I.T.A. NO. 209/IB OF 1992-93, DECIDED ON 10TH DECEMBER, 1995. VS I.T.A. NO. 209/IB OF 1992-93, DECIDED ON 10TH DECEMBER, 1995.
1996 P T D (Trib.) 334
[Income-tax Appellate Tribunal Pakistan]
Before Rasheed Ahmad Shaikh, Ch. Irshad Ahmad, Judicial Members and Tariq
Aziz, Accountant Member
I.T.A. No. 209/IB of 1992-93, decided on 10/12/1995.
Per Ch. Irshad Ahmad, Judicial Member agreeing with Rashid Ahmad Sheikh, Judicial Member---
Income Tax Ordinance (XXXI of 1979)---
---S. 134---Appeal to Appellate Tribunal---Provisions of S.134(2), Income Tax Ordinance, 1979 to be strictly construed---Requirement of filing appeal-by the Income Tax Officer is a substantive provision rather than as matter of procedure and non-compliance of substantive provision of law cannot be cured-- Memorandum of appeal having not been signed and verified by the person authorised by law (I.T.O.) to file the appeal, was, therefore invalid.
1988 PTD 324; State v- Hanif Ahmad and others 1994 SCMR 749; Qadir Bux and others v. The Crown PLD 1955 FC 79; State v. Muhammad Hussain PLD 1968 SC 265; State v. Muhammad Nasim Beg 1989 PCr. LJ 1842; State v. Munawaruddin and another 1985 PCr. LJ 1431; Deputy Legal Remembrances, Bengal v. Gaya Prosad ILR 16 Cal. 425 and Copy Brandy Syndicate v. Inland Revenue Commissioner (1972) 1 KB 64 ref.
Per Rasheed Ahmad Shaikh, Judicial Member, Ch. Irshad Ahmad, Judicial Member agreeing.
(1991) 63 Tax 220 (Trib.) ref.
Per Tariq Aziz Accountant Member Ch. Irshad Ahmad judicial Member Contra
Mubeen Gul Khan D. R. for Appellate.
Sadiq Hussain ITP for Respondent.
Dates of hearing: 10th January and 26th November, 1995.
ORDER
RASHID AHMAD SHAIKH (JUDICIAL MEMBER).---The assessee respondent, a registered firm namely M/s. Fazal Din & Co., Coal Mine Owner, as is manifest from its name and style, is engaged in the extraction and sale of coal. Return was filed under the Self-Assessment Scheme for the assessment year 1990-91 declaring income at Rs.42,000 but in pursuance of Para. 4(ii) of the Scheme it was set apart for normal assessment on account of the reasons that the sale rate of coal and the GP rate declared at Rs.300 per M. Ton and 37% respectively, were low when compared with parallel cases. The I.T.O. after noting certain defects mentioned in the assessment order and having found explanation of the assessee in response to notice under section 62 as unsatisfactory rejected the declared version. He, on the basis of comparable cases worked out the sales, by adopting sale of coal at Rs.550 per M. Ton to the total production of 999 M. Ton coals, at Rs.559,450 and subjected the same to a GP rate of 45 % . The I,T.O. after disallowing a part of salary at Rs.5,000 out of total claim of Rs.39,600 and the claim of 'survey' in toto i.e., Rs.3,650, computed net income at Rs.187,013.
On appeal, the C.I.T. (A) allowed the assessee's appeal by directing to accept the returned version for the reason that the assessing officer had nothing in possession of ' definite information' as defined in a case reported as 1988 PTD 324, which is the precondition for excluding the lessee's case from the ambit of SAS.
Through this appeal, the I.A C. has objected to the order of the Appeal. Commissioner on the ground that the assessee's case was rightly selected for audit under para. 4(ii) of the Scheme and that the declared lower sale rate (i.e, Rs.300 per M. Ton) and the GP rate (i.e. 37%) are tantamount to a definite information.
We have heard Mr. Mobeen Gul Khan, D.R. for the I.T.O. and Mr. Sadiq Hussain, I.T.P, for the assessee.
Question has arisen whether the above appeal has been filed by the person authorised by law or not. The Memos of Appeal have been signed and verified by the Inspecting Assistant Commissioner. Subsection (2) of section 134 of the Income Tax Ordinance, 1979 provides that the Commissioner of Income Tax may, if he objects to any order passed by an Appeal Commissioner under section 132 direct the I.T.O. to appeal to the Appellate Tribunal against such order. We have not been able to lay our hands on any provision of the Ordinance providing for that the authority of the Income Tax Officer to file appeal before this Tribunal against any order passed by an Appeal Commissioner can be exercised by the I.A.C. The expression 'Income Tax Officer' as it stood at the relevant time besides a person appointed to be an Income Tax Officer under section 4 of the Ordinance included an Assistant Income Tax Officer, Special Officer, and a Tax Recovery Officer but not I.A.C. Within the hierarchy of tax authorities provided for in the Income Tax Ordinance, 1979 the I.A.C. is quite a distinct authority from an I.T.O. We are thus bound to hold that these appeals have not been filed by the person authorised to file the same Accordingly the appeal is rejected
(Sd.)
(Rasheed Ahmad Sheikh)
Judicial Member.
TARIQ AZIZ (ACCOUNTANT MEMBER).---The learned Member (Judicial) has rejected the Departmental appeal on the ground that the Memorandum of Appeal (M.O.A.) should have been signed by the I.T.O. and not by the I.A.C. as required by subsection (2) of section 134 of the Ordinance. I beg to disagree with the decision for the reason that the default committed by the Department is of procedural nature and it cannot be regarded as a substantive failure on the part of the Department. Accordingly, I feel that the M.O.A. should have been sent back to the appellant for rectification under Rule 15 of the Income Tax Appellate Tribunal Rules, which lays dawn as under:---
"Rule 15. Resection or amendment of memorandum of appeal - ---The Tribunal may return a memorandum of appeal if it is not in the prescribed form or return it for being amended within such time as it may allow. On representation, after such amendment, the memorandum shall be signed and dated by the officer competent to receive the memorandum of appeal under rule 7. "
Rule 15 clearly lays down that the Tribunal may return the M.O.A. if it is not in the prescribed form or return it for being amended within such time as it may allow. Rule 15 visualises two situations i.e. either the M.O.A. is not in the prescribed form or it suffers from some other defects. In either of these two situations, the Tribunal has been authorised, if it deems fit, to return the M:O. A for suitable correction within a specified time. My view is that the signatures of the I.A.C. is a minor default and. the Tribunal should send it back for correction for the following reasons:---
(a) Subsection (2) of section 134 of the Ordinance is reproduced as under:
"Section 134(2).---The Commissioner may, if he objects to any order passed by an. Appellate Assistant Commissioner under section 132 direct the Income Tax Officer to appeal to the Appellate Tribunal, as the case may be. "
In my opinion, the substantive requirement of subsection (2) is direction of the Commissioner to file an appeal against the order of the first appellate authority. This means that the law requires that the Commissioner must apply his mind before he directs the I.T.O. to file an appeal. Unlike majority of provisions of the Income Tax Ordinance where most of the actions are taken en the orders of the I.T.O. this subsection basically requires that the Commissioner should apply his mind whether or not an appeal is to be filed. Having once applied his mind, he directs the I.T.O. to file an appeal. As such, the person of the I.T.O. in this subsection is a passive authority who has to comply with the directions of the Commissioner. If the directions of the Commissioner are there, then it would not be a substantive catastrophe if the M.O.A is signed by an officer other than the I.T.O. in the hierarchical set up:
(b) The M.O.A. had been supplied by' the Department to the assessee as well who did not raise any objection during the course of hearing for the reason that he was also of the view that the default is inconsequential.
(c) We are aware of the fact that in quite a few cases, appeals were rejected by various Benches of the Tribunal for default of Rule 12 of the Income Tax Tribunal Rules, which is reproduced below:
"Rule 12. Intimation of filing _ of appeal to the respondent.---The appellant shall, before filing of appeal, send a copy of memorandum and grounds of appeal to the respondent by registered post, a certificate to this effect shall be appended with the appeal. "
This rule requires that the appellant "shall" before filing of appeal send a copy of memorandum and grounds of appeal to the respondent by registered. post Originally, quite a few Benches of the Tribunal held that if the memorandum and grounds of appeal and had not been sent to the respondent by registered post, it was a substantive default and accordingly, the appeals were rejected. Subsequently, a Larger Bench of the Tribunal held that although it was a default it was not substantive in nature and the appellant should be given an opportunity to correct the procedural default so that there is no miscarriage of justice; and
(d) I feel that the signing of M.O.A. by an authority other than the I.T.O. is also not a substantive default and the Tribunal should get it rectified if it deems necessary under Rule 15 of .the Income Tax Appellate Tribunal Rules. Huge revenues and important legal issues may be involved in an appeal and merely on procedural default, appeals .may not be rejected as it will tantamount to miscarriage of justice.
For reasons recorded above, I am convinced that under the circumstances narrated in the preceding paragraph, the M.O.A. may be got rectified.
(Sd.)
(Tariq Aziz),
Accountant Member
A controversy has arisen between the undersigned and my learned brother Mr. Tariq Aziz, Accountant Member with regard to signing and verification of Appeal Memo in the prescribed manner, as envisaged under section 134(5) of the Ordinance 1979.
The facts which gave rise to the difference of opinion are that in my opinion the Appeal (memo) can only be signed/verified and filed by an Income Tax Officer as envisaged under subsection (2) of section 134 of the Income Tax Ordinance and the Appeal (memo.) signed/verified and filed by the I.A.C. stood incompetent.
According to the learned Accountant Member the directives of the Commissioner of Income Tax to the Income Tax Officer for filing of appeal to the Income Tax Appellate Tribunal as envisaged under section 134(2) of the Income Tax Ordinance are of procedural nature and filing as well as signing/verification of Appeal other than Income Tax Officer cannot be considered as substantive failure on the part of the Department to reject the appeal as having been filed and signed/verified by an unauthorised person. This error could be rectified by returning the Memorandum of Appeal to the Appellant (I.T.O.) to bring in conformity with the manner specified under Rule 7 of the ITAT Rules read with subsections (2) and '(5) of section 134 of the Income Tax Ordinance.
The above-stated position gave rise to the following questions of law, which arise out of the Tribunal's order, arid are placed before the learned Chairman, ITAT for sending it to a third Member with the object of evolving a majority opinion: --- F6;
(1) Whether on the facts and in the circumstances of the case the. Appeal Memo signed/verified by I.A.C. could be considered as 'competent' in terms of section 134(2) of the Income Tax Ordinance, 1979 read with Rule 9(2) of the Income Tax Appellate Tribunal Rules, 1981 wherein the legislature has unequivocally directed to file Appeals) by the concerned Income Tax Officer?
(2) Whether on the facts and in the circumstances of the case the Appeal not filed and verified in the prescribed manner (signed by incompetent authority/person) is caught by the mischief of Rule 15 of the Income Tax Appellate Tribunal Rules, 1981 or not?
(Sd.)
(Rasheed Ahmad Sheikh)
Judicial Member.
(Sd.)
(Tariq Aziz)
Accountant Member
CH. IRSHAD AHMAD (JUDICIAL MEMBER). ---Consequent upon the difference of opinion between the members of the Bench seized of this appeal the Chairman of the Tribunal has referred this case to me for decision under subsection (7) of section 133 of the Income Tax Ordinance, 1979 (the Ordinance). The members' of the Bench have stated the following points on which they differ: ---
(1) Whether on the facts and in the circumstances of the case the Appeal Memo signed/verified by I.A.C. could be considered as 'competent' in terms of section 134(2) of the Income Tax Ordinance, 1979 read with Rule 9(2) of the Income Tax Appellate Tribunal Rules, 1981 wherein the legislature has unequivocally directed to file appeal(s) by the concerned Income Tax Officer?
(2) Whether on the facts and in the circumstances of the case the Appeal not filed and verified in the prescribed manner (signed by incompetent authority/person) is caught by the mischief of Rule 15 of the Income Tax Appellate Tribunal Rules, 1981 or not?
I have heard Mr. Pervez Akhtar, D.R. for the appellant. None has appeared for the assessee. .
Subsection (2) of section 134 of the Ordinance provides that the Commissioner may, if he objects to any order passed by an Appellate Assistant Commissioner of Income Tax [A.A.C.] (the expression also includes Commissioner of Income Tax (Appeals) under section 132, direct the Income Tax Officer (the I.T.O.) to appeal to the Income Tax Appellate Tribunal (ITAT) against such order. The memorandum of this appeal has been signed and verified by the Inspecting Assistant Commissioner (the I.A.C.) and not by the ITO. The learned Judicial Member is of the view that since under subsection (2) of section 134 of the Ordinance only the I.T.O. can file appeal, therefore, he only can sign and verify the contents of the memorandum of appeal and the memorandum of this Appeal signed and verified by the I.A.C. and not by the I.T.O. is not valid and as such the appeal having been filed by an incompetent person is liable to be rejected. The learned Accountant Member on the other hand is of the view that the defect that the memorandum of appeal has been signed and verified by the I.A.C. in place of I.T.O. is of procedural, and not of substantive, nature and as such shall not affect the validity of the appeal. The Accountant Member has felt that the memorandum of appeal should be sent to I.T.O. under rule 15 of the ITAT Rules for the removal of the defect. In learned Accountant Member's opinion the substantive requirement of subsection (2) of section 134 of the Ordinance is the decision and the direction of the Commissioner regarding the filing of an appeal against the order of the Appeal Commissioner and- not who carries out the direction of the Commissioner. Once the Commissioner has decided and directed that the order of the Appeal Commissioner should be objected to it is immaterial who signs, verifies and files the memorandum of appeal in the Tribunal. The learned Accountant Member has supported his view by saying that this Tribunal while examining the effect of the non-compliance of the requirement of rule 12 of the ITAT Rules has held that it would not affect the validity of the appeal because the requirement was not substantive in nature and the appeal could be admitted after allowing the appellant to remove the defect. (Although. the learned Member has not cited the relevant decision of the Tribunal but probably the reference is to the Tribunal's five-member bench decision reported in. (1991) 63 Tax 220 (Trib.).
Before addressing to the point on which the learned Members of the Bench have differed I would like to submit that the points stated by the learned Members on which they differ beg answer to the reasons on which each Member holds one view or the other. I would, however, refrain from expressing my approval or disapproval to the view of any Member. I would directly state my own reasons regarding the validity of this appeal of which the memorandum of appeal has been signed and verified by the I.A.C. and not by the I.T.O.
The basic question is whether the filing of appeal by the ITO, under subsection (2) of section 134 of the Ordinance is a substantive provision' or is only a matter of procedure. Since we have not been able to lay our hand on any precedent providing direct answer to the question the answer to the question may perhaps be sought from the judicial authority on similarly worded provision of section 417 of the Code of Criminal Procedure (the Code) which so far as material provides that "the Provincial Government may direct Public Prosecutor to present any appeal to the High Court from an original or appellate order of acquittal passed by any Court other than a High Court". The provision of subsection (2) of section 134 of the Ordinance and of section 417 of the Code are similar in the sense that in each provision there are two actors. The one is the authority who decides whether an appeal should or should not be filed and if it decides to file an appeal to direct another authority to present the appeal. Under subsection (2) of section 134 of the Ordinance the two authorities are the Commissioner of Income Tax and the I.T.O. In section 417 of the Code the two authorities are the Provincial Government and the Public Prosecutor. There is enough and high judicial authority to answer the question regarding the validity or otherwise of an appeal filed under section 417 of the Code if such an appeal has been filed in which both of the authorities referred to in that section have not acted strictly in accordance with the provision of that section.
The Supreme Court of Pakistan in a quite recent decision in State v. Hanif Ahmad and others, 1994 SCMR 749 has held that an appeal against acquittal under section 417 of the Code filed by 'a person who is not Public Prosecutor is not competent. The Court has also held that since the Code does not authorise the Government or the Public Prosecutor to delegate its function to any other person to act on behalf of the Government or the Public Prosecutor performed by any other person or authority is also impermissible. The Supreme Court while handing down the above holding has made reference to Qadir Bux and others v. The Crown PLD 1955 Federal Court 79, State v. Muhammad Hussain, PLD 1968 SC 265 and State v. Muhammad Nazim Beg 1989 PCr. LJ 1842. A brief survey of the above precedent is pertinent. In State v. Hanif Ahmad and others, the High Court had dismissed various appeals filed by the Assistant Advocate-General of the Province against the order of acquittal on the ground that the Assistant Advocate-General was not the Public Prosecutor referred in section 417 of the Code. The State sought leave to appeal from the Supreme Court against the order of the High Court. The Supreme Court refused to grant leave to appeal and maintained the High Court's order for the, reason that "the office of the Public Prosecutor is distinct and his functions of duties are different from the duties of the Assistant Advocate-General".
In Qadir Bux and others v. The Crown PLD 1955 Federal Court 79 the appellants who were charged under section 302, P.P.C. were acquitted by the trial Court. The Advocate-General of the Province preferred an appeal against the order of acquittal passed by the trial Court in the Chief Court of Sindh. The appeal filed by the Advocate-General was accepted and the order of acquittal was set aside and the appellants were convicted under section 302, P.P.C. The issue was raised before the Federal Court whether the appeal filed by the Advocate- General in the Chief Court had been competently filed because the Advocate -General was not the Public Prosecutor within the meanings of section 417 of the Code. The Federal Court allowed the appeal, set aside the Chief Court's order for -the reason that the appeal against the order of acquittal filed by the Advocate-General had not been filed competently. The Federal Court held:
It is quite clear that, having regard to the subject-matter to which section 417, Cr.P.C. relates as well as to the wording of section 417, Cr.P.C. itself, a person presenting an appeal under that section must act 'as a Public Prosecutor, eo nominee. He may occupy one or more other offices, but the only one of his functions which is relevant for the purpose of filing an appeal against an acquittal is the function of being a Public Prosecutor. In relating to section 492, Cr.P.C. it is even more obvious that no construction except the eo nominee construction can be permitted, for the section itself speaks of appointment of persons by the Provincial Government 'to be called Public Prosecutors'. It is entirely correct to say that, in relation to the function under section 417, Cr.P.C. the validity of the act of filing the appeal depends, in the first instance, upon the person who files the appeal being called a Public Prosecutor, in consequence of having been appointed as such by the Provincial Government. The argument raised on behalf of the respondent that the acts of a person pretending to be a Public Prosecutor become the acts of the Public Prosecutor, by the mere performance 4hereof, is clearly unsustainable".
In State v: Muhammad Hussain, PLD 1968 SC 265 an appeal against an order of acquittal passed by a Special Judge appointed under the Pakistan Criminal Law Amendment Act 1958 was filed by the Assistant Advocate -General of the Province without receiving any direction from the appropriate Government for filing such an appeal as required by section 10(2) of the 1958 Act. The Court held that the appeal had not been competently filed.
In Government of Pakistan v. Zardad Badshah 1985 PCr. LJ 14.19 the appeal against acquittal was filed by the Standing Counsel of the Federal Government on the directions of the said Government. In reply to the objection that the appeal had not been competently filed it was contended that although the Standing Counsel was not a notified Public Prosecutor but as he was authorised to conduct appeals the presentation of the appeal was proper. The Court repelled the contention and observed that the Standing Counsel has the right of audience in all the Courts of Pakistan but that right is not tantamount to of his appointment as Public Prosecutor to present appeals against acquittal. To the same effect are the observations of the High Court in State v. Munawaruddin and another 1985 PCr. LJ 1431.
In State v. Muhammad Nasim Beg, 1989 PCr.LJ 1842 various appeals against acquittal had been filed by Mr. Sarfraz Ahmad, Assistant Advocate- General of the Province on the direction of the Federal Government. The memorandum of each appeal had been signed by Mr. Sarfraz Ahmad. A question was raised whether the appeals tiled by Mr. Sarfraz Ahmad had been competently filed. The High Court relying on the observations of the Federal Court in Qadir Bux and others v. The Crown, PLD 1955 Federal Court 79 that "the Crown if it wishes to move the Court against such an acquittal, must do so in strict compliance with the express requirements of law; non-compliance must be fatal" held that the appeals were incompetent. The High Court also quoted with the approval the observations of the Calcutta High Court in Deputy Legal Remembrance, Bengal v. Gaya Prosad, ILR 16 Cal. 425 to the effect "in appeal preferred against acquittal strict construction according to the very words of the statute should be given to the provisions of law".
The survey of the precedents shows that if one of the actors responsible for preferring an appeal under section 417 of the Code has not acted the appeal would be incompetent and also that the filing of appeal in accordance with the provisions of section 417 of the Code is a matter of substantive law and not merely a matter of procedure.
Thus if the provisions of section 417 of the Code and subsection (2) of section 134 of the Ordinance are taken as analogous with reference to the policy regarding the filing of appeals under each of the said provision this appeal filed by the I.A.C. and not by the I.T.O. shall be incompetent. We find that the Ordinance establishes quite a distinct offices of the I.A.C. and of the I.T.O. The duties and functions of the holder of the office of I_T.O. cannot be performed by the holder of the office of IAC. In the hierarchy of tax administration the office of I.A.C. is higher than the office of I.T.O. The contention may however, be raised that the IAC, who is higher in rank than the ITO, should be in a position to perform the duties and functions of the I.T.O. particularly the function of filing an appeal under section 134(2) of the Ordinance which primarily is a ministerial act on the principle of "the greater includes the less" above contention was raised before the Federal Court in Qadir Bux PLD 1955 FC 79 but was rejected. ,
The next question that arises is: whether the principle of criminal law conferring right of appeal on State against orders of acquittal can be equated with the Ordinance. Since the point that has arisen in this appeal is unprecedented or at least I have not been able to lay my hand on any such precedent the question cannot be answered by plain "no" or "yes". The authority is however, not lacking where it has been held that the provisions of law relating to levy income-tax or other pecuniary burden or charges or penalties on citizen are in the nature of penal law and are to be applied in the same strict sense and narrow manner in which the provisions of criminal law are applied. The income-tax law like any other law relating to charging and levying of pecuniary burden, penalties and fines on citizen is expropriation law. It takes -- property. Where a citizen has to be expropriated, the expropriation slaw is I required to be strictly construed and applied If a citizen can legitimately avoid the expropriation by way of paying tax or other charge no one should grudge his ability to avoid the expropriation. The rules of the law of nations relating to execution and enforcement of decrees and orders passed by the Courts and other authorities of one country in the territory of another country treat the orders relating to payment of taxes, charges and penalties akin to the orders relating to payment of penal fines and penalties. Like the orders relating to payment of fines and penalties, the orders relating to the payment of taxes and charges are not executable beyond the territories of the country in which they have been passed. The above rules of the law of nations is incorporated in domestic law of Pakistan in the form of section 44-A of the Code of Civil Procedure which provides that a decree passed by a superior Court of the United Kingdom or any reciprocating territory can be executed in, Pakistan. The section, however, explains that such a decree shall not include an order relating to payment of taxes, fines and penalties. The well known aphorism regarding the construction of income-tax statutes established by Rowlatt, J. in Copy Brandy Syndicate v. Inland Revenue Commissioner (1972) 1 KB 64: "the subject cannot be taxes unless he comes within the letter of the law"; "in a taxation statute one has to look merely at what is clearly said"; "there is no room for any intendment"; "nothing is to be read in, nothing is to be implied" also tend to show that where any provision of any law relating to income-tax would have the effect of burdening a citizen with any liability such provision must be strictly construed and full compliance with its provision would be required to be complied with.
I would, therefore, conclude that the Commissioner's right to object to the order of the Appeal Commissioner under section 134(2) of the Ordinance is required to be strictly construed and his appeal' shall not be heard against the citizen unless it has been filed strictly in accordance with the provision of the law conferring on him the right of appeal.
Without commenting on the efficacy of learned Accountant Member's feeling that the appeal can be heard after requiring the I.T.O. to sign the memorandum of appeal under rule 15 of the ITAT Rules, I would only like to submit that if the provision regarding filing of appeal by the LT.O on the direction of the Commissioner were a procedural matter the defect in signing the memorandum of appeal by an officer other than the I.T.O. could be removed. But as in my view the requirement of filing the appeal by the I.T.O. is a substantive provision rather than a matter of procedure, the non-compliance of substantive provision of law cannot be cured under the rules. Where a set of rules lays down certain requirements and also provides that any defect in the compliance of the requirements could be remedies or removed the remedial provision only relates to the requirements prescribed under the rules. Remedial provisions in rules cannot be applied to override the requirements provided by substantive law.
For these reasons I hold that the memorandum of this appeal having not been signed and verified by the person authorised by law to file the appeal is invalid. The same is accordingly rejected.
M.B.A./159/Trib
Appeal rejected