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

---Second Sched., cl.(36-B)---Notification No.F.S.(5)-RS/81,dat~ed 27-6-1981-- Exemption from liability on dearness allowance ---NASPAK having been declared to be under the complete administrative control of the Government of Pakistan vide Memorandum of Economic Affairs' Division of Government of Pakistan dated 6-7-1974, its employees, held, were entitled to exemption from tax liability on dearness allowance.

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

----S.131(3) read with Civil Procedure Code (V of 1908), O.XLI, R.27-- Additional evidence---Competency of Appellate Assistant Commissioner to accept additional evidence---Additional evidence may be led before the Appellate Assistant Commissioner if it is required to judge the legality of finding given by the forum below.

Naseer Ahmad, D.R. for Appellant.

Ch. Muhammad Ismail for Respondent.

Date of hearing: 31st July, 1989.

ORDER

These further appeals brought by the Department are directed against the impugned order, dated 30-7-1983 passed by the learned Appellate Assistant Commissioner of Income-tax, Range-E, Lahore pertaining to the assessment year 1982-83 on the following grounds: ---

(i) That the learned Appellate Assistant Commissioner has erred in admitting fresh evidence at the Appeal stage without recording a finding that the appellants were prevented by sufficient cause from so doing at the assessment stage.

(ii) That the Appellate Assistant Commissioner has failed to appreciate the documentary evidence on record, which established the failure of the assessee to produce supporting evidence despite several notices.

(iii) That the learned Appellate Assistant Commissioner has erred in directing the grant of exemption of Dearness Allowance which is not provided for under Clause 36(b) of, the Second Schedule of the Income Tax Ordinance, 1979.

In fact Grounds Nos.l and 2 are inter-connected which relate to the additional evidence. Last ground at serial-item No3 relates with the exemption of Dearness Allowance; in all these 11 appeals the grounds are common and decided accordingly.

2. Briefly recounted the facts leading to the instant appeals are that the respondent/assessee is an employee of M/s. NESPAK, Limited. The solitary issue involved in this instant appeal is taxability or non-taxability of Dearness Allowance. The Income-tax Officer without mentioning any cogent reason added the entire Dearness Allowance to the respondent/assessee's salary. In first appeal before the learned Appellate Assistant Commissioner of Income tax, the assessing officer appeared in person and apprised of the treatment meted out to the respondent/assessee by him saying that Dearness Allowance was disallowed as no specific Notification entitling the employees of M/s. NESPAK Limited for exemption of the same was ever produced before him at the stage of assessment proceedings. The learned First Appellate Authority in its concurrent findings accepted the version of the respondent/assessee i.e. M/s. NESPAK Limited being a Semi-autonomous. Body totally owned by the Government, Dearness Allowance paid to its employees was exempted in terms of Notification No. F.S.(5)-RS/81, dated 27-6-1981 issued by the Government of Pakistan, Ministry of Finance, Finance Division, Regulation Wings Islamabad, which is reproduced below:---

"The President has been pleased to sanction, with effect from 1st July, 1981, until further orders, Dearness Allowance at the rate of 10% of basic pay, subject to a minimum of Rs.100 and maximum of Rs.250 to employees of all grades in corporations, autonomous-semi autonomous bodies, including banks and financial institutions, under the Federal Government. The Dearness Allownace will be in lieu of the Dearness Allowance of Rs.40 and Additional Dearness Allownace of RS.30 p.m. sanctioned in this Division O.M.F.2(1)/R-13/79, dated the 23rd August, 1979 and F2(6)-R-13/80, dated the 3rd July, 1980, respectively.

(2) In the case of those of the above employees who are covered by the provisions of the Industrial Relations Ordinance, 1969, the Dearness Allowance sanctioned under this O.M. shall be subject to the condition that a period of at least one year has elapsed from the date of effectiveness of the agreement or settlement under the said Ordinance that had been reached with the Collective Bargaining Agent or a Wage Award had been announced and implemented, as the case may be.

(3) The above Dearness Allowance--

(i) will be classified as compensatory allowance and will not be subject to income-tax:

(ii) will not be included in the term "emoluments" for the purpose of recovery of house rent;

(iii) will be admissible during leave including leave preparatory to retirement, but excluding extraordinary leave; and

(iv) will not be admissible in the case of those employed during L.P.R.:

(v) will be admissible during period of suspension.

Similarly, the Economic Affairs Division also issued Memorandum, dated 6-7-1974 and declared M/s. NESPAK Limited autonomous body owned by the Government and treated it at par with other autonomous and semi-autonomous bodies. The contents of this Notification are as follows: ---

"It is hereby notified for the information of all concerned that National Engineering Services (Pakistan) Ltd., a Private Limited Company, incorporated under the Companies Act, 1913, having its registered office at Rawalpindi and Central Office at Lahore, is a fully Government owned Organization as the Federal Government has paid the entire amount of Rs5 lac against its issued capital and that it may be treated at par with other autonomous and semi-autonomous Government bodies. Further to notify that the company named above is under the complete administrative control of the Economic Affairs Division, Government of Pakistan, Islamabad."

The learned First Appellate Authority was also of the view that clause 36(b) of Second Schedule of the Income-tax Ordinance, 1979 is fully covered by the Notification relating to the employees of M/s. NESPAK Limited regarding entitlement of exemption of Dearness Allowance. The learned First Appellate Authority at last, directed to allow the exemption of Dearness Allowance received by the assessee. It was, however, observed that the assessing officer worked out total income of the assessee in a slip-shod manner and ignored all the relevant provisions of law. In fact, if the Income-tax Officer does not accept the declared version of the assessee as correct and complete, he is bound to serve a notice under the relevant provision of the Income-tax Ordinance, 1979 on the assessee requiring him, on a specified date, either to attend at the Income-tax Officer'1office or to produce any evidence on which the assessee wishes to rely in support of his claim. Suffice it to say that the legal requirements are to be fulfilled fully and no haphazard manner should be adopted to make the requisited assessment. It is also imperative that when the return is made, the Income-tax Officer shall not reject it and take some other basis as the basis of assessment without giving the assessed an opportunity to appear before him and give any material evidence which he may desire to furnish either based on some legal documents or in a form of statement. Any capricious or arbitrary action on the part of the Income-tax Officer shall vitiate the whole proceedings.

3. The Department felt aggrieved of this final impugned order dated 30-7-1983 and filed the instant appeals before this Tribunal on the grounds referred to above. The Department has assailed admission of additional ground before the Appellate Assistant Commissioner at Appellate stage as without jurisdiction and he has also failed to appreciate the documentary evidence on record. This objection at the very outset seems to be fallacious and devoid of any force. The additional evidence can be led at the Appellate stage when it is required under the circumstances of the case. Documentary evidence may be produced before the First Appellate Authority to judge the legality occurred in the findings given by the authorities below. Reliance is placed on the judgment pronounced by the Supreme Court of Pakistan in their judgment published in 1988 SCMR 1782. The relevant portion is reproduced below: ---

"Sections 115, 151 & O.XLI, R.27---Suit for declaration and injunction---Defendant failing to produce evidence despite opportunities being afforded---Defendant's evidenced closed finding recorded and suit decreed and decision affirmed in appeal---On defendant's revision, High Court allowed production of additional evidence---Appeal to Supreme Court---Plea raised that jurisdiction exercised under section 115, C.P.C. is limited and cannot be availed of for the purpose of admitting additional evidence, particularly so where it amounts to allowing an opportunity to litigant to make up for his failure and default, and no question of law or jurisdiction being involved in the revision -- High Court was not empowered to allow additional evidence -- Both parties alleging forgery, fraud and fabrication of record; secondary evidence having been led at trial without appropriate order with regard to its admissibility; and suit for declaration being filed during pendency of a departmental enquiry on some issue -- High Court could justifiably feel jurisdictional difficult in-adjudicating upon the matter and resort to calling for and allowing additional evidence to be produced by defendant who was custodian of primary evidence which could relevant in the context Ordinarily at the stage of civil revision there is no question of leading additional evidence, but there may be exceptional cases like the instant one where interest of justice and requirement of Court in adjudicating. On the matter demand that such additional evidence should be recorded -- In circumstances of the case, order allowing additional evidence to be recorded notwithstanding failure of respondent to produce it at appropriate stage, held, was not open to exception Anneal dismissed order permitting the leading of additional evidence subject to condition pointed out by the High Court maintained and judgment of Appellate Court on acceptance of revision consequent to acceptance of the request for additional evidence set aside and proceedings remanded to first Appellate Court for deciding, case afresh after recording evidence -- Revision in High Court, held, stood disposed of and judgment of Appellate Court stood set aside First Appellate Court also to record additional evidence, as was relevant and necessary, an opportunity to appellant to rebut it, and pronounce afresh in accordance with law.

In another judgment delivered by the same Court as published in PLD 1989 SC 112, the relevant portion of the judgment is reproduced below: --

"----O.XLI, R.27---Additional evidence can be admitted to rest' the error where the Court had acted illegally or with material irregularity in the exercise of its jurisdiction, and justifiably fell within the four corners of the observation of Supreme Court in Haji Muhammad Zaman v. Zafar Ali Khan and others PLD 1986 SC 88 (118) C".

The question raised by the Department regarding admissibility of additional evidence before the learned Appellate Assistant Commissioner of Income-tax is of no merits and decided against the Department. The Appellate Authority as is the case that the learned Appellate Assistant Commissioner was fully competent not only to correct, set aside, reject or remand the case to the Income-tax Authority below, but he was equally competent to undertake de novo assessment on any additional evidence produced or asked for by him. In such eventuality no exception can be taken to his examining the case and giving findings on such additional evidence. Similarly case of concurrent findings maintained up to the stage of Commissioner of Income-tax (Appeals) is generally not disturbed in appeal by this Tribunal, unless of course, there is a glaring illegality or serious irregularity on law point.

4. I am also afraid that the Income-tax Officer was not fully aware of the procedure or the manner of assessment. All relevant Notifications, Circulars and Memorandums issued by the Government or the authorities specifically delegated powers were sent to all the Departments and the Officers designated are always supposed to know the contents of those issued from time to time, Failure of the assessee to furnish supporting Circulars or the Notifications regarding exemption of Dearness Allowance was in fact stultifying objection raised by the assessing officer. He should and must have dug out the same from his own record. The learned First Appellate Authority has also referred the Second Schedule of the Income-tax Ordinance, 1979 which covers the aforesaid Notification for entitlement of the exemption of Dearnes Allowance and this fact was ignored by the assessing officer. It is not only strange but also noteworthy that the Income-tax Officer had not endeavoured in issuing notices under the relevant provisions of the Ordinance of 1979 nor did he find out the reality from any other source. The Departmental Representative Mr. Naseer Ahmad also conceded the facts.

5. In the face of these circumstances, it is crystal " ear that respondent/assessee being an employee of a semi-autonomous body was entitled to the Dearness Allowance under Notification of even number dated 27-6-1989 and the Dearness Allowance enjoyed was fully exempted from tax liability under clause 36(b) of the Income-tax Ordinance, 1979. The acceptance of additional evidence at the stage of First Appellate Authority was quite in accordance with law and the said authority actually acted within his ambit and jurisdiction especially conferred on it by the Income-tax Ordinance, 1979.

6. As a result of the above discussion and the law explained above, the impugned order does not suffer from any legal infirmity. The appeals filed at the instance of the department being devoid of merits stand dismissed straightaway.

M.BA./1735/T Appeals dismissed.