(a) Income-tax---

----Exemption---Avoidance of Double Taxation Agreement---If an assessee was genuinely entitled to a relief, the same should be provided to him and no attempt should be made to subject to tax, an income which was otherwise exempt, just by cashing on the ignorance of or the oversight by the assessee-- Claiming a relief, in the first instance, before a subordinate Authority was not a condition precedent for claiming same before a superior forum, despite completion of assessment as per particulars furnished to the subordinate Authority.

The principles of equity and justice demand that if an assessee is genuinely entitled to a relief, the same should be provided to him and no attempt should be made to subject to tax, an income which is otherwise exempt, just by encashing on the ignorance of, or the oversight by the assessee. Claiming a relief, in the first instance before a subordinate authority was not a condition precedent for claiming it before a superior forum despite completion of assessment as per particulars furnished to the subordinate authority.

In the present case the assessee could not claim the exemption because the notification in this behalf was published after the filing of thereturn. Therefore, it was the duty of the assessing officer to grant the concession suo motu because before the finalization of the assessment by him, the Agreement for the Avoidance of Double Taxation stood published in the Official Gazette of Pakistan. The Assessing Officer was expected to know the correct position of law and not to raise tax on an income not chargeable under the law, an agreement having been entered for the Avoidance of Double Taxation.

In re: K.N. Oil Industries (1983) 142 ITR 13; (1938) ITR 414; (1957) 32 ITR 274; (1958) 34 ITR 143; 1965 PTD 321; (1980) 5 AC 214; PLD 1964 SC 410; PLD 1964 (W.P.) Kar. 375 and (1960) 2 Tax Sup. 3250 ref.

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

----S.156---Scope of S.156.

This section permits rectification of all mistakes which' are apparent from the record of the appeal, revision, assessment, of refund as the case may be.

The object of this piece of legislation had wide scope to rectify all errors apparent from record with the only condition that if the result is the enhancement of assessment or reduction of refund, a reasonable opportunity of being heard is to be extended to the assessee.

The record contemplated by section does not mean only the order of assessment but it comprises all proceedings on which the assessment order is based and the Income Tax Officer is entitled for the purpose of exercising his jurisdiction under the section to look into the whole evidence and the law applicable to ascertain whether there was an error.

(c) Agreement for Avoidance of Double Taxation between the Government of Philippines and the Government of Pakistan (1979)---

----Art. 14 [published in Gazette of Pakistan on 27-6-1981]---Exemption-- Income of non-resident for the period of 29-11-1980 to 31-12-1980---Assessee could not claim exemption under .the Agreement (having retrospective effect) because the notification in that behalf was published after the filing of the return---Commissioner of Income Tax misjudged the clauses of Agreement and found that tax was attracted if the stay of assessee in Pakistan was less than 90 days---Held, in order to mete out substantial justice it would be fair and judicious to vacate the order of Commissioner of Income Tax and to direct the Assessing Officer to rectify his order so as to allow exemption to the income of the assessee as envisaged by the Agreement.

Sohail Hasan, CA. for Appellant.

F.D. Qaiser, D.R. for Respondent.

Date of hearing: 26th October, 1992.

ORDER

A.A. ZUBERI (ACCOUNTANT MEMBER): --This appeal has been filed by an A.O.P. to assail order dated 23-10-1985 passed by the learned Commissioner (Appeals) Zone-2, Lahore in respect of the assessment year 1981-82.

The learned counsel explained that the appellant is a resident of Philippines and has the status of a non-resident in Pakistan. They entered into a consultancy agreement with the N.F.C. on 29-11-1980 who were also responsible for paying taxes, if imposed on the appellant. For the period 29-11-1980 to 31-12-1980, they received payments in U.S. currency equivalent to Pak Rs.142,560. Return was duly filed on 31-8-1981 and assessment framed on 2-2-1982 determining a total income (tax-on-tax basis) at Rs.345,853 raising a demand of Rs.202,947. The learned counsel submitted that while filing the return and while attending the assessment proceedings, the appellant was ignorant of notification regarding Agreement for Avoidance of Double Taxation between the Government of Philippine and the Government of Pakistan which, though entered into on 21-4-1979, was given retrospective effect from 1979. The Gazette in this behalf was published on 27-6-1981 which was reported in December, 1981 issue of Taxation, Lahore. When this notification came to the knowledge of the appellant, they approached the assessing officer to rectify the assessment. This the assessing officer refused to do vide communication dated 5-8-1982 observing: "The mistake cannot be considered favourable because no mistake is apparent from record".

Against this appeal was filed before the learned Commissioner who inter alia held: " such exemption was available to a person if his stay in Pakistan was for a period, or periods aggregating 90 days or more in a taxable year [Article 14, para. 1(b)]." The learned Commissioner referred to the absence iii the assessment order of any discussion about the Agreement for the Avoidance of Double Taxation (ibid) and further emphasised that no such claim was on record up to the date of the assessment. The learned counsel Mr. Sohail Hasan (F.C.A.) canvassed before us that the observation by the learned Commissioner was not correct inasmuch as per clause 1(b) of Article 14 (ibid) he income of a resident of a "contracting state" became chargeable to tax (and not entitled to exemption) in the "other contracting state" once the stay (or aggregated stay) exceeded 90 days or more in the taxable year. Thus, a resident of Philippines (Contracting State) could be subjected to tax in Pakistan (Other Contracting State) only when aggregated stay, in a taxable year, exceeded 90 days. The learned Commissioner did not appreciate this subtility and misjudged that tax was attracted if the stay was less than 90 days. Moreover, according to Mr. Sohail Hasan (F.C.A.), the ignorance of an assessee about, the availability of a benefit granted by law does not debar him from making the claim even after filing of the return and even after the completion of the assessment moreso when the entitlement is so clear and unambiguous. Furthermore, was pleaded, C.B.R. instructions dated 14-7-1960 vide Circular No. 10 of 1960 explained to the assessing officers that scope of section 35 of the repealed Income Tax Act (now section 156 of the Income Tax Ordinance) extended to the mistakes of law is also of fact. The learned counsel developed the argument that the assessing officer was supposed to beware of the updated correct position of law and was under an obligation to grant all legal entitlements and benefits available to an assessee despite no claim having been specifically preferred. In the present case, Mr. Sohail Hasan (F.CA.) continued, the assessing officer should have allowed the concession specially when the same was notified in the form of an Agreement for the Avoidance of Double Taxation published in an official Gazette. Such agreements, the learned counsel explained, were authorised by section 163 of the Income Tax Ordinance. The learned counsel was emphatic in his insistence that the omission by the assessing officer to apply the correct law, despite a Gazette notification in this behalf, amounted to a mistake apparent from record rectifiable under section 35 of the repealed Income Tax Act or section 156 of the Income Tax Ordinance. For this assertion reliance was placed on a decision of Indian jurisdiction reported as (1983) 142 ITR 13 in re; K.N. Oil Industries, in addition to cases mentioned in C.B.R. Circular dated 14-7-1960 (ibid) e.g. (1938) ITR 414; (1957) 32 ITR 274; (1958) 34 ITR 143. In conclusion the learned counsel submitted that the appellant was a non resident of Pakistan, a. resident of Philippines, hence both Article 5 and Article 14 of the Agreement for the Avoidance of Double Taxation between the Republic of Philippines and the Islamic Republic of Pakistan entitled him to exemption from tax in respect of the income earned in Pakistan. Therefore, the error caused due to the appellant's failure to claim the exemption and the omission by the assessing officer in overlooking the updated correct legal position,, amounted to a mistake rectifiable under section 156 of the Ordinance which the authorities below could have corrected but refused to do under a mistaken interpretation of law. The learned D.R. on his turn supported the reason and the arguments by the officers below in their respective orders.

We have given our earnest consideration to the rival arguments addressed to us by the contending parties to reach the conclusion that officers below erred on principles of equity and justice as also failed to correctly interpret the scope of section 156 of the Income Tax Ordinance. The principles of equity and justice demand that if an assessee is genuinely entitled to a relief, the same should be provided to him and no attempt should be made to subject to tax, an income which is otherwise exempt, just by encashing on the ignorance of, or the oversight, by the assessee. In a case reported as 1965 PTD 321 In re: Singer Sewing Machine Co. it fell for consideration by the Supreme Court of Pakistan "whether claiming a relief, in the first instance, before a subordinate authority is not a condition precedent for claiming it before a superior forum despite completion of assessment as per particulars furnished to the subordinate authority". The learned Judges of the highest judicial forum of Pakistan held that no such bar exists. After a detailed discussion and on consideration of pronouncements by various superior Courts of Pakistan and India as also by the Privy Council in judgments reported as (1880) 5 AC 214 and PLD 1964 SC 410; the learned Judges reversed decision in PLD 1964 (W.P.) Kar. 375 and distinguished (1960) 2 TAX Sup-3250 to reach the conclusion: "in the circumstances it became the duty of the Commissioner to grant relief if the entitlement was clear".

In the case in hand the appellant could not claim the exemption because the notification in this behalf was published after the filing of the return. Therefore, it was the duty of the assessing officer to grant the concession suo motu because before the finalization of the assessment by him, the Agreement for the Avoidance of Double Taxation stood published in the Official Gazette of Pakistan. The Assessing Officer was expected to know the correct position of law and not to raise tax on an income not chargeable under the law, an agreement having been entered for the Avoidance of Double Taxation.

As respects scope of section 156 of the Ordinance and its predecessor section 35 of the repealed Income Tax Act, in addition to the authorities cited by the learned counsel, we have been able to lay hands on a Karachi High Court decision reported as 1975 PTD 52 where the learned Judges held:

" .This section permits rectification of all mistakes which are apparent from the record of the appeal, revision, assessment, or refund as the case may be: ...." The Supreme Court of the Indian jurisdiction surveyed all earlier pronouncements while delivering judgment in re: Maharana Mills (Pvt.) Ltd. (1959) 37 ITR 350 to the affect that the object of this piece of legislation section 35 of the repealed Income Tax Act, 1922) had wide scope to rectify all errors apparent from record with the only condition that if the result is the enhancement of assessment or reduction of refund, a reasonable opportunity of being heard is to be extended. The learned Judges concluded: --

"The record contemplated by section 35 does not mean only the order of assessment but it comprises all proceedings on which the assessment order is based and the Income Tax Officer is entitled for the purpose of exercising his jurisdiction under section 35 to look into the whole evidence and the law applicable to ascertain whether there was an error."

On the foregoing analysis of facts, the appraisal of attending circumstances and after a scrutiny of the law as also the case-law; we have no hesitation to hold that in order to mete out substantial justice it would be fair and judicious to VACATE the order by the learned Commissioner and to DIRECT the assessing officer to RECTIFY his order so as to allow exemption to the income of the appellant as evisaged by the terms of the "Agreement for the Avoidance of Double Taxation between the Republic of Philippines and Islamic Republic of Pakistan", published in the Gazette of Pakistan (Extraordinary) on 27-6-1981. As a result the appeal SUCCEEDS.

M.B.A./1941/T Order accordingly.