March, 2002.

Sales Tax Act (VII of 1990)---

----Ss.7 & 8(i)(b)---S.R.O. 1307(I)/97 dated 20-12-1997---Determination of tax liability---Adjustment of input tax in violation of the provisions of S.R.O. 1307(I)/97 dated 20-12-1997 on the ground that same was bad in law being in violation of S.8(i)(b) of the Sales Tax Act, 1990---Validity-­Appellate Tribunal observed that notification in dispute had been validly issued by the Federal Government and was not in violation of the substantive provisions of the Sales Tax Act, 1990, when examined with reference to Ss.7 & 8(i)(b) of the Sales Tax Act, 1990.

2001 SCMR 838 and C.A. No.66-S of 1999 ref.

Muhammad Nasar for Appellant.

Imran Tahir, D. R. for Respondent.

Date of hearing: 24th January, 2002.

2002 P T D (Trib.) 2512

[Income Tax Appellate Tribunal Pakistan]

Before Javed Iqbal, Judicial Member and Muhammad Akhtar Nazar Mian, Accountant Member

W.T.As. Nos.286/KB to 288/KB of 2000‑2001, decided on 4th February, 2002.

(a) Wealth Tax Act (XV of 1963)‑‑‑‑

‑‑‑‑Ss.14(2) & 3‑‑‑Income Tax Ordinance (XXXI of 1979), S.56‑‑­Provisions of S.14(4) of Wealth Tax Act, 1963 and provisions of S.56 of the Income Tax Ordinance, 1979‑‑‑No similarity‑‑‑‑From the plain language of the two sections, it was clear that S.56 of the Income Tax Ordinance, 1979 prescribed that notice could be given at any time for any income year whereas the notice under S.14(2) of the Wealth Tax Act, 1963 was served when an assessee liable to submit the return under S.14(l) did not file the return‑‑‑Subsection (1) of S.14 of the Ordinance relates to the suo motu filing of return by the assessee within the time prescribed under subsection (1‑A) of S.14 of the Wealth Tax. Act, 1963‑­‑Provisions of S.14(1‑A) prescribe, dates for each financial year for which assessment was required to be made as provided in S.3 of the Wealth Tax Act, 1963‑‑‑‑Notice under S.14(2) of the Wealth Tax Act, 1963 could be issued during the financial year for which the Wealth Tax is required to be charged under S.3 of the Wealth Tax Act, 1963‑‑­Provisions of S.14(2) of the Wealth Tax Act, 1963 were materially different from the provisions of S.56 of the Income Tax Ordinance. 1979.

(b) Wealth Tax Act (XV of 1963)‑‑‑‑

‑‑‑‑Ss. 14(2) & 17‑‑‑Assumption of jurisdiction simultaneously. under Ss. 14(2) & 17 of the Wealth Tax Act, 1963‑‑‑Validity‑‑‑Assumptions of jurisdiction in different periods of times was subject‑matter of two different provisions of law‑‑‑During the financial year, proceedings for procuring the return were to be taken under S.14(2) of the Wealth Tax Act. 1963 and after end of the assessment year the jurisdiction could be assumed only under S.17 of the Wealth Tax Act. 1963‑‑‑There was no concept in law of having concurrent/simultaneous jurisdiction under both the provisions of law viz. Ss. 14(2) & 17 of the Wealth Tax Act, 1963 exit.

(c) Wealth Tax Act (XV of 1963)‑‑‑‑

‑‑‑‑S. 14(2)‑‑‑Income Tax Act (XI of 1922), S.22(2)‑‑‑Return of wealth‑­Initiation of proceedings by issuing notice under S.14(2) of the Wealth Tax Act, 1963 beyond the relevant assessment year ‑‑‑Validity‑‑­Assessment proceedings could not be initiated beyond the assessment year by issuing a notice under S.14(2) of the Wealth Tax Act, 1963.

PLD 1958 SC 104 and 1999 PTD 4037 rel.

(d) Wealth Tax Act (XV of 1963)‑‑‑‑

‑‑‑‑Ss.14 & 17‑‑‑Income Tax Act (XI of 1922), S.22(2)‑‑‑Assumption of jurisdiction under a provision other than the legal provision of law‑‑­Validity‑‑‑Assumption of jurisdiction under other than a legal provision was not a procedural mistake and being fatal to the whole proceedings could not be ignored by the Appellate Authorities.

2000 P D 39; PLD 1994 Kar. 671995) 71 Tax (KHC) 211: (1955) 27 ITR (BHC) 54; (1986) 54 Tax 105 (Trib.); 1995 PTD (Trib.) 7100(sic) and (1999) 79 Tax 76 (Trib.) rel.

(e) Wealth Tax Act (XV of 1963)‑‑‑‑

‑‑‑‑Ss.14 & 17‑‑‑Filing of return‑‑‑Jurisdiction‑‑‑Challenge to jurisdiction after filing of return in response to an invalid notice‑‑‑Validity‑‑‑Filing of return in response to an invalid notice, did not debar the appellant from challenging jurisdiction because even consent of the assessee could not give jurisdiction to an authority if it did not legally vest with the said authority.

PLD 1967 SC 314; PLD 1985 Kar. 411; PLD 1973 SC 236 and (1993) 68 Tax (Trib.) 145. rel.

(f) Wealth Tax Act (XV of 1963)‑‑‑‑

‑‑‑‑SsA4 & 17‑‑‑Constitution of Pakistan, (1973), Art. ‑‑‑Submission of return on an invalid notice‑‑‑Validity‑‑‑If it was considered that on the basis of submission of return on receipt of an invalid notice, the proceedings could not be challenged that would amount to discrimination against the person who submitted that return vis‑a‑vis a person who did not submit a return in response to an invalid notice‑‑‑No discrimination could be made under the law as all the assessees were to be treated equal as provided under Article 4 of the Constitution of Pakistan (1973).

PLD 1987 SC 447; PLD 1958 SC 201 and 1999 PTD 4037 rel.

(g) Wealth Tax Act (XV of 1963)‑‑‑‑

‑‑‑‑Ss.14 & 17‑‑Return of wealth‑‑‑Wealth escaping assessment‑‑­Jurisdiction‑‑‑Order passed without validly assuming jurisdiction standing test of appeal‑‑‑Validity‑‑‑Even consent of the assessee could not give jurisdiction to an authority which did not legally vest into‑‑­When there was no jurisdiction with an authority the orders passed by such authority were void and nullity in the eyes of law‑‑‑Where even, both the sides had agreed to waive a portion of a statutory provisions, same could not confer jurisdiction which according to statute was not there.

1975 (Supl.) Indian SCR 365 and 1958 PLD (SC) 201 rel.

(h) Wealth Tax Act (XV of 1963)‑‑‑‑

‑‑‑‑Ss.14, 17 & 10(5)‑‑‑Return of wealth‑‑‑Wealth escaping assessment‑‑­Jurisdiction' of Wealth Tax Authorities‑‑‑Calling in question the jurisdiction after filing of return, notwithstanding the provisions of S.10(5) of the Wealth Tax Act, 1963‑‑‑Validity‑‑‑Assessing Authority had jurisdiction over the case in two ways; firstly, as officer incharge over the area or cases and secondly be exercising the statutory powers for assessment‑‑‑Section 10(5) of the Wealth Tax Act, 1963 pertained to assignment of administrative jurisdiction to an Assessing Officer by his superior authorities which meant the jurisdiction assigned generally to a Circle in the field pertaining to the area or persons as prescribed in S.10(1)(c) of the Wealth Tax Act, 1963‑‑‑Once an assessee filed a return in a Circle he could not challenge that said Circle did not have jurisdiction over his case‑‑‑Exercise of legal jurisdiction for assessment proceedings was the foundation of the legal orders and therefore, could be challenged at any stage because it went to the very root of the assessment order.

(i) Wealth Tax Act (XV of 1963)‑‑‑‑

‑‑‑‑Ss.14(2) & 17‑‑‑Return of wealth‑‑‑Assumption of jurisdiction for filing of return by issuing a notice S.14(2) of the Wealth Tax Act, 1963, when the relevant financial year had already expired‑‑‑Validity‑‑‑No notice under S.17 of the Wealth Tax Act, 1963 having been served on the appellant/assessee after end of the assessment year, the Assessing Officer had no jurisdiction to proceed by issuing notice under S. 14(2) of the Wealth Tax Act, 1963‑‑‑Such order was thus ab initio void.

(j) Wealth Tax Act (XV of 1963)‑‑‑‑

‑‑‑‑Ss.14(2) & 15‑‑‑Return of wealth‑‑‑Filing of return under S.14(2) of the Wealth Tax Act, 1963‑‑‑Treatment of such return under S.15 of the Wealth Tax Act, 1963‑‑Validity‑‑‑Plain reading of S.15 of the Wealth Tax Act, 1963 indicated that it had to be a return which was not furnished within time allowed under S.14 of the Wealth Tax Act, 1963‑‑­No specification was provided as to whether the return was to be filed within tine allowed under S.14(1‑A) or in a notice under S.14(2) of the Wealth Tax Act, 1963‑‑‑Return filed within time as extended by the Assessing Officer for, compliance of the notice under S.14(2) of the Wealth Tax Act, 1963 could not be treated as a return under S.15 of the Wealth Tax Act, 1963‑‑‑Return was not filed, by the assessee suo motu or voluntarily but rather within extended time for the compliance of the notice under S.14(2) of the Wealth Tax Act, 1963, which was an invalid notice‑‑‑Whole superstructure created by the Assessing Officer or subsequently by the First Appellate Authority thus fell to ground because the basic notice under S.14(2) of the Wealth Tax Act, 1963 was illegal, invalid and void‑‑‑Assessment was annulled by the Tribunal.

(k) Wealth Tax Rules 1963‑‑‑‑

‑‑‑‑R.8(3)‑‑‑Valuation of building‑‑‑Principles.

(l) Wealth Tax Rules, 1963‑‑‑‑

‑‑‑‑‑R.8(3)‑‑‑Valuation of land and building‑‑‑Property in question having not been valued in accordance with the provisions of R. 8(3) of the Wealth Tax Act, 1963, both the assessments were set aside on the valuation of the property by the Tribunal with the direction that reassessments will be made by the Assessing Officer in accordance with the legal procedure.

Arshad Siraj for Appellant.

Aqeel Abbasi, Legal Advisor for Respondent.

Dates of hearing: 15th November, 2001, 26th January and 2nd February, 2002.

2002 P T D (Trib.) 2528

[Income Tax Appellate Tribunal Pakistan]

Before Jawaid Masood Tahir Bhatti, Judicial Member and Abdul Ghafoor Junejo, Accountant Member

W.T.As. Nos. 371/KB to 374/KB of 2001, decided on 10th April, 2002.

(a) Wealth Tax Act (XV of 1963)‑‑‑‑

‑‑‑‑Ss.2(9) & (19)‑‑‑Company‑‑‑Trust‑‑‑Definition of "Company" as provided by S.2(9) & 2(19) of the Wealth Tax Act, 1963 did not include "Trust" and for Wealth Tax purposes a Trust could not be treated as a Company since the Wealth Tax Act, 1969 did not provide for the same.

(b) Wealth Tax Act (XV of 1963)‑‑‑‑

‑‑‑‑Ss.17‑B, 21, 16(3) & 2(9)(19)(5); Second Shed; Cl.(22)‑‑‑Power of Inspecting Assistant Commissioner to revise Wealth Tax Officer's order‑‑‑Company‑‑‑Trust‑‑‑Assessment made under S.16(3) of the Wealth Tax Act, 1963 on the basis of beneficial interest of each beneficiary as per the ratio noted in the Trust Deed was cancelled by the Inspecting Assistant Commissioner, under S.17‑B of the Wealth Tax Act, 1963 being erroneous and prejudicial to the interest of revenue on the ground that capitalization should have been made on the basis of gross rental value declared by the assessee in his Income Tax Return and exemption should have been allowed only to the extent of one million and not more than that because the assessee had been assigned the status of a company‑‑‑Validity‑‑‑Trust had not been brought into the ambit of wealth tax, neither impliedly by including the trust into the definition of Company nor expressly by taking the trust property as per the definition of assets owned by various entities‑‑‑Neither "Trust", whether public or private nor its property was chargeable to Wealth Tax‑‑‑Law specifically exempted the entire property of a public charitable trust vide Cl.(22) of the Second Sched. to the Wealth Tax Act, 1963‑‑‑Charge of Wealth Tax is created on the beneficiaries of the private trust to the extent of their beneficial interest in the trust property as per S.21 of the Wealth Tax Act, 1963‑‑‑"Trust" could .not be treated as a Company for Wealth Tax purposes, hence the action of the Additional Commissioner of Wealth Tax, in treating the Trust as a company was not correct, same being ultra vires of the provisions of the Wealth Tax Act, 1963‑‑‑Order passed under S. 17‑B of the Wealth Tax Act, 1963 was cancelled by the Tribunal being contrary to law and facts.

(1997) 36 Tax 150 (SC India); (1998) 78 Tax 50 (Trib) and (2000) 82 Tax 162 (SC) ref.

(1983) 142 ITR 149 (Cal.); (1982) 136 ITR 583 (MP) and 2000 PTD (Trib.) 376 distinguished.

(c) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.2(16) & 2(31)‑‑‑Wealth Tax Act (XV of 1963), S.2(9)(19)‑‑­Company ‑‑‑Trust‑‑‑Determination of status‑‑‑Status of a trust for income tax purposes will be that of a company as provided by the definition of the Company in Ss.2(16) & 2(31) of the Income Tax Ordinance, 1979‑‑­To apply the definition of the Company as provided in the Income Tax Ordinance, 1979, to a matter of Wealth Tax, the Wealth Tax Act, 1963 was rather considered to be ill‑founded.

Wasi Haider Rizvi, ITP for Appellant.

Inayatullah Kashani, D.R. and Javed Iqbal Rana, IAC for Respondent.

Date of hearing: 17th November, 2001.

2002 P T D (Trib.) 2539

[Income Tax Appellate Tribunal Pakistan]

Before Jawaid Masood Tahir Bhatti, Judicial Member and Muhammad Akhtar Nazar Mian, Accountant Member

I.T.A. No.5870/LBof 1995, decided on 18th January, 2002.

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.65‑‑‑Additional assessment‑‑‑Initiation of proceedings on the basis of information/material already available on record at the time of original assessment‑‑‑Validity‑‑‑Whatever material was produced before the Assessing Officer who made the original assessment, was the only information available with the department on the basis of which proceedings under S.65 of the Income Tax Ordinance, 1979 were initiated which was also confirmed from the fact that the additions made in the order related to the assets declared in the Wealth Statement as on 30‑6‑1990, already on records and the reconciliation of Wealth Statement, both of which were already considered by the Assessing Officer while making original assessment‑‑‑If in making of an assessment an inference was drawn by the Assessing Officer from material available before him, howsoever, incorrect that might be the same material could not be made basis of reopening the assessment by the Assessing Officer‑­Action taken by the department under S.65 of the Income Tax Ordinance, 1979 in any case was illegal and could not be upheld‑‑‑­Assessing Officer had illegally proceeded to issue notice under S.65 of the Income Tax Ordinance, 1979 on the basis of the material which was already on his .records and duly considered by his predecessor‑‑­Action of the First Appellate Authority in annulling the order under Ss.62/65 of the Income Tax Ordinance, 1979 was confirmed by the Tribunal and departmental appeal being devoid of merits was dismissed.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.65 & 154(6)‑‑‑Additional assessment‑‑‑Submission of return‑‑­Jurisdiction‑‑‑Filing of return under protest in compliance to notice under S.65 of the Income Tax Ordinance, 1979 did not debar the assessee to challenge jurisdiction notwithstanding the provisions of S.154(6) of the Income Tax Ordinance, 1979. because even consent of the assessee would not give jurisdiction to an authority if it did not legally lie with the said authority.

PLD 1967 SC 314; PLD 1985 Kar. 411; PLD 1973 SC 236 2000 PTD 2214; 1975 (Supplementary) India SCR and PLD 1960 SC 237 rel.

(c) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.65‑‑‑Constitution of Pakistan (1973), Art. 4‑‑‑Additional assessment‑‑‑Submission of return on the basis of illegal notice‑‑­Jurisdiction ‑‑‑Unchallenged‑‑‑Discrimination‑‑‑If it was considered that on the basis of submission of return, the proceedings under the S.65of the Income Tax Ordinance, 1979 could not be challenged, even if the notice under S.65. was illegal, then this would amount to discrimination against the person who submitted the return vis‑a‑vis a person who did not submit a return in compliance with a notice under S.65 which otherwise was illegal‑‑‑No such discrimination could be made under the law because all the assessees were to be treated equally as provided under Art.4 of the Constitution of Pakistan, 1973.

PLD 1987 SC 447 PLD 1958 SC 104 and PTD 1999 Kar. 4037 rel.

Misri Landhani, D.R. for Appellant.

M.H. Bokhari for Respondent.

Date of hearing; 18th January, 2002.

2002 P T D (Trib.) 2550

[Income Tax Appellate Tribunal Pakistan]

Before Jawaid Masood Tahir Bhatti, Judicial Member and Muhammad Akhtar Nazar Mian, Accountant Member

I.T.As Nos.1184/KB/DB to 1185/KB/DB of 2000‑2001, decided on 26th January, 2002.

(a) Income‑tax‑‑‑

‑‑‑‑Commission receipt‑‑‑Excessive estimation‑‑‑Rejection‑‑‑Reduction by First Appellate Authority‑‑‑Realistic approach‑‑‑Sufficient reasons were given by the Assessing Officer in rejecting the book version and he, had estimated receipts as in the past‑‑‑Receipts had, however, been estimated excessively by the Assessing Officer which were realistically reduced by the First Appellate Authority which was upheld by the Tribunal.

(b) Income‑tax‑‑‑

‑‑‑‑Profit and Loss expenses‑‑‑Verifiability‑‑‑Addition maintained by the First Appellate Authority‑‑‑Validity‑‑‑Appellate Tribunal set aside the additions maintained by the First Appellate Authority to meet the ends of justice for re‑examination by the Assessing Officer and directed the Assessing Officer that no addition shall be made if the expenditure was found to be verifiable and relatable to the business.

(c) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.27 & 28; Second Sched., Part I, Cl. (65)‑‑‑Capital gain‑‑­Adventure in the nature of trade‑‑‑Shop was booked to be used as branch without transfer of title‑‑‑Subsequently, another property was acquired for such purpose and shop was disposed of‑‑‑Gain from such transaction was declared as capital gain'‑‑‑Assessing Officer treated such transaction asadventure in the nature of trade' and amount declared as capital gain was taxed as business income and First‑ Appellate Authority directed to accept the same as capital gain‑‑‑Validity‑‑‑Capital gain arose on transfer of capital assets and capital asset did not include immovable property‑‑‑If the gain had arisen on a shop ("immovable property"), then such gain was not to be calculated as capital gain under Ss.27 & 28 of the Income Tax Ordinance, 1979‑‑‑Declaration of the amount as capital gain was against law‑‑‑Assessing Officer also misdirected himself by treating such single transaction as venture in the nature of trade‑‑‑Title over the shop had not been transferred to the assessee and in the balance sheet the amount so invested was being shown as advance‑‑‑Such amount was return on advance and such income likely to be calculated as income from other sources‑‑‑Even if it was a casual receipt, it was taxable after deletion of CI.(65) of the Part‑I of the Second Sched. to the Income Tax Ordinance, 1979‑‑‑‑Amount was includable in the total income of the assessee not under income or as capital gain but as income from other sources.

Ianayatullah Kashani D.R. for Appellant.

Amanullah C.A. for Respondent.

Date of hearing : 26th January, 2002.

2002 P T D (Trib.) 2609

[Income‑tax Appellate Tribunal Pakistan]

Before Muhammad Jahandar, Judicial Member and Mahmood Ahmad Malik, Accountant Member

I.T.As. Nos. 820(113) to 822(113) and 826(IB) of 1999‑2000, decided on 30th November, 2001.

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.56, Expln. & proviso‑‑‑Assessment procedure‑‑‑Provisions relating to assessment procedure, which were also commonly known as machinery provisions were to be given retrospective effect, if not otherwise expressly or impleadly provided.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.56, 62, 65, 13(1)(d), 13(2), 30(2)(c), 108, 110 & 111‑‑‑Notice to furnish return of total income‑‑‑Limitation‑‑‑Assessment year 1986‑87‑‑‑Issuance of notice under S.56 of the Income Tax Ordinance, 1979 on 12‑2‑1994 for filing of return for assessment year 1986‑87 i.e. beyond the period of five years‑‑‑Validity‑‑‑Powers of Assessing Officer to issue notice calling upon the assessee to file return was resolved by the Explanation to S.65, Income Tax Ordinance, 1979 through Finance Ordinance, 2000 and unlimited powers in point of time were given to the Assessing Officer to issue notices to any assessee, who was required to file return but had not done the same, for any period preceding the date of the issuance of the notice‑‑‑Result emanating from this very Explanation seemed to be initiating action and opening of a larger number of cases which had the effect of subjecting many a persons to file returns whose cases might understandably be pending , at different stages‑‑‑Such mischief was taken into cognizance by the Legislature and in order to suppress that mischief and provide cure and remedy, the proviso was added to S.56 through Finance Ordinance, 2001. which had curtailed the powers of the Assessing Officers to issue notice beyond a period of five years‑‑‑Intention of the Legislature thus appeared to be not to widen the mischief net and to reduce the agony which had already been let loose by the Explanation added to S.56 by Finance Ordinance, 2000‑‑‑Role of the proviso to S:56 was understandable, which had to be invoked for the pending cases as well‑‑‑Further amendments providing remedies and cure 'shall have to be retrospectively interpreted‑‑‑Present case .shall be governed by the proviso to S.56 which in its import had retrospective operation‑‑­Action of the Assessing Officer by issuing a notice under S.56 of the Income Tax Ordinance, 1979 on 12‑2‑1994 calling upon the assessee for filing the return for assessment year 1986‑87 was not warranted for the said notice was beyond the period of five years‑‑‑Assessment order which had resultantly been framed was not sustainable in law and merited to be annulled‑‑‑First Appellate Authority although annulled the assessment order yet the grounds mentioned by it were not correct‑‑‑While upholding the decision of the First Appellate Authority in respect of annulment of the assessment order relating to assessment year 1986‑87 the reasons given in the order were; set aside by the Tribunal and a sequel to such annulment of the assessment order, the penalty proceedings could not be initiated which were cancelled‑‑‑First Appellate Authority also found the same but on different reasons and thus the order of the First Appellate Authority was upheld in this respect by the Tribunal‑‑‑Appeals were rejected accordingly‑‑‑[(1998) 78 Tax 91 (Trib.) reversed].

(1998) 78 Tax 91 (Trib.) reversed.

2001 PTD 1998; 1985 PTD 276 and 1993 SCMR 73 rel.

Naushad Ali Khan, D.R. for Appellant.

Habib Fakhruddin, F. C. A. and Hafiz Muhammad Idrees for Respondent.

Date of hearing: 15th November, 2001.

2002 P T D (Trib.) 2621

[Income‑tax Appellate Tribunal Pakistan]

Before Syed Nadeem Saqlain, Judicial Member and Muhammad Sharif Chaudhry, Accountant Member

W.T.As. Nos. 1124/LB to 1126/LB of 1999, decided on 28th March, 2000.

Wealth Tax Rules, 1963‑‑‑

‑‑‑‑Rr. 8(3) & 8(6)‑‑‑C.B.R. Circular No. 11 of 1994, dated 17‑7‑1994‑‑Plot on lease in Cantonment area. from the Government of Pakistan through Military Estate Officer‑‑‑Valuation of‑‑‑Value was assessed under R.8(3) of the Wealth Tax Rules, 1963 in accordance with the rates notified by' the District Collector ‑‑‑Assessee contended that value of plot was to be determined in accordance With R.8(6) and not under R.8(3) of the Wealth Tax Rules, 1963 as he enjoyed only tenancy rights and the owner of the plot was the Government of Pakistan‑‑‑Validity‑‑‑Lease deed executed between the Military Estate Officer representing Government of Pakistan and the lessee showed that the word "demise" had been used instead of word "lease" and the plot had been demised to the lessee with full, rights and liberty at all times to do all acts and things‑‑‑Word "demise" had been used again and again in connection with transfer of rights in the plots in the said deed of lease‑‑‑Plot had been demised in favour of lessee initially for a period bf 30 years with all rights of easements and appurtenances and the lease could be renewed at the option of the lessee for total period of 90 years‑‑‑Notorious fact was that the lands in cantonment which were given on long lease by the Government of Pakistan to the lessee were a subject of routine purchase and sale‑‑‑When the lessee sold the land to a purchaser, the purchaser stepped into the shoes of lessee with full rights and the lease deed was executed by the Government with that purchaser‑‑‑Such leased land could also be gifted, disposed of through will and was inheritable on the death of the lessee‑‑‑District Collector had notified the rates of these lands under the Stamp Act, 1899 for the purpose of registration‑‑‑Lands in the Cantonment areas were generally very expensive as compared to the lands situated in other areas due to better civic amenities, better standard of cleanliness, better position of security etc.‑‑‑Rights acquired in such lands were in nature of proprietary/ownership rights and these rights could be alienated through transfer/sale/gift/will/ inheritance etc. ‑‑‑Appellate Tribunal held that action of the Assessing Officer in making assessment of the value of assessee's plot under R.8(3) of the Wealth Tax Rules, 1963 was justified which had rightly been confirmed in appeal by the First Appellate Authority.

W.T.As. Nos. 150 to 154/LB of 1985‑86 not relevant.

M.R. Farooqi, ITP for Appellant.

Shahid Azim Khan, DR for Respondent.

Date of hearing: 28th March, 2000.

2002 P T D (Trib.) 2629

[Income‑tax Appellate Tribunal Pakistan]

Before Zafar Ali Thaheem, Judicial Member and Muhammad Sharif Chaudhry, Accountant Member

W.T.A. No. 1378/LB of 1997, decided on 18th October, 2001

Wealth Tax Act (XV of 1963)‑‑‑

‑‑‑‑S.5‑‑‑Special National Fund Bonds Rules., 1985‑‑‑C. B. R. Notification No.S.R.O. 649(I)85, dated 1‑7‑1985‑‑‑Exemption in respect of certain assets‑‑‑Assets covered by Special National Fund Bonds‑‑‑Exemption‑‑‑Claim of exemption of those assets covered under Special National Fund Bonds was not allowed on the ground that assets covered by Special National Funds Bonds were exempted as the notification issued by Central Board of Revenue exempted only those assets which were in the form of Special National Fund Bonds and not allegedly covered by such bonds which was confirmed by the First Appellate Authority‑‑‑Validity‑‑‑Plain reading of notification brought home the fact that assets in the form of Special National Fund Bonds issued under the Special National Fund Bonds Rules, 1985 had been exempted from wealth tax‑‑‑Notification could not be interpreted, by any stretch of imagination, to grant exemption to the assets which were statedly covered by Special National Fund Bonds or which were created out of encashment of such Bonds‑‑‑Special National Fund Bonds were an independent and a separate class of assets from the assets allegedly covered by such Bonds‑‑‑Notification granted exemption only to Special National Fund Bonds from wealth tax as a class of assets and did not grant any exemption to the assets which were set off against these bonds or which were statedly covered by these bonds‑‑‑Action of the Assessing Officer and the First Appellate Authority was justified in rejecting assessee's claim and, therefore, it called for no interference‑‑‑Assets covered by­ Special National Fund Bonds could only be accounted for in wealth after maturity of the Bonds but that did not mean that during the period before maturity exemption should be allowed to such assets if the assessee himself declared such assets in his wealth‑‑‑Order of the First Appellate Authority was maintained and appeal of the assessee was rejected by the Tribunal in circumstances.

Shabbir‑ur‑Rehman for Appellant.

Ahmed Kamal, D.R. for Respondent.

Date of hearing: 2nd October, 2001.

2002 P T D (Trib.) 2642

[Income‑tax Appellate Tribunal Pakistan]

Before Zafar Ali Thaheem, Judicial Member and Muhammad Sharif Chaudhry, Accountant Member

W.T.A. No. 1249/LB of 2000, decided on 12th December, 2001.

Finance Act (XII of 1991)‑‑‑

‑‑‑‑S.12(1)(2) & (6)‑‑‑Income Tax Appellate Tribunals Rules, 1981, R.20(2)‑‑‑Corporate Assets Tax‑‑‑Return of Corporate Assets Tax was filed on specific notice with the Explanation that assets as per balance‑sheet at written down value was less than what was declared in the balance‑sheet originally which was a notional value and thus the company was not liable to pay Corporate Assets Tax‑‑‑Tax was charged on the value of assets declared in the balance‑sheet‑‑‑First Appellate Authority directed to accept‑ the contention, of the assessee that Corporate Assets Tax should be charged on the cost of the fixed assets which was below taxable limit‑‑‑Validity‑‑‑Corporate Assets Tax was to be charged on, the value of fixed assets held by a company as were shown in its balance‑sheet on the specified date‑‑‑Law gave no discretion to the Assessing Officer to discard the value of fixed assets shown by the company in its balance‑sheet make his own estimate or assessment of the value of fixed assets‑‑‑Neither the law gave right to the assessee‑Company to back out from the value of fixed assets shown by it in the balance‑sheet and urge the Assessing Authority to adopt value of fixed assets other .than the one shown in the balance‑sheet on any pretext. or excuse ‑‑‑Assessee could not demand that the value declared in the balance‑sheet should not be adopted for the purpose of levy of Corporate Assets Tax on the ground that the same was fictitious or notional or not real or the same was on the basis of re‑.valuation of assets for the purpose of taking loan from the Banks ‑‑‑Assessee also could not plead that the value of the fixed assets shown in the balance‑sheet was not real and the Corporate Assets Tax should be imposed on real value which was cost or written down value‑‑‑Value of all fixed assets held by the company as shown in its balance‑sheet had to be charged to the Corporate Assets Tax‑‑‑Value of fixed assets shown in the balance‑sheet may be on the basis of cost or written down value or on the basis of re­‑valuation of assets for the purpose of obtaining Bank loan or any other benefit, it did not make any difference‑‑‑Law did not differentiate between the value of fixed assets declared on cost basis or Written Down Value or revaluation basis but it simply says that whatever value of the fixed assets held by the company had been shown in balance‑sheet on specified date, that had to be charged to Corporate Assets Tax‑‑‑Law did not give any discretion to any of the parties, Assessing Officer as well as assessee, to differ with the value of fixed assets shown by the assessee in its balance‑sheet on the specified date on any pretext or excuse and law did not bother about basis of valuation of fixed assets or about the rationality of the declared value of fixed assets‑‑‑Appellate Tribunal found that value of the fixed assets held by a company as shown by it in its balance‑sheet on the specified date would be chargeable to Corporate Assets Tax without bothering about the questions whether it was notional or fictitious, whether it was real or not and whether it was based on cost or Written Down Value or on re‑valuation‑‑‑Appellate Tribunal vacated the order of the First Appellate Authority and restored the assessment order passed by the Assessing Officer under, S.12(6) of the Finance Act, 1991.

Ahmed Kamal, D.R. for Appellant.

Nemo for Respondent.

Date of hearing: 8th December, 2001.

2002 P T D (Trib.) 2653

[Income‑tax Appellate Tribunal Pakistan]

Before Muhammad Jahandar, Judicial Member and Mehmood Ahmed Malik, Accountant Member

W.T.As. Nos. 645/IB to 647/IB of 1998‑99, decided on 10th June, 2002.

Wealth Tax Act (XV of 1963)‑‑‑

‑‑‑‑S.2(16)‑‑‑Net wealth‑‑‑Loan obtained against foreign currency deposit was utilized in purchasing shares which were offered for taxation‑‑‑Such loan/debt was disallowed being an inadmissible liability by the Assessing Officer‑‑‑Assessee contended that either the said loans be allowed as a liability or the shares purchased which had been offered to taxation may be excluded from the levy of wealth tax‑‑‑First Appellate Authority observed that the Assessing Officer was not justified to disallow the liability as the assessee had declared the corresponding assets against such liability‑‑‑Validity‑‑‑Any loan secured against any assets, which was not subject to the levy of wealth tax was not `debt owed' within the contemplation of subsection (16) of S.2 of the Wealth Tax Act, 1963 irrespective of its subsequent utilization which was immaterial‑‑­Assessing Officer rightly refused to allow the loan as liability secured against foreign currency deposits, which were not subject to the levy of wealth tax and the First Appellate Authority was not justified for issuing a direction for allowing such loans as a liability‑‑‑Orders in all the appeals were vacated by the Tribunal and department's appeals were accepted ‑‑‑[I.T.As. Nos.81 to 85/KB of 1979‑80 reversed].

I.T.As. Nos.81 to 85/KB of 1979‑80 reversed.

1996 PTD (Trib.) 1 rel.

W.T.As. Nos. 101 and 102/KB of 1982‑83; (1987) 66 ITR 338; (1980) 123 ITR 464; (1990) 186 ITR 91; 193 ITR 488 and (1982) 134 ITR 135 ref.

Naushad Ali Khan, D.R. for Appellant. S. A. Kazmi, I.T.P. for Respondents.

Date of hearing: 6th June, 2002.

2002 P T D (Trib.) 2662

[Income‑tax Appellate Tribunal Pakistan]

Before Inam Ellahi Sheikh, Chairman and Javaid Iqbal, Judicial Member

I.T.A.‑ No.23/KB of 2002, decided on 17th May, 2002.

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.80D & First Sched., Part III, Para. C‑‑‑Minimum tax on income of certain persons‑‑‑Surcharge‑‑‑Levy of special surcharge @ 0.5 % of the amount of minimum tax charged under S.80D of the Income Tax Ordinance, 1979‑‑‑Validity‑‑‑Paragraph C of Part III of the First Sched. to the Income Tax Ordinance, 1979 excludes the income‑tax payable only under Ss. 80BB, 80C, 80CC & 80DD of the Income Tax Ordinance, 1979 from the levy of surcharge and not the income‑tax payable under S.80D of the Income Tax Ordinance, 1979‑‑‑Had the intention of the Legislature been to exclude the tax under S.80D from the levy of surcharge, S.80D would also have been specifically mentioned in the exclusions contained in para.C of Part III of the First Sched. of the Income Tax Ordinance, 1979‑‑‑Income‑tax payable or paid under S.80D in the present case, being not the final discharge of liability levy of surcharge on the income‑tax under S.80D of the Income Tax Ordinance, 1979 was upheld by the Tribunal.

2000 PTD 2173 no direct bearing.

1994 PTD (Trib.) 100 distinguished.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.80D & 2(43)‑‑‑Minimum tax‑‑‑Word "tax" in S.80D,' Income Tax Ordinance, 1979‑‑‑Connotation‑‑‑"No further tax"‑‑‑Effect‑‑‑If the contention of the assessee, that no further tax could be levied once 0.5 % tax had been paid, was accepted, that will be granting a licence to the taxpayer to go scott free and any further penalties or additional taxes e.g. for non‑filing of return in time, late payment of tax etc. could not be levied simply because of the use of word "tax" in S.80D(1) of the Income Tax Ordinance, 1979 and of the definition of "tax" given in S.2(43) of the Income Tax Ordinance, 1979 which could not be the intention of the law.

Muhammad Arshad, C.A. for Appellant.

Bakht Zaman, D.R. for Respondent.

Date of hearing: 15th May, 2002.

2002 P T D (Trib.) 2670

[Income-tax Appellate Tribunal Pakistan]

Before Syed Kabirul Hasan, Judicial Member and Abdul Ghafoor Junejo, Accountant Member

I.T.As. Nos.537/KB and 538/KB of 2002, decided on 23rd May, 2002.

Income Tax Ordinance (XXXI of 1979)---

---First Sched. , Part I. Cl. CCC(a)(i)---Rate of tax---Value of contract or contracts---Five per cent. tax to be charged where value of single contract did not exceed Rs.30 million while six per cent. where aggregate value of- number of contracts exceeded Rs.30 million.

I.T.A. No. 1555/KB of 1999-2000 rel.

Abdul Tahir, I. T. P. for Appellant. Sajjad Ahmed, D.R. for Respondent.

Date of hearing: 23rd May, 2002.

2002 P T D (Trib.) 2679

[Income-tax Appellate Tribunal Pakistan]

Before Inam Ellahi Sheikh, Chairman and Muhammad Ashfaque Balouch, Judicial Member

I.T.A. No.2081/KB of 2001, decided on 4th May, 2002.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.12(5), Expln.---Fee for technical services---One of the arguments adopted on behalf of the assessee was that the Explanation to S.12(5) of the Ordinance envisaged the provisions of technical services by the personnel (requiring the presence of some personnel in Pakistan) and it appeared that such argument was due to influence created by the use of the words `including the provision of the services of technical or other personnel' in the said Explanation---Appellate Tribunal found such arguments to be misplaced as the phraseology used was not an exhaustive Explanation but was an inclusive Explanation which meant that not only the provisions of services of technical personnel but other types of technical services could also be treated as fee for technical services where technical personnel were not deputed in Pakistan.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss.80AA & 12(5), Expln.---Treaty for Avoidance of Double Taxation between USA and Pakistan, Art. III---Tax on income of non-resident from fee for technical services- --Assessee had set up the satellite in the space and had allocated certain transponders for use of its customers for transmission and retrieved of signals---Fees received from such services was term as `fee for technical services' and charged tax under S.80AA of the Income Tax Ordinance, 1979-Validity---In order to resolve such a question one may look at some parallel or analogous situation---One situation, which may not be so highly advance or technical, that came to one's mind was that of set up of the, telephone exchange by the Telecommunication Companies and providing the lines of telephones or to consider a more advance and sophisticated instance, one may consider the facility set up by the mobile phone companies---Mobile phone companies on payment of certain consideration, allow the mobile telephone holders the use of such facility to communicate with each other or with the other telephone subscribers---All these facilities or services were of technical nature of lesser or more advanced technology---Certainly providing of such facility was not earning fee for technical services, as they were not passing on any technical know-how or knowledge to their customers---Mere collection of a fee for use of a standard facility provided to all those willing to pay for it did not amount to the fee having been received for technical services---Appellate Tribunal found that the fees for use of transponder did not fall within the meaning of "fee for technical services" ---Since the assessee had set up a satellite in the space to earn income, the obvious conclusion, was that the fees received by it could be termed as commercial profit---Appeal of the assessee was allowed and orders of the department officials were cancelled by the Tribunal.

(2001) 251 ITR 53 rel.

1992 PTD 636; 1999 PTD (Trib.) 2554; 1998 PTD (Trib.) 291; (1998) 77 Tax 101 (Trib.); Black's Law Dictionary p.1372; New Oxford Dictionary, p.1699, Chamber's Dictionary, p.1774, I.T.A. No. 194/IB of 1997-98; PLD 1961 SC 215; PLD 1973 Lah. 837; Ballantine's Law Dictionary, p.222; PLD 1958 SC (Ind.)125; AIR 1988 SC 2330; (1953) WLF,728; (1977) 108 ITR 335; 2001 PTD 888; 1998 PTD 291 and Interpretation of Statutes by M. Mahmood ref.

Fateh Ali W. Vellani and Khaliqur Rehman; FCA for Appellant.

Dr. Najeeb Ahmed Memon, ACIT for Respondent.

Date of hearing: 2nd February, 2002.

2002 P T D (Trib.) 2695

[Income-tax Appellate Tribunal Pakistan]

Before Syed Nadeem Saqlain, Judicial Member and Amjad Ali Ranjha, Accountant Member

W.T.As. Nos. 1414/LB and 1415/LB of 2000, decided on 26th February, 2002.

(a) Wealth Tax Act (XV of 1963)---

----S.35 & Second Sched., Cl.12(2)---S.R.O. 595(I)/96, dated 7-9-1996-­Rectification of mistakes---Exemption---Factory/ manufacturing unit as well as sale point---Exemption allowed while passing order under S.16(3) of the Wealth Tax Act; 1963 was disallowed by rectification of the said order under S.35 of the Wealth Tax Act, 1963, on the report of Audit and Inspection Authority---Validity---Cursory perusal of the contents of show-cause notice issued showed that the Assessing Officer did not apply his mind but only relied upon the discrepancies pointed out by the audit party---Only issue' which was highlighted by the audit party was with regard to exemption allowed by the Assessing Officer and no other defects were pointed by the Assessing Officer which meant that the proceedings under S.35 of the Wealth Tax Act, 1963 were solely initiated on the . behest of recommendations of the audit party--­Admittedly, the Assessing Officer did not apply his own mind but rather blindly relied upon the report of the Audit and Inspection Authority which was disapproved by the Tribunal---Assessing Officer relied upon the report of the Audit and Inspection Authority while invoking S.35 of the Wealth Tax Act, 1963, in order to initiate rectification proceedings, which was not warranted under S.35 of the Wealth 'fax Act, 1963---Appeal of the department was rejected by the Tribunal.

1992 PTD 570 = 1992 SCMR 687 rel.

(b) Wealth Tax Act (XV of 1963)---

----S.16(3)---Assessment---Assessment prior to fixed date---Effect Cancellation of assessment by the First Appellate Authority passed on a date prior to the date for which the case was adjourned and without giving an opportunity of being heard was upheld by the Tribunal being illegal.

2001 PTD (Trib.) 3810 and I.T.As. Nos.4662 and 4663/LB of 1991-92 rel.

Mehboob Alam, D.R. for Appellant.

Tahir Mehmood for Respondent.

Date of hearing: 9th February, 2002.

2002 P T D (Trib.) 2705

[Income-tax Appellate Tribunal Pakistan]

Before Jawaid Masood Tahir Bhatti, Judicial Member and

Muhammad Akhtar Nazar Mian, Accountant Member, I.T.As Nos. 595/KB to 597/KB of 2002, decided on 1st June, 2002.

(a) Interpretation of fiscal statute---

---- Principle of interpretation---Fiscal laws are interpreted strictly--­Various provisions of the fiscal statute are to be interpreted in such a Way that these remain consistent with one another.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss.66(1)(c), 52, 86, 132(a) & 135(4)---Limitation---Limitation prescribed in S.66(1)(c) of the Income Tax Ordinance, 1979 was relevant to the orders made by the First Appellate Authority under S.132(1)(a) or to the orders made by the Appellate Tribunal under. S.135(4) of the Income Tax Ordinance, 1979 relating to the orders of assessment only as the stress is on setting aside of the assessment---In this view of the matter, Appellate Tribunal held that the limitation as prescribed under S.66 of the Income Tax Ordinance, 1979 was not applicable to carrying out the instructions given by First Appellate Authority in its order under S.132 while sitting in appeal against orders under S.52 or S.86 of the Income Tax Ordinance, 1979.

(c) Income Tax Ordinance (XXXI of 1979)-----

----Ss. 66(1)(c), 52 & 86---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Liability of person failing to pay or deduct tax---Additional tax for failure to deduct and pay tax ---Limitation---Assessee in view of provisions of S.66(1)(c) of the Income Tax Ordinance, 1979 contended that the order in response to the setting aside of an issue by the First Appellate Authority under S.132 of the Income Tax Ordinance, 1979 could be passed by the Assessing Officer within one year from the end of the financial year in which the First Appellate Authority order was received by the Assessing Officer---Since the time passed after the First Appellate Authority's order, dated 7-1-1999 was more than one year, the Assessing Officer was barred to give any finding in his orders dated 25-1-2002 on the issues set aside by the First Appellate Authority---Validity---Appellate Tribunal maintained the order of the Assessing Officer dated 25-1-2002 and that of the First Appellate Authority dated 21-3-2002 to the extent that the Assessing Officer was justified in carrying out the instructions of the First Appellate Authority contained in his order, dated 7-1-1999 against the order passed by the Assessing Officer under Ss.52/86 of the Income Tax Ordinance, 1979 and the matter was not considered barred by time by the Tribunal.

(d) Income Tax Ordinance (XXXI of 1979)---

----S.52---Liability of person failing to deduct or pay tax---Withholding agent ---Assessee in default---Principle---For the purpose of treating the withholding agent as assessee in default it was incumbent upon the officer passing order under S.52 of the Income Tax Ordinance, 1979 to see that no tax had been paid on the same receipts by the recipient---In case it was established that the recipient had paid tax on the payments or the authority having jurisdiction over the recipient had declared that no tax was payable on such payments, then there would be no justification with the officer having jurisdiction over the withholding agent to treat the withholding agent as assessee in default, since the same payments could neither be subjected to tax at two stages nor could a person be considered as assessee in default in respect of payments which in the hands of the recipient were adjudged as non-chargeable to tax.

(e) Income Tax Ordinance (XXXI of 1979)---

----Ss.52 & 86---Liability of person failing ,to deduct or pay tax---Charge of additional tax for such failure ---Assessee in default---First Appellate Authority maintained the orders of the Assessing Officer to the extent of holding the assessee as assessee in default" for non-deduction of tax from payments made to non-resident---Validity---Appellate Tribunal set aside the point with the direction that necessary enquiries may be made by the Assessing Officer from the authority having jurisdiction to levy tax in the case of recipient company---If Assessing Officer found that tax on these payments had been paid by the recipient company then no order under S.52 of the Income Tax Ordinance, 1979 would be exigible, and this Assessing Officer would be justified to pass order only under S.86 of the Income Tax Ordinance, 1979 for late payment of tax for the period from the date this tax was deductable to the date the tax was actually paid by the recipient company---If the concerned Authority had declared these payments to be not chargeable to tax in the hands of the recipient company, then there would be no occasion with the Assessing Officer to hold the assessee as "assessee in default" in respect of these payments---In the third situation if the Assessing Officer finds that notwithstanding the receipts having been taxed in the hands of the recipient company, no tax had been paid by the recipient company, then his orders under Ss.52 & 86 of the Income Tax Ordinance, 1979 would hold good ---Assessee will have to be confronted after making the enquiries.

Nadim Tirmizi and Khaliq-ur-Rehman, FCAs for Appellant.

Muhammad Farid, Legal Advisor of Respondent and Inayatullah Kashani, D. R. for Respondent.

Date of hearing: 1st June, 2002

2002 P T D (Trib.) 2722

[Income-tax Appellate Tribunal Pakistan]

Before Justice (Retd.) Abdul Majeed Tiwana, Chairman/

Member (Judicial) and S. M. Kazimi, Member (Technical)

Appeal No.914/LB of 2001, decided on 12th December, 2001.

(a) Sales Tax Act (VII of 1990)---

----S.33---Central Excises Act (I of 1944), S.33---General penalties--­Consequential sales tax---Penalties---Validity---Case basically involved the issue of central excise duty rate which was a matter under Central Excises Act, 1944 and the rules made there-under---Issue of sales tax was only consequential in nature because sales tax was levied on the duty paid value---Imposition of penalty under S.33 of the Sales Tax Act, 1990, was therefore, neither proper nor lawful as there was no violation of the provisions of the Sales Tax Act, 1990---Payment or otherwise of the sales tax that allegedly escaped assessment would entirely depend on the determination of the rate of central excises duty applicable in the cases.

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

----S.12-B---Sales Tax Act (VII of 1990), S.65---Exemption of duty of excise not levied or short levied as a result of general practice--­Appellate Tribunal was not the proper forum to discuss the admissibility of the benefit of S.12B of the Central Excises Act, 1944, and/or of S.65 of the Sales Tax Act, 1990.

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

----S.3C---S.R.O. 545(1)/94, dated 9-6-1994---S.R.O. 455(1)/96, dated 13-6-1996---C.B.R. Letter C. NO.1(11)CEB/96, - dated 13-6-1996--­C.B.R. Letter C. No.1(3)CEB/99, dated 23-4-1999---Determination of tariff value and rate of duty---Metal containers for packing of vegetable products and kerosene (which did not have reference to cloud point or melting point) with those for packing of vegetable non-essential oils (which had reference to cloud point or melting point) but, in doing so, they worded it in a manner that the said melting point or cloud paint also became relatable to vegetable product and kerosene---Budget duty instructions for 1996-97 issued by the Central Board of Revenue under its C. NO.1(11)CEB/96 dated 13-6-1996 explaining the budgetary changes of the Budget 1996-97 did not mention any change in duty rate on packing material (metal containers) of vegetable products or its new linkage to cloud point---Metal containers continued to be assessed to excise duty at 5% ad val.

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

----S.3C---S.R.O. 455(1)/96,- dated 13-6-1996---C.B.R. Letter No.l/1­CEB/2001, dated 18-6-2001---Determination of tariff value and rate of duty---Metal containers manufactured by manufacturer of kerosene, vegetable product and edible oil having melting or cloud point above 10 degree centigrade---Validity---Central Board of Revenue/Federal Government had resolved the issue through the Budget 2000-01, they (the para. 5(b) of their budget day instructions C. No.l/1-CEB/2001, dated 18-6-2001) listed it under the heading "Corrections in S.R.O. 455(1)/96, dated 13-6-1996", admitted that these containers paid excised duty at 5 % ad val.

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

----Ss.3C & 210---S.R.O. 476(1)/95, dated 14-6-1995---S.R.O. 545(1)/94, dated 9-6-1994---S.R.O. 455(1)/96, dated 13-6-1996---S. R. O. 456(1)/96, dated 13-6-1996---Budget day instructions C. No.l/1­CEB/2001, dated 18-6-2001---C.B.R. Letter C. No.4(5) CEBud/95, dated 14-6-1995---CBR Letter C. NO.1(11)CEB/g6, dated 13-6-1996--­C.B.R. Letter C.No.1(3)CEB/99, dated 23-4-1999---Central Excise Rules, 1944, R.10---Sales Tax Act (VII of 1990), Ss. 3, 33, 34 & 36--­Determination of tariff value and rate of duty---Rate of duty---Metal containers used for packing of vegetable product---Department charged central excise duty, sales tax along-with additional tax and penalties on the ground that appellants' product had its melting point as above 10 degrees centigrade, the appellants were found availing of, the central excise duty concession (concessionary rate of 5%) instead of the leviable rate of 15 % on metal containers in breach of the condition as specified in S.R.O. 455(1)/96 dated 13-6-1996, which caused short payment of the central excise duty to the tune of 10% (difference between 15% and 5%) and also of the sales tax on that element/amount of short-paid value--­Show-cause notices were accordingly issued for recovery of the specified amounts of central excise duty and additional duty under R.10 of the Central Excise Rules, .1944, and also for the recovery of the specified amounts of sales tax and additional tax under Ss.34 & 36 of the Sales Tax Act, 1990, and for penal action under 8.210 of the Central Excise Rules, 1944 and S.33 of the 'Sales Tax Act, 1990---Validity---Legislature never intended the impracticabilities or impossibilities by linking melting point of below 10 degree centigrade in case of vegetable ghee---No Central Excise duty was leviable at 15 % on metal containers used for packing of vegetable ghee during the period from 13-6-1996 to 18-6-2001---Such intention was also manifest from the C.B.R.'s letter C.No. 1(3)CEB/99, dated 23-4-1999 and C. NO.1(I)CEB/2000, dated 18-6-2001---Contention of the appellant was accepted by the Tribunal and the orders were set aside to the extent that the assessment and payment of central excise at 5% ad Val. On the metal containers used for packing of vegetable products during the period from 13-6-1996 to 18-6-2001 was correct irrespective of the language of the notification.

Ashter Ausaf Ali and Zaeem-ul-Farooq and Muhammad Akram Nizami for Appellant.

Amer Ahmed, D:R. for Respondents.

2002 P T D (Trib.) 2746

[Income‑tax Appellate Tribunal Pakistan]

Before Inam Ellahi Sheikh, Chairman and Muhammad Jahandar, Judicial Member

R. As. Nos. 266/KB to 273/KB of 2002, decided on 24th June, 2002.

‑‑‑‑Question of law‑‑‑Facts‑‑‑Inference or conclusion drawn from certain facts, which resultantly attract some provisions of law is a question of law.

(b) Income‑tax‑‑‑

‑‑‑‑Question of law‑‑‑Inference from the facts is a question of law‑‑­Nature and character of any income is essentially a question dependent upon establishing some facts appearing on the record and where the ultimate findings on the issue is an inference to be drawn from such, facts on the application of some principles of law, it may not be correct to say that the inference from the facts is not a question of law.

(c) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S. 136‑‑‑Reference to High Court‑‑‑Convention between Pakistan and Japan for Avoidance of Double Taxation, dated.1‑6‑1959, Art. VII, Cl. (3)‑‑‑Promissory Estoppel ‑‑‑Royalty‑‑‑Technical fee‑‑‑Bifurcation of declared royalty @ 1% into technical fee (25% of 1%) and Royalty (75% of 1%) which upheld by the Tribunal‑‑‑Questions for Reference whether Tribunal was lawfully justified to hold that some element of fee for technical services was hidden in the declared payment of royalty and whether Tribunal was lawfully justified in upholding the treatment of declared royalty payment by Assessing Officer, particularly when the same was violative of the established principle of Promissory Estoppel and unlawful interference with vested rights of the assessee/appellant‑‑­Validity‑‑‑Reference application for referring the matter to the High Court for opinion did not merit acceptance for the reasons firstly that the order said to have given rise to certain questions of law, by its nature was confined to the assessee only inasmuch as it was in his cases alone that an element of fee for technical services had been detected and assuming the matter was referred to the High Court, any decision thereon would result in resolving factual controversy and secondly, the questions as formulated were not of public importance having no general applicability to a variety of cases‑‑‑Reference applications did not appear to be maintainable which were rejected by the Tribunal.

1986 SCMR 1917; 2001 PTD 900 and 1970 SCMR 972 re l.

Mazhar Jaffri, A.R. for Appellant.

Bakht Zaman, D.R. for Respondent.

Date of hearing: 21st June, 2002.

2002 P T D (Trib.) 2755

[Income‑tax Appellate Tribunal Pakistan]

Before Syed Nadeern Saqlain, Judicial Member and Amjad Ali RUnjhu, Accountant Member

W.T.As. Nos. 1473/LB, 1474/LB, 1 of 2001 and 1250/LB of 2000, decided on 6th May, 2002.

(a) Wealth tax‑‑‑‑‑‑‑ Cancellation of assessment‑‑‑Validity‑‑‑Cancellation of an assessment cannot be approved if the same was cancelled on the basis of a judgment, which was subsequent to the date of framing of the assessment order.

2000 PTD (Trib.) 2133 ref.

(b) Wealth Tax Act (XV of 1963)‑‑‑‑‑‑‑S.17B & Second Sched. Cl. 12(2)‑‑‑‑Power of Inspecting Assistant Commissioner to revise Wealth Tax Officer's order‑‑‑Exemption‑‑‑Car show room‑‑‑ Assessment allowing exemption to car show room was cancelled by the Inspecting Assistant Commissioner under S.17B of the Wealth Tax Act, 1963‑‑‑Validity‑‑‑Car show room could be equated with the term 'shop' as postulated by Cl. 12(2) of the Second Sched. of the Wealth Tax Act, 1963 for the reason that merchandise which was kept there for sale were cars and people came over there to purchase the same‑‑‑Not the‑size of merchandize which had been offered for sale but was to be seen whether activity of sale/purchase as understood in 'common parlance was conducted at the place in order to determine whether it was to be treated a shop‑‑‑Places which have been excluded from the definition of shop was motor workshops and nor car show rooms‑‑‑Order passed under S. 17B of the Wealth Tax Act, 1963 was vacated and flee assessment orders passed by, the Assessing Officer allowing exemption to the assessee was restored by the Tribunal.

W.T.As. Nos. 1288,LB, 1437/LB and 1438/LB of 2001 rel.

(c) Wealth Tax Act (XV of 1963)‑‑‑

‑‑‑‑Second Sched., Cl .12(1)‑‑‑Exemption‑‑‑House‑‑‑Department contested the finding of the First Appellate Authority allowing exemption of one self‑occupied house in lieu of statutory relief i.e. Rs.10,00,000‑‑­Validity‑‑‑Finding of First Appellate Authority allowing exemption to the assessee regarding the house on basis of being self‑occupied‑‑‑Tribunal did not call for any interference, since value of the subject property was adopted at Rs.10,00,000 in the preceding assessment year, the Assessing Officer had given no reason for enhancing the value of the property to Rs.12,50,000‑‑‑Even otherwise, the property was under self‑occupation of the assessee and he was entitled to have exemption under the law.

Zafar Dar for Appellant/Assessee..

Mehboob Alam, D. R. for Respondent/Department.

Date of hearing: 12th January, 2002.

2002 P T D (Trib.) 2781

[Income‑tax Appellate Tribunal Pakistan]

Before Syed Nadeem Saqlain, Judicial Member and

Amjad Ali Ranjha, Accountant Member

I.T.A. No. 4258/LB of 2001, decided on 11th March, 2002.

Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑Ss.66‑A & 59(1)‑‑‑C.B.R. Circular No. 18 of 1999, dated 11‑9‑1999‑­Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order‑‑‑Assessment year 1999‑2000‑‑‑.Assessment was finalized under S.59(1) of the Income Tax Ordinance, 1979‑‑‑Inspecting Additional Commissioner cancelled the assessment on the ground that the income declared was less than the income assessed for the assessment year 1996‑97 under S.62 of the Income Tax Ordinance, 1979 and directed the Assessing Officer to make de novo assessment ‑‑‑Assessee contended that assessment for the assessment year 1996‑97 was completed on 19‑5‑1999 while assessment for the assessment' year 1998‑99 was deemed to be completed under. S.59(4) of the Income Tax Ordinance, 1979 on 30‑6‑1999 since no formal assessment order was passed with regard to assessment for the assessment year 1998‑99 and comparison of the declared income for the assessment year 1999‑2000 was to be made with the preceding assessment year 1998‑99 in which assessment stood completed on 30‑6‑1999 by operation of law under S.59(4) ,of the Income Tax Ordinance, 1979 and income assessed for the assessment year 1996‑97 could not be made basis for invoking S.66‑A of the Income Tax Ordinance, 1979‑‑‑Validity‑‑‑Inspecting Additional Commissioner misinterpreted the C.B.R. Circular No.18 of 1999, dated 11‑9‑1999 since the assessment in the preceding assessment year had already been completed on 30‑6‑1999 by virtue of S.59(4) of the Income Tax Ordinance, 1979, income declared for the assessment year 1998‑99 to be treated "income last declared" as envisaged by Circular NoA8 of 1999, dated 11‑9‑1999 .and not the highest income eve lld6eclared by the assessee in the number of years even preceding to the last assessment year‑‑‑Order of the Inspecting Additional Commissioner passed under S.66‑A of the Income Tax Ordinance, 1979 was vacated by the Tribunal.

I.T.A. No.2477/LB of 2001 rel.

Muhammad Zahid Baig and Arif Hussain for Appellant.

D. R. for Respondent.

2002 P T D (Trib.) 2787

[Income‑tax Appellate Tribunal Pakistan]

Before Jawaid Masood Tahir Bhatti, Judicial Member and

Muhammad Mehboob Alam, Accountant Member

I.T.A. No.480/KB of 2001, decided on 18th June, 2002.

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.132(3) & 156‑‑‑Order passed in appeal was not given effect to‑‑­Order rectified under 5.156 of the Income Tax Ordinance, 1979 by the Assessing Officer was annulled by the Appellate Authority for the reason that proper opportunity of being heard was not afforded to the assessee‑­Assessing Officer instead of giving effect to the order of the Appellate Authority followed the instructions of the Inspecting Additional. Commissioner‑‑‑Appellate Tribunal deprecated the tendency of ignoring or bypassing the decision of the Superior Authorities on the part of the Assessing Officer as due to such maladministration of justice, observance of discipline and the maintenance of rule of consistency were disturbed.

(b) Interpretation of statutes‑‑‑

Unambiguous legislative command was needed in the matter of fiscal statute‑‑‑One had to look at what was clearly said, there being no room for any intendment, or presumption as to tax nothing was to be read in the fiscal statute, which was not there beyond the clear language.

(c) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.62A & Second Sched., Part IV, Cl. (7)‑‑‑Initiation of proceedings under S.62A of the Income Tax Ordinance (XXXI of 1979) before 1‑7‑2000 and assessment was finalized‑‑‑Validity‑‑‑Provision of S.62A of the Income Tax Ordinance, 1979 was inserted in the statute book but its operation was suspended and admittedly Assessing Officer started proceedings under S.62A of the Income Tax Ordinance, 1979 by issuing letter dated 24‑1‑2000 when the said section was not operative being suspended but the Assessing Officer issued a show‑cause letter,‑ dated 26‑5‑2000, reminder dated 5‑6‑2000 and once again issued show cause dated 12‑6‑2000 while S.62A of the Income Tax Ordinance. 1979 had been made operational with effect from July 1,2000 and therefore, all the proceedings by the Assessing Officer were ab initio void, illegal, and in consequence thereof the order passed under S.62A of the Income Tax Ordinance, 1979 had no validity in law and was cancelled by the Tribunal‑‑‑Appeal of the assessee was allowed.

A. S. Jafri for Appellant.

Muhammad Ali Indhar, D. R. for Respondent.

Date of hearing: 18th June, 2002.

2002 P T D (Trib.) 2906

[Income‑tax Appellate Tribunal Pakistan]

Before Muhammad Tauqir Afzal Malik, Judicial Member and Amjad Ali Ranjha, Accountant Member

I.T.As. Nos.2600/LB to 2602/LB of 2000, decided on 29th September, 2001.

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑‑S.78‑‑‑Liability of agents representing assessee‑‑‑Explanation‑‑­Assessee argued that S.78 of the Income Tax Ordinance, 1979 is an enabling section and the Department has the option to make an assessment on the person beneficially entitled to the income is in other words the Department can either assess the agent or the non‑resident‑‑­Once the Department has exercised its option and assessed the non­resident, it cannot assess the same income in the hands of the agent‑‑­Appellate Tribunal agreed with the arguments of the assessee and accepted the appeals of the assessee and cancelled orders of both the Courts below passed under S.78 of the Income Tax Ordinance, 1979.

Suit Nos.736 of 1998 and 299 of 1999 rel.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss. 78(4)(a)(ii) (iii), 78(4)(c), 80AA, 50(3), proviso & 50(3A) First Sched., Part‑I, item (DDDD)‑‑‑Convention for Avoidance of Double Taxation Between Canada and Pakistan, Cl. VII, P. 4.7 & XXI‑‑‑Liability of agents representing assessee‑‑‑Tax on income of non‑residents from fee for technical service‑‑‑Business profit‑‑‑Deduction at .source‑‑­Exemption certificate‑‑‑Exemption certificate under S.50(3) of the Income Tax Ordinance, 1979 was issued for deduction at reduced rate of 5% and tax was deducted by the assessee accordingly on payment to non­resident company‑‑Fee for technical services was assessed in the hands of non‑resident company under S.80AA of the Income Tax Ordinance, 1979 @ 15% under item (DDDD) of Part‑I of the 1st Sched. of the Income Tax Ordinance, 1979‑‑‑Assessee was treated as an agent of such non‑resident company under S.78 of the Income Tax Ordinance, 1979 in the circumstances and the same was confirmed by the First Appellate Authority‑‑‑Validity‑‑‑Appellate Tribunal agreed with the contention of the assessee that under S.78 of the Income Tax Ordinance, 1979 where a person was declared or treated to be an agent he was liable to assessment in his own name in respect of that income‑‑‑Assessments having been framed on non‑resident company as the assessee, the provisions of S.78(4)(c) could not be invoked as the assessments for the relevant years had not been framed on assessee as an assessee and therefore, the order under S.78 of the Income Tax Ordinance, 1979 was ab initio void‑‑­Appellate Tribunal accepted the appeal of the assessee and order passed by both the authorities below under S.78 of the Income Tax Ordinance, 1979 was cancelled.

Asia Petroleum Limited v. Federation of Pakistan and others 1999 PTD 1313; Abdur Rehman v. Income‑tax Officer (1983) 41 Tax 158; Commissioner of Income‑tax, Karachi v. Pakistan Petroleum Limited (1984) 49 Tax 169; Premnath Diesel Grainvaying Division v. Commissioner of Income‑tax 1986 ITR 575; 129 ITR 295 (SC); 2001 PTD (Trib.) 888 and PLD 1995 Lah. 409 ref.

Suit Nos.736 of 1998 and 299 of 1999 rel.

Sohail Hassan, F.C.A. and Iqbal Chughtai, I.T.P. for Appellant.

Qamar‑ud‑Din Ahmad and Noor‑ul‑Amin Hotiana, D.R. for Respondent.

Date of hearing;18th September, 2001.

2002 P T D (Trib.) 2937

[Income‑tax Appellate Tribunal Pakistan]

Before Khawaja Farooq Saeed, Judicial Member and Mazhar Farooq Shirazi, Accountant Member

W.T.As. Nos.439/LB to 441/LB of 2001, decided on 20th May, 2002.

Wealth Tax Act (XV of 1963)‑‑‑

‑‑‑‑Ss.17A(2)(b) & 14‑‑‑Time limit for completion of assessment and re­assessment‑‑‑Return of wealth‑‑‑First Appellate Authority cancelled the assessments on the ground that notice under S.14(2) of the Wealth Tax Act, 1963 was served on 28‑2‑1997 but assessment was framed on 23‑12‑1999‑‑‑According to S.17A(2)(b) of the Wealth Tax Act, 1963 same should have been made before 3‑6‑1998‑‑‑Assessment order was hit by mischief of S.17A(2)(b) of the Wealth Tax Act, 1963 as assessment was related to the preceding years and not current year, therefore, issuance of notice under S.17 of the Wealth Tax Act, 1963 was a pre­requisite which was not fulfilled and only notice under S.14(2) of the Wealth Tax Act, 1963 was issued‑‑‑Order passed by the First Appellate Authority was unexceptionable and was not interfered by the Appellate Tribunal‑‑‑Departmental appeals were dismissed being devoid of merits.

I.T.A.T's. No. 1107/LB of 1999 ref.

Mrs. Sabiha Mujahid, D.R. for Appellant.

Shahid Abbas for Respondent.

Date of hearing: 17th April, 2002.

2002 P T D (Trib.) 2942

[Income‑tax Appellate Tribunal Pakistan]

Before Rasheed Ahmed Sheikh, Judicial Member and Muhammad Munir Qureshi, Accountant Member

I.T.A. No.3496/LB of 2001, decided on 18th April, 2002.

(a) Income Tax‑‑‑

‑‑‑‑ Order 'without jurisdiction‑‑‑Cancellation of‑‑‑Where question of jurisdiction of a case was involved and ultimately it was established that the order had been passed without jurisdiction, such order should be cancelled rather than setting aside the same.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss. 5 & 56‑‑‑Jurisdictional order No.K‑160(4)(1)93‑94/2114/J, dated 16/12‑5‑1993‑‑‑Jurisdictional order No.K‑160(I)/1991‑92/1028/J, dated 5‑9‑1990‑‑‑Notice under S. 56 of the Income Tax Ordinance, 1979 was issued by the Assessing Officer and assessment was completed by the Assessing Officer of another circle, while the territorial jurisdiction vested with the Assessing Officer of another Circle (third) ‑‑‑Validity‑‑­Assessee was a house‑wife and was residing in the area which fell under the jurisdiction of the Assessing Officer of the third circle, thus not only assumption of jurisdiction by Assessing Officer of other Circle for issuance of notice but also for the completion of assessment by the other Assessing Officer was void ab initio and illegal because of having no territorial jurisdiction over the case‑‑‑Appellate Tribunal cancelled the order made being made without jurisdiction.

Muhammad Shahid Abbas for Appellant.

Nemo for Respondent.

Date of hearing: 18th April, 2002.

2002 P T D (Trib.) 2948

[Income‑tax Appellate Tribunal Pakistan]

Before Syed Nadeem Saqlain, Judicial Member and Amjad Ali Ranjha, Accountant Member

I.T.As, Nos. 777/LB and 778/LB of 2000, decided on 21st May, 2002.

(a) Income-tax---

---Refund‑‑‑Adjustment of‑‑‑Principle‑‑‑Refund created in the subsequent assessment year could not be adjusted against the non­-existing demand.

(b) Interpretation of statutes‑‑‑

‑‑‑‑ Provision of law cannot be read in isolation but is to be seen in conjunction with other provisions of law.

(c) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.104‑‑‑Adjustment of refund against tax‑‑‑Refund‑‑‑Adjustment of refund against the demand raised subsequently from the date of refund created‑‑‑Validity‑‑‑When refund was created for the assessment year 1984‑85 on 25‑6‑1985, there was no tax payable on behalf of the assessee‑‑‑Adjustment of tax demand raised on 16‑2‑1989 under an order passed under Ss. 62/65 of the Income Tax Ordinance, 1979 against such refund was absolutely illegal and could not be sustained.

1999 PTD (Trib.) 3516 ref.

(d) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑‑S.102(2)(a)‑‑‑Additional payment for delayed refunds‑‑‑Adjustment of the refund created for the assessment years 1984‑85 and 1985‑86 against the demand created subsequently under Ss. 62/65 of the Income tax Ordinance, 1979 for the assessment year 1983‑84‑‑‑Assessment for the assessment year 1983‑84 was annulled by the Appellate Tribunal‑‑­Application for issuance of additional refund/compensation was rejected by the Assessing Officer and reckoned the period to compute the amount of additional refund from the date of receipt of order from the Appellate Tribunal‑‑‑Validity‑‑‑If the refund was required to be made in consequence of any order on any appeal or a revision or an appeal to the High Court or an appeal to the Supreme Court on the date of receipt of such order which meant that receipt of order of higher forum became relevant only when the refund was required to be made as a consequence of any order by that particular high forum‑‑‑Refund in the present case was not created as a result of any Court order, nor was it challenged before any higher judicial forum, so the Assessing Officer misled himself while reckoning the period, to compute the amount of additional refund from the date of receipt of order from the Appellate Tribunal‑‑‑Appellate Tribunal vacated the assessment order as well as the impugned order and directed the Assessing Officer to compute the additional refund/compensation after lapse of 4 months from the date when refunds were originally created i.e. 25‑6‑1985 up till the date, of original refund was issued i.e. 11‑4‑1998.

1999 PTD (Trib.) 3516 rel.

S. A. Rauf, I.T.P. and Faisal Zaman for Appellant.

Mehboob Alam, D.R. for Respondent.

Date of hearing: 5th March, 2002.

2002 P T D (Trib.) 2988

[Income‑tax Appellate Tribunal Pakistan]

Before Ehsan‑ur‑Rehman Sheikh, Judicial Member and Muhammad Sharif Chaudhry, Accountant Member

I.T.As. Nos. 1441/LB to 1444/LB of 2002; decided on 27th June, 2002.

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.32‑‑‑Method of accounting‑‑‑Rejection of‑‑‑Inclusion of sales tax in sales in the trading account and claiming it as an expense in the profit and loss account‑‑‑Validity‑‑‑Such method of accounting was incorrect for the reason that sales tax being a Federal Government levy and the company being an agent to collect it on behalf of the Government, it could not be included in sales and claimed as expense in the profit and loss account‑‑‑By claiming it so, the assessee had deprived the Department from deducing profits and gains correctly and, therefore, Department was justified under S.32(3) of the Income Tax Ordinance, 1979 to reject assessee's method of accounting.

I.T.As. Nos.3332/LB and 3333/LB of 2001 rel.

(b) Income‑tax‑‑‑

‑‑‑‑Gross profit rate ‑‑‑Modification‑‑‑G.P. rate should be suitably modified when trading account was recast as in that situation the history of G.P. rate would lose its significance.

(c) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.66‑A & 32(3)‑‑‑C.B.R. Circular No. 14 of 1979 dated 7‑11‑1979‑‑­Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order‑‑‑Sales tax was included in the sales in the trading account and it was claimed as an expense in the profit and loss account‑‑­Inspecting Additional Commissioner cancelled the order of the Assessing Officer on the ground that assessee had wrongly claimed sales tax in the profit and loss account as a revenue expense and inclusion of sales tax in declared sales while computing the gross profit had resulted in inflating G. P. rate‑‑‑Validity‑‑‑Inspecting Additional Commissioner was justified to take, action under S. 66‑A of the Income Tax Ordinance, 1979 against the assessment orders passed by the Assessing Officer in circumstances‑­Since the assessee had already been made to go through ordeal of long drawn process of litigation and appeals up to the Tribunal, it would be unfair to make the assessee again go through the same process‑‑­Inspecting Additional Commissioner, in the interest of justice and fair play, was directed to modify the assessment order instead of cancelling the same on the guidelines that trading and profit and loss account may be recast by excluding sales tax from the already assessed sales and by rejecting assessee's claim of sales tax in the profit and loss account as expense; that sales of the assessee including sales tax had already been accepted by the Appellate Tribunal during appeals against original assessments for the reason that the sales are verifiable, sales after excluding sales tax were not likely to lose their status of verifiability, hence sales computed after excluding sales tax should be accepted; that the assessee had allegedly declared inflated GP rate at 15.35% , 17.94%, 17.24% & 17.61% respectively for the years 1996‑97, 1997‑98, 1998‑99 & 1999‑200.0 against which GP rate was applied at 18%; after excluding sales tax from sales GP rate would drastically fall to. 1.98 % 7.26 % & 5.48%; considering that assessee's machinery was old and his case was not comparable with other cases in the lane of assessee's business, a suitably modified downward GP rate should be evolved for the years under consideration; that it should be kept in view while applying GP rate that assessee's income already assessed after appeals should not be substantially disturbed except to the extent of benefit derived by the assessee by wrong placement of sales tax in original assessments and adjustment in extra‑shift allowance and that extra‑shift or triple shift depreciation allowance should be computed proportionately in accordance with the number of days the assessee's machinery deployed in extra shift had worked‑‑‑Orders passed by the Inspecting Additional Commissioner under S.66‑A of the Income Tax Ordinance, 1979 for all the years under consideration were set aside by the Appellate Tribunal to be made afresh in accordance with the above directions.

1988 PTD (Trib.) 130; 1985 PTD (Trib.) 336; 1984 PTD 150; PLD 1992 SC 549; 1992 PTD 932; 2002 PTD (Trib.) 99; 1996 PTD (Trib.) 492; Messrs Nylex (Pvt.) Ltd. v: DCIT I.T.A. No.127 of 2000; 2000 PTD (Trib.) 1811; 1996 PTD (Trib.) 492; 1999 PTD (Trib.) 2851 and 1994 PTD 174 ref.

I.T.As. Nos.3332/LB and 3333/LB of 2001 rel.

Javed Iqbal Khan, F.C.A. for Appellant.

Ahmed Kamal, D.R. for Respondent.

Date of hearing: 4th June, 2002.

2002 P T D (Trib.) 3000

[Income‑tax Appellate Tribunal Pakistan]

Before Inam Elahi Sheikh, Chairman and Muhammad Jahandar, Judicial Member

I.T.As. Nos. 1828/KB and 2090/KB of 1995‑96, decided on 6th July, 2002.

Income Tax Ordinance (XXXI of 1979)‑‑‑

--S. 27‑‑‑Capital gain‑‑‑Assessee was a retired Government servant and was allotted a plot for construction of flats‑‑‑Plot was sold out and proceeds from such sale of plot were claimed exempt under S.27 of the Income Tax Ordinance, 1979 as capital gain‑‑First Appellate Authority found that the assessee had purchased the plot with the intention of going into business of housing project which could not materialize for various reasons including lack of finance and old age‑‑Contention. of the assessee that this was a solitary transaction was not accepted as he was found to be dealing in real estate‑‑‑Gain was treated as a revenue gain‑‑­Assessing Officer was directed by the First Appellate Authority to accept the declared sale price in view of the fact that the same value had been accepted as declared by the purchaser of the same plot ‑‑‑ Validity ‑‑‑held, what had to be seen in a transaction of this type was the intention of the assessee at the time of acquisition of the property‑‑‑Admittedly, the assessee had been allotted this plot for the construction of flats and it was not the claim of the assessee that he intended to use all such flats for his personal need‑‑‑Intention thus was to sell the flats at a profit‑‑‑First Appellate Authority rightly directed the Assessing Officer to accept the declared sale price as the same had been accepted in the case of the purchaser of .the same property‑‑‑Department could not make a discriminatory treatment in respect of the same transaction between the two parties‑‑‑Appeals were dismissed and order of the First Appellate Authority was maintained by the Tribunal.

Samina Shaukat Ayub's case AIR 1932 TC 138; 1984 PTD (Trib.) 127; 1975 PTD (Trib.) 6 and 1991 PTD (Trib.) 786 ref.

Bakht Zaman, D.R. for Appellant.

Mazharul Hassan for Respondent.

Date of hearing: 29th June, 2002.

2002 P T D (Trib.) 3006

[Income‑tax Appellate Tribunal Pakistan]

Before Zafar Ali Thaheem, Judicial Member and Muhammad Sharif Chaudhry, Accountant Member

I.T.As. Nos. 2358/LB to 2360/LB of 2001, decided on 24th April, 2002.

Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss. 80 D & 2(6) (bb)‑‑‑Minimum tax on income of certain persons‑‑­Trust running a school‑‑‑Receipt, donation, tuition fee and other income‑‑‑Tax liability‑‑‑Taxation levied under S. 80‑D of the Income Tax Ordinance, 1979‑‑‑Appellate Authority deleted the tax levied under S.80‑D of the Income Tax Ordinance, 1979 on such receipts of the Trust‑.‑‑Validity‑‑‑Minimum .tax under S. 80‑D was chargeable on the turnover of a company and company included a trust as defined by S.2(16)(bb) of the Income Tax Ordinance, 1979‑‑‑Minimum tax was chargeable on the turnover even if the income of a company was otherwise exempt from tax under any provision of Income Tax Ordinance, 1979‑‑‑Tax under S.80D of the Income Tax Ordinance, 1979 would be charged on the turnover of the Trust even if its income or receipts had been allowed exemption under any of the clauses of the Second Sched. to the Income Tax Ordinance, 1979‑‑‑Word "turnover" has been defined by Explanation to S. 80‑D (2) of the Income Tax Ordinance, 1979 to mean gross receipts exclusive of trade discount shown on invoices or bills, derived from the sale of goods or from rendering, giving or supplying services or benefits or from execution of contracts‑‑‑Appellate Tribunal found that if assessee's receipts were seen in the light of the Explanation to S.80‑D which defined turnover, the donations did not represent turnover as the same had not been derived from the sale of goods or from rendering, giving or supplying services or benefits or from execution of contracts hence donations were not chargeable to minimum tax under S. 80D of the Income Tax Ordinance, 1979, so far as tuition/admission fee and other income were concerned the same had been received by the school, which the assessee was operating, for rendering services in connection with education, and therefore, the same were chargeable to tax under S. 80D of the Income Tax Ordinance, 1979‑‑‑Appellate Tribunal held that donations received by the assessee/trust were exempt from the levy of minimum tax under S. 80D of the Income Tax Ordinance, 1979, however, assessee's other income and receipts on account of tuition/admission fee may be charged by the Assessing Officer to tax under S. 80D of the Income Tart Ordinance, 1979‑‑Appeals filed by revenue were disposed of accordingly by the Appellate Tribunal.

Manzoor Hussain Shad, D.R. for Appellant.

Nemo for Respondent.

Date of hearing: 20th April, 2002.

2002 P T D (Trib.) 3014

[Income‑tax Appellate Tribunal Pakistan]

Before Zafar Ali Thaheem, Judicial Member and Muhammad Sharif Chaudhry, Accountant Member

W.T.As. Nos.186/LB to 192/LB of 2000, decided on 25th April, 2002.

(a) Wealth Tax Act (XV of 1963)‑‑‑

‑‑‑‑S.17‑‑‑Finance Act (I of 1995), S.4(6)‑‑‑Wealth escaping assessment‑­Notice‑‑‑Limitation‑‑‑Issuance of notice as on 24‑3‑1997 for assessment years 1990‑91 and 1991‑92 was not barred by limitation‑‑‑Appellate Tribunal declined to agree with the assessee that assessment. for the years 1990‑91 and 1931‑92 had gone times-barred as notice under S.17 of the Wealth Tax Act, 1963 was issued on 24‑3‑1997 when the prescribed time under S. 17 of the Wealth Tax Act, 1963 was 8 years before it was curtailed to 5 years by the Finance Act, 1995 through amendment in S.17 of the Wealth Tax Act, 1963.

(b) Wealth Tax Act (XV of 1963)‑‑‑

‑‑‑‑Ss.2(1)(5)(ii) & 2(1)(16), Expln. (iii)‑‑‑Assets‑‑‑Net wealth‑‑‑Status‑‑­Determination of‑‑‑Construction of commercial building by seven members of a family‑‑‑Share in such property was declared individually‑­‑Assessing Officer assigned the status of "Association of Persons" and assessed the net wealth‑‑Assessee pleaded that the building was owned by seven persons having their identifiable and separate shares and according to agreement the building had been partitioned and sub‑divided among, the seven co‑owners and the portion of each owner was coded with separate colour, further, the partition of such property had also been accepted by Provincial Excise and Taxation Department and PT‑1 Form in the name of each owner had been separately issued thus, assigning the status of "Association of Persons" was against the provisions of law‑‑‑Validity‑‑‑Seven members joined hand, pooled their sources, got one site plan of a compact multi‑storeyed building approved from the Competent Authority and constructed the building, which was a joint commercial venture of the family and it was an immovable property for the purpose of the business of construction and sale, or letting out; of property‑‑‑All the seven persons had vested right, title or interest; each one of them had a vested interest in each and every inch of the property which was a one unit‑‑‑Shops, apartments etc. in such multi‑storeyed building were being sold through Attorney for all such persons of "Association of Persons"‑‑‑Attorney while negotiating sales did not state in the sale‑deeds that he was acting on behalf of a specific member of the Association of Persons in respect of the sale of a particular shop or apartment being made‑‑‑None of the members had executed sale‑deed independently in respect of the portions within the Plaza to which they claimed specific ownership as per colour coded Annexures with the agreement‑‑‑Building wherein seven persons had vested right, .title or interest would be assessed to wealth tax in the hands of such persons who constituted status of "Association of Persons" under S.2(1)(5)(ii) read with S. 2(1)(16), Expln. (iii) of the Wealth Tax Act, 1963.

1987 PTD (Trib.) 54; 1991 PTD 94; 1992 PTD Note 125 at p.132 = 184 ITR 248; 1984 PTD (Trib.) 157; Commissioner v. O. K. Rmingham 1998, PTD 1787 = 224 ITR 391 1989 MLD 2899 and W.T A. No.333/LB of 1985‑86 irrelevant.

(c) Wealth Tax Rules, 1963‑‑‑

‑‑‑‑R.8(3)‑‑‑Valuation of lands and buildings‑‑‑Commercial building‑‑­Co‑owners‑‑‑First Appellate Authority observed that the valuation of such immovable constructed property could not be made separately for land and the superstructure and it should be made in accordance with R.8(3) of the Wealth 'fax Rules, 1963‑‑‑Assessee contended . that building/plaza should be considered as a stock‑in‑trade and its value declared in the hands of the co‑owners in their individual returns should be aggregated for the purpose of assessment of wealth of the "Association of Persons", and therefore, First Appellate Authority was not justified to give directions for the valuation of building under R.8(3) of the Wealth Tax Rules, 1963‑‑‑Validity‑‑‑For valuation of assets, Wealth Tax Act, 1963 had prescribed its own method in its S.7 namely that the value of any asset, other than cash, for the purpose of Wealth Tax Act, 1963, shall be estimated by the Assessing Officer in accordance with Rules made under S.46 of the Wealth Tax Act, 1963; Wealth Tax Rules, 1963, R.8(3) of said Rules provides detailed workable methodology for working out valuation of property‑‑‑Directions given by the First Appellate Authority while setting aside the case on the point of valuation being in accordance with law, the appellate order did not warrant any interference‑‑‑Order of the First Appellate Authority was upheld by the Tribunal and appeal of the assessee was dismissed in circumstances.

1999 PTD (Trib.) 394 rel.

Ch. Anwarul Haq for Appellant.

Ahmed Kamal, D.R. for Respondent.

Date of hearing: 16th April, 2002.

2002 P T D (Trib.) 3027

[Income-tax Appellate Tribunal Pakistan]

Before Fazlur Rehman Khan, Judicial Member and Mrs. Abida Ali, Accountant Member

I.T.A. No. 307/PB of 2001-02, decided on 27th May, 2002.

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss. 66-A, 62, 11 & 12---Convention for Avoidance of Double Taxation between Pakistan and Germany, Art. 7---Permanent establishment in Pakistan ---Assessee was a non-resident German Company---Supply and installation of turbines for Hydropower project--­Return was filed declaring net losses attributable to its permanent establishment in Pakistan and the same was assessed after making certain add backs out of the expenses claimed by the assessee---Assessment was cancelled by the Inspecting Additional Commissioner under S. 66-A of the Income Tax Ordinance, 1979 on the ground that entire business transactions attributable to both on-shore and off-shore activities should have been subjected to tax as manufacturing activities carried on outside Pakistan being a part of a composite contract could not be split up for taxation purposes and off-shore activities were directly connected to permanent establishment and were inseparable extension of on-shore activities---Validity---Provisions of S.12(2) of the Income Tax Ordinance, 1979 provide that, in case of non-resident, its income was chargeable to tax in Pakistan only on such portion as was attributable to the permanent establishment situated in Pakistan---Order under S.62 of the Income Tax Ordinance, 1979 was passed by the Assessing Officer after examining various aspects of the case, the terms of contract and provisions of Art. 7 and para. 2(a) of the Convention and he had rightly decided that only so much of income of assessee was liable to tax in Pakistan as was attributable to the permanent establishment of the assessee in Pakistan i.e. on-shore activities---Order under S. 62 of the Income Tax Ordinance, 1979 was neither erroneous nor prejudicial to the interest of revenue and action under S. 66-A of the Income Tax Ordinance, 1979 being uncalled for was set aside by the Tribunal and order of the Assessing Officer was restored.

(1999) 80 Tax 17 (Trib.); 172 ITR 358 and 116 ITR 868 ref.

CIT v. Gabriel India Ltd. 203 ITR 108 rel.

(b) Income Tax---

----No income---No expense allowance---Validity---Inference that when no income, was declared, no expenses were to be allowed was not correct because expenses were admissible even if no income was earned or declared for the year---Expenses claimed by the assessee against nil .income declared was allowed after confronting the assessee about the same.

AC v. Alpine I.T.A. No.772(PB) of 1999-2000 rel.

Anjum A. Sheikh, F.C.A. for Appellant.

Qaiser Ali, D.R. and Abdul Wadood, I.A.C. for Respondent.

Date of hearing: 18th April, 2002.

2002 P T D (Trib.) 3039

[Income-tax Appellate Tribunal Pakistan]

Before Ehsan-ur-Rehman Sheikh, Judicial Member and

Muhammad Sharif Chaudhry, Accountant Member

M.A. Conds. Nos.507/LB to 509/LB and R.As. Nos.286/LB to 288/LB, of 2002, decided on 30th July, 2002.

Income Tax Ordinance (XXXI of 1979)---

----Ss. 136(1), 66A, 62/135 & 50(4)(5)---Reference to High Court--­Question of fact---Issue regarding assessee's claim that he was an indentor and commission agent and not importer/supplier was accepted by the Assessing Officer under Ss. 62/135 of the Income Tax Ordinance, 1979 as directed by the First Appellate Authority and appeal against the order of First Appellate Authority was rejected by the Tribunal--- Revision of such assessments under S. 66-A of the Income Tax Ordinance, 1979 by the Inspecting Additional Commissioner was also cancelled by the Appellate Tribunal---Application for Reference to High Court by the Department---Validity---Section 66-A of the Income Tax Ordinance, 1979 in its subsection (IA) clearly states that action under said section could not be taken by the Inspecting Additional Commissioner on the issues which had been subject-matter of appeal before the Commissioner of Income Tax and before the Appellate Tribunal---Issue in the present case i.e. "whether assessee had earned income from commission on imports as indentor or he had earned income as importer and supplier" had already been subject-matter of appeal before the First Appellate Authority as well as before the Appellate Tribunal---Assessment orders passed by the Assessing Officer under Ss. 62/135 of the. Income Tax Ordinance, 1979 in accordance with the instructions of the First Appellate Authority on the said issue could not be revised by the Inspecting Additional Commissioner under S. 66-A of the Income Tax Ordinance, 1979---Said issue was a question of fact and not a question of law which had already been decided by the Appellate Tribunal in favour of the assessee---Regarding credit of deduction of tax under Ss. 50(4) & 50(5) of the Income Tax Ordinance, 1979 to the assessee, the stand taken by the department was absolutely against the law---Imports had been made in the name of the assessee as the principals of the assessee who could not make imports in their own name because of restrictions imposed by the Government under the import policy---Credit of the withheld tax would naturally go to the assessee and this fact had also been approved by the agreement which was executed between the assessee and its principals--Appellate Tribunal, in circumstances, did not agree with the Revenue that the questions of law as framed by Revenue arose from the appellate order of the Appellate Tribunal---Reference applications filed by Revenue were dismissed by Tribunal as barred by time as well as being devoid of any merits and substance.

Muhammad Zulfiqar Ali, D.R. for Appellant.

Haroon Mirza for Respondent.

Date of hearing: 24th July, 2002.

2002 P T D (Trib.) 3047

[Income-tax Appellate Tribunal Pakistan]

Before Zafar Ali Thaheem, Judicial Member and Muhammad Shctrif Chaudhry, Accountant Member

I.T.A. No.3054/LB of 2001, decided on 8th May, 2002.

Income Tax Ordinance (XXXI of 1979)---

--Ss.66A, 13(2) & 59(1)---Wealth Tax Act (XV of 1963), S. 16(3)--- Wealth Tax Rules, 1963, R.8(3)---Assessee declared his share in house under construction in wealth statement which was accepted and assessment was finalized under Self-Assessment Scheme---Subsequently, such share in property was assessed in wealth tax side, at higher value than the declared one---Inspecting Additional Commissioner proceeded to hold that the assessment order passed by the Assessing Officer under S.59(l) of the Income Tax Ordinance, 1979 was erroneous and prejudicial to the interest of Revenue as the Assessing Officer did not take into consideration the value of the house subsequently assessed during wealth tax proceedings and thus he ignored the element of concealment ---Assessee contended that action could not be taken under S.66A of the Income Tax Ordinance, 1979 on account of the subsequent inquiries /proceedings/events which were not before the Assessing Officer when he passed assessment order as assessment order could not be held erroneous and prejudicial to the interest of Revenue on account of the subsequent facts---Validity---Action taken by the Inspecting Additional Commissioner was absolutely illegal and against the provisions of S.66-A of the Income Tax Ordinance, 1979---Assessing Officer passed assessment order in question under S. 59 of the Income Tax Ordinance and this order of the Assessing Officer could not be held erroneous and prejudicial to the interest of Revenue on the basis of a wealth tax assessment order subsequently made---Method of valuation of an asset or property under S. 13 of the Income Tax Ordinance, 1979 was quite different from method of valuation under R. 8(3) of the Wealth Tax Rules, 1963---Section 13(2) of the Income Tax Ordinance envisaged that where the value of any investment or article referred to in any clause from (aa) to (d) or the amount of expenditure referred to in cl. (e) of subsection (1) was, in the opinion of the Assessing Officer too low, the Assessing Officer could determine a reasonable value or the amount thereof, as the case may be, while the valuation of immovable property as laid down under R.8(3) of the Wealth Tax Rules, 1963 was quite different---Rule 8(3), Wealth Tax Rules, 1963 provides that value of an immovable property comprising lands and buildings shall be estimated with due regard to the nature and size of the property, the amenities available and the price prevailing for similar property in the same locality or in its neighbourhood provided it did not exceed 10 times of Annual Letting Value of such property---Method of valuation of properties in both the enactments being quite different, Appellate Tribunal did not agree with the Inspecting Additional Commissioner that assessee's share in the house subsequently assessed in wealth tax assessment at higher value could justify action against Assessing Officer's order who accepted the value of assessee'9 house as declared--­When the property was incomplete the action under S. 13(2) of the Income Tax Ordinance, 1979 did not lie---Order passed by the Inspecting Additional Commissioner under S. 66-A of the Income Tax Ordinance, 1979 being contrary to law was annulled and assessee's appeal was accepted by the Tribunal.

Ganga Properties v. Income-tax Officer ITR II, 1979 page 447 and (1991) 63 Tax 154 (Trib.) ref.

Mian Muhammad Azeem for Appellant.

Ahmed Kamal, D.R. for Respondent.

2002 P T D (Trib.) 3051

[Income‑tax Appellate Tribunal Pakistan]

Before Zafar Ali Thaheem, Judicial Member and Muhammad Sharif Chaudhry, Accountant Member

W.T.A. No. 1894/LB of 2001, decided on 29th May, 2002.

Wealth Tax‑‑‑

‑‑‑‑Liabilities‑‑‑Securities from the tenant‑‑‑Refundable‑‑‑Disallowance of‑‑Validity ‑‑‑Assessee had received securities from the tenants which were refundable to the tenants when they vacated assessee's premises‑‑­Agreement with the tenants and rent deeds had been produced Wherein the amounts of securities received had been mentioned separately from the rent with clear commitment that the same would be refunded to the tenants when the tenants vacated the property‑‑‑Nature of refundable securities being quite different from the "unadjusted advance rent", both could not be treated alike and disallowed ‑‑‑Assessee's appeal was accepted and claim of refundable amount of securities was allowed as an admissible liability by the Appellate Tribunal.

1995 PTD (Trib.) 942 and 1993 PTD (Trib.) 1378 distinguished.

S. A. Raza Naqvi for Appellant.

Ahmed Kamal, D.R. for Respondent

Date of hearing: 11th May, 2002.

2002 P T D (Trib.) 3072

[Income‑tax Appellate Tribunal Pakistan]

Before Zafar Ali Thaheem, Judicial Member and Muhammad Sharif Chaudhry, Accountant Member

I.T.A. No. 5036/LB of 1995, decided on 8th May, 2002.

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.12 (18A)‑‑‑Income deemed to accrue and arise in Pakistan ‑‑‑Loan‑‑­Loan appeared in the wealth statement as on 30‑6‑1987 was assessed as deemed income in the assessment year 1993‑94‑‑‑Validity‑‑‑Provision of S.12(18A) of the Income Tax Ordinance, 1979 made it clear that only a loan which had not been paid within five years of the income year in which it was obtained or before 30th day of June, 1994, whichever was the later, could be deemed to be the income of the assessee‑‑‑Assessment order showed that loan appeared in wealth statement of the assessee for the first time as on 30‑6‑1987‑‑‑Period of five years from the end of the income year in which loan was taken comes to 30‑6‑1992‑‑‑Date 30‑6‑1994 being later, the assessee was allowed to pay the loan by 30‑6‑1994 which meant that action under S. 12(18A), Income Tax Ordinance, 1979 against assessee could be taken only if the assessee failed to pay the loan by 30‑6‑1994‑‑‑Action against the assessee, if at all was justified by the facts and circumstances, could be taken in assessment year 1994‑95 and not in assessment year 1993‑94‑‑‑Assessing Officer, therefore, could not take action against the assessee in the assessment year 1993‑94 at all.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.12(18A)‑‑‑Income deemed to accrue and arise in Pakistan ‑‑‑Loan‑‑­Gift‑‑‑Amount of loan was gifted by the creditor to the debtor/assessee‑‑­Taxability‑‑‑Validity‑‑‑No restriction or any encumbrance existed on the right of a creditor to waive his loan or treat it as a gift to the debtor‑‑­Waiver or remittance of loan by the ‑creditor was an excellent and meritorious act which was encouraged by Islam and by any other social or ethical system‑‑‑No provision existed under any law of Pakistan or under the Islamic Law of gift which forbids or disallows a loaner to waive his right to get back his loan from the loanee or‑W gift away the amount loaned by him to the loanee‑‑‑Observation of the Assessing Officer .that the amount of loan had been got converted, into gift by the assessee in order to defend itself against the application of S.12 (18A) of the Income Tax Ordinance, 1979 was just ridiculous‑‑‑Taxpayer was absolutely allowed to minimize his liability of tax or to avoid tax through legal means ‑‑‑Assessee, in the present case, had adopted a legal mean to avoid tax as his creditor had gifted the amount of loan to the assessee through a valid gift deed in which the Assessing Officer had not been able to find out any defect or discrepancy‑‑‑Assessing Officer in treating the amount of gifted loan as chargeable to tax on the ground of non­payment was absolutely illegal which could not be endorsed‑‑‑Appellate Tribunal upheld the order of the Appellate Authority and rejected the appeal of the Department.

Manzoor Hussain Shad, D.R. for Appellant.

Sarfraz, F.C.A. for Respondent.

Date of haring: 10th April, 2002.

2002 P T D (Trib.) 3107

[Income‑tax Appellate Tribunal Pakistan]

Before Rasheed Ahmad Shaikh, Judicial Member and Imtiaz Anjum, Accountant Member

I.T.As. Nos. '1702/LB to 1704/LB of 1999, decided on 6th August, 2002.

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑‑

‑‑‑‑Ss. 62 & 132‑‑‑Additional assessment ‑‑‑‑Aslah/property disposed of during the year not shown in the wealth statement‑‑‑Same facts and change of opinion‑‑‑Re‑opening of assessment‑‑‑Validity‑‑‑Case could not be reopened/re‑appraised on same facts and as a result of change of opinion‑‑‑No information had been received by the Assessing Officer justifying the reopening of the assessment as warranted by law‑‑­Evidence regarding disposal of Aslah was correct and the appellant was right that the Aslah was disposed of within the assessment year and hence he was correct by not showing the same in wealth statement‑‑‑No addition on this plea could be evolved‑‑‑Assessment order framed under S.65 of the Income Tax Ordinance, 1979 was annulled being illegal by the Appellate Tribunal and assessment order passed under Ss.62/132 of the Income Tax Ordinance, 1979 was restored.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑‑

‑‑‑‑‑Ss. 65, 59(1) & 13‑‑‑Additional assessment‑‑‑Reopening of assessment in the absence of wealth statement and wealth tax return and material evidence of concealment‑‑‑Validity‑‑‑Wealth statements and wealth tax returns were not available on record and in absence of wealth statement, wealth tax returns and any confession by the assessee prior to reopening of the assessment the Department had no definite material evidence required to reopen the assessment so as to make a case for concealment‑‑‑Department should have possessed definite material evidence and information but the Department had failed to establish concealment as neither the wealth statement was filed by the assessee and until and unless there was record available in the shape of wealth statement/wealth tax return or admission by the assessee regarding his assets at the end of the assessment years how it could be held that there was concealment on simple complaint and direction of any Income‑tax Authority‑‑‑Provisions of Ss.65 & 13 of .the Income Tax Ordinance, 1979 were not attracted at all and a case of concealment could not be made and legally held valid in the eyes of law‑‑‑Appellate Tribunal held that the Department had no legally valid case of concealment, thus, the assessments reopened under S.65 of the Income Tax Ordinance, 1979 were irregular, unfounded and unlawful‑‑‑Assessment orders framed under S.65 of the Income Tax Ordinance, 1979 were annulled being illegal and original assessment orders passed under S.59(1) of the Income Tax Ordinance, 1979 were restored.

(c) Income Tax Ordinance (XXXI of 1979)‑‑‑‑

‑‑‑‑S. 65‑‑‑Income Tax Rules, 1982, R.207‑A-‑‑Additional assessment‑‑­Exchange of property‑‑‑Re‑opening of assessment on the point of valuation‑‑‑Transactions in acquisition were mostly due to exchange of assets which were registered as per District Collector rates‑‑‑Action under S.65 of the Income Tax Ordinance, 1979 could not be taken in view of R.207‑A of the Income Tax Rules, 1982 and lack of definite information as undisclosed/assessed income was not diverted to the acquisition of such plots/assets.

Javed‑ur‑Rehman, D.R. for Appellant.

Mian Ashiq Hussain for Respondent.

Date of hearing: 1st August, 2002.

2002 P T D (Trib.) 3114

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Tauqir Afzal Malik, Judicial Member and

Abdul Ghafoor Junejo, Accountant Member

I.T.As. Nos. 2173/KB to 2175/K of 2001, decided on 1st July, 2002.

Income Tax Ordinance (XXXI of 1979)---

----S. 156---Rectification of mistake---Loss assessed---Assessment was rectified as there was mistake apparent on record and consequently, assessments for the next two years were also rectified---Validity---In the original assessments for the charge year 1995,-96 there was a mistake which was apparent from the record---Assessment order was correctly rectified by the Assessing Officer though the method of computing income by the Assessing Officer was different and resultant income remained the same---Order contained a mistake which was apparent from record and was rightly rectified by the Assessing Officer, though his method of computing income was different---Other two assessments were consequent to the rectified assessment for the charge year' 1995-96 and also in accordance with law which were upheld by the Appellate Tribunal.

A.S. Jaffri for Appellant.

Dr. Fazal Muhammad Abrejo, D.R. for Respondent.

Date of hearing: 29th June, 2002:

2002 P T D (Trib.) 3118

[Income‑tax Appellate Tribunal Pakistan]

Before Ehsan‑ur‑Rehman Sheikh, Judicial Member andMuhammad Sharif Chaudhry, Accountant Member

I.T.As. Nos. 2346/LB and 2347/LB of 2002, decided on 28th June, 2002.

Income Tax Ordinance (XXXI of 1979)‑‑‑--

‑‑‑‑Ss.66‑A, 62, 24(c), 50(4), 52 & 156‑‑‑Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order‑‑­Deductions not admissible‑‑‑Liability of persons failing to deduct or pay tax‑‑ ‑Assessment was finalized under S.62 of the Income Tax Ordinance, 1979‑‑‑Assessee failed to deduct tax under S.50(4) of the Income Tax Ordinance, 1979 on the payments made as expenses‑‑‑Assessing Officer allowed such payments as expenses but proceeded to treat the assessee as an assessee in default under S.52 of the Income Tax Ordinance, 1979 and created demand of tax on such payments ‑‑‑Assessee paid such demand‑‑‑Inspecting Additional Commissioner cancelled the assessment on the ground that Assessing Officer had failed to treat the payments made without deduction of tax at source as inadmissible expense under S.24(c). of the Income Tax Ordinance, 1979‑‑‑Validity‑‑‑When an assessee failed to make deduction of tax from certain payments under S.50(4) of the Income Tax Ordinance, 1979, the same could be disallowed as expense by the Assessing Officer under S.24(c) of the Income Tax Ordinance, 1979 but if the Assessing Officer allowed assessee's claim of expenses regarding such payments and proceeded to hold the assessee as assessee in default under S.52 of the Income Tax Ordinance, 1979 and recovered the amount of tax involved under S.52 of the Income Tax Ordinance, 1979 read with S.50(4) of the Income Tax Ordinance, 1979 then claim of such payments could not be subsequently disallowed under S.24(c) of the Income Tax Ordinance, 1979 by resorting to Ss.65, 66A or 156 of the Income Tax Ordinance, 1979‑‑­Such was because of the fact that any income could not be subjected to income‑tax twice in the hands of the same assessee in the same assessment year for the same default or reason‑‑‑Once the Department exercised the option to charge amounts of certain payments to tax under S.52 of the Income Tax Ordinance, 1979 by holding the assessee as an assessee in default then the same could not be subjected to tax again under S.24(c) of the Income Tax Ordinance, 1979 for the same reason that the assessee had failed to withhold tax from those sums under S.50(4) of the Income Tax Ordinance, 1979; it would clearly amount to double taxation which was not allowed under the scheme of Income Tax Law‑‑‑When the Inspecting Additional Commissioner cancelled the assessment order, the defaulted tax had already been paid by the assessee under S.50(4) read with S.52 of the Income Tax Ordinance, 1979 and the defect in ‑the assessment order existed no longer‑‑‑If an assessee failed to deduct tax under any subsection of S.50 of the Income Tax Ordinance, 1979 on payments made by him but the tax was paid by the recipient of such payments, then no action could be taken against the assessee under S:52 .of the Income Tax Ordinance, 1979 or any other provision of income Tax Ordinance, 1979 in respect of such payments ‑‑‑Assessee itself had paid tax in response to Assessing Officer's order under S.52 of the Income Tax Ordinance, 1979 and no action under S.66A of the Income Tax Ordinance, 1979 on the pretext of S.24(c) of the Income Tax Ordinance, 1979 was warranted‑‑‑Order passed by the Inspecting Additional Commissioner under S.66‑A of the Income Tax Ordinance, 1979 was declared illegal and unjustified in circumstances and the same was cancelled by the Appellate Tribunal.

2002 PTD 1; Civil Petitions Nos.2789/L and 2791/L of 2001; I. T. A. No.2047/LB of 2000 and 2002 PTD 877 ref.

Muhammad Sarfraz, .F.C.A. for Appellant.

Muhammad‑Zulfiqar Ali, D.R. for Respondent.

Date of hearing: 27th June, 2002.

2002 P T D (Trib.) 3123

[Income‑tax Appellate Tribunal Pakistan}

Before Rashid Ahmed Sheikh, Judicial Member and Javed Tahir Butt, Accountant Member

I.T.A. No. 436/LB of 2002, decided on 29th June, 2002.

Income Tax Ordinance (XXXI of 1979)‑‑‑‑

‑‑‑‑Ss. 66‑A, 85 & 59(1)‑‑‑Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order ‑‑‑‑Self ­assessment‑‑‑Assumption of jurisdiction by the Inspecting Additional Commissioner in terms of S.66‑A of the Income Tax Ordinance, 1979 on the basis of IT‑30 Form having no formal order in the field ‑‑‑Validity‑‑­Expression "and if he considers that any order passed therein by the Deputy Commissioner is erroneous insofar as it is prejudicial to the interest of Revenue" used in S.66‑A of the Income Tax Ordinance, 1979 clearly spelled out that there should be an order in writing upon which the Inspecting Additional Commissioner shall apply his mind to hold that the order passed by the Assessing Officer was erroneous insofar as that was prejudicial to the interest of Revenue‑‑‑Mere issuance of IT‑30 Form in absence of the order was not sufficient to satisfy the requirements of law‑‑‑In fact IT‑30 Form was always prepared consequent upon passing of an order under or in pursuance of the Income Tax Ordinance, 1979‑‑­Condition precedent for validity of notice of demand under S.85 of the Income Tax Ordinance, 1979 or the IT‑30 Form was dependent upon existence of an order to be passed under the Income Tax Ordinance, 1979‑‑‑Appellate Tribunal held that since provisions of S.66‑A of the Income Tax Ordinance, 1979 had been initiated on the basis of an IT‑30 Form which was not a substitute of an order and was also violative of the Income Tax Ordinance, 1979 therefore, the invocation of S.66‑A of the Income Tax Ordinance, 1979 was without lawful jurisdiction and the same was annulled.

2002 PTD (Trib.) 1949; 1993 PTD 766 = 1993 SCMR 1232; 1987 PTD 249; 1999 PTD (Trib.) 2884 and 1987 PTD (Trib.) 129 rel.

Shahid Abbas for Appellant.

Nemo for Respondent.

Date of hearing: 6th April, 2002.

2002 P T D (Trib.) 3129

[Income‑tax Appellate Tribunal Pakistan]

Before Khalid Waheed Ahmad, Muhammad Tauqir Afzal Malik, Judicial Members and Mrs. Safia Chaudhry, Accountant Member

I.T.As. Nos. 323/LB to 326/LB of 2001, decided on 31st.July, 2001.

(a) Income‑tax‑‑‑

‑‑‑‑Appeal‑‑‑Issue of legal nature can be raised at any stage of appeal‑‑­An issue purely of legal nature where no further enquiry or investigation of facts is required can be raised at the appellate stage even though not agitated before the lower forums.

(b) Income‑tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S. 136‑‑‑Reference to High Court‑‑‑Initiation of assessment proceedings by the Assessing Officer on the basis of the decision of High Court in the absence of an order passed by the Appellate Tribunal under S.136(6) of the Income Tax Ordinance, 1979‑‑‑Validity‑‑‑Section 136(6) of the Income Tax Ordinance, 1979 clearly provides that the Tribunal shall pass such orders as were necessary to dispose of the case conformably to such judgments‑‑‑Judgment of the High Court had been sent to the Tribunal but the case had not been finally disposed of by the Tribunal under S.136(6) of the Income Tax Ordinance, 1979 which means that the matter was still pending before the Tribunal‑‑‑When the matter was pending before the higher appellate forum, no proceedings could be initiated by the Assessing Officer‑‑‑Assessing Officer should have waited so that the cases were finally disposed of by the Tribunal under S.136(6) of the Income Tax Ordinance, 1979‑‑‑Assessments framed by the Assessing Officer were vacated by the Appellate Tribunal holding the same as ab initio void.

(1985) 153 ITR 543; PLD 1976‑SC 663; 1969 PTD (Trib.) 116; 1972 PTD (Trib.) 118; 1984 PTD (Trib.) 147; 1989 PTD (Trib.) 1293; 1982 PTD 282; 1993 PTD 1328; 1993 PTD 1395; 1992 PTD (Trib.) 1582; W.T.As. Nos. 134/KB; 138/KB of 1994‑95 and 2000 PTD 306 ref.

2001 PTD (Trib.) 1790 distinguished.

Shahbaz Butt, A.R. for Appellant.

Muhammad Asif, D.R. for Respondent.

Date of hearing: 9th May, 2001.

2002 P T D (Trib.) 3142

[Income‑tax Appellate Tribunal Pakistan]

Before Muhammad Tauqir Afzal Malik, Judicial Member and Javed Tahir Butt, Accountant Member

W. T. As. Nos. 411/LB to 413/LB of 2000‑2001, decided on 19th August, 2002.

Wealth Tax Rules, 1963‑‑‑

‑‑‑‑‑R. 8(3)‑‑‑Valuation of land and building‑ ‑‑Declaration of value on the basis of actual rent received‑‑‑Enhancement by the Assessing Officer without prior approval of Inspecting Additional Commissioner ‑‑‑Effect‑‑­Orders of the Authorities were vacated by the Appellate Tribunal and the Assessing Officer was directed to accept the declared value in circumstances.

1996 SCMR 230; 2002 PTD 407; 1988 PTD 1014; 2001 PTD (Trib.) 22 and W.T.As. Nos. 366 to 369, 1565 to 1567/LB of 1999 ref.

Sohail Mutee Babri, I.T.P. for Appellant.

Naseer Ahmad, D.R. for Respondent.

Date of hearing: 13th August, 2002.

2002 P T D 14

[Karachi High Court]

Before Saiyed Saeed Ashhad, C. J. and Zahid Qurban Alavi, J

COMMISSIONER OF INCOME-TAX

Versus

Messrs KAMRAN MODEL FACTORY

I.T.As. Nos. 59, 12, 13, 93, 10, 110 to 115, 120 to 123, 125 to 138, 136, 137, 191, 197 to 199, 236, 253, 254, 255, 257, 259 to 264, 266, 269 291 to 303, 312 to 318, 324, 325, 330 to 334, 347 to 351, 354, 356, 369, 401 to 403, 405, 406, 409, 416 of 1998, 1, 3 to 5, 14, 31, 51, 110 to 112, 114, 116, 119, 120, 126, 127, 137, 141, 155, 182, 198, 288 to 291 297, 317 to 324, 345, 359, 360 to 362, 365, 366, 387, 388 to 390, 400 to 405, 413, 429 to 432, 459 to 465, 469, 471, 475 to 483, 486, 487, 515, 520, 527, 531, 532, 537, 538, 539, 545, 554 to 558, 569 to 572, 515' 581 to 587, 590 to 5194, 601 to 607, 646, 651, 652, 656, 660, 666, 674' 674 to 677, 686, 687, 697, 703 to 710, 730, 737, 738, 739 to 747, 707 764, 768 to 770, 772 to 776, 797 to 800, 817, 836 to 842, 851 to 8y to 861, 864 to 866, 885, 892 to 894, 897 to 910, 913, 914, 921, 922, 925, 929, 930, 933, 936 to 940, 942 to 948, 950 to 954, 959, 963 to 978, to 986, 987, 992 to 994, 996, 997, 1028 to 1032, 1091, 1092, 1148 to 1152, 1154 to 1160 of 1999, 37, 38, 42, 43, 45, 72, 87, 88, 92, 98, 104, 106, 108, 109, 113, 150, 152, 153, 390, 392, 393, 395, 396, 398 to 404, 442, 443, 811 to 815, 932 of 2000 and I. T. C. No. 131 of 1992, decided, on 28th August, 2000.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.55---Workers' Welfare Fund Ordinance (XXXVI of 1971), S.4 Welfare fund, levy of---Assessing Officer ---Jurisdiction---Assessing--­Officer under S.4 of the Workers' Welfare Fund Ordinance, 1971, has been authorized to deal with the question/issue of charge/levy of workers welfare fund while finalizing the assessment proceedings of an assessee, who had furnished a return of income under S.55 of the Income-Tax Ordinance, 1979---Such powers have been conferred on the Assessing Officers in their capacity as Income-tax Assessing Officers exercising powers under the Income Tax Ordinance, 1979.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss. 129 & 134---Workers' Welfare Fund Ordinance (XXXVI of 1971), S.4---Levy of workers' welfare fund---Order passed by Assessing Officer---Appeal---Maintainability---Order relating to charge/levy of Workers' Welfare Fund being part of the assessment order made by the Assessing Officer, can be challenged by aggrieved party only in accordance with the provisions of the Income Tax Ordinance, 1979, as the same would be incapable of being separated from rest of the assessment order---Workers' Welfare Fund Ordinance, 1971, does not provide a forum for challenging the order relating to the charge/levy of Workers' Welfare Fund by the Assessing Officer---Grievance of an assessee with regard to an order/finding relating to the charge/levy of Workers' Welfare Fund under SA(1) of the Workers' Welfare Fund Ordinance, 1971, can be challenged by filing an appeal against the assessment order containing the finding/order relating to the charge/levy authority for redress of his grievance relating to any illegality or irregularity in charging/levying Workers' Welfare Fund by the Assessing Officer---Appeal under. S.129 of the Income Tax Ordinance, 1979, is maintainable whereafter a further appeal can be filed by an aggrieved party before Income-tax Appellate Tribunal under S.134 of the Ordinance.

(c) Income Tax Ordinance (XXXI of 1979)---

----S. 55---Workers' Welfare Fund Ordinance (XXXVI of 1971), Sched. II---Levy of Workers' Welfare Fund on income exempted under the Sched. II of the Income Tax Ordinance, 1979---Counsel for the assessee conceded that in view of the pronouncement made by the Supreme Court in Civil Petitions of 156 to 180 and others, dated 28-3-2000 the question had to be decided accordingly and that Workers' Welfare Fund would not be charged/levied on income of an assessee which was exempt from charge to tax under any of the clauses of Sched. II to the Income Tax Ordinance, 1979---Workers' Welfare Fund would not be charged/levied on income exempted under any of the clauses of the Sched. II to the Income Tax Ordinance, 1979.

(d) Income Tax Ordinance (XXXI of 1979)---

----Ss. 34 & 35---Workers' Welfare Fund Ordinance (XXXVI of 1971), S.4---Levy of Workers' Welfare Fund---Entitlement of assessee to claim set off the losses of earlier years---Counsel appearing on behalf of the Authorities had conceded that the assessees would be entitled to the benefit or claim of set off in respect of the losses which they had declared in the earlier years and which had been determined/settled/computed as losses by the Assessing Officers in accordance-with S.34 of the Income Tax Ordinance, 1979, and carried forward in accordance with S.35 of the same.

(e) Words and phrases---

----"Assess"---Defined.

Black's Law Dictionary, 6th Edn., p. 116; Excellent Legal Words, and Phrases by Mian Muhibullah Kakakhel, Vol. I; Longman's Dictionary of Contemporary English, New Edn., p.64 and Chamber's 20th Century Dictionary, New Edn. 1983, p.73 ref.

(f) Words and phrases---

----"Assessable income" ---Defined.

Excellent Legal Words and Phrases, by Mian Muhibullah Kakakhel, Vol. I ref.

(g) Words and phrases---

----"Assessment"---Defined.

Excellent Legal Words and Phrases by Mian Muhibullah Kakakhel, Vol.I; Longman's Dictionary of Contemporary English, New Edn., p.64 and Chamber's 20th Century Dictionary, New Edn. 1983, p.73 ref.

(h) Words and phrases---

----"Assessable"---Defined.

Chamber's 20th Century Dictionary, New Edn. 1983, p.73 ref.

(i) Workers' Welfare Fund Ordinance (XXXVI of 1971)---

----SA(1)---Phrase "total income as is assessable"---Connotation---Said phrase used in SA(1) of the Workers' Welfare Fund Ordinance, 1971, means the total income which has been arrived at by the Assessing Officer after computation and determination of the declared total income after providing for allowances and exemptions, benefits of determined losses loans or payment of interest claimed by the assessee---Workers' Welfare Fund is charged/levied on the total income, taxable income or the net income, which has beer, determined by the Assessing Officer as the amount on which the income-tax would be charged---Where the Assessing Officer is not required to make any calculation, computation and assessment for the purpose of determining the total income/taxable income which does not come within the definition of the words "total income as is assessable" appearing in S.4(1) of the Workers' Welfare Fund Ordinance, 1971, Workers' Welfare Fund is not charged/levied thereon.

(j) Interpretation of statutes---

Meaning of words used in a statute---If the words are not already defined in the statute, such words used in a section of the statute are to be given their ordinary meaning.

(k) Income Tax Ordinance (XXXI of 1979)---

----Ss. 80C & 80 CC---Workers' Welfare Funds Ordinance (XXXVI of 1971), S.4---Levy of Workers' Welfare Fund on income subjected to tax under the presumptive tax regime covered by Ss. 80C & 80 CC of the Income Tax Ordinance, 1979---Assessees who are not required to file return of total income under the Income Tax Ordinance, 1979, relating to presumptive tax regime cannot be subjected to the charge/levy of Workers' Welfare Fund.

(l) Words and phrases---

----"Soon"---Meaning.

Black's Law Dictionary, 6th Edn., p.116; Longman's Dictionary of Contemporary English, New Edn., p.64 and Chamber's 20th Century Dictionary, New Edn., 1983, p.73 ref.

(m) Words and phrases---

------ As soon as may be"---Connotation---Phrase "as soon as may be" means within the earliest possible time.

Muhammad Hashim v. The State PLD 1956 Kar. 485 and Muhammad Aslam Malik v. The Province of West Pakistan PLD 1968 Lah. 1324 ref.

(n) Workers' Welfare Fund Ordinance (XXXVI of 1971)---

----S.4(4)---Phrases "as soon thereafter as may be"---Applicability--­Fixing of 90 days' period for recovery of Workers' Welfare Fund by Tribunal---Period fixed by the Tribunal was too long or excessive, therefore, the period of 90 days fixed by the Tribunal was reduced by High Court to thirty days in circumstances.

(o) Interpretation of statutes---

---- Words used in statute---Treating any word surplus and redundant-­--Every word used in a statute has to be given effect to and no word of provisions of a statute is to be treated as surplusage and redundant.

East & West Steambship Co. v. Queensland Insurance Co. Ltd. PLD 1963 SC 663 and Jalal Mehmood Shah v. Federation of Pakistan PLD 1999 SC 395 ref.

(p) Income Tax Ordinance (XXXI of 1979)---

---S.156---Workers' Welfare Fund Ordinance (XXXVI of 1971), S.4--­Levy of Workers' Welfare Fund---Failure to make order for such levy--­Rectification of mistake---Recourse to S.156 of the Income Tax Ordinance, 1979---Validity---Omission on the part of the Assessing Officer for making the order for levy of Workers' Welfare Fund at the time of finalizing the assessment even if considered to be an error or mistake visible or apparent from the record or found floating an order of the Assessing Officer, the Assessing Officer would not have the right to have recourse to S.156 of the Income Tax Ordinance, 1979, in circumstances.

(q) Income Tax Ordinance (XXXI of 1979)---

----S. 59A---Workers' Welfare Fund Ordinance (XXXVI of 1971), S.4(4)---Workers' Welfare Fund-- Determination of---Assessing Officer under S.4(4) of the Workers' Welfare Fund Ordinance, 1971, is under a statutory obligation/duty to make an order for levy of Workers' Welfare Fund while finalizing the assessment under the Income Tax Ordinance, 1979.

(r) Interpretation of statutes---

---- Duties/obligations imposed by statute---Scope---Where statute imposes duties/obligations on a person or Authority then they are bound to perform the same diligently, prudently and in accordance with provisions of the statute, which has conferred such duties/obligations on them and such duties and obligations would not be brought to an end or vanish on technicalities, inadvertence or negligence more so when such duties/obligations for the welfare of a particular class---Provisions of laws of beneficial nature are to be interpreted with a view to facilitate the adjudication on merits.

Muhammad Hanif and others v. Muhammad and others PLD 1990 SC 859 and Jameel Ahmed v. Late Saifuddin through Legal Representatives 1997 SCMR 260 ref.

(s) Income Tax Ordinance (XXXI of 1979)---

----Ss. 80C, 80 CC & 156---Workers' Welfare Fund Ordinance (XXXVI of 1971), S.4---Levy of Workers' Welfare Fund---Failure to determine the Fund by Assessing Officer---Rectification of mistake---Recourse to 5.156 of the Income Tax Ordinance, 1979---Validity---Where order for levy of Workers' Welfare Fund was not made within thirty days of the framing of assessment, such omission was not only violative of the provisions of the Workers' Welfare Fund Ordinance, 1971, but had also rendered the income-tax assessment order illegal and contrary to the provisions of the-Income Tax Ordinance, 1979, inasmuch as it would not be possible to calculate the correct income-tax payable by an assessee in view of the method of determining Workers' Welfare Fund on the total/taxable income, deduction of such fund from the total/taxable income and calculation of income-tax on the total/taxable income after deduction of Workers' Welfare Fund---Such assessment order suffered from an error or a mistake apparent on the face of the record and would be floating on the surface of the order and would be so clear and manifest as could not be permitted by any Court to remain on record, which for its correction would not require long drawn arguments, reassessment or re­-examination of the material on record or interpretation of any provision either of the Income Tax Ordinance, 1979, or the Workers' Welfare Fund Ordinance, 1971, and would be rectifiable in accordance with the provision of S.156 of the Income Tax Ordinance, 1979---Immaterial whether such mistake or error was a mistake of fact or law since the requirement is that such mistake must be self-evident and floating on the surface of record.

Islamuddin and 3 others v. The Income-tax Officer and 4 others 2000 P T D 306; Muhammad Hashim v. The State P L D 1956 Kar. 485; Khan Ghulam Muhammad Khan v. The State P L D 1957 Lah. 417; Muhammad Aslam Malik v. The Province of West Pakistan PLD 1968 Lah. 1324 and Pakistan Tobacco Company (Pvt.) Ltd. v. Commissioner of Income-tax 1992 P T D 1648 ref.

Shaikh Haider, Nasrullah Awan, Muhammad Fareed, Jawaid Farooqi, Arif Motan and Aqeel Ahmed Abbasi for Appellants.

Rehan Hasan Naqvi, Sirajul Haq Memon, Arshad Siraj, Salman Pasha, Zamarrud Jafri, Hanif Khan, Irfan Sadat Khan, Z.H. Jafri and Rehan Jafri for Respondents.

Dates of hearing: 10th, 11th and 24th May, 2001.

2002 P T D 44

[Karachi High Court]

Before Dr. Ghous Muhammad and Mushir Alam, JJ

COMMISSIONER OF INCOME-TAX

Versus

Messrs UNILEVER P.L.C. U.K.

Income-tax Appeals Nos. 412 to 415 of 1997, decided on 15th November, 1999.

(a) Agreement for Avoidance of Double "Taxation between Pakistan and the United Kingdom---

----Arts. II (I) (I) & III (I)---" Permanent establishment"-----Connotation--­Term "permanent establishment" denotes a branch, management, factory or other fixed place of business but does not include an agency unless the agent has and habitually exercises a general authority to negotiate and conclude contracts on behalf of such enterprise or has a stock of goods or merchandize from which lie regularly meets his order---Definition of "permanent establishment" hardly covers the visits of the expatriates---­"Permanent establishment" signifies soma permanence.

CIT v. Visakhapatnam Port Trust (1983) 144 I T R 146 and CIT v. Abbott Finance 1982 P T D 31 rel.

(b) Agreement for Avoidance of Double Taxation between Pakistan and the United Kingdom---

----Art. III(I) (I)---Permanent establishment---Visit of the expatriates of the assessee in Pakistan would not constitute a "permanent establishment" of the assessee in Pakistan.

(c) Income-tax---

----Reference---Appeal---Argument neither raised in the grounds of appeal nor arising out of the order of the Income Tax Appellate Tribunal, has no merit.

(d) Agreement for Avoidance of Double Taxation between Pakistan and the United Kingdom-

----Art. II(I)(k)---"Industrial and commercial profit"---Connotation--­Definition "industrial and commercial profits" confirms that not all types of fee have been excluded from tile ambit of "industrial and commercial profits" ---Exclusion is only in relation to a fee drawn by an enterprise from the management, control or supervision of the trade, business or other activity of other enterprises or concerns---Exclusion is in relation to a fee earned from the management, control or supervision of an enterprise in Pakistan---Consultancy fee by no stretch of imagination would arise or be payable as consideration for managing, controlling or supervising an enterprise.

Raleigh Investment Co. Ltd. v CIT 1983 PTD 126; Glaxo Group Ltd. v. CIT 1992 PTD 636; Glaxo Laboratories v. CIT 1991 PTD 195; Glaxo Operations UK Ltd. v. CIT C.A. 76-K of 1991 and 26-K of 1992; Glaxo Group Ltd. v. CIT I T R No. 529 of 1990 and Lars Costa Adhom v . CIT 1994 PTD 590 rel.

(e) Words and phrases---

----"Consultation"---Connotation and explanation.

Burewala Textile Mills Ltd. v. Punjab Government NLR 1979 Lah. Lah. 297, Electric Equipment Manufacturing Co. Ltd. v. Government of Punjab 1979 PLC 416; Rolls v. Minister (1984) 1 All ER 13; R. Pushpam v. The State of Madras AIR 1953 Mad 392; Fiether v. Minister of Town Planning (1947) 2 All ER 496; Al-Jehad Trust v. Federation of Pakistan PLD 1996 SG 324 and Al-Jehad Trust v. Federation of Pakistan PLD 1997 SC 84 rel.

(f) Income Tax Ordinance (XXXI of 1979)---

---S. 163---Avoidance of Double Taxation and Prevention of fiscal evasion--Agreement for Avoidance of Double Taxation between Pakistan and the United Kingdom---Consultancy fee---Taxability--­Exemption claimed by the assessee on consultancy fee was disallowed by the Assessing Officer and the same was confirmed by the Income Tax Appellate Tribunal---Validity---Admitted position was that the fee in question was towards consultancy and the term "consultancy" would denote tendering advice and counselling and surely not managing, controlling or supervising---Consultancy fee thus falls under the term "industrial and commercial profits" which was taxable in Pakistan.

Burewala Textile Mills Ltd. v. Punjab Government NLR 1979 Lab. Lah. 297, Electric Equipment Manufacturing Co. Ltd. v. Government of Punjab 1979 PLC 416; Rolls v. Minister (1984) 1 All ER 13; R. Pushpam v. The State of Madras AIR 1953 Mad 392; Fiether v. Minister of Town Planning (1947) 2 All ER 496; Al-Jehad Trust v. Federation of Pakistan PLD 1996 SC 324 and Al-Jehad Trust v. Federation of Pakistan PLD 1997 SC 84 rel.

(g) Words and phrases---

----"Permanent establishment"---Connotation.

Javed Farooqi for Appellant. Fateh Vellani for Respondent.

Date of hearing: 1st June, 1999.

2002 P T D 87

[Karachi High Court]

Before Sabihuddin Ahmed and S. Ali Aslam Jafri, JJ

FEDERATION OF PAKISTAN

Versus

METROPOLITAN STEEL CORPORATION

High Court Appeals Nos. 128 and 129 of 1995, decided on 29th May, 2001.

(a) Sales Tax Act (VII of 1990)---

---S. 3B---Collection of excess tax---Claim for refund of tax which was not payable or was paid in excess, could only be made by the person paying the tax and not the one who had collected the same.

Sajjad Nabi Dar & Co. v. Commissioner of Income-tax PLD 1977 SC 437 rel.

Commissioner of Sales Tax, Lahore v. Associated Hotel (India) Limited 1969 PTD 490 ref.

(b) Sales Tax Act (VII of 1990)---

----S. 7---Determination of tax liability ---Assessee was entitled to deduct the input tax paid by him from the output tax payable for the purpose of determining its tax liability---If assessee paid a much higher amount than what was lawfully due by way of input tax by mistake, a corresponding advantage in terms of reduction of its own tax liability would be available to the assessee.

(c) Sales tax---

----Service of summons---Irregularity---Effect---Any irregularity in the service of summons does not vitiate a decree and service through a Court Officer is not the only mode of service.

Mahmooda Sultana v. Naseem Mumtaz 1990 MLD 1028 rel.

(d) Sales tax---

----Void order---Limitation---No limitation runs against a void order which is non-existent in the eyes of law and which can even be ignored.

Rehmat Bibi and others v. Punnu Khan and others 1986 SCMR 962 and Syed Haji Abdul Wahid and another v. Syed Sirajuddin 1998 SCMR 2296 rel.

Conforce Limited v. Syed Ali PLD 1977 SC 599 ref.

(e) Sales tax---

----Void order---Illegal or voidable order---Distinction---Limitation--?Distinction between the void and illegal or voidable orders---Limitation has been held applicable only to the second type of order.

Muhammad Swaleh v. United Grain Fodder Agencies PLD 1964 SC 97 rel.

(f) Sales tax---

----Void order and illegal or voidable order---Concept and distinction--?When a Court or a Tribunal assumes jurisdiction not vested in it by the law or fails to exercise jurisdiction so vested, its order may be void and a nullity in law---When the Court or the Tribunal acts illegally or with material irregularity in the exercise of its jurisdiction the order is only voidable but not void.

Muhammad Swaleh v. United Grain Fodder Agencies PLD 1964 SC 97 rel.

(g) Sales tax---

---Void order---Broadened scope---Effect---Broadened scope of the? expression "void order" might upset the entire judicial system and particularly the provisions, invoking appellate remedies within the time prescribed by statutes of limitation as every unsuccessful litigant could sleep over a Court's order which in his opinion was void or defy the same with impunity in the hope that he could ultimately plead that the order was void and non-existent in law which could be ignored.

(h) Sales tax---

---- Illegal or voidable judgment and judgment being nullity in law--?Distinction and treatment---Mere fact that certain provisions of substantive law and the subsequent pronouncements of the Supreme Court were not taken into consideration might render the judgment illegal or voidable but could not be treated as a nullity in law.

Sajjad Nabi Dar & Co. v. Commissioner of Income-tax PLD 1977 SC 437 and Commissioner of Sales. Tax, Lahore v. Associated Hotel (India) Limited 1969 PTD 490 ref.

(i) Duty to Court---

---- Public functionaries and their duty to Court---Court made drastic observations on the callous and lethargic attitude of Revenue and other Government functionaries in conducting cases on behalf of Government causing huge loss to public exchequer, and issued necessary directions in this behalf.

A. H. Lakho for Appellant.

Khalid Anwar and Afsar Abidi for Respondent No. 1.

M. G. Dastagir for Respondent No. 4.

Dates of hearing: 17th, 18th, 19th, 24th and 25th April, 2001:

2002 P T D 102

[Karachi High Court]

Before Zahid Qurban Alavi and Muhammad Mujeebullah Siddiqui, JJ

Messrs FAMY LTD.

Versus

COMMISSIONER OF SALES TAX

S.T.Cs. Nos. 28, 30, 31, 34, 35, 37 and 38 of 1985, decided on 8th August, 2001.

(a) Sales tax---

---- Service of notice---Question of fact---Primarily the question pertaining to service of notice on a party is a question of fact, but when an issue pertaining to jurisdictional notice is raised it becomes a mixed question of fact and law.

(b) Sales tax---

---- Service of notice---If an assessee is able to demonstrate that either the jurisdictional notice was not served at all or it was not served on assessee or a person duly authorized by the assessee in this behalf, the jurisdiction acquired by an Assessing Officer, which is contingent on a proper service of notice on the assessee or his legally authorized agent, shall result in vitiation of the entire proceedings.

(c) Sales tax---

---- Service of notice----Assumption of jurisdiction---Assumption of jurisdiction is dependent on service of notice on an assessee---Service of notice on the assessee shall be. a condition precedent for assumption of jurisdiction.

(d) Sales tax---

---- Service of notice---Meaning---Service of notice means a valid and proper service of notice as required under the law and not otherwise.

(e) Sales tax---

---- Service of jurisdictional notice---Question of law---Issue pertaining to service of jurisdictional notice shall become predominantly a question of law, which is, of course dependent on a finding of fact.

(f) Sales tax---

---- Finding of fact---If any Court or Tribunal gives a finding of fact which is not based on the material available on record or is arbitrary and slipshod in nature, without discussing and considering the material available on record it becomes perverse, and a perverse finding of fact which is violative of the established principle of the appreciation of evidence on record is not sustainable in law.

(g) Sales tax---

---- Judicial finding---Every judicial finding should be based on reasons containing the justification for the finding in the order itself.

(h) Sales tax---

---- Judicial order---Every Authority, office or a person making any order is required to give reasons and thus any judicial finding without discussing necessary facts and material on record is not a judicial order and consequently is not sustainable in law.

(I) Sales Tax Act (III of 1951)---

----S. 28---Service of notice---Finding of Tribunal on the point of service of notice under S.28 of the Sales Tax Act, 1951, was not in accordance with the law for the reason that the facts on record had not been considered, therefore, the Tribunal was directed to rehear the issue and after considering the facts on record and discussing the same would give fresh finding on the point of proper service of notice on the applicant company and modify its order accordingly.

1967 PTD 189 rel.

Farogh Naseem for Applicant Shaikh Haider for Respondent

Date of hearing: 8th August, 2001.

2002 P T D 117

[Karachi High Court]

Before Zahid Qurban Alavi and Muhammad Mujeebullah Siddiqui, JJ

COMMISSIONER OF INCOME-TAX

Versus

Messrs ZAFA PHARMACEUTICAL LABORATORIES (PVT.) LTD.

Income Tax Reference No. 158 of 1993, decided on 5th September, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----S. 23---Drugs (Licensing, Registering and Advertising) Rules, 1976, R.33---Deduction---Disallowance' of expenses with reference to R.33 of Drugs (Licensing, Registering and Advertising) Rules, 1976--Validity--­Rule 33 of the Drugs (Licensing, Registering and Advertising) Rules, 1976 could not be extended to disallow the expenses claimed under the head advertising and sales promotion, otherwise spent to connection with the business---Any disallowance made with reference to R.33 of the Rules was not sustainable in law.

Beecham Pakistan Ltd. v. Commissioner of Income-tax 1995 PTD 577 rel.

(b) Income Tax Ordinance (XXXI of 1979)---

----S. 136(1)---Drugs (Licensing, Registering and Advertising) Rules, 1976, R.33---Reference to High Court---Question whether Tribunal was justified to confirm the deletion of the add-backs made out of salary and allowances paid to medical representatives of a pharmaceutical company and field force in view of Explanation added to R. 33 of Drugs (Licensing, Registering and Advertising) Rules, 1976 was answered in affirmative by the High Court with the observation that no exception could be taken to the finding of Tribunal, confirming the-deletion of add­ backs made out of salary and allowances paid to said Medical Representatives.

Beecham Pakistan Ltd. v. Commissioner v, Income-tax 1995 PTD 577 rel.

M. G. Hassan for Applicant.

Ikram Hussain holding brief for Rehan Hassan Naqvi for Respondents.

Date of hearing: 5th September, 2001.

2002 P T D 121

[Karachi High Court]

Before Dr. Ghous Muhammad and Sarmad Jalal Osmany, JJ

KOHINOOR TEXTILE

Versus

FEDERATION OF PAKISTAN

Constitutional Petitions Nos. D-1582, 1583, 1584, 1666, 1667, 1701 and 1729 of 1999, decided on 13th December, 1999.

(a) Customs Act (IV of 1969)---

----S.31-A---Notification Nos. S.R.O. 454(1)/96, dated 13-6-1996 and S.R.O. Nil (1)/99, dated 16-8-1999---Constitution of Pakistan (1973), Art. 199---Constitutional petition---Import of goods---Exemption from excise duty---Exemption in excise duty provided under Notification No. S.R.O. 454(1)/96, dated 13-6-1996 was claimed at import stage of goods which was denied by the Authorities on the ground that said notification had been superseded vide subsequent Notification No. S.R.O. Nil (1/99 which had rescinded the exemption granted to the importers under the earlier notification---Validity---Letters of Credit for the import of the goods in question had been established before the exemption earlier granted to the importers was rescinded---Vested right could be claimed by the importers on the basis of an earlier exemption and same could not be destroyed by subsequent notification which had rescinded the exemption---Subsequent notification being prospective in nature, could not affect the vested rights of the importers acquired earlier.

M.Y. Electronic Industries (Pvt.) Ltd. v. Government of Pakistan 1998. SCMR 1404; Molasses Trading and Export (Pvt.) Limited v. Federation of Pakistan 1993 SCMR 1905; AI-Samrez Enterprises v. Federation of Pakistan 1986 SCMR 1917; Federation of Pakistan v. Punjab Steel 1993 SCMR 2267; Crescent Pak Industries Ltd., Government of Pakistan 1990 PTD 29; Ahmed Investment (Pvt.) Limited v. The Federation 1994 PTD 575; Collector of Customs v. Ravi Spinning Ltd. 1999 SCMR 412; Yaseen Sons v. Collector of Customs 1990 CLC 797 and Muhammad Abdullah v. Government of Pakistan PLD 1992 Kar. 266 ref.

Per Sarmad Jalal Osmany, J.; Dr. Ghous Muhammad, J. agreeing---

(b) Customs Act (IV of 1969)---

----S. 31-A---Sales Tax Act (III of 1951), S.3(5)---Central Excise Rules, 1944, R.9---Operation of both Sales Tax Act, 1951 and Customs Act, 1969---Sales Tax Act, 1951 and the Customs Act, 1969 though taxing statutes, would operate in two different fields---Provisions of S.3(5) of the Sales Tax Act, 1951 introduced a machinery operating under the Customs Act, 1969 for realization under the Sales Tax Act, 1951 but there was difference between the charging section of a statute and the machinery part thereof---Section 3(5) of Sales Tax Act, 1951 did not in any manner involve the imposition or levy of tax, but only mode or manner on its collection---Merely because of the applicability of the Customs Act, 1969 to the Sales Tax Act, 1951 by virtue of S.3(5) of Sales Tax Act, would not convert sales tax into customs duty and vested rights acquired under sales tax would remain unaffected by S.31-A of the Customs Act, 1969---Reference to and incorporation of S.31-A of the Customs Act, 196'9 in fifth proviso to R. 9 of Central Excise Rules, 1944 could not be read so as to take away vested rights acquired before the withdrawal of exemption granted earlier for Central Excise Duty.

Per Dr. Ghous Muhammad, J.---

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

----S. 37---Assessment and collection---Meaning and scope---Delegation under S.37, Central Excises Act, 1944 was only for assessment or collection, but not for the creation or imposition of a charge---Term "assessment" points out to the process of ascertaining, adjusting or determining the amount of tax payable, whereas the term "charge" denotes the very imposition or levy of the tax---"Collection" would mean the very process of recovery of the tax---For any tax or in any taxing statute there are-three stages: the imposition or creation of the very tax or levy known as the "charge"; the quantification of the tax levy called "assessment", and the recovery of the levy or tax called "collection"--Last two mentioned, were the machinery provisions of the statute.

Friends Sons v. Deputy Collector PLD 1989 Lah. 337 ref.

(d) Interpretation of statutes---

----Rules made under delegated powers could not go beyond the mandate conferred by the parent statute.

Malik Muhammad Din v. Trustees of the Port of Karachi PLD 1966 Kar. 518 and Chairman, Railway Board v. Wahabuddin Sons PLD 1990 SC 1034 ref.

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

----S. 37---Rule-making power---Extent---General rule-making power delegated under S.37 of Central Excises, Act, 1944 could not be extended to creation of charge---Even if S.37 had delegated to the Central Board of Revenue power to introduce a charge or a levy, said delegation would be bad because power to impose or introduce a tax, levy or a fee was only legislative function.

M. Afzal & Sons v. Federation of Pakistan PLD 1977 Lah. 1327 and Abdul Rahim v. U.B.L. PLD 1997 Kar. 62 ref.

Makhdoom Ali Khan for Petitioners.

Javaid Farooqi for Respondent No. 1.

Raja M. Iqbal for Respondent No. 2.

Date of hearing: 26th November, 1999.

2002 P T D 150

[Karachi High Court]

Before Ghulam Nabi Soomro and Ata-ur-Rehman, JJ

Messrs SUI SOUTHERN GAS COMPANY

Versus

FEDERATION OF PAKISTAN and others

Constitutional Petition No. D-79 of 2001, decided on 27th June, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.53---Constitution of Pakistan. (1973), Art. 199---Constitutional petition---Maintainability---Payment of advance tax---Refund--­Constitutional petition against an order under S.53 of the Income Tax Ordinance, 1979 is maintainable as such order is not appealable.

(b) Appeal---

---- Right of appeal is a creature of statute and there can be no right of appeal unless it is conferred by statute.

Chairman, Central Board of Revenue, Islamabad and 3 others v. Messrs Pak-Saudi Fertilizer Ltd. 2000 PTD 3748 rel.

(c) Income Tax Ordinance (XXXI of 1979)---

----S.53---Advance payment of tax---Application of ratio for adjustment of refund---Ratio of income-tax determined at 4.22% of the turnover at assessment stage was reduced at 0.57% in appeal before the due date of instalment---Ratio of income-tax for the purpose of computing advance income-tax instalment under S.53 of the Income Tax Ordinance, 1979 shall be 0.57% of the turnover in circumstances and to be calculated accordingly.

Glaxo Laboratories Limited v. Inspecting Assistant Commissioner of Income-tax and others 1992 PTD 932 rel.

Javed Khurram for Petitioner.

Aqeel Abbasi for Respondent.

Date of hearing: 20th June, 2001.

2002 P T D 173

[Karachi High Court]

Before Sarmad Jalal Osmany, J

AL-WARIS TRADERS

Versus

FEDERATION OF PAKISTAN through Secretary, Finance and Ex-Officio Chairman, C.B.R., Islamabad and 3 others

Suit No. 699 of 1999, decided on 14th May, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss. 50(7-A), 80-C & 162---Specific Relief Act (I of 1877), Ss. 42 & 54---Suit for declaration and permanent injunction---Payment of advance income-tax---Plaintiff had sought declaration to the effect that he was not obliged to make any payment of advance income-tax under S.50 (7-A) of Income Tax Ordinance, 1979, as such obligation was only upon the defendant-Corporation---Further prayer of the plaintiff was that specified clause of agreement between the plaintiff and defendant-Corporation which obliged the plaintiff to pay advance tax be declared to be without jurisdiction, unlawful, void ab initio and unenforceable---Validity--­Provisions of S.50(7-A) of Income Tax Ordinance, 1979 in principle had prescribed that advance tax had to be paid by the buyer of Government property which was to be calculated on the basis of the specified rate and was to be collected by the seller of such property and finally deposited in Government treasury---Plaintiff, having purchased Government property, was obliged to pay advance income-tax and in absence of any provision in Income Tax Ordinance, 1979 prohibiting the Authority from demanding the tax which was payable as a matter of law, Assistant Commissioner of Income-tax was entitled to demand advance tax from the plaintiff---Obligation to pay and demand advance income-tax by/from the plaintiff having not violated any provisions of law, suit filed by the plaintiff was not maintainable.

E. A. Evans v. Muhammad Ashraf PLD 1964 SC 536; Abdul Rahim and 2 others v. Messrs United Bank Ltd. of Pakistan PLD 1997 Kar. 62; M.L.M. Muthiah Chettiar v. Commissioner of Income-tax, Madras (1959) 35 ITR 339; Commissioner of Income-tax, Meerut v. Hari Raj Swarup & Sons (1982) 138 ITR 462; Government of Pakistan v. Muhammad Ashraf PLD 1993 SC 176; Messrs Ellahi Cotton Mills v. Federation of Pakistan PLD 1997 SC 582; Ch. Rehmat Ali v. Custodian, Evacuee Property, Lahore PLD 1966 Kar. 31; The Committee of Receivers of Assets of Mr. Abdul Wahab Galadari v. Abdul Wahab Ebrahim Galadari 1991 CLC 694; Abbasia Cooperative Bank v. Hakeem Hafiz Muhammad Ghaus PLD 1997 SC 3; Utility Stores Corporation of Pakistan Ltd. v: Punjab Labour Appellate Tribunal PLD 1987 SC 447; Messrs Tri-Star Industries (Pvt.) Ltd. v. The Commissioner of Income ­tax Companies, Companies-I, Karachi 1998 PTD 3923; Abbas Shroff v. Miss Farzana 1998 PTD 2884 and Asia Petroleum Ltd. v. Federation of Pakistan through Secretary Finance 1999 PTD 1313 ref.

(b) Administration of justice---

----Non obstante clause in a statute---Operation of---Where the impugned order was either coram non judice, without jurisdiction, mala fide or unlawful, in such circumstances and eventualities, non obstante clauses which were frequently found in various enactments barring the jurisdiction of the Civil Courts could not operate so as to non-suit the plaintiff.

Farogh Nasim for Plaintiff. Nasrullah Awan for Defendant No. 2.

Ch. Muhammad Rafique, Addl. A. G. for Defendant No. 3.

Sirajul Haq Memon for Defendant No. 4 with Yasin Kayani.

Dates of hearing: 4th, 7th June, 1999; 11th and 22nd March, 2001

2002 P T D 191

[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---Re-opening of assessment---" Definite information" and "assessment having been consciously completed"---Assessment not consciously completed---Re-opening---Validity---Material on record had established that either the assessment was finalized consciously by the Assessing Officer by applying his mind to the facts of the case, as disclosed by the assessees in their return/accounts nor the Department had come into possession of new facts or had discovered new information which could be said to be "definite information", as envisaged by S.65 of the Income Tax Ordinance, 1979 showing that income chargeable to tax had escaped assessment or had been under­assessed within the meaning of 'S.65(1)(a)(b) of the Income Tax Ordinance, 1979---Assessment having not been completed consciously and definite information regarding income chargeable to tax having escaped assessment, issuance of notice under S.65 of the Income Tax Ordinance, 1979 for re-opening of the assessment finalized earlier could not be said to be without authority or jurisdiction or in illegal exercise of jurisdiction or power by the Department and no exception could be taken to the same.

Messrs Central Insurance Co. and others v. The Central Board of Revenue, Islamabad and others 1992 SCMR 1232; Messrs Pakistan Tobacco Co. Ltd. v. Government of Pakistan through Secretary Ministry of Finance and 3 others 1993 SCMR 493; Messrs E.F.U. General Insurance Co Limited v. The Federation of Pakistan and others PLD 1997 SC 700; 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 Muhammad v. Javed Muhammad and 3 others 1998 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 2268; Messrs Airport Support Services v. Import Manager, Quaid-e-Azam International Airport, Karachi and '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 Hereld Limited 1997 PTD 1485 ref.

Edulji Dinshaw Limited v. Income-tax Officer PLD 199- SC 399 distinguished.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.65---Re-opening of assessment---Direction for reopening of assessment---Officer other than the Inspecting Assistant Commissioner can issue directions for reopening of the assessment.

Al-Ahram Builder (Pvt.) IId. v. Income-tax Appellate Tribunal 1993 SCMR 29 rel.

(c) Income Tax Ordinance (XXXI of 1979)---

----S. 65---Constitution of Pakistan (1973), Art. -199---Constitutional petition---Show-cause notice---When the notice issued under S.65 of the Income Tax Ordinance, 1979 did not suffer from illegality or lack of jurisdiction, Constitutional petition was not maintainable.

Sirajul Haq Memon for Petitioner.

Muhammad Farid for Respondent.

Date of hearing: 24th November, 1999

2002 P T D 388

[Karachi High Court]

Before Zahid Qurban Alavi and Muhammad Mujeebullah Siddiqui, JJ

COMMISSIONER OF INCOME-TAX, KARACHI

Versus

Messrs CIVIL AVIATION AUTHORITY

I.T.A. No. 891 of 2000, heard on 18th September, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.54---Payment of tax with return of income---"Tax payable on the basis of return" and "tax payable on the basis of assessment"--­Distinction---Clear distinction exists between the tax payable on the basis of return and the tax payable on the basis of assessment order; former denotes an admitted tax liability and the latter is based on the assessed tax liability---Admitted tax liability and the assessed tax liability other than tax liability can never be similar or same---Admitted tax liability and the assessed tax liability can be same in the cases where the declared version is accepted.

(b) Interpretation of statutes---

---- Plain words and patent meanings of law are to be applied and interpreted as they are and no latent meanings are to be attached to the patent words which convey the plain and obvious meaning.

(c) Interpretation of documents---

----Document is to be read as a whole and not in piece or in conjunction with any other material which is not the part of document.

(d) Income Tax Ordinance (XXXI of 1979)---

----S.54---Words "tax payable on the basis of such return"---­Interpretation---Words, "tax payable on the basis of such return" are to be interpreted on a reading of return of total income as a whole including the claim of exemption if any, and the assessment order is not to be read as part of return of total income under any principle of the interpretation of statutes.

(e) Income Tax Ordinance (XXXI of 1979)---

----Second Sched., Cl. (88), Ss. 88 & 54---Exemption---Additional tax for failure to pay tax---Claim of exemption---Non-payment of tax with return---Assessment---Rejection of exemption---Levy of additional tax under S.88 of the Income Tax Ordinance, 1979 on account of default in payment of tax under S.54 of the Income Tax Ordinance, 1979---First Appellate Authority as well as the Appellate Tribunal found that no tax was payable under S:54 and additional tax under S.88 of the Income Tax Ordinance, 1979 in spite of the fact that exemption was rejected and confirmed by the Tribunal---Validity---Appellate Tribunal had rightly found that on account of exemption claimed by the assessee and notwithstanding, the rejection of claim by the Assessing Officer, First Appellate Authority and the Appellate Tribunal, there was no tax payable on the basis of return and consequently there was no failure on the part of the assessee to pay tax under S.54 of the Income Tax Ordinance, 1979 and that no additional tax was chargeable under S.88 of the Income Tax Ordinance, 1979.

(f) Income Tax Ordinance (XXXI of 1979)---

----S.111 & Second Sched.---Penalty---Concealment of income---Wrong claim of exemption,---Effect---Assessee, on the one hand had been allowed to claim exemption from tax in respect of any item of receipt ii it genuinely felt that exemption was available to him in law and even ii the exemption was disallowed, assessee had been provided protection from levy of penalty for concealment of income or furnishing of inaccurate particulars of income and on the other hand the Revenue had been allowed to levy penalty under S.111 of the Income Tax Ordinance, 1979, provided the burden was discharged by the Revenue by proving that an assessee had deliberately claimed exemption from tax in respect of any item of receipt which was not genuine.

(g) Income Tax Ordinance (XXXI of 1979)---

----S.88---Additional tax----Apprehension of the Department that if in the event of disallowance of claim of exemption, the Department was not allowed to have resort to the provisions contained in S.88 of the Income Tax Ordinance, 1979, it will tend to encourage the assessees to claim exemptions which were not genuine and some assessees shall take undue advantage, was totally misconceived and unfounded.

(h) Income Tax Ordinance (XXXI of 1979)---

----Second Sched., Ss. 88 & 111---Exemption---Additional tax---Penalty-­Any assessee claiming exemption which was not genuine or which was deliberately claimed knowing that the same was not available, he shall always be liable to the imposition of penalty under S. 111 of the Income Tax Ordinance, 1979, which shall be much more than the imposition of additional tax under S.88 of the Income Tax Ordinance, 1979.

(i) Income Tax Ordinance (XXXI of 1979)---

----S.111---Penalty---Concealment of income---Burden of proof---Burden would always be on the Department to fulfil the requirement of law---For the purpose of imposing penalty under S.111 of the Income Tax Ordinance, 1979.

Jawed Farooqi for Appellant.

Miss Sofia Saeed for Respondent.

Date of hearing: 18th September, 2001.

2002 P T D 403

[Karachi High Court]

Before Dr. Ghous Muhammad and Mushir Alam, JJ

Messrs EVICRETE LIMITED through Chairman

versus

CUSTOMS, CENTRAL EXCISE AND SALES TAX APPELLATE TRIBUNAL (KARACHI BENCH) and others

Constitutional Petition No.817 of 1999, decided on 3rd May, 1999.

Sales Tax Act (VII of 1990)---

----S.46(4)---Constitution of Pakistan (1973), Art. 199(4A)--­Constitutional petition---Recovery of revenue---Interim order passed by person other than the High Court---Provision of Art.199(4A) of the Constitution of Pakistan (1973)---Applicability---Constitutional provision contained in Art.199(4A) is only attracted when an interim order is passed by the High Court in its jurisdiction under Art.199 inter alia, in revenue matters and has no application to the interim orders by any other forum.

Makhdoom Ali Khan for Petitioner.

Naim-ur-Rehman, Deputy Attorney-General for Respondents.

Date of hearing: 3rd May, 1999.

2002 P T D 407

[Karachi High Court]

Before Dr. Ghous Muhammad and Mushir A lam, JJ

Messrs AYENBEE (PRIVATE) LIMITED

versus

INCOME-TAX APPELLATE TRIBUNAL (HEADQUARTERS), KARACHI and others

Income-tax Appeals Nos. 95 and 96 of 1998, decided on 4th June, 1999.

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss.63 & 61---Best judgment assessment---Assessing Officer can proceed to frame an assessment under S.63 of the Income Tax Ordinance, 1979 by way of a best judgment assessment where the requisitions of the Assessing Officer under S.61 of the Income Tax Ordinance remain uncomplied with.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.63---Best judgment assessment---Books of accounts---Non­production of---Effect---Where despite providing sufficient opportunity to the assessee the books of account were not produced by it, the Assessing Officer could proceed with best judgment assessment under S.63 of the Income Tax Ordinance, 1979.

(c) Income Tax Ordinance (XXXI of 1979)---

----S.63---Best judgment assessment---Basis and requirements---Best judgment assessment must not be dishonest, vindictive or capricious and should reflect reasoning and basis of honest guess work and should not be a punishment which is meted out to the assessee and must reflect the Assessing Officer's fair and proper estimate after taking into consideration of local knowledge, repute of the assessee's circumstances, his own knowledge of previous returns of the assessee and other parallel cases, which are proved to be parallel.

Messrs Pak Co. Ltd., Sargodha v. C.I.T., Rawalpindi. Zone 1985 SCMR 786 rel.

(d) Income-tax---

----Accounts---Maintenance of---Adverse inference---Law does not cast any obligation on the assessee to maintain accounts and no adverse inference can be drawn for failing to maintain accounts---Where, however, accounts are maintained and the same are not produced or are suppressed, adverse inference can be drawn.

Lajwanti Sial and others v. CIT (1956) 30 ITR 228 rel.

(e) Income Tax Ordinance (XXXI of 1979)---

----S.63---Best judgment assessment---Books of account were neither denied nor produced---Assessing Officer's guess work was neither honest nor he relied upon the past history of the assessee---Validity---Existence of books of account were neither denied by the assessee nor were produced, thus the Assessing Officer was justified to proceed by way of a best judgment assessment---Such assessment, however, should not have been capricious and without any basis---No reflection of any honest guess work was found in the assessment order to substantiate that the Assessing Officer had relied upon the local knowledge, repute of the assessee's circumstances or on his own knowledge of the assessee's previous returns or that of other parallel cases, nor he had relied upon the past history of the assessee---Process of estimation was totally an ad hoc exercise floating on the surface---Assessment order was riot sustainable in circumstances---High Court directed the Assessing Officer to accept the trading results of the assessee.

(f) Income Tax Ordinance (XXXI of 1979)---

----S.23---Rejection of accounts---Trading account---Rejection of claim of profit and loss expenses on account of its being disproportionate to the quantum of sales and gross profit---Validity---Allegation of dispropor­tionate profit and loss expenses to the quantum of sales and gross profit was not an appropriate reason for the rejection of trading results---Sales and the gross profit were the entries of Trading Account where the profit and loss expenses find entry in the Profit and Loss Account---Entries in the Profit and Loss Account could not be a yardstick for the entries in the Trading Account---Profit and loss expenses were not a standard for measuring trading results---Objection for rejection of the trading results was declared to be improper---When the Assessing Officer found the profit and loss expenses to be excessive, disproportionate, unvouched or unreasonable he could disallow the same under S.23 of the Income Tax Ordinance, 1979, but after proper reasoning and after pointing out specific items which warranted disallowance.

(g) Income Tax Ordinance (XXXI of 1979)---

----S.23---Rejection of accounts---Trading result---Expenses of salaries--­Rejection of trading result on the ground that expenses towards salaries were very high confirming the business activity on a large scale was not proper---Salary expenses could be disallowed under S.23 of the Income Tax Ordinance, 1979.

(h) Income Tax Ordinance (XXXI of 1979)---

----S.23---Rejection of accounts---Trading results---Unverifiable sales and purchases ---Unverifiability of sales and purchases cannot be a ground for rejection of trading results.

Pimpa (Pvt.) Ltd. v. CIT 1994 PTD 123 rel.

(i) Income Tax Ordinance (XXXI of 1979)---

----S:23---Rejection of accounts---Trading results---Past history ---Res judicata Adverse past history of the assessee was not a correct ground to reject the accounts as rule of res judicata is not applicable to income-tax proceedings and every year is an independent year.

CIT v. Captain Chemical 1991 PTD 678 rel.

(j) Income Tax Ordinance (XXXI of 1979)---

----Ss.63 & 62---Best judgment assessment---Rejection of accounts--­Rejection of accounts without pointing out specific defects---Assessment under S.63 of the Income Tax Ordinance, 1979---Validity---Accounts could not be rejected till specific defects were found in the accounts from which it could be seen that correct profits could not be determined therefrom---No such defect was pointed out by the Assessing Officer or the Appellate Tribunal---Assessment order was not an ex parte or best judgment assessment under S.63 of the Income Tax Ordinance, 1979 as it had not been framed on account of default of the assessee---Mere mention of a wrong section was inconsequential and order was construed as an order under S.62 of the Income Tax Ordinance; 1979---High Court directed the Department to accept the trading result of the assessee in circumstances.

CIT v. Krudd Sons Ltd. 1994 PTD 174; Safia Bibi v. Aisha Bibi 1982 SCMR 494; Baigan v. Abdul Hakeem PLJ 1982 SC 701 and Star Rolling Mills v. CIT\PLD 1974 Note 129 at p.189 rel.

(k) Income-tax---

----Remand---Remand order would have meant that the assessee would have been subjected to another round of cumbersome proceedings which is deprecated in law and such order should not be passed in a routine manner to allow a party to improve his case or to fill in the lacuna.

Muhammad Sadiq v. I.T.O. 1988 PTD 1014 and Chairman, WAPDA v. Gulbat Khan 1996 SCMR 230 rel.

Abdul Rahim Bhatti for Appellant.

Sheikh Haider for Respondents.

Date of hearing: 4th June, 1999.

2002 P T D 570

[Karachi High Court]

Before Muhammad Roshan Essani and Muhammad Mujeebullah Siddiqui, JJ

COMMISSIONER OF INCOME-TAX

versus

ATEED RIAZ

I. T. R. No. 148 of 2001, decided on 16th November, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss. 156, 62, 132, 135 & 136---Rectification of order ---Effect--­Reference---Order under S.156 of the Income Tax Ordinance, 1979 would partake the character of original order, which was rectified under S.156---Order passed under S.62 of the Ordinance if rectified under S.156, would assume the character of order under S.62, and an appeal from order under 5.156 would lie in the same manner as from an order under S.62---First and second appellate orders under Ss. 132 &135 of the Ordinance, if rectified under S.156, then rectified orders were to be read as orders under S.132 read with S.156 and order under S.135 read with 5.156 of the Ordinance respectively---Order rectified by Appellate Tribunal under S.156 would be deemed to be an order under 5.135, and reference relating to any question of law arising out of order under S.156 would lie in-the same manner as out of an order under S.135 of the Ordinance.

The Commissioner of Income Tax v. Messrs Adam Ltd. PLD 1969 Kar. 300; Hasan Ali Karabhai v. Commissioner of Income-tax PLD 1974 Kar. 473; Imperial Chemical Industries v. Commissioner of Income-tax (1979) 116 ITR 516 and Messrs Pakistan Electric Fittings Manufacturing Co. Ltd. v. Commissioner of Income Tax 2000 PTD 2407 ref.

(b) Income Tax Ordinance (XXXI of 1979)--

----Ss. 135, 136(1)(2) & 156---Reference to High Court---Limitation--­Tribunal passed order under S.135 of the Ordinance on 21-9-2000---No reference application under S.136(1) in respect of any question of law arising out of order, dated 21-9-2000 was filed, but instead department filed rectification application under S.156 of the Ordinance, which was rejected on 26-1-2001---Department then fled reference application under S.136(1) proposing question for reference to High Court arising out of order rejecting rectification application which was also rejected by Tribunal on 27-4-2001---Department filed -reference application directly under S.136(2) proposing question of law arising out of the original order of Tribunal, dated 21-9-2001---Validity---Both orders under Ss. 135 & 156 were subject to reference to High Court, but period of limitation for making reference to High Court from each order would be the same as provided in S.136(l)(2)---None could be allowed to seek a. reference to High Court in respect of question of law arising out of original order under S.135 beyond period of ninety days as provided under S.136(1) of the Ordinance---Reference application in respect of an order under S.156 would, lie, if question of law had arisen out of order under S.156 only and not otherwise---Question of law arising out of order under S.135 could not be referred to High Court with reference to order under S.156 after expiry of period of limitation---Department had not pointed out any infirmity in the order of Tribunal, dated 27-4-2001 rejecting its reference application under. S.136(1)--Question which could arise out of order of Tribunal passed under S.156 was, whether Tribunal was justified 'in rejecting rectification application --- Department had not proposed any such question in the reference application, but instead had proposed question arising out of original order of Tribunal, dated 21-9-2000, which had become barred by time---Tribunal had rightly rejected reference under S.136(1) of the Ordinance---Reference application under S.136(2) of the Ordinance was not maintainable in the circumstances.

CIT v. Sarfraz Ali Sheikh 2000 PTD 374; CIT v. National Food Laboratories 1992 SCMR 687 = 1992 PTD 570 and Messrs Pakistan Electric Fittings Manufacturing Co. Ltd. v. Commissioner of-Income-tax 2000 PTD 2407 ref.

Adeel Ahmed Abbasi for Petitioner.

Date of hearing: 16th November, 2001

2002 P T D 654

[Karachi High Court]

Before Ghulam Nabi Soomro and Muhammad Mujeebullah Siddiqui, JJ

Messrs PREMIER DISTRIBUTORS

versus

FEDERATION OF PAKISTAN and others

Constitutional Petition No.D‑86 of 2000, decided on 29th November, 2001.

(a) Constitution of Pakistan (1973)‑‑‑

‑‑‑‑Art. 199‑‑‑Constitutional petition‑‑‑Rule of availing alternate remedy available under the law before filing Constitutional petition‑‑‑Not absolute‑‑‑General principles.

No doubt, it is the general rule that before invoking writ jurisdiction of the High Court under Article 199 of the Constitution, the other remedies available in law should be explored and availed. Normally, if an obligation is created under a statute and remedies are also provided ‑under the said statute by way of ‑appeals/revisions, a person should avail the remedy and forums provided in the statute. In the ordinary course, no person should be allowed to bypass the alternative remedy available in law‑ However, the rule is not absolute.

Messrs Julian Hoshang Dinshaw Trust v. Income‑tax Officer 1992 SCMR 250 and Khalid Mahmood v. Collector of Customs 1999 SCMR 1881 ref.

(b) Constitution of Pakistan (1973)‑‑‑

‑‑‑‑Art. 199‑‑‑Constitutional petition‑‑‑Non‑availing of alternate remedy‑­Where impugned order is patently illegal and perverse, High Court should exercise its jurisdiction under Art: 199 of the Constitution.

(c) Precedent‑‑‑

‑‑‑‑ Tendency of, ignoring or bypassing decisions of superior Courts on the part of Revenue Authorities was deprecated by High Court‑‑‑Such tendency needed to be curbed for better administration of justice, observance of discipline and maintaining the rule of consistency.

(d) Sales Tax Art (VII of 1990)‑‑‑

‑‑‑‑Ss. 3(1) & 13(1)‑‑‑Goods enjoying exemption under S.13(1) of Sales Tax Act, 1990, were out of the purview of the Act.

Army Welfare Sugar Mills v. Federation of Pakistan (1992 SCMR 1652 rel.

(e) Sales Tax Act (VII of 1990)‑‑‑

‑‑‑‑Ss.‑2(41) [as amended by Finance Act (III of 1998)], 3(1), 13, 33,34 & 36‑SRO No.580(1)/91, dated 27‑6‑1991‑‑‑SRO No.561(I)/94, dated 9‑6‑1994‑‑‑Constitution of Pakistan (197‑3), Art. 199‑‑‑Constitutional petition‑‑‑Maintainability‑‑‑Demand of sales tax‑‑‑Non‑availing of alternate remedies provided in Sales Tax Act; 1990‑‑‑Effect of impugned SROs were earlier considered by High Court in cases of Messrs Wily Food (Pvt.) Ltd. v. Government of Pakistan (1997 PTD 63) and Pine Match v. C.B.R. 1998 PTD 3490‑‑‑Authority while passing impugned order in order to justify the opinion of Central Board of Revenue contained in a letter did not follow such judgments when cited before it but it attempted to demonstrate ‑that High Court had not taken into notice relevant provisions of law and had fallen in error‑‑‑Validity‑‑‑ Such attempt on the part of Revenue Authorities has always to be viewed very seriously and might entail an appropriate action‑‑‑High‑Court gave stern warning that no such attempt should be made in future‑‑‑Impugned order of the Authority was patently illegal and perverse‑‑‑ Petitioners in such circumstances could not be directed to go through the remedies available under sub‑Constitutional legislation‑-‑Constitutional petition was maintainable.

Messrs Wily Food (Pvt.) Ltd., v. Government of Pakistan‑1997 PTD 63 and Pine Match v. C.B.R. 1998 PTD 3490 and Khalid Mehmood v. Collector of Customs 1999 SCMR 1881 rel.

(f) Sales Tax Act (VII of 1990)‑‑‑

‑‑‑‑Ss. 241 [as amended by Finance Act (III of 1998)], 3(1), 13, 33, 34 & 36‑SRO No.580(1)/91, dated 27‑6‑1991‑‑‑SRO No.561(I)/94, dated 9‑6‑1994‑‑‑Constitution of Pakistan (1973), Art. 199‑‑‑Show‑cause notice‑‑‑Demand of sales tax from petitioners (the distributors) on supply of goods manufactured/produced by their principals on the ground that exemption from sales tax under SRO No.580(I)/91 and SRO No.561(I)/94, dated 9‑6‑1994 was available only to supplies shade by their principals, but such exemption was not available on subsequent supplies to or by wholesalers, retailers and distributors‑‑‑Contention of petitioners was that granting exemption to manufacturer and denying the same to petitioners, who were merely agents for distribution of their Principals' goods was contradictory in terms and amounted to indirectly taxing the exempted goods‑‑‑Validity‑‑‑Effect of such SROs was considered in cases of Messrs Wily Food (Pvt.) Ltd., v. Government of Pakistan (1997 PTD 63) and Pine Match v. C.B.R. (1998 PTD 3490), wherein High Court had found that once a citizen had acted upon assurances/incentives, then. Government was estopped from withdrawing exemption/concession given under SRO‑‑‑‑Petitioners were entitled to concessions /exemptions granted in SRO 580(1)91 and subsequent SRO 561(1)/94 was not operative against the petitioner's principals‑‑‑Result of such exemption being enjoyed by manufacturers under S.13 of the Act was that supply of such goods by manufacturers, dealers, wholesalers and retailers would not fall within purview of taxable supply, because supply of goods exempted from payment of sale tax under S:13 of the Act went out of the scope of S.3(1) of the Act‑‑‑Opinion of Central Board of Revenue contained in letter, dated 29‑6‑1998 was not applicable to petitioners,‑‑Impugned older being patently illegal and perverse was quashed‑‑‑High Court accepted Constitutional petition and declared that petitioners were not liable to pay sales tax on supplies/products/goods mentioned in impugned order and restrained the respondents from levying, demanding, collecting or recovering any amount by way of sales tax from petitioners on their supplies in the market in respect of goods manufactured by petitioners' principals during the period of ‑exemp­tion granted under SRO 580(1)91 read with SRO‑ 561(1)/94.

Messrs Wily Food (Pvt.) Ltd., v. Government of Pakistan 1997 PTD 63 and Pine Match v. C.B.R. 1998 PTD 3490 and Army Welfare Sugar Mills v. Federation of Pakistan 1992 SCMR 1652 rel.

Gulistan Textile Mills Limited v. Government of Pakistan 1999 SCMR 1072; 1999 SCMR 412; Messrs Khyber Plastic and Polymer Industries (Pvt.) Ltd. v. Government of Pakistan 1997 PTD 1872; Collector, Central Excise v. Azizuddin Industries Chittagong PLD 1970 SC 439‑B; 1986 SCMR 1917; Messrs M.Y. Electronics Industries (Pvt.) v. Government of Pakistan 1998 SCMR 1404; Crescent Pak Industries (Pvt.) Ltd: v. Government of Pakistan 1990 PTD 29; Commissioner of Income‑tax v. Messrs Agha Textile Mills, PLD 1962 Lah. 816; Commissioner of Income‑tax v. Messrs Ayurvedic Pharmacy PLD 1970 SC 93 and A & B Food Industries Ltd. v Commissioner of income‑tax 1992 SCMR 663 ref.

Abdul Aziz Memon for Petitioner.

Syed Ziauddin Nasir, Standing Counsel for Respondent No. 1.

Raja Muhammad Iqbal for Respondents Nos.2 and 3.

Date of hearing: 10th October, 2001.

2002 P T D 679

[Karachi High Court]

Before Dr. Ghous Muhammad, S. Ahmed Sarwana and Zahid Kurban Alavi, JJ

Messrs PAK-SAUDI FERTILIZERS LTD.

versus

FEDERATION OF PAKISTAN and others

Constitutional Petition No. 283-of 1999, decided on 29th January, 2001.

(a) Constitution of Pakistan (1973)---

----Art. 199---Civil Procedure Code (V of 1908), S.115---Constitutional petition---Failure to avail revisional remedy---Effect---Availability of revisional remedy is not fatal to maintainability of Constitutional petition as revision in law is not reckoned to be an efficacious or alternate remedy.

Mst. Hussain Bibi v. Muhammad Din 1976 SCMR 395 ref.

(b) Constitution of Pakistan (1973)---

----Art. 199---Constitutional jurisdiction, exercise of---Availability of efficacious and alternate remedy---Not an absolute rule to non-suit ' a petitioner---Principle.

Rule of availability of alternate remedies in non-suiting a petitioner in writ jurisdiction is not an absolute rule but merely a procedure through which the superior Courts regulate their jurisdiction.

Normally, a writ petition is not maintainable where efficacious and alternate remedies are provided under a statute. Remedies should be specifically provided under law and not based upon any general principle of law; e.g. where the statute does not provide for an appeal, the petitioner could not be non-suited on the ground of availability of alternate remedy on the general hypothesis that some representation could be filed.

Where the alternate remedy is not efficacious, resort thereto would be immaterial;

Where resort to alternate remedy would be illusory or an exercise in futility i.e. where the highest appellate or revisional forum has 'taken a particular view it is not necessary to avail the alternate remedies provided under the statute;

Where the impugned actions are completely without jurisdiction, mala fide and unlawful, it is not necessary to avail alternate remedies;

Where a person has already resorted to departmental remedies, he could not be allowed to bypass or abandon the same and file a writ petition;

Where the vires of a particular statute, notification or circular is challenged the only remedy is a writ petition under Article 199 or a suit before the Civil Court.

Kamran Industries v. Collector of Customs PLD 1996 Kar. 68; Income-tax Officer v. Hamdard Dawakhana (Waqf) PLD 1992 SC 847; H.M. Abdullah v. Income Tax Officer 1993 SCMR 1195; S. Mageshwani v. ACIT 1995 PTD Note 27 at p.35; Gatron (Industries) Ltd. v. Government of Pakistan 1999 SCMR 1072; Collector of Customs v. S.M. Ahmed & Co. (Pvt.) Ltd. 1999 SCMR 138; Tharparkar Sugar Mills v. Federation of Pakistan 1996 MLD 1220 and Citibank v. Pakistan and others C.P. No. 1035 of 1998 ref.

(c) Discretion---

----Administrative decision---Pre-condition for structuring discretion--­Public functionaries are to act fairly, justly, equitably and not unreasonably.

Chairman, R.T.A. v. Pakistan Mutual Insurance PLD 1991 SC 14 ref.

(d) Civil Procedure Code (V of 1908)---

----O.XXXIX, Rr. 1 & 2---Appellate Authority---Power to grant interim relief---Authority having power to grant final relief has the ancillary or incidental power to grant interim relief---Absence of any provision in a statute empowering an Authority to grant interim relief would not mean that Authority while exercising appellate jurisdiction is powerless and does not have the power to grant interim relief to appellant.

Sindh Employees' Social Security Institution v. Adamjee Cotton Mills PLD 1975 SC 32 ref.

(e) Income Tax Ordinance (XXXI of 1979)---

----S. 65---Constitution of Pakistan (1973), Art. 199---Constitutional petition--- Maintainability---Where impugned action is completely without jurisdiction or illegal and no immediate departmental remedy is available, petitioner cannot be non-suited on ground that against subsequent actions that are to follow the initial action, the alternate remedy is provided under the Statute---Principles.

Eduljee Dinshaw v. Income-tax Officer 1990 PTD 155; Pakistan Educational Society v. Federation 1993 PTD 804; Banarsi Dass and another v Income-tax Officer (1962) 46 ITR 633 (Panj.); Mohindra Mohan Sirkar v. Income , Tax Officer (1978) 112 ITR 47 (Cal.) and Central Insurance Co. v. C.B.R: 1993 SCMR 1232 ref.

(f) Income Tax Ordinance (XXXI of 1979)---

----S. 65---Constitution of Pakistan (1973), Art. 199---Constitutional petition--- Re-opening of assessment---Interlocutory relief---Where petitioner has challenged the very notice of re-opening the case or otherwise, the proceedings should be stayed and the Assessing Officer should not be allowed to complete the assessment---Where during pendency of Constitutional petition, assessment or re-assessment order is finalized either through an interlocutory arrangement or by consent or otherwise, then the department would not be allowed to raise the plea of availability of alternate remedies---Principles.

In relation to interlocutory reliefs 'in petitions challenging reopening of assessments, there is a growing tendency amongst counsel appearing. for the department to insist on passing orders that' the department be allowed to complete the assessments, while no recoveries would be made till final disposal of the petitions. This is not a suitable interlocutory arrangement since where the petitioners challenge the very notices reopening the cases or otherwise, the proceedings should be stayed and the Assessing Officer should not be allowed to complete the assessments. The reasons for this are that firstly the assessee would be subject to another round of cumbersome proceedings, which are under challenge; secondly, the petitioners would then be in a fix whether to pursue the departmental remedies or press petitions. It is quite conceivable that for some technical defect the petition is dismissed in which case the petitioners would be without remedies as their prospective departmental appeal against the order of reassessment would become time-barred. In case the assessment or reassessment order is finalized after the petition has been filed i.e. during its pendency, whether through an interlocutory arrangement or otherwise, and whether by consent or otherwise, the department is precluded from raising the plea of availability of alternate remedies.

(g) Income Tax Ordinance (XXXI of 1979)---

----Ss. 50(4), 54, 55, 61, 62, 80-C, 80-D & 143-B---Assessment after detailed scrutiny---Presumptive tax regime under S.80-C of the Income Tax Ordinance, 1979 i.e. deeming by fiction of law or presumption the figures of supplies, commercial imports etc., to be income ---Distinction-­History, scope, meaning and application of presumptive tax regime.

The Scheme originally envisaged in Income Tax Ordinance, 1979 was that an assessee- was to file a return of total income and tax under section 55; alongwith such return the assessee would also pay the income-tax according to his own declaration as provided in section 54; upon receipt of such return the Assessing Officer was to apply his mind and in case he had any enquiries he could issue a notice under section 61 and require the assessee to furnish details, materials and explanations. This process of enquiry was called "detailed scrutiny" ox "the proceeding under normal law". After looking into all the explanations and details furnished by the assessee, the Assessing Officer then finalized the assessment and issued an assessment order under section 62. Thus, the assessment order under section 62 was called the "order under normal law after detailed scrutiny". In this process the Assessing Officer could. reject the trading results, estimate the sales and profits and even add any concealed or suppressed income. However, the most pertinent aspect had been that the assessee in filing his return was allowed to set off expenses from sales and gross income/profit so as to arrive at the net income, which was the taxable income i.e. income-tax was calculated thereon. It may also be noted that all withholding taxes i.e. deductions of tax at source on accounts of supplies, imports etc. were adjusted with the computation of income-tax so as to arrive at the actual liability of income-tax which was to be paid at the time of filing the return under section 54. In case the withholding tax was less than the computed income-tax for the year, the difference was paid with the return; whereas in cases where the figures of the withholding tax exceeded the amount of the computed income-tax, the difference was claimed as refund by the assessee. This Scheme of income-tax underwent a complete metamorphosis upon the advent of the Finance Act, 1991 which inserted sections 80C and 80D in the 1979 Ordinance. Section 80C read with the corresponding schedule created certain categories of assessees for whom a presumptive tax regime was introduced. One such classification was the category of suppliers. The way this operated was that persons i.e. assessees who supplied goods to anyone were to pay income-tax at a particular percentage of the value of the supplies. This figure represented the income-tax of the assessee and constituted a final discharge of liability of tax. This meant that the assessee was not required to file any return under section 55 or be asked by the Assessing Officer any questions and explanations with regard to the declared version in the return. All that the assessee was required was to submit a statement under section 143-B giving details of the" supplies and deductions of tax and the Assessing Officer was prohibited from raising any enquiries and had to accept the statements under section 143-B as it was. This meant that the Assessing Officer has no power or authority to proceed under normal law or undertake detailed scrutiny of the statement under section 143-B. Also if there was any withholding tax i.e. deduction of tax at source under section 50(4) on the supplies the same was also taken towards a final discharge of liability. The important aspect which .is to be pointed out is that after the advent of section 80C, for the categories to which- it applied, income-tax was being charged at a figure which represented supplies or in other cases commercial imports or contractual receipts, but not the .net profit, which earlier was construed as the total income. Through 80C the figures of supplies, commercial imports etc. were deemed to be income by fiction of law or presumption, hence the expression "presumptive tax regime".

Elahi Cotton Mills Ltd. v. Federation of Pakistan PLD 1997 SC ref.

(h) Income Tax Ordinance (XXXI of 1979)---

----Ss. 80-C & 143-B read with S.55---Application of presumptive tax regime of S. 80-C, Income Tax Ordinance, 1979---Powers of Assessing Officer---Categories to which presumptive tax regime of S:80-C applies, Assessing Officer cannot proceed under normal law, but has to accept the statement under S.143-B of the Ordinance---For categories to which S.80-C does not apply, Assessing Officer proceeds under the normal law on the basis of return filed under S.55 of the Ordinance.

(i) Income Tax Ordinance (XXXI of 1979)---

----Ss. 50(4), 80-C, 129 & 143-B---Constitution of Pakistan (1973), Art. 199---Constitutional petition---Presumptive tax regime---Petitioner after exercising its option to opt for presumptive tax regime under S.80-C submitted a statement under S.143-B of Income Tax Ordinance, 1979 furnishing the details of deductions at source under S.50(4) of Income Tax Ordinance, 1979---Assessing Officer rejected such exercise of option and proceeded to assess under normal law and finalized assessment order---Petitioner during pendency of Constitutional petition also filed first appeal before Commissioner under S.129 of the Ordinance---Validity-Constitutional petition was not maintainable in view of the principle of law laid down in case of Banarsi Dass and another v. Income Tax Officer (1962) 46 ITR 633 (Punj.) High Court, however, directed the Appellate Authority to dispose of the appeal strictly in accordance with law without any instructions or directions from any superior or other authority.

Pakistan Educational Society v. Federation 1993 PTD 804 ref.

(j) Income Tax Ordinance (XXXI of 1979)---

----Ss. 92, 129 & 134---Constitution of Pakistan (1973), Art. 199--­Constitutional petition---Stay of recovery proceedings---Petitioner's appeal pending before Commissioner--Assessing Officer took coercive actions by freezing Bank accounts under S.92 of the Ordinance and withdrew funds therefrom---Contention of the Department was that in terms of Circulars issued by Central Board of Revenue; Assessing Officer could take coercive actions towards recoveries despite pendency of appeals and disputes---Validity---Circulars of Central Board of Revenue could not hamper the exercise of discretion in a judicial or quasi-judicial capacity, but such principle of law would not apply to Circulars beneficial to assessee---Failure of respondents to stay recovery, proceedings had amounted to failure to exercise discretion properly and judiciously and on such score, Constitutional petition was maintainable---High Court declared recovery proceedings initiated by Assessing Officer to be without lawful authority in view of the pendency of appeals/disputes and unconditionally stayed the coercive measures towards recovery till disposal of appeals by departmental hierarchies up to the Income Tax Appellate Tribunal., Tharparkar Sugar Mills v. Federation of Pakistan 1996 MLD 1220 fol.

(k) Income Tax Ordinance (XXXI of 1979)---

----S. 129---Appeal---Grant of interim relief---Interim relief is necessitated, where immediate urgent disposal of cases may .pot be possible and the delay would be detrimental. to the interest of appellant--­Appeal before Commissioner should always be accompanied with an application for interim relief---Commissioner should in his discretion grant interim relief to appellant and try to dispose of the matter as early as possible---Where appellant is in a position to satisfy the Court that there are enough and more liquid/fixed assets, then interim relief should be given.

(1) Income Tax Ordinance (XXXI of 1979)---

----S. -129---Appeal---Interim relief---Commissioner has power to grant interim relief, wherever an appellant requests for such relief and makes out a prima facie case for grant of such relief---Such power has to be exercised judiciously in accordance with the principles laid down by superior Courts---While exercising appellate jurisdiction, Commissioner has ancillary or incidental power to grant interim relief i.e. to grant stay against the demand made by Income Tax Officer---Remedy of appeal before Commissioner cannot be said to be inadequate and ineffective in absence of express power in the statute to grant interim relief.

(m) Income Tax Ordinance (XXXI of 1979)---

----Ss. 129 & 134---Dispute with regard to assessment order pending in the shape of appeal---No coercive action for recovery, in the meanwhile, should be taken against the assessee.

Pakistan Pipe and Construction v. City Mukhtiarkar PLD! 1984 Kar. 28 ref.

(n) Income Tax Ordinance (XXXI of 1979)---

----Ss. 129 & 134---Appeal---Necessity of granting interim relief in fiscal matters stated.

(o) Income Tax Ordinance (XXXI of 1979)---

----S. 162---Civil Procedure Code (V of 1908), S.9---Bar of suit---Bar contained in S.162 of the Income Tax Ordinance, 1979 would not apply, where recoveries were in pursuance of order which Were without jurisdiction, unlawful and without any legal basis---Such recoveries could hardly be considered as "order made under this Ordinance" in terms of S.162, so as to warrant its protection.

Pakistan Pipe and Construction v. City Mukhtiarkar PLD 1984 Kar. 28 and Abdul Rauf v. Abdul Hamid Khari PLD 1965 SC 671 ref.

Muhammad Ather Saeed for Petitioner.

Muhammad Farid for Respondent.

Date of hearing: 13eh. April, 1999.

2002 P T D 700

[Karachi High Court]

Before Zahid Kurban Alavi and Muhammad Mujeebullah Siddiqui, JJ

Syed AZHAR ALI

versus

DIRECTOR‑GENERAL, EXCISE AND TAXATION and others

Constitutional Petition'No.438 of 1989, decided on 21st November, 2001.

(a) Capital Gains Tax Rules, 1964‑‑‑

‑‑‑‑Rr. 3, 4, 5, 6, 7, 8 & 9‑‑‑West Pakistan Finance Act (IX of 1963), S.M(1)(2)‑‑‑West Pakistan Immovable Property Tax Act (V of 1958), S.3‑‑‑Sale, exchange or transfer of immovable property‑‑‑Capital gains tax, determination of‑‑‑Procedure elaborated.

(b) Capital. Gains Tax Rules, 1964‑‑‑

‑‑‑‑Rr. 7 & 8‑‑‑West Pakistan Finance Act (IX of 1963), S.16(2)(b)‑‑­West Pakistan Immovable Property Tax Act (V of 1958, S.3‑‑‑Fair market value of immovable property,. determination of‑‑‑Factors to be considered by Assessing Officer; value of consideration of sales or transfers of similarly situated and similarly used urban immovable properties; price paid for adjacent lands possessing similar advantages; price paid within a reasonable time for the property; rates and profits of ,property received shortly before:' the sale and opinion of valuer or 'experts‑‑‑Price at which one property may have been‑sold would not be sufficient, but a number of sales and transfers must be‑ taken into consideration for such purpose.

(c) Capital Gains Tax Rules, 1964‑‑‑

‑‑‑‑Rr. 7, 8, 9, 15 & 16‑‑‑West Pakistan Finance Act (IX of 1963), S 16(2)(b)‑‑‑West Pakistan Immovable Property Tax Act (V of 1958), S.3 ‑‑‑Constitution of Pakistan (1973). Art‑199 ‑‑‑Constitutional petition‑‑­Capital gains tax, determination of‑‑‑Assessing Officer assessed the property at the rate higher than declared by petitioner in his return without taking into consideration sales of similarly situated properties possessing similar advantages‑‑‑Appeal and revision filed against assessment order were dismissed ‑‑‑Validity‑‑‑‑Assessing Authority had made assessment order without application of mind and without assigning any specific reason by use of generalized statement and stock purchases by merely filling in the blanks of stereotyped printed form‑‑‑Court deprecated such method in quasi‑judicial proceedings and Particularly in matters pertaining to creation of fiscal liability‑‑‑Revisional and Appel­late Authority had neither considered contentions raised by petitioner nor had realized that Assessing Authority had fixed the valuation of property sold by petitioner without any comparable instance before him or bringing any material whatsoever on record for discarding the declared valuation and arriving at impugned valuation‑‑‑Burden of assigning reason for determining fair market value of property was on the Assessing Authority and it was not for the assessee to produce evidence to the effect that valuation arrived at by Assessing Authority was not in accordance with prevailing fair market value‑‑‑High Court allowed Constitutional petition, set aside impugned assessment order as well as appellate and revisional orders directing the Assessing Authority to accept the declared version of petitioner and refund the amount of capital gains tax recovered in excess of ill amount payable by hill: on the basis of declaration made in his return.

Miss Fasree Fatima v. The Principal, Bolari Medical College PLD 1978 Quetta 17 ref.

(d) Taxation‑‑‑

‑‑‑‑.Burden to justify levy of tax‑‑‑Assessing Authority while levying any tax on a citizen/assessee had to establish that declared version of assessee was not correct and the assessment made by the Revenue was based on substance and material satisfying the judicial conscience.

Muhammad Ali Sayeed for Petitioner.

Nemo for Respondents.

Date of hearing: 21st November, 2001.

2001 P T D 720

[Karachi High Court]

Before Muhammad Roshan Essani and

Muhammad Mujeebullah Siddiqui, JJ

COMMISSIONER OF INCOME-TAX

versus

Messrs MUSLIM COMMERCIAL BANK LTD

I. T. C. No. 111 of 1993, decided on 15th November, 2001

Income Tax Ordinance (XXXI of 1979)---

----Ss. 8, 3(1)(x), 4, 5 & 7---Instructions/directions issued by Central Board of Revenue- --Binding on Assessing Officers and all other Tax Authorities performing administrative functions,-but not on assessee and Appellate Authorities---Central Board of Revenue is an apex Authority- in the hierarchy of Federal Tax Administration, but not a forum competent to adjudicate upon matters requiring interpretation of statute nor has any role in respect of judicial or quasi-judicial functions.

Central Board of Revenue is apex Authority in the hierarchy of Federal Tax Administration and has been vested with the powers to appoint the Income-tax Authorities under section 4 of the Income Tax Ordinance, 1979, and to assign and confer the jurisdiction on the Income-tax Authorities under section 5 of the Income Tax Ordinance, 1979. Under section 7 of the Income Tax Ordinance, 1979, the Deputy Commissioner (Assessing Officer) may be instructed by an Officer to whom he is subordinate or any other person authorised in this behalf by the Central Board of Revenue in the course of any proceedings under the Ordinance. There can be no dispute to the proposition that the assessment proceedings and the assessment orders are the proceedings envisaged under section 7 of the Income Tax Ordinance. Section 8 of the Income Tax. Ordinance, comes at the end of chain of provisions contained in Chapter-II of the Income Tax Ordinance, dealing with the administration and administrative set-up employed in the execution of the Ordinance. Thus, section 8 is to be read in totality of scheme provided in Chapter-II of the Income Tax Ordinance, 1979.

Central Board of Revenue is the apex Authority in the hierarchy of Federal Tax Administration and is supposed and empowered not only to watch but .to control and guide all the tax authorities under it in the execution of Income Tax Ordinance, therefore, it is not only logical but imperative that its instructions, orders and directions must have binding effect on all the officers and persons in the execution of Ordinance, except the Appellate Authorities exercising quasi-judicial functions. The Central Board of Revenue, therefore, can issue instructions/directions from time to time for the implementation, execution and application of various provisions of law without abrogating or modifying the provisions of the statute and in order to maintain the discipline in tax administration. It must be of binding effect on all the tax authorities subordinate to the C:B.R. with the exception of Appellate Authorities performing quasi-judicial functions. This is absolutely necessary in order to mitigate the rigours of law and to save the assessees from undue hardships in certain cases in the execution of various provisions of the Ordinance. As such instructions are not binding on the assessees as well Appellate Authorities, performing quasi-judicial functions, and therefore, they can take exception to any such orders, instructions/ directions, but the Assessing Officers and the other tax authorities performing administrative functions cannot raise any objection to such instructions/directions, which are of binding effect on them.

C.B.R. has no role in respect of judicial or quasi-judicial functions and is not a forum competent to adjudicate upon the matters requiring interpretation of any statute. However, the instructions and directions of the Central Board of Revenue are binding on the functionaries, discharging their functions under the Ordinance so long they are confined to the administrative matters.

The beneficial view taken by the C.B.R., which is not patently violative of any statutory enactment, but is merely aimed at mitigating the rigours of law or implementing, the law keeping in view the pragmatic considerations., requires all respects and is binding on the functionaries employed in the execution of Ordinance, including the Assessing Officers while involved in the assessment proceedings. The C.B.R. is the apex Administrative Authority in the tax administration of the Federation, and thus, occupies very important position. The C.B.R. by virtue of the position occupied by it and the duties assigned to, is not only supposed to implement and execute the revenue laws of the Federation and to supervise the tax administration, but is further supposed to oversee and watch that the law is justly and properly applied and implemented. In performance of this function, the C.B.R. is empowered to issue clarifications, circulars and guidelines containing order, instructions and directions, which are of binding nature. In order' to maintain better discipline, the subordinate Administrative Officer should not venture to circumvent or flout the instructions/directions of the C.B.R.

Addl. Commissioner of Income-tax v. Mrs. Avtar Mohan Singh (1982) 136 ITR 645 and Central Insurance Company v. C.B.R. 1993 SCMR 1232 ref.

Nasrullah Awan for Appellant.

Sirajul Haque for Respondent.

Date of hearing: 15th November, 2001.

2002 P T D 728

[Karachi High Court]

Before Zahid Kurban Alavi and Muhammad Mujeebullah Siddiqui, JJ

Messrs ALNOOR SUGAR MILLS LTD., KARACHI

versus

COMMISSIONER OF INCOME-TAX, CENTRAL ZONE `B', KARACHI

I.T.R. No. 64 of 1982, heard on 22nd August, 2001.

(a) Income-tax Act (XI of 1922)---.

----Ss.4(3)(vii) & 17(5)---Securities and Exchange Ordinance (XVII of 1969), S.14---Assessee received gain from Bank earned from sale of shares of assessee in, pursuance of S.14 of Securities and Exchange Ordinance, 1969---Authority found such receipt to be income--­Contention of assessee was that such receipt being of casual and non recurring nature was not taxable and enjoyed exemption---Validity---Two conditions had to be established for claiming exemption under S.4(3)(vii) of the Income-tax Act, 1922, firstly, the receipt had not arisen from business, or exercise of 'a profession, vocation or occupation and secondly, the receipt was of casual and non-recurring nature---Direction of law contained in S.14 of Securities and Exchange Ordinance, 1969, was in definite term, thus, receipt in question could not be said to be without any design or totally unforeseen---Such receipt was not of casual nature and claim of exe mption was not available to the assessee.

(b) Income-tax Act (XI of 1922)---

----S. 17(5)---Securities and Exchange Ordinance (XVII of 1969), S.14- Assessee received gain from Bank earned from sale of shares of assessee in pursuance of S.14 of Securities and Exchange Ordinance, 1969--­Authority added such receipt to the total income of assessee and taxed it at normal rate---.Validity---Receipt having a definite 'source would be treated as income---Law as embodied in Securities and Exchange Ordinance, 1969, was the source of such receipt and there was definite nexus between the receipt and source---Receipt derived by assessee was income as it was -from a source, whose object was production of definite return---Income coming to an assessee by operation of law would not be .exempt, as the same was not less income for the purpose of income-tax ---Assessee had received the gains through operation of law, thus, could not escape the liability of taxation simply because the shares did not belong to assessee.

Commissioners of Inland Revenue v. Newcastle Breweries Ltd. (1927) 12 Tax Cases 927; B. Malick v. Commissioner of Income-tax (1970) 21 TaX Lahore .347; Pakistan Cement Pipe Construction Company v. Commissioner of Income-tax (1973) 28 Tax 115; Kamakshya Narain Singh v. CIT (1943) 11 ITR 513; Asher v. London Film Productions Ltd. (1994) KB 133; Bennett v. Ogston (1928-31) 15 Tax 374; Commis­sioner of Income-tax v. Smith Kline & French of Pakistan Ltd. 1991. PTD 999 = 1991 SCMR 2374; Susil C. Sen (1941) 9JTR 261; Ratna Sugar Mills Co. Ltd. v. CIT (1958) 33 1TR 644 and Parelkar Gore & Parpia v. Commissioner of Income-tax, Bombay (1958) 34 ITR 312 ref.

(c) Income-tax Act (XI of 1922)---

----S. 4(3)(vii)---Exemption---Casual and non-recurring receipts- --Nature of receipt. must be casual and non-recurring for claiming exemption under S.4(3)(vii) of the Income-tax Act, 1922---Such exemption would not be available, if either of the conditions was lacking.

(d) Income-tax---

----Exemption---Interpretation---Law in case of exemption has to be interpreted strictly and not liberally in favour of assessee---Doubt if any with regard to taxability of any income has to be resolved in favour of assessee---Exemption is not to be extended to assessee unless all conditions for availing exemption are fulfilled.

(e) Income-tax Act (XI of 1922)---

-- Preamble---Object of Income-tax Act, 1 22-was to tax every income until and unless the same enjoyed exemption from payment of income tax.

(f) Income-tax Act (XI of 1922)---

---- Preamble---Term "income" having not been defined in the Act it was not possible to define the same with exactitude and precision.

(g) Income-tax---

----Income---Receipt and its source---Every income barring deeming income is a receipt, but every receipt is not an income---Receipt having a definite source can be treated as income---Source of receipt must be defined, determined and known, so that nexus between the receipt and source is established---Source is not necessarily one which is expected to be continuously productive, but it must be one whose object is the production of definite return excluding anything in the nature of mere windfall---Source of receipt may be an activity on the volition of assessee or may be traced in any provision of law---Any receipt arising out of or as a result of a provision of law connected with business, vocation or profession adopted by an assessee on his own volition is to be treated a source in pursuance of such business, vocation or profession.

Commissioner of Income-tax, Madras v. R.P. Peyer AIR 1932 Mad. 424; Commissioner of Income-tax, Bengal v. Messrs Shaw, Wallace & Company AIR 1932 PC 138; In re: Turner Morrison & Co. Ltd: AIR 1929 Cal. 212; Senairam Doongarmall v. The Commissioner of Income-tax (1961) 42 ITR 392; Commissioners of Inland Revenue v. Newcastle Breweries Ltd. (1927) 12 Tax Cas. 927; Gappumal Kanhaiyalal v. Commissioner of Income-tax (1961) 43 ITR 46 and P.H. Divecha v. Commissioner of Income-tax, Bombay City-I (1963) 48 ITR 222 ref.

(h) Income-tax---

----Compensation, how and when can be treated as profit---When business of an assessee is closed permanently or under compulsive circumstances and any compensation is paid, but no manner and method of the payment is decisive of the character of compensation---Such compensation can neither be treated as taxable profit nor same comprises any element of income.

In re: Turner Morrison & Co. Ltd. AIR 1929 Cal. 212 ref.

(i) Income-tax Act (XI of 1922)--- .

----S. 4(3)(vii)---Exemption---Casual and non-recurring receipt is not taxable profits, if not derived from business, exercise of a profession, vocation or occupation---Receipt arising from business, exercise of a profession, vocation or occupation, notwithstanding its nature being casual and non-recurring, is liable to be taxed.

Senairam Doongarmall v. The Commissioner of Income-tax Act, (1961) 42 ITR 392 ref.

(j) Income-tax---

----Burden of proof---Receipt, whether income-Burden to establish that a receipt is an income is initially on the Department and once such burden is discharged then, the assessee has to show that such receipt enjoyed exemption or was not liable to tax.

Iftikhar Ahmed Butt v. Government of Pakistan Writ Petition No.1973 of 2001 ref.

(k) Income-tax---

----Undisclosed income---When nature of receipt and its source are not satisfactorily explained by an assessee i.e. the facts which are generally within his specific knowledge, then Income-tax Officer may presume that the amount of receipt is an income of assessee from an undisclosed source.

Sirajul Haq Memon for Applicant.

Shaikh Haider for Respondent.

Date of hearing: 22nd August, 2001.

2002 PTD 804

[Karachi High Court]

Before Zahid Kurban Alavi and

Muhammad Mujeebullah Siddiqui, JJ

A. REHMAN alias ABDULLAH and another

versus

FEDERATION OF PAKISTAN and others

Constitutional Petitions Nos.D-639 and 640 of 2001, heard on 30th August, 2001

(a) Income Tax Ordinance (XXXI of 1979)--­

----S. 59-D---Tax Amnesty Scheme, 2000 (C.B.R. Circular No.4, dated 1-3-2000), Para. 10(3)---Words "issued" and "received" in para. 10(3), Tax Amnesty Scheme, 2000---Connotation---Word "issued" used in para. 10(3) of the Scheme with respect to acceptance or rejection letters connotes a performance of duty on the part of Assessing Officer, whereas the word "received" used with respect to show-cause notice, envisages the completion of an act of the issuance of notice by Assessing Officer, thus, envisaging the involvement of both the Assessing Officer and declarant.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss.13 & 59D---Tax Amnesty Scheme, 2000 (C.B.R. Circular No .4, dated 1-3-2000), paras. 10, 11 & 12---C.B.R. Circular No.9 of 2000, dated 31-5-2000, para. 2(c)---C.B.R. Circular No. 1 of 2001, dated 29-1-2001, paras.. 2, 3 & 4---Wealth Tax Act (XV of 1963), S.3­Constitution of Pakistan (1973), Art. 199---Constitutional petition--­Declaration of undisclosed assets under the Tax Amnesty Schemes--­Petitioners filed declarations disclosing therein the investment made by them in the land---Show-cause notice issued to petitioners was replied, but their explanations were rejected---Department required the petitioners to offer further explanations, whereupon they again submitted explanations, which were rejected vide order, dated 20-12-2000, which was received by them on 25-1-2001---Contention of the petitioners was that up to 31-12-2000, they did not receive any order of, rejection or acceptance of their declarations, which according to para. 2(c) of C.B.R. Circular No.9 of 2000 would be deemed to have been accepted--­Validity---Letter of rejection was sent for the first time by post on 6-1-2001, but due to non-service, the letter was sent to them through process-server---Rejection letter had not been issued by 31-12-2000, thus, declarations filed by petitioners ,would be deemed to be accepted and Department had no jurisdiction to cancel the deemed accepted declarations---High Court accepted Constitutional petition and declared order of cancellation issued by the Department after 31-12-2000 as nullity in law and restrained it from carrying on any assessment or penal proceedings in respect of income/assets declared in amnesty declaration-­High Court further clarified that income/value of assets not declared by petitioners would not enjoy immunity under para. 8 of the Amnesty Scheme, and in respect of which on having definite information, the Department would be at liberty to initiate proceedings against petitioners under Income Tax Ordinance, 1979 and Wealth Tax Act, 1963.

(c) Income Tax Ordinance (XXXI of 1979)---

----Ss.13 & 59-D---Tax Amnesty Scheme, 2000 (C.B.R. Circular No.4, dated 1-3-2000), paras. 8 & 10---C.B.R. Circular No.9 of 2000,dated 31-5-2000, para. 2(c)---C.B.R. Circular No.1 of 2001, dated 29-2-2001, para. 2---Wealth Tax Act (XV of 1963), S.3---Declaration of undisclosed income/assets under Tax Amnesty Scheme--- Preliminary examination of declaration---Effect of mistake/deficiency in declaration---Bar on fishing and roving inquiry or initiation of full-fledged assessment proceedings by Assessing Officer---Acceptance/rejection of declaration, period for--­Procedure stated.

After receiving of a 'declaration under the Amnesty Scheme, the Assessing Officer is, merely empowered to subject the declaration to preliminary examination and if as a result of preliminary examination of the declaration, any mistake/deficiency is noticed, he shall call upon the declarant to rectify the mistake/deficiency, revise the declaration and if the declarant responds positively, the declaration shall be accepted. However, if the declarant does not respond and compliance is not made, the declaration would be liable to be rejected. Such acceptance or rejection letter was to be issued at the latest by 31-12-2000 and in case no such letter was/ issued by 31-12-2000, the declaration shall be deemed to be accepted under para. 10(2) of the Amnesty Scheme.

The preliminary examination of the declaration shall be confined to the contents of declaration only and the Assessing Officer has not been empowered to initiate fishing and roving inquiry or order to start full­fledged assessment proceedings, as in the case of normal assessment, for the purpose of making addition under section 13 of the Income Tax. Ordinance, 1979. The income/assets declared shall enjoy immunity under para. 8 of the Amnesty Scheme and if subsequently the Department receives any definite information or it is discovered that any income/ assets was not declared even in the declaration under the Amnesty Scheme, such income/assets shall enjoy no immunity under the Amnesty Scheme and shall be taxed in accordance with the Income-tax/Wealth Tax law.

C.B.R. Circular No.1 of 2001 provides that acceptance or rejection letters in terms of the provisions of para. (c) of Circular No.9 of 2000, dated 31-5-2000 were to be issued and served on or before 31-12-2000. Where such letters have not been issued/served by said date, declarations will be deemed to-have been accepted. Where a notice was served by 31-12-2000, the declarant shall be given 30 days' time under para. 10(3) of Circular No.4 of 2000 to make compliance. It is further provided in Circular No.1 of 2001 that where notice for removal of deficiencies has already been issued, the declaration may be allowed to be revised by 31-3-2001. It shall also be applicable to the cases, where rejection has already been made on this score. On compliance of aforesaid, such letters shall be withdrawn.

The above clarification has merely extended the period for acceptance of the declaration where compliance was not made by the declarants and who were desirous of making compliance and were seeking acceptance of their declarations. It shall have no bearing on the cases, where a declarant was not seeking any extension of time for making compliance.

(d) Income Tax Ordinance (XXXI of 1979)---

----Ss: 129 & 59-D---Tax Amnesty Scheme, 2000, para. 10(4)--­Constitution of Pakistan (1973), Art. 199---Constitutional petitions challenging orders of rejection of declarations filed under Tax Amnesty Scheme, 2000-Department's objection was that impugned orders were open to appeal under 5.129 of the Ordinance, thus, Constitutional petitions were not maintainable---Validity---Amnesty Scheme had been framed under S.59-D of the Ordinance---Impugned orders had been passed under para. 10(4) of the Scheme, against which appeal had not been provided, thus, Constitutional petitions would be maintainable.

(e) Interpretation of statutes---

---- No provision of a statute should be considered in isolation, until and unless any section/provision thereof is a complete code in itself---Any Scheme contained in a statute or subordinate legislation should be considered in totality of the Scheme.

(f) Interpretation of statutes---

---- Where language of any statute or legal document is clear, then the same has to be acted upon accordingly.

Muhammad Ather Saeed for Petitioner.

Muhammad Farid for Respondent.

Date of hearing: 30th August, 2001.

2002 P T D 848

[241 I T R 374]

[Kerala High Court (India)]

Before P. A. Mohammed, P. Shanmugam and G. Sivarajan, JJ

COMMISSIONER OF INCOME-TAX

versus

SOUTH INDIAN BANK LTD.

Income-tax References Nos.52 and 53 of 1995, decided on 1st March, 1999.

Income-tax---

----Business expenditure---Banking company---Interest on securities--­Rectification of mistake---Purchase and sale of securities in course of business of banking---Securities held as stock-in-trade---Interest paid for broken period on purchase of securities---Deductible as business expenditure---Rectification to disallow deduction---Not justified---Indian Income Tax Act, 1961, Ss. 19, 20, X1(1) & 154--- CBDT Circular No.599, dated 24-4-1991.

Per G. Sivarjan and P.A. Mohammed JJ (P. Shanmugam, J. dissenting): Section 20(1) of the Income Tax Act, 1961 (before omission with effect from April 1, 1988), dealt with quantum of the deductions provided under the head "Interest on securities" in the case of a banking' company. Subsection(2) of section 20 provides that the expenses deducted under clauses (i) and (ii) of subsection (1) shall not again form part of the deductions admissible under sections 30 to 37 for the purpose of computing the income of the company under the head "Profits and gains of business or profession". This provision; is a Positive indication in a negative form that the expenses/loss incurred for the purposes and incidental to the business though not specifically provided for, are a permissible deduction in the computation of total income from, business of a banking company. Sub­section (2) makes it clear that the deductions from interest on securities in the case of a banking company provided under subsection (1) of section 20 are not exhaustive and if the claim for deduction of the interest paid on securities is allowable under the provisions of sections 30 to 37, the same can be allowed as a deduction under those sections.

The assessee was a banking company and a scheduled bank Under the provisions of the Banking Regulation Act, 1949, the-bank was required to invest a portion of its funds in Government securities. The bank was thus required to buy and sell Government securities to maintain certain ratios. During the assessment years 1979-80 and 1980-81, the assessee sold Government securities ex-interest and received sums of Rs.5,70,740 and Rs.4,75,294, respectively, for the two years concerned with respect to the broken period up to the date of sale.. Similarly, during the said periods, the assessee purchased Government securities-cum-interest and paid interest for the broken period, of Rs.6,36,411 and 5,15,659, respectively. In the computation of the total income for the years in question, the assessee deducted the interest paid for the broken period and this was originally allowed by the assessing authority in the assessments. Later, the assessing authority withdrew the said deductions by resort to the provisions 'of section 154 of the Act, which was upheld by the Commissioner of Income­tax (Appeals). The -Tribunal cancelled the orders of authorities below. On a reference:

Held, per G. Sivarjan and P.A. Mohammed JJ. (P. Shanmugam, J. dissenting): (i) that the Government securities held by the assessee' bank were part of its trading assets. The purchase and sale of Government securities was incidental to the carrying on of the business of the assessee. Even assuming that the different heads of income specified in section 14 of the Act are mutually exclusive and the income under the different heads has to be computed in accordance with the provisions governing the said heads, the assessee was entitled to deduction of the interest paid for broken period on the purchase of Government securities in view of the specific provisions contained in subsection (2) of section 20 of the Act. Section 20 of the Act is a special provision regarding deductions from interest on securities in the case of a banking company. From the provisions of subsection (2) of section 20 it is clear that though the interest paid for the broken period on the purchase of Government securities is not an allowable deduction under subsection (1) of section 20, there is' no prohibition for the said claim forming part of the deductions admissible under, sections 30 to 37 for the purpose of computing the income of the company under the head "Profits and gains of business or profession". Moreover by Circular No.599, dated April 24, 1991, the CBDT has correctly understood the legal position that securities held by the banks constitute their stock-in-trade and that the claim for deduction of interest paid for the broken period on the purchase of securities should be allowed. The clarification is consistent with the special provision regarding banking companies in section 20. The interest paid for the broken period on the purchase of securities for the two years in question is an admissible deduction in the computation of the total income of the bank under the head "profits and gains of business or profession", though the interest income is to be computed under the head "Interest on securities", and the same was rightly allowed as a deduction in the original assessments for the years 1979-80 and 1980-81. There was no mistake apparent from the record in the original assessment orders for 1979-80 and 1980-81 in allowing deduction of the interest paid fox the broken period on the purchase of Government securities by the assessee-bank in the computation of its total income from business. The Tribunal was right in cancelling the rectification orders.

United Commercial Bank Ltd. v. CIT (1957) 32 ITR 688 (SC) and Brooke Bond & Co. Ltd. v. CIT (1986) 162 ITR 373 (SC) explained and distinguished.

Badridas Daga v. CIT (1958) 34 ITR 10 (SC) and CIT v. National Bank Ltd. (1965) 55 ITR 707 (SC) applied.

Per P.A. Shanmugam, J. (dissenting): The assessee wanted to treat interest paid or not received for the broken periods in reference to the securities to constitute business income and if any loss is derived, it wanted to set it off against income assessed as interest on securities. It is not permissible since income is being assessed under the head "interest on securities": On a distinct and separate head, allowable deductions under sections 18, 19 and 20 alone are possible. The interest paid on purchase of securities from the previous due date till the date of purchase cannot be treated as business expenditure under section 37 of the Act. Once it is found that there is no provision for allowing the interest under sections 18, 19 or 20 of the Income-tax Act for the broken period, then it would be a mistake apparent on the record.

Ambika Silk Mills Co. Ltd. v: CIT (1952) 22 ITR 58 (Born.); Attorney-General v. London County Council (1900) 4 TC 265 (HL); Balaram (T.S.) ITO v. Volkart Brothers (1971) 82 ITR 50 (SC); Behari Lai Mullick: In re: AIR 1927 Cal. 553; Bihar State Cooperative Bank' Ltd. v. CIT (1960) 39 ITR 114 (SC): CIT v. Chugandas & Co. (1965) 55 ITR 17 (SC); CIT v. Cocanda Radhaswami Bank Ltd. (1965) 57 ITR 306 (SC); CIT v. Namberumal Chetty (T.) & Sons (1933) 1 ITR 32 (Mad.); CIT v. R.M. & Company (1984) 148 ITR 353 (AP); CIT v. Ramanaiah (T.V.) & Sons (1986) 157 ITR 300 (AP); CIT v. Seshasayee Paper and Boards Ltd. (1985) 156 ITR 542 (Mad.); CIT v. Sriram Agrawal (1986) 161 ITk.302 (Pat.); CIT v. Sundaram Textiles Ltd. (1984) 149 ITR 525 (Mad.); CIT v. Trilokchand 'Kalyanmal (1960) 39 ITR 131 (MP); Eilerman Lines Ltd. v. CIT (1971) 82 ITR 913 (SC); Gestetner Duplicators (P.) Ltd. v. CIT (1979) 117 ITR l (SC); Karnataka Bank Ltd. v. CIT (1978) 114 ITR 421 (Kar.); Malabar Cooperative Central Bank Ltd. v. CIT (1975) 101 ITR 87 (Ker.); Manickavasagam Chettiar (T.) v. CIT (1965) 143 ITR 269 (Mad.); Navit Lal C. Javeri v. K.K. Sen, AAC of I.T. (1965)56 ITR 198 (SC); Rajam (T.S.) v. CED (1968) 69 ITR 342 (Mad.); Salisbury House Estate Ltd. v. Fry (H.M. Inspector of Taxes) (1930) 15 TC 266 (HL); Union of India v. . Dhanwanti Devi (1996) 6 SCC 44 and Varghese (K.P.) v. ITO (1981.) 131 ITR 597 (SC) ref.

P.K.R. Menon, Senior Advocate and N.R.K. Nair for the Commissioner.

P.G.K. Wariyar for the Assessee.

2002 P T D 955

[Karachi High Court]

Before Ghulam Nabi Soormo and Muhammad Mujeebullah Siddiqui, JJ

SUPER INDUSTRIES (PVT.) LTD.

versus

CENTRAL BOARD OF REVENUE and others

Constitutional Petition No.694 of 1996, decided on 31st October, 2001.

(a) Sales Tax Act (VII of 1990)---

----Ss. 3, 13(1), 33, 34 & 36---Customs Act (IV of 1969), First Sched.--­ S.R.O. 555(1)/94, dated 9-6-1994---S.R.O. 672(1)/94, dated 3-7-1994--- Constitution of Pakistan (1973), Art. 199---Constitutional petition' Petitioners were engaged in manufacturing Brake Linings Sets and Brake Lining Rolls---Such goods prior to 3-7-1994 were subject to payment of sales tax, but were exempted from tax after amendment of S.R.O. 555(1)/94 vide S.R.O. 672(1)/94---Petitioners then continued to file monthly return of goods manufactured and authority allowed such exemption---Authority subsequently demanded sales tax on the ground that such goods were neither components' norauto-parts' qualifying exemption under Serial Nos. 93 and 94 of S.R.O. 555(1)/94---Validity--­Dispute under consideration had arisen because of slackness on the part of legislative draftsman---Federal Government vide S.R.O. 555(1)/94 granted exemption to supplies falling under heading numbers of the First Sched. to Customs Act, 1969 and specified in the table given in S.R.O.-­While inserting Serial Nos.93 and, 94 in subsequent S.R.O. 672(1)/94, heading numbers of First Sched. to Customs Act as given in original notification were not specified---If heading numbers of First Sched. to Customs Act would (lave been specified against .Serial Nos.93 and 94 under which petitioner had claimed exemption as required in- original notification under S.R.O.. 555(1)/94, then there would have been no controversy between tax-prayer and tax collector---Revenue had treated the Brake Lining in Rolls as an auto-part during the tax period i.e. before grant of exemption and after withdrawal of exemption-- -While adhering to the principle of consistency, department should have treated such product as an auto-part . during the tax exemption period as well---Constitutional petition was accepted in circumstances.

(b) Legislation---

---- Fiscal .and tax laws, drafting of---Every law particularly the law pertaining to fiscal matters and taxes are required to be unambiguous and clear--;Lacunas in drafting of such law may have far-reaching effect--­Draftsman concerned with such legislation should draft all such laws very meticulously, lacuna free and with utmost clarity and exactitude.

(c) Legislation---

---- Notifications pertaining to tax, drafting of---Central Board of Revenue/Revenue Division and Ministry of Finance must be more careful in drafting notifications containing chargeability of any tax or granting exemption from payment of any tax, as the same would certainly reduce the difference of opinion between tax-payer and tax collector.

(d) Sales tax---

---- Revenue could not be allowed shifting of versions in respect of same product with mere change in -law pertaining to taxability thereof.

(e) Sales tax---

----Revenue should be consistent in its practice and version--=Where an assessee .or a product is given a particular treatment over course of a long period, then Revenue should continue the same, even if the assessee or product is allowed any exemption/benefit or there is any enhancement or reduction In the rate of tax.

(f) Sales tax-----

-----Assessee should know his status or the character and status of his product vis-a-vis the chargeability of tax---Revenue should not be allowed to take inconsistent and changing version for indiscipline in realm of taxation is always injurious and hazardoul to the health of economy, industry and business.

Muhammad Ali Sayeed for Petitioner.

Nemo for Respondents.

Date of hearing: 31st October; 2001.

2002 P T D 976

[Karachi High Court]

Before Zahid Kurban AM and Muhammad Mujeebullah Siddiqui, JJ

COLLECTOR, CUSTOMS, CENTRAL EXCISE AND SALES TAX, KARACHI (WEST)

versus

NOVARTIS PAKISTAN LTD.

Sales Tax Appeal. No.62 of 2001, decided on 13th September, 2001.

(a) Sales Tax Act (VII of 1990)---

----Ss.2(12)(35)(41), 3, 7 & 47---Constitution of Pakistan (1973), Art.25---S.R.O. No.578(I)/98, dated 12-6-1998---Sale of fixed assets--­Chargeability to tax---Tribunal had found that no sales tax was leviable on disposal of fixed assets owned by assessees, since they were not trading in the items they had sold---Contention of the Authority was that such disposal constituted a "taxable activity" and it was irrelevant as-to whether assessees undertook the activity for profit motive or not, thus, such sale was chargeable to tax under S.3 of the Sales Tax Act, 1990--­Validity---Under S.3 of the Sales Tax Act, two conditions must be fulfilled independently for creating the charge of sales tax i.e. transaction of sale must constitute a "taxable activity" and the same should also be a "taxable supply"---Where one of such conditions was missing, the charge of sales .tax would not be leviable ---Expression "any, activity carried on in the form of a business, trade or manufacture" as used in S.2(35) of the Sales Tax Act, was an independent ingredient of the term "taxable activity "---Since assessees were not engaged in the business, trading or manufacturing of commodities, which they had sold i.e. fixed assets would not constitute "taxable activity"; second ingredient of S.3 of the Act i.e. "taxable supply" was also absent in the present case---To constitute a "taxable supply", the transaction must first qualify to be a "supply" and to constitute "supply" the transaction must be in 'the "furtherance of business" ---Term "business" had not been defined in the Act, and in order to be construed as "business", the activity must be recurring for profitmotive and in the nature, of trade, commerce or manufacture---Disposal of fixed assets in the present case could not be construed as an activity for profit motive or in the nature of .trade, commerce or manufacture, thus, the same was not an `activity in furtherance of "business" ---Assessee did not trade in or manufacture the fixed assets, thus, the same did not constitute "supply" under S.2(33) of the Act and could not be construed as "taxable supply" under S.2(41) of the Act---Fixed assets, if assumed to fall within definition of "goods" as given in S.2(12) of the Act, even then two essential conditions of charging S.3 i.e. "taxable activity" and "taxable supply" would not be satisfied ---Assessees had not be able to claim any input tax under S.R.O. No.578(I)/98, thus, there could be no determination -of liability under S.7 of the Act---Authority in another case similar to that of assessees had vacated show-cause notice, thus, there would be no justification to accord a discriminatory treatment to other assesses in violation o1 Art.25 of the Constitution---High Court accepted the appeals holding that there could be no sales tax on the disposal of fixed assets.

Usmani Associates v. C.B.R. 2001 PTD 2982; State of Gujara v. Raipur Manufacturing' Co. Ltd. 'AIR 1967. SC 1066; Director o Supplies v. Member, Board of Revenue AIR 1967 SC 1826, State o Tamil Nadu v. Thiru Murugan Bros. AIR 1988 SC 336 and C.I.T. v Habib Insurance PLD 1969 Kar. 278 ref.

(b) Sales Tax Act (VII of 1990)---

----S.3---Levy of tax---For a levy to be successful and valid, all it; components must be certain and in case, there was any uncertainty in an) component, the same would be fatal to the levy.

Shakil Ahmed for Appellant.

Dr. Farogh Naseem for Respondent.

2002 P T D 1023

[Karachi High Court]

Before Muhammad Roshan Essani and Muhammad Mujeebullah Siddiqui, JJ

Messrs RIMA COOKING OIL INDUSTRIES (PVT.) LIMITED

Versus

FEDERATION OF PAKISTAN and others

Constitutional Petition No.2398 of 2001, decided on 5th December, 2001.

Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.80DD [as inserted by Finance Act (IV of 999)] & Second Sched., Part I, Cl. (118‑C), Part 1'I, Cl. (6‑AA), Part IV, Cl. (58)‑‑‑Central Board of Revenue Notification No.1283(1)/90‑‑‑Protection of Economic Reforms Act (XII of 1992), S.6‑‑‑Constitution of Pakistan (1973), Arts.2A, 8, 18, 25, 199 & Fourth Sched., Legislative List, Part I, Entry 47‑‑‑Constitutional petition‑‑‑Petitioner contended that S.80‑DD of the Income Tax Ordinance, 1979 was discriminatory, thus, violative of Arts. 2A & 25 of the Constitution that petitioner dealing with import of RBD Palm Oil and Soya Bean Oil for manufacture of vegetable ghee and cooking oil was enjoying exemption under Notification No.1283(1)/90 as well as under Cl. (118‑C) of Second Sched to the Income Tax Ordinance, 1979; that S.80‑DD of the Ordinance had interfered with such exemption and put unwarranted restriction, on fundamental right of petitioner to conduct such business and that S.80‑DD of the Income Tax Ordinance was ultra vires the Entry 47 of Fourth Sched to the Constitution‑‑‑Validity‑‑‑Section 80‑DD of the Ordinance was in the nature of presumptive tax regime and was substantially of the same nature as S.80‑D of the Ordinance, which had been found to be valid by Supreme Court in case of Elahi Cotton Mills (PLD 1997 SC 582)‑‑­Petitioner if enjoyed any protection/exemption under S.6 of Protection of Economic Reforms Act, 1992, then he could ,agitate ‑the same before Departmental Authorities in the light of the said judgment of the Supreme Court‑‑‑Supreme Court had dealt with all such points raised in the present Constitutional petition, no fresh consideration thereof by High Court was required no fresh point of law requiring consideration by High Court having been raised, Constitutional petition was dismissed in limine.

Messrs Illahi Cotton Mills and others v. Federation of Pakistan PLD 1997 SC 582 rel.

Udha Ram Rajput for Petitioner, Nemo for Respondents.

Date of hearing: 5th December, 2001.

2002 P T D 1033

[Karachi High Court]

Before Muhammad Roshan Essani and Muhammad Mujeebullah Siddiqui, JJ

Messrs COLLECTOR OF SALES TAX

Versus

Messrs MUNAF LACE and another

Special Sales Tax No. 39 of 2001, decided on 5th December, 2001.

Sales Tax Act (VII of 1990)‑‑‑

‑‑‑‑S. 47‑‑‑Income Tax Ordinance (XXXI of 1979), S.136‑‑‑Customs Act (IV of 1969), S.96‑‑‑Central Excises Act (I of 1944), S.36‑C‑‑‑Appeal/ Reference to High Court‑‑‑Question of law‑‑‑Nature‑‑‑Only such questions of law could be raised before High Court in appeal/reference, which had been agitated/raised before Appellate Tribunal and findings thereon had been given by the Tribunal‑‑‑Points not raised before the Tribunal could not be allowed to be raised for the first time in High' Court.

Ms. Masooda Siraj for Petitioner.

Date of hearing: 5th December, 2001.

2000 P T D 1167

[Karachi High Court]

Before Wajihuddin Ahmed, C.J., Raja Qureshi and Dr. Ghous Muhammad, JJ

Messrs DUTY FREE SHOP LTD

Versus

CENTRAL BOARD OF REVENUE and others

Constitutional Petitions Nos.D-847, D-1865 and D-1930 of 1997, decided on 5th July, 1999.

Per Wajihuddin Ahmed, J.; Dr. Ghous Muhammad, J. agreeing---

(a) Customs Act (IV of 1969)---

----Ss. 12, 13, 30, 97 & 104---Customs General Order (CGO) No.3 of 1982, dated 4-4-1982---Duty Free Shops, establishment of---Object and scope---Clearance of goods from Duty Free Shops---Procedure---Such shops were established under Customs General Order No.3 of 1982, to facilitate returning Pakistanis to purchase permissible goods under the Baggage Rules as also to streamline the prevalent system of sales at the International Airport Terminals---Duty Free Shops are permitted to import goods and store the same in private bonded warehouses licensed to each of them and such is visualized to be against in-bond bills of Entry---Goods stored are issued against indents to relevant sales outlet under escort by Customs Officer which are then entered in the relevant sales outlet stock register, the escorting officer countersigning the entry-­More or less similar procedure is followed for airport outlets---No warehoused goods, under S.97 of the Customs Act, 1969, may be taken out of any warehouse except on clearance for home consumption or export or for removal to another warehouse or as otherwise provided in the Customs Act, 1969---Value and the rate of duty applicable to any imported goods cleared from a warehouse under S.104 of the Customs Act, 1969, is the value and the rate of duty in force on the date on which the bill of entry for clearance of such goods is presented under S.104 of the Customs Act, 1969---Till such time as the goods remain warehoused or are exported while warehoused or are removed to another warehouse, no customs duty is payable on the same because the goods so warehoused are not technically imported into Pakistan.

PTCL 1983 SC 68 and Canada Sugar Company v. The Queen 0 898) AC 735 ref.

(b) Qanoon-e-Shahadat Order (10 of 1984)---

----Art. 114---Estoppel, principle of---Applicability---Vested right--­Executive opinion, change of---Effect---Where a particular executive construction has held field for a considerable period of time many a rights are created in the process based upon continued reliance thereupon---Departure from such construction cannot be casually allowed because, in the process vested rights may come to be disturbed or destroyed---Mere executive change of opinion in the context, therefore, is not easily to be upheld---Element of estoppels can to be invoked in such situations---Even manifestly wrong construction not merely placed upon rules or instructions but upon the statutory law itself cannot also be easily brooked.

Nazeer Ahmed v. Pakistan PLD 1988 SC 370; Asian Food Industries Ltd. v. Pakistan 1985 SCMR 1753 and Eduljee Dinshaw Ltd. v. Income Tax Officer 1990 PTD 155 ref.

(c) Income Tax Ordinance (XXXI of 1979)---

----S. 50(5)(a)---Words `levied' and 'leviable'---Distinction---Word 'levied' which has been substituted for the word 'leviable' in S.50(5)(a) of the Income Tax Ordinance, 1979, involves a completed act as against an act which may still be in contemplation---" Levied" envisages a situation where actual and effective levy is of significance rather than a mere possibility thereof, as actual liability and mere taxability.

(d) Income Tax Ordinance (XXXI of 1979)---

----S. 50(5)---Customs Act (1V of 1969), Ss.12, 13, 30, 97 & 104--­Customs General Order (CGO) No.3 of 1982, dated 4-4-1982--­Constitution of Pakistan (1973), Art. 199---Constitutional petition--­Withholding tax, recovery of---Goods warehoused in duty free shops--­Petitioners disputed recovery of withholding tax on the goods bonded in their warehouses---Contention of the petitioners was, that goods so warehoused were not technically imported into Pakistan, therefore, the goods of the petitioners could not be subjected to payment of custom duties and consequently to the withholding tax under S.50(5) of the Income Tax Ordinance, 1979---Validity---Withholding tax could not be worked out unless the customs duty and sales tax were determined even if exempted---Actual collection of withholding tax in terms of S.50(5)(b) of the Income Tax Ordinance, 1979,.had to be made in the same manner and at the same time as the customs duty exemption or no exemption being immaterial and the crucial elements being the manner' and such time' in or at which the customs duty was to be collected---Such 'manner' and suchtime' never technically imported or the time to collect customs duty never arrived, such time for effecting collection or realization of withholding tax under S.50(5) of the Income Tax Ordinance, 1979, would also to the same extent stand removed in the time scale---Petitioner in the present case, could not be subjected to recovery of withholding tax in contemplation of S.50(5) of the Income Tax Ordinance, 1979---Orders passed by the Authorities qua the recovery of withholding tax on such goods were invalid---Petition was allowed accordingly.

Nazeer Ahmed v. Pakistan PLD 1988 SC 370; Asian Food Industries Ltd. v. Pakistan 1985 SCMR 1753 and Eduljee Dinshaw Ltd. v. Income Tax Officer 1990 PTD 155 ref.

East West Steamship Company v. Collector of Customs PLD 1976 SC 618; Alsamrez's case 1986 SCMR 1917; Messrs English Biscuit Manufacturers Limited v. The Assistant Collector 1991 PTD 478 and Messrs Central Insurance Company and others v. The Central Board of Revenue, Islamabad 1992 SCMR 1232 distinguished.

Per Dr. Ghous Muhammad, J.---

(e) Customs Act (IV of 1969)---

----Ss.12, 13, 30, 79, 80, 83, 84, 97 & 104---Customs General Order (CGO) No.3 of 1982, dated, 4-4-1982---Duty Free Shops, establishment of---Object and scope---Clearance of goods from Duty Free Shops--­Procedure---Once goods are imported, the bill of entry is presented under S.79 of the Customs Act, 1969, for the home consumption or warehousing, as the case may be---On presenting of bill of entry, the assessment of duty takes place on such bill of entry whether for home consumption or warehousing under S.80 of the Customs Act, 1969--­Though the assessment takes place at the time of presentation of such bill of entry under S.80 of the Customs Act, 1969, actual payment of the customs duty in the case of goods meant for home consumption, which is borne out from the provisions of S.30(a) of the Customs Act, 1969, which provides that the value of the goods and the rate of duty applicable thereto, in case of goods cleared for home consumption under S.79-of the Customs Act, 1969, is the one prevailing op the date on which the bill of entry is presented---Where the duties as assessed under S.80 read with S.30 of the Customs Act, 1969, are paid in relation to goods for home consumption, such goods are cleared for home consumption under S.83 of the Customs Act, 1969---If the goods were meant for warehous­ing, though the assessment takes place under S.80 of the Customs Act, 1969, the payability of the customs duty is deferred---Application to warehouse the goods is moved under S.84 of the Customs Act. 1969, and thereafter the payment of the duty surcharges and other charges occasion when such goods are cleared from the bond for home consumption as such it is provided for in S.104 read with S.30(b) of the Customs Act, 1969, that in case of home consumption the customs duty and other charges allied thereto are to be paid at the time when the goods are cleared for home consumption---If goods are imported and immediately cleared for home consumption, the duties are to be paid immediately at the time of clearance; whereas if the goods are imported and their clearance is deferred by sending them to bond/warehouse; the payment of customs duty and other allied charges are deferred till such time such goods are cleared for home consumption from the bond.

(f) Income Tax Ordinance (XXXI of 1979)---

----S. 50(5)---Withholding tax, recovery of---Goods imported by duty free shops---Principle---Advance income-tax under S.50(5) of the Income Tax Ordinance, 1979, is only to be levied, paid or collected, at the time when the customs duty is paid and not before---Where no customs duty is paid at the time the goods enter the bond, no advance income-tax under S.50(5) of the Income Tax Ordinance, 1979, is payable accordingly.

(g) Customs Act (IV of 1969)---

----Ss. 18, 30(b) & 104---Customs duty, charging of---Principles---Duty is only payable according to the provisions of the Customs Act, 1969--­Though S.18 of the Customs Act, 1969 is charging section which creates the charges at the time of "import" or "export" as the case may be, but the payability is regulated by other provisions and in case of goods entered into bond the same is deferred and then paid in terms of Ss. 104 & 30(b) of the Customs Act, 1969.

Raja Qureshi, J.---[minority view]---

Words and phrases---

......”Import" [as used in Customs Act (I'V of 1969)]---Interpreted.

East West Steamship Company v. Collector of Customs PLD 1976 SC 61.8 ref.

Sea Customs Act (VIII of 1878)---

----S.20---Customs Act (IV of 1969), S.18---Dutiable goods--­Interpretation of such goods in relation to S.20 of the Sea Customs Act, 1878, is corresponding to S.18' of Customs Act, .1969, and as soon as the goods land at Karachi Port, they become dutiable.

Alsamrez's case 1986 SCMR 1917 ref.

Income Tax Ordinance (XXXI of 1979)---

----Ss.50(5) & 80-C(5)---Customs Act (IV of 1969), Ss. 12, 13, 30, 97 & 104---Customs General Order (CGO) No.3 of 1982, dated 4-4-1982--­Constitution of Pakistan (1973), Art.199---Constitutional petition--­Withholding tax, recovery of---Goods warehoused in duty free shops--­Petitioners disputed recovery of withholding tax on the goods bonded in their warehouses---Contention of .the petitioners was that goods so warehoused were not technically imported into Pakistan, therefore, the goods of the petitioners could not be subjected to payment of customs duties and consequently to the withholding tax under S.50(5) of the Income Tax Ordinance, 1979---Validity---Tax deducted under S.50(5) of the Income Tax Ordinance, 1979, becomes a final liability of income-tax under S.80-C(4) of the Income Tax Ordinance, 1979----Once it was final income-tax liability, it would be profitable to state that the petitioners had themselves considered their goods as .imports and deductions under S.50(5) of the Income Tax Ordinance, 1979, by the Customs Authorities had come to operate as the final income-tax liability and could not be assessed any further under S.80C(5) of the Income Tax Ordinance, 1979---Goods brought into Pakistan by the petitioners were nothing but import of such goods--As there was concept of deferment on account of unbinding imported goods under the Customs .Act, 1969, the recovery of customs duties could be deferred but there was no concept of deferment of income-tax under S.50(5)(b) of the Income Tax Ordinance, 1979, therefore, the same were to be collected immediately upon import of such goods in Pakistan---Authorities had rightly levied the withholding tax on the warehoused goods---Petition was dismissed in circumstances.

Messrs English Biscuit Manufacturers Limited v. The Assistant Collector 1991 PTD 478 ref.

Income Tax Ordinance (XXXI of 1979)---

----S.50(5)---Letter C. No.ITJI-1(8)/98, dated 29-7-1994---Withholding tax, recovery of---Exemption of goods warehoused by Duty Free Shops-Interpretation of law by Central Board of Revenue---Validity-Central Board of Revenue does not figure in the hierarchy of judicial forum provided for under the Income Tax Ordinance, 1979, and therefore, the interpretation placed by it on the provisions of the Income Tax Ordinance, 1979, can be treated as administrative interpretation and not judicial decision---Such interpretation may be an administrative opinion; liable to be varied/modified and, therefore, its very nature, cannot be treated to be legal interpretation---Where such interpretation is treated as administrative interpretation of a provision of law then same would lead to uncertainty and would cause imbalance in the procedure.

Messrs Central Insurance Company and others v. The Central Board of Revenue, Islamabad 1992 SCMR 1232 ref.

Interpretation of statutes---

---- Executive interpretation of a statute---Scope---Where there is a judicial interpretation of statute by Court holding field, executive interpretation of such statute is to be ignored.

Income Tax Ordinance (XXXI of 1979)---

----S.50(5)---Expression same time and in the same manner'--­Connotation---Dispute was with regard to recovery of withholding tax from Duty Free Shops on the warehoused goods---Expressionsame time and in the same manner' required the petitioners to pay tax under S.50(5)(b) of the Income Tax Ordinance, 1979 as it stood levied even if such imported goods were exempt from payment of Customs duties or no upon import.

Mansoor Ahmed Khan for Petitioner (in C. P. No. 1865 of 1997).

Muhammad Athar Saeed for Petitioner (in C.Ps. Nos. 847 and 1930 of 1997).

Javaid Farooqui for Respondent (in C.F. No.847 of 1997).

S. Tariq Ali, Standing Counsel

Dates of hearing: 25th, 28th November; 3rd and 9th December, 1997.

2002 P T D 1197

[Karachi High Court]

Before Zahid Kurban Alvi and Muhammad Mujeebullah Siddiqui, JJ

COMMISSIONER OF INCOME‑TAX

Versus

Messrs B.C.C.I. OVERSEAS LTD

I.T.A. No.29 of 2000, heard on 26th September, 2001.

Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S. 136(1) read with S.13(1)(a)‑‑‑Reference/appeal‑‑‑Maintainability‑‑­Finding of Tribunal was primarily based on the appreciation of facts‑‑­Observation of Tribunal in respect of applicability of S.13(1)(a) of the Income Tax Ordinance, 1979 were in accordance with law‑‑‑No substantial point or question of law requiring interpretation or furnishing of opinion by High Court arose out of such order of the Tribunal‑‑‑High Court dismissed the appeal in limine.

Lungnla Tea Company v. The Commissioner of Income‑tax, Dacca 1970 SCMR 872 ref.

Muhammad Fareed for Applicant.

Rehan Hasan Naqvi and Miss Lubna Pervez for Respondent

Date of hearing 26th September 2001.

2002 P T D 2169

[Karachi High Court]

Before Zahid Kurban Alvi and Muhammad Mujeebullah Siddiqui, JJ

Messrs INDUS BASIN & CO.

Versus

COMMISSIONER OF INCOME‑TAX

I.T.R. No.218 of 1991, decided on 30th November, 2001.

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.23(1)(v), 136(1), Rr.(1)(2)(3)(3A), 2, Tables I, II, II‑A, 6, 7(b)(i)(ii), 8(5) & Third Sched.‑‑‑Sale of factory building‑‑­Depreciation allowance ‑‑‑Assessee declared purchase price of building as original cost and after deducting therefrom accumulated depreciation worked out the written down value‑‑‑Excess amount earned on such sale over and above the original cost of land was declared as capital gain, which was exempt from income‑tax‑‑­Assessing Officer treated sale proceeds in excess of written down value of assets as income of the year liable to be‑taxed ‑‑‑First Appellate Authority and Tribunal upheld treatment given by Assessing Officer‑‑‑Validity‑‑‑Tribunal had missed the point that depreciation was allowed on the building and only for the purpose of rate of depreciation three categories of buildings had been described, nonetheless all three categories retained their basic feature of being the building‑‑‑Tribunal while creating distinction had added the expression "ordinary" with expression "building" used in R.2, Table I of Third Sched. to Income Tax Ordinance, 1979, which was against the principle of interpretation of statutes‑‑‑Word "building" had been used in its broader sense inclusive of all the three categories of buildings appearing at Serial Nos. I, II and II‑A of Table to R.2 of Third Sched.‑‑‑Categories of various assets under particular head did not have the effect of taking away any class of assets beyond the parameters of main heading of the asset‑‑‑Assessing Officer while applying R.7(b) of Third Sched. had equated the expression "sale proceeds" with total sale consideration while ignoring the fact that Legislature had not used the expression "sale consideration" or "sale price" in R.7(b), but had used the. expression "sale proceeds"‑‑­Legislature had not left the determination of sale proceeds at the discretion of Assessing Officer‑‑‑Sale proceeds in case of actual sale would mean sale price thereof or fair market value, whichever was higher‑‑‑Term "sale proceeds" in case of a building would mean an amount equal to the lower of original costs, sale price or fair market value, whichever was higher‑‑‑First proviso to R.8(5) was applicable to ordinary building as well as to other categories of building‑‑­Tribunal had ignored the provisions of R.6 to the effect that limitation of depreciation allowance for all sorts of buildings was same, which would not exceed the original cost of any asset‑‑­Interpretation placed by Tribunal was not in consonance with the law‑‑‑High Court answered the question in negative.

(b) Interpretation of Statutes‑‑‑

‑‑‑‑ Power of Court‑‑‑Courts have to interpret the law as it stands and have no authority to add, delete or subtract any word in or from the language used in the statute.

(c) Interpretation of statutes‑‑‑

‑‑‑‑ Expression, word or a term defined and used in a statute‑‑­Deviation from definition given in the statute‑‑‑Scope‑‑‑Court is not empowered to deviate from the definition given in the statute.

(d) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Third Sched., R.8‑‑‑Word "Building" defined in unqualified terms in R.8 of Third Sched. of Income Tax Ordinance, 1979‑‑‑Definitions of word or terms as given in R.8 of Third Sched. would be taken in unqualified and unconditional terms for purpose of entire scheme pertaining to depreciation allowance contained in Third Sched.

(e) Interpretation of statutes‑‑‑

‑‑‑‑ Law is to be interpreted in the totality of the scheme contained in a particular statute and is not to be taken in isolation.

(f) Interpretation of statutes‑‑‑

‑‑‑‑ Definition in a statute‑‑‑Where Legislature has itself given a particular definition, that has to be adhered to.

(g) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.23(1)(v) & Third Sched.‑‑‑Depreciation allowance‑‑‑Provision for allowing depreciation is in deviation of the ordinary rule pertaining to admissibility of expenses/deductions‑‑‑Deductions or expenses are ordinarily allowed, which pertain to capital expenditure, but expenses in nature of repairs are allowed‑‑‑Value of capital assets is depreciated and decreased with passage of time and it is not possible to make good the loss/decrease in value through repairs‑‑­Legislature in its own wisdom had allowed depreciation on the notional basis and by deeming provisions‑‑‑Computation depreciation allowance‑‑‑Principles.

Iqbal Pasha for Applicant.

Jawad Farooqui for Respondent.

Date of hearing: 30th November, 2001.

2002 P T D 2250

[Karachi High Court]

Before Ata‑ur‑Rehman and Muhammad Mujeebullah Siddigui, JJ

Messrs CITIBANK N. A., KARACHI

versus

COMMISSIONER OF INCOME‑TAX, COMPANIES‑1, KARACHI

I.T.R. No.32 of 1992, decided on 7th March, 2002.

(a) Income Tax Rules, 1982‑‑‑

‑‑‑‑R.20‑‑‑Income Tax Ordinance (XXXI of 1979), S.24(e)‑‑‑Assessee a multinational non‑resident Banking Company‑‑ ‑Deduction of Head Office expenditure ‑‑‑Non‑resident assessee‑‑‑Expenditure incurred and expenditure allowed‑‑‑Distinction and .scope‑‑‑Rule 20(1) of Income Tax Rules, 1982, envisaged two situations for deduction: first average Head Office expenditure; and second actual Head. Office expenditure incurred by assessee, whichever was lower‑‑‑Average expenses as defined ‑ in R.20(2) of ‑Income Tax Rules, 1982 would be allowed in first situation, whereas in second situation, expenditure as defined in Expln. to S.24(e) of Income Tax Ordinance, .1979, would be allowed‑‑­Assessing Officer had to make two exercises for ascertaining as to which limit would be allowed to a non‑resident assessee‑‑‑Where actual Head Office expenditure incurred by assessee attributable to his business /profession in Pakistan was lower than average expenses, then actual expenses, would be allowed and for this purpose, the expense incurred in a particular foreign currency would be calculated first and then same would be converted in Pakistan currency for allowing the same under Income Tax Ordinance, 1979‑‑‑Where actual expenditure incurred by assessee was alleged to be higher than the average expenses, then assessee would be allowed average expenses as defined in R.20(2) of Income Tax Rules, 1982 and in such a case, the expenditure incurred in foreign currency would become immaterial as the expenditure was ultimately allowed in terms of Pakistan currency in assessment made under Income Tax Ordinance, 1979.

(b) Income‑tax‑‑‑

‑‑‑‑Currency of a sovereign State‑‑‑Importance‑‑‑Currency is one of attributes of sovereignty‑‑‑Currency of a sovereign State is always to be considered for the purposes of working out‑the taxes to be charged in that State‑‑‑Tax is to be charged and expenditure is to be allowed in terms of Pakistan currency in every assessment made under Income Tax Ordinance, 1979.

(c) Income Tax Rules, 1982‑‑‑

‑‑‑‑R.20‑‑‑Income Tax Ordinance (XXXI of 1979), Ss.24(e) & 136(1)‑‑­Deduction of Head Office expenditure ‑‑‑Assessee a multinational non‑resident Banking company‑‑‑Method of working out average expenditure ‑‑‑Assessee claimed such expenses by working out the average expenditure in U.S. Dollars and then calculated its equivalent in terms of Pakistan currency‑‑‑Assessing Officer did not accept said method, but worked out the same in terms of Pakistan currency‑‑‑First Appellate Authority and. Tribunal upheld the treatment given by Assessing Officer‑ ‑‑Validity‑‑‑Assessee had been allowed such expenses in three preceding years in Pakistan currency‑‑‑Tribunal had rightly concluded that for the purpose of computing the average Head Office expenditure of the company under R.20 of Income Tax Rules, 1982 read with S. 24(e) of Income Tax Ordinance,. 1979, the expenditure allowed for the last three‑ years would be taken in Pakistan currency and not in foreign currency, in which expenditure was incurred‑‑‑High Court answered the question in the affirmative.

Commissioner of Income‑tax v. Premier Bank Ltd. and Messrs, City Bank N.A., Karachi 1999 SCMR 1213 ref.

Fazle Ghani Khan for Applicant..

Jawaid Farooqui for Respondent.

Date of hearing: 7th March, 2002.

2002 P T D 2440

[Karachi High Court]

Before Ata‑ur‑Rehman and Muhammad Mujeebullah Siddiqui, JJ

PAK SUZUKI MOTOR COMPANY LTD. and others

versus

FEDERATION OF PAKISTAN and others

Constitutional Petitions Nos. 1348, 1526 of 1995 and 1776 of 1998, heard on 27th February, 2002.

Sales Tax Act (VII of 1990)‑‑‑

‑‑‑‑Ss.3 & 2(33)(44) ‑‑‑Constitution of Pakistan (1973), Art. 199‑‑­Constitutional petition‑‑‑Levy of sales tax‑‑‑Scope‑‑‑Principles‑‑‑. Advances received by the assessee without coming into existence of the transaction of sale‑‑‑Not taxable‑‑‑Existence of contract of sale of goods‑‑‑Events‑‑‑Part payment after coming into existence of the . transaction of sale‑‑‑Taxability‑‑‑Question‑ as to whether the deposits /advances received by the assessee were in pursuance of any transaction of supply or were mere advances/deposits in pursuance of any dealership or any agency agreement or any other arrangements being question of fact was declined to be. determined by the High Court under its Constitutional jurisdiction tinder Art.199 of the Constitution and left the matter to be decided by concerned tax officials after obtaining necessary particulars and giving opportunity of being heard to the assessee and then decide the question of chargeability to sales tax or otherwise of the advances/deposits.

The assessees are liable to pay the sales tax under section 3 of the Sales Tax Act, 1990, on taxable, supplies at the time when the transaction of supply takes place.

The transaction of supply shall come into existence when a contract of sale of goods comes into existence i.e., when the supplier transfers or agrees to transfer the specified goods to the buyer, or a lease or other disposition of goods in furtherance of the business is carried out for consideration or the other conditions prescribed in section 2(33) of the Sales Tax Act, 1990 are satisfied.

Where a transaction of supply takes place under a contract of sale, meaning thereby, transfer of goods from supplier to buyer or where an agreement to sell takes place meaning thereby, that the transfer of goods is to take place at a future time, the sales tax shall be charged on the happening of any of the following events:‑‑‑

(a) When a delivery of goods is made; or

(b) the price is paid in full.

If after coming into existence of the transaction of sale,, as explained above any part payment is received by the supplier from the buyer the supplier shall be liable to account for the part payment in the return of tax for that tax period and the sales tax shall be charged accordingly.

If no transaction of supply has taken place and the supplier has received any advances or deposits from the buyers, such advances/deposits are not liable to the charge of sales tax. However, as soon as a contract of sale or agreement to sell is executed with the stipulation of adjustment of full or part payment from the advances/deposits, the said adjustment in full or in part shall be deemed to be in pursuance of the transaction of supply and such amount shall immediately become liable to the imposition of sales tax..

Question as to whether the deposits/advances received by the petitioners were in pursuance of any transaction of supply or were mere advances/deposits in pursuance of any Dealership Agreement or any Agency Agreement or any other arrangement, is a question of fact. High Court declined to give any finding on this question of fact and the concerned tax officials were to decide such question of facts, after obtaining necessary particulars and giving opportunity of being heard to the petitioners and shall decide the question of chargeability to sales tax or otherwise of the advances/deposits in the light of above findings.

Maple Leaf Cement Factory Limited v. Federation of Pakistan, (1999) 80 Tax 41 fol.

Rehan Hasan Naqvi, Muhammad Athar Saeed and Mansoorul Arfin for Petitioners.

Fariduddin, Muhammad Akram Zuberi and Raja Muhammad Iqbal for Respondents.

Date of hearing: 27th February, 2002.

2002 P T D 2457

[Karachi High Court]

Before Ata‑ur‑Rehman and Muhammad Mujeebullah Siddiqui, JJ

COLLECTOR, SALES TAX AND CENTER EXCISE (WEST), KARACHI

versus

Messrs AL‑HADI INDUSTRIES (PVT.) LTD.

Special Sales Tax Appeal No. 103 of 2000, decided on 28th February, 2002.

(a) Interpretation of statutes‑‑‑

‑‑‑‑ Fiscal statute‑‑‑While interpreting a fiscal statute only the letter of the law must be looked into and there is no room for any intendment‑ ‑‑Court cannot imply anything which is not expressed‑‑‑If there is any ambiguity in interpretation of the fiscal statute or application thereof, the ambiguity should always be resolved in favour of the assessee‑‑‑Principles.

While interpreting a fiscal statute only the letter of the law must be looked into and there is no room for any intendment. The taxing statute must be interpreted in the light of what is clearly expressed. A Court cannot imply anything which is not expressed. It cannot import provisions in the statute, so as to support assumed deficiency. The golden rule of interpretation of statutes that the statutes should be given their ordinary meaning, should be strictly applied to the fiscal statute. However, there has to be a note of caution, that, if, there is any ambiguity in interpreting any fiscal statute or application thereof, then the ambiguity should always be resolved in favour of assessee. At the same time, the principle that if the words of law are clear then the question of any hardship is totally immaterial, is always to be kept in view. If there is a mandatory provision of law clearly spelt out from the language used by the Legislature, then the Court has to implement the provision as it exists. Neither anything is to be presumed nor to be deduced. Nothing is to be added or subtracted from any provision of statute, so as to give a meaning other than, one which obviously and plainly flows or can be inferred from it.

(b) Sales Tax Act (VII of 1990)‑‑‑

‑‑‑‑S.7(2)‑‑‑Determination of tax liability‑‑‑Provision of S.7(2), Sales Tax Act, 1990 being an enabling provision, which prescribes the way in which the claim for deduction/adjustment refund of the input tax is to be prepared is mandatory in nature‑‑‑Principles of interpretation of such a provision stated.

The provision contained in subsection (2) of section 7 is mandatory in nature. The reason being that it is an enabling provision which prescribes the way in which the claim for deduction/adjustment/refund of the input tax is to be prepared. One of the principles regarding the enabling statutes is that where the Legislature has expressly prescribed one or more particular modes of dealing with the matters specified therein, then it excludes any other method of doing acts. Mostly enactment expressed in negative and prohibitory language are treated as absolute enactment.

If the requirements of a statute which prescribes the manner in which something is to be done are expressed in negative language, that is to say, if the statute enacts that it shall be done in such a manner and in no other manner, it has been laid down that those, requirements are in all cases absolute, and that neglect to attend to them will invalidate the whole proceedings.

Statute Law by Craies Vth Edn., p.243 (7th Edn., p.263) and Allied Bank of Pakistan v. Khalid Farooq 1991 SCMR 620 ref.

(c) Interpretation of statutes‑

‑‑‑‑ Enabling provision‑‑‑Absolute enactments ‑‑‑Principle of interpre­tation ‑‑‑Mostly enactment‑expressed in negative and prohibitory language are treated as absolute enactments .

One of the principles, regarding the enabling statutes is that where the Legislature has expressly prescribed one or more particular modes of dealing with the matters specified therein, then it excludes any other method of doing acts. Mostly enactment expressed in negative and prohibitory language are treated as absolute enactments.

If the requirements of the statute which prescribes the manner in which something is to be done are expressed in negative language, that is to say, if the statute enacts that it shall be done in such a manner and in no other manner, it has been laid down that those requirements are in all cases absolute, and that neglect to attend to them will invalidate the whole proceedings.

Statute Law by Craies, Vth Edn., p.243 (7th Edn., p.263) and Allied Bank of Pakistan v. Khalid Farooq 1991 SCMR 620 ref.

(d) Sales Tax Act (VII of 1990)‑‑‑

---Ss.7, 23 & 2(40)---Determination of tax liability-Tax invoice-Significance---company, in the present case, was allowed refund on the basis of an invoice in the name of one of its Directors ---Audit Team of the Central Board of Revenue found that the buyer’s name was not written on the tax invoice and a show‑cause notice was issued to the Director of the company to explain as to why refund allowed against the provision of Sales Tax Act, 1990 may not be recovered ‑‑‑Validity‑‑­Company was not entitled to claim the refund of sales tax on the basis of tax invoice which was not in accordance with the requirement of S.23 of the Sales Tax Act, 1990‑‑‑Principles.

In the present case a Private Limited Company, was allowed refund on the basis of an invoice in the name of one of the Directors of the Company. Subsequently C.B.R.'s Audit Team, while conducting audit of the refund claims found that the buyer's i.e., Company's name was not written on the tax invoice. A show-cause notice was, therefore, issued calling upon the Company to explain as to why the refund allowed against the provision of Sales Tax Act, 1990 may not be recovered. After providing opportunity of being heard to the Company the Additional Collector directed the Company to deposit the amount wrongly refunded which was deposited by the Company. During the course of hearing before the Additional Collector‑II, Sales Tax, it was contended that the purchases were made by the Company although the name of one of the directors of the Company was written on the tax invoice. It was submitted that it was result of inadvertence that instead of Company, the name of Director was mentioned by the supplier.

Held, subsection (2) of section 7, Sales Tax Act, 1991 is couched in negative language and specifically prescribes that registered person shall not be entitled to deduct input tax from output tax unless he holds a tax invoice. Subsection (2) of section 7 prescribes a particular manner of claiming deduction/adjustment/refund and on plain reading of the provision, it, is abundantly clear that the non‑compliance disentitles a registered person from deducting input tax from output tax.

A plain reading of the above provision further shows that, the condition precedent for claiming deduction etc. of input tax is that the claimant should hold a tax invoice, meaning thereby that, he should be in possession of the tax invoice. The invoice has been defined in section 2(40) to mean, a document required to be issued under section 23. The definition is conclusive meaning thereby that no other document can be treated as a tax invoice. Under section 23, a tax invoice should contain name, address and registration number of the recipient. Under second proviso to section 23(1) not more than one tax invoice shall be issued for taxable supply.

Assumption that any document other than the tax invoice as defined in subsection 2(40) can form basis for allowing the claim of deduction/adjustment/refund of tax is clearly in violation of the provisions contained in subsection (2) of section 7 which provide that a Registered person shall not be entitled to deduct input tax from output tax unless he holds a tax invoice An inquiry for ascertaining if a person is the recipient of a taxable supplies and fulfills the purpose of law for claiming deduction/adjustment/refund of input tax would amount to reading too many things in the statute which are not there. Requirement to produce evidence in rebuttal of the evidence furnished by claimant and in the absence thereof to allow the deduction/adjustment/refund on the basis of evidence other than the tax invoice is manifestly against the plain language of the statute. The department would be saddled with an onerous duty which the legislature has not cast on it The things should be done as they are r6quired to be done, or not at all When the law specifically provides that a claim for deduction etc. of input tax shall not be allowed if the claimant does not hold a tax invoice, then no Court has jurisdiction to prescribe any other method.

The Company was not entitled to claim the refund of sales tax on the basis of tax invoice which is not in accordance with the requirement of section 23 of the Sales Tax Act.

High Court directed that a copy of the judgment should be sent under the seal of the Court to the Customs, Excise and Sales Tax Tribunal, which shall pass such orders as were necessary to dispose of the case in conformity with the judgment of the High Court as required under subsection (5) of section 47 of the Sales Tax Act, 1990.

Statute Law by Craies, Vth Edn., p.243 (7th Edn., p.263) and Allied Bank of Pakistan v. Khalid Farooq 1991 SCMR 620 ref.

Shakeel Ahmed for Appellant.

Syed Mohsin Imam for Respondent.

Date of hearing: 28th February, 2002.

2002 P T D 2472

[Karachi High Court]

Before Ata‑ur‑Rehman and Muhammad Mujeebullah Siddiqui, JJ

Messrs EASTERN DISTRIBUTORS, KARACHI

versus

COMMISSIONER OF INCOME‑TAX

I.T.R. No.281 of 1991 and I.T.C. No.35 of 1992, decided on 20th February, 2002.

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.136‑‑‑Question of law and question of fact‑‑‑Distinction‑‑‑Question in respect of an assessment based on appreciation of facts available on record would be a question of fact‑‑‑Question raised about validity of an assessment on the ground that there was no material or evidence on record to support the estimate, would become a question of law.

N.A. concern v Commissioner of Income‑tax 1938 6 ITR 518 (Rangoon)(2); Kanhaiya Lal Umrao Singh v. Commissioner of Income­-tax 1941 9 ITR 225 (Oudh) rel.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.59(1), 61, 62 & 136‑‑‑Self‑assessment‑‑‑Selection of cases for total audit‑‑‑Framing of ex parte assessments‑‑‑Tribunal upheld the estimated income for the sole reason that Income Tax officer had disclosed his mind and had evolved the basis on the information furnished in. Inspector's Report‑‑‑Validity‑‑‑Perusal of notice under S.62 of Income Tax Ordinance, 1979 allegedly served on assessee and reproduced in assessment order would show that estimated income had no basis at all‑‑­Assessing Officer, while resorting to ex parte assessment had no arbitrary and vindictive powers to assess income at any figure he liked‑‑­Assessing Officer was required to evolve some basis and once a basis was evolved, then same would fulfil not only the requirement of best judgment assessment, but would become a question of fact also‑‑­Assessing Officer in the present case had estimated the income just by a guess‑work totally unsupported by any basis, evidence or material on record‑‑‑Tribunal ought to have set aside such assessment with direction for de novo assessment after providing an opportunity of hearing to assessee with further direction to Assessing Officer to confront the assessee with entire material available with him including the information furnished by Income Tax Inspector and to allow the assessee a reasonable opportunity to rebut the contention of department‑‑‑High Court disposed of the references with such observations.

Messrs Dawood Corporation Ltd. v. Commissioner of Income-­tax 1989 PTD 177; Gurmukh Singh v. CIT 1944 ITR 393; Karachi Trading Co. v. Commissioner of Income‑tax 1958 PTD 274 and Abdul Qayyum & Co. v. Commissioner of Income‑tax 1939 ITR 375 ref.

Muhammad Farogh Naseem for Applicant.

Jawaid Farooqui for Respondent.

Date of hearing: 20th February, 2002.

2002 P T D 2556

[Karachi High Court]

Muhammad Mujeebullah Siddiqui and Ghulam Nabi soamro, JJ

SINDH ENGINEERING (PVT.) LTD., KARACHI

versus

CUSTOMS, EXCISE AND SALES TAX, APPELLATE TRIBUNAL, KARACHI BENCH, KARACHI

Special Customs Appeal No. 136 of 2000, decided on 15th March, 2002.

Customs Act (IV of 1969)‑‑‑

‑‑‑‑Ss.13, 19, 62, 86, 97, 104, 156(1) & 196‑‑‑Notification S.R.O. No.502(I)/94, dated 9‑6‑1994‑‑‑Sales 'fax Act (VII of 1990), S.34‑‑­Income Tax Ordinance (X‑XXI of 1979), S.86‑‑‑Removal of goods from bonded warehouse without payment of customs duty and taxes‑‑­Goods imported by appellant (a State owned enterprise) were chargeable to customs duty and other taxes at concessionary rate under S.R.O. No.502(I)/94, dated 9‑6‑1994‑‑‑Appellant was issued show‑cause notice for having removed goods from bonded warehouse without payment of customs duty and taxes and without filing of bill of entry‑‑‑Appellant paid evaded customs duty and taxes at concessionary rate‑‑‑Authority did not accept appellant's plea of having violated the law on account of financial constraint‑‑‑Tribunal dismissed appellant's appeal filed against levy of duty and penalty‑‑­Appellant's contention was that show‑cause notice whereby proceedings had been initiated was based on the report of Apprising Intelligence Branch, whereas benefit of S.R.O. 502(I)/94, dated 9‑6‑1994 could be denied on the report of Assistant Collector, Central Excise and Customs only as provided in Condition No.IX of said S. R. O.‑‑‑Validity‑‑‑Condition No. IX of S.R.O. 502(I)/94, dated 9‑6‑1994 would come into play, when goods had been cleared after filing of bill of entry and payment of duties and taxes as required under law and subsequently there was any information to the effect that imported components had not been consumed to sustain the benefit of concession allowed‑‑‑Provisions contained in Condition No.IX of said S.R.O. would not be attracted, where goods were removed illegally without filing bill of entry for home consumption and without payment of duties and taxes, rather same would attract the provisions of Ss. 86, 97 & 107 of Customs Act, 1969 and would further result in forfeiture of concession granted under S.19 of Customs Act, 1969‑‑‑Appellant had removed goods without filing bill of entry for home consumption and without paying duties/taxes, which fully established violation of law‑‑‑Financial crunch could not provide justification for violation of law‑‑‑Appellant's plea for condonation of violation of law had rightly been rejected by Authorities to which no exception could be taken‑‑‑High Court upheld impugned orders and dismissed the appeal in circumstances.

Aziz A. Shaikh for Appellant.

Raja Muhammad Iqbal for Respondent.

Date of hearing: 1st November, 2001.

2002 P T D 2850

[Karachi High Court]

Before Ata-ur-Rehman and Muhammad Mujeebullah Siddiqui, JJ

Messrs PAK OCEAN and others

Versus

GOVERNMENT OF PAKISTAN through Secretary, Ministry of Finance, Central Secretariat, Islamabad and others

Civil Petitions Nos. 970, 1068, 1349, 1541 of 1991, 519, 520, 871 and 872 of 1992, decided on 10th July, 2002.

(a) Customs Act (IV of 1969)---

----Ss. 18(2) & 19---S.R.O. 702(I)/90, dated 1-7-1990---S.R.O. 584(I)/91---S.R.O. 585(I)/91, dated 27-6-1991---Constitution of Pakistan (1973), Arts. 2-A, 4, 18, 25 & 199---Constitutional petition---Imposition of regulatory duty on import of steel scrap in loose form, while excluding import of scrap in shredded and bundled forms---Reduction in rate of customs duty on shredded and bundled steel scrap, while leaving intact duty on import of scrap in loose form---Such change in duty structure was effected without reasonable classification and justification-­Validity---Scrap in loose form was imported by small traders and such persons, who, did not have facility of furnace, while shredded scrap and bundled scrap was primarily imported by big investors and those having facility of furnace-.-End product i.e. billets, produced from scrap in shredded and bundled form and loose form was the same---No difference in duty structure on import of scrap in any of three forms prior to impugned Notifications S.R.O. 584 (I)/91 & 585(I)/91, dated 27-6-1991---Government had failed to specify any reasonable basis for separate classification of the import of scrap in bundled and shredded form in one category and import of scrap in loose form in other category---Such action was totally discriminatory against small investors/importers and provided undue advantage to big capitalists and investors---In absence of sufficient material justifying change in duty structure, treatment meted out to petitioners was arbitrary and mala fide---Such exercise entirely stood vitiated being violative of equal protection of law guaranteed by Arts. 4, 18 & 25 of the Constitution--­High Court accepted Constitutional petitions, struck down impugned Notifications S.R.O. 584(I)/91 & S.R.O. 585(I)/91, dated 27-6-1991 being un-Constitutional and directed respondent to stop charging of regulatory duty and refund regulatory duty and customs duty, if any charged in excess of customs duty prevailing before issuance of impugned notifications.

Ittefaq Foundry v. Federation of Pakistan PLD 1990 Lah. 121; Collector of Customs, Excise and Sales Tax, Peshawar, v. Messrs Flying Kraft Paper Mills (Pvt.) Ltd. 1999 SCMR 709; Messrs Central Insurance Co. v. The Central Board of Revenue, Islamabad 1993 PTD 766; M.A. Rahman v. Federation of Pakistan 1988 SCMR 691 and Iqbal Akhtar v. Ch. Muhammad Mushtaq PLD 1977 Lah. 1318 ref.

(b) Constitution of Pakistan (1973)---

----Arts. 2-A, 4, 18, 24 & 25---Mala fide and colourable act-­Unreasonable act---Act without any basis and justification--­Constitutional status of such acts elaborated. An Act, which is established to be mala fide and colourable cannot be regarded as an action in accordance with law and the rights guaranteed under the Constitution. If an act is not reasonable and is without any basis and justification, it is always for extraneous and irrelevant, consideration and is bound to be struck down being manifestly against the fundamental right guaranteed in the Constitution. Such an Act of discrimination cannot be countenanced in an Islamic polity. Islam lays great emphasis on the equality before law, equal protection under law, equal treatment in law, equal opportunities, free competition in the regulation of trade, commerce and industries. No discrimination of any kind is sustainable in a country, the Constitution whereof provides that the State shall exercise its power and authority in accordance with the principles of freedom, equality, social justice and guarantees the fundamental rights and opportunity before law and economic justice.

Khalid Anwar for Petitioners.

Syed Tariq Ali, Standing Counsel for Respondents.

Date of hearing: 19th February, 2002.

2002 P T D 2874

[Karachi High Court]

Before S. Ahmed Sarwana and Muhammad Mujeebullah Siddiqui, JJ

CELANESE PAKISTAN LIMITED

Versus

GOVERNMENT OF PAKISTAN and others

Constitutional Petition No. D‑322 of 1998, decided on 9th July, 2002.

(a) Words and phrases‑‑‑

‑‑‑ Components are those parts that if machinery is broken down or separated into its component parts, one should be able to reconstruct the machinery by putting together the broken or separated components.

Chamber's Dictionary, 1994 Edn., p.392; The Illustrated Heritage Dictionary, 1977 Edn. p.273; Concise Oxford Dictionary, Ninth. Edn., 1998, p.272 and Chambers 21st Century Dictionary, 1996 Edn. ref.

(b) Customs Act (IV of 1969)‑‑‑

‑‑‑S. 19‑‑‑Sales Tax Act (VII of 1990), S. 13 ‑‑‑ Notification S.R.O. 484(I)/92, dated 14‑5‑1992‑‑‑Exemption from sales tax and customs duty‑‑‑Treatment of Heat Transfer Oil a component part of plant/ machinery for production and purification of Di‑Octyl Phthalate, Phthalic. Anhydride and Malaic Anhydride‑‑‑Validity‑‑‑If Heat Transfer Oil is separated, kept aside or retained and not put back in its place, the machine would be incomplete and inoperable and would not produce the desired result‑‑‑Heat Transfer Oil is therefore, an essential component part of the machine used for production and purification of Di‑Octyl Phthalate, Phthalic Anhydride and Maleic Anhydride.

(c) Words and phrases‑‑‑

‑‑‑‑"Catalyst"‑‑‑Defined‑‑‑Catalyst is basically an agent which by its presence promotes a chemical reaction without ultimately losing its chemical character‑‑‑To promote the chemical reaction, the catalyst has to be present in the container alongwith other chemicals.

(d) Customs Act (V of 1969)‑‑‑

--‑S. 19‑‑‑Sales Tax Act (VII of 1990), S.13‑‑‑Notification S.R.O. 484(I)/92, dated 14‑5‑1992‑‑‑Exemption from sales tax and customs duty‑‑‑Heat Transfer Oil acts as catalyst to alter rate of chemical reaction and is not consumed in process for production and purification of Di‑Octyl, Phthalic Anhydride and Maleic Anhydride‑‑‑Validity‑‑‑In such process Heat Transfer Oil is not present with the other chemicals and does not take part in the chemical reaction or acts as a catalyst‑‑‑Oil is used as a medium of heat for the reaction i.e. it is used for heating the reactor to a very high temperature which promotes the chemical reaction resulting in the production of Di‑Octyle Phthalate etc.‑‑‑Heat Transfer Oil does not act as a catalyst but as a medium of heat in the process of production and purification of Di‑Octyle Phthalate, Phthalic Anhydride and Maleic Anhydride.

Engro Chemical Pakistan Limited v. C.B.R. and another C. P. No.D‑193 of 1993 distinguished.

(e) Customs Act (IV of 1969)‑-‑

‑‑‑‑S. 19‑‑‑Sales Tax Act (VII of 1990), S.13 ‑‑‑ Notification S.R.O. 484(I)/92, dated 14‑5‑1992‑‑‑Exemption from customs duty and sales tax‑‑‑Heat Transfer Oil was imported as a component part of the machinery/plant used for production and purification of Di‑Octyle Phthalate, Phthalic Anhydride and Maleic Anhydride‑‑‑Authorities denied exemption for the reason that the Oil was not a component part of the machinery/plant as the same was neither fixed nor connected with the machinery‑‑‑Validity‑‑‑Although Heat Transfer Oil was not fixed to the machinery as an immovable part thereof, yet the Oil was identifiable as for use in or with the machinery because the machinery could not work and produce the desired result without it‑‑‑Not necessary for all component parts of the machinery to be in the same solid form as the machinery itself‑‑‑High Court illustrated the example of a car engine which included bushes' andwashers' which were made of rubber and other materials‑‑‑Just because bushes' andwashers' which were made of rubber and other material, it could not be argued that these items were not components of car machinery in which they were used‑‑‑To be a component part of a machinery, the part need not be in solid states and that it could be in "lid, fluid or gaseous form‑‑‑As without Heat Transfer Oil, the Petrochemical Plant would not produce the end product, therefore, it was an essential component part of the machinery as defined in the Notification S.R.O. 484(I)/92, dated 14‑5-1992‑‑­Heat Transfer Oil was a component of the plant/machinery used for production of Di‑Octyl Phthalic Anhydride and Maleic Anhydride and was exempted from customs duty and sales tax in circumstances.

(f) Customs Act (IV of 1969)‑‑‑

‑‑‑‑S. 19‑‑‑Sales Tax Act (VII of 1990), S.13‑‑‑Notification S.R.O. 484(I)/92, dated 14‑5‑1992‑‑‑Constitution of Pakistan (1973), Art. 199­Constitutional petition‑‑‑Vested right‑‑‑‑Locus poenitentiae, principle of‑‑­Applicability‑‑‑Exemption from customs duty and sales tax ‑‑‑Heat Transfer Oil was imported as a component part of the machinery/plant used for production and purification of Di‑Octyl Phthalate, Phthalic Anhydride and Maleic Anhydride‑‑‑On the permission of part shipment granted by Government of Pakistan the petitioner established a letter of credit for import of the plant and machinery for the petrochemical project in question‑‑‑When the petitioner paid for and imported the same the Central Board of Revenue by its letter confirmed that Heat Transfer Oil was covered in the definition of machinery‑‑‑Subsequently after import of the Oil another letter was issued by Central Board of Revenue wherein the Heat Transfer Oil was excluded from the definition of component part of machinery as mentioned in the Notification S.R.O. 484(I)/92, dated 14‑5‑1992 and the Authorities denied exemption‑­Contention of the petitioner was that once the permission was granted and the Oil was declared as a component part, same could not be rescinded as vested right had accrued in favour of the petitioner‑‑­Validity‑Vested right in favour, of the petitioner came into existence when the letter of credit had been established by the petitioner‑‑‑Such right could not be withdrawn later by Central Board of Revenue‑‑­Central Board of Revenue could not afterwards hold that Heat Transfer Oil was not covered under the definition of machinery‑‑‑Law does not vary with the foot of the officer of the Central Board of Revenue‑‑­Authorities could not be allowed to blow hot and cold as and when they liked‑‑‑Government of Pakistan having allowed part shipment and Central Board of Revenue having once formed an opinion and having communicated the same in black and white to its officers and to the petitioner, they could not be permitted to change their opinion according to their whims and fancy‑‑Authorities must always act within the bounds of law‑‑‑Subsequent letter by Central Board of Revenue to the petitioner was, prima facie, mala fide, without jurisdiction and was not applicable to the case of the petitioner‑‑‑Heat Transfer Oil was a component part of plant and machinery of the petrochemical project ,set up by the petitioner and,, therefore, qualified for exemption under S.R.O. No.484(I)/92, dated 14‑5‑1992‑‑‑Constitutional petition was allowed in circumstances.

Muhammad Naeem for Petitioner.

Syed Tariq Ali, Federal Counsel for Respondent No. 1.

Shakeel Ahmed for Respondents Nos. 2 and 3.

S.D. Rana for Respondent No.4.

Dates of hearing: 10th May, 2001; 18th February, 4th March, 2002.

2002 P T D 2890

[Karachi High Court]

Before Ata‑ur‑Rehman and Muhammad Mujeebullah Siddiqui, JJ

COMMISSIONER OF SALES TAX, CENTRAL, ZONE‑B, KARACHI

Versus

Messrs PAKISTAN MACHINE TOOL FACTORY LTD., KARACHI

S. T. R. No. 158 of 1992, decided on 22nd July, 2002.

(a) Sales Tax Act (III of 1951)‑‑‑

‑‑‑‑S.17‑‑‑Reference to High Court‑‑‑Advisory jurisdiction ‑‑‑Scope‑‑­High Court in exercise of advisory jurisdiction is supposed to give its opinion on a particular point of law referred by Tribunal or admitted by High Court on an application submitted by a party to proceedings‑‑­Opinion of High Court has to confine itself to the point referred and should not extend to any other point.

(b) Sales Tax Act (III of 1951)‑‑‑

‑‑‑‑Ss. 7, 14, 15 & 17(I)‑‑‑S.R.O. 125(I)/70, dated 29‑6‑1970 [as amended by S.R.O. 540(I)/71, dated 23‑11‑1971]‑‑‑Exemption was claimed from levy of sales tax on gear boxes and axles by virtue of S.R.O. 125(I)/70, dated 29‑6‑1970 [as amended by S.R.O. 540(I)/1971, dated 23‑11‑1971]‑‑‑Assessing Officer declined such exemption to assessee on the ground that parts of automotive vehicles did not form parts of machinery as defined in S.R.O. 125(I)/70‑‑‑Appellate Authority found that definition of machinery was very wide and covered automotive vehicles parts‑‑‑Tribunal upheld such findings of Appellate Authority‑‑‑Contention of revenue was that axles and gear boxes were neither machinery within the meaning of S.R.O. 125(I)/70 nor constituted part of an engine‑‑‑Validity‑‑‑Nothing on record and in the reference made by Tribunal to show that such two components were used for any industrial process‑‑‑Exemption was available to such machinery or component parts or spare parts of machinery as defined in the notification itself‑‑‑Appellate Authority had confined its consideration of the definition of machinery to the opening part of the definition only i.e. "machinery operated by power of any description", but its latter part "such as is used in any industrial process" had been totally ignored by both Appellate Authority and Tribunal‑‑‑First condition precedent for bringing a machinery within the definition given in notification was that same should be operated by power of any description; and second condition was that same should be such machinery as was used in any industrial process‑‑‑Second condition was lacking in the case of manufacture and sale of gear boxes and axles produced by assessee as they were admittedly being used for automotive vehicles, thus, exemption was not available to assessee‑‑‑Assessing Officer had rightly refused exemption, while Appellate Authority and Tribunal had misdirected themselves in interpreting the definition given in the notification and extending exemption to assessee‑‑‑High Court answered the question in negative.

1999 PTD 1060 ref.

(c) Interpretation of statutes‑‑‑

‑‑‑‑ Fiscal statute‑‑‑Provision of fiscal statute is to be construed liberally in favour of subject/taxpayer‑‑‑Tax is to be levied by a clear and unambiguous legislation‑‑‑Any doubt or ambiguity in matter of levy of tax is to be resolved in favour of a citizen/subject/taxpayer.

(d) Taxation‑‑‑

‑‑‑‑Exemption from levy of any tax‑‑‑Claim and grant of such exemption‑‑‑Effect‑‑‑Principles.

The grant of exemption from levy of any tax and the claim of any exemption by any taxpayer envisages the levy of tax and the effect of grant of exemption is that a particular income in the case of income‑tax and a particular transaction in the case of sales tax shall be allowed to go untaxed, which was otherwise subject to the levy of tax. In other words, the effect of exemption is that a tax is allowed to be evaded by the Legislature itself.

(e) Interpretation of statutes‑‑‑

‑‑‑‑ Fiscal statute pertaining to exemption from levy of tax‑‑‑Such provisions are not to be interpreted liberally as in the case of levy of tax, but have to be interpreted and applied strictly‑‑‑Exemption is to be allowed only in such case, where assessee is able to establish that it is covered by the exemption provision on all fours.

(f) Interpretation of statutes‑‑‑

‑‑‑‑ No word or expression or few words should be taken from the context in which those are used and then be interpreted in isolation‑‑‑A provision of law is to be read and interpreted as a whole‑‑If there is any scheme of law, then entire scheme is to be taken together into consideration and no part thereof is to be considered in isolation.

(g) Taxation‑‑‑

‑‑‑‑‑ Exemption from levy of tax‑‑‑Where more than one conditions are prescribed for availing an exemption, which are not in the alternative; then all those conditions should be satisfied simultaneously for availing such exemption.

Ms. Masooda Siraj for Applicant.

Khalid Javed for Respondent.

Date of hearing: 8th March, 2002.

2002 P T D 3091

[Karachi High Court]

Before Muhammad Moosa K. Leghari, J

INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

versus

Messrs HYDERALI BHIMJI & CO. and another

Civil Reference No. l of 1991, decided on 8th April, 2002.

(a) Chartered Accountants Ordinance (X of 1961)---

----Ss.20D, 20C, 20B, 20A, 27 & Sched. II, Part I, Cl. (7)---Chartered Accountants Bye-laws, 1961, Chap. X---Scope and application of Ss.20D, 20C, 20B, 20A, 27 & Sched. II, Part I, Cl.(7) of the Chartered Accountants Ordinance, 1961 and Chap. X of the Chartered Accountants Bye-laws 1961---Professional misconduct by member of the Institute of Chartered Accountants---Enquiry by Investigation Commit­tee---Mandatory requirements---Investigation Committee to "consider" the facts of the complaint of professional misconduct and form an "opinion", the criterion of which was to be purely objective--­Consideration implied personal and formation of an opinion by the Committee about the correctness of the complaint or otherwise---To "consider" would mean to carefully examine, to determine, to adjudicate and to apply mind fairly, honestly reasonably and bonafidely---Terms "consider" and "opinion"---Connotation---Failure to follow mandatory procedure prescribed by the relevant statutory provisions both by the Investigation Committee and the council coupled with the complaint of professional misconduct being full of follies, loopholes and legal infirmities, reference to the High Court under S.20D(2) of the Chartered Accountants Ordinance, 1961 was liable to be rejected as provided under S.20F of the said Ordinance---Principles---Duty of Institute of Chartered Accountants to monito he affairs of its members outlined by the High Court.

Law requires the Institute that it shall lay the complaint containing relevant and necessary material before the Investigation Committee 'as and when received by it. On receipt of the complaint, Investigation Committee is required to consider the facts laid before it. On consideration of the facts if it is of the opinion that the facts or the complaint require investigation, it shall give a notice to the member concerned and hold an inquiry. The member concerned, after the service of notice, is to be given an opportunity of hearing and the proceedings of the Investigation Committee are necessarily to be conducted in presence of the member concerned. It is, thus, mandatory upon the Investigation Committee to "consider" the facts of the complaint laid before it and form an `opinion' to see as to whether ex facie a basis has been made for proceedings against a member. It is only then that an opinion is formed by the Investigation Committee after considering the material facts placed before it to proceed against a member, then a notice is to be served upon the member concerned and the proceedings are taken against him.

Use of term consideration' andopinion' in the Ordinance and Bye-laws is significant and clearly shows that the Legislature intended the criterion to be purely objective. "Consideration" implies perusal and formation of an opinion by the authority concerned about the correctness of the report or otherwise.

The word `consider' means to look at attentively, or carefully, to think, to take into account, to regard, hold the opinion.

In the present case the Investigation Committee had to form its opinion on factual existence of certain grounds capable of objective determination.

To `consider' would mean to carefully examine, to determine, to adjudicate, and last but not least to apply mind. Undoubtedly such application of mind should be fair, honest, reasonable, and bona fide.

In the present case on receipt of the complaint from the Corporate Law Authority it was not laid before the Investigation Committee. But in derogation of the legal provisions the comments were called by the Institute from the accused members. Thus, the Investigation Committee had no occasion to consider the material in the complaint and form it's independent opinion. Instead the comments/explanation were referred to the Investigation Committee. Admittedly, the material forming the basis of the complaint was neither considered by the Investigation Committee nor any independent opinion was formed or recorded by the Investigation Committee to proceed against the accused members. Certainly, the Investigation Committee proceeded on the direction of the Institute. The Investigation Committee did not put the accused members on notice before taking into consideration the material placed before it, though the Ordinance and the Bye-laws made thereunder specifically provided that it was mandatory upon the Investigation Committee to issue a notice to the concerned member before proceedings against him. Thus the provisions of law were flagrantly violated.

The Investigation Committee conducted ex parte inquiry against the accused members. The members were neither associated with the proceedings of inquiry nor were they provided opportunity of hearing by the Investigation Committee, either before conducting the inquiry, or during the proceeding-s, or even after the conclusion of the inquiry. Thus, not only the provisions of law were flouted, but the proceedings were undertaken in sheer disregard of the fundamental principles of natural justice. After conducting ex parte proceedings against the members, Investigation Committee submitted a report to the Institute. On receipt of the report of the Investigation Committee the Council was required under the provisions of section 20C to record its findings to the effect either to direct that the proceedings against a member be instituted or, as the case may be, the complaint be filed. The Legislature has made it mandatory upon the Council to record a finding. Certainly that findings had to be recorded after evaluating the material made available to the Council as appearing in the inquiry report. Thus, the Council had to tentatively assess and examine the evidence and satisfy itself to the effect that on the basis of facts and circumstances substantiated by the material placed before the Council, action was warranted against the members. Term satisfaction' has been defined asactual persuasion'. That means a mind not troubled by doubt or which has reached a clear conclusion. However, no independent finding of the Council had been placed on record, as such the legal provisions were, once again, contravened. The proceedings of the Council which had been placed on record were ex parte in nature which, inter alia, authorize the Institute to initiate the proceedings against the members and for that purpose to contact some lawyer and to seek his services for filing reference. The prayer in the reference did not contain the recommendations of the Council as required under section 20D of the Ordinance. Penal Provisions were to be construed strictly. Benefit must be extended to the accused on account of illegalities and lapses committed on the part of the Institute, as the proceedings were undertaken in a prejudicial and unlawful manner. The proceedings against the members were initiated in a non-serious; imprudent faint-hearted manner, which were bound to suffer a set-back.

On close scrutiny of the record it had come to light that the complaint filed by the Corporate Law Authority against the members was one and the same, which in the first instance seemed to have been dropped, by the Institute by accepting the apology tendered by the members. In fact the complaint was not taken seriously and appeared to have been buried by the Institute. However, subsequently when the Corporate Law Authority again furnished serious and minute details of the professional misconduct allegedly committed by the members, the Management of the Institute, which had by then changed, was constrained to initiate the proceedings in a mindless, half-hearted and haphazard manner under the pressure of events, which led to failure due to the absence of legality. In the circumstances the legal objection raised by the members to the effect that the complaint having already been disposed of, could not be revived, had much force. There was no other option except to sustain the contention.

The complaint being full of follies, loopholes and legal infirmities the Reference was liable to be rejected as provided under section 20F of the Ordinance.

High Court observed, that the present case if looked into in the context, reflects a terrible state of affairs. Institute of Chartered Accountants which has been vested with the authority to monitor the affairs of its members, has duty towards the 'Nation in general and the shareholders in particular to take serious and stringent measures to prevent any mishap. It has been noted with serious concern that the proceedings in the present case were initiated by the Institute in a half-hearted manner which adversely reflected the role of the Institute itself, and was bound 4o erode confidence of the shareholders in the Auditors, which requires to be checked. It was because of the lapses on the part of Applicant Institute that the reference had to be rejected.

1991 PCr.LJ 110; 1987 SCMR 1967 and PLD 1995 SC 4101 distinguished.

Abdul Majid Beg v. K. Karimuddin and others 1968 SCMR 867; Shahbuddin v. Inspecting Assistant Commissioner of Income-tax, Range-1, West Zone, Karachi and 4 others PLD 1988 Kar. 587 and Angland v. Payne 1944 NZLR 610-(626) ref.

(b) Companies Ordinance (XLVII of 1984)---

----Ss. 252 & 254---Auditor, function of---Auditing---Meanings--­Condescending of auditors to the demand. of management of companies ,causes a devastating effect if the auditor puts a seal of approval on the misleading accounts of company.

As required under section 252 of the Companies Ordinance, 1984, each company must, at their annual general meeting, appoint an Auditor to hold office until the next annual general meeting. Only a person who is Chartered Accountant within the meaning of Chartered Accountants Ordinance, 1961 can be appointed to act as an Auditor of a public company as provided under section 254 of the Ordinance.

An Auditor is not to be confined to the mechanism of checking vouchers and making arithmetical computations. He is not to be written off as a professional "adder upper and subtractor". His vital task is to take care to see that errors are not made, be those errors of computation or errors of omission or commission or downright untruths. To perform this task properly he must come to it with an enquiring mind not suspicious of dishonesty, but suspecting that someone may have made a mistake somewhere and that a check must be made to ensure that there has been none.

Auditing may be defined as the independent examination and investigation of the books, accounts and vouchers of a business with a view to enabling the auditor to report whether the Balance Sheet and Profit and Loss account are properly drawn up so as to show a true and fair view of the state of the affairs and the profit and loss of the business according to the best of the information and explanations obtained by the auditor."

The auditors are the ultimate watchdogs of the shareholders' interest: According to the set practice-, the auditors are required to give a report which is either "clean" or "qualified". By issuing a "clean" report, the auditor certifies that the financial statement reflects "true and fair" view of the company's affairs and a "qualified" report. subjects such opinion to some observation of irregularity or inconsistency. The managements of large companies which are dependent on the public confidence, had been frenziedly trying to secure a "clean" audit report from their auditors. Since the auditors are recommended (and virtually appointed) by the Board of Directors, some of them are made to condescend to the management demands. Undoubtedly it causes a devastating effect if the auditors put a seal of approval on the misleading accounts of company.

Fomento Sterling Area Ltd. v. Selsdon Fountain Pen Co. Ltd. (1958) 1 -WLR 61 and Principles and Practice of Auditing by R. Glynne Williams ref.

Ghulam Abbas Pishori for Applicant.

Syed Himayat Ali Pirzada for Respondents

Date of hearing; 18th January, 2002.

2002 P T D 1293

[242 I T R 709]

[Karnataka High Court (India)]

Before V.K. Singhal and T.N. Vadlinayagam, JJ

COMMISSIONER OF INCOME-TAX

Versus

JANMABHOOMI PRESS TRUST

I. T. R. C. No. 14 of 1996, decided on 7th December, 1999.

Income-tax---

----Charitable purposes---Charitable trust---Exemption---Borrowed funds utilised in construction of building which would augment income of trust---Repayment of debt amounted to application of income for charitable purposes---Indian Income Tax Act, 1961, S.11.

Held, that the Tribunal was right in holding that the repayment of debt incurred by the assessee for the construction of the commercial building taken up by .the assessee for the purpose of augmenting its funds, should be treated as "application" of the income of the assessee trust for charitable purposes.

CIT v. Janmabhumi Press Trust (2000) 242 ITR 457 (Kar.) fol.

CIT v. St. George Forana Church (1988) 170 ITR 62 (Ker.) and CIT v. Kannika Prameswazi Devasthanam and Charities (1982) 133 ITR 779 (Mad.) ref.

E.R. Indrakumar for the Commissioner.

S. Ganesh Rao for the Assessee.

2002 P T D 1400

[242 I T R 342]

[Karnataka High Court (India)]

Before V. K. Singhal and T. N. Vallinayagam, JJ

COMMISSIONER OF INCOME-TAX

versus

C. R. SUBRAMANIAN

I. T. R. C. No. 111 of 1995, decided on 23rd September, 1999.

(a) Income-tax---

----Capital gains---Computation of capital gains---Consolidated price for two capital assets---Price can be bifurcated---Sale of land and building--­Prices can be attributed to land and building separately---Indian Income Tax Act, 1961, S.45.

(b) Income-tax---

----Capital gains---Capital asset---Long-term capital asset----Land is a capital asset---Land purchased in 1976---Building constructed in 1980--­Sale of building in assessment year 1981-82---Gains attributable to land assessable as long-term capital gains---Gains attributable to building assessable as short-term capital gains---Indian Income 'Fax Act, 1961, S.2(14).

The assessee an individual purchased a site in 1976 and put up a building in 1980 and sold the same in the accounting year relevant to the assessment year 1981-82. The assessee treated the capital gains arising from the sale of land as long-term capital gains because there was a gap of more than three years from the date of purchase of the site to the date of sale. The capital gains from the sale of building was shown as short-­term capital gains. The Income-tax Officer rejected the claim but the Tribunal accepted the assessee's claim.

On a reference:

Held, that the Tribunal was right in holding that the site and the building were separable assets for the purpose of capital gains and that the profits arising from the sale of site was required to be considered as long-term capital gain and that the profits arising out of the sale of the building should be considered under short-term capital gains.

CIT v. Vimal Chand Golecha (1993) 201 ITR 442 (Raj.) and CIT v. Dr. D.L. Ramachandra Rao (1999) 236 ITR 51 (Mad.) fol.

CIT v. Dr. V.V. Mody (1996) 218 ITR 1 (Kar.) ref.

E.R. Iridra Kumar for the Commissioner. G. Sarangan for S. Parthasarathy for the Assessee.

2002 P T D 1679

[242 I T R 457]

[Karnataka High Court (India)]

Before S. Rajendra Babu and Kumar Rajaratnam, JJ

COMMISSIONER OF INCOME-TAX

versus

JANMABHUMI PRESS TRUST

Income-tax Reference Cases Nos. 100 to 102 of 1993, decided on 9th August, 1995.

Income-tax---

----Charitable purposes---Charitable trust---Exemption---Borrowed funds utilised in construction of building which would augment income of trust---Re-payment of debt amounted to application of income for charitable purposes---Indian Income Tax Act, 1961, S.11.

When the assessee is a trust entitled to benefit under section 11 of the Income Tax Acct, 1961, the only question that arises for consideration is whether that income or the accumulated income thereof is applied for charitable purpose. 1f investments have been made in the construction of a building which in turn would augment its income, it should also be held that the application of the funds is for the purpose of the trust. The re-payment of the debt incurred by the trust for construction of the building should be treated as application of the income of the trust for charitable purposes.

CIT v. St. George Forana Church (1988) 170 ITR 62 (Ker.) and CIT v. Kannika Parameswari Devasthanam and Charities (1982) 133 ITR 779 (Mad.) fol.

H.L. Dattu for the Commissioner.

S. Ganesh Rao for the Assessee.

2002 P T D 1764

[242 I T R 622]

[Karnataka High Court (India)]

Before V.K. Singhal and T.N Vallinayagam, JJ

K.V. KUPPA RAJU and others

versus

GOVERNMENT OF INDIA and others

Writ Petitions Nos. 27324 of 1992, connected with Writ Petitions Nos. 31467, 35370, 35526 of 1992, 17451 and 35740 of 1994, decided on 2nd September, 1999.

Income-tax---

----Total income---Inclusions in total income---Constitutional validity of provisions---Section 64(lA) providing for inclusion of income of minor child in total income of parent---Provision is intended to prevent evasion of tax and is not discriminatory---Provision is valid---Indian Income Tax Act, 1961, S.64---Constitution of India, Art. 14---Scope.

In order to pass the test of permissible classification under Article 14, the classification must not be arbitrary, artificial or evasive but must be based on some real and substantial distinction bearing a just and reasonable relation to the object sought to be achieved by the Legislature. Section 64(lA) of the Income Tax Act, 1961, was inserted by the Finance Act, 1992, with effect from April 1, 1993, i.e., the assessment year 1993-94. Section 64(lA) now covers all income of the minor (with the exception of earned income) irrespective of the fact whether there is a nexus between the earning of such income and the overt act of the parent. Section 64(lA) is a machinery provision. When provisions are made to block loopholes for any possible tax avoidance, the Legislature is competent to have a wider field of discretion not only for the substantive provision but for procedural provisions as well. Section 64(lA) is a provision for computation of income of an individual whose minor child is having income and that by itself constitutes a different class. Instead of providing a separate slab, it is provided that the income of such minor would be included in the income of the individual. There is no lack of competence in the Legislature for providing such a legislation. The object sought to be achieved is to tax the income and simply because by including the income of the minor in the hand of either of the parents, he or she has been subjected to a higher tax burden, it cannot be considered to be unconstitutional. There is no hostile discrimination between those minors whose income is not included in the income of their parent as they may not be assessable at all or may be assessable at a lower rate of tax as the individuals whose minor children have income have been considered a different class by themselves. If the Legislature has selected for the purpose of classification a group of persons who are -in fact used 'as a cloak to, perpetrate fraud on taxation the provisions cannot be considered to be violative of Article 14 of the Constitution of India.

Balaji v. ITO (1961) 43 ITR 393 (SC) rel.

Amina Umma (B.M.) v. ITO (1954) 26 ITR 137 (Mad.); Bain Peanut Co. v. Pinson (1930) 282 US 499; Dayalbhai Madhavji Vadera v CIT (1966) 60 ITR 551 (Gui.); Devarajulu Naidu (G.K.) v. CIT (1963;. 48 .ITR 756 (Mad.); Ganga Sugar Corporation Ltd. v. State of U.P. (1980) 45 STC 36 (SC); Hoeper v. Tax Commissioner 284 US 206-221; Howard De Walden (Lord) v. IRC (1942) 1 All ER 287; (1941) 25 TC 121 (CA); Jeet Singh v. State of U.P. (1993) 1 SCC 325: Kakumanu Pedasubhayya v. Kakumanu Akkamma (1958) AIR 1958 SC 1042; Kapadia (Dr.) (T. P.) v. CIT (1973) 87 ITR 511 (Mys); Krishnaveni (K.) v, AAC of Income-tax (1985) 151 ITR 83 (Mad..); McDowell & Co. Ltd. v. CTO (1985). 154 ITR 148; 59 STC 277 (SC); Mullens v. FCT 6 (Australia Tax Report 504); Narasa Reddy (E.V.) v. ITO (1960) 39 ITR 629 (AP); Newton (Lauri Joseph) v. Commissioner of Taxation of the Commonwealth of Australia (1958) AC 450; Punjab Distilling Industries Ltd. v. CIT (1965) 57 ITR 1; 35 Comp Cas 541 (SC); Sardar Baldev Singh v. CIT (1960) 40 ITR 605 (SC); Shreekunwardevi Daga (Smt.) v. L.G. Trivedi, ITO (1972) 85 ITR 45-1 (Bom.); Srinivasan (S.) v. CIT (1967) 63 ITR 273 (SC); Syed Askari Hadi Ali Augustine Imam v. Union of India (1994) 209 ITR 746 (Patna); Unni Krishnan (J.P.) v. State of A.P. (1993) AIR 1993 SC 2178; (1993) 1 SCC 645; Vijayan (K.M.) v. Union of India (1995) 215 ITR 371 (Mad.); W.T.' Ramsay Ltd. v. IRC (1982) AC 300 and (1981) 2 WLR.449 (HL) ref.

Murthy, Kumar, Dr. R.B. Krishna and S. Parthasarathi for petitioner.

M. V. Seshachala and S. Sujatha for Respondents.

2002 P T D 1049

[241 I T R 423]

[Kerala High Court (India)]

Before Arijit Pasayat, C. J. and K. S. Radhakrishnan, JJ

COMMISSIONER OF INCOME-TAX

Versus

JOHNY JOSEPH

Income-tax References Nos.246 and 247 of 1997, decided on 7th October, 1999.

Income-tax--

----Property---Annual letting value---Basis for determination---Law applicable---Effect of amendment of S.23 in 1975---Actual rent will be deemed to be annual value if it is in excess of sum for which property might reasonably be expected- to be let--Indian Income Tax Act, 1961, Ss.2 & 23.

A bare reading of section 23 of the Income Tax Act, 1961, shows that for the purposes of section 22, the annual value of any property Shall be deemed to be (a) the sum for which the property might reasonably be expected to be let from year to year; or (b) where the property is let and the annual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the aunt so received or receivable. Obviously, if the amount received or receivable is in excess of the sum for which the property night reasonably be expected to be let from year to year, the amount actually received or receivable shall be the annual value of the property for the purpose of section 22. It is to be noted that section 22 deals with income from house property. Prior to the 1975 amendment, i.e., up to assessment year 1975-76, the actual rent receivers or receivable was not decisive in the determination of the annual value of the property, although it was an important piece of evidence therefor. After the amendment in 1975, if the actual annual rent received or receivable is in excess of the notional annual value, the actual annual rent shall be deemed under section 230)(b) to be the annual value for and from the assessment year 1976-77:

CIT v. C. Ramesan (2000) 241 ITR 426 (Ker.) (Appex.) (infra) fol.

P.K.R. Menon and George K. George for the Commissioner.

C. Kochunni Nair, S. Vinod Kumar and Dale P. Kurian for the Assessee.

2002 P T D 1244

[241 I T R 497]

[Kerala High Court (India)]

Before Arijit Pasayat, C. J. and K. S. Radhakrishnan, J

OCEANIC PRODUCTS EXPORTING CO.

Versus

COMMISSIONER OF INCOME‑TAX

Income‑tax Reference No.58 of 1996, decided on 27th September, 1999.

Income‑tax‑‑

‑‑‑‑Cash credits‑‑‑Effect of S.68‑‑‑Burden of proof‑‑‑Burden on assessee to prove source of credits and credit worthiness of lenders‑‑‑Alleged creditors fishermen who were not capable of lending substantial amounts‑‑‑Finding by Tribunal that cash credit were not genuine was a finding of fact‑‑‑‑Amounts represented by cash credits assessable as income of assessee‑‑‑Indian Income Tax Act, 1961, S. 68.

After the enactment of section 68 of the Income Tax Act, 1961, the burden is placed on the assessee to prove a credit appearing in its books of account. That burden has to be discharged with positive material. When it is contended that a person had advanced money or had given a loan it has to be established that the person had the capacity to give the money. A conclusion regarding creditworthiness or otherwise of a person is essentially one of fact. It does not give rise to a question of law unless it is established that the conclusion was contrary to the materials on record. Section 68 gives statutory recognition to the principle that cash credits not satisfactorily explained can be assessed as income.

Held, that, in the instant case, the Tribunal noticed that the assessee failed to prove the creditworthiness of the alleged creditors to advance such huge amounts varying from Rs.25,000 to Rs.60,000. It was observed that of the persons were fishermen who were not capable of lending such huge amounts to the assessee. In fact, while explaining the discrepancy in the signatures of the persons, the representative for the assessee himself had described these fishermen as illiterate and nomadic in nature. It was not shown that they had any assets worth‑mentioning, in the form of immovable or movable properties. During their examination, they had given versions different from those givers in their earlier statements. Some of them had gone to the extent of saying that they had signed blank papers. Some claimed to have borrowed amounts from friends and relatives to give advances to the assessee. Most of them could not mention the names of the persons from whom they borrowed and the amount borrowed from them. The findings of the Tribunal that the explanation offered by the assesses, about the nature and source of the cash credits in the aggregate of Rs.1,71,500 or any portion of it was not satisfactory was a finding of fact. The amount was includible in the total income of the assessee.

CIT v Manic: Sons (1969) 74 ITR 1 (SC); CIT v. Nelliappan (S.) (1367) ITR 722 (SC)‑ and Kale Khan Mohammad Hanif v. CIT (1963) 50 ITR 1 (SC) ref.

C. Kochuinni Nair and S. Vindo Kumar for the Assessee.

P.K.R. Menon, Senior Advocate, and N.R.K. Nair for the Commissioner.

2002 P T D 1330

[242 I T R 83]

[Kerala High Court (India)]

Before Mrs. K. K. Usha and R. Rajendra Babu, JJ

ASSISTANT COMMISSIONER OF INCOME‑TAX

Versus

KETHAN KUMAR A. SHAH

I. T. A. No. 15 of 1999, decided on 6th August, 1999.

Income‑tax‑‑‑

‑‑‑‑Capital gains‑‑‑Business‑‑‑Business income or capital gains‑‑‑Sale of shares ‑‑‑Shares held by share broker as personal assets and included in wealth tax return‑‑‑Gains assessable as capital gains ‑‑‑Assessee entitled to relief under S.54F‑‑‑Indian Income Tax Act, 1961, Ss. 28, 45, 48 & 54F.

The assessee was .a share broker. He contended that the profit on sale of certain shares held by him as personal investment was assessable as capital gains and not as business income. The Assessing Authority took the view that since the assessee was a dealer in shares, all the shares held by him should be treated as stock‑in‑trade and, therefore, the profit received by sale of the same should be assessed as business income. The Assessing Officer, therefore, denied the assessee's claim for relief under section 54F of the Income Tax Act, 1961. The assessee had been showing these shares in his wealth tax return 'from, the assessment year 1988‑89 as personal investment. These shares were never transferred or converted as stock‑in‑trade and no entry was made in the assessee's books of account. The Tribunal took note of the fact that the assessee had been showing in his wealth tax return, the personal investment in the shares and it was those shares which were sold by the assessee. The Tribunal held that the profit in respect of the sale of the shares was assessable only as capital gains. The Assessing Officer was directed to allow appropriate deduction under sections 54F and 48. On further appeal:

Held, dismissing the appeal, that so long as there was no material to show that the shares which the assessee claimed as personal assets and included in his wealth tax returns from 1988‑89 onwards, were acquired in the course of the assessee's business there was no reason to take a different view from that of the Tribunal. The Tribunal was fully justified in granting the assessee relief under section 54F.

CIT v. H. Holck Larsen (1986) 160 ITR 67 (SC) ref.

P.K.R. Menon and George K. George for Appellant.

Nemo for Respondent.

2002 P T D 1341

[242 I T R 29]

[Kerala High Court (India)]

Before Arijit Pasayat, C. J. and K. S. Radhakrishnan, J

COMMISSIONER OF INCOME‑TAX

Versus

A. SREENIVASA PAI

Income‑tax Reference No. 137 of 1996, decided on 1st November, 1999.

Income‑tax‑‑‑

‑‑‑‑Penalty‑‑‑Return‑‑‑Concealment of income ‑‑‑Scope of Expln. 1 to S.271(1)(c) inserted with effect from 1‑4‑1976‑‑‑Presumption of concealment 'where assessee offers explanation in respect of credit which Assessing Officer considers to be false‑‑‑Revised return filed after books of account had been impounded for scrutiny‑‑‑Revised return could not be treated as a voluntary one under S.139(5)‑‑‑Penalty could be imposed for concealment of income‑‑‑India Income Tax Act, 1961, Ss. 139 & 271.

Section 271(1)(c) of Income act, 1961 is attracted where, in the course of any proceedings under the Act, the Assessing Officer or the first appellate authority is satisfied that (a) any person has concealed the particulars of his income, or (b) has furnished inaccurate particulars of such income. In essence, the Explanation to section 271(1)(c) (both after 1964 and 1976) is a rule of evidence. Presumptions which are rebuttal in nature are available to be drawn. The initial burden of discharging the onus of rebuttal is on the assessee. The position of law on or after April 1, 1976, is that where, in respect of any time of credit (a) the assessee fails to offer an explanation, or (b) the assessee ate explanation which the Taxing Officer considers to be false, or (c) the assessee offers an explanation but no material or evidence to substantiate it, he shall be deemed to have concealed such income within the meaning of section 271(1)(c). Explanation 1 to section 271(1)(c) automatically comes into operation when. in respect of any facts material to the computation of total income of any person, there is failure to offer an Explanation or an explanation is offered which is found to be false by the Assessing Officer or the first appellate authority, or an Explanation is offered which is not substantiated. In such a case, the amount added or disallowed in computing the total income is deemed to represent the income in respect of which particulars have been concealed. As per the provisions of Explanation 1, the onus to establish that the Explanation offered was bona fide and all facts relating to the same and material to the computation of his income have been disclosed by him will be on the person charged with concealment.

When an assessee files a revised return, in fact, it is admitted that the original return was not correct and complete and it is intended to be substituted by a revised return which, according to the assessee, is correct and complete. It is quite possible and natural that in submitting a return disclosing full particulars of income in the return, some bona fide omission or some wrong statement may have occurred. In order to obviate this possibility, the Legislature has enacted section 139(5) enabling the assessee to furnish a revised return. But to come under the said provision, the omission or wrong statement that might have occurred or crept in, (i) must be bona fide, and (ii) must have been discovered by the assessee himself. If, however, the omission or wrong statement is discovered by the Department as a result of enquiry and thereafter a revised return is furnished making amendments that will not amount to a revised return as contemplated under section 139(5).

The assessee was a firm carrying on business in rice, sugar etc. Its original return for the assessment year 1987‑88 was filed on June 29, 1987. The case was posted on September 29, 1987. When the assessee's representative appeared before the Assessing Officer the date was adjourned to the next day, when several books of account were impounded for scrutiny of the correctness of the entries made therein. 15 days time available for retention expired on October 21, 1987, and before that date, the Commissioner's permission for retention till June 36, 1988 was sought for. Summons were issued to various persons on October 6, 1987 and October 21, 1987. On October 16, 1987, the assessee was served with a copy of the proceedings by the Commissioner of Income‑tax sanctioning continued retention of the books of account. On October 14, 1987, the Inspector's report after verifications and enquiries was received. On October 16, 1987, the assessee filed a revised return offering an additional income of Rs.3,24,650 under the head "Other sources". The Assessing Officer initiated penalty proceedings under section 271(1)(c) on the view that the revised return filed by the assessee admitting a higher income could not be treated as a voluntary, one as the same was filed only after the Department had started enquiries with regard to the credit balances and with regard to the demand draft accounts. The Tribunal cancelled the penalty being of the view that the income as shown in the revised return was accepted in the assessment and so there was full and complete disclosure of income by the assessee. On a reference:

Held, that the impounding of books for the purpose of scrutiny of entries itself was a factor which had not been considered by the Tribunal m its proper perspective. The revised return was filed as an attempt to plug the loopholes after detection and it was not intended to bring on record the materials which were discovered subsequent to the filing of the return. The inevitable conclusion was that the penalty was imposable and the Tribunal was not justified in cancelling it.

CIT v. Anwar Ali (1970) 76 ITR 696 (SC); CIT v. Krishna & (1979) 120 ITR 144 (Mad.) and CIT v. Mussadilal Ram Bharose 165 ITR 14 (SC) ref.

P.K.R. Menon and N.R.K. Nair for the Commissioner.

C. Kochunni Nair and Dale P. Kurian for the Assessee.

2002 P T D 1375

[242 I T R 155]

[Kerala High Court (India)]

Before Arijit Pasayat, C. J. and K. S. Radhakrishnan, J

WITTY TRADING CO.

versus

COMMISSIONER OF INCOME‑TAX

Income‑tax References Nos.4 and 5 of 1997, decided on 25th October, 1999.

Income‑tax‑‑‑

‑‑‑‑Reference‑‑‑Method of accounting‑‑‑Mixed system of cash and mercantile‑‑‑Consignment sales accounted on basis of receipt of sale pattials from consignees‑‑‑Consistent method of accounting followed‑‑­Tribunal holding that margin of 50 per cent. can be allowed for delay in receipt of sale pattials from consignees‑‑‑Balance alone to be taken for computation of income‑‑‑Conclusions of Tribunal finding of fact‑‑‑No interference called for in reference‑‑‑Indian Income Tax Act, 1961, 5.256.

The assessee was a registered firm dealing in arecanuts and other agricultural produce like pepper, rubber seeds, copra, etc. Consignment sales were accounted for by the assessee from year to year on the basis of receipt of sale pattials from the consignees. The Assessing Officer did not accept this method and for the assessment year 1987‑88 he enhanced the assessee's consignment sales by including the sales in the trading account and on that basis the gross profit arrived at was a higher figure. The Commissioner of Income‑tax (Appeals) confirmed the addition. The Tribunal took into account the consistent method of accounting followed by the assessee and directed 50 per cent. of the sales to be considered for the assessment year 1987‑88. On a reference:

that the system of accounting followed by the assessee was not strictly the mercantile system or cash system. It was a mixed system. The Tribunal recorded a finding on the facts that a reasonable margin of time was necessary for the patties to reach the assessee and accordingly a margin of 50 per cent. attributable to the time gap was fixed. The, conclusions were essentially of fact and could not be said to be perverse or based on surmises or conjectures. Hence, no question of law arose for consideration.

P. Balachandran for the Assessee.

P.K.R. Memon and George K. George for the Commissioner.

2002 PTD 1388

[689 I T R 171]

[Kerala High Court (India)]

Before Arijit Pasayat, C. J. and K. S. Radhakrishna, J

COMMISSIONER OF INCOME‑TAX

versus

ABRAHAM GEORGE

I.T.R. No.89 of 1997, decided on 28th October, 1999.

Income‑tax‑‑‑

‑‑‑‑Special deduction‑‑‑Contribution to public provident fund‑‑‑Condition precedent‑‑‑Payment must come out of income chargeable to tax‑‑‑Indian Income Tax Act, 1961, S.80C.

The clear language used in section 80C of the Income Tax Act, 1961, is "any sums paid in the previous year by the assessee out of his income chargeable to tax". Obviously, the deduction in terms of section 80C can be granted only if the payment is made out of his "income chargeable to tax"

Inder Singh Gill (S.) v. CIT (1963) 47 ITR 284 (Bom.) and CIT v. Dr. Usharani Panda (1995) 212 ITR 119 (Orissa) rel.

Ravi Kumar Mehra v. CIT (1988) 172 ITR 108 (P&H) ref.

P.K.R. Menon for the Commissioner.

2002 P T D 1415

[242 I T R 114]

[Kerala High Court (India)]

Before Arijit Pasayat, C. J. and K. S. Radhaurishnan, J

COMMISSIONER OF INCOME‑TAX

versus

SOUTH INDIA CORPORATION LTD.

I.T.R. No. 17 of 1996, decided on 4th October, 1999.

Income‑tax‑‑-

‑‑‑‑Business expenditure‑‑‑Disallowance of expenditure‑‑‑Payment towards provident fund‑‑‑Effect‑ of proviso to S.43B‑‑‑Payments made after "due date" are not deductible‑‑‑Indian Income Tax Act, 1961, Ss.36(l)(va), Expln. & 43B.

Though section 43B of the Income Tax Act, 1961, is relatable to payments actually made, the modality to be adopted in respect of payments of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees for getting deduction has been prescribed. A time limit has been fixed and only if payment was made‑ during that period, deduction can be claimed. The proviso to section 43B lays down that the payment should be made before the "due date as defined in the Explanation below clause (va) of subsection (1) of section 36". The expression "due date" means the time stipulated for payment. As per the Explanation to clause (va), for the purpose of the clause "due date" means the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund. The amount is deductible only if the assessee credits the amount to the employee's account in the relevant fund on or before the date by which he is legally or contractually required to do so. The right to deduction would be lost if the sum is credited after the due date. It cannot be an indefinite date left to the choice of the assessee. It is to be noted that under the main provision of section 43B of the Act, the payments made during the currency of the financial year relevant to the assessment year qualify for deduction in certain cases. But in the case of payments relating to provident fund, etc., stress has been laid on payment within the "due date". Therefore, it cannot be said that payment made beyond the due date also qualifies for deduction, in view of the prescription in the main provision itself. Had that been the legislative intent, there was no necessity to enact the proviso. The Legislature in its wisdom has incorporated the proviso and it cannot be said to be without a purpose. There is nothing repugnant between the main provision is to except something out of the enactment or to quality something enacted therein which but for the proviso would be within the purview of the enactment.

Local Government Board v. South Stoneham Union (1909) AC 57 (HL); Madras and Southern Mahratta Railway Co. Ltd. v. Bezwada Municipality (1944) AIR 1944 PC 71 and Mullins v. Treasurer of the Country of Surrey (1880) 5 QBD 170 ref.

P.K.R. Menon and George K. George for the Commissioner.

P.R. Raman for the Assessee.

2002 P T D 1428

[242 I T R 133]

[Kerala High Court (India)]

Before Arijit Pasayat, C. J. and K. S. Radhakrishnan, J

COMMISSIONER OF INCOME‑TAX

versus

K. MAHIM UDMA

Income Tax References Nos. 180 to 192 of 1997, decided on 8th October, 1999.

(a) Income‑tax‑‑‑

‑‑‑‑Benami transactions‑‑‑Property‑‑‑Ownership of property ‑‑‑Benami purchase of property‑‑‑Burden of proof on Revenue to. establish benami nature of purchase‑‑‑No proof that property had been purchased benami‑‑‑Income from property was not assessable in hands of alleged benami purchaser‑‑‑Indian Income Tax Act, 1961, S. 22.

(b) Income‑tax‑‑‑

‑‑‑‑General principles ‑‑‑Benami transactions‑‑‑Burden of proving that a transaction was benami "is on Revenue" ‑‑‑Criteria for determining whether transaction was benami.

The ordinary presumption of law is that the apparent state of facts is real unless the contrary is proved and, therefore, the burden of proving that ‑a transaction is sham or that the person in whose name the property stands is not the real owner but is only a benamidar for another, is on the taxing authorities. For determining the question no absolute formulae uniformly applicable to all situations can be laid down. Yet, in weighing the probabilities Courts are usually guided by the following circumstances: (1) the source from which the purchase money came; (2) the nature and possession of the property after purchase; (3) the motive, if any, for giving the transaction a benami colour; (4) the position of the parties and the relationship, if any, between the alleged real owner and benamidar; (5) custody of the title deeds after the sale; and (6) the conduct of the parties concerned in dealing with the property after the sale. The above indicia are not exhaustive and their efficacy varies according to the facts of each case.

The Assessing Officer held that the assessee had purchased a property in benami names and subsequently constructed a compound wall at an estimated cost of Rs. 40,000. Accordingly, a sum of Rs. 40,000 was added as income from undisclosed sources and the rental income from the property for the subsequent years was brought to tax in his hands. The Tribunal held that the Revenue had failed to establish the benami nature of the transaction. On a reference:

Held, that the burden of proving the nature of a sham or a benami transaction was on the taxing authorities. It was not enough to show circumstances which might create suspicion because the Court could not decide on the basis of such suspicions. It had to act on legal grounds established by evidence. Unless it was established that the conclusions of the Tribunal were perverse and based on surmises and conjectures the order could not be interfered with. The Tribunal was justified in deleting the addition of Rs.40,000 relating to the improvement of the property in the year 1972‑73 and the addition of Rs.15,000 for the assessment years 1973‑74, 1976‑77 to 1979‑80 and 1981‑82 to 1983‑84 as the income from the said property.

Karishananand Agnighotri v. State of M.P. (1977) AIR 1977 SC 796 and Jaydayal Poddar v. Mst. Bibi Hazra (1974) AIR 1974 SC 171 ref.

P.K.R. Menon for the Commissioner.

2002 P T D 1631

[242 I T R 263]

[Kerala High Court (India)]

Before Arijit Pasayat, C. J. and K. S. Radhakrishnan, J

COMMISSIONER OF INCOME‑TAX

versus

KERALA TRANSPORT CO.

Income‑tax References Nos. 174 of 1997 and 111 of 1998, decided on 29th November, 1999.

Income‑tax‑‑‑

‑‑‑‑Appeal‑‑‑Nature of right of appeal‑‑‑Law applicable‑‑‑Effect of change in law‑‑‑Provision prior to 1‑4‑1989 that C.I.T. (Appeals) could condone non‑payment of admitted tax‑‑‑Discretion to condone non­payment of admitted tax withdrawn w.e.f. 1‑4‑1989‑‑‑Assessment completed on 30‑3‑1989 and appeal filed on 26‑4‑1989 admitted by CIT (Appeals) condoning non‑payment of admitted tax‑‑‑Appeal was valid‑‑­Indian Income Tax Act, 1961, S.249.

A right .of appeal is not merely a matter of procedure: It is a matter of substantive right. This right of appeal from the decision of an inferior Tribunal to a superior Tribunal becomes vested in a party when proceedings are first initiated in, and before a decision is given by the inferior Court. A pre‑existing right of appeal .is not destroyed by an amendment if the amendment is not made retrospective by express words or necessary intendment, The fact that the pre‑existing right of appeal continues to exist must, in its turn, necessarily imply that the old law which created that right of appeal must also exist to support the continuation of that right. As the old law continues to exist for the purpose of supporting the pre‑existing right of appeal that old law must govern the exercise and enforcement of that right of appeal and there can then be no question of the amended provision preventing the exercise of, that right. A provision which is calculated to deprive an assessee of the unfettered right of appeal cannot be regarded as mere alteration in procedure. For the purposes of the accrual of the right of appeal the critical and relevant date is the date of initiation of the proceedings and not the decision itself. The position under section 249 of the Income‑tax Act, 1961, before and after amendment with effect from April 1, 1989, is as follows:

"249(4). No appeal under this Chapter shall be admitted unless at the time of filing of the appeal. ‑‑‑(a) where a return has been filed by the assessee, the assessee has paid the tax due on the income returned by him; or (b) where no return has been filed by the assessee the assessee has paid on amount equal to the amount of advance tax payable by him:

| | | | --- | --- | | Prior to 1‑4‑1989 Provided that on an Application made by the appellant Commissioner (Appeals) may for any good and sufficient reason to be recorded in writing exempt him from the operation of the provisions of this subsection. | With effect from 1‑4‑1989 Provided that, in a case falling under clause (b); Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals) may, for any good and sufficient reason to, be recorded in writing, exempt him from the operation. of the provisions of that clause." |

The assessee filed its returns for the assessment year 1986‑87 on February 9, 1989. In response to the notice under section 143(2) of the Act, books of account were produced and finally the income was assessed at Rs.1,45,06,670. The demand after adjustment of advance tax and taking into account interest payable under sections 139(8), 215 and 216 came to Rs. 52,91,476. The matter was challenged in appeal before the Commissioner of Income‑tax (Appeals). The assessment was completed on March 30, 1989, and the appeal was filed on April 26, 1989. When the assessee filed a return of income‑tax to be paid under section 140‑A was Rs.13,68,006. When the appeal was preferred on April 26, 1989 also, the admitted tax was not paid. An application for condonation of delay alongwith another set of appeal papers was filed on June 22, 1989. Prior to that on June 20, 1989 the admitted tax had been paid. In the application for condonation of delay in filing the appeal, it was indicated that due to liquidity cash problems the payment could not be made earlier. In between the date of completion of assessment and the date on which the appeal was filed there was a change in law regarding the admissibility of appeals, with effect from April 1, 1989. As per the amended provisions, the powers of the Commissioner of Income‑tax (Appeals) and the Deputy Commissioner of Appeal, to condone the lapse of non‑payment of admitted tax was withdrawn. Therefore, according to the assessee, it had paid the tax due and another set of appellate papers were filed. Though in the application that was filed subsequently the plea of cash crunch had been raised, subsequently at the time of hearing was contended that he original appeal filed on April 26, 1989 should be taken as a valid appeal. The Commissioner of Income‑tax (Appeals) was of the view that it was a fit case for condoning the lapse in the payment of admitted tax at the time of filing the appeal and, accordingly, admitted the appeal. This was upheld by the Tribunal. On a reference:

Held, that the relevant question to decide the applicability of the provision is the date on which the lis for the dispute arose. In the case at hand, the lis could be stated to have commenced latest by the date when the notice under section 143(2) of the Act was issued, that is, a date prior to April 1, 1989. The Tribunal was justified in its conclusion that the appeal was to be entertained on the basis of law as it stood prior to April 1, 1989. The appeal was competent.

Garikapati Veeraya v. N. Subbiah Chowdhry (1957) AIR 1957 SC 540; Hoosem Kasam Dada (India) Ltd. v. State of Madhya Pradesh (1953) 4 STC 114; (1953) AIR 1953 SC 221;‑Kirpa Singh v. Rasalldar Ajaipal Singh (1928) AIR 1928 Lah. 627; Ramesh Singh v. Cinta Devi (1996) AIR 1996 SC 1560; (1996) 3 SC 142; Special Military Estates Officer v. Munivenkataramiah (1990) AIR 1990 SC 499; (1990) 2 SC 168; State of Bombay v. Supreme General Films Exchange Ltd. (1960) AIR 1960 SC 980 and Vithalbhai Naranbhai Patel.v. CST (1961) 12 STC 219; (1967) AIR 1967 SC 344 ref.

P.K.R. Memon and N.R.K. Nair of the Commissioner.

C. Kochumin Nair, S. Vinod Kumar and Dale P. Kurien for the Assessee.

2002 P T D 1682

[242 I T R 593]

[Kerala High Court (India)]

Before Arijit Pasayat, C. J. and K. S. Radhakrishnan, J

COMMONWEALTH TRUST (INDIA) LTD.

versus

COMMISSIONER OF INCOME-TAX

I.T.R. No. 72 of 1997, decided on 10th November, 1999.

Income-tax---

----Business loss---Defalcation of certain amount by employee--­Employee entrusted with cash for disbursement of wages ---Entrustment in course of business-Loss incidental to business---Allowable.

If there is a direct and proximate nexus between the business operation and the loss or it is incidental to it, then the loss is deductible as without the business operation and doing all-that is incidental to it, no .profit can be earned.

The assessee claimed a deduction of a sum of Rs.68,434 from its total income as trading loss on account of the defalcation made by the employee. According to the assessee, the employee was entrusted with the cash for payment of wages and, therefore, the defalcation was a trading loss and allowable. The Income-tax Officer disallowed the claim and made an addition. The Commissioner of Income-tax (Appeals) allowed the claim but the Tribunal confirmed the addition made by the Income-tax Officer on the ground that the employee of the assessee who defalcated the amount was not authorised to disburse the amount. On a reference:

Held, that the mere fact that the duty to make-payment of wages is cast on the Manager or Cashier is no reason to hold that the entrustment of money to the employee is not in the course of carrying on the business of the assessee. The entrustment of money with an employee for disbursement of wages was in the course of the assessee's business and, since the employee defalcated the amount when he was engaged in the activities of the assessee's business the loss sustained by the assessee was directly connected with the business operation and hence allowable as trading loss.

Badidas Daga v. CIT (1958) 34 ITR 10 (SC); Churakulam Tea Estates (Pvt.) Ltd. v. CIT (1995) 214 ITR 457 (Ker.); CIT v. Nainital Bank Ltd. (1965) 55 ITR 707 (SC); Khaitan & Co. v. CIT (1979) 118 ITR 728 (Cal.) and Ramchandar Shivnarayan v.. CIT (1978) 111 ITR 263 (SC) ref.

P. Balachandran for the Assessee.

P.K.R. Menon for the Commissioner

2002 P T D 1695

[242 I T R 569]

[Kerala High Court (India)]

Before Arijit Pasayat, C. J. and K. S. Radhakrishnan, J

COMMISSIONER OF INCOME-TAX

versus

MASONEILAN (INDIA) LTD.

Income-tax Reference No. 126 of 1997,. decided on 15th October, 1999.

Income-tax---

----Return---Company---Rectification of mistakes---Return of company not signe person mentioned in S.140---Defect curable under S.292-B---Rectification proceedings under S.154 to declare return non est are not valid---Indian Income Tax Act, 1961, Ss. 140, 154 & 292-B.

A return can be signed and verified only as provided for, in section 140(c) of the Income Tax Act, 1961. In the case of a company, a return under section 139 is to be signed and verified as per section 140(c) between April 1, 1962, and March 31, 1976, by the principal officer. With effect from April 1, 1976, in, the case of a company, the return is to, be signed and verified by the Managing Director himself or where for any unavoidable reason such Managing Director is not able to sign and verify the return or where there is no Managing Director, by any Director thereof. It is well-settled that if, a statute provides for a thing to be done in a particular manner, then it is to be done in that manner and in no other manner. Section 292B provides that no return of income shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of income if it is in substance and effect in conformity with, or according to the intent and purposes of the Act. Section 139 also throws some light on the question. If there is any defect, the Assessing Officer is required to give an opportunity to the assessee to rectify the defect within a stipulated time.

Return was filed on July 27, 1988, by the assessee, a public limited company. The said return was signed by a person not named under section 140 of the Act in relation to "company". Notice was issued under section 154 of the Act to the assessee stating that since its return was not signed by the person permitted to sign it in terms of section 140(c) of the Act, the return was non est, and all proceedings taken on the basis of that return were void ab initio. Such notice was issued for the years 1988-89 and 1989-90. The assessee filed its objection stating that the return was filed by a person who was authority to do so on the basis of a power of attorney. The Assessing Officer did not accept the assessee's contention and treated the return to be non est. The matter was carried in ;appeal before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) rejected the contention of the assessee that in view of section 292B, a return cannot be questioned if it was in substance and effect in conformity with the intent and purpose of the Act. The assessee moved the Tribunal, which accepted that section 292B of the Act took care of the situation and action under section 154 of the Act was not warranted. On a reference:

Held, that the question whether section 292E of the Act applied to the facts of a case was a question of law. That being the position, the Tribunal was justified in its conclusion about the non-applicability of section 154. The Tribunal was right and section 292B was applicable.

Balaram (T.S.), ITO v. Volkart Bros. (1971) 82 ITR 50 (SC); Chandra Kishore Jha v. Mahavir Prasad (1999) 7 JT 256 (SC); Commissioner of Agrl. I.T. v. Sri Keshab Chandra Mandal (1950) 18 ITR 569 (SC); Har Narain Textiles (P.) Ltd. v. CIT (1985) 47 CTR 326 (All.); ITO v. Asok Textiles Ltd. (1961) 41 ITR 732 (SC); Master Construction Co. (P.) Ltd. v. State of Orissa (1966) 17 STC 360 (SC); Nazir Ahmad v. King-Emperor AIR 1936 PC 253; Rao Shiv Bahadur Singh v. State of Vindhya Pradesh AIR 1954 SC 322; Satyanarayan Laxminarayan Hegde v. Mallikarjun Bhavanappa Tirumale AIR 1960 SC 137; Shanmugam (K.M.) v. S.R.V.S. (P.) Ltd. AIR 1963 SC 1626; State of U.P. v. Singhara Singh AIR 1964 SC 358 and Venkatachalam (M.K.) ITO v. Bombay Dyeing and Manufacturing Co. Ltd. (1958) 34 ITR 143 (SC) ref.

P. K. R. Menon and N. R. K. Nair for the Commissioner.

Nemo for the Assessee.

2002 P T D 2061

[243 I T R 557]

[Kerala High Court (India)]

Before Arijit Pasayat, C. J. and K. S. Radhakrishnan, J

COMMISSIONER OF INCOME-TAX

Versus

PAILY PILLAI & CO.

Income-tax Reference No. 146 of 1996, decided on 1st November, 1999.

Income-tax---

----Discontinuance of business---Firm---Effect of S.176(3A)--­Dissolution of partnership---Amount received under arbitration much after dissolution by erstwhile partners---Amount assessable as income of firm under S.176(3A)---Indian Income Tax Act, 1961, S.176.

Subsection (3A) of section 176 of the Income Tax Act, 1961 was introduced by the Taxation, Laws (Amendments) Act, 1975, with effect from April 1, 1976. This provision, inter alia, provides that any sum received after the discontinuance of a business is, for and from the assessment year 1976-77, to be treated as income of the recipient in the year of receipt, if it would have been included in the total income of the person who carried on the business, had it been received before such discontinuance. It is to be noted that subsections (3A) and (4) constitute exceptions to the rule that business or professional receipts are chargeable only if the business or profession is carried on in the year of account. For the purpose of the assessment, there is a well-marked distinction between "discontinuance" and "succession". While "discontinuance" refers to a complete cession of the business, "succession" is involved in a mere change of ownership. The conception of succession excludes the conception of discontinuance.

The assessee, a firm, was engaged in contract works with the Kerala State Electricity Board. It was dissolved by a deed of dissolution, dated October 1, 1970. Clause (4) of the deed of dissolution stated that the works done by the partnership till the close of the business on the 30th day of September, 1970, had been fully measured and values thereof duly accounted. Clause (5) provided that P who was one of the partners was authorised to do or to get done at his own expense, further work, if any, required to be done in respect of the business carried by the partnership and that the said P alone shall be entitled to or liable for the profits or losses, as the case may be, of the said further work if any. During the accounting period relevant to the assessment year 1976-77, a sum of Rs.1,16,000 was received from the Board on the basis of an arbitration award in respect of work done earlier. The Assessing Officer issued a notice under section 148 of the Act to the assessee. The Assessing Officer brought the amount to tax in the hands of the firm under section 176(3A) of the Act. Being aggrieved, the matter was taken up by the assessee in appeal before the Commissioner of Income-tax (Appeals) who upheld the action of the Assessing Officer. In second appeal, the Tribunal held that the claim which resulted in the arbitration award was made long after the dissolution of the firm, and it was not even in contemplation at any time prior to the dissolution, that the income accrued only on February 21, 1974, when the arbitrator gave his award and by that time, the firm had already been dissolved. The Tribunal was, therefore, of the view that it was a case of succession of a firm by an individual, i.e., one of the erstwhile partners. It set aside the assessment. On a reference:

Held, that clause (5) of the deed of dissolution related to further work, if any in respect of the business carried on by the partnership. The arbitration award was in respect of work already done prior to the dissolution of the firm. Only the claim was made subsequent to the dissolution. Though the plea of the assessee was that the award amount was not relatable to the work done earlier and was `further work" as referred to in clause (5) of the deed of dissolution, the amount was shared by the partners of the firm. The, very fact that the Income had been received by the partners nullified the stand taken by the assessee that the work done was independent. In other words, it was not relatable to any "further work". The amount received on arbitration was assessable in the hands of the firm.

P.K.R. Menon and George K. George for the Commissioner.

P.G.K. Warriyar and P. Balakrishnan for the Assessee.

2002 P T D 7

[Lahore High Court]

Before Nasim Sikandar, J

Messrs FLYING BOARD AND PAPER PRODUCTS, LAHORE CANTT.

Versus

DEPUTY COLLECTOR-II, GOVERNMENT OF PAKISTAN, DIRECTORATE OF SALES TAX, CUSTOMS HOUSE, LAHORE and 3 others

Amended Writ Petition No. 5203 and Writ Petitions Nos. 5202, 5204 to 5206 of 1999, decided on 28th September, 2001.

(a) Sales Tax Act (VII of 1990)---

----S. 45A---Revisional jurisdiction, exercise of ---Preconditions--­Revisional power can be used only in respect of departmental proceedings and those orders which are recorded by officer of sales tax---Order in respect of which revisional jurisdiction is proposed to be exercised must be made by a subordinate officer to the Central Board of Revenue or a Collector as provided by S. 45A(3) of the Sales Tax Act, 1990---Proceedings under S. 45A(1) of Sales Tax Act, 1990, cannot be initiated where an appeal under S.45 or 46 of the Sales Tax Act, 1990, is pending---No such order can be made after expiry of three years or from the date of the original decision or order of the subordinate officer as referred in S. 45A(1) of the Sales Tax Act, 1990.

(b) Sales Tax Act (VII of 1990)---

----Ss. 45 & 45A---Revisional jurisdiction, exercise of---Necessary conditions---Necessary conditions for exercise of such jurisdiction either by Central Board of Revenue or Collector are that order or decision must have been recorded by a `sales tax officer' subordinate to the Central Board of Revenue or the Collector, as the case may be, and such order or decision has been passed in 'departmental proceedings'---Revising Authority can act of its own motion and the primary purpose is to see the legality or propriety of the decision/order in the perspective of the interest of the revenue.

(c) Sales Tax Act (VII of 1990)---

----S. 45A---Revisional power---Nature of jurisdiction---Revisional power and proceedings under S. 45A of Sales Tax Act, 1990, are executive in nature to remedy defaults which are either not appealable or, else no appeal has been filed---Once the assessee or the department takes the matter to any of the three appellate forums i.e. the Collector (Appeals), the Appellate Tribunal or High Court, the revisional power vested under S. 45A stands ousted completely and effectively.

(d) Sales Tax Act (VII of 1990)---

----S. 45A---Revisional, jurisdiction---Subject-matter of Appellate Tribunal---Even if the Collector (Appeals) is accepted to be a subordinate officer' of sales tax and the proceedings before him to bedepartmental proceedings' still order which has been subject-matter of the Tribunal cannot directly or indirectly be touched by the revisional Authority whether the Authority is Central Board of Revenue or Collector of Sales Tax.

(e) Sales Tax Act (VII of 1990)---

----S. 45A---Revisional jurisdiction---Object and scope---Purpose of exercise of revisional jurisdiction is only to ensure that the system works in accordance with law---Once the matter has been taken to the appellate forums, then the executive functionaries must keep their hands off the matter---Only job the functionaries can do is to see that the matter is properly followed up by the department before the appellate forums so that the assessee as well as the Department may have a fair deal.

(f) Sales Tax Act (VII of 1990)---

----Ss. 45A & 47---Constitution of Pakistan (1973), Art. 199--­Constitutional petition---Levy of sales tax---Exercise of revisional jurisdiction instead of appeal under S.47 of the Sales Tax Act, 1990--­Show-cause notice, issuance of---Dispute was with regard to the adjustments of various sums paid as sales tax---Appeal against the original order was allowed by the Collector in favour of the petitioner whereas the Appellate Tribunal dismissed the appeal filed by the Authorities on the technical ground that the appeal was not filed by a person competent to do so---Central Board of Revenue, after the rejection of appeal by the Appellate Tribunal, took the matter in exercise of powers under S. 45A of the Sales Tax Act, 1990, and issued the show­-cause notice in revisional jurisdiction---Validity---Where appeal lay to High Court against order of Appellate Tribunal, the same did not permit directly or indirectly any executive Authority in Department to interfere with a matter .which should properly have been brought to High Court--­Order passed by Central Board of Revenue under S. 45A of the Sales Tax Act, 1990, was without lawful authority and the same was set aside--­Constitutional petition was allowed in circumstances.

Irfan Qadir for Appellant. A. Karim Malik for the Revenue.

Date of hearing: 13th September, 2001.

2002 P T D 41

[Lahore High Court]

Before Nasim Sikandar and Mansoor Ahmad, JJ

Messrs HAMEED MASOOD LTD,.

Versus

COMMISSIONER OF INCOME-TAX, CENTRAL ZONE; LAHORE and another

Writ Petition No. 1123 of 1985, decided on 19th 'September, 2001

Income Tax Ordinance (XXXI of 1979)---

----S.136(2)---Constitution of Pakistan (1973), Art. 199---Constitutional petition---Scope---Rejection of accounts as well as application of G.P. rate was upheld by the Appellate Tribunal for valid reasons recorded on, the basis of material available on record---Plea that matters of rejection of accounts, application of rate or profit and loss account disallowances needed interference in extraordinary jurisdiction under Art. 199 of the Constitution was repelled in circumstances.

Commissioner of Income-tax v. Assessee 1986 PTD 368; CIT v. Bansi Dhar & Sons 1988 PTD 907 and CIT, West Bengal-11 v. Hindustan Housing and Land, Development Trust Ltd. 1988 PTD 882 ref.

Mian Ashiq Hussain for Appellant. Muhammad Ilyas Khan for the Revenue.

Date of hearing: 19th September, 2001.

2002 P T D 86

[Lahore High Court]

Before Mansoor Ahmad, J

RAVI FLOUR MILLS through Managing Partner

Versus

INCOME-TAX APPELLATE TRIBUNAL OF PAKISTAN, LAHORE BENCH, LAHORE and 2 others

Writ Petition No. 6834 of 1992, heard on 19th September, 2001.

Income Tax Ordinance (XXXI of 1979)---

----Ss. 134 & 66-A---Constitution of Pakistan (1973), Art. 199--­Assessment year 1988-89---Amendment through Finance Act, 1994 in S.134 of the Income Tax Ordinance, 1979---Appeal against an order under S.66-A of the Income Tax Ordinance, 1979 was dismissed being incompetent by the Tribunal---Question was whether such appeal was competent and whether the amendment made through Finance Act, 1994 in S.134 would operate retrospectively---Both the parties agreed before the High Court that the appeal be decided on merits by the Tribunal instead of going into the technicalities---In view of joint request of parties petition was allowed and order of the Tribunal was set aside by the High Court with the direction that the appeal for the assessment year 1988-89 shall be deemed to be pending before the Tribunal who would dispose of the same on merits according to law.

Shahbaz Butt for Appellant.

M. Ilyas Khan for Respondents.

Date of hearing: 19th September, 2001.

2002 P T D 133

[Lahore High Court]

Before Mansoor Ahmad, J

Messrs CAVALRY SUPER STORE

Versus

THE INCOME-TAX OFFICER, CIRCLE-1, ZONE, LAHORE

Writ Petition No. 6281 of 1993, decided on 2nd August, 2001.

Income Tax Ordinance (XXXI of 1979)---

----S. 65---Constitution of Pakistan (1973), Art. 199--Constitutional petition---Re-opening of assessment---During the pendency of Constitutional petition assessment order had already been passed by the Authorities and the assessee had already filed appeal against the order--­Effect---Where assessment order had been passed in pursuance of notice under S.65 of Income Tax Ordinance, 1979, the Constitutional petition had become infructuous---Constitutional petition was disposed of accordingly.

Nemo for Petitioner.

2002 P T D 148

[Lahore High Court]

Before Mansoor Ahmad, J

SHAHEEN ICE FACTOR

Versus

INCOME-TAX OFFICER, CIRCLE 18, ZONE-A, LAHORE and another

Writ Petition No. 10670 of 1992, heard on 28th September, 2001.

Income Tax Ordinance (XXXI of 1979)---

----S. 59(1)---C.B.R. Circular No. of 1990, dated 25-6-1990---Self­-Assessment Scheme---Qualification to avail the Scheme---Assessment year 1990-91---Proceedings for the assessment year 1989-90 had been filed---Income declared for the said year was less than the assessment year 1988-89---Qualification of Return for Self-Assessment Scheme---Validity---No assessment was made for the assessment year 1989-90 as the proceedings were filed and the income last assessed was only in respect of assessment year 1988-89 in which year income assessed was Rs. 79,000 while the assessee declared its income Rs. 48,000 for the assessment year 1990-91 which was less than the income assessed for the assessment year 1988-89, as such the case of the assessee did not qualify for acceptance under Self-Assessment Scheme---Order passed by the Assessing Officer was declared to be in accordance with the Self­-Assessment Scheme by the High Court.

Siraj-ud-Din Khalid for Petitioner.

Muhammad Ilyas Khalid for Respondent.

Date of hearing: 28th September, 2001.

2002 P T D 155

[Lahore High Court]

Before Mansoor Ahmad, J

MONTGOMERY FLOUR AND GENERAL MILLS LIMITED, LAHORE

Versus

FEDERATION OF PAKISTAN through Chairman, Central Board of Revenue, Islamabad and 3 others

Writ Petition No. 255 of 1995, heard on 10th October, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

---S.52---Failure to deduct tax at source ---Assessee in default---On failure to make deduction at source the payer becomes an assessee in default to the extent of that much amount which he failed to deduct and it was by fiction of law that he was treated as "assessee in default" but if he continues making deduction out of the payment made by him to any other person, he would never fall within the ambit of assessee.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss. 5 & 52---Jurisdiction of Income-tax Authority---Deduction of tax at source---Concurrent jurisdiction---Withholding agent---Where a withholding agent being assessed at one station had a business place in the jurisdiction of another officer, the Assessing Officer having jurisdiction over the place of business (other than the place of assessment), will have concurrent jurisdiction to monitor the withholding tax deductions in respect of their recipients falling under his jurisdiction---Action under S.52 of the Income Tax Ordinance, 1979 in these cases shall be taken only by the Assessing Officer of the withholding agent.

(c) Income Tax Ordinance (XXXI of 1979)---

----S.5---Jurisdiction of Income-tax Authorities---Concurrent jurisdiction not-barred---No bar is contained under S.5 of the Income Tax Ordinance, 1979 to confer concurrent jurisdiction in respect of persons, class of persons or distinct jurisdiction in specified cases, classified cases or specified persons or classified persons by the Central Board of Revenue and also by the Regional Commissioners, Commissioners of the respective Zones.

(d) Income Tax Ordinance (XXXI of 1979)---

----Ss. 50(1)(4)(4A), 52 & 5(a)(b)---C.B.R. Circular No. 6 of 1995, dated 12-7-1995---C.B.R. Circular No. 12 of 1996, dated 28-8-1996---Consti­tution of Pakistan (1973), Art. 199---SRO 711(1)79, dated 4-8-1979--­Constitutional petition---Notice of assessee demanding challan of payment under S.50 of the Income Tax Ordinance, ' 1979 by the Assessing Officer having the jurisdiction over the place of business of the assessee---Assessee challenged such notices by a Constitutional petition on the ground that Assessing Officer had no jurisdiction to issue such notice as its registered office was located out of his jurisdiction where the assessee was being assessed---Validity---Assessing Officer merely issued notices to the assessee for monitoring the collection of tax under S. 50 of the Income Tax Ordinance, 1979 which jurisdiction was conferred upon him under the law---Jurisdiction vested with the Assessing Officer was of a limited nature only to the extent of monitoring collection/deduction at source---Officer never acted as an Assessing Officer in respect of the assessee nor he had issued any notice as such---Constitutional petition was dismissed by the High Court.

Commissioner of Income-tax, Rawalpindi Zone, Rawalpindi v. Malik Abdul Karim, Transport Company Limited, Gujrat 1993 PTD 508 distinguished.

Ahmad Shahzad Farooq Rana for Petitioner.

Chaudhry Sagheer Ahmed for Respondent.

Date of hearing: 10th October, 2001.

2002 P T D 187

[Lahore High Court]

Before Mansoor Ahmad, J

IMPORIENT CHEMICAL (PVT.) LTD through Chief Executive

Versus

COMMISSIONER OF INCOME-TAX, ZONE-II, LAHORE and another

Constitutional Petition No-10493 of 2001, heard on 27th September, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----S. 50(5)---Advance income-tax---Payment of---Filing of return--­Scope---Person who is an importer and has no other source of income and has paid the tax under the provisions of S.50(5) of the Income Tax Ordinance, 1979, the payment so made is deemed as full and final discharge of his liability and such importer is not required to file any return.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss. 50(4) & 50(5)---Constitution of Pakistan (1973), Art. 199--­Constitutional petition---Advance income-tax---Deduction o f tax at source---Supply of imported goods to prospective buyers---Issuance of exemption certificate---Authorities denied the issuance of the certificate for the reason that the assessee had not filed irrevocable declaration of option for the presumptive tax regime---Validity---Deduction of tax at the time of such supply would be a deduction of tax in the account of the buyers and it would not be a payment made by the importer--Once the importer had paid tax under S.50(5) of the Income Tax Ordinance, 1979, in full and final discharge of his tax liability, the importer was entitled to deal with his business for supply of imported goods without any further liability---Importer was entitled to the issuance of exemption certificate under S.50(4) of the Income Tax Ordinance, 1979---High Court remanded the case to the Authorities for decision afresh---Constitutional petition was allowed accordingly.

(c) Income Tax Ordinance (XXXI of 1979)---

----Ss. 50(4) & 50(5)---Deduction of tax at source---Opting for presumptive tax regime---Filing of irrevocable declaration---Effect--­Filing of such declaration opting for presumptive tax regime would only be relevant in the nature of cases falling under S.50(4) of the income Tax Ordinance, 1979---Where case of the assessee was covered under the provision of S.50(5) of the Income Tax Ordinance, 1979, the assessee could not be declined the issuance of exemption certificate merely on the plea that he failed to submit irrevocable declaration of option of the presumptive tax regime.

Hashim Sabir Raja for Petitioner.

Muhammad Ilyas Khan for Respondents.

Date of hearing: 27th September, 2001.

2002 P T D 208

[Lahore High Court]

Before Mansoor Ahmad, J

Messrs BE BE JAN PAKISTAN (PRIVATE) LIMITED, FAISALABAD

Versus

THE I.A.C. Or INCOME-TAX OF COMPANIES RANGE-VI, FAISALABAD and 3 others

Writ Petition No. 11801 of 2001, decided on 26th July, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----S. 65---Re-opening of assessment---Re-opening of assessment on the basis of second show-cause notice on another aspect of assessment--­Validity---Earlier a show-cause notice was issued to the assessee relating to fictitious liability and on that issue, the explanation of assessee was accepted---Question relating to adjustment of an amount under prior year's adjustment was next taken note of and assessee was confronted but his explanation was not found satisfactory---Re-opening of the case--­Proceedings against the assessee did not suffer from any mala fides on the face of it.

(b) Constitution of Pakistan (1973)---

----Art. 199---Constitutional petition---Scope---No clog or fetter is placed on the jurisdiction of High Court which is to be regulated by the Court itself for proper administration of justice---Jurisdiction has to be exercised discreetly and with judicious approach.

(c) Income Tax Ordinance (XXXI of 1979)---

----S. 65---Constitution of Pakistan (1973), Art. 199-Constitutional petition---Re-opening of assessment---Show-cause notice---Validity---No doubt a writ was competent even against a show-cause notice but at the same time, the tendency of bypassing the remedy provided under the relevant statute and pressing into service the Constitutional jurisdiction of High Court was not proper---Upon re-opening the case of the asses­see, the Assessing Officer would conduct the proceedings for additional assessment and in that the assessee would have every right to urge and raise any plea whether of law or of fact before him---Where the nature of dispute between the parties, fell within the domain of factual controversy, remedy through Constitutional petition was not appropriate---Factual controversy would have to be gone into at the departmental level--­Constitutional petition was dismissed in limine.

Edulji Dinshaw Ltd. v. Income-tax Officer PLD 1990 SC 399 = 1990 PTD 155; Messrs Home Planners v. The Assistant Commissioner of Income-tax, Lahore 2001 PTD -1633; Baby Own v. Income-tax Officer 1997 PLT 47; Noorani Cotton Corporation v. Sales Tax, Officer PLD 1965 SC 161; Nagina Silk Mills, Lyallpur v. The Income Tax. Officer A-Ward, Layallpur and another PLD 1963 SC 322; Messrs Pakistan Tobacco Co. v. Government of Pakistan 1993 SCMR 493; Adahaam Builders (Pvt.) v. Income-tax Appellate Tribunal 1993 SCMR 29; Commissioner of Income-tax v. Private School, 1993 SCMR 96 and Pak-Arab Fertilizers v. Deputy Commissioner Income-tax 2000 PTD 263 ref.

Shahbaz Butt for Petitioner.

Muhammad Ilyas Khan for Respondents

2002 P T D 212

[Lahore High Court]

Before Nasim Sikandar and Mansoor Ahmad, JJ

Messrs H.I. (PVT.) LIMITED, LAHORE

Versus

INCOME-TAX APPELLATE TRIBUNAL and others

Income-tax Appeal No. 390 of 1998, decided on 11th September, 2001.

Income Tax Ordinance (XXXI of 1979)---

----S. 136---Appeal to High Court---Question of fact---Question as to whether assessee purchased an open plot or some construction was also raised thereupon was predominantly a question of fact and could hardly be a subject-matter of appeal td High Court.

M. Iqbal Hashmi for Petitioner.

2002 P T D 226

[Lahore High Courtl

Before Nasim Sikandar and Mansoor Ahmad, JJ

COMMISSIONER OF INCOME-TAX

versus

GULZAR-UL-HAQ

P. T. R. Nos. l l and 12 of 1993, heard on 27th June, 2001.

Income Tax Ordinance (XXXI of 1979)---

----S. 69(4)---Assessment of firms and partners---Share of super tax allowable to a partner was to be in the same proportion as his share in total income---Share of the partner in that context was not artificial, restricted and purposive.

Commissioner of Income-tax West Zone, Karachi v. Anweraly Haji Noor Muhammad 1992 PTD 347 rel..

Muhammad Ilyas Khan for Appellant. Nemo for Respondent.

Date of hearing: 27th June, 2001.

2002 P T D 248

[Lahore High Court]

Before Nasim Sikandar and Mansoor Ahmad, JJ

COMMISSIONER OF INCOME-TAX

versus

M. FARAD AMIN

I.T.As. Nos. 121, 122 and 123 of 1997, heard on 17th September, 2001.

Wealth Tax Act (XV of 1963)---

----Ss.17-B & 27---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order-=-Date to be effective from--­Section 17-B of the Wealth Tax Act, 1963 was inserted by Finance Act, 1992 which took effect from 1st July, 1992 and Inspecting Additional Commissioner's action in touching the assessment order prior to the assessment year 1992-93 was not in accordance with law.

CIT v. , National Security Insurance Co . , Lahore 2001 PTD 814 rel.

Muhammad Ilyas Khan for Appellant, Nemo for Respondent.

Date of hearing: 17th September, 2001.

2002 P T D 255

[Lahore High Court]

Before Nasim Sikandar and Mansoor Ahmad, JJ

COMMISSIONER OF INCOME-TAX

Versus

Messrs FIRDOUS TEXTILE MILLS, FAISALABAD

I. T. A. No. 152 of 1997, decided on 30th July, 2001.

Income Tax Ordinance (XXXI of 1979)---

----S.136 (1)---Appeal to High Court---Question of fact---Issue whether an admissible expense was actually incurred by the assessee during a particular assessment year was predominantly a question of fact---Such question could not be converted into one of law by simply saying that certain provisions of law had been ignored---Two consistent views of the forums below that the addition with respect to claimed expenses was unjustified did not give rise to a good reason requiring interference by the High Court under S.136(1) of the Income Tax Ordinance, 1979--­Appeal was dismissed in limine.

C.I.T. v. Paracha Textile Mills, Karachi 1973 PTD 238 ref.

Kh. Muhammad Saeed for the Revenue

2002 P T D 270

[Lahore High Court]

Before Nasim Sikandar and Jawad S. Khawaja, JJ

Messrs NIDAI MILLAT LTD

Versus

COMMISSIONER OF INCOME-TAX

C. T. R. No. 23 of 1989, heard on 2nd October, 2000.

(a) Income Tax Ordinance (XXXI of 197.9)---

----S.130(3)---Limitation---Service of notice---Appeal barred by limitation---Assessee was properly served for the date of hearing---No separate notice was required to confront the assessee that its appeal was barred by limitation.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.130(3)---Limitation---Delay of one day---No application for condonation of delay---Rejection of appeal---When no application for condonation of delay was made before the Commissioner nor an excuse was put up before him, he was well within his domain to reject the appeal as barred by limitation.

(c) Income-tax---

----Forum exercising judicial or quasi-judicial functions was not required to confront the party of the natural consequence of the default made on his part.

Sh. Maqbool Ahmad for Petitioner.

Muhammad Ilyas Khan for Respondent.

Date of hearing: 2nd October, 2000.

2002 P T D 275

[Lahore High Court]

Before Nasim Sikandar and Mansoor Ahmad, JJ

NYLEX (PRIVATE) LTD.

Versus

D.C., INCOME-TAX

I. T. A. No. 127 of 2000, heard on 9th July, 2001

(a) Income-tax---

----Gross profit rate---History of the case---Re-casting of account--­Application of gross profit rate following the history of the case after re­casting of the account was not justified.

(b) Income Tax Ordinance (XXXI of 1979)---

----S. 24 (c)---Inadmissible deduction---Commission/discount--­Commission/discount having not been paid in cash could not be claimed and allowed as an expense.

(c) Income Tax Appellate Tribunal Rules, 1981---

----S. 14---Grounds which may be taken in appeal---Issue raised out of First Appellate Authority's order---Refusal of Tribunal to interfere--­Validity---Tribunal was not justified in refusing to interfere in. the application of G.P. rate on, the ground that the assessee had failed to assail the first appellate order in the first round as it was for the first time after remand that the trading account was re-cast---Assessee could take up the issue as a ground of appeal before the Tribunal in circumstances.

(d) Income Tax Ordinance (XXXI of 1979)---

----S. 136(1)---Appeal to High Court---Scope---Gross profit rate---Aspect of the matter that assessee undertook a particular kind of activity on which only a low rate could be achieved, could not be effectively ruled upon by the High Court while considering an appeal under 5.136 of the Income Tax Ordinance, 1979.

Kh. Abrar Majal for Appellant.

Muhammad Ilyas Khan for Respondent.

Date of hearing: 9th July, 2001.

2002 P T D 311

[Lahore High Court]

Before Maulvi Anwarul Haq, J

INTERNATIONAL BEVERAGES (PVT.) LTD.

Versus

GOVERNMENT OF PAKISTAN through Additional Secretary, Ministry of Finance (Central Board of Revenue), Karachi and 2 others

Writ Petition No. 1075 of 1990, heard on 10th July, 2001.

Sales Tax Act (III of 1951)---

----Ss. 2(12) & 27(1)---Refund of sales tax---Term "subject to the tax" as used in S.2(12) of Sales Tax Act, 1951 with reference to exemption or non-payment of sales tax on end-product, must be read as "subject to the payment of tax"---Assessee would not be entitled to claim refund of sales tax paid on partly manufactured goods at the time of import/purchase of such goods, which were ultimately incorporated into and form a constituent part of end-product, which was exempt from payment of sales tax in relevant years---After inclusion of amount of such sales tax in the price structure of end-product, such incidence for all purposes stood passed on to consumers and assessee would not be having any locus standi to make claim for refund of such sales tax.

Commissioner of Sales Tax North Zone (West) Pakistan, Lahore .v. H. Muhammad Hussain & Co., Lahore 1974 PTD 20; Commissioner of Sales Tax, Rawalpindi Zone, Rawalpindi v. Shafiq Corporation Ltd., Gujrat 1974 PTD 15; Messrs Noorani Cotton Corporation v. The Sales Tax Officer PLD 1965 SC 161; Latif Bawany Jute Mills Ltd. and 4 others v. The Sale Tax Officer, Dacca 1971 PTD 26; The Commissioner of Sales Tax v. Messrs Shaiq Corporation Ltd. PLD 1986 SC 73.1; Abbasi Textile Mills Ltd. v. Commissioner of Sales Tax (East), Karachi PLD 1990 SC 422; Commissioner of Sales Tax v. Hunza Central Asian Textile and Woollen Mills Ltd. 1999 SCMR 526 = 1999 PTD 1135 and Central Board of Revenue and others v. Messrs Champion Clock Company 1.996 SCMR 1468 ref.

Saleem Zulfiqar Khan for Petitioner.

Iftikhar Javaid, Standing Counsel and Asif Jah for Respondent.

Date of hearing: 10th July, 2001.

2002 P T D 324

[Lahore High Court]

Before Nasim Sikandar, J

Messrs MEHTAB INDUSTRIES LIMITED, SAHIWAL through Chief Executive

Versus

DEPUTY COMMISSIONER, INCOME-TAX/WEALTH TAX, CIRCLE-16, COMPANIES ZONE-I, LAHORE and 3 others

Writ Petition No. 20763 of 2000, heard on 28th September, 2001.

(a) Constitution of Pakistan (1973)---

----Art. 199---Constitutional jurisdiction---Scope---Distinct from Appellate jurisdiction---Fact alone that after the order of Tribunal, assessee has no further remedy to avail will not require the High Court to sit as a Court of Appeal while exercising Constitutional jurisdiction to decide contentious matters both on fact as well as on law---Where the law contemplates an end to proceedings after a decision in appeal or revision, the High Court will not convert itself into a Court of further appeal if the law has not provided one.

(b) Finance Act (XII of 1991)---

----S. 12(vi)---Companies Ordinance (XLVII of 1984), S. 234 & Fifth Sched.---Corporate Assets Tax---Work in progress---Work in progress has to be included in the assets of the assessee-Company on a particular date and reflected in the balance-sheet for the purposes of Corporate Assets Tax---Revenue Authorities were justified in resorting to Fifth Sched. in the Companies Ordinance, 1984 in circumstances.

Naveed A. Andrabi for Petitioner.

Muhammad Ilyas Khan for Respondents.

Date of hearing: 28th September, 2001.

2002 P T D 327

[Lahore High Court]

Before Nasim Sikandar and Mansoor Ahmad, JJ

COMMISSIONER OF INCOME-TAX/WEALTH TAX, COMPANIES ZONE-III, LAHORE

Versus

Messrs MARGALA TEXTILE MILLS LIMITED, LAHORE

Income-tax Appeals Nos. 134 to 136 of 1998, decided on 13th September, 2001.

(a) Income Tax Ordinance (XXXI of 1979)----

----S. 136---Appeal to High Court---Question in the nature of argument pre-supposing a finding of fact was refused to be entertained for consideration---Finding of facts was absent in the order of the Tribunal and such question could not be said to, have arisen out of the order of the Tribunal.

(b) Income Tax Ordinance (XXXI of 1979)---

----5.136---Appeal to High Court---Subject of appeal---Only a question of law arising out of order of the Tribunal can be a subject of appeal under the provisions of S.136 of the Income Tax Ordinance, 1979.

(c) Income Tax Ordinance (XXXI of 1979)---

----S. 136---Appeal to High Court---Consideration of facts---High Court while considering a question of law arising out of the order of the Tribunal considers the facts as these were found by the Tribunal.

Muhammad Ilyas Khan for Appellant

2002 PT D 348

[Lahore High Court]

Before Mansoor Ahmad, J

Messrs TAXNET (PVT.) LIMITED

Versus

FEDERATION OF PAKISTAN through Minister of Finance, Revenue Division, Islamabad and others

Writ Petition No. 7452 of 2001, decided on 28th September, 2001.

Income Tax Ordinance (XXXI of 1979)---

----S.129 [as amended by Finance Ordinance (XXI of 2000)] --- C. B. R Circular No. 3 of 2001, dated 23-5-2001---Prospective in effect--­Constitution of Pakistan (1973), Art. 199---Constitutional petition ---Precondition for filing appeal to deposit 15 % of the amount of tax assessed--­Petitioner against assessment year 1998-99 filed appeal before Commissioner of Income-tax (Appeal) who directed him to deposit 15%, of the amount of tax assessed in view of the amendment made in S.129 of Income Tax Ordinance, 1979 through Finance Ordinance, 2000--­Validity---Appeal of petitioner filed against assessment year 1998-99 did not fall within the mischief of such amendment as having-been clarified by Central Board of Revenue through Circular No. 3, dated 23-5-2001 that such amendment was prospective in operation and would not apply to any previous assessment year---Appeal of petitioner, had been entertained and decided by Commissioner of Income-tax (Appeal) without requiring him to deposit 15% tax demand in view of interim order of High Court passed in Constitutional petition---Grievance petitioner having stood redressed, Constitutional petition was disposed of having borne fruit.

Ch. Anwarul Haq for Petitioner.

Muhammad Ilyas Khan for Respondents.

2002 P T D 354

[Lahore High Court]

Before Nasim Sikandar and Mansoor Ahmad, JJ

COMMISSIONER OF INCOME-TAX, LAHORE ZONE-B, LAHORE

Versus

LAHORE CANTONMENT COOPERATIVE HOUSING SOCIETY, LAHORE

C.T.R. No. 4 of 1999, decided on 22nd October, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----Second Sched., Cl. (103(a)), Explanation ---Interpretation and scope. From the language of the Explanation to clause (103(a)) of Second Schedule of the Income Tax Ordinance, 1979 it is clear that dealing with the member for the purpose of clause (a) was defined and categorized for the purpose of determining the exemption. The explanation not only spells out the meaning of "dealing with the members" but also discloses the intention of the law-maker. If the intention of law was to provide a blanket exemption to any gains arising out of every kind of dealing with the member, then it would have been so provided but the categorization of various kinds of dealing discloses that the intention of the law was not to provide blanket exemption in respect of every kind of dealing. It, therefore, follows that the gains arising out from the sale of goods, lending of money or lease of building or land were the kind of gains which were exempted and other kind of gains which the society might make were not exempted.

(b) Income Tax Ordinance (XXXI of 1979)---

----Second Sched., Cl. (103(a)), Explanation---Exemption---Cooperative Housing Society---Gains made under the heads admission fee, associate membership fee, sub-division fee, construction violation charges were not exempt except the head of transfer fee as these charges were not the gains through the sales of goods or lease of building or land---Only transfer fee falls within the ambit of sales of goods.

(c) Income Tax Ordinance (XXXI of 1979)---

----Second Sched., Cl.(103(a)), Explanation---Explanation to Cl.(103(a)), Second Sched. is a clarificatory in nature.

Mian Yousaf Umar for Petitioner.

Zia Haider Rizvi for Respondent.

2002 P T D 363

[Lahore High Court]

Before Mansoor Ahmad, J

REEM RICE MILL (PVT.) LTD.

Versus

FEDERATION OF PAKISTAN through Minister of Finance, Revenue Division, Lahore and others, Writ Petition No. 7453 of 2001, decided on 28th September 2001.

Income Tax Ordinance (XXXI of 1979)---

----S.129 [as amended by Finance Ordinance (XXI of 2000)]---C.B. R. Circular No. 3 of 2001, dated 23-5-2001---Prospective in operation ---Pre­condition for filing appeal against assessment order to deposit 15% of the amount of tax assessed---Applicability---Central Board of Revenue through Circular No. 3 had clarified that such amendment was prospective in operation and it would not apply to any previous assessment year.

Ch. Anwarul Haq for Petitioner.

Muhammad Ilyas Khan for Respondent

2002 P T D 381

[Lahore High Court]

Before Nasim Sikandar and Mansoor Ahmad, JJ

COMMISSIONER OF INCOME-TAX/ WEALTH TAX, ZONE-B, LAHORE

Versus

Makhdoom Zada Syed HASSAN MEHMOOD through Legal Heirs and 81 others

P.T.R. Nos. 20 to 33 of 1998, heard on 11th October, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss. 136(1) & 135---Income Tax Appellate Tribunal Rules, 1981 R.21---Reference to High Court---Question of law---Reference---Subject matter---Question arising out of an order of the Tribunal on the reference application made under S.136(1) of the Income Tax Ordinance, 1975 could not be entertained by the. High Court---Question of law which could possibly be a moot point before High Court must have arisen out of an order of the Tribunal recorded under S.135 of the Income Tax Ordinance, 1979.

(b) Income-tax Act (XI of 1922)---

----S.28(3)---Income Tax Ordinance (XXXI of 1979), Ss. 108 & 115--­Failure to furnish return of total income---Penalty---Notice---Criminal proceedings against assessee---Stay by the Supreme Court in respect of such proceedings---Any stay of criminal proceedings against assessee by the Supreme Court was not applicable to proceedings under S.28 of the Income-tax Act, 1922.

(c) Income Tax Ordinance (XXXI of 1979)---

----Ss. 108 to 115 & 117 to 122---Income-tax Act (XI of 1922), Ss. 28 & 51---Penalty proceedings---Nature---Penalty proceedings both under the Income-tax Act, 1922 or Income Tax Ordinance, 1979 are not strictly criminal in nature but can best be called quasi-criminal in nature---Only provisions of S.51 of the Income-tax Act, 1922 and those contained in Ss. 117 to 122 of the Income Tax Ordinance, 1979 can properly be said to be criminal in nature---Distinction also lies in the fact that both penalty provisions as well as prosecution provisions could be initiated and carried out side by side---Penalty proceedings under S.28 of the late Act, 1922 as also those under Ss. 108 to 115 of the Income Tax Ordinance, 1979 are in addition to criminal prosecution provided for in the provisions of Income-tax Act, 1922 as well as the Ordinance--­Penalty provisions both under late Act as well as under the Income Tax Ordinance, 1979 were more in nature of civil liability of an assessee or any other individual rather than a criminal offence to be charged and dealt with under the criminal law.

Mian Yousaf Umar for Petitioner.

Nemo for Respondents.

Date of hearing: 11th October, 2001

2002 P T D 385

[Lahore High Court]

Before Mansoor Ahmad, J

HUMAYOUN KHAN, DIRECTOR MANAKIN TEXTILES (PVT.) LTD., LAHORE

Versus

CENTRAL BOARD OF REVENUE through Chairman and 3 others

Writ Petition No. 9138 of 2001, heard on 28th September, 2001.

Income Tax Ordinance (XXXI of 1979)---

----S.129 [as amended by Finance Ordinance (XXI of 2000)]--­Constitution of Pakistan (1973), Art. 199---Constitutional petition---Pre­condition for filing appeal against assessment order to deposit 15% of the amount of tax assessed---Petitioner filed Constitutional petition to challenge the validity of imposition of such pre-condition by S.129 of Income Tax Ordinance, 1979 as amended by Finance Ordinance, 2000--­Commissioner of Income-tax (Appeal) in compliance of interim order of High Court, had entertained and decided the appeal of petitioner without insisting upon deposit of 15% of the tax assessed---Grievance of petitioner had since been redressed, Constitutional petition was disposed of having borne fruit.

Moeen Qureshi for Appellant.

Muhammad Ilyas Khan for Respondent.

Date of hearing: 28th September, 2001.

2002 P T D 387

[Lahore High Court]

Before Nasim Sikandar and Mansoor Ahmad, JJ

BROTHERS SUGAR MILLS LIMITED through General Manager Finance

Versus

APPELLATE TRIBUNAL SALES TAX, CUSTOM HOUSE, LAHORE and 2 others

Customs Appeal No. 295 of 2001, decided on 1st November, 2001.

Sales Tax Special Order, 1998---

----Sales Tax General Order No. 1, dated 7-1-1999---Sales Tax General Order No. 9 of 1999, dated 22-9-1999---S.R.O. No. 206(I)/2001, dated 2-4-2001---Special Auditors, appointment of---Terms and conditions and duties of Auditors---Special Auditors before taking upon the assignment will serve notice on the assessee and will not only restrict their investigation within the parameters settled in the instructions and rules but also observe the time limit as contemplated therein.

Ejaz Ahmad Awan for Appellant.

A. Karim Malik for the Revenue.

2002 P T D 397

[Lahore High Court]

Before Mansoor Ahmad, J

MUHAMMAD AFZAL

versus

DEPUTY COMMISSIONER OF WEALTH TAX, CIRCLE II, LAHORE and another

Writ Petition No. 1608 of 1994, heard on 25th October, 2001.

(a) Wealth Tax Act (XV of 1963)---

----Ss.2(16) & 2(m)---Punjab Undesirable Cooperative Societies (Dissolution) Ordinance (XXXT of 1992), Preamble---Constitution of Pakistan (1973), Art. 199---Constitutional petition---Net wealth--­Assessment year 1991-92---Property purchased as on 30-6-1991 and included in wealth tax return---Property was subsequently taken into possession by the Liquidation Board---Inclusion of such property in net wealth---Validity---Physical possession of the property taken over by the Liquidation Board after 30-6-1991 did not relate to the assessment year 1991-92---Taking over of the property by Liquidation Board in subsequent years was not a plea available on merits to the assessee to challenge the order for the assessment year 1991-92.

(b) Constitution of Pakistan (1973)---

----Art.199---Constitutional petition---Statutory remedy---Failure to avail statutory remedy brings infirmity to the Constitutional petition.

Siraj-ud-Din Khalid for Appellant.

Muhammad Ilyas Khan for Respondents.

Date of hearing: 25th October, 2001.

2002 P T D 439

[Lahore High Court]

Before Nasim Sikandar and Mansoor Ahmad, JJ

COMMISSIONER OF INCOME-TAX, COMPANIES, LAHORE

versus

MUHAMMAD IQBAL DAR

P.T.R. No. 10 of 1991, decided on 4th October, 2001

Income Tax Ordinance (XXXI of 1979)---

----S.13(1)(d)---Income-tax Act (XI of 1922), S.4(2D)---Addition---Value of property---Approval of I.A.C.---Two separate and independent approvals- of the Inspecting Additional Commissioner are required for making additions to the declared income while resorting to the provisions of S.13 of the Income Tax Ordinance, 1979.

C.I.T. v. Dr. Mrs. S.P. Niazi, Professor, Fatima Jinnah Medical College, Lahore C.T.R. No.324 of 1991 and Commissioner of Income-tax v. Muhammad Kasim 2000 PTD 280 rel.

Muhammad Ilyas Khan for Petitioner.

Nemo for Respondent.

2002 P T D 441

[Lahore High Court)

Before Ch. Ijaz Ahmad, J

DEANS ASSOCIATES (PVT.) LIMITED

versus

INSPECTING ADDITIONAL COMMISSIONER OF INCOME-TAX, RANGE NO.1, COMPANY ZONE I, LAHORE

Writ Petition No.3666 of 1999, heard on 10th May, 2000.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.66-A---Constitution of Pakistan (1973), Art.199---Constitutional petition---Show-cause notice---When Constitutional petition and show­cause notice were put in juxtaposition, then it brings the case of assessee in the area of disputed questions of fact and High Court has no jurisdiction to resolve the disputed questions of fact in Constitutional jurisdiction.

Fort Properties Pvt. Ltd. v. Commissioner of Income-tax 1994 (Vol. 208) (Bom) and Muhammad Yunus Khan's case 1993 SCMR 618 rel.

(b) Interpretation of statutes---

---- Principle of strict construction of fiscal statute is applicable only to taxing provisions such as charging provisions and to those parts of the statute which contain machinery provisions.

1980 Tax LR 185 rel

(c) Income Tax Ordinance (XXXI of 1979)---

----S.66A---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Conditions for exercise of such powers.

Power under section 66A of the Income Tax Ordinance, 1979 can be exercised only when the following factors co-exist:

(i) There should be proceedings under the Act.

(ii) In such proceedings the I.T.O. must have passed the order.

(iii) The Commissioner should consider that the said order is erroneous and prejudicial to the interest of the Revenue.

(iv) It is only when all the abovementioned factors co-exist then the respondent will have jurisdiction to take action under section 66A.

(v) For the purpose whether the aforesaid factors are available to the respondent to take action needs factual inquiry for which propriety demands that the respondent should allow to proceed in the matter in accordance with law.

(d) Income Tax Ordinance (XXXI of 1979)---

----S.66-A---Constitution of Pakistan (1973), Art. 199---Constitutional petition---Show-cause notice under S.66A of the Income Tax Ordinance, 1979---Vires of the notice---Validity---Constitutional petition was not maintainable against the show-cause notice as the assessee could not be allowed to bypass jurisdiction vested by law in the Special Tribunal--­Assessee had alternative remedies before the Department under the provisions of the Income Tax Ordinance, 1979---Assessee was well within his right to raise all legal and factual pleas before the Inspecting Additional Commissioner by filing reply of the notice who was duty-­bound to consider the same and pass speaking order including assumption of jurisdiction---Constitutional petition was disposed of accordingly by the High Court.

Messrs Friend Sons and Partnership Concerned v. Deputy Collector PLD 1989 Lah. 337; Messrs Bisvil Spinners Ltd. v. Superintendent, Central Excise Land Customs PLD 1988 SC 370; Pakistan through Secretary Finance v. Kohat Cement Company PLD 1995 \SC 659; Messrs Gadoon Textile Mills v. WAPDA 1997 SCMR 641; Messrs Hinjama & Company v. Commissioner of Sales Tax 1971 SCMR 128; Collector of Customs v. Messrs Abdul Majeed Khan 1977 SCMR 371; Commissioner of Income-tax, Peshawar Zone v. Messrs Siemens PLD 1991 SC 368; Glaxo Laboratories Ltd. v. Inspecting Assistant Commissioner PLD 1992 SC 549; Kh. Sharif's case PLD 1988 Lah. 725; Haji Saif Ullah's case PLD 1989 SC 166; Abdul Baqi's case PLD 1967 SC 373; Abual--A'la Maudoodi's case PLD 1964 SC 673; Ocean Industries Ltd. v. Industrial Development Bank PLD 1966 SC 738; Mian Abdul Hameed - Purrs case PLD 1979 Lah. 252; United Builders v. Commissioner 1984 PTD 137 and Shahab-ud-Din's case PLD 1988 Kar. 587 = 1988 PTD 723 ref.

. Shahab-ud-Din v. Inspecting Assistant Commissioner PLD 1988 Kar. 587; Messrs Pak-Arab Fertilizer v. Deputy Commissioner of Income-tax 2000 PTD 263; Mst. Shugufta Begum's case PLD 1989 SC 360; (1967) 63 ITR 333; (1972) Tax LR 1104; (1982) 134 ITR 385; Muhammad Mazhar Khan v. Muhammad Yousaf Khan PLD 1959 SC (Pak.) 9; Pir Sabir Shah v. Shad Muhammad Khan, N.-W.F.P. and another PLD 1995 SC 66; Collector Customs, Karachi v. Messrs New Electronics (Pvt.) Ltd. and 59 others PLD 1994 SC 363 and Riffat Askari v. State PLD 1997 Lah. 285 rel.

M. Saleem Sahgal for Appellant.

Shafqat Chohan for Respondent.

Date of hearing: 10th May, 2000.

2002 P T D 453

[Lahore High Court]

Before Nasim Sikandar and Mansoor Ahmad, JJ

Mrs. ADEEBA EHSAN

versus

INCOME-TAX APPELLATE TRIBUNAL OF PAKISTAN, LAHORE BENCH, LAHORE and 3 other, W.T.As. Nos.540 to 543 of 2000, heard on 30th May, 2001

(a) Wealth Tax Act (XV of 1963)---

----S.17B---Powers of Inspecting Assistant Commissioner to revise Wealth Tax Officer's order---Assessment year 1991-92---Validity--­Section 17B of the Wealth Tax Act, 1963 enacted through Finance Act, 1992 was not applicable to an assessment year earlier to its date of enforcement---Inspecting Assistant Commissioner was not competent to revise the assessment framed in respect of the Assessment year 1991-92.

CIT v. National Security Insurance Co. Ltd., Lahore 2001 PTD 814 rel

(b) Wealth Tax Act (XV of 1963)---

----S.17B---Powers of Inspecting Assistant Commissioner to revise Wealth. Tax Officer's order---Assessment by Inspecting Assistant Commissioner was set aside in appeal---Fresh assessment by the Wealth Tax Officer---Revision by the other Inspecting Assistant Commissioner-­Validity---First Inspecting Assistant Commissioner recorded the assessment order as an Assessing Officer which, on challenge, was set aside by the First Appellate Authority---Wealth Tax Officer, after remand framed the order which was sought to be revised by the second Inspecting Assistant Commissioner ---Since after remand the assessment order was passed by the Wealth Tax Officer, the Inspecting Assistant Commissioner had the justification to interfere in exercise of his powers under S.17B of the Wealth Tax Act, 1963 as the original assessment order recorded by an I.A.C. as an Assessing Officer was no more in the field.

(c) Wealth Tax Act (XV of 1963)---

----Ss.5(1)(xii) & 17B---Exemption---Foreign remittances---Evidence of foreign remittances had been lost for which F.I.R. was lodged with Police Station---Remittances were verified by a firm of Chartered Accountants---Such certificate was accepted by the Assessing Officer and exemption was allowed---Inspecting Assistant Commissioner revised the assessment order to the extent of acceptance of claim of foreign remittances and remitted the case to the Assessing Officer for de novo assessment---Validity---Assessing Officer accepted the certificate of a firm of Chartered Accountants which had absolutely nothing to do with the factum as to how and when a particular amount was remitted in foreign exchange through a particular Bank to a particular person---ii Chartered Accountant had to give such a certificate then it should have been supported either by the ",remitting Bank or the receiving Bank---In absence of a proof either by the sender Bank or the receiving Bank, the certificate issued by the firm of the Chartered Accountants was not worthy of any credit and therefore was rightly discarded by the Revising Authority---Certificate of a firm of Chartered Accountants supporting the claim of the assessee was totally irrelevant as to the grant of exemption-­Claim of a receipt of foreign remittance through banking channel could only be verified by the channel viz. the Bank who acted as agent for receiving and distribution of the remittances.

(d) Wealth Tax Act (XV of 11963)---

----S.17B---Powers of Inspecting Assistant Commissioner to revise Wealth Tax Officer's order---Fresh evidence---Provisions of S.17B of the Wealth Tax Act, 1963 do not make it mandatory for a Revising Authority to search for fresh evidence in order to invoke the jurisdiction.

(e) Wealth Tax Act (XV of 1963)---

----S.17B---Powers of Inspecting Assistant Commissioner to revise Wealth Tax Officer's order---Change of opinion---Principle of change of opinion is not applicable to revisional jurisdiction under S.17B of the Wealth Tax Act, 1963.

(f) Wealth Tax Act (XV of 1963)---

----S.17B --Powers of Inspecting Assistant Commissioner to revise Wealth Tax Officer's order---"Definite information" ---Material on which an assessment order was framed could be gone into and there need not beg a definite information to revise an assessment under S.17B of the Wealth Tax Act, 1963.

Zia H. Rizvi for Appellant.

Muhammad Ilyas Khan for Respondent.

Date of hearing: 30th May, 2001

2002 P T D 462

[Lahore High Court]

Before Nasim Sikandar and Mansoor Ahmad, JJ

COMMISSIONER OF INCOME-TAX, ZONE-C, LAHORE

versus

Messrs JINNAH CADET SCHOOL, LAHORE

P. T. R. No. 127 of 2001, decided on 16th October, 2001.

Income Tax Ordinance (XXXI of 1979)---

----Ss.131(4) & 136---Reference to High Court---Admission of additional evidence---Nothing had been brought on record to show that objection against the admission of additional evidence without fulfilling the requirements of S.131(4) of the Income Tax Ordinance, 1979 was ever raised before the Tribunal---Question framed was neither raised before the Tribunal nor it was ruled upon and it did not arise as a natural consequence of the Tribunal's order---High Court refused to entertain the question as framed.

Mian Yousaf Umar for the Revenue.

2002 P T D 464

[Lahore High Court]

Before Syed Jamshed Ali and Mian Muhammad Najam-uz Zaman, JJ

COMMISSIONER OF INCOME-TAX, COMPANIES, LAHORE

versus

Messrs NIRALA (PVT.) LTD., LAHORE

Reference Applications Nos.3 and 4 of 1992, heard on 8th March, 2000.

Income Tax Ordinance (XXXI of 1979)---

----S.136(1)---Reference to High Court---Question of fact---Question whether the assessee was a manufacturer or selling sweets on commission basis, was a question of fact---High Court declined the references.

Muhammad Ilyas Khan for Petitioner.

Ilyas Zafar, D.R. for Respondent.

Date of hearing: 8th March, 2000.

2002 P T D 466

[Lahore High Court]

Before Nasim Sikandar, J

E.M.E. COOPERATIVE HOUSING SOCIETY LTD. through Secretary

versus

FEDERATION OF PAKISTAN through Secretary Finance, Islamabad and 4 others

Writ Petition No. 14013 of 1999, decided on 29th October, 2001

Income Tax Ordinance (XXXI of 1979)---

----S.2(16)(b)---Cooperative Societies Act (VII of 1925), Preamble--­Company---Status of Cooperative Society---Societies registered under the provisions of Cooperative Societies Act, 1925 were not companies within the meaning of S.2(16)(b) of the Income Tax Ordinance, 1979.

Commissioner of Income-tax/Wealth Tax v. Messrs Engineering Cooperative Housing Society, Lahore 2000 PTD 3388 rel.

Zia Ullah Kayani and Tallat Farooq Sheikh for Petitioner.

Muhammad Ilyas Khan for Respondents.

2002 P T D 467

[Lahore High Court]

Before Nasim Sikandar and Mansoor Ahmad, JJ

COMMISSIONER OF INCOME-TAX/WEALTH TAX, LAHORE ZONE-B, LAHORE

versus

Messrs AINEE SILK CENTRE, LAHORE

I.T.A. No.397 of 1998, heard on 11th October, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.136---Appeal to High Court---Self-Assessment Scheme---Questions which primarily revolved around the eligibility of an assessee to avail Self-Assessment Scheme in a particular year were declined by the High Court.

(b) Income Tax Ordinance (XXXI of 1979)---

----S. 136---Appeal to High Court---Question of law involving substantial legal controversy---Questions framed were neither of law nor any substantial legal controversy was involved between the Revenue and the assessee---High Court declined to answer the same.

The Lungla (Sylhet) Tea Co. Ltd. v. Commissioner of Income­tax, Dacca Circle, Dacca 1970 SCMR 872 rel.

(c) Income Tax Ordinance (XXXI of 1979)---

----5.156---Rectification ui mistake---If the Tribunal ignored the provisions of a Circular while holding the assessee to be eligible in terms thereof, the Department can approach 'the Tribunal under S.156 of the Income Tax Ordinance, 1979 for rectification.

Mian Yousaf Umer for Appellant.

Nemo for Respondent.

Date of heating: 11th October, 2001.

2002 P T D 470

[Lahore High Court]

Before Maulvi Anwarul Haq, J

Messrs RAMNA FITTINGS AND PIPE INDUSTRIES (PVT.) LTD. through Director, Lahore

versus

COLLECTOR OF SALES TAX, CUSTOM HOUSE, LAHORE

Writ Petition.No.19868 of 1996, heard on 7th November, 2001

(a) Sales Tax Act (VII of 1990)---

---S. 2(16), cls. (a), (b) & (e)---"Manufacture" or "produce"--­Section 2(16), cls. (b) & (c) of the Sales- Tax Act, 1990 are not to be read independently but rather to be read as part of or. in continuance of cl. (a)---Processes mentioned in cls. (b) & (c) of S.2(16) would constitute manufacture only with reference to initial process of manufacture as stated in cl. (a) of S.2(16) of the Sales Tax Act, 1990.

Deputy Collector, Central Excise and Land Customs; Lahore v Tyrex Pakistan (Ltd.) Lahore and others PLD 1992 SC 364 rel.

(b) Sales Tax Act (VII of 1990)---

----S.2(1.6)(c)---"Manufacture" or "produce"---Galvanization and threading of pipe fittings---Notwithstanding the too wide wordings used in cls. (b) & (c) of S.2(16) the galvanization and threading of the pipe fittings which do not at all convert the said articles into any other distinct articles or change or transform their shapes, do not bring the said act of threading and galvanizing within the mischief of cl. (c) of S.2(16) of the Sales Tax Act, 1990.

(c) Sales Tax Act (VII of 1990)---

----Ss.3(1)(a), 2(16), 2(35) & 6(1)---Scope of tax---Manufacturing; or produce---Taxable activity---Import of pipe fittings---Payment of sales tax at import stage---Galvanizing and threading of pipe fittings---Levy of sales tax once again on plea of its "manufactured" or "produced"--­Validity ---Assessee was not involved in process of manufacture in the matter of pipe fittings imported by him as such he was not liable to pay sales tax as manufacturer having paid it at the import stage---Act of galvanizing and threading pipe fittings imported by the assessee, who had paid the sales tax at import stage, was declared not to be process of manufacturing so as to make the assessee liable to pay the tax as manufacturer of the said goods/articles.

Mian Ashiq Hussain for Petitioner.

Izhar-ul-Haq Sheikh for Respondent.

Date of hearing: 7th November, 2001

2002 P T D 473

[Lahore High Court]

Before Nasim Sikandar and Mansoor Ahmad, JJ

COMMISSIONER OF INCOME-TAX, COMPANIES ZONE-1, LAHORE

versus

Messrs LASANI STEEL MILLS (PVT.), LAHORE

P.T.R. No. 17 of 1997, decided on 30th October, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.136(2)---Reference to High Court---Valuation of land---Issue involved directly relating to valuation of land in question, can hardly be a subject-matter of reference to High Court.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.13(1)(d)---Addition---Difference between the market value of the investment and book value---Deemed income---Validity---Addition of the kind could not be wade without pointing out the source wherefrom the alleged investment was made---No mention of market value appeared in the provisions of S.13 of the Income Tax Ordinance, 1979 which were invoked to make the addition.

Muhammad Ilyas Khan for Petitioner/Revenue.

Muhammad Iqbal Khawaja for Respondent.

2002 P T D 495

[Lahore High Court]

Before Maulvi Anwarul Haq, J

ATLAS TYRES (PVT.) LIMITED

versus

COLLECTOR, SALES TAX and 2 others

Writ Petition No. 19201 of 1999, 22472, 7481, 9090 and 6454 of 1996, heard on 17th October, 2001.

Sales Tax Act (VII of 1990)---

----S.13---SRO No.553(1)/94, dated 9-6-1994---SRO No.555(I)/94, dated 9-6-1994, Item No. 18---SRO No.670(I)/94, dated 3-7-1994---SRO No.672(1)/94, dated 3-7-1994, Item No.93---C.B.R. Circular No.16(19)STT/89, dated 3-10-1995---Constitution of Pakistan (1973), Art. 199---Constitutional petition---Exemption---Components and parts of vehicles---Tyres and tubes for motor cars, . motorcycles and scooters--­Exemption from payment of sales tax on tyres and tubes was refused ..by the Department on account of those being not components and parts of the vehicles---Validity---Tyres and tubes do form part of the motor vehicles for the simple reason that the entire mechanism of the vehicles meant ultimately to activate the wheels and would not make the vehicles move without the wheels being equipped with tyres and tubes---C. B. R. Circular No. 16(19)STT/89, dated 3-10-1995 was declared to be without lawful authority by the High Court.

Messrs Premier Machinery Works, Karachi and others v. Commissioner of Income-tax PLD 1993 SC 233 rel.

Ali Sibtain Fazli for Petitioner.

Nemo for Respondents:

Date of hearing: 17th October, 2001

2002 P T D 498

[Lahore High Court]

Before Jawwad S. Khawaja and Mansoor Ahmed, JJ

Messrs SCHOWK INTERNATIONAL (PVT.) LTD.

versus

COMMISSIONER OF INCOME-TAX

P.T.R. No .5 of 1995, decided on 16th July, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.136(2)---Reference to High Court---Question of law---For referring a question of law it is necessary that such question must arise out of order of Tribunal.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.136(2)---Reference to High Court---Question of fact---Valuation of property---Question relating of property being a question of fact could not be raised by twisting the expression and language.

(c) Income Tax Ordinance, (XXXI of 1979)---

----S.136(2)---Reference to High Court---Reference application was dismissed in limine by the High Court as question proposed did not arise out of the Tribunal's order and some of the questions related .to the factual controversy in respect of valuation determined by the Income Tax Department.

Maqbool Elahi Malik for Petitioner.

Ch. Muhammad Saleem for Respondent.

2002 P T D 506

[Lahore High Court]

Before Naseem Sikandar and Muhammad Saeed Akhtar, JJ

Messrs HASEEB WAQAS SUGAR MILLS LIMITED through Chief Executive

versus

THE COLLECTOR, SALES TAX, LAHORE and 2 others

Customs Appeals Nos .284 and 285 of 2001, heard on 21st November, 2001.

Sales Tax Act (VII of 1990)---

----Ss. 47 & 46---Appeal to High Court ---Condonation of delay in filing appeal---Appellate Tribunal dismissed the appeal on the ground that delay in filing the same was not properly explained---Validity---Tribunal had not mentioned the exact time in terms of days by which the appeal was barred by limitation---By delaying an appeal the assessee did not stand to gain anything nor a delay on his part gives rise to or creates a valuable right in favour of the Revenue---High Court directed that the delay of 43 days ought to have -been condoned in circumstances and appeal should be deemed pending which should be heard and decided on merits.

C.A. No.323 of 2001 rel.

Shahid Jamil Khan and Abid Ali Sheikh for Appellant

A. Karim Malik for the Revenue.

Date of hearing 21st November, 2001

2002 P T D 508

[Lahore High Court]

Before Naseem Sikandar and Mansoor Ahmad, JJ

COLLECTOR OF SALES TAX, CUSTOM HOUSE, LAHORE

versus

Messrs HOECHST RAVI CHEMICALS LIMITED

Customs Appeal No. 104 of 1998, heard on 2nd October, 2001.

Sales Tax Act (VII of 1990)---

----S. 10(1)---Refund---Adjustment---Refund was refused to be, adjusted being not pertaining to the tax period---Validity---Excess amount of in­put tax was not only confined to a tax period of a particular month but it could be carried forward for the next six consecutive months.

A. Karim Malik for Appellant.

Zaheer Ahmad Khan for Respondent.

Date of hearing: 2nd October, 2001.

2002 P T D 509

[Lahore High Court]

Before Naseem Sikandar and Mansoor Ahmed, JJ

COMMISSIONER OF INCOME-TAX, COMPANIES ZONE-I, LAHORE

versus

Messrs AIR TRAVEL CONCEPT (PVT.) LTD., LAHORE

I.T.A. No. 103 of 1997, heard on 12th November, 2001.

Income-tax Ordinance (XXXI of 1979)---

----S. 136(1)---Appeal to High Court---Maintainability---Application seeking reference to High Court was refused by the Tribunal on 19-5-1997---Effect--=Revenue was obliged to file application for Reference before the Tribunal under S.136(1) of the Income Tax Ordinance, 1979 instead of directly approaching the High Court under the appeal provisions which were non-existent on the date when the order of the Tribunal was rendered---Appeal against the order of the Tribunal was dismissed by the High Court in circumstances.

Muhammad Ilyas Khan for Appellant.

M. Tubasum Maqsood Khan for Respondent.

Date of hearing: 12th November, 2001.

2002 P T D 529

[Lahore High Court]

Before, Naseem Sikandar acid Mansnor Ahmad, JJ

Messrs MIAN CONTRACTORS, LAHORE

versus

COMMISSIONER OF INCOME-TAX, ZONE-A, LAHORE

C.T.R. No.50 of 1992, decided on 22nd June, 2001.

Income Tax Ordinance (XXXI of 1979)---

----S.136(1) & (2)---Reference to High Court---Question of law--­Amount deducted by the Highway Department out of total contract receipts on account of supply of material to its contractor could not be included in the gross receipts of the contractor/assessee for determining his total income chargeable to tax---Amount being price of supply made by the Department was an expense and could not form part of the gross receipts---Said amount having never reached the hands of the assessee, he had all the justifications to reduce his receipts by that sum.

Re: Commissioner of Income-tax v. J.S. Serwarey (1978) 38 Tax 57 rel.

Latif Ahmad Qureshi for Petitioner.

Muhammad Ilyas Khan for Respondent.

Date of hearing: 22nd May, 2001.

2002 P T D 541

[Lahore High Court]

Before Naseem Sikandar and Mansoor Ahmad, JJ

Haji MEHR DIN

versus

COMMISSIONER OF INCOME-TAX, ZONE-A, LAHORE

C.T.R. No.59 of 1998, decided on 25th June, 2001.

(a) Income Tax Appellate Tribunal Rules, 1981---

----R.14----Grounds which may be taken in appeal---Additional ground--­Appellate Tribunal refused to entertain the additional ground for the reason that the issue in respect of such ground had not been raised in the memo. of appeal---Validity---When a lis is pending before a Court or a judicial forum, entertainment of an additional ground should be a rule and not an exception---Unless the purpose for making of additional ground is either to delay the proceedings or to cause embarrassment to the parties or the Presiding Officer an additional ground must not be refused provided, it is made or raised before conclusion of hearing---Fact that a ground of appeal was not taken in the original memo. of appeal would not amount, to acceptance of the assessment to that extent--­Refusing a ground to challenge the addition betrays an avoidance on the part of the Tribunal to rule upon the issue---Rules of procedure are meant to advance the cause of administration of justice rather than to thwart the same---Technicalities should never undermine the advancement of purpose for which judicial or quasi judicial forums arc established by law---Refusal of audience by Tribunal was an extreme step, it should not normally be resorted to as a matter or course ---Appeal shall be deemed to be pending and will be decided on merits it circumstances.

Manager, Jammu and Kashmir State Property in Pakistan v. Khuda Yar and another PLD 1975 SC 678; Cannon Products Ltd. And others v. Income-tax Officer and others 1985 PTD 549; Pakistan Industrial Gases Ltd. v. CIT and another 2000 PTD 2903 and CIT v. Muhammad Tariq Javaid 2000 PTD 2165 rel.

(b) Income-tax Appellate Tribunal Rules, 1981---

----R.14---Grounds which may be taken in appeal---Memorandum of appeal---grounds---Purpose.

(c) Income-tax---

---Rules of a Court or Judicial forum---Interpretation of---Principles:

Petitioner in person.

Kh. Muhammad Saeed for Respondent.

2002 P T D 549

[Lahore High Court]

Before Naseem Sikandar and Mansoor Ahmad , JJ

LASER PARAXIS DEPLIEX CLINIC, LAHORE

versus

CUSTOMS, CENTRAL EXCISE AND SALES TAX APPELLATE TRIBUNAL, LAHORE BENCH, CUSTOM HOUSE, LAHORE, C.A. No.323 of 2001, heard on 1st November, 2001.

(a) Sales Tax Act (VII of 1990)‑‑‑

‑‑‑‑S.46(2)‑‑‑Limitation Act (IX of 1908), S.5‑‑‑Condonation of delay‑‑­Power under _ Sales Tax Act, , 1990 and Limitation Act, 1908‑‑­Comparison‑‑‑Power conferred upon Tribunal under S.46(2) of the Sales Tax Act, 1990; is wider than the one contained in S.5 of the Limitation Act, 1908‑‑‑Reason for such difference is that the notion of accrual of valuable right ‑ to an adversary after the lapse of limitation in ordinary cases of civil nature is not generally applicable to the matters of Revenue‑‑‑As in such cases it is always the State against a citizen or assessee, the interest of immediate recovery. cannot be described as accrual of a valuable right‑‑‑Even otherwise the kind of right coming into being by reason of default of a party to approach a particular forum within a specified time‑is not an absolute right nor does it frustrate exercise of judicial discretion wherever a condonation is provided for in a statute‑‑‑Tax in every form is an exaction of money from the subject and its recovery when becomes due is not generally hit by any limitation in terms of time‑‑‑Recovery of Revenue by State certainly contains an element of public interest‑‑‑Such interest cannot be equated with the accrual of a valuable right which an individual may normally acquire against another‑‑‑In matters of .civil nature the basic purpose to curtail litigation by law of limitation is to bring the proceedings to a foreseeable end and to clothe them with finality so that people may feel secure in their rights to their person and property when the prescribed limitation has run out‑‑‑In Revenue matters, on the other hand, a demand once created and duly conveyed to the subject is not conditional to a fixed period of recovery nor does it lapse if not recovered within a certain period‑‑‑Demand created in accordance with law is a sword which keeps on hanging on the head of a citizen till the liability is discharged‑‑­Revenue Authorities, though an equal party before Tribunal are certainly at an advantageous position vis‑a‑vis the assessee, therefore, it is necessary that the prescribed limit in the statute and the discretion given therein to the Tribunal should be exercised objectively‑‑‑Every request for condonation of delay should not be allowed as a matter of course‑‑‑Prayer for condonation of delay whether it is from the assessee or the Revenue, must not be considered when it, is found to be contumacious and frivolous‑‑‑Exercise of discretion in favour of an indolent appellant would certainly be detrimental to the judicial system.

Abdul Waheed v. State PLD 1960 (W.P.) Lah. 85 ref.

(b) Sales Tax Act (VII of 1990)‑‑‑

‑‑‑‑S.46(2)‑‑‑Limitation Act (IX of 1908), S.5‑‑‑Condonation of delay‑‑­Term sufficient cause'‑‑‑Connotation‑‑‑To condone or not to condone a delay rests upon consideration ofsufficient cause' and the same actually means the peculiar circumstances of that very case‑‑‑Every case needs to be considered keeping in view the facts obtaining therein‑‑‑There cannot be a precise definition of 'sufficient cause' nor there can possibly be laid down the exact parameters which can fit in the situation in every case‑‑­Attempt to define `sufficient cause' would amount to curtail judicial power and discretion which the Legislature has left open and unfettered in the forum.

(c) Sales Tax Act (VII of 1990)‑‑‑

‑‑‑‑S.46(2)‑‑‑Limitation Act (IX of 1908), S.14‑‑‑Condonation of delay‑‑­Exclusion of time taken in proceedings bona fide in Court without jurisdiction‑‑‑Jurisdiction . of Tribunal‑‑=Scope‑‑‑Although there are no specific provisions in Sales Tax Act, 1990, equivalent to S.14 of the Limitation Act, 1908, which provide for exclusion of time yet the Tribunal is legally competent to consider the submissions in the context of the `sufficient cause' being placed before them‑‑‑Delay may be condoned by Tribunal accordingly.

(d) Limitation Act (IX 6f 1908)‑‑‑

‑‑‑‑S.5‑‑‑Sales Tax Act (VII of 1990), S.46(2)‑‑‑Condonation of delay‑‑­Principles to be followed.

Following are the principles which must be kept in mind by every judicial or quasi judicial forum while dealing with questions of condonation of delays:‑‑‑

(i) Ordinarily, a litigant does not stand to benefit by lodging an appeal late.

(ii) Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this, when delay is. condoned the highest that can happen is that a cause would be decided on merits after hearing the parties.

(iii) `Every day's delay must be explained' does not mean that a' pedantic approach should be made. Why not every hour's delay, every second's delay? The doctrine must be applied in a rational, common sense and pragmatic manner:

(iv) When substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred for the other side cannot claim to have vested right in injustice being done because of a non‑deliberate delay.

(v) There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact, he runs a serious risk.

(vi) It must be grasped that the judiciary is respected not on. account of its power to legalize injustice on technical grounds but because it it capable of removing injustice and is expected to do so.

Controller, Land Acquisition v. Mst. Katiji and others (1987) 56 Tax 130 rel.

(e) Sales Tax Act (VII of 1990)‑‑‑

‑‑‑‑S.46(2)‑‑‑Limitation Act (IX of 1908), S.14‑‑‑Condonation of delay‑‑­Exclusion of time taken in proceedings bona fide in Court without jurisdiction‑‑‑Against notice of recovery, instead of filing appeal, the appellant made representation to the Department to reconsider the decision‑‑‑Appellant, having received no response from the Department, filed Constitutional petition and only after the decision of the High Court, the appellant filed appeal before Customs, Central Excise and Sales Tax Appellate Tribunal‑‑‑Tribunal refused to condone the delay and the appeal was dismissed as time‑barred‑‑‑Validity‑‑‑Prayer for condonation of delay in the present case was neither contumacious nor the appellant could possibly gain .anything by deliberately knocking at a wrong forum‑‑‑Order of the Tribunal was set aside and the case was remanded to the Tribunal for deciding the same on merits‑‑‑Appeal was allowed accordingly.

Altaf Hussain v. Muhammad Nawaz 2001 SCMR 405; Abdul Majeed and another v. Ghulam Haider and others 2001 SCMR 1254; Chief Administrator of Auqaf v. Muhammad Ramzan PLD 1991 SC 102; Abdul Razzak v. Ch. Sultan Muhammad Khan= Settlement and Rehabilitation Commissioner and others PLJ 1973 Lah. 433; Muhammad Ismail v. Mst. Zubaida Khatoon PLD 1973 Kar. 503; Shib Dayal and another v. Jagannath Prasad 636 All. 44 XICV and Re: Hesly (1894) 1 QB 742 ref.

Naveed Ahmed Andrabi for Appellant.

A. Karim Malik for the Revenue.

Date of hearing: 1st November, 2001.

2002 P T D 557

[Lahore High Court]

Before Naseem Sikandar and Muhammad Saeed Akhtar, JJ

COMMISSIONER OF INCOME-TAX

versus

Messrs BASHIR JAMIL & BROTHERS LTD.

C.T.R. No. 147 of 1998, heard on 19th November, 2001.

(a) Income Tax Ordinance (XXX1 of 1979)---

----Ss. 136 & 135---Reference to High Court---Jurisdiction of High Court, nature of---High Court under S.136 of the Ordinance exercises only advisory jurisdiction, which is markedly different from its revisional, appellate or original jurisdiction---Advice of High Court under S.136 is contemplated neither to assessee nor to Revenue, but to the Tribunal---Tribunal in order to seek advice from High Court must explain with necessary details not only the legal proposition but also the facts giving rise to such proposition---Legal proposition does not arise in a vacuum, but the same can only operate in the presence of some real or assumed fats---Legal proposition not only arises in a particular situation, but also results in a particular consequence, which is essentially factual.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss. 135 & 136---Reference to High Court---Appellate Tribunal is the final forum of facts and law---Tribunal's judgment only on question of law is subject to advice of High Court, when it is so sought in the form of reference under S.136(l) or given on a question admitted under subsection (2) thereof---When neither assessee nor Revenue approaches Tribunal for a reference or in case of failure in his application under S.136(l) keeps silent, the proposition of facts as well as law between the parties for that assessment year stands determined in the light 'of Tribunal's judgment, which- will remain binding on the parties and will be a past and closed transaction, even if subsequently either Tribunal itself or High Court on a , reference or Supreme Court comes to a conclusion different from the one reached by Tribunal.

(c) Income Tax Ordinance (XXXI of 1979)---

----Ss. 135 & 136---Reference to High Court---Drawing up a statement of the case by Appellate Tribunal---Necessity---Reference not containing facts out of which questions can be said to have arisen, cannot be entertained---Tribunal when agrees that a question of law has arisen out of its order under S.135 bf the Ordinance, then it must draw up a statement of the case---Such statement of the case wherefrom the legal issue emerged becomes an important part of the reference, on the basis of which High Court proceeds to consider legal issue---High Court can consult the order of Tribunal being a part of reference, but such order cannot be read as a part of the statement of the case, which has to be drawn up by the Tribunal itself---Tribunal while framing questions of law re-affirms that the questions being referred or framed for reference arose out of certain set of facts which were found by the Tribunal.

Muhammad Ilyas Khan for Appellant.

Nemo for Respondent.

Date of hearing: 10th November, 2001.

2002 P T D 562

[Lahore High Court]

Before Naseem Sikandar and Mansoor Ahmad, JJ

IFTIKHAR AHMAD BUTT and 4 others

versus

GOVERNMENT OF ISLAMIC REPUBLIC OF PAKISTAN

through Secretary, Ministry of Finance, Economic

Affairs and Statistics, Islamabad and 5 others

Constitutional Petition No. 1973 of 2001, heard on 4th October, 2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----S..2(24)---Word "income" as used in Income Tax Ordinance, 1979­--Not confined to any specific kind of profits or gains.

Maharajkumar Gopal Saram Narain Singh v. Commissioner of Income-tax, Bihar and Orissa 1935 ITR 237; Commissioner of Income­-tax, Bengal v. Shaw Wallace & Company AIR 1932 PC 138; Mrs. Samina Shaukat Ayub Khan v. Commissioner of Income-tax, Rawalpindi PLD 1981 SC 85 and Karachi Gymkhana Club Road, Karachi v. Commissioner of Income Tax 1986 PTD 43 ref.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss. .15, 16(2)(c), 50(1) & Second Sched., Cl. (17)---Central Board of Revenue Circular No. 15 of 1997, dated 16-I1-1997---Central Board of Revenue Circular No. l of 1965, dated 1-7-1965-Constitution of Pakistan (1973), Art. 199---Constitutional petition---Payments under Golden Handshake Scheme to employees---Deduction of tax at source treating such payments as salaries---Contention of employees was that such payments were ex gratia grants and not salaries, wherefrom no deduction under S.50(1) of the Ordinance could be made; and that such payments were compensation for loss of service paid to parting employees for their rehabilitation and thus, were not income ---Validity--­Every amount received by an employee from his employer on termination of employment or modification of contract of employment would be profits in lieu of salary as per definition of "salary" given in S.16(2)(c) of the Ordinance, which by using therein the word "include" had left a room for a wider interpretation---Such provisions would bring into tax net any amount of compensation due to an employee, but not paid by employer---No difference existed between compensation in lieu of salary or compensation due to loss of employment---Optional or mandatory Golden Handshake Scheme would not matter at all so far as payment by employer or receipt by employees of the sums in question was concerned---Such payment would be deemed neither a compensation given for loss of employment nor a capital receipt under law---Such payments were covered by definition of word "salary", which was one of the heads given in S.15 of the Ordinance under which such receipts were to be taxed---Amount of, compensation which was only due to an employee and had not been paid by the employer would fall into tax net---Employees and those placed in similar situation would be entitled to benefits of C.B.R. Circular No.1 of 1965---Declaration made by High Court in various judgments against issuance of Circular No.15 of 1997 would operate only to the extent of advice given by Central Board of Revenue to Assessing Officer as to taxability of receipt and its later part extending the concession of C. B. R. Circular No. l of 1965 would remain intact and be available to all those who wished to avail the same---High Court rejected Constitutional petitions with such observations as to extension of benefit of C.B.R. Circular No.1 of 1965, whenever requested by assessee.