(On appeal from the judgment dated 8-11-1989 passed by the Sindh High Court, Karachi, in C.P. No.293 of 1989).

(a) Cash Reward to Informers Scheme,1974---

----Paras. 1, 2, 4 & 6---Interpretation and object of Scheme---Word "tax"-- Definition---Payment to informer---Procedure.

The Scheme seems to encourage to elicit information about evasion of tax so that the same may be detected and tax may be recovered. A close scrutiny of paragraphs 1 and 2 of the Scheme will show that the reward is to be made to non-official informers who furnish specific information which may lead to detection of evasion of tax. Therefore, the most important ingredient is that the information should be specific leading to the detection of evasion of tax The Scheme also provides the amount of the reward to be paid and the method of payment has been mentioned in para. 4 which divides it into two instalments. Half is to be paid immediately on completion of assessment made after the specific information has been conveyed and the second instalement is to be paid after the appellate or the revisional authority has confirmed the order of assessment. It may be clarified that it is not the intention of the Scheme that in cases where appeal or revision has not been filed the balance reward shall not be paid. Where the assessment has been made and evasion of tax has been established but no appeal or revision as provided by law has been filed, the second instalment shall be paid. Another aspect of the Scheme is that word `tax' has been defined to include income-tax, wealth-tax, estate duty, sales tax, gift tax and central excise duty. Therefore, if information has been furnished in respect of any of the taxes or duty specified in para.6 of the Scheme, it will be covered by the Scheme.

Under the Scheme the informer is rewarded for furnishing specific information leading to the detection of evasion of tax. It does not impose any condition that such information should also lead to the recovery of tax evaded.

The scheme specifically relates to evasion of tax. Mere elimination or reduction of loss without the amount of tax sought to be evaded being quantified can hardly attract the Scheme. Para.2 of the Scheme gives the scale of rewards. According to it the reward is calculated on the basis of the amount of tax sought to be evaded. No reward can be given where even specific information supplied does not lead to assessment quantifying the tax sought to be evaded. The scale for reward is based on a certain percentage of the tax sought to be evaded as provided by para.2. Therefore, unless the amount of tax evaded is determined and quantified the amount of reward cannot be calculated.

If on the basis of information the amount of income-tax sought to be evaded could not be determined and the assessee in spite of the additions made remained in loss the informer was not entitled to the reward.

(b) Cash Reward to Informers Scheme, 1974---

----Para.4---Informer is rewarded for furnishing specific information leading to the detection of evasion of tax and Scheme does not impose any condition that such information should also lead to the recovery of tax evaded.

(c) Words and phrases---

...... Evasion" with reference to taxation laws---Meaning.

Evasion with reference to taxation laws means to illegally manipulate things in such a manner that the tax payable under law cannot be assessed. By an act of evasion the assessee can reduce his tax liability or completely eliminate it. Evasion of tax or duty is always in breach of the applicable and binding law. In taxation laws evasion will mean adoption of such deceitful mechanism and manipulation not permitted by law which may result in reduction or elimination of legal tax liability. In the field of taxation, tax avoidance and tax evasion are two different terminologies conveying completely different meaning. Tax avoidance occurs when a person in a legitimate manner as provided by law adopts a course by which the tax liability is reduced or eliminated. In doing so the assessee seeks his remedy and mechanism within the provisions of law.

Avoidance of tax is not tax evasion and it carries no ignominy with it, for it is sound law and, certainly not bad morality for anybody to so arrange his affairs as to reduce the brunt of taxation to a minimum. Avoidance of tax by adopting legal methods will not amount to evasion of tax. But the moment avoidance is sought by illegal contrivance, deceitful methods and, adopting a course not permissible in law, it turns into evasion.

Black's Law Dictionary; Ballentine's Law Dictionary; Stroud's Judicial Dictionary, 4th Edn.; Double Day Reget's Thesausus in Dictionary Form;

Aruna v. State of Mairas 55 ITR 642; Latilla v. IR il ITR Suppl. 78 (HL) and Howard v. IR 25 TC 121 ref.

(d) Taxation---

----"Evasion"---Meaning.

Black's Law Dictionary; Ballentine's Law Dictionary; Stroud's Judicial Dictionary, 4th Edn.; Double Day Reget's Thesausus in Dictionary Form; Aruna v. State of Mairas 55 ITR 642; Latilla v. IR 11 1TR Suppl. 78 (HL) and Howard v. IR 25 TC 121 ref.

(e) Cash Reward to Informers Scheme, 1974---

----Para.2---Unless the amount of tax evaded is determined and quantified the amount of reward cannot be calculated.

(f) Cash Reward to Informers Scheme, 1974---

----Para.2---If on the basis of information the amount of income-tax sought to be evaded could not be determined and the assessee in spite of the additions made, remained in loss, the informer was not entitled to the reward.

Shaikh Haider, Advocate Supreme Court with S.M. Abbas, Advocate on-Record for Appellants (in CA. No.595-K of 1990).

S. Muhammad Shahudul Haque, Advocate Supreme Court with Akhlaque Ahmed Siddiqui, Advocate-on-Record for Appellant (in CA. No.596-K of 1990).

Mansoor Ahmad Khan, Advocate Supreme Court with M.S. Ghaury, Advocate-on-Record for Respondents.

Date of hearing: 25th October, 1992.

JUDGMENT

SALEEM AKHTAR, J.---This judgment will dispose of both the appeals as they involve common question of facts and law. Respondent No.l who was an employee of Valika Chemical Industries hereinafter referred to as `Valika' taking advantage of the Cash Reward Scheme introduced by the Central Board of Revenue supplied certain informations to the Director of Intelligence and Investigation (Customs and Excise), Karachi relating to evasion of tax by Valika. As respondent No.l was not paid cash reward he filed Constitution Petition No.766 of 1980 challenging the order of petitioner No.2 dated 11-3-1980 by which the cash reward under the scheme was denied to him. The petition was allowed on 16-9-1985 with the consent of the party as the impugned order was not a speaking order. Consequently, the case was remanded to petitioner No.2 for rehearing. After the remand, petitioner No.2 awarded a sum of Rs.59,486 being the amount of cash reward in respect of the specific information furnished by respondent No.l about the evasion of excise duty by the Valika. However, his claim in respect of income-tax and sales-tax was declined on the ground that he had not furnished any specific information thereof. Respondent No.l filed Constitutional Petition No.293 of 1989 which was allowed by the impugned judgment passed by a Division Bench of the High Court of Sindh.

The learned Judges of the Division Bench after analysing Cash Reward to Informer Scheme hereinafter referred .to as the Scheme and discussing the relevant facts observed as follows: --

"From the material on record it is sufficiently established that evasion of central excise duty, sale-tax and income-tax by the Valika was the result of specific information supplied by the petitioner to the Directorate of Intelligence and Investigation (Customs and Excise), Karachi. We are, therefore, of the view that even if it is held that in respect of evasion of income-tax by the Valika the petitioner had not directly supplied information to the Income Tax Department it would not make any difference as it is not disputed by the respondents that the detection of invasion of income-tax by the Valika was also connected with the information supplied by the petitioner. The only limitation regarding payment of reward to informant provided in paragraph 4 of the scheme is, that half of the admissible reward is to be paid immediately on completion of assessment and balance after the amount of tax sought to be evaded has been finally confirmed in appeal or revision. It is not disputed before us that neither any appeal nor any revision is pending against the assessment of evaded amount of sales-tax and income-tax by the Valika. In these circumstances the respondents are bound to pay reward to the petitioner both on the amount of evaded sales-tax and income-tax in accordance with the formula prescribed. The order of respondent No.2 dated 28th May, 1988 is declared as an order without lawful authority and of no legal effect. We further direct the respondents to pay the admissible amount of cash reward in respect of the evaded amount of sales-tax and income-tax. There will however be no order as to costs in the circumstances of the case:"

Civil Appeal No.595-K of 1990 has been filed by the Commissioner of Income-tax challenging the impugned judgment as reward in respect of information conveyed relating to the evasion of income-tax was granted. Civil Appeal No.596-K of 1990 has been filed by the Collector, Central Excise and Commissioner Sales Tax in respect of reward granted relating to the information for evasion of excise duty and sales-tax. The reward in respect of excise duty was granted by the Central Board of Revenue and the same had not been challenged in the petition filed by respondent No.1. Therefore, the appeal filed by the Collector, Central Excise and Commissioner, Sales Tax is relevant to the extent of the grant of reward regarding sales tax. In order to properly appreciate the question involved it is necessary first to examine the Scheme under which respondent No.l had claimed payment of reward. It reads as follows:--

"CASH REWARD TO INFORMERS

Government of Pakistan

Ministry of Finance, Planning and Development

(Central Board of Revenue)

Islamabad, the 14th May, 1974

ORDER

In supersession of all previous rules/instructions on the subject, the Government of Pakistan is pleased to make the following order for grant of rewards to non-official informers giving specific information leading to the detection of evasion of tax.

(2) The following shall be the scale of reward

(3) Every Commissioner of Income-tax, Controller of Estate Duty and the Collector of Central Excise and Land Customs shall be the competent authority for the sanction and payment of the reward referred to in paras. 1 and 2 above.

(4) Half of the admissible reward shall be paid immediately after completion of assessment and the balance after the amount of the tax sought to be evaded has been finally confirmed in appeal or revision.

(4-A) The competent authority, if satisfied with the information leading to detection of evasion of tax, may sanction an `on account' payment not exceeding Rs.1,000, adjustable against the reward admissible under para.4, pending completion of the assessment. For `on account' payments exceeding Rs.10,000 the competent authority shall be the Central Board of Revenue.

(5) Taxation Officers and staff who show extraordinary initiative and render meritorious services in detecting tax evasion may be given cash rewards which shall not ordinarily exceed two years salary in any one case. In case of Class I Officers such rewards will be sanctioned by the Government on the recommendation of the Central Board of Revenue. In all other cases rewards may be sanctioned by the Central Board of Revenue.

(6) In this order--

`Tax' means Income tax, Wealth Tax, Estate Duty, Sales Tax, Gift Tax and Central Excise Duty.

Chairman,

Central Board of Revenue and

Secretary to the Government of Pakistan

The Scheme seems to encourage to elicit information about evasion of tax so that the same may be detected and tax may be recovered. A close scrutiny of paragraphs 1 and 2 of the Scheme will show that the reward is to be made to non-official informers who furnish specific information, which may lead to detection of evasion of tax. Therefore, the most important ingredient is that the information should be specific leading to the detection of evasion of tax. The Scheme also provides the amount of- the reward to be paid and the method of payment has been mentioned in para.4 which divides it into two instalments. Half is to be paid immediately on completion of assessment made after the specific information has been conveyed and the second instalment is to be paid after the appellate or the revisional authority has confirmed the order of assessment. It may be clarified that it is not the intention of the Scheme that in cases where appeal or revision has not been filed the balance reward shall not be paid. Where the assessment has been made and evasion of tax has been established but no appeal or revision as provided by law has been filed, the second instalment shall be paid. Another aspect of the Scheme is that word `tax' has been defined to include income-tax, wealth-tax, estate duty, sales tax, gift tax and central excise duty. Therefore, if information has been furnished in respect of any of the taxes or duty specified in para.6 of the Scheme, it will be covered by the Scheme.

So far central excise duty is concerned, the petitioners do admit that the information had led to detection of the evasion of excise duty and therefore, a reward was given to respondent No.l. Therefore, no challenge can be made to that reward. The only dispute left is in respect of reward claimed for information supplied in respect of evasion of income-tax and sales tax.

The learned counsel for the appellant has contended that no specific information was conveyed leading to detection of evasion of tax To support his contention Mr. Shaikh Haider, the learned A.S.C. for Income-tax Department referred to the sales tax assessments and income-tax assessments relevant to the information supplied by respondent No. 1 as contained in order dated 28th March, 1985 passed by the Central Board of Revenue. It reads as follows: --

Sales Tax

Income Tax

From these figures it is clear that so far sales tax assessments are concerned due to the information furnished by respondent No.l there have been additions for the years 1967-68 and 1968-69. In the assessment year 1969 -70 there does not seem to be any addition and therefore, the information supplied did not lead to any detection of evasion of sales-tax. From the order it is clear that for assessment years 1967-68 and 1968-69 additional sales tax demand, of Rs.11,73,755 was created but no recovery could be made as the Company had gone in liquidation. The Central Board of Revenue admits that the information has led to detection of evasion of sales tax and additional demand was also created against the Company but rejected on the plea that no recovery could be made. Under the Scheme the informer is rewarded for furnishing specific information leading to the detection of evasion of tax. It does not impose any condition that such information should also lead to the recovery of tax evaded. Therefore, the plea raised by the learned counsel for the appellant that as no recovery was made respondent No.l is not entitled to any reward is misconceived.

Referring to the income-tax assessment for the years 1969-70 to 1972-73 reproduced above the learned counsel contended that as in those assessment years the company had remained in loss the question of evasion of tax did not arise. The moot question will arise whether in such a situation tax has been evaded by the company/assessee. The meaning of the word `evasion' is as follows: --

BLACK'S LAW DICTIONARY:

"An act of eluding, dodging, or avoiding or avoidance by artifice. City of Wink v. Griffith Amusement Co., 129 Tax 40, 100 S.W. 2d 695, 701. A subtle endeavouring to set aside truth or to escape the punishment of the law."

BALLENTINES'S LAW DICTIONARY:

"Tax evasion. Fraud in representation or concealment in attempting to avoid payment of a tax legally due, as in the case of an income-tax, the filing of a return fraudulently understated in a wilful attempt to evade payment:"

STROUD'S JUDICIAL DICTIONARY 4TH EDITION:

"Everybody agrees that `evade' is capable of being used in two senses:

(1) which suggests underhand dealing, (2) which means nothing more than the intentional avoidance of something disagreeable" (Simms v. Registrar of Probate 69 LJPC 56). Probably, it may be said that it is in the first of these two meanings that the word is generally used in penal statues, e.g. S.27 (South Australia) Succession Duties Act, 1893 (which corresponded with S.8 of the Succession Duties Act,1853 (C.51) whereby property comprised in any `non- testimentary disposition' made `with the intent to evade the payment' of succession duty, was rendered liable to double duty. `Evade', there, means some device or stratagem; some arrangement, trust, or other device (whether concealed, or apparent on the face of the non-testimentary disposition) by which what is really a part of the estate of the deceased is made to appear to belong to somebody else in order to escape payment of duty "(per Way, CJ. adopted by P.C. Simms v. Registrar of Probates (1900) AC 323)".

THE DOUBLE DAY REGET'S THESAUSUS IN DICTIONARY FORM:

"Deceit, concealment, cover up, dodging, hedging, ducking."

Evasion with reference to taxation laws means to illegally manipulate things in such a manner that the tax payable under law cannot be assessed. By an act of evasion the assessee can reduce his tax liability or completely eliminate it. Evasion of tax or duty is always in breach of the applicable and binding law. In taxation law evasion will mean adoption of such deceitful mechanism and manipulation not permitted by law which may result in reduction or elimination of legal tax liability. In the field of taxation, tax avoidance and tax evasion are two different terminologies conveying completely different meaning. Tax avoidance occurs when a person in a legitimate manner as provided by law adopts a course by which the tax liability is reduced or eliminated. In doing so the assessee seeks his remedy and mechanism within the provisions of law. In Aruna v. State of Mairas 55 ITR 642 relying on Latilla v. IR II TTR Suppl. 78 (III) and Howard v. IR 25 TC, 121, it was observed that `avoidance of tax is not tax evasion and it carries no ignominy with it, for it is sound law and, certainly not bad morality for anybody to so arrange his affairs as to reduce the brunt of taxation to a minimum. Avoidance of tax by adopting legal methods will not amount to evasion of tax. But the moment avoidance is sought by illegal contrivance, deceitful methods and adopting a course not permissible in law, it turns into evasion.

Reverting to the facts of the case we find that the company even after detection of discrepancy in the accounts book as pointed out by respondent No.l has remained in huge losses. Mr. Mansoor Ahmed Khan pointed out that as the losses are carried over in the next assessment year and due to the information supplied the losses have been reduced, the ultimate result could be that the assessee will be taxed in future years after entire losses have been set off. This is not the intention of the Scheme. It specifically relates to evasion of tax. Mere elimination or reduction of loss without the amount of tax sought to be evaded being quantified can hardly attract the Scheme. Para.2 of the Scheme gives the scale of rewards. According to it the reward is calculated on the basis of the amount of tax sought to be evaded. No reward can be given where even specific information supplied does not lead to assessment quantifying the tax sought to be evaded. The scale for reward is based on a certain percentage of the tax sought to be evaded as provided by para.2. Therefore, unless the amount of tax evaded is determined and quantified the amount of reward cannot be calculated.

We are, therefore, of the view that as on the basis of information the amount of income-tax sought to be evaded cannot be determined because the assessee in spite of the additions made remained in loss, the informer is not entitled to the reward. It may be clarified that this interpretation of evasion is based on the language of the Scheme. The question whether concealment, misdeclaration and manipulation of account resulting in huge loss which is not the actual loss suffered by the assessee can he termed as evasion under a fiscal statute is kept open as in view of the language of the Scheme it was not necessary to decide it. We therefore, allow Appeal No.595-K of 1990 filed by the Commissioner of Income-tax and hold that so far information relating to evasion of income-tax is concerned respondent No.1 was not entitled to any reward. We, however, dismiss Appeal No.596-K of 1990 relating the reward to the paid on information relating to the detection of evasion of sales tax and excise duty. In this regard respondent No.2 would be entitled to the reward according to the scale provided by the Scheme. Parties shall bear their own costs.

M.BA./C-122/S Order accordingly.