Income Tax Ordinance (XXXI of 1979)---

----Ss. 136(1) & 135---Income Tax Appellate Tribunals Rules, 1981, R.20(2)-- Reference ---Only a question of law arising out of the order of the Income Tax Appellate Tribunal passed on appeal can be referred to the High Court and none other---Order of Income Tax Appellate Tribunal on miscellaneous application recalling and setting aside the earlier order being not an order disposing of an appeal under S.135, .Income Tax Ordinance, 1979 and question of ,law to be referred having neither been raised nor argued, objection against maintainability of reference was justified in circumstances.

M/s. Ahmad Karachi Halwa Merchants and Ahmad Food Products v. CIT, South Zone, Karachi 1982 SCMR -489; CIT, Madras v. MTT AR. S.AR. Arunachalam Chetti AR (1953) 23 ITR 180; National Engineering Metal Industries v. CIT, Patiala II (1979) 120 ITR 574; Re: CIT, Madras v. O.R.M. MSM. SV. Sevugan (1948) 16 ITR 59; 1973 PTD 544; 1973 PTD 530; CIT v. Scindia Steam Navigation Company Ltd. (1961) 42 ITR 589; 1994 PTD (Trib.) 565; CIT, Bombay v. Bombay Dyeing and Manufacturing Company Ltd. (1971) 82 ITR $92; Vendantham Ranghaviah v. Third Additional Income Tax Officer. Madras (1963) 49 ITR 314; Muhammad Amjad v. CIT and others 1992 PTD 513 and Shanti Vijay & Company v. CIT 1983 ITR 154 ref.

Mian Javeed-ur-Rehman, D.R. for Applicant.

Shahbaz Butt for Respondent.

Date of hearing: 21st December 1993,

ORDER

NASIM SIKANDAR (JUDICIAL MEMBER).--Through these applications under section 136(1) of the Income Tax Ordinance, Commissioner of Income Tax Companies, Lahore seeks reference of the following question of law said to have arisen out of the consolidated order of this Tribunal, dated 8-12-1991 recorded on miscellaneous applications moved by the assessee-respondent and registered as MA. No.107 to 109/LB/1991-92 (assessment years 1983-84 to 1985-86):

QUESTION OF LAW

"Whether on the facts and in the circumstances of the case the learned Tribunal was justified to recall its order on the miscellaneous applications of the assessee while it was already decided ex parte on merits on 16-9-1991 under clause 2 of the Rule 20 of the Income Tax Appellate Tribunal Rules?"

2. The assessee-respondent is a private limited company and derives income from running a school. For the assessment year 1983-84 to 1985-86 it challenged a consolidated order of AAC, Range F, Lahore, dated 18-4-1987 by way of three appeals registered as ITAs Nos.5481 to 5483 of 1986-87. These appeals came up for disposal before a Single Bench on 16-9-1991 and were disposed of in absence of the assessee by resort to provisions Rule 20(2) of the income Tax Appellate Tribunal Rules, 1981. The assessee-company filed miscellaneous applications Nos.107 to 109/LB/1991-92 praying for setting aside of the order passed in its absence. These miscellaneous applications were accepted by a Single Bench on 8-12-1991. The earlier order passed in appeals was recalled and the appeals were decided on merits on the same day after hearing both- the of parties. According to the Revenue as explained in the "statement of the case," this Tribunal proceeded ex parte on 16-9-1991 under clause 2 of Rule 20 of the said Rules of this Tribunal and that there being no enabling provisions in the Rules, the recalling of the said order was not warranted by law. It is, therefore, submitted that the aforesaid question of law arises out of the order of this Tribunal, dated 8-12-1991 whereby the earlier order was recalled.

3. In reply to the reference application submitted under Rule 35 of the Income Tax Appellate Tribunal Rules, 1981 the assessee contended that this Tribunal having recalled the order on account of insufficiency of service of hearing notice no question of law whatsoever emerged from the order. At the time of arguments, however, learned counsel for the assessee has raised a number of legal objections qua maintainability of the reference applications. It is submitted that an order rendered on a miscellaneous application is not an order recorded under section 135 of the Ordinance. Therefore, no question of law can be said to have arisen "out of such order" as contemplated in section 136(1) of the Ordinance and that only a question duly raised and argued before the Tribunal in appeal could be referred to the High Court. Reliance in this regard is placed upon 1982 SCMR 489 re: M/s. Ahmad Karachi Halwa Merchants and Ahmad Food Products v. CIT South Zone, Karachi. In further support of this contention that the jurisdiction of the Tribunal to make a reference and of the High Court to return an answer is conditional on there being an order by the Appellate Tribunal which may be said to be one under section 135 and a question of law arisen from such an order, reliance is placed upon three cases of foreign jurisdiction. These being (1953) 23 ITR 180 re: CIT, Madras v. MTT. AR. SAR. Arunachalam Chetti AR: (1979) 120 ITR 574 re: National Engineering Metal Industries v. CIT Patiala II and (1948) 16 ITR 59 re: CIT Madras v. O.RM. M. SM. SV. Sevugan. On merits it is submitted that the stated question is an obvious one inasmuch as the interpretation being attempted to be placed on proviso to. Rule 20 of the Rules of this Tribunal is per se fallacious. For, the proviso to the said rule is relatable to both sub-rules (2) and (3) and not to sub-rule (3) only. It is, therefore, submitted that the Tribunal is competent to recall its order rendered under sub-rule (2) of Rule 20 whereby an appeal is decided on merits in the absence of any one of the parties.

4. Reference of a question of law to the High Court as provided in section 136 of the Ordinance. Subsection (1) of this section is relevant for our purpose which reads as under:

136. Reference to High Court.---(1) Within ninety days of the date upon which he is served with notice of an order under section 135, the assessee or the Commissioner may, by application in such form and accompanied by such documents as may be prescribed, require the Appellate Tribunal to refer to the High Court any question of law arising out of the such order, and the Appellate Tribunal shall, within ninety days of the receipt of such application, draw up a statement of the case and refer it to the-High Court."

5. This provision when seen in the light of those contained in section 135 of the Ordinance of which express mentioned has been made, the objection against maintainability of these reference applications becomes pertinent. It may be noted that late Income Tax Act, 1922 contained similar provision for reference in subsection 1 of section 66.

6. The objection against maintainability of these reference applications has two directions. Firstly that an order recorded on miscellaneous application praying for recalling of an order is not the one under section 135 of the Income Tax Ordinance and second that an order recorded on a miscellaneous application cannot be referred to the High Court even if a question of law does arise out of such an order. The arguments against maintainability have also been supported by citing the 1982 SCMR 489 (supra) to say that even in cases of orders recorded on appeal only those questions could be referred which were duly raised, argued and decided by the Tribunal much less, to say of a matter which was never a moot point before the Tribunal. In this case the Supreme Court of Pakistan expounded the connotations of the words "arising out of such order" appearing in section 66(1) of the Act. These words appear in the corresponding provisions of section 136(1) of the Income Tax Ordinance in exactly the same manner. The Supreme Court of Pakistan after concluding as aforesaid dissented from the two decisions by the Lahore High Court cited as 1973 PTD 544 and 1973 PTD 530.

7. In case of the National Engineering and Metal Industries (supra) a Division Bench of the Punjab and Haryana High Court held that only a question of law arising out of an order of the Tribunal in appeal could be referred to the High Court and not the point of law raised in a miscellaneous (rectification) application. In this case the Tribunal considered and ruled upon two questions raised before it in appeal. The first was whether the assessee had concealed its income and the second as to what should be the quantum of penalty. The Tribunal held the assessee to be guilty of concealment but ordered reduction in the penalty imposed. The assessee moved an application for rectification after recording of the appellate order, which was dismissed by the Tribunal. The assessee filed an application praying reference of a number of questions of law allegedly arising out of the order recorded on the miscellaneous applications. This application was rejected by the Tribunal following a decision of the Supreme Court of India recorded in re: CIT v. Scindia Steam Navigation Company Limited cited as (1961) 42 ITR 589. And, on further application before the High Court their Lordships refused to direct the Tribunal to state a case and refer the questions alleged to have arisen out of the said miscellaneous application. It needs to be noted that the Supreme Court of India in the case of Scindia Steam Navigation Company Limited (supra) which is a land mark case on the subject while confirming the dismissal of a reference application held that a question of law could be said to arise out of the Tribunal's order only if it was dealt with by the Tribunal or raised before it though not decided by the Tribunal. It may also be noticed that Supreme Court of Pakistan in the above-referred case re: Ahmad Karachi Halwa Merchants 1982 SCMR 489 favored the majority view taken by the Supreme Court of India in this case. And, as observed earlier, overruled the judgment of the Lahore High Court 1973 PTD 530 wherein minority view was adopted and followed.

8. In CIT Madras v. O.RM.M.M. SU Sevugan (1948) 16 ITR 59 an assessment was effected on the assessee as a Karta of Hindu undivided family. The assessment order was upheld by the AAC but his appeal was allowed by the Tribunal. Subsequently the assessing officer filed an application requesting the Tribunal to rectify a statement contained in the statement of facts; the mistake being that the assessment had been made upon a firm whereas in fact it had been made upon a Karta of the joint Hindu family. This application was allowed by the Tribunal although the exact effect of the acceptance of appeal did not change. The Commissioner of Income Tax thereafter made an application seeking reference of certain questions of law said to have arisen from the original appellate order of the Tribunal before rectification. However, this application was immediately withdrawn and therefore dismissed as such. Subsequently another application seeking a reference to the High Court was made which was allowed by the Tribunal and a case was stated for the opinion of the Madras High Court. When this reference application came up for hearing before their Lordships an objection was raised by the assessable that the reference application before the Tribunal was barred by time if taken to have pertained to the original appellate order though it was within time if period was reckoned from the date of allowing of the said miscellaneous application for rectification. Gentle, CJ speaking for the Division Bench observed that the time during which a reference application could have been made to the Tribunal commenced from the date of service of original order of the Tribunal and that grant of application for rectification correcting an error in the original order was not. an order within section 33(4) of the Act nor the one in respect of which section 66(1) enabled a case to be stated. The Court, therefore, refused to answer the question referred to it by the Tribunal holding the same to have been barred by time and also that the Tribunal should not have referred the question to the Court.

9. In CIT v. MTT. AR. S. AR: Arunachalam Chettiar (1953) 23 ITR 180, an assessee who was assessed to tax on certain foreign income on accrual and remittance basis appealed to the appellate Tribunal against disallowance of certain expenses by the Income Tax authorities. The Tribunal allowed two items of expenses, and therefore, partly allowed the appeal. When the matter came before the assessing officer to give appeal effect he made a recomputations and included a certain sum as unassessed foreign income pertaining to earlier years allegedly remitted to India during the relevant assessment year. The assessee again filed an appeal against this inclusion, which was declined by the Appellate Assistant Commissioner on the ground that the assessee had no right of appeal under section 30 because there had been no assessment under section 29 and that no notice of demand had been served upon him under section 29. There upon the assessee filed a miscellaneous application before 'the Tribunal on which it was held that the finding of the ITO that the sum was to be assessed as untaxed profits of earlier years allegedly remitted to, India during the assessment year did not arise in the course of giving effect to the order of the Tribunal. Accordingly the Tribunal cancelled that finding and directed the assessing officer to revise the computation, The Commissioner of Income Tax then made an application to the Tribunal under section 66(1) for reference of certain questions of law. The Tribunal referred only one question but on the application of the Commissioner under section 66(2) the High Court directed the Tribunal to refer the other question as well when these two references came up for hearing the High Court relying on its earlier decision in re: CIT Madras v. O. RM. M.M. SU Sevugan (1948) 16 ITR 59 held that the references were incompetent and refused to answer the questions referred. The Commissioner of Income Tax sought leave to appeal to the Supreme Court under section 66A of the late Act, The Supreme Court on appeal affirmed the decision of the Madras High Court and held that the order recorded by the Appellate Tribunal on the miscellaneous application could not be regarded as an order under section 33(4) so as to attract the operation of section 66 and, therefore, the High Court could decline to entertain the references.

10. The provisions of section 136(1) of the Ordinance when seen in the light of the case-law discussed above unequivocally point out that only a question of law arising out of the order of this Tribunal passed on appeal can be referred to the High Court and none other. In this connection we have also benefited from a case recently decided by this Tribunal reported as 1994 PTD (Trib.) 565 wherein Mr. Abrar Hussain Naqvi, Chairman, as he then was, followed (1953) 23 ITR 180 (supra). We have also noted the distinction that he drew between an order passed on an application refusing rectification and the one which became part of the original order in case the rectification was allowed and hence the later view of Supreme Court of India in re: CIT (Bombay v. Bombay Dyeing and Manufacturing Company Limited cited as (1971) 82 ITR 892. In this case the ITO while framing an assessment allowed deduction of two allowances as claimed by the assessee; the first sum paid as pension to the widow of an ex-employee and the second paid to a Swiss firm as consultation fee. Subsequently while framing assessment for the succeeding year, he reopened the said assessment and disallowed both of these claims. The reasons assigned being that there was no evidence to show that the sum paid as pension was expended or laid out exclusively for the purpose of business and that, as for the second item was concerned, the same was a capital expenditure. The assessee failed to obtain any relief in the first appeal before the AAC. On further appeal the Income Tax Appellate Tribunal held that the ITO had information in his possession from which he could have had reason to believe that the sum paid on account of pension to the widow had escaped assessment. As to the other sum paid as consultation fee the Tribunal found that all the necessary facts having been placed before the assessing officer at the time of original assessment, he could have had no fresh information entitling him to issue a notice for reopening of the assessment on this account. Thus reopening of the assessment was upheld as regards the pension amount. On merits the Tribunal held that the claimed pension was an admissible allowance but that the payments made to the Swiss firm was a capital expenditure and, therefore, could not be deducted in computing the taxable income of the assessee. There upon the assessee moved the Tribunal to state a case and refer certain questions said to have arisen out of the order of the Tribunal. While this reference application was still pending, the assessee moved the Tribunal to rectify its order. The plea taken in this behalf was accepted that the Tribunal having positively come to the conclusion of there being no ground for the ITO to reopen the assessment in respect of consultation fee paid to the Swiss firm, yet by in advertence it disallowed the claim of the assessee. Accordingly rectification was allowed it was ordered that the assessment could not be reopened in respect of the reduction given for the payments of consultation fee to the Swiss firm. On this the department filed a reference application praying that a case be stated to the High Court on the question. "Whether on the facts and circumstances .of the case the Income Tax Appellate Tribunal was competent to rectify its order, dated 29-4-1966 in respect of the assessment year 1960-61 in regard to the sum of Rs.165-718 being the amount paid by the assessee as consultation fees. "The Tribunal refused to state a case on the ground that no question of law arose from its said finding recorded on the rectification application. The department then approached the High Court praying a direction to the Tribunal to state a case and submit the said question to the High Court. This application was dismissed summarily whereupon the appeal by special leave teas preferred before the Supreme Court of India. A Division Bench comprising of K.S. Hedge and A.N. Grover held, that the said question of law did arise from the order of the Tribunal and that the Tribunal was wrong in not stating the case and submitting the said question to the High Court. Likewise the order of the Bombay High Court in summarily dismissing the departmental application was disapproved. In our humble view both of these cases from the Indian Supreme Court although at variance on the resultant impact of acceptance of a rectification application nevertheless confirm that no case could be stated and questions alleged to have arisen from an order on a miscellaneous application referred to the High Court when these questions were not a moot point before the Tribunal. At the cost of being repetitive it is submitted that order of rectification having become part of the original order of the Tribunal and also having changed the relief earlier refused by the Tribunal in the last cited case the direction of the Supreme Court to the Tribunal to state a case does not indicate a deviation from the earlier view. The view essentially being that once an order of rectification is passed the assessment itself is modified and what remains is not the order of rectification but only the assessment as rectified. It was so laid down in Vendantham Ranghaviah v. Third Additional Income Tax Officer, Madras (1963) 49 ITR 314 and quoted with favour in 1992 PTD 513 re: Muhammad Amjad v. CIT and others. A Division Bench of the Delhi High Court in a case reported as 1983 ITR 154 re: Shanti Vijay and Company v. CIT has approved its earlier view that a reference application lies against an order, rectified under section 254 of the Indian Income Tax Act, 1961. Obviously if the rectification application is not allowed the ratio of (1979) 120 ITR 574 (supra) will appeal and no reference application will be maintainable even if a question of law does arise from the order rejecting the rectification application.

10-A. In the matter before us the parties are not at variance as for the facts leading to these applications are concerned; that the order on miscellaneous application recalling and setting aside the earlier order was not an order disposing of an appeal under section 135 of the Ordinance and that the preposition of law qua Rules as referred to in the question framed by the applicant Commissioner were neither raised or argued before, nor ruled upon, by the Tribunal. Therefore, the ratio of the cases discussed above in the circumstances apply on all fours to the facts before us. The objection against maintainability of these reference applications, consequently, must prevail.

11. All the three references applications fail.

M.B.A./44/T.T.Order accordingly.