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

----S. 134---Appeal to Appellate Tribunal---Income Tax Appellate Tribunal being a creature of a statute namely the Income Tax Ordinance, 1979, would have no jurisdiction to go into the vires of any part of the statute which had created it.

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

----Second Sched., Cl. (1), provisos [as added by Finance Act (VI of 1988), Ss.11, 2(44), 9 & 62]---Assessee, a doctor deriving income from medical profession and had also declared agricultural income---Total income-- Determination of---Assessing Officer was fully competent to determine the total income of the assessee inclusive of the agricultural income and estimate the agricultural income so as to include it in the total income for the rate purposes as he had to determine the tax payable by the assessee on the basis of such assessment.

Section 9 of the Ordinance is the charging section which provides that Income-tax is to be charged, levied and paid for each assessment year "in respect of total income of the income year or years, as the case may be of every person at the rate or rates specified in the First Schedule".

From bare reading of the definition of the total income it is evident that it is the total amount of income referred to in section 11 and computed in the manner laid down in the Ordinance. It also includes any income which under any provision of this Ordinance, is to be included in the total income of the assessee. Now clause (1) of the Second Schedule exempts the Agricultural income but proviso added to this clause by the Finance Act, 1988, specifically lays down that the agricultural income shall be included in the total income of an individual who has income from business or profession.

Reading the definition of the "total income" with Second Schedule clause (1), provisos makes it crystal clear that total income is not only the amount of income referred to in section 11 computed in the manner laid down in the Ordinance but also income which has to be included under any provision of the Ordinance and such provision is contained in the two provisos to clause (1) of the Second Schedule. The relevant section which empowers the Assessing Officer to determine the income of an assessee, inter alia is section 62 which empowers the I.T.O. to assess the total income of the assessee and to determine the tax payable by him on the basis of such assessment. The Assessing Officer while determining the total income under section 62 of the Income Tax Ordinance has to include the agricultural income in the total income under provisos to clause (1) of the Second Schedule as section 2(44) includes in the definition of the total income any income which is to be included in the total income of an assessee under any provision of the Income Tax Ordinance. These provisions thus make it absolutely clear that the assessing officer had the power to determine the total income inclusive of the agricultural income. Therefore, there is no manner of doubt whatsoever that the I.T.O. not only had the power but was duty bound to determine the total income under the Income Tax Ordinance including the agricultural income.

The Assessing Officer was competent to estimate the Agricultural Income as the Assessing Officer has not only to assess the total income of an assessee under section 62 of the Income Tax Ordinance but also he has to determine the tax payable by an assessee on the basis of such assessment.

The Assessing Officer was fully competent to estimate the agricultural income so as to include it in the total income for rate purposes.

K.G. Joseph v. I.T.O. (1980) 121 ITR 178; 1992 PTD 1; 1989 PTD (Trib.) 617; 1989 PTD 909; PLD 1964 SC 410; 1986 P T D 4; 50 Tax. 518 and (1962) 6 Tax 18 ref.

Agha Sarwar Qazalbash, D.R. for Appellant.

Dr. Ilyas War for Respondent.

Date of hearing: 1st October, 1992.

ORDER

ABRAR HUSSAIN NAQVI (CHAIRMAN).---This is a departmental appeal against an individual deriving income from medical profession as child specialist and relates to the assessment year 1989-90. In this appeal the department is aggrieved against the deletion of addition of Rs.26,160 out of the professional receipts and reduction of agricultural income from Rs.3,00,000 to Rs.1,00,000.

2. The relevant facts may here be stated that inter alia the assessee had declared the gross receipts from Clinic at Rs.1,25,265 and gross receipts from Atomic Energy Commission at Rs.26,160. Thus, total gross receipts declared by the assessee were at Rs.1,51,425. The assessee had also declared the agricultural income at Rs.1,00,000. The I.T.O. did not accept the assessee's declared gross receipts and as stated above, estimated the gross receipts from Clinic at Rs.2,26,160 including the receipts from Atomic Energy Commission at Rs.26,160. The agricultural income was estimated by the I.T.O. at Rs.3,00,000. On appeal the learned CIT (A) reduced the gross clinic receipts from Rs.2,26,160 to Rs.2,00,000 on the ground that admittedly the assessee had worked only for 267 days and that due credit should have been given for lower charges received by the assessee for the Atomic Energy Commission employees. As for the agricultural income the learned CIT (A) was of the view that the Assessing Officer has not been empowered by law to estimate the Agricultural income as it is exempt under the law and, therefore, he directed to accept the declared agricultural income at. Rs.1,00,000. The department feels aggrieved on both the issues.

3. It was contended by the learned D.R. that an inquiry had been conducted in this case and the gross receipts from the Clinic were estimated on the basis of that inquiry. In regard to the Agricultural income, the learned D.R. contended that the Assessing Officer is empowered to estimate the total income and because of the amendment made in law, the agricultural income has to be included in the professional income of the assessee for the rate purposes, therefore, the Assessing Officer is empowered to determine the income from agriculture as well.

4. The learned counsel for the assessee on the other hand supported the order of the learned CIT (A). It was contended that keeping in view the fact that the assessee had admittedly worked for 267 days the gross receipts estimated by the CIT (A) at Rs.2,00,000 against the declared gross receipts at Rs.1,51,425 were reasonable. From the perusal of the impugned order and notwithstanding the inquiry report, we feel that the gross receipts estimated at Rs.2,00,000 by the learned CIT(A) are reasonable keeping in view the working days of the assessee.

5. In regard to the powers of the I.T.O. to estimate the agricultural income the learned counsel for the assessee argued at length and relied upon certain cases which may hereinafter be referred. The precise objection of the learned counsel for the assessee was that by virtue of the amendment made in the Second Schedule although agricultural income was to be included in the total income of the assessee for rate purposes but this amendment does not empower the Assessing Officer to estimate the agricultural income. It was submitted that whatever had been declared by the assessee as agricultural income that should have been included in the total income for the rate purposes. Another objection of the learned counsel for the assessee was that the amendment made in the aforesaid Schedule was ultra vices of the Constitution on the ground that Parliament was empowered only to tax income and not the agricultural income. It was contended that the inclusion of agricultural income in the total income amounts to tax the agricultural income. The third argument of the learned counsel for the assessee was that even if the income from agricultural is to be included in the total income there can be no corresponding rates available in the First Schedule for agricultural income.

6. As for the constitutionality of the amendment, we refuse to entertain this argument on two grounds. Firstly, the assessee is not in appeal and it is the department who has filed this appeal. In the departmental appeal the question raised is as to whether the view of the learned CIT (A) that the Assessing Officer was not empowered to estimate the agricultural income, is correct. Therefore, the question of vires of the amending law finds no scope for disposing of the departmental appeal. Secondly, even the taxability of the agricultural income for rate purposes is not involved in the present departmental appeal. Thirdly, the Income Tax Appellate Tribunal being a creature of the Statute namely the Income Tax Ordinance, has no jurisdiction to go into the, vires of any part of the statute which has created it. We, therefore, refuse to entertain this argument.

7. The only question, before us is as to whether the Assessing Officer has power to estimate the agricultural income or not. In order to arrive at the conclusion we have to first examine the powers of the Assessing Officer under the Income Tax Ordinance. Section 9 of the Ordinance is the charging section which provides that Income-tax is to be charged, levied and paid for each assessment year "in respect of total income of the income year or years, as the case may be of every person at the rate or rates specified in the First Schedule." Now total income has been defined by section 2(44) as under: ---

`total income' means the total amount of income referred to in section 11 computed in the manner laid down in this Ordinance; and includes any income which, under any provision of this Ordinance, is to be included in the total income of an assessee."

8. From bare reading of this definition of the total income it is evident that it is the total amount of income referred to in section 11 and computed in the mariner laid down in the Ordinance. It also includes any income which under any provision of this Ordinance, is to be included in the total income of the assessee. Now clause (1) of the Second Schedule exempts the agricultural income but proviso added to this clause by the Finance Act, 1988, specifically lays down that the agricultural income shall be included in the total income of an individual who has income from business or profession. The two provisos referred to above are reproduced below for reference: ---

"Provided that, in case an assessee has in any income year, any income (other than agricultural income) which is chargeable to tax (hereinafter called chargeable income"), the agricultural income shall be included in the total income, so however, that the tax payable on the chargeable income shall be an amount which bears the same proportion to the chargeable income as the tax on total income bears to the total income:"

Provided further that nothing contained in the first proviso shall apply in the case of an individual, not being a director of a company, whose chargeable income does not consist of, or include, income chargeable under the head `income from business or profession'."

Now reading the definition of the "total income" reproduced above with the above two provisos, makes it crystal clear that total income is not only the amount of income referred to in section 11 computed in the manner laid down in the Ordinance but also income which has to be included under any provision of the Ordinance an4 such provision is contained in the two provisos to clause (1) of the Second Schedule. The relevant section which empowers the Assessing Officer to determine the income of an assessee, inter alia is section 52 which empowers the I.T.O. to assess the total income of the assessee and to determine the tax payable by him on the basis of such assessment. The Assessing Officer while determining the total income under section 62 of the Income Tax Ordinance has to include the agricultural income in the total income under provisos to clause (1) of the Second Schedule as section 2(44) includes in the definition of the total income any income which is to be included in the total income of an assessee under any provision of the Income Tax Ordinance. These provisions thus make it absolutely clear that the Assessing officer had the power to determine the total income inclusive of the agricultural income. Therefore, there is no manner of doubt whatsoever that the I.T.O. not only had the power but was duty bound to determine the total income under the Income Tax Ordinance including the agricultural income.

9. The learned counsel for the assessee has relied upon various case-laws but specific stress has been laid down on a case of Indian jurisdiction K.J. Joseph v. ITO decided by the Kerala High Court reported as (1980) 121 ITR 178. Not only that case is against the assessee but it is also irrelevant for the purpose of disposal of this appeal inasmuch as in that case the question was as to whether the agricultural income even for rates purposes could be included in the total income of the assessee or not and whether the inclusion of the agricultural income was ultra vires of the Constitution or not. We have already held that such a question cannot be raised in this appeal filed by the department as the assessee is not in appeal. Moreover, this issue was not raised before the lower authorities. Even in the case cited above the Kerala High Court held that relevant law under which the agricultural income was to be included in the income of the assessee for rate purposes as intra vires of the Constitution. In any case as stated above, the issue before us is as to whether the Assessing Officer was competent to estimate the agricultural income which otherwise was exempt and was includible in the income of an assessee for rate purposes. We have already held that the Assessing Officer was competent to estimate the agricultural Income as the Assessing Officer has not only to assess the total income of an assessee under section 62 of the Income Tax Ordinance but also he has to determine the tax payable by an assessee on the basis of such assessment.

10. The learned counsel for the assessee has also relied upon the following cases:

1992 P T D 1; 1989 PTD (Trib.) 617; 1989 PTD 909; P L D 1964 SC 410;1986 P T D 4; 50 Tax. 518 and (1962) 6 Tax 18.

However, except the following cases, which are to be discussed hereinafter all other cases are irrelevant and have no bearing whatsoever on the issue before us. In the case of 1989 PTD 617 a Single Bench of the Tribunal held that exempt income falling under Second Schedule of the Income Tax Ordinance is precluded from the operation of all the provisions of the Income Tax Ordinance. However, with utmost respect, the view taken by the Single Bench is not correct as clause (d) of subsection (1) of section 14 has been relied upon out of context. Similarly section 49 of the Income Tax Ordinance has also been incorrectly relied upon. Section 14 of the Income Tax Ordinance provides for exemption of income or classes of incomes or person or classes of persons which are specified in the Second Schedule of the Income Tax Ordinance. It has also been provided in the Second Schedule that certain income may be exempt from tax under the Ordinance:

(i) Subject to the conditions and to the extent specified in the Second Schedule;

(ii) Concessional rates can be given;

(iii) Reduction in tax liability can be allowed;

(iv) The exemption from operation of any provision of the Ordinance may be provided subject to certain conditions and to the extent specified therein:

Now in the Second Schedule the various categories of exemptions have been provided. Part I provides the categories and list of the income or classes of income or person or classes of persons which are exempt from tax under certain conditions and to the extent specified in the list, Part II of the Second Schedule gives the list of the income/classes of income or person/classes of persons which are liable to tax on the rates which are less than the rates specified in the First Schedule. Part III of the Second Schedule provides the list of the cases wherein reduction in tax liability has been provided to the extent mentioned therein and subject to the such conditions as are specified. Lastly Part IV of the Second Schedule gives the list of those cases where exemption from spec provision of the Income Tax Ordinance has been provided.

11. It is therefore evident that exemption from certain provisions of the Ordinance has been given only partially in Part IV of the Second Schedule. It is therefore, clear that any exempt income is not automatically exempt from the operation of all the provisions of the Income Tax Ordinance. Even in Part IV of the Second Schedule, the exemption has been provided from the operation of only some of the provisions of the Income Tax Ordinance. The observations of the learned Single Bench in the case cited above therefore is not correct. Even otherwise for the purpose of the present case Part I of the Second Schedule is applicable where the agricultural income has been exempted from the tax under the Income Tax Ordinance but the agricultural income has been exempted from tax subject to the conditions and to the extent specified under the Second Schedule. A. proviso has been added by the Finance Act, 1988 according to which the agricultural income has to be included in the total income for rate purposes: The other case relied upon by the learned counsel for the assessee is reported as (1986) 53 Tax 46. That case is also irrelevant as in that case the issue was entirely different and has no bearing whatsoever on the case under consideration. In that case the assessee derived income from a Farm run in partnership by the Husband and Wife. The Assessing Officer had treated part of the income as non-agricultural income and made certain additions which were deleted by the Tribunal and the High Court maintained that order. Thus that case is also irrelevant. The last case relied upon by the learned counsel for the assessee is (1992) 65 Tax 102. Issue in that case was as to whether the agricultural income could be included in the total income of an assessee for the purposes of the Income-tax under section 4(3)(b) of the Repealed Income Tax Act. The Supreme Court held that it could not be included. Again this case has no relevancy whatsoever as the agricultural income has now been specifically included by the Income Tax Ordinance in the total income for rate purposes.

12. For the foregoing discussion, we modify the order of the learned CIT (A) by holding that the Assessing Officer was fully competent to estimate the agricultural income so as to include it in the total income for rate purposes. The departmental appeal is partly accepted.

M.BA./29/T

Order accordingly.