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

----Ss. 32 & 109---Income Tax Rules, 1982, R.34---Interpretation and scope of S. 32 of the Ordinance and R. 34 of the Rules---Method of accounting---Only such persons or person can be required to make payments or record transaction in the prescribed manner as have been required to maintain account in the prescribed manner---Person who has not been required to maintain accounts in the ' prescribed form cannot be required to make payments or record transactions in the prescribed manner ---Assessee who is not a person who has been required to maintain accounts in the prescribed form is not required. to issue cash memos as envisaged by R.34---Order of penalty imposed on such assessee being ultra vires of the powers of tax authorities was vacated by the Income-tax Appellate Tribunal in appeal.

(b) Interpretation of statutes---

----Rules or bye-laws ---Vires---When a set of Rules or Bye-laws contains rules/bye-laws which are partly intra vires and partly ultra vires the Court shall give effect to the part which is intra vires unless it finds that the infra vires part cannot operate in the absence of ultra vires part.

Ejaz Hussain Jaffery for Appellant.

Mrs. Zareen Saleem Ansari, D.R. for Respondent.

Date of hearing: 2nd December, 1992.

ORDER

This appeal raises a question of some importance and the question is whether a person engaged in a business or profession whose sales or receipts as estimated by him are expected to exceed Rs.2,00,000 in any income year can be penalised under section 109 of the Income Tax Ordinance, 1979 (the Ordinance), if he fails to issue cash memos to his customers as required by rule 34 of the Income Tax Rules, 1982 (rule 34)?

Although during the income year relevant to the assessment year 1987-88 the sales and receipts of the assessee exceeded Rs.2,00,000 but he did not issue any cash memo. to his customers. The Income Tax Officer (I.T.O.) taking the view that the assessee had violated the provisions of rule 34 by his order dated 22-7-1990 imposed a penalty of Rs.7,782 on the assessee under section 109 of the Ordinance. The assessee objected to the order of the I.T.O. imposing the penalty and appealed to the AA.C., but the AA.C. rejected the appeal by his order dated 30-10-1991. Through this further appeal the assessee has objected to the orders of the tax authorities by which penalty has been imposed on him as stated above.

I have heard Mr. Ejaz Hussain Jaffery, Advocate, for the assessee and Mrs. Zareen Saleem Ansari, D.R. for the Department.

Mr. Jaffery contended that the reading of rule 34 with section 32 of the Ordinance makes it clear that the rule is not applicable to the assessee and as such the assessee could not be penalised for making any default of the provisions of the said rule. Mr. Jaffery submitted that rule 34 applies only to such persons as have been required to maintain accounts in the prescribed form, and since the assessee has not been so required the rule was not applicable to him.

To appreciate the point raised by Mr. Jaffery the most convenient starting point would be to take notice of section 32 of the Ordinance and rule 34-which read as follows:--

Section 32 of the Ordinance.

Method of accounting.--(1) Income, profits and gains except income from dividends shall be computed for purposes of sections 17, 19, 22, 27 and 30 in accordance with the method of accounting regularly employed by the assessee.

(2)Notwithstanding anything contained in subsection (1), the Central Board of Revenue may, in the case of any business or profession, or class of business or profession, or any other source of income or any class of persons,--

(a)require, by a general or special order published in the official Gazette that the accounts shall be maintained in such form and in such manner as may be prescribed; and

(b)prescribe the manner in which payments of commercial nature shall be made or commercial transactions recorded.

and thereupon, the income, profits and gains of the assessee shall be computed on the basis of the accounts or records maintained or payments made accordingly.

(3)Where no method of accounting has been regularly employed, or if the method employed is such, that, in the opinion of the Income Tax Officer, the income, profits and gains cannot be properly deducted therefrom, or where in any case to which subsection (2) applies, the assessee fails to maintain accounts, make payments or record transactions in the form or manner as the case may be, prescribed under the said subsection, then, the income, profits and gains of the assessee shall be computed on such basis and in such manner as the Income Tax Officer thinks fit.

Rule 34

Cash memos to be issued by certain person.--Every person other than those to whom Chapter A of this part applies deriving income chargeable under the head `Income from business or profession', where sales or receipts as estimated by him are expected to exceed two hundred thousand rupees in any income year, shall issue to the customers, for each transaction of sale or receipt a cash memo with his name or the name of this business and address and serial number of the memo printed thereon."

The cursory perusal of rule 34 leaves an impression that every person (other than a person who has been required to maintain accounts in the prescribed form) deriving income from business or profession where sales or receipts as estimated by him are expected to exceed Rs.2,00,000 in any income year has been obligated to issue to the customers for each transaction of sale or receipt a cash memo with his name or the name of his business and address and serial number of the memo printed thereon. Section 109 of the Ordinance empowers the I.T.O. to impose penalty on any person who fails to comply with the provision of any order or rule made under or in pursuance of subsection (2) of section 32 of the Ordinance. The question is: Whether rule 34 really obligates every person deriving income from business or profession whose sales or receipts exceed Rs.2,00,000 in any income year to issue cash memos. to his customers or it so obligates only to those persons who have by a special or general order made by the Central Board of Revenue (C.B.R.) under subsection (2) of section 32 of the Ordinance, been required to maintain accounts in the prescribed form. By reading section 32 of the Ordinance one finds that it (section) by its own force does not obligate persons deriving income from business or profession to maintain accounts in any particular manner. It however, empowers the C.B.R. to require by a general or special order published in the official Gazette persons deriving income from business or professions to be specified by it (C.B.R.) to maintain accounts in the prescribed form and manner. The section also provides that where no method of accounting has been regularly employed by the assessee, or in any case to which subsection (2) applies the assessee fails to maintain prescribed account than the income, profits and gains of the assessee shall be computed on such basis and in such manner as the I.T.O. thinks fit. As noted above subsection (2) of section 32 of the Ordinance is divided into two clauses--clause (a) and clause (b). Clause (a) ibid provides that the C.B.R. may, by a special or general order published in the official Gazettee, require that in the case of any business or profession or class of business or profession or any source of income or class of persons accounts shall be maintained in such form and in such manner as may be prescribed. Clause (b) though empowers the C.B.R. to prescribe by rules the manner in which payments of commercial nature shall be made or commercial transactions recorded but, unlike clause (a) does not empower the Board to make any special or general order requiring any one to make the payments or record the transaction in the prescribe form or manner. Subsection (2) of section 32 of the Ordinance appears to confer two separate and distinct powers on the C.B.R. And, each of the said powers is exercisable in a separate manner. Firstly, to prescribed by rules the forms and the manners in which the accounts shall be maintained and the manner in which the payments of commercial nature shall be made or commercial transaction recorded; and secondly, to require any person engaged in specified business or profession to maintain his account in the prescribed form and manner. So far as the first power is concerned it is exercisable by the C.B.R. through prescription by rules to be made in pursuance of its powers conferred by section 165 of the Ordinance, but so far as the second power is concerned it is exercisable by making a general or special order and publishing the same in the official Gazette. It may be noted that power to make rules except the first occasion of the exercise thereof, is subject to previous publication (section 165(2)) whereas power to make a special or general order is non subject to any condition and may be made from time to time as the occasion would arise. Rule 34 (and for that matter rules 27 to 34) has been framed by C.B.R. in exercise of its powers under section 165 of the Ordinance and that power is exercisable only in respect of such matters as are required to be prescribed by rules. Going back to subsection (2) of section 32 of the Ordinance by rules are to prescribe the form and the manner in which the accounts shall be maintained and the form and the manner in which the payments of commercial nature shall be made or the commercial transaction recorded. Who will maintain the accounts in the prescribed manner and make payments in the prescribed manner is a power not exercisable by the C.B.R. through rules but through a general or special order published in the official Gazette.

One view is that the provisions of rules 27 to 34 in so far as they provide for requiring certain businesses or professions or certain persons to maintain accounts in the prescribed form are void being ultra vires of the rules making power of the C.B.R. The other view is that since the said powers (i.e. power to prescribe certain matters by rules and powers to require to certain persons to comply with prescribed matters) are exercisable by same authority (C.B.R.) there is nothing wrong if the said powers are expressed in a single document, notwithstanding that strictly speaking one power is exercisable in the form of a document to be called the rules and the other a general or special order. The distinction in the nomenclature of the two documents and requirement of the condition of previous in case of the rules and absence of such condition in the case of order may be ignored as formal requirement not effecting the substance. The other view is that since the provisions of the rules are likely to burden the citizens and put into operation unless they have been made strictly in accordance with the requirement of the law whether such requirement is formal or substance. From the perusal of the clause (a) of subsection (2) of section 32 of the Ordinance one finds that the power of requiring any business or profession to maintain prescribed account is co existent with the power to prescribe the from and manner in which account shall be maintained, but from the perusal of clause (b) of subsection (2) of section 32 ibid one finds that the power to prescribe the form in which the payment of commercial nature shall be made or commercial transaction recorded is not proceeded by the power to require the person who shall make the payment or record the transaction in the prescribed manner. It is nobody case that rules 27 to 34 are ultra vires in their entirety. What has been objected to is that these parts of the rules which require certain business, profession or persons to maintain their account in the prescribed form are ultra vires as the requirement could only be made through a special or general order. It is trite rule that when a set of rules or bye-laws contains rules/bye-laws which are partly intra vires and partly ultra vires the Court shall give effect to the part which is intra vires unless it finds that the intra vires part cannot operate in the absence of ultra vires part.

As noted earlier clause (b) of subsection (2) of section 32 of the Ordinance does not refer to empower the C.B.R. to require any person to make payment of commercial nature or record commercial transaction in the prescribed form. Therefore, none appears to be bound to make or record them in the prescribed manner. In the above eventuality the provision of rule 34 in so far as it required a person engaged in any business or profession whose receipts exceed Rs.2,00,000 is clearly without any mandate from the statute. But, the above view would not only render the remaining parts of the rule 34 as redundant but would minimise the object of the law to prescribe form in which the payment by certain persons shall be made in the prescribed form Under section 165 of the Ordinance, read with clause (b) of subsection (2) of section 32 of the Ordinance all that the C.B.R. could prescribe was the manner in which the payments of commercial nature shall be made or the commercial transaction shall be recorded. Who shall make such payments or record such transaction in the prescribed manner was to be read in the order which the C.B.R. could issue under clause (a) of subsection (1) of section 32 of the Ordinance. This the only way in which one can reconcile the provisions of clauses (a) and (b) of subsection (2) of section 32 of the Ordinance and save rule 34 from being found to be ultra vires in toto. It would have been better if the forms of accounts and in the manner in which they shall be maintained and forms of the cash memos. are prescribed in the rules, and who shall be required to maintain the account in the prescribed form and make or record payments of commercial nature or commercial transactions is left open to be provided for by the C.B.R. through a separate general or special order published in the official Gazette from time to time.

In view of the above discussion I am of the view that under rule 34 read with section 32 of the Ordinance only such persons or person can be required to make payments or record transactions in the prescribed manner as have been required to maintain account in the prescribed manner. A person who has not been required to maintain accounts in the prescribed form cannot be required to make payments or record transactions in the prescribed manner. Since the assessee is not a person who has been required to maintain accounts in the prescribed form he was not required to issue cash memos. as envisaged by rule 34. The orders imposing the penalty being ultra vires of the powers of the tax authorities are vacated. The appeal is accepted.

M.BA./2419/T Appeal accepted.