I.T.A. NO. 936/HQ OF 1988-89, DECIDED ON 30TH AUGUST, 1993. VS I.T.A. NO. 936/HQ OF 1988-89, DECIDED ON 30TH AUGUST, 1993.
1996 P T D (Trib.) 100
[Income-tax Appellate Tribunal Pakistan]
Before Muhammad Mujibullah Siddiqui, Judicial Member, Abdul Malik and
S.M. Sibtain Accountant Members
I.T.A. No. 936/HQ of 1988-89, decided on 30/08/1993.
Per Muhammad Mujibullah Siddiqui, Judicial Member, S.M. Sibtaln, Accountant Member, agreeing; Abdul Malik, Accountant Member, contra---
(a) Income tax---
----Addition---Record showed that Assessing Officer had neither confronted the, assessee on the point of un-verifiability nor had cited any instances of un-verifiability---Nature of expenses was not such in which presumption of un-verifiability could be allowed to be taken---Deletion of such addition was justified in circumstances.
(b) Income Tax Ordinance (XXXI of 1979)---
----S. 25(c)---Income---Trading liability---Unpaid trading liability can be deemed to be income of an assessee in the fourth income year after the expiry of income year in which the said trading liability was allowed.
Income-tax Manual, Part V, Manual of Instructions, 3rd Edition published by the C.B.R. Paras 1 and 3 ref.
(c) Central Board of Revenue Circular---
----If a beneficial view is taken by C.B.R. in favour of assessee, Income Tax Appellate Tribunal, in exercise of its judicial discretion, would not interfere so as not to deprive the assessee of such beneficial treatment.
(d) Income Tax Ordinance (XXXI of 1979)---
----S. 8---C.B.R. instructions---Orders, instructions, and directions of C.B.R. are binding on all the officers entrusted with the execution of Income Tax Ordinance, 1979.
(1992) PTD 1 ref.
(e) Interpretation of statutes---
---- Fiscal statute---If there is any doubt in the interpretation of fiscal statute, it is to be resolved in favour of assessee.
(f) Income Tax Ordinance (XXXI of 1979)---
----S. 25(c)---Income from business or profession---Unpaid trading liability--- Such a liability shall be deemed to be income from business or profession of the year in which such finding is made if it remains unpaid within three years of the expiration of the income year in which it was allowed.
(g) Income tax ---
----Prequisite---Medical facilities, a perquisite.
Palkhiwala in his Treatise on Income-tax Law dissented from.
Per Abdul Malik, Accountant Member; S.M. Sibtain, Accountant Member, agreeing-
(h) Income Tax Ordinance (XXXI of 1979)---
----S. 25(c)---Income Tax Act (XI of 1922), S.10 (2-A)---Similarity of S.25(c), Income Tax Ordinance, 1979 and S.10 (2-A), Income-tax Act, 1922 is only to a certain extent and in the nature of being apparent than real.
Per S.M. Sibtain, Accountant Member agreeing with Abdul Malik, Accountant Member: --
(i) Income Tax Ordinance (XXXI of 1979)----
----S. 25(c)---Income-tax Act (XI of 1922), S.10(2-A)---Provisions of S.25(c), Income Tax Ordinance, 1979 and S.10 (2-A), Income-tax Act, 1922 are not the same.
Per S.M. Sibtain, Accountant Member, agreeing with Muhammad Mujibullah Siddiqui, Judicial Member...
(j) Income Tax Ordinance (XXXI of 1979)----
----S. 25(c)---Addition cannot be made by Assessing Officer in the third assessment year in the presence of C.B.R. circular to the contrary.
Muhammad Nawaz, D.R. for Appellant.
I.N. Pasha for Respondent.
Date of hearing: 25th August, 1993.
ORDER
S.M. SIBTAIN (ACCOUNTANT MEMBER).--This appeal at the instance of department is directed against the order, dated 9-3-1989 by the learned C.I.T.(A) Zone-II, Karachi in I.TA. No.CIT/(A-II)/38 of 1989 relating to the assessment year 1988-89.
2. The department has raised objection to the deletion of various additions in the profit and loss account.
3. The first objection is to the deletion under the head cost of material. The total claim under this head was preferred at Rs.12,65,89,827. The claim included purchases of sugarcane and direct expenses as well as procurement expenses of loading and unloading. The assessing officer observed that expenses on cane development and other procurement expenses such as loading and unloading, transportation etc. were not fully verifiable being supported with self made debit vouchers which lack complete details and particulars of the parties. Placing reliance on the previous history the assessing officer made a disallowance at Rs.5,00,000. The learned C.I.T. (A) deleted the addition by placing reliance on first appellate order for the earlier year. The learned D.R. has submitted that in the assessment year 1987-88 addition was deleted by the learned C.I.T.(A) and due to oversight the department could not file second appeal before the Tribunal. In the assessment year 1986-87 the assessment was completed under section 59(1) and in the assessment year 1985-86 similar addition was deleted by the learned C.I.T.(A) but again due to some confusion the department could not file second appeal before this Tribunal. He has submitted that in the assessment year 1984-85 second appeal was preferred before this Tribunal and the issue was examined. In the assessment year 1984-85 addition under this head was made at Rs.7,00,000. The learned C.I.T.(A) reduced the addition to Rs.1,43,440. In second appeal this Tribunal maintained the addition at Rs.2,67,703 with the agreement of representatives for the parties. Mr. I.N. Pasha, learned counsel for the respondent has submitted that facts and circumstances in the assessment year under consideration are similar as in the assessment 'years 1984-85 and 1987-88. Mr. Pasha has sated that in the assessment year 1984-85 the expenses were unverifiable to the extent of about Rs.26,00,000 and the Tribunal maintained addition at Rs.2,67,703. He has further conceded very candidly that in the assessment year under consideration the expenses, are unverifiable to the tune of Rs.24,00,000. He has further submitted that since the similar additions were deleted my the assessment years 1987-88 and 1985-86 and the department did not prefer any second appeal, therefore, the deletion made by the learned C.I.T.(A) on the basis of past history may be upheld. We are not persuaded to agree with the last submission of Mr. Pasha because non-filing of appeals in the previous years would not debar any party from agitating any particular issue of facts in the subsequent years. In view of the admitted un verifiability of expenses to the tune of Rs.24,00,000 and considering the finding of this Tribunal in the assessment year 1984-85 it is held that it would be fair and just to maintain the disallowance at Rs.2,50,000. The impugned direction of learned C.I.T.(A) is hereby vacated and the add back as made by the I.T.O. is modified accordingly.
4. The next objection raised by the department is to the deletion of addition under the head store consumed. The total claim under this head was preferred at Rs. 1,01,58,580. The assessing officer observed that the expenditure consists of items of chemical, fuel, packing materials, lubricants etc. He further observed that the part of expenses are -not fully verifiable. With this sale observation the disallowance was made at Rs.2,00,000 which stood deleted by the learned C.I.T.(A). A perusal of record shows that the assessing officer neither confronted the assessee on the point of unverifiability nor cited any instances of unverifiability. The nature of expenses is not such in which presumption of unverifiability can be allowed to be taken. In these circumstances we do not find any reason to interfere with the finding of learned. C.I.T. (A) deleting the addition. The objection raised by the department is hereby repelled and the-finding of learned C.I.T.(A) is upheld.
5. The third objection raised by the department is to the deletion of addition under the head motor running expenses. The claim was preferred under this head at Rs.5,52,006. The assessing officer made addition at Rs.50,000 with the following observation:
"Looking to the previous history as well as the fact that this year there was increase in the quantity of sugar cane crush as well as rise in the cost of services disallowance of Rs.50,000 is made."
6. The learned C.I.T.(A) deleted the addition. We have asked the learned D.R. if the reason assigned by the assessing officer in making disallowance makes any sense. The learned D.R. has stated that in fact the addition has been made for the reason of unverifiability. However, he has no option but to concede that neither such reason has been assigned by the I.T.O. nor the assessee was confronted on this point. It is, therefore, held that the learned C.I.T.(A) was fully justified in deleting the addition to which nod exception can be taken.
7. The next objection raised is to the disallowance under the head entertainment expenses. The total claim was preferred under this head at Rs.2,97,472. The assessing officer made disallowance at 50% of the claim for the reason of involvement of personal nature and want of details and verification. The learned C.I.T.(A) reduced the addition to 25%. Both the parties felt aggrieved and assailed the finding of learned C.I.T.(A) before this Tribunal. The appeal at the instance of assessee/respondent already stands decided whereby the addition has been further reduced to 13.5%. Mr. Pasha has submitted that the issue already stands decided by this Tribunal and the addition has been further reduced, therefore, no further consideration is required. The contention of Mr. Pasha is correct. The objection raised by the department stands rejected.
8. The next objection raised by the department is to the deletion of addition under section 25(c). The relevant facts for the purpose of this issue are that while completing assessment the assessing officer found that the market fee amounting to Rs.6, 32,364 remained unpaid for more than three years. It pertained to season 1983-84. The assessing officer held that the amount attracted the provisions of section 25(c) of the Income Tax Ordinance and added the same to the total income of respondent. The respondent objected to the addition and the learned CIT(A) deleted the same for the reason that the addition was premature. The department being dissatisfied with the finding of learned C.I.T.(A) has assailed the same before us. The facts as admitted by the learned representatives for the parties are that the amount was allowed in the season 1983-84 meaning thereby in the income year ending 30th of September, 1984. It is further admitted proposition between the learned representatives for the parties that by virtue of provisions contained in section 25(c) of the Income-tax Ordinance the respondent was required to pay the liability within three years of the expiration of the income year in which it was allowed, i.e., by 30th of September, 1987. On these admitted facts and the proposition of law the point of difference between the assessee and department is that according to assessee's point of view the addition can be made in the assessment year 1989-90 while according to department the addition can be made in the assessment year 1988-89. Although the learned C.I.T.(A) while deleting the addition has not given detailed reasons but it appears that she has agreed with the point of view canvassed by the learned counsel for the assessee/respondent. The contention of Mr. Pasha, learned counsel for the respondent is that in the present case the respondent can discharge the liability upto the last moment of 30-9-1987, therefore, in the case of non-payment of the liability the default took place at the end of the year. In the words of Mr. Pasha himself the default took place at 12.01 hours on the night between 30th September, 1987 and Ist of October, 1987. Thus, the moment of default falls on 1st of October, 1987 which corresponds to the assessment year 1989-90 and thus the addition can be made in the assessment year 1989-90 and not in the assessment year 1988-89. In support of his contention he has placed reliance on the following expression in section 25(c)
"shall be deemed to be income from business or profession of the year in which such finding is made."
9. Mr. Pasha has urged that according to his interpretation when the default takes place in the income year corresponding to assessment year 1989-90 the assessing officer has no authority to give any finding in respect of such default while making assessment for the assessment year 1988-89 and as such he has no jurisdiction to make addition in the assessment year 1988-89. Mr. Pasha has contended that the finding of the assessing officer in the assessment year 1988-89 regarding non-payment of the liability and the commission of default was premature, therefore, the learned C.I.T.(A) has rightly deleted the addition. He has contended that the same situation prevailed under the repealed Income-tax Act, 1922 where the trading liability allowed by the department was required to be paid within three years of the expiry of the previous year in which it was allowed and in the case of non?payment the amount of trading liability was to be deemed profits or gains of business during the previous year immediately following the expiry of the three years in which it was allowed.
10. On the other hand, the learned D.R. has supported the addition as made by the assessing officer contending that an assessee is required to pay the trading liability within three years of the expiration of the income year in which it was allowed and if no such payment is made within the period allowed to an assessee the unpaid trading liability shall be deemed to be income from business or profession of the third income year (the income year in which it was required to be paid). He has submitted that with the promulgation of Income Tax Ordinance, 1979 and repeal of Income-tax Act, 1922 the law has changed. According to learned D.R. the provisions contained in section 10(2-A) of the Repealed Income-tax Act 1922 were very clear and the unpaid trading liability was deemed to be the profit or gains of business during the previous year immediately following the expiry of the three years in which it was allowed and thus, the addition could be made earliest in the fourth income year. He has further submitted that so far the provision contained in section 85(c) of Income-tax Ordinance, 1979 is concerned, it provides that if trading liability or a portion thereof is found not to have been paid within three years of the expiration of the income year in which it was allowed such liability or portion thereof shall be deemed to be income from business or profession of the year in which such finding is made or in any other year not being a year commencing after the expiration of five years from the end of the said three years. He has thus submitted that under the provisions contained in the Income-tax Ordinance, 1979 the addition can be made in the year in which finding is given to the effect that the assessee has failed to pay the liability within the stipulated period of three years of the expiration of the income year in which it was allowed. According to the learned D.R. an assessee is required to make payment of the trading liability within three years of the expiry of income year in which it was allowed meaning thereby that if at the close of the third year the trading liability is not paid the assessing officer while making assessment for the said year shall have jurisdiction to give finding of the issue with the result that the unpaid trading liability shall be deemed to be income of the year in which such finding is made.
11. We have carefully considered the contentions raised by the learned representatives for the parties. We have also perused the provisions contained in the repealed Income-tax Act, 1922 and the Income-tax Ordinance, 1979. A perusal of the repealed Income-tax Act, 1922 shows that an amendment made by Finance Ordinance, 1972 has escaped notice of Mr. Pasha. The amendment introduced by the Finance Ordinance, 1972, has not brought any change so far the point in consideration is concerned. However, in order to keep the record straight we would like to refer the amendment, which was so introduced. Sub?section (2-A) was inserted in section 10 of the Income tax Act, 1922 for the first time by Act XXX of 1956 Finance (1955-56) Act, 1956. In the original sub- section (L-A) of section 10 of the repealed Income-tax Act, 1922 there was no provision whereby the unpaid trading liability could be treated as deemed income. The original subsection (2-A) of section 10 dealt with the recoupment of any loss of expenditure of trading liability in any subsequent year. The original subsection (2-A) of section 10 of the repealed income-tax Act, 1922 was substituted by Section 5 of the Finance Act, 1966 wherein it was provided that if any trading liability was allowed for the purpose computing profits or gains and such trading liability or a portion thereof has not been paid within three years of the expiry of the previous year in which it was allowed the unpaid trading liability shall be deemed to be the profits or gains of the business profession or vocation and to have accrued or arisen during the previous year immediately following the expiry of the three previous years in which it was allowed.
12. A further amendment was made by section 5 of the Finance Ordinance, 1972 and the words, "the previous year immediately following the expiry of the three years referred to in clause (iii)" were substituted with retrospective effect with the following words:---
"Any previous year commencing after the expiry of the three years referred to in clause (iii)."
13. Again with the promulgation of Income Tax Ordinance, 19%9 a change was introduced whereby a period of limitation was prescribed within which such unpaid liability can be assessed. The period of limitation came to end with the expiry of five years from the end of the period of three years during which the liability remained unpaid.
14. The effect of above amendments have been considered by the Central Board of Revenue in the circular appearing at page 77 of the Income Tax Manual, Part V, Manual of Instructions, 3rd Edition published by the C.B.R. Paras.1 and 3 of the above Circular are relevant and are reproduced below:--
"Unpaid liabilities---
25(1). Section 10(2-A) of the repealed Act originally provided that if a trading liability was not actually paid within three years of the expiry of the accounting year in which it was allowed as a deduction by the Income Tax Officer, the amount not so paid was deemed to be the income of the assessee in the accounting year immediately following the expiry of the three years. The specification of the year of the assessment restricted the power of the Income Tax officer in so far as he could not re-assess the trading liabilities pertaining to the period prior to 4 years. This resulted in loss of revenue. Section 10(2-A) was amended with retrospective effect by Finance Ordinance, 1972 so that such liabilities could-be assessed in any year after three years of the expiry of the year in which amount was allowed as deduction.
(2)??????..
(3). The provisions of section 25(c) are the same as those of amended section 10(2-A) of the repealed Act except that the new provision places a time limit on the period during which such unpaid liability can be assessed-This period ends with the expiry of 5 years from the end of the period of three years during which the liability remained unpaid."
15. A perusal of para 3 of the above Circular shows that C.B.R. is of the view that the provisions of section 25(c) are the same as those of amended section 10(2-A) of the repealed Act except that the new provision places the time limit on the period during which such unpaid liability can be assessed. So far the provisions contained in subsection (2-A) of section 10;of the repealed Income-tax Act, 1922 are concerned it is admitted by both the learned representatives for the parties that the addition on account of unpaid trading liability could be made after the expiry of three previous years in which it was allowed. The Circular issued by the C.B.R. reproduced above shows that the C.B.R. is of the view that the provisions of section 25(c) of the Income Tax Ordinance, 1979 are the same as those of amended section 10(2-A) of the repealed Income-tax Act, 1922, meaning thereby that the unpaid trading liability can be deemed to be income of an assessee in the fourth income year and not while assessing the total income of the third income year, after the expiry of income year in which the said trading liability was allowed. The impugned direction given by the learned C.I.T. (A) is in consonance with the view taken by C.B.R. and the instructions contained in the Circular reproduced above. We would not like to interfere with the view taken by C.B.R./instructions issued, for three reasons. First, if a beneficial view is taken by the C.B.R. in favour of assessees it would not be proper on our part to deprive the assessees of such beneficial treatment in exercise of our judicial discretion. Secondly, the orders, instructions and directions of the C.B.R. are binding on all the officers entrusted with the execution of Ordinance, by virtue of provisions contained in section 8 of the Income Tax Ordinance, 1979. An assessing officer is employed in the execution of this Ordinance and thus the instructions and directions of the C.B.R. contained in the Manual of Instructions .are binding on him. We are fortified in our views with the judgment of Hon'ble Supreme Court of Pakistan reported as 1992 PTD 1. Thirdly, it is cardinal principle of interpretation of fiscal statutes that if there is any doubt, it is to be resolved in favour of assessee. Reverting to the provisions contained in section 25(c) we find that it is provided that unpaid trading liability shall be deemed to be income from business or profession of the year in which such finding is made if it remains unpaid within three years of the expiration of the income year in which it was allowed. The- contention of Mr. Pasha, learned counsel for the respondent/assessee is that the default takes place at the end of third income year, which falls in fourth income year and as such the assessing officer can give finding while making assessment for the fourth income year, while it is contended by the learned D.R. that the liability is to be discharged within three years of the expiration of the income year in which it was allowed and as such if the liability is not paid at the end of the third income year the default takes place at the last moment of the third income year and, therefore, the finding can be given by the assessing officer in the assessment year corresponding to the third income year and thereby can make addition on account of unpaid trading liability by taking the same as income from business or profession. There is a very thin line of demarcation in the respective contentions and in any case is not free from doubt whether the finding by an assessing officer can be given while assessing income for the third income year or while assessing income for the fourth income year or in other words it is doubtful if default takes place in the third income year or in the fourth income year. The benefit of doubt should thus go to the assessee and, therefore, we would not like to interfere with the view taken by the C.B.R. with the result that the impugned finding and direction of the learned C.I.T.(A) is hereby maintained and the objection raised by the department is hereby repelled.
16. The last objection taken by the department is to the deletion of addition on account of excess perquisites. A perusal of the assessment order shows that the assessing officer made addition of Rs.73, 226 under the head excess perquisites under section 24(i) with the following finding:
"Excess perquisites under section 24(i).---Director was paid remuneration of Rs.75,200 and house rent of Rs.32,800. He was also paid utilities and medical expenses for personal treatment abroad. Medical expenses and utilities are covered under the definitions of perquisites. Excess perquisites in the case of director Mr. Maqbool Ahmed comes to Rs.73,226 which is added under section 24(i) of the Income Tax Ordinance."
17. The learned C.I.T.(A) deleted the addition for the reason that the amounts considered by the assessing officer for the purpose of excess perquisites cannot be treated as perquisites. The learned D.R. has submitted that perquisites has been defined in section 16 of the Income Tax Ordinance, 1979 which include value of the rent free accommodation, value of any concession in the matter of rent respecting any accommodation, any, sum payable by the employer whether directly or indirectly to effect an insurance on the life of or to effect a contract for any annuity for the benefit of the assessee, his spouse or any independent child, the value of any benefit provided free of cost or at a concessional rate and any sum paid by an employer in respect of any obligation of an employee. He has submitted that in view" of this definition the medical expenses and other utilities provided to the director came within the purview of perquisites and, therefore, the assessing officer was fully justified in making addition and the learned C.I.T.(A) erred in deleting the same. On the other hand, Mr. Pasha has submitted that the medical facilities should not be treated as perquisite and in support of his contention he has placed reliance on the view taken by Mr. Palkhiwala in his Treatise on Income ?tax Law wherein he has, with reference to the Circular issued by Indian. C.B.R. made the following observations:
"Medical facilities.----Between 1955 and 1987 the Central Board issued various Circulars purporting initially to grant, and subsequently to qualify and limit, exemption to the employee in respect of free medical facilities provided by the employer -or the reimbursement by the employer of medical expenses incurred by the employee. These Circulars proceed on the unsound legal assumption that an employee is liable to tax under section 17 in respect of such medical facilities and reimbursement of medical expenses. In the generality of cases, neither sub-clause (iii) nor sub-clause (iv) would operate to make such facilities or reimbursement taxable as `perquisite'. These clauses should be construed, not literally and merely grammatically, but fairly and liberally. They should not and cannot be construed, as a tax on pure humanitarianism and in the present day medical facilities and reimbursement of medial expenses should be treated as pure humanitarianism of which the income-tax law takes no account. So, construed, such facilities and reimbursement cannot be treated as a `benefit or amenity' within sub-clause (iii), any more than sports facilities or concessional meal during working hours. What can be taxed under sub-clause (iv) is that expenditure which the employee would voluntarily incur on his own even if payment were not to be made by the employer. In most cases where huge expenditure is incurred, e.g. on hospitalization of an employee or on his trip abroad for medical treatment, the employer on his own would not incur such expenditure if the employer were not prepared to meet it. In many cases, the emp1byee would just let nature do the healing and would not incur any significant expenditure even in respect of ordinary ailments. The payment by the employer in respect of such expenditure cannot be taken as a perquisite and taxed in the hands of the employee. As a matter of fact, that is one type of perquisite which no employee would desire to have occasion to enjoy."
18. A perusal of the above observations of Mr. Palkhiwala shows that it is his own view which although deserves all respects but cannot take the force of law. We are, therefore, not persuaded to agree with the submission of Mr. Pasha. Mr. Pasha has next contended that the medical facilities were provided to the concerned director Mr. Maqbool Ahmed in the sum of Rs.29,054 only. So far the other utilities are concerned they were enjoyed commonly by other employees also and, therefore, the assessing officer was not justified in including the value of all the utilities in excess perquisites in the case of director Mr. Maqbool Ahmed only. Mr. Muhammad Nawaz, the learned D.R. is not able to rebut the contention for want of availability of full facts. The issue is, therefore, set aside with the direction to give fresh finding after reasonable opportunity of being heard to the assessee on the point of extent of facilities enjoyed by the director jointly with other employees. If the assessing officer finds that certain utilities/facilities are enjoyed commonly by Mr. Maqbool Ahmed, Director and other employees then while working out the excess perquisites the salary of other such employees should also be taken in view.
19. The appeal stands disposed of as above.
(SD.)
(MUHAMMAD MUJIBULLAH SIDDIQUI)
??????????? JUDICIAL MEMBER '
20. ABDUL MALIK (ACCOUNTANT MEMBER).---My learned brother has very ably analysed provisions of section 25(c). With my utmost respect to his learned views I, find that there is another way of looking at the issue. According to my learned brother's view section 10(2-A) of Income-tax Act 1922 is parameteria with provision of section 25(c) of the Income Tax Ordinance, 1979. Similarly of the provisions, however, is only to a certain extent and in the nature of being apparent than real. The following parts of the provision need to be compared carefully:
"10(2-A)(iii)
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(iii) such trading liability or a portion thereof has not been paid within three years of the expiry of the previous year in which it was allowed,
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(ii) Or, as the case may be, during the previous year immediately following the expiry of the three years referred to in clause (iii)"
As compared to the abovementioned parts of the section 10(2-A) of the Income-tax Act, 1922, section 25(c) of the Income Tax Ordinance, 1979 is drafted in the following terms:
"(25(c). Such trading liability or a portion thereof is found not to have been paid within three years of 'the expiration of the income year in which it was allowed, such liability or portion thereof, as the case may be, shall be deemed to be income from business or profession of the year in which such finding is made or any other year (not being a year commencing after the expiration of five years from the end of the said three years) as the Income Tax Officer may think fit."
It can be seen that under the provision of section 10(2-A) of the Income-tax Act, 1922 the expiry of three years was of utmost importance and there was no other element involved. But in the redrafted provision a second and alternate condition has been introduced and that findings given by the I.T.O. that the trading liability has not been paid within three years of the expiration of the income year in which the liability was allowed. Such a finding can- be given while making assessment for the third assessment year. This finding cannot only be given by the I.T.O. but the fact can also be discovered by the auditor, as by that time the limitation would have expired.
21. To elaborate further the crucial difference between the two provisions is that under section 10(2-A) the I.T.O. only had to add to the previous year three assessment years and then make addition in the next assessment year but in the redrafted provision the simplicity of the former law by which addition could only be made in the fourth year has been amended to allow I.T.O. to make addition as soon as he discovers that the limitation has expired. Condition of fourth assessment year, therefore, stands modified. The reason for this change is apparent; the crucial date is the date of closing of accounts of previous year involved to which three more income years when added will give us the oath of limitation laid down in the provisions.
22. There are three types of previous years, which are recognised by law. The first is the financial year; the second is the calendar year and third are special years mostly involving agrobased, industries, which end on 30th of September. The crucial date, the last date of the accounting period corresponding to the third assessment year, which is the last day by which 25(c) liability can be paid-off having lapsed the addition would be possible:
(a) in the case of financial year earliest at the time of filing of return i.e. after 30th of September;
(b) in the case of calendar year after six months when the return falls due;
(c) in the case of special year ending on 30th of September after expiry of a period more than six months when return for the corresponding period falls due.
In the redrafted finding that .the limitation has expired in the corner stone of new provision. .
23. The anomalies under section 10(2-A) arose from the fact that `year' wherever used in the Income-tax Act, 1922 as well as Income Tax Ordinance of 1979 means the assessment year. This is borne out from the fact that under the Act of 1922 section 2(17) lays down as follows:---
"year" means---
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(c) As respects any period beginning on or after the first day of July, 1959, the period of twelve months beginning on the first day of July and ending on the thirtieth day of June next following."
This definition does not appear in the Ordinance but it can safely be said that the definition continues to hold good for the expression `year' wherever. it occurs in the Income Tax Ordinance, 1979.
24. In the present case the I.T.O. was able to give his finding in the third year that the last date relevant for payment of section 25(c) liability has expired, therefore, he added the said liability. The order of the I.T.O. under the circumstances was in accordance with law.
(Sd.)
(ABDUL MALIK)
ACCOUNTANT MEMBER
MUHAMMAD MUJIBULLAH SIDDIQUI (JUDICIAL MEMBER).----In view of the difference of opinion on interpretation of section 25(c) of the Income Tax Ordinance, 1979 the following point of difference is framed for reference to third Member of the Tribunal.
"Whether provisions of section 10(2-A) of the Repealed Income-tax Act, 1922 and section 25(c) of the Income Tax Ordinance, 1979 are same as held by the C.B.R. and whether the addition can be made by the I.T.O. in third assessment year in the presence of instructions to the contrary by the C.B.R.?"
(Sd.) ?????????????????????????????????????????????????????????????????????????????????????? ??????????? (Sd.)
(ABDUL MALIK)???????????????? ?????????? (MUHAMMAD MUJIBULLAH SIDDIQUI)
ACCOUNTANT MEMBER ??????????????????????????????????????????????????????????? JUDICIAL MEMBER
S. M. SIBTAIN (ACCOUNTANT MEMBER).---The following point of difference of opinion framed by my learned brothers, Mr. Mujibullah Siddiqui, J.M. and Mr. Abdul Malik A.M. has been referred to me for my opinion.
"Whether provisions of section 10(2-A) of the Repealed Income-tax Act, 1922 and section 25(c) of the Income Tax Ordinance, 1979 are same as held by the C.B.R. and whether the addition can be made by the I.T.O. in third assessment year in the presence of instructions to the contrary by the C.B.R.?"
I have heard the learned counsel of the appellant, Mr. Suleman Pasha and the learned D.R., Mr. Basharatullah Khan, at length and have carefully perused the opinions of my two learned brothers, Muibullah Siddiqui, J.M. and Abdul Malik, A.M. I have also perused the provisions of clause (iii) of subsection (2-A) of section 10 of the repealed Income-tax Act, 1922 and the provisions of clause (c) of section 25 of the Income Tax Ordinance, 1979 very carefully. I find that there is a marked departure in the construction of section 25(c) of the Income Tax Ordinance 1979.from the construction of section 10(2-A)(iii) of the repealed Income-tax Act, 1922: While, in section 10(2-A)(iii) the year, in which the unpaid liability was to be deemed to be the income of the assessee, was "any previous year" after the expiry of the three years of the expiration of the previous year in which it was allowed, in section 25(c) such unpaid liability shall be deemed to be income, from business or profession of "the year" in which such finding is made or any other year ... ... ... ... ... ... ... ... .... ... ... ... ... ... ... ..Connotations of the term "income of the previous year" and "income of the year in which such finding is made". are distinctly different, so far as the year of assessment of such incomes is concerned. The "income of the previous year" can only be assessed in the next following assessment year while the "income of the year in which such finding is made", can be assessed in the same year. Since under section 25(c) of Income Tax Ordinance a finding to this effect can undoubtedly be given in the assessment order for the assessment year next following the third year after the expiry of the income year in which such liability was allowed, it can be taxed in the same year, while under section 10(2-A)(iii) of the repealed. Income-tax Act, 1922 it could be taxed only in the next following assessment years.
Thus with utmost deference to the view of Mr. Mujibullah Siddiqui, J.M. I. tend to agree with the view of Mr. Abdul Malik, A.M. that provisions of section 25(c) of the Income Tax Ordinance, 1979 are not the same.
However, on the question whether the addition can be made by the I.T.O. in third assessment year in-the presence of instructions to the contrary by the C.B.R., I fully subscribe to the view of Mr. Mujibullah Siddiqui, J.M. that the addition cannot be made by the I.T.O with third assessment year in the presence of C.B.R. Circles to the contrary, for the same reasons as recorded by him in the order.
(Sd.)
(S.M. SIBTAIN)
ACCOUNTANT MEMBER,
M.B.A./137/T
?Orders accordingly