Income Tax Ordinance (XXXI of 1979)---

----S.59B----C.B.R. Circular No.7 of 1989, dated 26th June, 1989, paras 1 and 3, Explanation---Scheme of simplified procedure for the assessment year 1989-90---Assessee filed the return as individual for the assessment year 1988-89 but no, tax was payable by the assessee the income declared/assessed being exempt ---Assessee in the year 1989-90 constituted a registered firm iii which he himself was also a partner while name, nature and place of business remained the same---None of the changes of status given in para 3, Explanation of C.B.R. Circular No.7 of 1989 and conditions mentioned therein being applicable to assessee's case he could not be treated as existing assessee.

F.D. Qaiser, D.R. for Appellant.

Rasheed Ahmed Sheikh for Respondent.

Date of hearing: 23rd February, 1992.

ORDER

This is a departmental appeal against a registered firm deriving income from manufacturing of tractors spare parts -and agricultural implements. The appeal relates to the assessment year 1989-90.

2. The facts of the case may here be briefly stated as under. The assessee declared sales at Rs.8,84,079 with G.P. rate of 24.45%. The ITO estimated the sales at Rs.35,00,000 and-applied the G.P. rate at 25 %. The learned CIT(A) has directed the ITO to accept the return under- simplified procedure being a new case. The department feels aggrieved against this order of the learned CIT(A).

3. The learned D.R. contended that previously the assessee was being assessed as an individual and in the assessment year 1988-89 the assessee had declared income at Rs.6,90,990. However, that income was exempt and was so assessed in the assessment year 1988-89. The assessing officer did not accept the return of the assessee under the simplified procedure on the ground that the assessee's last assessed income was more than Rs.1,00,000, and therefore he processed the assessee's return under the normal law. The learned CIT(A) however held that it was a new case within the meaning of simplified procedure as contained in Circular No.7 of 1989 dated 26th June, 1989. Thus a precise question to be determined by us is as to whether it was a case of new assessee or an existing assessee. If the assessee's case is to be treated as new assessee then the assessee's return is to be accepted under the simplified procedure as the declared income of the assessee is less than Rs.1,00,000. The assessee had declared the income at Rs.24,474.

4. The learned D.R. explained that the assessee was an individual in the assessment year 1988-89 and in the assessment year under consideration a registered firm was constituted in which Mr. Muhammad Majeed is also a partner who had been assessed in his individual capacity in assessment year 1988-89. It was contended by the learned D.R. that the business name, nature and place of business remained the same and therefore, it was at best, a case of a successor and since the assessee had filed the return for the earlier year and had been so assessed the assessee should be treated as existing assessee notwithstanding the fact that in the earlier year the income declared by the assessee was exempt from Income Tax.

5. The learned counsel for the assessee however, refuted the contentions of the learned DR, supported the order of the learned CIT(A) and has relied upon the various provisions of Scheme of simplified procedure for the assessment year 1989-90 as contained in Circular No.7 of 1989 referred to above. The learned counsel for the assessee contended that para 3 of the aforesaid Scheme has defined the words existing assessee and the new assessee. Para 3 of the Scheme is reproduced below:---

"3. Definitions and explanations.-- For the purpose of the Scheme of Simplified procedure for Assessment for the assessment year 1989-90:-

(a) "Existing assessee" means an assessee who is not a new assessee.

Explanation,---The cases involving change in status (with or without any change in the constitution) from--

(i) AOP URF AND HUF to a RF; or

(ii) RF to AOP, URF or HUF; or,

(iii) URF and HUF to AOP; or

(iv) AOP to URF or HUF; or.

(v) TURF to HUF; or

(vi) HUF to URF,

shall be considered as existing assessees unless the name, nature and place of business does not remain the same.

(b) "New assessee" means an assessee--

(i) who had never filed a return of total income for any assessment year prior to assessment year 1989-90, in respect of which tax (after any admissible rebate, allowance etc.) was payable; or

(ii) whose assessed total income for any assessment year prior to assessment year 1989-90 had not resulted in tax demand (after any admissible rebate, allowance etc.)

(c) "Total income" means total income including agricultural income where such inclusion is to be made under any provision of the Income Tax Ordinance, 1979.

(d) "Last assessed total Income" means assessed total income of the latest assessment year prior to assessment year 1989-90 as stood completed before the date of filing of return of total income for the assessment year 1989-90.

Relying on this para the learned counsel for the assessee contended that the assessee is not covered by the explanation as in the instances of change of status given in the explanation above the change of status of individual or registered firm is not included. Similarly, it was contended that the assessee is not covered by the definition of new assessee given in clause (b) of para 3 above.

6. We have considered the rival arguments and have gone through the" Scheme. Para 1 of the Scheme lays down that a return of an existing assessee or a new assessee for the assessment year 1989-90 qualifies under the simplified procedure of assessment if:

(1) it fulfils conditions laid down in para.1

(2) it is not disqualified under para. 2 of the Scheme.

The qualifications laid down are as under:--

(1) In the case of an existing assessee if the total income is declared less than Rs.1,00,000 and the last declared income and the last assessed income was less than Rs.1,00,000:

(2) In case of a-new assessee if the total income declared by the assessee is less than Rs.1 lac.

7. It is obvious that if the assessee is treated as an existing assessee the assessee does not qualify under the Scheme inasmuch as the last assessed income of the assessee was at Rs.6,90990. If however, the assessee is to be treated as a new assessee then the assessee qualifies under the aforesaid Scheme subject however to the disqualifications laid down in para. 2 of the Scheme. Para. 2 of the Scheme lays down as many, as five disqualifications. However, this is not the case of the department that the assessee's case suffered from any of the disqualifications laid down in para. 2 of the Scheme. The question therefore boils down to the point as to whether the assessee is an existing assessee or a new assessee. As stated above para. 3 of the Scheme defines the two terms. The existing assessee means.---

(1) who is not a new assessee;

(2) if the case involved change in status (as in the present case) from AOP to URF, HUF or to a RF or vice versa; or

(3) URF and HUF to AOP or vice versa.

(4) URF to HUF or vice versa.

In all these cases despite the assessee's change of status he would be considered as an, existing assessee provided the name, nature and place of business remains the same. In the present case admittedly none of the changes of status given above are applicable although the name, nature and place of business remained the same. It therefore, follows that so far as the meaning given in the explanation quoted above the assessee cannot be treated as existing assessee. Now we have to see whether the assessee is not a new assessee. The definition of new assesses has also been reproduced above from which the meaning of a new assesssee emerges as under:---

(1) If the assessee had never filed the return of his total income for any assessment year prior to assessment year 1989-90 in respect of which tax was payable; or

(2) whose assessed total income for any assessment year prior to assessment year 1989-90 had not resulted in tax demand.

8. Admittedly, the assessee did file the return for the assessment year 1988-89 but no tax was payable by the assessee the income declared /assessed being exempt. Therefore, the first condition is not applicable on the assesses. It is also admitted position that the assessed income of the assessee prior to the assessment year 1989-90 had not resulted in tax demand. The second condition for holding the assessee as a new assessee therefore, is also not attracted. From the above discussion it is obvious that the conclusion arrived at by the learned CIT(A) was correct and we do not find any scope for our interference in his order. We, therefore finding no merit in this appeal dismiss it.

M.BA./1605/T ??????????????????????????????????????????????????????????????????????????????????? Appeal dismissed.