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

----S. 136(1)---Reference---Question of law---Question "whether in the circumstances of the case, the application of flat rate of 10% was justified in law when in other similar cases of assessees, gross profit rate of 2.62% and 2.50% respectively had been applied" was not a question of law.

(1967) 65 ITR 242; RA. No. 78 of 1963-64; (1964) 10 Taxation 71; Pokardas Dwarkadas v. CIT, Karachi, Sindh and Baluchistan (1960) 2 Tax Supp.156; (1973) 27 Tax 89; N.M. Khan and another v. The Chief Settlement and Rehabilitation Commissioner of Pakistan 1970 SCMR 158; Malik 'Muhammad Hayat Khan v. Subedar Yar Muhammad Khan PLD 1966 SC 612; (1957) 31 ITR 28 and Uberoi Cooperative Sports Ltd., Sialkot v. Commissioner of Income Tax, Rawalpindi (1973) 27 Tax 218 ref.

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

----S.136(1)---Reference---Question of fact---To hold the assessee either a retailer or a wholesaler does not give rise to any question of law nor does application of rate of gross profit, when the order is based upon the facts and material available on record.

(1967) 65 ITR 242; RA. No. 78 of 1963-64; (1964) 10 Taxation 71; Pokardas Dwarkadas v. CIT, Karachi, Sindh and Balochistan (1960) 2 Tax Supp. 156; (1973) 27 Tax 89; N.M. Khan and another v. The Chief Settlement and Rehabilitation Commissioner of Pakistan 1970 SCMR 158; Malik Muhammad Hayat Khan v. Subedar Yar Muhammad Khan PLD 1966 SC 612; (1957) 31 ITR 28 and Uberoi Cooperative Sports Ltd. Sialkot v. Commissioner of Income Tax, Rawalpindi (1973) 27 Tax 218 ref.

Zia Ullah Kiyani for Applicant.

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

Date of hearing: 27th September, 1992

ORDER

NASIM SIKANDAR (JUDICIAL MEMBER).---By way of this application, the applicant seeks reference under section 1360) of the Income Tax Ordinance, 1979, on following questions of law which are said to arise out of this Tribunal's order, dated 9-9-1991 in ITA No. 1074/LB/1990-91 (Assessment year 1989-90):----

QUESTIONS OF LAW

(i) Whether in the circumstances of the case, the application of flat rate of 10% was justified in law when in other similar cases of assessee at N.T. No. 05-03-1509415 and N.T. No.08-20-1169935, gross profit rate of 2.62% and 2.56% respectively had been applied?

(ii) Whether in the circumstances of the case, the order passed is a judicious order in the eyes of law?

(iii) Whether in the circumstances of the case, the order as passed by the learned Tribunal meets the ends of natural justice?

(iv) Whether the Income Tax Appellate Tribunal was justified to reject the results and to estimate the income by relying on the previous year's treatment?

(v) That the applicant, therefore, requires under subsection (ii) of section 136 of the aforesaid Ordinance that a statement of the case be drawn up and the questions of law numbered.

2. The facts of the case in brief are that the applicant who deals in imported chemicals disclosed sales for the assessment year 1989-90 at Rs.1,32,63,000. AG.P. rate of 6.48% was declared. However, the assessing officer after rejecting the declared version proceeded to estimate the sale at Rs.1,48,94,318 and applied a rate of 12% thereon. On appeal learned C.I.T. (Appeal) reduced the sales to Rs.1,38,00,000 and the gross profit rate to 9.5% as against the applied rate of 12%. On cross appeals by the parties, this Tribunal ordered the sales to be fixed at Rs.1,47,36,667 and the G.P. rate at 10%. The relevant portion of the order of the Tribunal which has been referred to in the "statement of the case" annexed with this reference application is reproduced below to understand the matter in issue:----

The assessee has no history as in the immediately past year against the declared income of Rs.4,92,118 agreed assessment was made at Rs.6,00,000. In that year the sales declared were at Rs.1,03,64,000 and a G.P. rate of 7.23%.

The earlier years were finalized a/s 59(1) of the Income-tax Ordinance. The learned counsel for the assessee contended that the G.P. rate applied is excessive. He submitted that the assessee is a wholesaler and in whole sale business the G.P. rate even at 9.5% is extremely high.

However, on perusal of the record it is not established that the assessee is a wholesaler. The Income-tax Officer in his order had stated that the assessee was required to produce the details of sales but the assessee showed his inability on the ground that no record was available. The exact words of the I.T.O. were as under:

"A.R. was required to furnish the detail of sales. He took the plea that it is no account case and hence no record was available. Moreover, he explained that sales are in terms of cash counter basis. This leads to an inference that sales are not completely verifiable.

The learned counsel for the assessee however, contended that what the assessee meant was that the assessee could not produce vouchers of sales while in fact the record of sales was available. However, the learned counsel for the assessee has not been able to substantiate his argument and we have to take the observation of the I.T.O. on its face value. In the absence of the details of sales it could not be said that the assessee was a wholesaler. As for the application of G.P. rate the I.T.O. has observed that the assessee had himself declared a G.P. rate of 9.1% in the assessment year 1977-78 and 11.2% in the assessment year 1981-82. The learned counsel has relied upon two parallel cases where lower G.P. rate has been applied. One such case is bearing National Tax Number 05-03-1509415 where against the declared G.P. rate of 2.05% the Income-tax Officer applied a G.P. rate of 2.25?rb. Another case is bearing N.T. No.08-20-1169935 where G.P. rate declared was 2.62% and the Income-tax Officer applies a G.P. rate of 2.56%. ,

However, both these cases are irrelevant because the nature of business has not been specified in these cases. The Income-tax Officer had observed that the assessee derived income from import business in both the cases. What was imported by the assessee in those cases is not specified by the Income-tax Officer. The margin of profit largely depends on the nature of the imports. In the absence of the specification of the imported goods, these cases could not be called parallel cases. These cases are also relied upon by the assessee before the learned Commissioner of Income-tax (Appeals) and he has also distinguished those cases. On the other hand the learned Commissioner of Income-tax (Appeals) has relied upon another case bearing N.T. No.05-03?-1146133 where the G.P. rate declared was 15% in the case of imported chemicals. The learned Commissioner of Income-tax (Appeals) however, has reduced the rate on the ground that in that case the turnover was lower than that of the appellant. Keeping all these facts in view and considering the fad that the assessee is an importer and it is not established that he is an wholesaler, the reasonable G.P. rate would be 10?6. We would deem it proper to apply a G.P. rate of 10% in this line of business as the assessee had himself declared G.P. rate of 11.1% in the assessment year 1982-83."

3. Before expressing our views on the stated questions of law said to have arisen out of the aforesaid order of this Tribunal, we would like to bring on record that in the "statement of case" as framed by the appellant, the following submissions need special reference:-

(a) That learned Income-tax Appellate Tribunal fixed the estimate of sales at Rs.1,47,37,667 and enhanced gross profit rate to 10% on the assumption that the appellant is a retailer.

(b) That the appellant has wrongly been described to be a retailer.

(c) That the learned Income-tax Appellate Tribunal was not justified in holding that the appellant is a retailer and not a wholesaler without affording an opportunity to prove that sales are on wholesale and not on retail.

(d) That the magnitude of turn over has also not been kept in view while arriving at a conclusion that the appellant is a retailer.

4. We have heard the parties. The department has opted not to file a reply to this reference application as contemplated under Rule 35 of the Rules of this Tribunal, 1981. However, learned D.R. vehemently contested the acceptance of this application and reference of the questions of law as framed by the appellant. At the outset of the proceedings learned counsel of the applicant candidly admitted that out of the abovementioned questions of law only the first one was really relevant to the facts of this case and that the other questions from serial No.(ii) to (v) being too general in nature were not questions of law as such. Therefore, we shall confine our discussions only to the following question as framed and stated at serial No.(i):--

"Whether in the circumstances of the case, the application of flat rate of 10% was justified in law when in other similar cases of assessee at N.T.No. 05-031509415 and N.T. No.08-20-1169935, gross profit rate of 2.62% and 2.56% respectively been applied?"

5. The question as framed by the applicant is misconceived on the face of it. Not only that it does not raise a question of law but also it is necessarily based upon a fact which the applicant wrongly assumed while framing the question. A G.P. rate of 10% was applied after this Tribunal agreed with the authorities below that the assessee-appellant was a retailer. The question as framed assumes as if the status of the assessee appellant of being a wholesaler was admitted. Both of the alleged parallel cases as stated in the body of the question were duly considered in the impugned, order. The impugned rate of 10% was ordered to be applied in this case for the reason that the assesses appellant failed to establish that he was a wholesaler. Also, the stated Parallel cases were held not to be applicable on account of lack of details of the nature of business in these cases. Both of the parallel cases were relied upon before the authorities below as also before this Tribunal ultimately. And, as stated above, rate of 10% was applied for the reason that the assessee appellant could not establish that he was a wholesaler. In the circumstances when the impugned G.P. rate was applied on account of the finding of this Tribunal that the appellant assessee was not a wholesaler, the question as framed by the applicant does not contain any legal proposition to be referred to the High Court. Learned counsel for the applicant in this connection has relied upon a reported case of Indian jurisdiction cited as (1967) 65 ITR-242. He admitted that he could not put his head upon any other relevant authority or a precedent of national superior Courts to support the proposition as contained in the question framed by him. In that case from the Indian jurisdiction, two questions were framed and referred to the Allahabad High Court for their opinion, the first being relevant is stated as under:--

"Whether in the circumstances of the case, the application of the flat rate of 5% was justified when in the case of another dealer of the same places, namely, M/s. Abid Hussain Sajjad Hussain of Mubarakpur, who is also an assessee, a rate of 2% disclosed was accepted.

6. In this case the assessee was a Hindu undivided family admittedly doing business in Banarsi goods both on commission as well as on his own account. On a notice under Section 23(2) of the Income-tax Act 1922 only one register which contained particulars of goods purchased and sold either by V.P.P. or Railways was produced. The assessing officer estimated the sales and applied a flat rate of 5% thereon. In first appeal assessment was confirmed on the ground that it could not be said that all the transactions had been accounted for. Further, that in a similar commission business at Banaras a profit of one anna in the rupee was charged and brokerage of 6 pies in the rupee on purchase. On further appeal, the Income-tax Appellate Tribunal reduced the turnover but retained the applied flat rate of gross profit at 5%. A comparable case cited for the first time before the Tribunal was considered inapplicable. On reference of the aforesaid question, the learned Judges of Allahabad High Court while answering the question against the assessee observed that the consideration of comparable cases mentioned by the assessee did not really arise and that estimate of income was neither arbitrary nor capricious on the facts of the case to justify holding that some error of law had been committed by the Tribunal in confirming the flat rate of 5% applied by the Departmental authorities.

7. The contention of the present learned counsel for the applicant that in this case from the Indian jurisdiction similar question containing an identical proposition was actually framed by the Appellate Tribunal and referred to the High Court does contain weight. However, we are in respectful disagreement with our counterpart Tribunal in India in the prospect of the facts of the case before us. In the first instance the applicant has failed to satisfy us that mere application of a particular rate of gross profit has ever been treated as a question of law by this Tribunal or our superior Courts. Secondly, as submitted earlier, the question is necessarily misconceived as it has been raised on the basis as if the status of the assessee appellant of being a wholesaler was established before the departmental authorities and this Tribunal. It is also interesting to quote that all along the present applicant could not even disclose the exact nature of imports made in these stated parallel cases nor their status of being a wholesaler or retailers. This Tribunal in a case RA. No.78 of 1963-64 (Assessment year 1958-59) decided on 3-7-1964 and reported as (1964) 10 Taxation 71 referred to a decision in another reference application in which it was held, amongst others, that decision of Income Tax Tribunal on question of fact could only be assailed when its findings were based on no material or were altogether capricious or injudicious. In this connection another case reported as "Pokardas Dwarkadas v. C.I.T., Karachi Sindh and Balochistan cited as (1960) 2 Tax Supplement 156 was referred in which it was held that "the I.T.O. has discretion to reject the accounts in the circumstances envisaged by the proviso and to apply a flat rate. Even if a high rate of profits was applied that by itself would not warrant direction to the Tribunal to state the case".

8. The Lahore High Court in a case reported as PLD 1973 Lah. 416 were examining the request of the assessee-applicant u/s 66(2) of the Act for framing of following questions of law said to arise out of the order of the Tribunal:

(1) Whether there was material authorising the Income-tax Tribunal to hold the sale of fans as unaccounted for on the basis of excessive claims of shortage in respect of ball bearings?

(2) Whether on the facts and in the circumstances of the case and the material before it the Appellate Tribunal was justified in holding sales amounting to Rs.40,000 as fictitious sales, and holding the application of gross profit rate 33-1/3% thereon?

9. During the course of findings the learned Judges discussed at length the case relied upon by the assessee-applicant re: NM. Khan and another v. The Chief Settlement & Rehabilitation Commissioner of Pakistan cited as 1970 SCMR 158 wherein the Supreme Court held that "the question whether an inference follows from certain facts or not is a question of law". The learned Judges of the High Court distinguished the case by observing "in our respectful opinion these remarks must be construed in the light of the facts found in that case. Otherwise they do not go to lay down any unqualified general statement of law". And, after making a brief reference to the dictum as laid down in re: Malik Muhammad Hayat Khan v. Subedar Yar Muhammad Khan PLD 1966 SC 612, their Lordships observed in our respectful opinion the true test is that an inference of fact would be a question of fact or law according as the point of determination is one of pure fact not dependent on the application of any principle of law or a mixed question of law and fact based on its application. Each case must be judged in the light of this test and aforementioned cases from the Supreme Court of Pakistan on the two extremes fully illustrate this proposition." In this connection a case reported as (1957) 31 ITR 28 re: Sree Meenakshi Mills Limited v. Commissioner of Income-tax, Madras, the Supreme Court of India was favourably referred to have observed:

"Whether an ultimate finding on an issue is an inference to be drawn from the facts found, on the application of any principles of law, there is a mixed question of law and fact, and the inference from the facts found is such a case, a question of law. But where the final determination of the issue equally with the finding or ascertainment of the basic facts does not involve the application of any principle of law, an inference from the facts cannot be regarded as one of law. The proposition that an inference from the facts is one of law is therefore correct in its application to mixed questions of law and fact, but not to pure questions of fact. In the case of pure questions of fact an inference from the facts is as much a question of fad as the evidence of facts."

Accordingly, the petition for seeking reference of the above-stated questions was dismissed in limine on the ground of its being incompetent.

10. In another case the Lahore High Court considered a host of authorities in this connection while deciding the case titled Uberoi Co?operative Sports Ltd., Sialkot v. Commissioner of Income Tax, Rawalpindi reported as (1973) 27 Tax 218. In this case following questions were sought to be referred for the opinion of the High Court:

(i) Whether the learned Income Tax Appellate Tribunal was legally justified, and there was legal evidence for Tribunal to adopt basis for reduction of the profit rate by only 5% on the export sales? and

(ii) Whether, in the circumstances of the case, there was evidence on record and the learned Appellate Tribunal was justified in not deleting the whole amount to Rs.34,000 in respective years."

On failure before the Tribunal, the assessee appellant approached the High Court directly under section 66(2) of the Income-tax Act, 1922 for a direction to the Tribunal to state the case and refer these questions to the High Court for their opinion. The learned Judges dismissed the reference application and, as regards alleged question of law stated at sub-para (i) observed as under:--

"11. In Feroze Shah v. Income Tax Commissioner of Punjab and N.-W.F. Province, Lahore AIR 1933 PC 198 Their Lordships observed that where the principle of assessment on flat rate was not contested, its amount must be for the Income-tax Officer to determine. In this connection in Messrs Pokardas Dwarkadas of Karachi v. The Commissioner of Income Tax, Sindh and Balochistan PLD 1957 Kar. 61 the Court held that the Income-tax Officer had discretion to reject the account in the circumstances envisaged by the provision and to apply a flat rate. Even if a high rate of profit had been applied that by itself would not warrant direction to the Tribunal to state the case. The question relating to the Tribunal's 12ower to reject the accounts in the circumstances of the case and apply a flat rate of profits was not a question of law which the Tribunal should be directed to state. Similarly in Messrs the International Body Builders v. Commissioner of Income Tax, Lahore and another PLD 1971 Lah. 559 this Court held that if no method of accounting had been regularly applied or if the method applied was such that in the opinion of the Income Tax Officer the income, profits and gains could not properly be deduced therefrom, then the computation should be made upon such basis and in such manner as the Income Tax Officer might determine. The Income Tax Officer was the whole judge in the matter with which the High Court could not interfere."

11. In the present application it has not been alleged that the order of this Tribunal was either arbitrary or capricious inasmuch as it was not based upon any material on record. While ordering application of a rate of 10% this Tribunal duly noted that the assessee had himself declared a G.P. rate of 11.1% in the assessment year 1981-82. The fact that in the immediate proceeding year against the declared income of Rs.4,92,118 the assessee appellant agreed to an assessment at Rs.6,00,000 coupled with the fact that on a requisition by the assessing officer of the details of sale made by appellant, inability was shown on the ground that no record was available was also noticed. The extracts taken out from the statement of the case and reproduced earlier also indicate that the primary grievance of the appellant was against its treatment of being a retailer and that application of 10% G.P. rate as fixed by this Tribunal was only consequential in nature. To hold the assessee appellant either a retailer or a wholesaler hardly gives rise to any question of law nor application of rate of gross profit when the order is based upon the facts and material available on record.

12. In these circumstances we are of the considered view that the question as framed by the applicant does not raise a question of law to be referred for the opinion of Their Lordships of the Lahore High Court.

13. This reference application, therefore fails.

M.B.A./2288/T?????????????? ???????????????????????????????????????????????????????? ??????????Application dismissed.