GLAXO LABORATORIES LIMITED VS INSPECTING ASSISTANT COMMISSIONER OF INCOME-TAX, 1992 PTD-SUPREME-COURT 566 (1991)

(On appeal from the judgment and order of the High Court of Sindh dated 24-10-1991 passed in C.P.No.D-384 of 1991)

Income-tax Ordinance (XXXI of 1979)--

----S. 66-A---Constitution of Pakistan (1973), Art. 185(3)---Leave to appeal was granted to consider the questions which required interpretation of S. 66-A namely whether upon the appellate order being made on the appeal from the original assessment order, the Inspecting Assistant Commissioner had jurisdiction under S. 66-A to revise the original assessment and whether upon the appellate order being made the original assessment order merged with the appellate order according to doctrine of merger with the consequence that there was then no longer available an order of the Income-tax Officer capable of revision under S. 66-A of the Ordinance.

Khalid Malik and others v. Federation of Pakistan and others PLD 1991 Kar. 1; Commissioner of Income-tax, East Zone, Karachi v. Atta Muhammad Faiz 1985 PTD 874; Messrs Gojer Brothers (P.) Ltd., v. Shri Ratan Lai Singh AIR 1974 SC 1380; Commissioner of Income-tax, Bombay v. AIR 1958 SC 868; State of Madras v. Madural Mills Co. Ltd., AIR 1967 SC 681- Hindustan Aluminium Corporation Ltd. v. Commissioner of Income-tax (Central) 1990 PTD 90 and Commissioner of Income-tax, East Pakistan, Dacca v. Wahiduzzaman 1965 PTD 283 ref.

Fatehali W. Vellani Advocate Supreme Court and Majida Razvi, Advocate-on-Record for Petitioner.

Shaikh Haider, Advocate Supreme Court and S.M. Abbas, Advocate -on-Record for Respondent.

Date of hearing: 14th November, 1991.

ORDER

SALEEM AKHTAR, J.---The petitioner seeks leave to appeal against the judgment of the High Court of Sindh passed in C.P. No.D-384 of 1991 dismissing the petition in which the notice dated 18-3-1991 issued by the Inspecting Assistant Commissioner of Income-tax, Range-I, Companies-I,, Karachi, under section 66-A of the Income-tax Ordinance was challenged.

2. The assessment for the year 1987-88 was completed under section 62 of the Income-tax Ordinance by assessment order dated 31-5-1988. The petitioner filed an appeal to the Commissioner of Income-tax (Appeals), Zone-2, Karachi, which was partly allowed by an order dated 30th July, 1988. The department being dissatisfied with the said order appealed to the Income-tax Appellate Tribunal, which was withdrawn and consequently dismissed. The petitioner had also filed appeal against the appellate order passed by the Commissioner of Income-tax (Appeals) which is pending before the Tribunal. After dismissal of the appeal filed by the department petitioner's case was reopened under section 65 of the Income-tax Ordinance as it was 'found that the Income-tax Officer had completely ignored to tax the receipts of Rs.130 million shown as extraordinary receipts in the debit accounts of the-petitioner. This, according to the petitioner, was received on sale of technical and marketing know how and sale of their rights in trade mark and related goodwill. By an assessment order dated 24-6-1989 this receipt was brought to tax as capital gains. The petitioner filed an appeal but it was dismissed. The petitioner then filed further appeal before the Tribunal and it was held that proceedings initiated under section 65 of the Ordinance were illegal and without jurisdiction. Consequently the assessment made by reopening the case was cancelled and the original assessment order passed by the I.T.O. was restored. Thereafter the respondent by its notice dated 18-3-1991 addressed to the petitioner notified his intention to cancel the original assessment made by the LT .O. under section 66A of the Ordinance. This notice was challenged by filing Constitution Petition which was dismissed by the impugned judgment. Section 66A reads as follows:-

"66A. Powers of Inspecting, Assistant Commissioner to revise Income-tax Officer s order. (1) The Inspecting Assistant Commissioner may call for and examine the record of any proceedings under this Ordinance, and if he considers that any order passed therein by the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of revenue, he may, after giving the assessee an opportunity of being heard and .after making, or causing to be made, such enquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment to be made.

(2) No order under subsection (1) shall be made after the expiry of four years from the date of the order sought to be revised."

3. The main contention of the petitioner was and has been repeated here that after filing appeal by the petitioner against the assessment order and after the appellate order had been passed the said assessment order merged with the appellate order and there was nothing left for the purposes of invoking section 66A. According to the learned counsel section 66-A can be invoked only against the assessment order passed by the Income-tax Officer and no other order. The Division Bench of the High Court considered the principles of merger as enunciated in (1) Khalid Malik and others v. Federation of Pakistan and others PLD 1991 Karachi 1.

(2) Commissioner of Income-tax, East Zone, Karachi v. Alta Muhammad Faiz, 1985 PTD 874.

(3) Messrs Gojer Brothers (P.) Ltd. v. Shri Ratan Lai Singly AIR 1974 SC 1380.

(4) Commissioner of Income-tax, Bombay v. Messrs Amritlal Bhotitlal and Co. AIR 1958 SC 868.

(5) State of Madras v. Madural Mills Co. Ltd. AIR 1967 SC 681.

(6) Hindustan Aluminium Corporation Ltd. v. Commissioner of Income tax (Central), 1990 PTD 90.

4. The judgment in the case of Commissioner of Income-tax, East Pakistan, Dacca v. Wahiduzzaman, 1965 PTD 283, which is the judgment of our Supreme Court in which the question whether the provision of res judicata could be applied in relation to the decision of Income-tax authorities was discussed and illucitated was referred. Relying on Amritlal Bhogitlal and Co.'s. case and Madurai Mills' case it was observed as follows:-

"We would further like to add that before the said doctrine of merger can be extended to cases arising out of the decisions given by the Income-tax authorities, it must first be considered, whether the decision was reached after holding of a proper enquiry and after consideration of all the relevant aspects of the case. Otherwise any defect found in the decision can be rectified by invoking the relevant provisions of the Income-tax Ordinance. We are fortified in this view by the observations made by our Supreme Court in the case of Commissioner of Income-tax v. Wahiduzzaman, referred to earlier in this judgment. No doubt, in this case the question was as to the application of the principle of res judicate, but the proceedings in the instant case being of the same nature, the legal principle enunciated by the Supreme Court would be equally applicable. We are, accordingly, unable to agree with Mr. Vellani's contention that the doctrine of merger applies to the present case."

The learned counsel for the petitioner has raised the following questions:-

"(1) Whether upon the appellate order being made on the appeal from the I original assessment order the Respondents have jurisdiction under section 66A of the Income-tax Ordinance, 1979 to revise the original assessment order.

(2) Whether upon the appellate order being made the original assessment order merged with the appellate order according to the doctrine of merger with the consequence that there is then no longer available an order of the Income-tax Officer capable of revision under section 66A of the Income-tax Ordinance, 1979."

5. These questions require interpretation of section 66A and are of general legal importance. We grant leave. Security Rs.3,000.

M.B.A./G-348/SLeave granted.