1993 P T D 332

[Lahore]

Before Malik Muhammad Qayyum, J

M/s. SHOAIB BILAL CORPORATION, U.B.L. SUPER MARKET,

CIRCULAR ROAD, FAISALABAD through Ejaz Hashmat Khan, Member

Versus

THE COMMISSIONER OF INCOME TAX,

FAISALABAD ZONE, FAISALABAD and another

Writ Petition No.4547 of 1990, decided on 07/12/1992.

(a) Stay order---

---- Such order, unlike injunction operates from the moment it is passed irrespective of the time of its communication.

Haji Abdul Jalil v. Javed Ahmad 1983 SCMR 869; Bakhtawar etc. v. Amin etc. 1980 SCMR 89 and Karmat v. Raja PLD 1949 Lah. 100 ref.

(b) Income-tax---

----Stay order ---Held even if the Income-tax Officer was not aware of the; stay order granted by the High Court all the proceedings taken subsequent to such order were nullity in the eyes of law---Constitution of Pakistan (1973), Art. 199.

In the present case at the time when the stay order was issued by High Court on 30th of June, 1990, it was not the case of the department nor was it asserted before the Court that the order of assessment had already been passed. Even in the written statement, there was no such assertion, but on the other hand, what had been stated was that by the time, Income-tax Officer had received the telex, informing him about the stay of the proceedings, he had finalized the assessment. Legally speaking, the communication of the order was not relevant. Even if the Income-tax Officer was not aware the stay order granted by the High Court, all the proceedings taken subsequent to passing of stay order are nullity in the eyes of law.

Haji Abdul Jalil v. Javed Ahmad 1983 SCMR 869; Bakhtawar etc. v. Amin etc. 1980 SCMR 89 and Karmat v. Raja PLD 1949 Lah. 100 ref.

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

----Ss.59(4) & 61---Provision of S.59(4) having been couched in negative language was to be construed as mandatory---Assessment year 1987-88-- Income-tax Officer was required to pass an order on the return submitted by the assessee before 30-6-1988, whereafter no order in terms of S.59(1) of the Ordinance could be passed---On account of failure of the I.T.O. to pass order on the return of the assessee before 30-6-1988, assessee had acquired a vested right of escaping assessment, which could not be taken away.

Atta Muhammad Qureshi v. The Settlement Commissioner, Lahore Division, Lahore and 2 others PLD 1971 SC 61; Crawford on Statutory Law Monogram 263 at p. 253; Bindra on Interpretation of Statutes, 7th Edition, p.658 and Nagina Silk Mill, Lyallpur v. The Income Tax Officer, A-Ward, Lyallpur and another PLD 1963 SC 322 ref.

(d) Interpretation of statutes---

----Provision couched in negative language to be construed as mandatory.

Atta Muhammad Qureshi v. The Settlement Commissioner, Lahore Division, Lahore and 2 others PLD 1971 SC 61; Crawford on Statutory Law Monogram 263 at p. 253 and Bindra on Interpretation of Statutes, 7th Edition, p. 658 ref.

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

----Ss.59(4) & 61---C.B.R: Circular No.4 of 1987, dated 1-7-1987---Self Assessment Scheme (1987-88)---Assessment year 1987-88---Failure of Income tax Officer to pass order in terms of S.59(4) before 30-6-1988---Consequence of such failure would be that the Income-tax Officer could not pass any order subsequently---Mere fact that the assessee had not paid the total amount of tax did not entitle the Department to deny the immunity to the assessee especially on being pointed out that assessee had duly paid the remaining amount of tax---Discretion has to be exercised judiciously and not arbitrarily.

In the present case it was contended the only effect of an order not having been passed on the return of the assessment was that assessment could not be made under the Self-Assessment Scheme but the Income Tax Authorities were free to proceed under the normal law. To accept such a contention would amount to allowing premium to the Department for their neglect and inaction to the prejudice of the assessee. It is axiomatic that no one can be allowed to benefit from its own wrongs and defaults. It will be incongruous to hold that on account of failure of department to comply with the provisions of section 59(4) by the Income Tax Authorities, the assessee has been deprived of the benefit conferred upon it by the law of being assessed under the Self-Assessment Scheme and immunity from total audit under the normal law. On no reasonable basis, can such an interpretation be accepted. The consequence of the failure to pass order in terms of section 59(4) of the Ordinance, would be that the respondents cannot pass any order subsequently.

Even otherwise there appears to be hardly any justification for the Income-tax Officer to have issued notice under section 61 of the Ordinance. The Central Board of Revenue in exercise of the powers conferred upon it by section 59 of the Ordinance, had, by issuing Circular No.4 of 1987 on 1-7-1987, formulated the Self-Assessment Scheme for the year 1987-88. According to the assessee its case was duly covered by the Scheme and, therefore, qualified for self-assessment, as the Income declared by it was more than 20% of the last assessed income, which fact has not been disputed by the department.

The Income Tax Officer realising that he had, contrary to section 59(4) of the Ordinance, failed to pass any order in respect of the return of the assessee before 30-6-1988 tried to invoke the provisions of normal law, so as to cover his default. The first notice was issued in this behalf on 9-4-1990 in which the assessee was asked to furnish certain information and to appear alongwith the books of accounts maintained by him. No reason was mentioned either in the notice or in the letter as to why the case was not processed under the Self-Assessment Scheme. When this fact was pointed out to the Income Tax Officer, he on 5-5-1990, wrote that as the tax paid by the assessee alongwith the return was less by Rs.8,825, he could not claim immunity from assessment under the Self-Assessment Scheme. The assessee was called upon to give his explanation on this point. This payment was duly made by the assessee and a copy of the challan showing this payment was sent to the Income Tax Officer. At that time, there was neither any allegation nor any dispute that the assessee had concealed his income. There was no provision in the Self-assessment Scheme for the year 1987-88, providing for the loss of immunity from the total audit in case of failure to pay the exact amount of tax due, although such a provision does exist in the Scheme for subsequent years. Consequently, the mere fact that the assessee had not paid the total amount of tax, did not entitle the Department to deny the immunity to the assessee especially on being pointed out that the assessee had duly paid the remaining amount of tax.

Even in cases where a discretion vests in the Income Tax Authority to deny the immunity, that power being discretionary should be exercised reasonably and not arbitrarily.

Even if it be assumed that the tax paid by the assessee at the time of submitting his return under the Self-Assessment Scheme was short by Rs.8,825, as the denial of immunity was discretionary with the Income Tax Officer, he could not arbitrarily refuse to extend the benefit of the Scheme to the petitioner on such a ground.

Nagina Silk Mill, Lyallpur v. The Income Tax Officer, A-Ward Lyallpur and another PLD 1963 SC 322 and M/s. Novitas International v. Income Tax Officer (Films Circle) and others 1991 PTD 968 ref.

(f) Income-tax---

----Concealment---Meaning.

Chapal Builders v. Income Tax Officer and another 1990 PTD 62 ref.

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

----S.59---Constitution of Pakistan (1973), Art.199---Constitutional petition-- Maintainability---When Constitutional petition was filed assessment order had not been passed by the I.T.O. and there was no order of assessment in existence---By passing assessment order during the pendency of Constitutional petition, it was not open to the department to render the Constitutional proceedings as not maintainable.

Hamdard Dawakhana (Waqf) Pakistan v. Commissioner of Income Tax Central Zone `B', Karachi and another 1990 PTD 955 and Calcutta Discount Co. Ltd. v. Income Tax Officer, Companies District I, Calcutta and another 41 ITR 191 ref.

(h) Income-tax---

----Stay order---Assessment order passed after the stay order had been granted to the assessee by High Court was nullity in the eyes of law.

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

----S.59---Constitution of Pakistan (1973), Art.199---Self-Assessment Scheme, 1987-88---Constitutional petition--Maintainability---Where- the power to exclude case from Self-Assessment Scheme had been exercised arbitrarily, the error could be corrected in the Constitutional jurisdiction of the High Court.

M/s. Novitas International v. Income Tax Officer (Films Circle) and others 1991 PTD 968; Chapal Builders v. Income Tax Officer and another 19911 PTD 62; Hamdard Dawakhana (Waqf) Pakistan v. Commissioner of Income Tax, Central Zone, `B' Karachi and another 1990 PTD 955; Calcutta Discount Co. Ltd. v. Income Tax Officer, Companies District I, Calcutta and another 41 ITR 91 and Edulji Dinshaw Limited v. Income Tax Officer PLD 1990 SC 399 ref.

(j) Income-tax---

----Constitution of Pakistan (1973), Art.199---Writ---Notwithstanding the departmental remedies, the High Court can in a suitable case, interfere in the exercise of its Constitutional jurisdiction with the orders passed by the Income Tax Authorities.

Edulji Dinshaw Limited v. Income Tax Officer PLD 1990 SC 399 ref.

Muhammad Amin Butt for Petitioner.

Muhammad Ilyas Khan for Respondents.

Date of hearing: 2nd November, 1992.

JUDGMENT

The petitioner, M/s. Shoaib Bilal Corporation, is an association of persons and was being assessed to income tax as such. It filed its return for the assessment year 1987-88, declaring income of Rs.3,20,500 under the Self Assessment Scheme. According to the petitioner, as the income declared by it was, in excess of the last assessed income of Rs.1,53,900 by more than 20%, the return qualified for immunity from total audit was liable to be dealt with under the Self-Assessment Scheme.

2. However, on 9-4-1990, the petitioner was called upon by the Income Tax Officer to produce its record as also to provide certain information. A notice under section 61 of the Income Tax Ordinance, 1979, was also issued on the same date. In its reply, the petitioner pointed out that the assessment should have been completed under the Self-Assessment Scheme and no proceedings could be taken under the normal law. On 5-5-1990, respondent No.2 wrote to the petitioner, informing it that the immunity claimed by it could not be granted, as the total tax paid at the time of filing the return was short by Rs.8,825. This amount was deposited by the petitioner on 16-5-1990 of which respondent No.2 was duly informed.

3. On 26-5-1990, the petitioner was issued a notice wherein it was alleged that it had concealed its true income and its return did not, therefore, qualify for acceptance under the Self-Assessment Scheme. The petitioner was called upon to furnish information and documents mentioned in that notice. The petitioner objected to the issuance of the notice by filing a representation before respondent No.1, which was rejected on 18-6-1990 on the ground that the petitioner should seek judicial remedy against the action of respondent No.2. The petitioner thereupon filed a revision before respondent No.1, which was heard on 23-6-1990 and was dismissed. According to the petitioner the order in revision was received by it on 21-7-1990.

4. In the meanwhile, the petitioner had filed this constitutional petition on 26-6-1990, challenging the issuance of notice, dated 9-4-1990 under section 61 of the Income Tax Ordinance, 1979 by respondent No.2 as being without lawful authority.

5. When this petition came up for hearing on 27-6-1990, Mr. A.H. Najfi, the learned Legal Advisor for the Income Tax Department entered appearance under the direction of this Court and a copy of this petition was handed over to him. The case was adjourned to 30-6-1990, on which date while adjourning the case on the request of learned counsel for the respondent, the proceedings before the Income Tax Officer were stayed. On 9-7-1990, Mr. A.H. Najfi, Advocate, stated that the assessment had already been finalized on 30-6-1990 and, therefore, this petition had become infructuous. As this development had taken place during the pendency of this petition, learned counsel for the petitioner sought time to obtain instructions. On 10-7-1990, an affidavit of Syed Saghir Tirmizey, Advocate, Faisalabad, was placed on record, in which it was deposed that the stay order issued by this Court was duly brought to the notice of Income Tax Officer but notwithstanding that respondent No.2 had proceeded in the matter. The petitioner prayed permission to amend the petition, which request was not opposed by learned counsel for the respondents and was granted. The petitioner, therefore, filed the amended petition, to which a written statement has also been submitted by the respondents.

6. Learned counsel for the petitioner, in support of this petition, has raised the following contentions:

(1) that the return filed by the petitioner under the Self-Assessment Scheme qualified for immunity from total audit under para 6 of the said Scheme and as such the notice issued by respondent No.2 under section 61 of the Income Tax Ordinance, 1979 was illegal and without jurisdiction;

(2) that on admitted facts, there was neither any concealment nor any material available with the respondents to show that the income had been concealed by the petitioner therefore, the notices, issued, and the assessment made, are bad in law;

(3) that under section 59(4) of the Income Tax Ordinance, 1979, the order of assessment should have been passed before 30-6-1988 and not subsequently. On account of failure of the respondent to pass such an order, the petitioner had acquired a vested right not to be assessed, which could. not be taken away; and

(4) that the assessment has been made after the issuance of the stay order by this Court on 30-6-1990, therefore, it is a nullity in the eyes of law.

7. In reply, learned counsel for the respondents objected to the maintainability of this petition on the ground that an assessment order has already been passed, against which the petitioner had filed an appeal before the Commissioner of Income Tax, which is pending. On merits, it was maintained that the case of the petitioner did not qualify for immunity in terms of clause 8 of the Self-Assessment Scheme promulgated by the Central Board of Revenue for the year 1987-88 and, therefore, the assessment under the normal law could be made. It was asserted that there was positive evidence of understatement of sale price of certain plots which amounted to concealment and, therefore, the respondent was justified in issuing the notice under Section 61 of the Income Tax Ordinance, 1979. It was claimed that the stay order issued by this Court had reached the respondent late on 30-6-1990, by which time the assessment had already been made.

8. Before proceeding to deal with other contentions, it is necessary to take notice of the last argument of learned counsel for the petitioner, namely, that the assessment was made after the issuance of the stay order by this Court on 3Q-6-1990. Although there is a dispute between the parties as to whether the order passed this Court on 27-6-1990 was communicated to the respondents but the fact remains that on 30-6-1990, this Court had stayed the proceedings before the Income Tax Officer. It was not stated by learned counsel for the respondent at that time that an assessment order had already been made. It is well-settled that stay order, unlike injunctions operates from the moment, it is passed irrespective of the time of its communication. Authority, if any needed can be found in Haji Abdul Jalil v. Javed Ahmad 1983 SCMR 869, Bakhtawar etc. v. Amin etc. 1980 SCMR 89 and the leading case, namely, Karamat v. Raja PLD 1949 Lahore 100. As already observed, at the time when the stay order was issued by this Court on 30th of June, 1990, it was not the case of the respondents nor was it asserted before this Court that the order of assessment has already been passed. Even in the written statement, there is no such assertion, but on the other hand, what has been stated is that by the time, respondent No.2 had received the telex, informing him about the stay of the proceedings, he had finalized the assessment. Legally speaking, the communication of the order is not relevant. Even if the Income-tax Officer was not aware of the stay order granted by this Court, all the proceedings taken subsequent to it are nullity in the eyes of law.

9. However, the third contention of learned counsel for the petitioner is equally well-merited. It is obvious from the bare reading of section 59(4) of the Income Tax Ordinance, 1979, that the Income Tax Officer is required to pass any order on the return submitted by the assessee before 30-6-1988, whereafter no order in terms of section 59(1) of the Ordinance can be passed. Subsection (4) of section 59 of the Ordinance is couched in negative language and is, therefore, according to the well-accepted principles of interpretation to be construed as mandatory. (See Atta Muhammad Qureshi v. The Settlement Commissioner, Lahore Division, Lahore and 2 others PLD 1971 SC 61 also Crawford on Statutory Law Monogram 263 at page 253 and Bindra on Interpretation of Sstatutes 7th Edition, page 658).

10. On account of the failure of the Income Tax Officer to pass any order on the return of the petitioner before 30-6-1988, the petitioner had acquired a vested right of escaping assessment, which could not be taken away. In Nagina Silk Mill, Lyallpur v. The Income Tax Officer, A-Ward Lyallpur and another PLD 1963 SC 322, one of the questions, which arose before the Court, was as to what was the effect of change brought about in the period of limitation. In that context at page 332 of the report it was observed that "the appellant therein had acquired the vested right of escaping assessment by lapse of time when the 1960 Ordinance was enforced", that right could not be taken away. The said principle applies also in the present case where on account of non observance of a mandatory provision of law, the petitioner acquired a vested right of escaping assessment, which could not be taken away.

11. I am not persuaded to agree with the learned counsel for the respondents that the only effect of an order not having been passed on the return of the assessment could not be 'made under the Self-Assessment Scheme but the respondents were free to proceed under the normal law. To accept such a contention would amount to allowing premium to the respondents for their neglect and inaction to the prejudice of the assessee. It is axiomatic that no one can be allowed to benefit from its own wrongs and defaults. It will be incongruous to hold that on account of failure of respondents to comply with the provisions of section 59(4) by the Income Tax Authorities, the petitioner has been deprived of the benefit conferred upon it by the law of being assessed under the Self-Assessment Scheme and immunity from total audit under the normal law. On no reasonable basis, can such an interpretation be accepted. The consequence of the failure to pass order in 6 terms of section 59(4) of the Ordinance, would be that the respondents cannot pass any order subsequently.

12. Even otherwise there appears to be hardly any justification for the Income Tax Officer to have issued notice impugned under section 61 of the Ordinance. The Central Board of Revenue in exercise of the powers conferred upon it by section 59 of the Ordinance, had, by issuing Circular No.4 of 1987 on 1-7-1987, formulated the Self-Assessment Scheme for the year 1987-88. According to the petitioner its case was duly covered by the Scheme and, therefore, qualified for self-assessment, as the Income declared by it was more than 20% of the last assessed income, which fact has not been disputed by learned counsel for the respondents.

13. From the record, it appears that the Income Tax Officer realising that he had, contrary to section 59(4) of the Ordinance; failed to pass any order in respect of the return of the petitioner before 30-6-1988 tried to invoke the provisions of normal law, so as to cover his default. The first notice was issued by respondent No.2 in this behalf on 9-4-1990 in which the petitioner was asked to furnish certain information and to appear alongwith the books of accounts maintained by him. No reason was mentioned either in the notice or in the letter as to why the case was not processed under the Self-Assessment Scheme. When this fact was pointed out to the Income Tax Officer, he on 5-5-1990, wrote that as the tax paid by the petitioner alongwith the return was less by Rs.8,825, he could not claim immunity from assessment under the Self Assessment Scheme. The petitioner was called upon to give his explanation on this point. This payment was duly made by the petitioner and a copy of the challan showing this payment was sent to the Income Tax Officer. At that time, there was neither any allegation nor any dispute that the petitioner had concealed his income. It is to be noticed that there was no provision in the Self Assessment Scheme for the year 1987-88, providing for the loss of immunity from the total audit in case of failure to pay the exact amount of tax due, although such a provision does exist in the Scheme for subsequent years. Consequently, the mere fact that the petitioner had not paid the total amount of tax, did not entitle the respondent to deny the immunity to the petitioner, especially on being pointed out that the petitioner duly paid the remaining amount of tax.

14. Even in cases where a discretion vests in the Income Tax Authority to deny the immunity, it has been held by the superior Courts that power beingdiscretionary should be exercised reasonably and not arbitrarily. Reference in this connection may be made to the authority of the Supreme Court in M/s. Novitas International v. Income Tax Officer (Films Circle) and others 1991 PTD 968. In that case, although the petitioner was eligible for assessment under the Self-Assessment Scheme but he was denied that benefit on the ground that the documents, which were required to be annexed with the return as per claim had not been filed. The Supreme Court was pleased to strike down the refusal to advance benefit of the Self-Assessment Scneme to the assessee. In view of this authoritative pronouncement even if it be assumed I that the tax paid by the petitioner at the time of submitting his return under the Self Assessment Scheme was short by Rs.8,825, as the denial of immunity was discretionary with the Income Tax Officer, he could not arbitrarily refuse to extend the benefit of the Scheme to the petitioner on such a ground.

15. Reverting now to the dispute as regards the allegations of concealment of income of the petitioner, it is to be seen that it was for the first time on 29-5-1990 alleged that there was positive evidence available with the respondent showing that he had grossly understated the sale price of the plots sold by him. In the earlier notices dated 9-4-1990 as also the letter, dated 5-5 -1990, no such assertion was made nor was it pointed out that there was any evidence in possession of the respondents to show that there was concealment of its income by the petitioner. There is, thus, great deal of force in the contention of learned counsel for the petitioner that the notice Annexure E was issued to create some justification for denial of the benefit of the Self Assessment Scheme to the petitioner by invoking para 8. It is further pointed out by learned counsel for the petitioner that the dispute as regards the sale price of the plots stands settled between the parties by the order of the Commissioner of Income Tax dated 6-1-1990 while deciding the appeal filed by the petitioner in respect of the assessment for the year 1985-86. That order of the Commissioner does lend support to this contention of the learned counsel. The Commissioner of Income Tax, while setting aside the addition made by the Income Tax Officer as difference between the market price and declared selling price of the plots in question had made the following observations:

"(a) The ITO has in his long assessment order has not applied his mind in bringing out the motive of the appellant in effecting such as understated selling price which ultimately would make the settlement of the finally purchased price offered to the MEO difficult entailing forfeiture of security deposit of Rs.42,00,000 (as was the case in fact) and also entailing a bank rate at 15% to be charged extra besides other financial constraints as become the case in the supplementary agreement executed between the MEO and the appellant. Moreover in his enthusiasm the ITO did not bother to summon a single purchaser of these plots who could vouch that the sale price agreed upon was understated. In the parallel instances cited by him none pertained to vacant plots as in each case the prices included those of the superstructure on them, which are hardly comparable.

(b) The ITO did not appreciate the peculiar circumstances in which the appellant was placed. He has dislodged the theory of `distress selling' without appreciating the background of the case and giving cogent reasons for discarding the same. Logically speaking even if it is presumed for the sake of argument that the appellant earned some profit purported to be the difference in selling rates, why could he not then save his forfeiture of security deposit of Rs.42 lacs, which is a considerable sum to be given up. The ITO would like the Court to believe that while the appellant was dealing in shady underhand settlement of the actual price of plots, the Military Estate Officer acting on behalf of the Presiding Officer was oblivious of the alleged prevailing market rates and would allow lower sale price to be fixed at the detriment of the Government and his own interest which lay in the finalization of the final contract.

The ITO has failed to establish the basis as well as the motive for the price quoted in the registered sale documents alleged by him to be understated. Similarly, the ITO has failed to establish that there was any concealment on the part of the appellant since the alleged notional income was in fact not earned by the appellant. In the light of the above, the addition made on account of difference of market price and the declared selling price at Rs.84,76,450 for the assessment year 1985-86 is accordingly deleted."

It is also significant to point out that even in the notice, dated 29-5 1990, nature of evidence in possession of the Income Tax Officer was not disclosed. The allegation in this behalf to say the least appears to be highly vague. It is also doubtful as to whether the declaration about the price of the property would amount to concealment within the meaning of para 8 of the Self-Assessment Scheme. But in view of the findings already recorded, no detailed discussion on this aspect is called for. Reference may, however, be made to the Division Bench's judgment of the Sindh High Court in Chapal Builders v. Income Tax Officer and another 1990 PTD 62, where the meaning of term `concealment' has been explained in detail.

16. So far as the objection of learned counsel for the respondents as to the maintainability of this petition on the ground that the order of assessment has already been passed and the petitioner has invoked the appellate jurisdiction of the Commissioner of Income Tax is concerned, it needs to be stated that at the time when the petitioner filed this petition, there was no order of assessment in existence. By passing such an order during the pendency of this petition, it is not open to the petitioner to render the proceedings as not maintainable. In this behalf, reference may be made to Hamdard Dawakhana (Waqf) Pakistan v. Commissioner of Income Tax Central Zone, `B' Karachi and another 1990 PTD 955 and Calcutta Discount Co. Ltd. v. Income Tax Officer, Companies District I, Calcutta, and another 41 ITR 191. Moreover, as already held, the assessment order was passed after the stay order has been granted by this Court and, therefore, is a nullity in the eyes of law. In these circumstances, the objection of learned counsel for the respondents as to the maintainability of this petition is highly misconceived. Be that as it may, in M/s. Navitas International's case supra, while repelling a similar objection, the Supreme Court of Pakistan was pleased to observe that where the power to exclude a case from self-assessment had been exercised, arbitrarily the error can be corrected in the Constitutional jurisdiction of this Court. Reference may also be made to Edulji Dinshaw Limited v. Income Tax Officer PLD 1990 SC 399, wherein it was held that notwithstanding the departmental remedies, the High Court can, in a suitable case, interfere in the exercise of its Constitutional jurisdiction with the orders passed by the Income Tax Authorities.

For the aforesaid reasons, this petition is accepted and the notice issued by respondent No.2 in respect of the assessment of the petitioner for the n year 1987-88 is declared to be without lawful authority and of no legal effect.

The respondents shall also be liable to pay the costs of this petition to the petitioner.

M.B.A./S-235/L Petition accepted.