MUHAMMAD AMJAD VS THE COMMISSIONER OF INCOME TAX, 1992 PTD-KARACHI-HIGH-COURT-SINDH 513 (1992)

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

----Ss.65 & 59---Interpretation of S.65---Once a reassessment under any provision of the Ordinance has been made after assessment under S59, no further reassessment could be made by invoking S.65.

Messrs Pakistan Tobacco Ltd. v. Government of Pakistan 1991 PID 355 ref.

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

----Ss.65 (1)(c) & 59(1)---Where as assessee had been assessed under S.59(1), action under S.65 could be initiated if subsequently no order of assessment had been passed under S.65 or any other provision of the Ordinance---If after assessment under S.59(1) and the assessment under S.65 or any other provision of the Ordinance had been framed, action under S.65 could not be taken.

(c) Income-tax---

----Word "assessment"---Connotation.

The word "assessment" is used in the statute as meaning sometime the computation of income, sometimes the determination of the amount of the payable, and sometimes the whole procedure laid down in the statute for 'imposing liability on the tax-payer. The word "assessment" must be understood in each section of the statute with reference to the context in which it is used, in some sections it has a comprehensive meaning and includes reassessment and in some sections it has a restricted meaning and is used as distinct from reassessment. The method prescribed by the statute for making an assessment to tax, using the word assessment in its most comprehensive sense as including the whole procedure for imposing liability upon the tax-payer consists of the following steps. In the first place, the taxable income of the assessee has to be computed. In the next place, the sum payable by him on the basis of such computation has to be determined. Finally, a notice of demand in the prescribed form specifying the sum so payable has to be served upon the assessee.

The Law and Practice of Income Tax, 8th Edn., Vol. 1, p.1127 quoted

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

----S.156---Rectification of amount---Once an order of rectification is passed the assessment itself is modified and what remains is not the order of rectification, but only the assessment as rectified.

The power of rectification is available under section 1 56 of the Ordinance. No doubt, it is exercisable within the statutory tier: prescribed.' But, once it is invoked and an order of rectification is made, tire. order of assessment becomes merged in the order corrected by rectification. The corrected order is then the "statutorily deemed order of assessment" for it would be anomalous to hold that even after correction, a mistaken order out to prevail. In cases where assessment orders are rectified, the original orders whose mistakes and errors are corrected no longer can hold the field. Once an order of rectification is passed the assessment itself is modified and what remains is not the order of rectification, but only the assessment as rectified.

Vedantham Ranghaviah v. Third Additional Income Tax Officer, Madras (1963) 49 ITR 314 ref.

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

---Ss. 65(1)(c), 59(1) & 156---Words "any other provision of the Ordinance" and word "any"---Import--When total income of an assessee or the tax payableby him had been assessed or determined under S.59(1) and no order of assessment had subsequently been made under S.65 or any other provision, assessment could not be re-opened under S.65 of the Ordinance---Once an assessment under S.59(1) had been made and thereafter the income had been assessed or determined under S.65 or rectified under S.156, section 65(1)(c) would be a bar to the re-opening of the assessment under this provision.

The words any other provision of the Ordinance are wide enough to include an order passed under any provision of the Ordinance. The word "'acre' is a word of expansion indicative of width and amplitude sufficient to bring within the scope and ambit of the words it governs, all that can possibly c: included ire them. The words "assessed or determined" occurring in clause(c) of section 65 of the Ordinance are crucial and important words and when understood in their proper import and significance lead to the conclusion that if the total income of an assessee or the tax payable by him has been assessed or determined' under section 59(1) and no order of assessment subsequently been made under section 65 or any other provision of the Ordinance, same can be reopened under section 65 of the Ordinance Once as assessment under section 59(1) has been made and thereafter the income has been reassessed or determined under section 65 or rectified under section 156 of the Ordinance, section 65(1)(c) will be a bar to the reopening of the assessment under this provision.

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

----S.65(1)(a)!b)---Once all the facts had been fully disclosed by the assessee and considered by the Income-tax Authorities and the assessment had beer consciously completed, arid no new fact had been discovered, there could be no scope for interference with such concluded transactions under S.65 on the ground that income chargeable under the Ordinance had escaped assessment or had been under-assessed etc. in the meaning of S.65(1)(a)(b) of Ordinance.

Edulji Dinshaw Limited v. Income Tax Officer 1990 PTD 195=PLD 1990 SC 399 ref.

Rehanul Hasan Naqvi, for Petitioner.

Waheed Farooqui and Nasrullah Awan for Respondents.

Date of hearing: 11th November, 1991.

JUDGMENT

SYED HAIDER ALI PIRZADA, J.-- This judgment will dispose of Constitutional Petitions Nos.D-623, 624, 428 and 429 of 1991 which involved same questions of law and facts. In the judgment, the facts are being given from Constitutional Petition No.D-623 of 1991.

The facts leading to the filing of the above petition are that the petitioner is proprietor of Messrs Punjab Rice and General Store, Karachi and is engaged in the business of the imports and deals in all kinds of foodgrains, and is assessed in Circle-III, Zone-A and borne N.T. No.09-22-2216645. For the assessment year 1986-87 the petitioner filed his income-tax return under self-assessment scheme declaring total income of Rs.4,01,666 and wealth statement for the period ending 30th June 1986 which corresponds to the assessment year 1986-87 showing net wealth of Rs.28,20,448. During the accounting year ended on 30-8-1986, the income-tax of Rs.3,73,379 under sections 50(5) and 50(7-A) of the Income Tax Ordinance, 1979 (hereinafter referred to as the Ordinance) was deducted and it was claimed to be adjusted against the income tax of Rs.1,02,631 payable by the petitioner.

It is the case of the petitioner that he submitted along with his income -tax return complete details for income earned under different heads and also submitted statement of profit and loss account. As the income of the petitioner was above Rs.1,00,000, petitioner filed wealth statement and reconciliation of wealth statement and also filed the particulars and documents relating to the wealth statement along with the return.

The respondent No.3 determined the income and income-tax payable and declared and computed by the petitioner and passed the assessment order under section 59(1) of the Ordinance. The case of the petitioner, as set out in the petition, is that in the assessment order instead of giving the credit and making adjustment of Rs.3,73,371 the respondent No.3 adjusted only Rs.1,25,841 against the income-tax payable and created the refund of Rs.23,210 only. Thereafter the petitioner made an application under section 156 of the Ordinance pointing out to the respondent No.3 that credit of tax deducted under sections 50(5) and 50(7-A) of the Ordinance had not been given fully as was actually paid. The respondent No.3 rectified the assessment order under section 156 of the Ordinance and allowed credit of Rs.3,73,379 and created a re fund of Rs.70,748.

It is the further case of the petitioner that he approached the respondent No.3 for refund of tax amounting to Rs.2,70,748 as created by him. Instead of issuing refunds of tax, the respondent No.3 vide letter No. Nil dated 3-4-1988 asked the petitioner to give certain explanations/clarifications. The petitioner vide his letter dated 10-4-1988 explained and clarified the queries asked by the respondent No.3.

The respondent No.3 issued a combined show-cause notice dated 19-3-1991 for assessment years 1986-87 and 1987-88 asking the petitioner to show-cause as to why assessment proceedings for the assessment years 1986 87 and 1987-88 may not be reopened under section 65 of the Ordinance on the ground that the value of properties purchased by the petitioner during the relevant period to the assessment years under consideration are grossly under stated/valued considering the value declared by the Collector of Karachi and also fair market value. The case of the petitioner is that in fact he has not under-stated/valued any property purchased by him and that all the documents and details relating to such properties were filed along with the return and were available on the record of the respondent No.3 at the time of passing the assessment orders. The position was intimated to respondent No.3 by petitioner's counsel vide letter dated 30-4-1991. The respondent No3 issued a notice under section 65 of the Ordinance dated 12-5-1991 and which was served on the petitioner on 12-5-1991 on the ground namely "the income has been under-assessed" and required the petitioner to file income-tax return within thirty days. It is the impugned notice. The petitioner has, therefore, approached this Court for a declaration that the impugned notice dated 12-5-1991 was issued without jurisdiction and is of no legal effect and may be vacated.

The respondent filed counter-affidavit and has stated that the, acceptance of- assessment under self-assessment scheme does not debar the Income Tax Department to ask for explanation or details from the assessee. It is stated that the notice under section 65 of the Ordinance served on the petitioner was within the legal and lawful jurisdiction and the conditions of subsection (2) of section 65 of the Ordinance did not exist in the case of the assessee. The respondent No.3 has definite information that the petitioner under-valued the same properties declared by him.

Mr. Rehanul Hasan Naqvi, learned counsel appearing for the petitioners in the above petitions raised the following contentions:--

(1) That after assessment order under section 59(1) of the Ordinance, rectification order was passed under section 156 of the Ordinance and thereafter again it cannot b#.; reopened. In support of his contention, reliance is placed on the case of Messrs Pakistan Tobacco Ltd. v. Government of Pakistan through Secretary, Ministry of Finance, Islamabad and 3 others 1991 PTD 355.

(2) The assessment orders were passed after examining all the documents. In support of this contention, reliance is placed on cases reported as PLD 1990 SC 399 and PLD 1990 SC 697.

On the other hand, Messrs Waheed Faruqui and Nasarullah Awan, learned counsel appearing for the respondents, submitted that the above petitions are riot maintainable. Reliance in support of the submission is placed on the case of Shadman International (Pvt.) Ltd. v. Income Tax Officer 1991 PTD 387.

We have heared the learned counsel for the parties at considerable length and given due considerations to their arguments. In order to determine the question, it will be relevant to refer section 65 of the Ordinance which relates to additional assessment. Clause (c) of subsection (1) of section 65 reads as under:--

"65. Additional assessment.--(1) If, in any year, for any reason--

(a) ..

(b) .....

(c) the total income of an assessee or the tax payable by him hasbeen assessed or determined under subsection (1) of section 59 and no order of assessment has subsequently been made under this section or any other provision of this Ordinance.

The Income Tax Officer may, at any time, subject to the provisions of subsections (2), (3) and (4), issue a notice to the assessee containing all or any of the requirements of a notice under section 56 and may proceed to assess or determine, by an order in writing, the total income of the assessee or the tax payable by him, as the case may be, and all the provisions of this Ordinance shall, so far as may be, apply accordingly:

Provided that the tax shall be charged at the rate or rates applicable to the assessment year for which the assessment is made."

A bare reading of provisions of section 65 makes it clear that if, in any year, for any reason, any income chargeable to tax under this Ordinance, has escaped assessment; or (b) the total income of an assessee has been under -assessed or assessed at too low a rate, or has been subject of excessive relief or refund under this Ordinance; or (c) the total income of an assessee or the tax payable by him has been assessed or determined under subsection (1) of section 59 and no order of assessment has subsequently been made under this section or any other provision of this Ordinance.

The provisions of section 65(1)(c) have been interpreted by a Division Bench of this Court in the case of Messrs Pakistan Tobacco Limited v. Government of Pakistan reported as 1991 PTD 355. It was held at page 358 that "once a reassessment under any provision has been made after assessment under section 59 no further reassessment can be made by invoking section 65. Therefore, at the time when respondent No.4 issued the notice and made the assessment he had no jurisdiction to initiate that proceeding".

Clause (c) of section 65(1) provides that where an assessee has been assessed under section 59(1), action under section 65 can be initiated if subsequently no order of assessment has been passed under section 65 or any other provision of the Ordinance. If after assessment under section 59(1) and the assessment under section 65 or any other provision of the ordinance, has been framed, action under section 65 cannot far taken.

Kanga and Palkhivala in the Law and Practice of Income Tax, Eighth Edition, Volume I, at page 1127 have commented upon the word "assessment". They have observed that "the word "assessment" is used in the Act as meaning sometimes the computation of income, sometimes the determination of the amount of tax payable, and sometimes the whole procedure laid down in the Act for imposing liability on the tax-payer. The word "assessment" must be understood in each section of this Act with reference to the context in which it is used in some sections it has a comprehensive meaning and includes reassessment (e.g. section 265) and in some section it has a restricted meaning and is used as distinct from reassessment (e.g. section 147)". They have further observed that "the method prescribed by the Act for making an assessment to tax--using the word assessment in its most comprehensive sense as including the whole procedure for imposing liability upon the tax-payer--consists of the following steps. In the first place, the taxable income of the assessee has to be computed. In the next place, the sum payable by him on the basis of such computation has to be determined. Finally, a notice of demand in the prescribed form specifying the sum so payable has to be served upon the assessee".

The power of rectification is available under section 156 of the Ordinance: No doubt, it is exercisable within the statutory time prescribed. But, once it is invoked and an order of rectification is made, the order of assessment becomes merged in the order corrected by rectification. The corrected order is then the "statutorily deemed order of assessment" for it would be anomalous to hold that even after correction, a mistaken order of ought to prevail. In cases where assessment orders are rectified, the original orders whose mistakes and errors arc corrected no longer can hold the field. As pointed out in Vedantham Raghaviah v. Third Additional Income Tax Officer, "Madras (1963) 49 ITR 314 that "once an order of rectification is passed the assessment itself is modified and what remains is not the, order of rectification, but only theassessment as rectified".

The words "any other provision of the Ordinance" are wide enough to include an order passed under any provision of the Ordinance. The word "any" is a word of expansion indicative of width and amplitude sufficient to bring within the scope and ambit of the words it governs, all that can possibly be included in them. The words "assessed or determined" occurring in clause (c) of section 65 of the Ordinance are crucial and important words when understood in their proper import and significance lead to the conclusion that the total income of an assessee or the tax payable by him has been assessed or determined under section 59(1) and no order of assessment has subsequently been made under this section or any other provision of the Ordinance, cannot be reopened under section 65 o' the Ordinance. Once an assessment under section 59(1) has been made and thereafter the income has been reassessed or determined under section 65 or rectified under section 156 of the Ordinance section 65(1)(c) will be a bar to the reopening of the assessment tinder this provision.

Mr. Rehanul Hasan Naqvi, submitted that alongwith the return, the petitioner submitted wealth statement, reconciliation, all the details of properties and agreements of purchase of properties and agreements of purchase of properties. His contention was that the assessment order was passed after examining all the documents. The contention iswell-founded.This point was considered by the Hon ble Supreme Court in the case of Edulji Dinshaw Limited v. Income Tax Officer 1990 PTD 195=PLD 1990 SC 399 and it was held that "once all the facts have been fully disclosed by the assessee and considered by the Income Tax Authorities and the assessment have been consciously completed, and no new fact has been discovered, there can be no scope for interference with these concluded transactions under the provisions of section 65 on the ground that income chargeable under the Ordinance has escaped assessment or has been under assessed etc. in the meaning of section 65(1)(a)(b) of the Ordinance".

Messrs Waheed Faruqui and Nasrullah Awan have submitted that this was not a case of lack of jurisdiction or the action is patently without jurisdiction or is coram non judice or mala fide. In support of their submission reliance is placed on the cases reported as 1988 PTD 206 and 1991 PTD 387. There is no cavil with the propositions laid down in the above cases. In the instant case, the assessment cannot be reopened, because of bar of section 65(1)(c) of the Ordinance. In view of the foregoing reasons, the preliminary objection is overruled.

In our judgment, the issuance of notices by the respondent was totally illegal or the actions are patently without jurisdiction,. the notices are required to be quashed.

Accordingly, the petitions succeed and the same are allowed. The impugned notices are set aside and quashed. In the circumstances of the case, the parties are directed to bear their own costs.

M.B.A./M-1577/KPetitions allowed.