1995 P T D 262
[Lahore High Court]
Before Munir A. Shaikh and Malik Muhammad Qayyum, JJ
ABID HUSSAIN
Versus
COMMISSIONER OF INCOME-TAX, ZONE B, LAHORE
Civil Tax Reference No. 4 of 1990, heard on 07/07/1994.
Income Tax Ordinance (XXXI of 1979)---
----Sched. II, cl. (172) & Ss. 136 & 13(1)(aa)---C.B.R. Circular No.9 of 1985-- S.R.O. No-721 (1/85), dated 20-7-1985---Purchase of Special National Fund Bond---Entitlement to set-off---Assessment of the assessee having not 'been finalised prior to the enactment of cl. (172) of Sched.II, assessee was entitled to the benefit of cl. (172) of Sched. II.
In the present case assessee was an individual deriving income from speculation in stocks and shares. He had filed his return of income for the year 1977-78 declaring an income of Rs.6,000. The declared version, however, was not accepted by the Income-tax Officer who on 20-2-1986 proceeded to assess the income of petitioner at Rs.500,000 which was subsequently reduced on appeal to Rs.100,000 by the Appellate Assistant Commissioner of Income-tax on 4-5-1984.
A sum of Rs.51,72,000 was recovered by the Federal Investigation Agency on the night between 21-9-1976 and 22-9-1976 from one. This amount was confiscated by the order of the Magistrate on 16-7-1977 which was subsequently modified on 30-5-1978 by the Additional Sessions Judge who placed the amount at the disposal of the Provincial Government. These two orders were challenged by the assessee by filing a Constitutional petition before the Sindh High Court claiming that the amount actually belonged to him. This petition was accepted by the Sindh High Court on 27th March, 1984 and the sum of Rs.51,72,000 was ordered to be paid to the assessee.
On 27th May, 1984, a notice under section 65 of the Income Tax Ordinance, 1979 seeking to reopen the assessment was issued by the Income-tax Officer to the assessee in respect of this amount. On 18th June, 1984, the Income-tax Officer proceeded to re-assess the income of the assessee by adding Rs.51,72,000 under section 13 (lAA) of the Ordinance. The case was remanded in appeal by the Assistant Appellate Commissioner of Income Tax on Ist January, 1986. In post-remand proceedings, a fresh assessment was made by the Income-tax Officer on 22-2-1986, in terms of his previous order. The appeal filed by the assessee was dismissed by the Commissioner of Income-tax on 13th July, 1986. The second appeal was rejected by the Tribunal on 13-2-1988.
In the meanwhile on 31st August, 1985, the assessee had purchased National Special Fund Bonds of the value of Rs.53 lac, in respect of which he claimed exemption from payment of tax under clause 172 of the II Schedule to the Income Tax Ordinance, 1979 (added on 29th July, 1985) read with the Circular No.9 of 1985 of the Central Board of Revenue on 13th July, 1985. This claim, was however, rejected by the concerned authorities on an application filed by the assessee.
It was contended by the assessee that he was entitled to exemption from payment of tax on the sum of Rs.53 lacs invested by him on the purchase of National Special Fund Bonds on 31st August, 1985 under clause 172 of the Second Schedule to the Income Tax Ordinance, 1979 and Circular No.9 of 1985 of the Central Board of Revenue.
The claim of the assessee for set-off was rejected by the Income Tax Appellate Tribunal which came to the conclusion that the assessment of the assessee stood finalised prior to the enactment of clause 172 to the Second Schedule of Income Tax Ordinance, 1979 and the assessee was not entitled to the benefit of that clause.
Held, in the facts and circumstances of the case, the Income-tax Officer was not justified in holding that the assessee could not claim set-off of his National Special Funds Bond against the income for assessment year 1977-78.
Messrs Chanda Motors v. Central Board of Revenue and 3 others 1990 PTD 948 and Central Board of Revenue and others v. Chanda Motors 1992 PTD 1681 fol.
Ilyas Zafar for Petitioner.
Nemo for Respondent.
Date of hearing: 7th July, 1994.
JUDGMENT
MALIK MUHAMMAD QAYYUM, J.---The Income Tax Appellate the Tribunal has referred to this Court the, following questions for answer in terms of section 136 of the Income Tax Ordinance, 1979 stated to have the arisen from the orders of the Tribunal dated 13-2-1988 and 6-10-1988:-
(1) Whether under the facts and circumstances of the case the Hon'ble Income Tax Appellate Tribunal was justified to hold that the amount of Rs.51,72,000 was assessable in the assessment year 1977-78 despite the facts that the amount remained confiscated with the State during this period.
(2) Whether under the facts and circumstances of the case the Hon'ble Income Tax Appellate Tribunal was justified to hold that the addition under section 13(1)(aa) can be made for assessment year 1977-78 although the said section was inserted by Finance Ordinance 1980.
(3) Whether under the facts and circumstances of the case the Hon'ble Income Tax Appellate Tribunal was justified to hold that the assessee could not claim the set-off of his National Special Fund Bonds against the Income for assessment year 1977-78 while the claim was lodged on 31st of March, 1986 when the assessment dated 18-6-1984 stood setaside on 1-1-1986 and was non-existent at that time.
(4) Whether under the facts and circumstances of the case the Hon'ble Income Tax Appellate Tribunal was justified to hold that the Assessment Order remains valid in law till it is set aside and is not an legal and void order from the date it was passed.
(5) Whether the addition made under section 13(1)(aa) of the Income Tax Ordinance, 1979 was legal and justified even in the circumstances that the Income Tax Officer did not find the assessee as the owner of acquired amount during the course of any proceeding under the Ordinance.
(6) Whether the Hon'ble Tribunal was justified to observe that the additions made under section 13(1)(aa) of the Income Tax Ordinance, 1979 was in fact made under section 4(2A) of the Repealed Income Tax Act of the 1922 and was, therefore, legal and justified.
2. There is no dispute as regards the factual aspect which need not be dilated upon. Suffice it to say that the petitioner/assessee is an individual deriving income from speculation in stocks and shares. He had filed his return of income for the year 1977-78 declaring an income of Rs.6,000. The declared version, however, was not accepted by the Income Tax Officer who on 2-2-1986 proceeded to assess the income of petitioner at Rs.500,000 which was subsequently reduced on appeal to Rs.100,000 by the Appellate Assistant Commissioner of Income Tax on 4-5-1981.
3. It appears that a sum of Rs.51,72,000 was recovered by the Federal Investigation Agency on the night between 21-9-1976 and 22-9-1976 from one Nasim Hassan Shah resident of North Nazimabad, Karachi. This amount was confiscated by the order of the Magistrate on 16-7-1977 which was subsequently modified on 30-5-1978 by the Additional Sessions Judge who placed the amount at the disposal of the Provincial Government. These two orders were challenged by the petitioner by filing a constitutional petition before the Sindh High Court' claiming that the amount actually belonged to him. This petition was accepted by the Sindh High Court on 27th March, 1984 and the sum of Rs.51,72,000 was ordered to be paid to the assessee/petitioner.
4. On 27th May, 1984, a notice under section 65 of the Income Tax Ordinance, 1979 seeking to reopen the assessment was issued by the Income Tax Officer to the petitioner in respect of this amount. On 18th June, 1984, the Income Tax Officer proceeded to re-assess the income of the petitioner by adding Rs.51,72,000 under section 13 (lAA) of the Ordinance. The case was remanded in appeal by the Assistant Appellate Commissioner of Income Tax on Ist January, 1986. In post-remand proceedings, a fresh assessment was made by the Income Tax Officer on 22-2-1986 in terms of his previous order. The appeal filed by the petitioner was dismissed by the Commissioner of Income Tax on 13th July, 1986. The second appeal was rejected by the Tribunal on 13-2-1988.
5. In the meanwhile on 31st August, 1985, the petitioner had purchased National Special Fund Bonds of the value of Rs.53 lac, in respect of which he claimed exemption from payment of tax under clause 172 of the II Schedule to the Income Tax Ordinance, 1979 (added on 29th July, 1985) read with the Circular No.9 of 1985 of the Central Board of Revenue on 13th July, 1985. This claim was, however, rejected by the authorities below on an application filed by the petitioner. However, the questions reproduced above have been referred to this Court by -the Income Tax Appellate Tribunal to answer.
6. We have heard Dr. Ilyas Zafar, learned counsel for the assessee. Neither on 29th June, 1994 nor today any one has appeared on behalf of the Commissioner of Income Tax, though name of the learned counsel for the respondents has duly appeared in the cause-list.
7. Before us learned counsel for petitioner/assessee has only pressed question No.3 by reiterating that the petitioner was entitled to exemption payment of tax on the sum of Rs.53 lac invested by him on the purchase of National Special Fund Bonds on 31st August, 1985 under clause 172 of Second Schedule to Income Tax Ordinance, 1979 and Circular No.9 of 1985 of the Central Board of Revenue. Reliance in this respect has been placed on Messrs Chanda Motors v. Central Board of Revenue and 3 others 1990 PTD 948 which was upheld by the Supreme Court in Central Board of Revenue and others to Chanda Motors 1992 PTD 1681.
8. Before proceeding to examine this contention, it appears appropriate to reproduce clause 172 which was added to Second Schedule to the Income Tax Ordinance by an amendment made through SRO. No.721(I/85) on 20th July, 1985:
(172) Any income, from whatever source derived, which has not been assessed in respect of any year including and upto the assessment year 1984-85 not exceeding such amount as is invested by a taxpayer in the purchase of the Special National Fund Bonds issued under the Special National Fund Bonds Rules, 1985:
Provided that investors in the Special National Fund Bonds shall furnish to the State Bank of Pakistan by the thirty-first day of March, 1986 the Particulars of the assets covered by the said Bonds in the manner and form specified in the Notice published by the Central Board of Revenue on the twenty-eighth day of January, 1986."
The relevant paragraphs of Circular No.9 of 1985 dated 13-7-1985 read as under:--
"Pending Assessments.---In all pending assessment for and including the period upto the assessment year 1984-85 tax-payers would be entitled to claim set-off against income proposed to be assessed up to the amounts invested in the purchase of these Bonds. However, such credit would only be admissible in the case of assessments of the person (as defined in the Income Tax Ordinance, 1979) in whose name the Bonds are purchased.
(b) Re-opening of Assessments,--In case any sums or properties are found not to have been offered for taxation by a tax-payer for and including the period upto the assessment year 1984-85, set-off against' income would be allowed for the amount invested by the tax-payer in the purchase of these Bonds. Only that amount would be taxed, alongwith all consequential actions, which exceeds the amount invested in the purchase of Bonds. Assessments in such cases will be completed with the approval of the Central Board of Revenue.
(C) .
(d) Assessments already finalised.--Assessments already finalised would however remain unaffected and the tax-payer would not be entitled to claim any benefit or credit, therein. Cases pending in appeal will likewise remain unaffected.
(e) --------------------
9. The claim of the petitioner for set-off was rejected by the Income Tax Appellate Tribunal by majority which came to the conclusion that the assessment of the petitioner stood finalised prior to the enactment of clause 172 to the Second Schedule of Income Tax Ordinance, 1979 and the petitioner was not entitled to the benefit of that clause. In coming to this conclusion, clause D of Circular No.9 of 1985 was relied upon.
10. We, however, find ourselves unable to subscribe to this view. No detailed discussion on the subject is necessary as the question stands concluded by the pronouncement of Sindh High Court in Messrs Chanda Motors v. Central Board of Revenue and 3 others (1990 PTD 948) which was upheld by the Supreme Court while dismissing the appeal of the Central Board of Revenue in the case of Central Board of Revenue and others v. Chanda Motors (1992 PTD 1681). In that case, similar contention was raised by the Department namely that order of re-assessment had been passed on 15th June, 1983 before the enactment of clause 172 on 30th July, 1985. The benefit of said clause or of Circular 9 of 1985 could not be extended to assessee. The Sindh High Court repelled the contention in the following words:
"In the instant case the assessments were finalised under section 59(1) of the Ordinance. It is an admitted fact that the assessments were opened under section 65 of the Ordinance. The reassessment orders under section 62 read with section 65 of the Ordinance were passed on 15-6-1983. It has come on record that the said orders were set aside by the appellate authority on 6-12-1986. Consequent upon giving effect to the appellate order assessment orders were passed on 31st May, 1988, with agreement of the petitioner in income notice against each assessment order. These are the only assessment orders which are in the field. Applying the dictum laid down in PLD 1964 SC 520, PLD 1964 Karachi 587 and PLD 1957 SC (Ind.) 448, we hold that the original assessment orders, reassessment orders and the final assessment orders are really but steps in a series of judicial proceedings all connected by an intrinsic unity and are to be regarded as one legal proceedings. It would, therefore, be apparent that provisions of clause 172 and para.III(d) of Circular 9 of 1985 are attracted in the instant case and the petitioner is entitled to set-off Special National Fund Bonds against the additions made in the assessment orders dated 6-12-1986 and 31-5-1988."
When the matter went before the Supreme Court the same argument was reiterated but dismissing the appeal of the Department, the Supreme Court of Pakistan observed that:
"From what is stated above, it appears clearly that in the instant case paragraph 3(d) of Circular 9 of 1985 is not attracted and the case falls squarely under paragraph 3(b) because it is a case of reopening of assessment, Circular 9 of 1985 has been issued by Central Board of Revenue to clarify and explain legal implications arising from benefit of set-off which is conferred upon assessee by addition of clause 172 in the Second Schedule to Income Tax Ordinance, 1979- which amendment was brought in force on 29-7-1985. On that date i.e. 29-7-1985, when this concession became available in the instant case reassessment order had already been passed on 15-b-1985 against which appeal was filed which was pending. Bonds were purchased on 31-8-1985. Order in appeal was set aside on 6-12-1986. Hence the case was covered by paragraph 3(b) which is reserved for cases of reopening of assessments and certainly not paragraph 3(d) of Circular 9 of 1985, which is meant for cases in which assessments had been already finalised. This interpretation is also consistent with policy of the Government to give incentive for changing of black money into white money to be employed in the country for productive purposes."
In view of these authoritative pronouncements, the answer has to be rendered in favour of the petitioner.
For the reasons aforesaid, we accordingly do hold that in the facts and circumstances of the case, the Income Tax Officer was not justified in holding that the assessee could not claim set-off his National Special Funds Bonds against the income for assessment year 1977-78. There shall be no order as to costs.
MBA/A-715/L Order accordingly.