INCOME TAX APPEAL NO.508/LB OF 1989-90, DECIDED ON 10TH MARCH, 1990. VS INCOME TAX APPEAL NO.508/LB OF 1989-90, DECIDED ON 10TH MARCH, 1990.
1991 P T D (Trib.) 758
[Income-tax Appellate Tribunal Pakistan]
Before Abrar Hussain Naqvi, Judicial Member and Inam Ellahi Sheikh, Accountant
Member
Income Tax Appeal No.508/LB of 1989-90, decided on 10/03/1990.
(a) Income Tax Ordinance (XXXI of 1979)---
----Preamble---Qanun-e-Shahadat (10 of 1984), preamble ---Qanun-e-Shahadat has no application in the income-tax proceedings.
1988 PTD 754 (Trib.) fol.
(b) Income Tax Ordinance (XXXI of 1979)---
----S.13(2)---Authority of Income Tax Officer to evaluate reasonable `value of the property alleged to have been brought by unexplained investment.
The Income Tax law has given an authority to the Income Tax Officer to evaluate reasonable value and this is provided in section 13(2) of the Income Tax Ordinance. This power of the Assessing Officer cannot be taken away merely by referring to the registered sale-deeds where the parties arbitrarily fix the value as it suits both the parties. This is common knowledge that urban properties are generally undervalued for obvious reasons. The vendors (at the relevant time) saved the gain-tax and the vendee got benefit in the shape of stamp duties and the registration fee apart from the avoidance of explanation in regard to the source of investment.
I.T.As. Nos.5585 to 5589/LB of 1986-87 distinguished.
(c) Interpretation of statutes---
in a statute does not necessarily and always connote two severable steps of repealing and fresh enactment.
(d) Income Tax Ordinance (XXXI of 1979)--
----First Sched, Part I, para. (a) [as substituted by Finance Ordinance (XXVIII of 1984)]---Object of substitution of Schedule---Substitution of old Schedule by Finance Ordinance, 1984 did not necessarily mean that the old schedule of rates of tax had been repealed and ceased to exist on the commencing day of the Finance Ordinance, 1984 and Finance Act, 1985.
Though a substitution has taken place but it does not necessarily mean that the old Schedule of rates of tax has been repealed and ceases to exist on the commencing day .of the Finance Ordinance, 1984 and the Finance Act, 1985.
A contrary intention has been expressed by the legislature and the operation day of the substituted rates given in the Finance Ordinance, 1984 has been postponed to first July, 1985 and similarly, the operation day of the substituted rates given in the Finance Act, 1985 has been postponed to first July 1986. No doubt the Finance Ordinance, 1984 was made by the President on 14th June. 1984 but this Ordinance was "to give effect to the financial proposals of the Federal Government for the year beginning on the first day of July, 1984". This, however, would be subject to the context. If any provision of the Finance Ordinance specifically says that the operation of any amending provision is postponed that would only mean that the original or the substituted provisions continue to be in operation. Notwithstanding the fact that the Finance Ordinance. 1984 was promulgated to give effect to the financial proposals of the Federal Government for the year beginning on the first day of July, 1984 and notwithstanding the fact that para. 16 of subsection (1) of section 6 of the Finance Ordinance substituted the paragraph (a) of Part I of the First Schedule, it has to be read alongwith the provisions contained in subsection (2) of section 6. In other words, the substitution made by paragraph 16 is subject to subsection (2) of section 6 of the Finance Ordinance, 1984 which lays down that this substitution of paragraph (a) of Part I of the First Schedule shall have effect from 1st July, 1985. Therefore, reading para. 16 with subsection (2) of section 6 it would mean that the substitution had taken place with effect from 1st July, 1985. But for the Finance Act, 1985 the position would have been that the rates of taxes as given by paragraph 16 of section 6(1) by the Finance Ordinance, 1984 would be applicable with effect from 1st July, 1985, and therefore, these rates would be applicable for the assessment year 1985-86. As for the Finance Act, 1985 that is not in the way of operation of the substituted sates inasmuch as the Finance Act, 1985 has, though substituted the rates as given by para. 16 of the First Schedule, but the new rates were postponed as the effective date was from first July, 1986. This in other words, means that notwithstanding the substitution of new tax rates by the Finance Ordinance, 1984 the old rates would continue to be operative in the assessment year 1984-85. Similarly, the substituted rates laid down by the Finance Act, 1985 would be applicable with effect from 1st July, 1986 and the tax rates given by Finance Ordinance, 1984 would be applicable in the assessment year 1985-86.
Court has to see the intention of the legislature in interpreting any provision of law and obviously it can never be the intention of the legislature that there should be no rate of tax in a particular assessment year. There may be some unhappy wording of the law but that cannot be in the way to interpret the law correctly and discovering the intention of the legislature.
The obvious intention and purpose of the legislature, which is manifest from very nature of the Finance Ordinance/Act was to substitute the old tax rates with the new ones. At the same time, the legislature wanted to postpone the operation of the new rates to a subsequent date. The Finance Ordinance/Act cannot be interpreted in such a manner that the result would be that no rates of taxes were applicable in the assessment years 1984-1985 and 1985-86. The intention of the legislature is not to create a vacuum while substituting the law. The intention of the legislature has to be gathered from the language of the statute in the context in which it has been used.
Interpretation of any provision of law should always be avoided which would make any provision of the law as ineffective.
AIR 1963 SC 928; AIR 1969 SC 504; Halsbury's Laws of England, Third Edn., Vol. 36 p.474; Craies on Statute Law, 6th Edn., p.386 and Maxwell on Interpretation of Statutes, 12th Edn. ref.
(e) General Clauses Act (X of 1897)--
----Ss.5 & 3(12)---Commencement of Act and operation of an enactment--?Distinction---Coming into operation of an enactment would not be the commencing day if there was contrary intention expressed by the legislature.
(f) Interpretation of statutes-
---- Where any provision of the statute specifically stated that the operation of any amending provision was postponed that would only mean that the original or the substituted provision continued to be in operation.
(g) Interpretation of statutes---
----Unhappy wording of the law cannot come in the way of interpreting the law correctly and discovering the intention of the legislature.
(h) Interpretation of statutes-
---- Intention of the legislature has to be gathered from the language of the statute in the context in which it has been used.
(i) Interpretation of statutes-
---- Interpretation of law should always be avoided which would make any provision of the law as ineffective.
(j) Interpretation of statutes-
---- While interpreting the statute it is the duty of the Courts to suppress the mischief and advance the remedy.
(k) Income Tax Ordinance (XXXI of 1979)--
----S.13(1) & (2)---Unexplained investment---Addition---Procedure to be followed by Assessing Officer---Assessing Officer should first issue a notice under S. 13(2) and after receiving the assessee's reply and with the prior approval of the Inspecting Assistant Commissioner the Assessing Officer should first determine the amount under S.13(2) and after such determination the notice under S.13(1) should be issued and after taking the explanation of the assessee and with the prior approval of the Inspecting Assistant Commissioner, the addition should be made---Where no such procedure had been followed the addition was made illegally and was directed to be deleted by the Tribunal.
The Assessing Officer has to determine the value of a property under section 13(2) of the Ordinance and before doing so he has to first provide an opportunity of being heard to the assessee and then he has to take the prior approval of the Inspecting Assistant Commissioner. The value of any investment etc. so determined under section 13(2) of the Ordinance has then to be confronted to the assessee and his explanation has to be called for as to the nature and source of the determined amount. After obtaining the explanation of the assessee under section 13(1)(d) if the Assessing Officer is dissatisfied with the explanation then again he has to like prior approval of the Inspecting Assistant Commissioner and only then could make the addition. In the present case the Assessing Officer issued a show-cause notice to the assessee under section 13(1) of the Ordinance on 22-5-1988. The assessee was balled upon to give an explanation in regard to the excess of the amount. By that time the Assessment Officer had not determined the value of the property purchased by the assessee under section 13(2) of the Income Tax Ordinance. On 24-5-1988 the Assessing Officer sought the prior approval of the Inspecting Assistant Commissioner, which was given on 26-5-1988. Before doing so no notice under section 13(2) was issued by the Assessing Officer. This notice under section 13(2) was issued on 2-6-1988 i.e. after determining the amount and taking prior approval of the Inspecting Assistant Commissioner. Again after issuing notice on 2-6-1988 no further notice under section 13(1) of the Income Tax Ordinance calling for the assessee's explanation in regard to the nature and source of investment was called for by Assessing Officer. The Assessing Officer had issued combined notices and not one after the other.
It, therefore, follows that instead of first determining the value under section 13(2) and the procedure to be followed as stated above, and then to ask for the explanation of the assessee in regard to the nature and sources of the amount so determined under section 13(2), the Assessing Officer had issued a combined notice under sections 13(1) and 13(2) of the Income Tax Ordinance. No further notice had been issued after the notice, dated 2-6-1988. If the notice dated 2-6-1988 was treated as notice under section 13(2) then notice under ?section 13(1) would be missing and if this notice was treated as under section 13(1) then notice under section 13(2) would be missing. The Assessing Officer should have first issued a notice under section 13(2) and after receiving the assessee's reply and with the prior approval of the Inspecting Assistant Commissioner the Assessing Officer should have first determined the amount under section 13(2). After such determination the notice under section 13(1) should have been issued and after taking the explanation of the assessee and with the prior approval of the Inspecting Assistant Commissioner, the addition should have been made. Since no such procedure had been followed the addition had been illegally made and was, therefore, directed to be deleted.
1987 PTD 300 and 1989 PTD 150 ref
(l) Income Tax Ordinance (XXXI of 1979)--
----S.13(1)(aa)---Addition under S.13(1)(aa)---Notice under S.13(1) was a requirement---Notice under S.13(1) was duly given to assessee and assessee's explanation had been received, considered and found unsatisfactory ---Assessee's explanation was that he had received a certain amount from one M---Assessing Officer examined the assessment record of said M and found that said M had not sufficient source to advance the amount as loan to the assessee---Held. in face of such documentary and authentic evidence there was no value of the affidavit filed by the creditor---Loan having not been proved and the assessee's explanation in that regard having been found unsatisfactory the addition had rightly been made in accordance with law.
Muhammad Amin Butt for Appellant.
Aftab lqbal Lahore, D.R. for Respondent,
Date of hearing: 12th June, 1990,
ORDER
ABRAR HUSSAIN NAQVI (JUDICIAL MEMBER).---to this appeal filed by an individual deriving income as a partner of registered firm, two additions made under section 13(1)(a) and under section 13(1)(aa) are contested.
2. Brief facts relevant to the disposal of this appeal are that the assessee's declared income from registered firm at Rs.28,128 was accepted by the assessing officer under section 59(1) of the Income Tax Ordinance on 20-2-1986. Subsequently, information was received by the Assessing Officer that the assessee had purchased plot No.15 (Muslim Street Ram Gali No.6, Lahore) measuring 13 marlas 75 sq ft. on 24-2-1985 in the registered sale-deed the value of the plot was shown at Rs.1,75,000. The I.T.O. was of the view that the value of the plot shown in the sale-deed was not correct as the value of the plot was such higher than had been shown in the registered sale-deed. Consequently, he opened the assessee's case under section 65 of the Income Tax Ordinance with the prior approval of the I.A.C. A notice under section 65 was issued to the assessee in response to which the assessee filed the return declaring income as before. He also issued notice to file the wealth statement under section 58(1) of the Ordinance but the assessee did not file the wealth statement. The Assessing Officer made detailed inquiries in regard to the valuation of the plot and finally determined the value of the plot at Rs.13,00,000. As a consequence an addition of Rs.11,25,000 (Rs.13,00,000) minus Rs.1,75,000 was made under section 13(1)(d) of the Income Tax Ordinance and addition of Rs.1,90,000 (1,75,000) + Rs.15,000 as expenses was also made separately under section 13(1)(aa) of the Ordinance. The learned C.I.T.(A) confirmed the order of the I.T.O., hence this appeal.
3. The learned counsel for the assessee has taken number of legal and factual plea. It may be stated at the outset that the assessee had also contested the reopening of the case under section 65 of the Ordinance before the C.I.T.(A) but withdrew that objection. Before the Tribunal as well the assessee had taken a plea contesting the initiation of the proceedings under section 65 of the Ordinance but at the time of arguments the learned counsel for the assessee gave up this plea. The other grounds of appeal are disposed of as under.
4. The first contention of the learned counsel for the assessee was that the I.T.O. had no jurisdiction to fix the value of his own in the presence of the value in the registered sale-deed. The precise contention of the learned counsel for the assessee was that Qanoon-e-Shahadat was applicable in the assessment proceedings, which are judicial in nature. It was submitted that under the Qanoon?-e-Shahadat no oral evidence can be led against the documentary evidence.
5. This contention of the learned counsel for the assessee is devoid of any force and can be summarily disposed of as the Tribunal in its order reported as 1988 P T D (Trib.) 754 has already held that Qanoon-e-Shahadat has no application in the Income-tax proceedings. The relevant portion of that order is reproduced below:--?
"The next contention of the learned counsel for the assessee was that the value given in the registered sale-decd should have been accepted by the Income-tax Officer. The learned counsel first contended that Qanoon-e?-Shahadat is applicable to the proceedings before the Income Tax Officer and under that law presumption of truth is attached to the registered documents and unless the Income Tax Officer had evidence to rebut that evidence, he had no jurisdiction to evaluate the property other than what had been in the registered sale-deed. He further submitted that Article 165 of Qanoon-e-Shahadat lays down that it overrides all other laws.
This contention of the learned counsel is also devoid of any force. Qanoon-e-Shahadat is the special law and so is the Income Tax Ordinance, which empowers the Income Tax Officer to evaluate the properties shown by the assessee in their documents or in their wealth statement. Moreover, Qanoon-e-Shahadat makes the registered documents as admissible evidence but these documents are not the final documents so far as contents of these documents are concerned and in any case they can bind the contracting parties and not the third parties as the Government or the Income Tax Authorities.
The learned counsel for the assessee has relied upon a number of cases in support of his contention. The cases relied upon are Khalid Bashir v. Fazal Abbasi 1981 S C M R 701, Ali Muhammad v. Malik Sanwal and others PLD 1961 Pesh. 62, Muhammad Latif v. Lala Ramchand and others PLD 1970 SC 299 and Rai Narendra Lai Roy Bahadur v. Ram Chandra Nashar and another AIR 1949 Privy Council 179. All the four cases are not relevant in the facts and circumstances of the present case. The two cases of the Supreme Court as well as the third case of Peshawar High Court, are in regard to the Pre-emption Act. Even in these cases it has not been said by the Courts that the Courts could not go behind the sale-deeds. What the superior Courts have held in these cases is that where it is proved that the sale price shown in the registered sale-deed has been paid, the registered sale-deed should be accepted as such for the purposes of value of the property sold. In the fourth case decided by the Privy Council, again it was a dispute between the two private parties namely proprietor and tenants in regard to apportionment of compensation on account of acquisition of land under the Land Acquisition Act. None of the above cases are related to the Income Tax Law. It may be noted here that under section 13(1)(d) of the Ordinance the Income-tax Officer has been empowered to refuse to accept the amount shown by the assessee recorded in his books of accounts or shown in his wealth statement and. under subsection (2) of section 13 he has been further empowered to determine a reasonable value of the property acquired by the assessee."
For the same reasons, we reject the assessee's plea.
6. The next contention of the learned counsel for the assessee was against the valuation adopted by the assessing officer. It was first contended that this was a residential plot and the assessing officer has treated it as a commercial plot and the case which has been cited as parallel was also commercial in nature. It was further contended by the learned counsel for the assessee that the assessee had purchased the plot in question through a registered sale-deed and that the value shown in the Deed should have been accepted and unless there was a concrete evidence with the assessing officer the value could not be enhanced. In support of his contention the learned counsel has relied upon the Tribunal decision in I.T.As. Nos. 5585 to 5589/1,13 of 1986-87, dated 13-5-1987.
7. We are not inclined to agree with the learned counsel for the assessee on this plea as well. The Income Tax Law has given an authority to the Income Tax Officer to evaluate reasonable value and this is provided in section 13(2) of the Income Tax Ordinance. This power of the Assessing Officer cannot be taken away merely by referring to the registered sale-deeds where the parties arbitrarily fix the value as it suits both the parties. This is common knowledge that urban properties are generally undervalued for obvious reasons. The vendors (at the relevant time) served the gain-tax and the vendees got benefit in the shape of stamp duties and the registration fee apart from avoidance of explanation in regard to the source of investment. As for the Tribunal's decision quoted by the assessee that is distinguishable in that the value in that case was not adopted by the Tribunal on the basis of the registered sale-deed. There was other contradictory evidence available on record and the Tribunal preferred to adopt the valuation arrived .at by the Capital Gain-tax Authorities. The learned counsel for the assessee has further relied upon the observation of the Tribunal in that case that some credit had to be given to the registered sale-deed. However, observation of the Tribunal was qualified. It was observed that the registered sale-deeds, which were strictly in accordance with law deserved some sanctity. This is a question of fact as to whether a registered sale-deed is strictly in accordance with law or not. The assessing officer's case all along had been that the value given in the registered sale-deed was not the correct value and he had established it through various inquiries conducted through Inspector including inquiries through property dealers. The assessing officer has also cited some other parallel cases where much higher value in the same vicinity had been adopted. It may be noted here that this case was heard on various dates. One of the questions raised by the learned counsel for the assessee was that this was a residential plot. Consequently, we directed the learned D.R. to get a further inquiry conducted to ascertain as to what was the nature and location of the property. Consequently, the Inspector was directed to make an enquiry. He visited the plot in question on 31st May, 1990 alongwith Mrs. Farhat Rizvi, Advocate one of the Authorised Representatives of the assessee. This report is on our file. It was reported by the Inspector that the plot is situated in Ram Gali No.6 (Muslim Street Brandreth Road, Lahore) which is a plot of 26 marlas having a front of 78 feet and was jointly purchased by Muhammad Ayub, the assessee, and Mr. Muhammad Ajmal through separate sale-deeds. Then explaining the situation of the Ram Gali it was reported by the Inspector as follows:--
"Ram Gali No. 6 is running parallel to Brandreth Road Lahore at a distance of about 150 yards. In the west it opens at Circular Road and in the cast it crosses Ram Gali Nos.l to 5. Nearly all the street is occupied by shops having go-downs in the basement and markets. It is at the distance of about 15 yards from Ram Gali No.2, which is equal to Brandreth Road, Lahore in business. A map is enclosed locating the plot. Both sides (East and West) are covered with shops and markets Back side of the plot (north) is attached with a house, which opens in Ram Mali No.ll. At the front side across the road a High School for boys is situated. Presently at the back half of the assessee's plot a tripple storey building has been constructed and in the ground floor of this building four godowns have been constructed. Keeping in view the location of the plot the value adopted by the I.T.O. seems to be on the lower side."
8. This report further supports the version given by the Assessing Officer that this was commercial property. It is well-known that the Brandreth Road and the Ram Gali are the Loha markets of Lahore. From the very nature of this business it is evident that it cannot be run without godowns. Therefore, it is obvious that the adjoining properties are needed for godown purposes although these properties may not be strictly commercial being not in the Main Bazar. The I.T.O has quoted a parallel case where a property having area of 136 sq. ft. and situated in Ram Gali No.2 was sold for Rs.2,00,000 on 8-2-1981 through a registered sale-deed. The learned counsel for the assessee's objection in this regard was that this was a commercial property and had small area. It was submitted that smaller plots do fetch higher value but there are other factor:, which had to be taken into consideration. The first factor was that the property was sold as back as in February, 1981 while this property was purchased in February, 1985 i.e. after four years. Secondly its valuation as in 1981 would work out to Rs.52,00,000 as mentioned by the assessing officer. But he has evaluated the plot at Rs.26,00,000 after four years of that transaction. Keeping all these facts in view we feel that the property valued by the assessing officer at Rs.1,00,000 per marla could not be regarded as excessive in the year 1985 particularly when the property prices had tremendously increased year after year.
9. The next contention of the learned counsel for the assessee was in regard to the violation of the procedure laid down under section 13 of the Income-tax Ordinance which argument we shall deal with at the later stage. Before dealing with this issue we would like to dispose of very important legal plea raised by the learned counsel for the assessee. It was contended by the learned counsel for the assessee that in the assessment year 1985-86 there were no rates of tax and therefore no tax could be levied or demanded by the Income-tax Authorities from the assessee. The basis of this contention of the learned counsel for the assessee was that Finance Ordinance, 1984 was promulgated on 14th June, 1984 to give effect to the Financial proposals of the Federal Government from the beginning of the 1st July, 1984 and to amend certain laws. This Ordinance came into force at once. Under section 6 of this Ordinance. various amendments were made in the Income Tax Ordinance, 1979. Subsection (1) of section 6 reads as follows:--
"The following amendments shall be made in the Income Tax Ordinance,1979 (XXXl of 1979) namely:--
??????????????????????????????????..
Then follow various amendments and para. 16 of the First Schedule of the Income Tax Ordinance, 1979 was substituted. The relevant portion of this para reads as under:--
(a) in Part I: -
(i) for paragraph A the following shall be substituted namely: .................
???????????????????????????????????.
By virtue of this para, the earlier rates of tax were substituted and various rates of tax were given in the following paragraphs. Then in subsection (2) of section 6 the date of operation of substituted rates given in para. 16 was stated. Subsection (2) of section 6 is reproduced below:--
The provisions of sub-paragraph (i) of paragraph (a) of clause 16 of subsection (1) shall--
(a) for purposes of deduction of tax on salaries paid on or after the first day of July. 195-1 take effect on the first day of July, 1984, and
(b) for purposes of assessment in respect of the assessment year commencing on or after the first day of July, 1985 take effect on the first day of July, 1985.
The precise attack of learned counsel for the assessee was that by virtue of paragraph 16 cited above paragraph (a) of Part (1) of tile Schedule of Income Tax Ordinance was substituted which had the effect of repeal of the earlier Schedule of rates given in paragraph (i) of Part (I) of the First Schedule, Since, by virtue of subsection (2) of section 6 of the Finance Ordinance the operation of the rates of tax given in the Schedule has been postponed as they are effective from 1st day of July 1985 no rates of tax remained in the field and there was a state of vacuum. When it was confronted to the learned counsel for the assessee that we are concerned with the assessment year 1985-86 and that the substituted schedule could take effect from 1st clay of July, 1985 his reply was that the same phenomena was repeated in the next Finance Act of 1985 and the rates of tax were again substituted and the substituted rates were again postponed for the next assessment year. It was pointed out by the learned counsel for the assessee that the Finance Act, 1955 was passed by the Legislature to give effect to the Financial Proposals of the Federal Government for the year beginning from the 1st July 1985. By virtue of section 4 of the Finance Act, 1985 the various provisions of the Income Tax Ordinance, 1979 were amended and subsection (1) of section 4 reads as under:
"The following amendments shall be made in the Income Tax Ordinance, 1979 (XXXI of 1979) namely:--????????
????????????????????????????????????
Para. 11 of this subsection substituted the rates of tax given in paragraph (a) of Part (1) of the First Schedule of the Income Tax Ordinance. The relevant portion of paragraph 11 reads as under:---
"In the First Schedule,--
(a) in part I, for paragraph A the following shall be substituted namely ......
It, therefore, follows that the rates of tax were again substituted by virtue of this paragraph. The operating date of taxes was again postponed to first July, 1986. The subsection (2) of section 4 of the Finance Act, 1985 is reproduced below:
"The provisions of,--
(a) paragraph (a) of clause (ii) of subsection (i) shall--
(i) for purposes of deduction of tax from salaries take effect on the first day of July, 1985; and
(ii) for purposes of assessment of income in respect of the assessment year commencing on or after the first day of July, 1986, take effect on the first day of July, 1986."
Now contention of the learned counsel for the assessee may be summarised as under:--'
(i) The original paragraph (a) of Part I of the First Schedule of the Income Tax Ordinance was substituted by the Finance Ordinance, 1984 but its operation for assessment purposes was postponed to 1st July, 1985.
Since, the original schedule was repealed and the new schedule was postponed to first July, 1985 therefore there was no schedule of rates of taxes with effect from 1st July, 1984.
(ii) Secondly, before first July, 1985 even the substituted rates were again substituted by the Finance Act, 1985 and its effective date for assessment purposes postponed to first July, 1986. In other words the substituted rates given by the Finance Act, 1984 for assessment year 1985-86 died their natural death as before their operative day of first July, 1985 they were again substituted by another schedule of rates by the Finance Act, 1985. Since the relevant dates were again postponed to be given effect from first July, 1986 therefore, no rates of taxes were applicable in the assessment year 1985-86. The rates given by the Finance Ordinance 1984 having been substituted and the new rates given by the Finance Act, 1985 s having been postponed, there were no rates of tax applicable with effect from first July, 1985.
10. The learned counsel for the assessee has relied upon copious case-law to contend that the substitution of a law amounts to repealing the earlier law and enacting the new law. We do not contribute to this view expressed by the learned counsel for the assessee as the word substitution does not necessarily and always connote two severable steps of repealing and fresh enactment. The learned counsel for the assessee has placed reliance on the meaning of the word substitution as given in Bindra's "the Interpretation of Statutes" in which the word substituted has been defined as "this word is used where old rule is made to cease to exist, and new rule is brought into existence in its place. In other words the process is repeal and re-enactment". The argument of the learned counsel for the assessee was, as stated above that by virtue of the substitution made by the Finance Ordinance, 1984 and Finance Act, 1985 the new rates were substituted and the earlier rates given in the schedule have been repealed and new rates were enacted. The learned counsel for the assessee has relied upon two cases. The first case was Firm Mahtab Majid & Company v. State reported as A I R 1963 SC 928 and the other case relied upon was Koteswar Vittal Kameth v. K. Rangappa Baliga & Company reported as A I R 1969 SC 504. In the first case it was held that where a substituted statutory rule is held invalid the old rule does not get revived. Once the old rule has been substituted by the new rule, it ceases to exist and it does not automatically get revived when the new rule is held to be invalid. In the second case the Supreme Court reiterated the rule stated in Mehtab's case and observed that the process of substitution consists of two steps First repeal of earlier rule and second is to bring into existence the second substituted rule and that even if the new rule is held to be invalid the first step of the old rule being ceasing to exist comes into effect. However, both these cases are distinguishable. Firstly, both these cases were in regard to the statutory rules and not to the Legislative Act, which are placed on different footings altogether. Both these cases were explained and distinguished by the Supreme Court of India in a later case of Central Provision Manganese Company Limited v. State of Maharashtra reported as A I R 1977 SC (Tax) 212 wherein it was laid down by the Supreme Court that a void and inoperative legislative process does not affect the validity of the pre-existing law. It was further observed that the substitution by an amending Act cannot be split into two processes of repeal and substitution. Before the Supreme Court it was argued that notwithstanding the invalidity of the amending Act the provisions which were sought to be repealed stood repealed. Dealing with this question in para. 18 of the report the Court observed as follows:--
.
"We do not think that the word substitution necessarily or always connotes two severable steps, that is to say, one of repeal and another of a fresh enactment even if it implies two steps. Indeed, the natural meaning of the word `substitution' is to indicate that the process cannot be split up into two pieces like this. If the process described as substitution fails, it is totally ineffective so as to leave intact what was sought to be displaced. That seems to us to be the ordinary and natural meaning of the words `shall be substituted'. This part could not become effective without the assent of the Governor-General. The State Governor's assent was insufficient. It could not be inferred that, what was intended was that, in case the substitution failed or proved ineffective, some repeal, not sanctioned at all, was brought about and remained effective so as to create what may be described as a vacuum in the statutory law on the subject-matter. Primarily the question is one of gathering the intent from the use of words in the enacting provisions seen in the light of the procedure gone through. Here no intention to repeal, without a substitution, is deducible. In other words, there could be no repeal if substitution failed. The two were a part and parcel of a single indivisible process and not bits of a disjointed operation."
In that case as well as in this case, the case of Firm Mahtab Majid & Company was relied upon but in paras. 20 and 21 of the report the Supreme Court explained that case in the following words:
"Some help was sought to be derived by the citation of D.N. Tiwari v. Union of India and the case of Firm A.T.B. Mehtab Majid & Company v. State of Madras. Tiwari's case relates to the substitution of what was described as the `carry forward' rule contained in the departmental instruction, which was sought to be substituted by a modified instruction declared invalid by the Court. It was held that when the rule contained in a displaced instruction did not survive. Indeed, one of the arguments there was that the original `carry forward' rule of 1952 was itself void for the very reason for which the `carry forward' rule, contained in the modified instructions of 1955, had been struck down. Even the analogy of a merger of an order into another which was meant to be its substitute could apply only where there is a valid substitution. Such a doctrine applies in a case where a judgment of a subordinate Court merges in the judgment of the appellate Court or an order reviewed merges in the order by which the review is granted. Its application to a legislative process may be possible only in the cases of valid substitution. The legislative intent and its effect is gathered, inter alia, from the nature of the action of the authority which functions. It is easier to, impute an intention to an executive rule-making authority to repeal altogether in any event what is sought to be displaced by another rule. The cases cited were of executive instructions. We do not think that they could serve as useful guides in interpreting a legislative provision sought to be amended by a fresh enactment. The procedure for enactment is far more elaborate and formal. A repeal and a displacement of a legislative provision by a fresh enactment can only take place after that elaborate procedure has been followed in toto. In the case of any rule contained in an executive instruction, on the other hand, the repeal as well as displacement are capable of being achieved and inferred from a bare issue of fresh instructions on the same subject.
In Mehtab Majid & Co.'s case a statutory rule was held not to have revived after it was sought to be substituted by another held to be invalid. This was prescribed for a repeal as it is in the case of statutory enactment of statute by legislatures. In every case, it is a question of intention to be gathered from the language as well as the note of the rule-making or legislating authority in the context in which these occur."
In para. 16 the Koteswar's case was also discussed and explained by the Supreme Court.
11. In the present case as well though a substitution has taken place but in the facts and circumstances of the present case it does not necessarily mean that the old schedule of rates of tax has been repealed and ceases to exist on the commencing day of the Finance Ordinance, 1984 and the Finance Act, 1985. The learned counsel for the assessee has also relied upon various case-law and contended that the commencing day of the Finance Act is relevant to the assessment year and not to the income year. Again We are not in dispute with this proposition of law, and therefore, we need not discuss the case-law relied upon by the learned counsel for the assessee. The last contention of the learned counsel for the assessee was that even if two interpretations are possible then the one which is favourable to the assessee that should be accepted in Income Tax Law and mere fact that the interpretation would be harsh should not be in the way of the correct interpretation in the Taxing Law.
12. The arguments of the learned counsel for the assessee cannot be accepted for the simple reason that there is a distinction between the operation of the law and the commencement of the law. There is a clear and evident distinction between the commencement of an Act and operation of an enactment. Here we would like to refer to the General Clauses Act. This distinction has been clearly drawn by subsection (3) of section 5 of the General Clauses Act which reads as follows:--
"Unless the contrary is expressed, a (Central Act) or Regulation shall be construed as coming into operation immediately on the expiration of the day preceding its commencement."
Here the coming into operation of a Central Act and its commencement has been distinguished. The word 'commencement' has been defined by subsection (12) of section 3 of the General Clauses Acts which reads as under:--
"commencement used with reference to an Act or Regulation, shall mean the day on which the Act or Regulation comes into force."
13. Thus, reading this distinction of `commencement' with subsection (3) of section 5, it would mean that ordinarily the Central Act will come into operation immediately on the expiration of the preceding day on which an Act comes into force. However, this is the legal position if no contrary intention is expressed by the enactment. In other words, the coming into operation of an enactment will not be the commencing day if there is contrary intention expressed by the legislature. In the present case a contrary intention has been expressed by the Legislature and the operation day of the substituted rates given in the Finance Ordinance 1984 has been postponed to first July, 1985 and similarly, the operation day of the substituted rates given in the Finance Act, 1985 has been postponed to first July, 1986. No doubt the Finance Ordinance, 1984 was made by the President on 14th June, 1984 but this Ordinance was "to give effect to the financial proposals of the Federal Government for the year beginning on the first day of July, 1984". This, however, would be subject to the context. If any provision of the Finance Ordinance specifically says that the operation of any amending provision is postponed that would only mean that the original or the substituted provision continues to be in operation. Notwithstanding the fact that the Finance Ordinance, 1984 was promulgated to give effect to the financial proposals of the Federal Government for the year beginning on the first day of July, 1984 and notwithstanding the fact that para. 16 of subsection (1) of section 6 of the Finance Ordinance substituted the paragraph (a) of Part I of the First Schedule, it has to be read alongwith the provisions contained in subsection (2) of section 6. In other words, the substitution made by paragraph 16 is subject to subsection (2) of section 6 of the Finance Ordinance, 1984 which lays down that this substitution of paragraph (a) of Part I of the First Schedule shall have effect from 1st July, 1985. Therefore, reading para. 16 with subsection (2) of section 6 it would mean that the substitution had taken place with effect from 1st July, 1985. But for the Finance Act 1985 the position would have been that the rates of taxes as given by paragraph 16 of section 6 (1) by the Finance Ordinance, 1984 would be applicable with effect from 1st July, 1985, and therefore, these rates would be applicable for the assessment year 1985-86. As for the Finance Act, 1985 that is not in the way of operation of the substituted rates inasmuch as the Finance Act, 1985 has, though substituted the rates as given by para. 16 of the First Schedule, but the new rates were postponed as the effective date was from first July, 1986. This in other words, means that notwithstanding the substitution of new tax rates by the Finance Ordinance, 1984 the old rates would continue to be operative in the assessment year 1984-85. Similarly, the substituted rates laid down by the Finance Act, 1985 would be applicable with effect from 1st July, 1986 and the tax rates given by Finance Ordinance, 1984 would be applicable in the assessment year 1985-86. We see no difficulty in interpreting the above provisions as above. We have to see the intention of the Legislature in interpreting any provision of law and obviously it can never be the intention of the Legislature that there should be no rate of tax in a particular assessment year. There may be some unhappy wording of the law but that cannot be in the way to interpret the law correctly and discovering the intention of the Legislature. There is a well-known and accepted principle of interpretation against absurdity. If the contention of the learned counsel for the assessee is accepted that there were no rates of taxes in the assessment years 1984-85 and 1985-86 that leads to absurdity inasmuch as the Legislature cannot be attributed to have such an intention. The obvious intention and purpose of the legislature which is manifest from very nature of the Finance Ordinance/Act was to substitute the old tax rates with the new ones. At the same time, the legislature wanted to postpone the operation of the new rates to a subsequent date. The Finance Ordinance/Act cannot be interpreted in such a manner that the result would be that no rates of taxes were applicable in the assessment years 1984-85 and 1985-86. This is exactly the result if we accept the contention of the learned counsel for the assessee in interpreting the Finance Ordinance, 1984 and Finance Act, 1985. The intention of the legislature is not to create a vacuum while substituting the law. The intention of the Wislature has to be gathered from the language of the statute in the context in which it has been used. Unfortunately the General Clauses Act has no provision governing the situation which has arisen in this case namely the position of the repealed provision of law between the period on which the earlier proviso has been repealed and the date of operation of the new provision. The Supreme Court in Managanese Ore's case has quoted the following passage of Halsbury's Laws of England, Third Edition, Vol. 36, p.474; Craies on "Statute LOV', 6th Edition, p. 386:--
"Where an Act passed after 1850 repeals wholly or partially any former enactment and substitutes provisions for the enactment repealed, the repealed enactment remains in force until the substituted provisions come into operation."
Then referring to the General Clauses Acts the Supreme Court observed as under:--
"Although, there is no corresponding provision in our General Clauses Acts, yet, it shows that the mere use of words denoting a substitution does not ipso facto or automatically repeal a provision until the provision which is to take its place becomes legally effective. We have, as explained above, reached the same conclusion by considering the ordinary and natural meaning of the term substitution' when it occurs without anything else in the language used or in the context of it or in the surrounding facts and circumstances to lead to another inference. It means ordinarily, that unless the substituted provision is there to take its place, in law and in effect the pre-existing provision continues. There is no question of a revival'."
There is another accepted principle of interpretation that interpretation of any provision of law should always be avoided, which would make any provision of the law as ineffective. Here we would like to quote from, page 45 of Maxwell on the Interpretation of Statutes, 12th Edition:--
"If the choice is between two interpretations, the narrower of which would fail to achieve the manifest purpose of the legislation, we should avoid a construction which would reduce the legislation to futility and should rather accept the bolder construction based on the view that parliament would legislate only for the purpose of bringing about an effective result. `Where alternative constructions are equally open, that alternative is to be chosen which will be consistent with the smooth working of the system which the statute purports to be regulating and that alternative is to be rejected which will introduce uncertainty, friction, or confusion into the working of the systems."
12. There is still another admitted principle of interpretation and that is the mischief rule. While interpreting the statute it is the duty of the Courts to suppress the mischief and advance the remedy. We again quote from page 40 of the Maxwell as under:--
"-----then the office of all the Judges is always to make such construction as shall suppress the mischief, and advance the remedy, and to suppress subtle inventions and evasions for continuance of the mischief, and pro privato commodo, and to add force and life to the cure and remedy according to the true intent of the makers of the Act, pro bono publico."
13. For the foregoing reasons we reject the construction as propounded by the learned counsel for the assessee while interpreting the amendments in law in regard to the application of tax rates in the assessment year under consideration.
14. The last contention of the learned counsel for the assessee that the addition had not been made by the assessing officer in accordance with section 13 of the income Tax Ordinance inasmuch as the procedure laid down by section 13 has not been followed. The learned counsel for the assessee has relied upon the Tribunal's decisions reported as 1987 P T D 300 and 1989 P T D 150. Relying on these authorities the contention of the learned counsel for the assessee was not that the following procedure has been laid down violation of which makes the addition as invalid and illegal. According to the procedure laid down in the above reported cases the assessing officer has to determine the value of a property under section 13(2) of the Ordinance and before doing so he has to first provide an opportunity of being heard to the assessee and then he has to take the prior any investment etc. so determined under 'hen to be confronted to the assessee and his explanation has to be called for as to the nature and source of the determined amount. After obtaining the explanation of the assessee under section 13(1)(d) if the assessing officer is unsatisfied with the explanation then again he has to take prior approval of the IAC and only then could make the addition. According to the learned counsel for the assessee this procedure had not been followed by the assessing officer. From the perusal of the assessment order and the record, we find that the assessing officer issued a show-cause notice to the assessee under section 13(1) of the Ordinance on 22-5-1988. The assessee was called upon to give an explanation in regard to the excess of the amount of Rs.1,75,000. It may be noted that by that time the assessing officer had not determined the value of the property purchased by the assessee under section 13(2) of the Income Tax Ordinance. On 24-5-1988 the assessing officer sought the prior approval of the IAC which was given on 26-5-1988. Before doing so no notice under section 13(2) was issued by the assessing officer. This notice under section 13(2) was issued on 2-6-1988 Le, after determining the amount and taking prior approval of the IA.C. Again after issuing notice on 2-6-1988 no further notice under section 13(1) of the Income Tax Ordinance calling for the assessee's explanation in regard to the nature and source of investment was called for by the assessing officer. It appears that the learned assessing officer had issued combined notices and not one after the other as explained above and as laid down by the earlier rulings of the Tribunals. Here we would like to reproduce the contents of the letter, dated 2-6-1988. The second last paragraph of this letter is reproduced below:--
"By virtue of this show-cause notice, you are hereby given an opportunity to explain as to why the value of the above noted plot should not be estimated under section 13(2) at Rs.26,00,000 (value of your 1/2 share at Rs.13 lacy. You are further required to explain as 'to why the balance amount of Rs.11,25,000 (Rs.13,00,000 = Rs.1,75,000) should not be added in your total income under section 13(1)(d) as unexplained investment. You are also required to explain as to why, an amount of Rs.1,90,000 shown to be investment in this plot should not be added in your total income under section 13(1)(aa), as unexplained investment."
It, therefore, follows that instead of first determining the value under section 13(2) and the procedure to be followed as stated above, and then to ask for the explanation of the assessee in regard to the nature and sources of the amount so determined under section 13(2), the Assessing Officer had issued a combined notice under sections 13(1) and 13(2) of the Income Tax Ordinance. It may be noted that no further notice had been issued after the notice dated 2-6-1988. If we treat the notice dated 2-6-1988 as notice under section 13(2) then notice under section 13(1) would be missing and if we treat notice as under section 13(1) then notice under section 13(2) would be missing. The Assessing Officer should have first issued a notice under section 13(2) and after receiving the assessee's reply and with the prior approval of the Inspecting Assistant Commissioner the Assessing Officer should have first determined the amount under section 13(2). After such determination the notice under section 13(1) should have been issued and after taking the explanation of the assessee and with the prior approval of the Inspecting Assistant Commissioner, the addition should have been made. Since no such procedure had been followed the addition of Rs.11,25,000 has been illegally made and is, therefore, directed to be deleted. ,
15. As for the addition of Rs.1,90,000 made under section 13(1)(aa) of the Ordinance that has been legally made as what was required before making this addition was notice under section 13(1). This notice was duly given to, the assessee and the assessee's explanation has been received, considered and found unsatisfactory. The assessee's explanation was that an amount of Rs.1,90,000 had been received from one Muhammad Hafeez son of Sh. Muhammad Sharif. The learned assessing officer examined the assessment record of Muhammad Hafeez and found that assessee did not have sufficient source to advance the amount of Rs.1,90,000 as loan to the assessee. In the face of this documentary and authentic evidence there is no value of the affidavit filed by the creditor. Even otherwise this appears to be incredible that the entire amount of Rs.1,90,000 for which the assessee has allegedly purchased the plot was obtained as loan and that too on cash basis. The re-payment was also allegedly made in cash. This loan having not been proved and the assessee's explanation in this regard having been found unsatisfactory the addition has rightly been made in accordance with law.
16. As a result of the above discussion the appeal is partly accepted in that the addition of Rs.11,25,000 made under section 13(1)(d) is directed to be deleted while on other issues the assessee fails.
M.B.A./1188/T ?????????????????????????????????????????????????????????????????????? Appeal partly accepted.