M/S. NOVITAS INTERNATIONAL VS INCOME TAX OFFICER (FILMS CIRCLE) AND OTHERS
1991 P T D 968
[Supreme Court of Pakistan]
Present: Zaffar Hussain Mirza, Naimuddin and Sajjad Ali Shah, JJ
M/s. NOVITAS INTERNATIONAL
Versus
INCOME TAX OFFICER (Films Circle) and others
Civil Appeal No. 125-K of 1986, decided on 11/06/1991.
(On appeal from the judgment and order of the High Court of Sindh dated 14-2-1985 in C.P. D-110 of 1985).
Income Tax Ordinance (XXXI of 1979)
---S. 59---Self-Assessment Scheme (1984-85), paras, 5 & 2---Constitution of Pakistan (1973), Art. 199---Not conceivable that failure of assessee to provide documents within the prescribed period of one month, even if he was prevented by circumstances beyond its control or for sufficient grounds to have delayed the submission of the documents beyond the said period would totally deprive him of the benefit of the Scheme---Income-tax Officer had the power to condone the delay and even if he did not do so, he had the discretion not to exclude the case of the assessee from the benefit of the scheme if it was otherwise entitled thereto under the other provisions of the Scheme---Discretionary power under the statute has to be reasonably exercised and if it was shown that such power had either been arbitrarily exercised or not exercised at all, Constitutional jurisdiction would always be available to correct such misuse or failure to exercise such statutory powers.
The key word used in paragraph 5 (b) of the Self-Assessment Scheme (1984-85) is `Eligible' which means "Fit and proper to be chosen". Therefore on a plain reading of the aforesaid sub-paragraph, even if an assessee fails to provide documents within the prescribed period, the Income Tax Officer is not obliged to exclude the case of such an assessee from the benefits of the Assessment Scheme ipso facto. But he has the choice not to exclude the same and still accept the documents and assess the case under the scheme. There can be no other meaning from the language employed in the sub-paragraph. Clearly therefore the Income-tax Officer possessed discretionary powers under the statute, which had to be exercised on sound principles and not mechanically as a ministerial act. A discretionary power under the statute is required to be reasonably exercised and if it is shown that such power has either been arbitrarily exercised or not exercised at all, the constitutional jurisdiction would always be available to correct such misuse or failure to exercise such discretionary statutory powers.
If the source of authority relied upon is statutory, the Courts begin by determining whether the power has been exercised in conformity with the express words of the statute and may then go on to determine whether it has been exercised in a manner that complies with certain implied legal requirements. In some contexts they have confined themselves to the questions whether the competent authority has kept within the four corners of the Act and whether it has acted in good faith. Usually they will pursue their inquiry further and will consider whether the repository of a discretion, although acting in good faith, has abused its power by exercising it for an inadmissible purpose or on irrelevant grounds or without regard to relevant considerations or with gross unreasonableness.
One cannot conceive of the framers of the scheme to have laid down that once there is failure on the part of the assessee to submit documents within prescribed period of one month, even if he was prevented by circumstances beyond his control or for sufficient grounds to have delayed the submission of the documents beyond the said period, to be totally deprived of the benefit of the scheme. The Income Tax Officer had the power to condone the delay and even if he did not do so, he had the discretion not to exclude the case of the assessee from the benefit of the scheme, if it was otherwise entitled thereto under the other provisions of the scheme.
Black's Law Dictionary Fifth Edn. and de Smith in his book `Judicial Review of Administrative Action' Fourth Edn. ref.
Rahmat Hussain Naqvi, Rashid Rizvi, Advocates Supreme Court and A. Aziz Dastagir, Advocate-on-Record for Appellant.
Nasrullah Awan, Advocate Supreme Court and M.S. Ghaury, Advocate -on-Record for Respondents.
Date of hearing: 11th June, 1991.
JUDGMENT
ZAFFAR HUSSAIN MIRZA, J.---This appeal arises out of the order of a Division Bench of the High Court of Sindh, Karachi, dated 14-2-1985 whereby a Constitutional Petition filed by the appellant was dismissed in limine.
Briefly the fact, so far as relevant, are as follows. The appellant is a registered partnership firm and filed its income tax return for the assessment year 1984-85 under self assessment scheme. However, the appellant was required to submit balance sheet, statement of partner's account, partner's bank statement and partner's wealth statement by a notice, dated 25-9-1984 by the Income-Tax Officer. The balance sheet alongwith partnership's capital account was duly furnished by the appellant but the Income-Tax Officer issued a show cause notice dated 15-11-1984 intimating the appellant that since necessary documents were not submitted within the stipulated period of one month, he intended to take up the case for detailed scrutiny under paragraph 5 (b) of the Self Assessment Scheme of Income Tax for the year 1984-85. The appellant by its letter dated 21st of November 1984 submitted explanation to the aforesaid show-cause notice, by informing the Income Tax Officer that as its Accountant had suddenly fallen ill and was confined to bed for about one and a half months, it was not possible to prepare the required balance sheet. In view of this explanation the appellant pleaded for the condonation of delay in the submission of the balance sheet etc. The Income Tax Officer, without referring to the explanation submitted by the appellant and dealing with the request for condonation of delay in submission of the required documents, informed the appellant by a letter dated 13th of January 1985 that its case for the assessment year 1984-85 had been selected for detailed scrutiny by the Regional Commissioner of Income Tax. This action was challenged before the Sindh High Court in Constitutional Petition which was dismissed in limine by the impugned order in this appeal, on the ground that as the appellant had failed to furnish the required documents/particulars with its return and despite service of notice, had failed to submit the same within the prescribed time of 30 days, the impugned order was in accordance with law. Being aggrieved by the aforesaid order of the High Court, the appellant filed a petition for leave to appeal, which was granted to consider the contention of the appellant that its case was a no account case and as such paragraph 5(b) of the Self-Assessment Scheme, was not attracted in this case.
We have heard Mr. Rehanul Hassan Naqvi, learned counsel for the appellant and Mr. Nasrullah Awan, learned counsel appearing on behalf of the respondents. The main contention urged in support of the appeal by Mr. Naqvi is that the Income Tax Officer, was not justified in treating the case of the appellant to fall under the ambit of paragraph 5 (b) of the scheme without applying his mind to the explanation furnished by it for submitting the required documents/ information beyond the period of 30 days and rejecting the same as insufficient. On the other hand Mr. Awan supported the impugned order of the Income Tax Officer and submitted that a person who claims the benefits of the Self Assessment Scheme, has also to file a return, strictly in accordance with the requirements of the scheme. Therefore, his submission was, that in case of non compliance with the notice requiring the assessee to furnish the documents/information within lime as prescribed by paragraph 5 (b), his case automatically fell in category of Detailed Scrutiny.
In order to appreciate the contentions of the learned counsel it seems profitable to refer to paragraph 2(d)(ii) relating to requirements of the return in respect of business income in case of Registered Firms; and paragraph 5 pertaining to selection of case for Detailed Scrutiny, of the Self-Assessment Scheme, which reads as follows:--
"2. The following statements, accounts, details and documents shall be required to be filed alongwith the return of income:--
(a) .................................................................................
(b) .................................................................................
(c) .................................................................................
(d) Business Income
(i) .
.
(ii) In case of Registered Firms:
(A) Trading/manufacturing accounts, profit and loss account and balance-sheet; receipt and expenditure statement, wherever applicable.
(B) Copies of personal accounts of partners.
(C) Complete particulars, including names, addresses and NTN (if any), of all debtors/creditors where the amount in each case exceeds Rs.10,000.
5. (a) .............................................................................
(b) Cases where the requirements of the return as specified in para 2, are not fulfilled and the taxpayer fails to provide such particulars/documents within one month of the date of service of a letter from the Income-Tax Officer requisitioning them, would be eligible for being taken up for detailed scrutiny. Provided that the Regional Commissioners may pick up even those cases where taxpayers furnish the necessary particulars/documents after riling the return".
The learned Judges of the Division Bench, in the impugned judgment, have taken the view on paragraph 5 (b) reproduced .hereinabove, that on the failure of an assessee to furnish the required particulars/documents within one month of the date of letter from Income Tax Officer requisitioning the same, the case of the assessee would automatically fall outside the self assessment scheme. The learned Judges in this behalf held:--
"It seems clear that the Income Tax Officer has the jurisdiction to select cases for detailed scrutiny provided two conditions are satisfied; (1) The assessee has not filed alongwith his return such documents/particulars as required by para 2 of the Scheme, and (2) on notice being served by the Income Tax Officer on the assessee to furnish such particulars/documents, he fails to furnish the same within 30 days of the service of notice. f he question of granting immunity under Para 6 to the Assessee will only arise where the assessee has filed return in due compliance with the provisions of paragraphs 2. In the absence of non compliance it will not be a proper return according to la w and will not be entitled to immunity .Admittedly the Petitioner had not filed all the documents/particulars with the return and even on service of notice such documents/particulars were not supplied within 30 days thereof. The Petitioner has given reasons for non-compliance within 30 days but it seems that the respondent No. l has not considered it fit to condone the delay. Mere refusal to condone the delay cannot be a ground for invoking the constitutional jurisdiction of this Court".
We have carefully considered the reasoning that prevailed with the learned Judges and have given particular attention to the question whether the learned Judges were right that the Income Tax Officer did not find the explanation furnished by the appellant for delayed submission of documents/particulars called for from him satisfactory. We do not find anything on the record to support this finding of the learned Judges. Indeed the record indicates that by a letter dated 25th September 1984 the appellant was called upon to submit the specified documents, which were forwarded on 3rd November, 1984 with the delay of about eight days. Subsequently upon a show cause notice dated 15th November 1984, the appellant submitted the explanation for the delay. There is no communication on the record to indicate that the respondent No. 1 applied his mind to the question of delay and rejected it or refused to condone the delay as assumed by the learned Judges in the High Court. The key word used in paragraph 5 (b) of the Scheme is `eligible' which, according to the Black's Law Dictionary (Fifth Edition) means "Fit and proper to be chosen". Therefore on a plain reading of the aforesaid sub-paragraph, even if an assessee fails to provide documents within the prescribed period, the Income Tax Officer is not obliged to exclude the case of such an assessee from the benefits of the Assessment Scheme ipso facto. But he has the choice not to exclude the same and still accept the documents and assess the case under the scheme. There can be no other meaning from the language employed in the sub paragraph. Clearly therefore the Income Tax Officer possessed discretionary powers under the statute which. had to be exercised on sound principles and not mechanically as a ministerial act. It is well recognized that a discretionary power under the statue is required to be reasonably exercised and if it is shown that such power has either been arbitrarily exercised or not exercised at all, the Constitutional jurisdiction would always be available to correct such misuse or failure to exercise such discretionary statutory powers. de Smith in his book "Judicial Re-view of Administrative Action" (Fourth Edition) summarized the law on this subject as follows:--
"If the source of authority relied upon is statutory, the Courts begin by determining whether the power has been exercised in conformity with the express words of the statute and may then go on to determine whether it has been exercised in a marine: that complies with certain implied legal requirements. In some contexts they have confined themselves to the questions whether the competent authority has kept within the four corners of the Act and whether it has acted in good faith.
Usually they will pursue their inquiry further and will consider whether the repository of a discretion, although acting in good faith, has abused ifs power by exercising it for an inadmissible purpose or on irrelevant grounds or without regard to relevant considerations or with grow unreasonableness'.
We cannot conceive of the framers of the scheme to have laid down that re is failure on the part of the assessee to submit documents within once the prescribed period of one month, even if he was prevented by circumstances his control or for sufficient grounds to have delayed the submission of the beyond merits beyond the said period, to be totally deprived of the benefit of documents scheme. We therefore hold that the Income Tax officer had the power to condone the delay and even if he did not do so, he had to hide the case of the appellant from the benefit of the discretion not to exclude if it was otherwise entitled thereto under the other provisions of scheme:
This aspect of the matter was not brought to the notice of the Court and has unfortunately been overlooked by the learned Judges of the Division Bench. The case has case of the appellant must therefore be remitted to the Income Tax Officer The order to consider the explanation of the appellant for delay in submitting the documents and for fresh decision of the matter according to law as discussed above.
In the result this appeal is allowed and the case is remanded to respondent No.1 for a fresh decision in the light of this judgment. In the circumstances of the case there will, however, be no order as to costs-
M.BA./N-293/SAppeal allowed/Case remanded.