THE COMMISSIONER OF INCOME-TAX, KARACHI VS MESSRS N.V. PHILIP'S GLOEILAMPENFABRIAKEN, KARACHI, 1993 PTD-SUPREME-COURT 865 (1993)

(On appeal from the judgment of High Court of Sindh, dated 28-2-1990, passed in Const. Petition No.D-372 of 1987).

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

----S. 65---Constitution of Pakistan (1973), Art.185(3)---Leave to appeal was granted to consider question as to whether the petition was liable to be dismissed as notice served on the assessees/respondents under S.65, and the consequential order of assessment passed by the Income Tax Officer having been merged in the order of the Commissioner of Income Tax (Appeal) at the instance of the assessees, which was not challenged by the assessees/respondents before the High Court; whether Constitutional petition submitted by the assessees/respondents had become infructuous on grounds of waiver and relinquishment and for failure to challenge the same before the High Court and because the assessees/respondents had selected the statutory remedy by submission of appeal before the Tribunal; and, whether the assessee, by selecting the statutory remedy of appeal before the Tribunal would not be entitled to seek the remedy under the Constitutional jurisdiction simultaneously.

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

----Ss. 65, 129, 130, 134 & 136---Constitution of Pakistan (1973), Art.199-- Constitutional petition---Maintainability---After issuance of notice under S.65, the Income Tax Officer had framed assessment which was challenged in appeal by the assessees before the Commissioner of Income Tax which was heard and decided on merits and after disposal of that appeal the assessees filed a second appeal before the Tribunal, which was provided by the Ordinance, and same was pending at the time when the Constitutional petition riled by the assesses challenging the issuance of notice under S.65 of the Ordinance was taken up by tire Court---High Court thus took up the petition for hearing when the notice issued under S.65 stood merged in the assessment order passed by the I.T.O. and that assessment order further got merged into the appellate order passed by the Commissioner---High Court, therefore, while declaring the notice issued to assessees under S.65 as illegal had in effect set aside the order of assessment passed by the Income. Tax Officer and the appellate order of Commissioner, which was subject-matter of appeal filed by the assessees before the Appellate Tribunal---Held, once a party opted to invoke the remedies provided for under the relevant statute, he could not at his sweet will switch over to Constitutional jurisdiction of the High Court in tire mid of the proceeding in the absence of any compelling and justifiable reason---Assessees should have' exhausted the remedies under the statute before approaching the High Court in its Constitutional jurisdiction---Supreme Court set aside the order of High Court with observation that assessees would be entitled to raise contentions before the Appellate Tribunal in their pending appeal which they could raise before Supreme Court.

Commissioner Income Tax v. Hamdard Dawakhana (Waqf), Karachi PLD 1992 SC 847; H.M. Abdullah v. Income Tax Officer CA. 51-K of 1991 and Wealth Tax Officer and others v. Shoukat and others CA. 189-K of 1991 ref.

Shaik Haider, Advocate Supreme Court, Muzaffar Hassan and S.M. Akbar, Advocates- on-Record for Appellants.

Rehan Hassan Naqvi, Advocate Supreme Court and M. S. Ghaury, Advocate-on-Record for Respondents.

Date of hearing: 31st January, 1993.

JUDGMENT

SAEEDUZZAMAN SIDDIQUI, J.---The above appeal is filed, with (cave of this Court, by the Commissioner of Income Tax, Karachi to call in question the order of High Court of Sindh, dated 28-2-1990, whereby a Constitution petition filed by respondent Company, challenging the notice dated 19-3-1987 issued under section 65 of the Income Tax Ordinance, 1979 (hereinafter to be called "the Ordinance" only) was declared as without lawful authority and of no legal effect.

The relevant fact, in the case, are that the respondent-Company, in its Income Tax return filed for the assessment year 1980-81 claimed adjustment of a sum of Rs. l,94,21,709.00 as bad debt, which was written off as a whole. The aforesaid amount was due to the respondent from M/s. Elmac Ltd. which had gone into voluntary liquidation and the respondent was informed by the liquidator of the Company that it was not in a position to pay the above amount to the respondent. The Income Tax Officer, however, disallowed the above claim of the respondent. The respondent filed an appeal before the Commissioner Income Tax against the above order of Income Tax Officer which was dismissed and thereafter he preferred a second appeal before the Income Tax Appellate Tribunal which was allowed by order dated 20-6-1983 and the amount of Rs.l,94,21,709 was treated as bad debt. The appellant filed an application under section 130 (I) of the Ordinance, for referring the question of law, arising in the case, for decision to the High Court but this application was dismissed by the Tribunal and, thereafter, the appellant did not agitate the matter any further. The Income Tax Officer, accordingly, by order dated 21-12-1983, finalized the assessment in terms of the order of the Tribunal dated 20-6-1983. On 20-2-1987, the Income Tax Officer, Companies Circle, B-3, Karachi, issued a notice to the respondent showing his intention to the case as the claim of Rs.1,94,21,709 was allowed illegally. The respondent replied this notice by letter dated 1-3-1957 denying the allegation and claiming that the proposed action by the Income Tax Officer was not permissible under the law. The Income Tax Officer, however, did not agree with the contention of the respondent and, accordingly, issued notice under section 65 of the Ordinance stating that he had reason to believe that the respondent's income assessable to income tax for the year 1980-81 has been under-assessed. The respondent challenged the validity of the above notice in Constitutional Petition No.D-372 of 1987, before the High Court of Sindh and also filed a fresh return before the Income Tax Officer, as required in the notice. The High Court, by an interim order, dated 11-5-1987 passed in the above Constitution petition, restrained the reopening of assessment for the year 1980-81 but allowed the department to send for the account books of respondent to ascertain whether the bad debts were in fact written off in the said account books in terms of the order of Tribunal. It appears that the department filed an application for modification of the interim order passed by the High Court on the grounds that in case the proposed assessment in pursuance of the notice issued under section 65 of the Ordinance, was not finalised before 30-6-1988, it would become time-barred. The High Court, accordingly, modified the interim order in the case on 5-2-1988, permitting the Income Tax Officer to pass the final order of assessment subject to the condition that the same will not be implemented till the disposal of the petition. The Income Tax Officer thereafter passed afresh order of assessment on the basis of the revised return filed by respondent. The order of Income Tax Officer was challenged by the respondent before the Commissioner of Income Tax but without any success. The respondent, thereafter, preferred a second appeal against the fresh assessment before Income Tax Appellate Tribunal which is still pending.

The Constitution petition filed by respondent, challenging the validity of notice issued to them under section 65 of the Ordinance, when came tip for hearing before the High Court, the appellant took the objection that the petition has become infructuous as the respondent has not only filed appeal against the order of fresh assessment of income tax which was dismissed but they have filed a second appeal provided under the statute which is pending before the Income Tax Appellate Tribunal. The above submission of the appellant, however, did not find favour with the High Court and same was repelled and notwithstanding the pendency of the appeal before the Appellate Tribunal, the High Court proceeded to declare the notice dated 19-3-1987 issued by the Income Tax Officer under section 65 of the Ordinance as without lawful authority and of no legal effect. Leave was granted by this Court in the case to consider the following questions of law:--

"After having heard the learned counsel in the light of the record before us we are of the opinion that the following questions of law, amongst others, deserve consideration:

(1) Whether the petition was liable to be dismissed as notice served on the assessee/respondents under section 65, and the consequential order of assessment passed by the Income Tax Officer having been merged in the order of the Commissioner of Income Tax (Appeal) at the instance of the assessee, which was not challenged by the assessee/respondents before the Honourable High Court;

(2) whether the petition No. D-372 of 1987 submitted by the assesses/respondents has become infructuous on grounds of waiver and relinquishment and for failure to challenge the same before the Honourable High Court and because the assessee/respondent has

(3) whether the assessee, by selecting the statutory remedy of appeal before the Tribunal would not be entitled to seek the remedy under the Constitutional jurisdiction simultaneously.

Leave to appeal is therefore granted and the petition is allowed."

The learned counsel for the appellant contended before us that as the alternate remedy provided under the statute was already availed by the respondent which was pending before the competent authority, the High Court should have refused to interfere in the case and directed the respondent to exhaust, in the first instance, the statutory remedy provided under the Ordinance. The learned counsel for the respondent, on the other hand, contended that the notice issued by the Income Tax Officer was wholly without jurisdiction and as such the respondent was not obliged to wait for the disposal of its pending appeal before the Tribunal.

It is an admitted position in the case that after the issuance of notice under section 65 of the Ordinance, the Income Tax Officer had framed a fresh assessment which was challenged in appeal by the respondent before the Commissioner of Income Tax, which was heard and decided on merits and after disposal of that appeal the respondent filed a second appeal before the income Tax Appellate Tribunal, which was provided under the Ordinance, and the same was pending at the time when the Constitution petition filed by the respondent challenging the issuance of notice .under section 65 of the Ordinance was taken up by the Court. It is, therefore, quite clear that at the time the High Court took up the petition for hearing, the notice issued under section 65 of the Ordinance stood merged in the assessment order passed by the Income Tax Officer and this assessment order of Income Tax Officer further got merged into the appellate order passed by the Income Tax Commissioner on 27-8-1988. The-High Court, therefore, while declaring the notice issued to respondent under section 65 of the Ordinance as illegal had in effect set aside the order of Assessment passed by Income Tax Officer and the appellate order of Commissioner of Income Tax, dated 27-8-1988, which was subject-matter of appeal filed by the respondent before Income Tax Appellate Tribunal.

In the case of Commissioner Income Tax v. Hamdard Dawakhana (Waqf), Karachi (PLD 1992 SC 847) this Court; while dealing with a similar situation, observed as follows:--

"Before parting with the judgment we may observe that in cases where any party resorts to a statutory remedy against an order he cannot abandon or bypass it without any valid and reasonable cause and rile Constitution petition challenging the same order. Such practice, in cases where statute provides alternate and efficacious remedy up to High Court, cannot be approved or encouraged. In a recent judgment of this Court in C.A. No.7)-K of 1991, one of us (Ajmal Mian, J.) in similar situation observed as follows:

`We may now revert to the question, whether the appellant was justified to file above Constitution petition against the order of the Tribunal instead of invoking section 136 of the Ordinance for making a reference to the High Court. According to Mr. Rehan Naqvi, a reference under the above provision would not have been adequate and efficacious remedy as it would have taken years before it could have been heard. The same could be true for a Constitution petition. The tendency to bypass the remedy provided under the relevant statute and to press into service Constitutional jurisdiction of the High Court has developed lately, which is to be discourage. However, in certain cases invoking of Constitutional jurisdiction of the High Court instead of availing of remedy provided for under the relevant statute may be justified, for example when the impugned order/action is palpably without jurisdiction and or mala fide. To force an aggrieved person in such a case to approach the forum provided under the relevant statute may not be just and proper.

In the present case, the appellant had opted to avail of the hierarchy of forums provided for under the Ordinance up to the stage of filing of appeal before the Tribunal and, therefore, it would have been proper oft the part of the appellant to have invoked section l36 of the Ordinance for making a reference to the High Court instead of filing a Constitutional petition. In our view once a party opts to invoke the remedies provided for under the relevant statute, he cannot at his sweet will switch over to Constitutional jurisdiction of the High Court in the mid of the proceeding in the absence of any compelling and justifiable reason."

The view taken in the above case has been reaffirmed by this Court in two recent decisions in the cases of H. M. Abdullah v. Income Tax Officer (C.A. 51-K/91) and Wealth Tax Officer and others v. Shoukat and others (C.A. 189-K/91) decided on 20th and 27th of January, 1993, respectively. The above-quoted observations fully apply in the present case, as the respondent had opted for the remedy provided under the statute which is still pending. The g respondent, therefore, should have exhausted the remedies under the statute before approaching the High Court in its Constitutional jurisdiction. The respondent would be entitled to raise all these contentions before the Income Tax Appellate Tribunal in his pending appeal which he could raise before us. We, accordingly, allow this appeal and set aside the order of High Court. There will, however, be no order as to costs, in the circumstances of the case.

M.B.A./C-129/SAppeal allowed.