AL AHRAM-BUILDERS (PVT.) LTD. VS INCOME TAX APPELLATE TRIBUNAL
1992 P T D 1671
[Supreme Court of Pakistan]
Present: Ajmal Mian, Sajjad Ali Shah and Saleem Akhtar, JJ
AL AHRAM-BUILDERS (PVT.) LTD.
versus
INCOME TAX APPELLATE TRIBUNAL
Civil Appeal No.79-K of 1991, decided on 23/07/1992.
(On appeal from the judgment dated 21-3-1991 of the Sindh High Court, Karachi in C.P. No. D-169 of 1988)
(a) Income Tax Ordinance (XXXI of 1979)---
----S.65---Constitution of Pakistan (1973), Art 185(3)---Leave to appeal was granted to examine the contentions that under S.65 of the Ordinance, the Income Tax Officer had been empowered to seek permission for re-opening of the assessment and not the Inspecting Assistant Commissioner and therefore the issuance of notice at the direction of Inspecting Assistant Commissioner was without jurisdiction and that the same material was available with the department when the assessment order was passed and therefore merely on account of change of view on the basis of the same material, the assessment could not have been re-opened under S.65 of the Ordinance.
(b) Constitution of Pakistan (1973)----
----Art. 185(3)---Appeal to the Supreme Court---Appellant assessee neither in the Constitutional petition nor in the appeal before Supreme Court had impleaded the Income-tax Officer and/or the Appellate Commissioner who were necessary parties but arrayed the Income Tax Appellate Tribunal as the sole respondent---Counsel appearing for the respondent made statement before the Supreme Court that he was representing the Income Tax Department and not the Appellate Tribunal---Supreme Court, in circumstances, ordered to implead the Income-tax Officer and the Appellate Commissioner accordingly.
(c) Income Tax Ordinance (XXXI of 1979)----
----Ss.7 & 65---Provision of S.7 could not be pressed into service by the Inspecting Assistant Commission for issuing the direction to the I.T.O. to obtain his (I.A.C.'s) permission under S.65 of the Ordinance for re-opening the assessment of the assessee.
(d) Income Tax Ordinance (XXXI of 1979)----
----S.7---Analysis, scope and application of S. 7 of the Ordinance.
Section 7 seems to be a general provision provided to seek guidance and instructions in cases of complicated nature where the I.T.O. is not able to understand or decide the case in proper manner. There may be cases in which the assessing Officer may feel difficulty and to resolve that difficulty section 7 has been introduced which is a completely new section and did not find place in the Income Tax Act, 1922. The procedure provided in section 7 has to be exercised in a conscious manner. The authority should realise that the assessment proceeding is of quasi-judicial in the nature and it is possible that the Income Tax Officer may seek assistance or guidance from his superiors who may be revisional or appellate Authority and in such circumstances the very purity and sanctity of the hierarchy which provides for original and appellate jurisdiction is completely tarnished. If the Income Tax Officer before making the assessment seeks directions from his superiors and on their direction passes the assessment order then in such circumstances the appellate and revisional jurisdiction will be completely meaningless. This could never be the intention of the legislature and that is why section 7 has to be interpreted in a restricted manner. It is only in difficult and complicated cases that guidance may be sought before any assessment order has been passed or before the I.T.O. has formed a definite opinion.
Section 7 envisages obtaining of assistance, guidance or instructions by an I.T.O. from any other Income Tax Authority to whom he is subordinate during the pendency of any matter before him in case he feels any difficulty in tackling the same because of its complicated nature. However, the above provision was not intended and designed to allow an I.T.O. to abdicate his functions and duties in favour of some one else. The above section cannot be pressed into service by an I.T.O. even during the pendency of a case before him, in such a manner that it may defeat the other provisions of the Ordinance. For example an I.T.O cannot get assessment order drafted by an Appellate Commissioner who is to hear an appeal against his assessment order under section 129 of the Ordinance. If he does so or frames assessment order under the advice of the Appellate Assistant Commissioner, the right of appeal of the assessee would become illusory, as the latter in appeal before him will not be able to act fairly and justly as an appellate forum.
H.M. Abdullah v. I.T.O.1991 PTD 217 approved.
(e) Income Tax Ordinance (XXXI of 1979)---
----S. 65---Mere fact that the Income Tax officer had invoked S. 65 at the behest of the I.A.C. or somebody else would not render the notice invalid or infirm if the former had applied his mind to the facts of the case before him independently and had formed his independent view---If, the Income Tax Officer had merely carried out the order of his superior and had acted .mechanically in issuing a notice under S.65, such a notice would be invalid.
H.M. Abdullah v. I.T.O. 1991 PTD 217 distinguished.
(f) Constitution of Pakistan (1973)---
----Art. 199---Constitutional jurisdiction---Invoking of Constitutional jurisdiction of High Court instead of availing of remedy provided for under the relevant statute would be justified when the impugned order/action was palpably without jurisdiction and/or mala fide as to force an aggrieved person in such a case to approach the forum provided under the relevant statute may not be just and proper---Tendency to by-pass the remedy provided under the relevant statute and to press into service Constitutional jurisdiction of the High Court, however, was deprecated.
(g) Constitution of Pakistan (1973)---
----Art. 199---Income Tax Ordinance (XXXI of 1979), S.136---Constitutional jurisdiction---Once a party opts to invoke the remedies provided for under the relevant statute, he cannot at his sweet will switch over to Constitutional jurisdiction of the High Court in the mid of the proceedings in the absence of any compelling and justifiable reason---Where the assessee had opted to avail of the hierarchy of forums provided for under the Income Tax Ordinance, 1979 upto the stage of filing of appeal before the Tribunal, it would have been proper for him to have invoked S. 136 of the Ordinance for making a reference to High Court instead of filing a Constitutional petition.
(h) Income Tax Ordinance (XXXI of 1979)----
----S. 136---Constitution of Pakistan (1973), Art 199---Reference---Assessee had succeeded before the Appellate Commissioner but upon filing of appeal the Tribunal set aside the appellate order and remanded the case to the I.T.O. for framing assessment---Proper course, held, would have been to file a reference against such order under S. 136 of the Ordinance and not a Constitutional petition in the High Court.
Rehan Hassan Naqvi, Advocate Supreme Court with M.S. Ghaury, Advocate-on-Record for Appellant.
Nasruallah Awan, Advocate Supreme Court with S.M. Abbas, Advocate-on-Record for Respondent.
Date of hearing: 27th May, 1992.
JUDGMENT
AJMAL MIAN, J.---This is an appeal with the leave of this Court against the judgment dated 21-3-1991 passed by a Division Bench of the High Court of Sindh, in Const. Petition No. 169 of 1988 filed by appellant challenging the order of the Income Tax Appellate Tribunal of Pakistan at Karachi hereinafter referred to as the Tribunal, setting aside Income Tax Commissioner's order 11-3-1983 and remanding the case to the Income Tax Officer for framing assessment on the basis of notice issued under section 65 of the Income Tax Ordinance, 1979 hereinafter referred to as the Ordinance, dismissing the same and maintaining the above order of the Tribunal. Leave to appeal was granted to examine the following contentions:--
"(i) that under section 65 of the Ordinance, the I.T.O. has been empowered to seek permission for re-opening of the assessment and not the Inspecting Assistant Commissioner of Income tax and, therefore, the issuance of the impugned notice at the direction of Inspecting Assistant Commissioner, is without jurisdictions;
(ii) that the same material was available with the Income Tax Authorities when the assessment order for the assessment year in question was framed on 30-6-1979 and, therefore, merely on account of change of view on the basis of the same material, the assessment could not have been re-opened under section 65 of the Ordinance".
2. The brief facts are that for the assessment year 1978-79 the appellant were assessed on 30-6-1979 at a total loss of Rs.83,927 against declared loss of Rs.5 ,03,882 after obtaining requisite information from the appellant. It seems that Inspecting Assistant Commissioner hereinafter referred to as I.A.C. while scrutinizing the file of the above assessment allegedly found that the following items were not subject to tax:--
| 1 | Extra work collection and documentation | Rs.8,30,280 |
| 2 | Under explanation 8 to subsection 4(1) of the?????? Repealed Act no interest was charged on the????? outstanding amount of advance. | Rs.1,48,017 |
| 3 | Salaries/charges of 49 employees who were????? involved in the construction work were????? charged to project loss and profit account????? instead of trading account. | Rs.2,00,283 |
The I.A.C. accordingly directed the Income Tax officer hereinafter referred to as the I.T.O. to seek permission from him for reopening the assessment under section 65 of the Ordinance. Pursuant thereof the I.T.O. after obtaining the requisite permission from the IA.C. issued a notice dated 13-12-1979 under section 65 of the Ordinance. As a result of which the I.T.O. after obtaining necessary information/documents refrained the assessment by his order dated 15-6-1980 as follows:-?
| "Loss originally assessed as per order under section (-) Rs.83,927. Deduct: 1.15% G.P. on account of cost of extra??????????????????????????????????????????????? Rs.1,24,533. work created as receipt. 2.? Interest under section 12(7) of I.T.O. Ordinance. (a) On Rs.7 lakh?????????????????????????????????????????????? Rs. 7,000 (b) On Rs. 148017?????????????????????????????????????????? Rs.17,762??????????????????? ??????????? Salaries charged to P&L A/c. ??????????? but pertaining to trading Account ??????????????????????????????????????????????????????????????????????? Rs.2.00.783???????????????? Rs. 3.49.578. ??????????????????????????????????????????????????????????????????????? Income?..?????????????????? Rs. 2 65.611." |
3. The effect of the above reframed assessment, was that the original assessment, which was framed on the basis of accepted loss .of Rs.83,927 against declared loss of Rs.5,03,882 was converted into profit of Rs.2,65,611. Against the above reassessment order, the appellant filed an appeal before the Commissioner of Income Tax (Appeal) hereinafter referred to as the Appellate Commissioner, which was allowed through order dated 3-12-1983, the operative portion of which reads as under:--
"Keeping the above facts in view and the assessment records as submitted by the I.T.O. alongwith his reply from time to time I am afraid to say that the facts as emphasised by the learned counsel and as discussed above are correct. In view of this position I find that the assessment as re-opened by the I.T.O. is not within the provisions of law. Therefore, without going into other aspects of the case dealing with various facts and figures, the assessment as framed under section 65 is hereby cancelled. The appeal is allowed as above".
Thereupon, the department went in appeal before the Tribunal, which was accepted through the above order dated 27-12-1987 inter alia for the following reasons and the case was remanded to the I.T.O. for reframing of assessment:--
"It appears that the I.T.O. had not applied his mind at all. He did not discuss the above figures in the assessment order either. Had he discussed the receipt of Rs.830,218 or the advances, then as had already expressed his opinion. But since he had not done so it cannot be said that it was a mere change of opinion. We also agree with the learned departmental representative that section 7 amply empowers supervisory Officers, the CIT and JAC, to issue guidelines to the officers working below. Thus by providing guidance, we do not think, the IAC deviated from the principle. In view of this, we feel that the learned CIT (Appeals) was not justified in cancelling the order of the Income Tax Officer. The assessing officer had very rightly taxed the amount which had escaped. The case is, therefore, remanded to the learned CIT (A) for disposal on merits."
4. The appellant instead of invoking section 136 of the Ordinance for making reference to the High Court filed aforesaid Const. Petition in the High Court of Sindh, which has been dismissed through the impugned judgment, the operative portion of which reads as under:--
"but nevertheless we agree with Mr. Rehan Hassan Naqvi to this extent that the same Officer instructed the I.T.O. to take action under section 65 of the Ordinance and again the same Officer granted the required approval thereunder. However, we cannot be oblivious of the fact that according to the learned Inspecting Assistant Commissioner an income of Rs.830,218 had escaped assessment. Furthermore Rs.148,017 and Rs.700,000 had also not been subjected to interest as required by explanation 8 to subsection 4(i) of the Ordinance. It is pertinent to point out that this factual aspect of the matter has not been controverted by the petitioner. We are consequently of the view that the petitioner has not come before us with clean hands. It is pertinent to point out that the relief sought by the petitioner from us is purely of a discretionary character. The question is, should we grant relief which would help the petitioner to evade tax liability? The answer cannot be in the affirmative."
After that the appellant filed a petition for leave to appeal, which was granted to consider the above contentions. Before taking up the contentions of the learned counsel for the parties, we may point out that the appellant neither in the above Constitutional Petition nor in the above appeal impleaded the I.T.O. and/or the Appellate Commissioner who were necessary parties, but arrayed the Tribunal as the sole respondent. The above mentioned defect as to the non joinder of necessary parties remained un-noticed till the hearing of the arguments on 27-5-1992. We enquired from Mr. Nasrullah Awan learned Counsel, whether he was appearing on behalf of the Tribunal or the department, he candidly submitted that in fact he was representing the Income-tax Department and not the Tribunal. In our view, it will be just and proper to implead the I.T.O. and the Appellate Commr as respondents Nos.2 and 3 respectively. We order accordingly.
5. Reverting to the merits of the above appeal, it may be observed that in support of the above appeal Mr. Rehan Hassan Naqvi, learned ASC for the appellant has urged following two contentions.:--
(i) That the impugned notice under section 65 of the Ordinance was without jurisdiction as the same was issued by the I.T.O. without applying his mind but because of the direction of the IA.C.
(ii) That since the ITO while framing assessment on 30-6-1979 rejected the appellant's accounts and worked out loss of Rs.83,927 on the basis of necessary information and documents obtained from the appellants, he could not have reopened the assessment under section 65 of the Ordinance on the basis of the same material which was available with him.
On the other hand Mr. Nasrullah Awan has submitted as under:--
(i) That the Constitutional Petition was not competent as the appellant had adequate remedy in the form of a reference under section 136 of the Ordinance.
(ii) That in any case the High Court could decline to exercise writ jurisdiction keeping in view the factum that the amounts referred to in the impugned notice were not brought to tax.
(iii) That under section 7 of the Ordinance, the IAC was competent to ask the ITO to obtain permission from him for reopening of the assessment order under section 65 of the Ordinance.
(iv) That though the notice under section 65 has been issued on the basis of the same material but it does not suffer from any legal infirmity..
6. In order to appreciate the above first contention of Mr. Rehan Hassan Naqvi, ASC for the appellant, we may refer to section 7 and subsection 1 of section 65 of the Ordinance, which read as follows:--
"Section 7. Guidance to Income Tax Officer: --In the course of any proceedings under this Ordinance, the Income Tax Officer may be assisted, guided or instructed 6y any other income tax authority to whom he is subordinate or any other person authorised in this behalf by the Central Board of Revenue:"
"Section 65.--- Additional assessment.---(1) If, in any year, for any reason,
(a) 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 the 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 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, apply accordingly.
A perusal of section 7 indicates that it authorised the Income Tax Officer in the course of any proceeding under Ordinance to obtain assistance, guidance or instruction from any Income Tax Authority to whom he is subordinate or from any other person/authority to whom he is subordinate or from any other person authorised in this behalf by the Central Board of Revenue.
Whereas a plain reading to the above subsection 1 of section 65 shows that the Income Tax Officer has been authorised subject to provisions of subsections (2), (3), and (4) thereof at any time to issue a notice to the assessee containing all or any of the requirements of a notice under section 56 if, in any year for any reason;
(a) income chargeable to tax under the 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 a subject matter of excessive relief or ' refund under the 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 subsequently has been made under above section 65 or any other provision of the Ordinance.
7. In our view, reference to section 7 of the Ordinance by the Tribunal in the impugned order, is out of context as it would not have been pressed into service by the I.A.C. for issuing the above direction to the I.T.O. to obtain his permission under section 65 of the Ordinance for reopening of assessment of the appellant. We may observe that above section 7 envisages obtaining of assistance, guidance or instructions by an I.T.O. from any other Income Tax Authority to whom he is subordinate during the pendency of any matter before him in case he feels any difficulty in tackling the same because of its complicated nature. However, we may point out that the above provision was not intended and designed to allow an I.T.O. to abdicate his functions and duties in favour of some one else. The above section cannot be pressed into service by an I.T.O. even during the pendency of a case before him, in such a manner that it may defeat the other provisions of the Ordinance. For example an I.T.O cannot get assessment order drafted by an Appellate Commissioner who is to hear an appeal against his assessment order under section 129 of the Ordinance. If he does so or frames assessment order under the advice of the Appellate Commissioner, the right of appeal of the assessee would become illusory, as the latter in appeal before him will not be able to act fairly and justly as an appellate forum. In this regard, it may be pertinent to refer to a recent judgment of a Division Bench of High Court of Sindh, namely, in the case of H.M. Abdullah v. I.T.O. 1991 PTD 217 wherein one of us (Saleem Akhtar, d) while speaking for the Division Bench has analysed above provision of section 7 of the Ordinance as follows:--
"The point for consideration is whether under section 7, Income Tax Officer could have sought guidance or instructions as he has done in the present case. Section 7 seems to be a general provision provided to seek guidance and instructions in cases of complicated nature where the I.T.O. is not able to understand or decide the case in proper manner. There may be cases in which the Assessing Officer may feel difficulty and to resolve that difficulty section 7 has been introduced which is a completely new section and did not find place in the Income Tax Act, 1922. The procedure provided in section 7 has to be exercised in a conscious manner. The authority should realise that the assessment proceeding is quasi-judicial in the nature and it is possible that the Income Tax Officer may seek assistance or guidance from his superior who may be revisional or appellate Authority and in such circumstances the very purity and sanctity of the hierarchy which provides for original and appellate jurisdiction is completely tarnished. If the Income Tax Officer before making the assessment seeks directions from his superiors and on their direction passes the assessment order then in such circumstances the appellate and revisional jurisdiction will be completely meaningless. This could never be the intention of the legislature and that is why section 7 has to be interpreted in a restricted manner. It is only in difficult and complicated cases that guidance may be sought before any assessment order has been passed or before the I.T.O. has formed a definite opinion.
We are in agreement with above observation of the High Court. In the present case the learned Judges of Division Bench have also not agreed with the interpretation placed on section 7 by the Tribunal as to its scope.
8. However, we may observe that simpliciter the factum that the I.T.O. has invoked section 65 of the Ordinance at the behest of the I.A.C. or somebody else would not render the notice invalid or infirm if he has applied his mind to the facts of the case before him independently and has formed his f independent view. But if the I.T.O. has merely carried out the order of his superior and has acted mechanically in issuing of a notice under section 65, such a notice will be invalid. There is nothing on record to indicate that in the case in hand the I.T.O. has not applied his mind to the case or had a contrary view to that of the I.A.C.
Mr. Rehan Hassan Naqvi the learned counsel for the appellant has referred to the case of sheo Narain Jaiswal & others v. Income Tax Officer and others (1989) Taxation 94(3)-215 in which a Division Bench of the Patna High Court has held that reason to believe that income has escaped assessment due to failure to disclose material facts should be founded on the belief of the I.T.O. and not of higher authorities directing the I.T.O. to re-open the assessment. The above judgment appears to be distinguishable firstly, for the reason that language of section 147 of the Indian Income Tax Act 1964 is different from the language employed in subsection (1) of section 65 of the Ordinance inasmuch as the words "reason to believe that income has escaped assessment due to failure to disclose material facts" have been omitted in the latter provision, and, secondly in the above report, the Income Tax Officer was of the view that it was not a fit case to re-open the assessment under above section 147, but he had to do it under the direction of the Commissioner of Income Tax.
9. We may now revert to the question, whether the appellant was justified to file above Constitution Petition against the order of the Tribunal instead of invoking section 136 of the Ordinance for making a reference to the High Court. According to Mr. Rehan Naqvi a reference under the above provision would not have been adequate and efficacious remedy as it would have taken years before it could have been heard. The same could be true for a Constitution Petition. The tendency to by-pass the remedy provided under the relevant statute to press into service constitutional jurisdiction of the High Court has developed lately, which is to be discouraged. However, in certain cases invoking of constitutional jurisdiction of the High Court instead of availing of remedy provided for under the relevant statute may be justified, for example when the impugned order/action is palpably without jurisdiction and/or mala fide. To force an aggrieved person in such a case to approach the forum provided under the relevant statute may not be just and proper.
10. In the present case, the appellant had opted to avail of the hierarchy of forums provided for under the Ordinance upto the stage of riling of appeal before the Tribunal and, therefore, it would have been proper on the part of the appellant to have invoked section 136 of the Ordinance for making a reference to the High Court instead of filing a constitutional petition. In our view, once a party opts to invoke the remedies provided for under the relevant statute, he cannot at his sweet will switch over to constitutional jurisdiction of the High Court in the mid of the proceeding in the absence of any compelling and justifiable reason.
In the present case, the appellant had succeeded before the Appellate Commissioner, but upon filing of appeal, the Tribunal set aside the appellate order and remanded the case to the I.T.O. for framing assessment. Against the above order, the proper course would have been to file a reference under section 136 of the Ordinance as observed above. Apparently, there was no compelling and justifiable reason, which could have prompted the appellant to file above constitutional petition.
11. Though the High Court had declined to exercise its constitutional jurisdiction for the reasons other than the above ground, but refusal to press into service above jurisdiction is sustainable on the above ground. We are, therefore, not inclined to interfere with the impugned judgment. The appeal is, therefore, dismissed with no order as to costs with the observation that the remark of the High Court as to the evasion of the income tax by the appellant in the impugned judgment is to be ignored and it will still be open to the appellant to contest the impugned notice under section 65 of the Ordinance in accordance with law.
M.BA./A-966/S ????????????????????????????????????????????????????????????????????????????????? Appeal dismissed.