ITAS. NOS.5333/LB TO 5337/LB AND 6040/LB TO 6044/LB OF 1995, DECIDED ON 10TH JANUARY, 1996. VS ITAS. NOS.5333/LB TO 5337/LB AND 6040/LB TO 6044/LB OF 1995, DECIDED ON 10TH JANUARY, 1996., 1996 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 482 (1996)

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

----S. 65---Re-opening of assessment---Additional assessment---Definite information---Duty of Assessing Officer---Definite information being foundation stone of any action under S.65, Income Tax Ordinance, 1979, Assessing Officer was duty bound to probe the matter minutely and a definite opinion based on definite information and not on the change of opinion---Re-opening of assessment is prohibited on doubts and suspicions.

(b) Income-tax---

----Charge of tax---Joint assessment---Sharing of a common name by two distinct persons cannot be made basis for joint assessment of such persons.

1978 PTD (Trib.) 54 ref.

(c) Income-tax---

----Co-ownership of an asset is distinct from partnership---Principles.

Co-ownership of an asset is distinct from partnership which are the basis of common business. Moreover co-ownership is not necessarily the result of agreement. One co-owner can, without the consent of the other co-owners, confer its interest to a stranger but a partner cannot do this etc. All appellant firms and the members of URF could not be held liable for the acts of each other during period in which they had no concern whatsoever with the business activities of one another.

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

----S. 156---Rectification of mistakes---Vagueness of notices and illegal assumption of jurisdiction is not rectifiable.

1983 P T D 344 ref.

Mian Ashiq Hussain for Appellant (in ITAs.Nos.5333/LB to 5337/LB of 1995)

Javed Rehman, D.R. and Shahbaz Butt, L.A. for Respondent (in ITAs.Nos.5333/LB to 5337/LB) of 1995).

Javed Rehman, D.R. and Shahbaz Butt, L.A for Appellant (in ITAs.Nos.6040/LB to 6044/LB of 1995).

Mian Ashiq Hussain for Respondent (in ITAs.Nos.6040/LB to 6044/LB of 1995)

Date of hearing: 24th December,1995.

ORDER

ABDUL RASHID QURESHI (JUDICIAL MEMBER).--These are ten cross-appeals pertaining to the assessment years 1989-90, 1990-91, 1991-92, 1992-93 and 1993-94 filed by the assessee as well as the department against the impugned order passed by the learned. Appellate Additional Commissioner of Income-tax/Wealth Tax, Sahiwal on 31-8-1995. Appeal for the assessment year 1989-90 was filed by the unregistered firm, for the assessment years 1990-91 arid 1991-92 by the Registered firm consisting of three partners and for the assessment years 1992-93 and 1993-94 by the Registered firm consisting of four persons. All the appeals filed by the assessee are directed against the combined assessment order, dated 13-5-1995 as well as the combined appellate order dated 31-8-1995 whereas the department has filed five cross-appeals against the combined appellate order dated 31-8-1995.

2. Both the learned AR and DR are present. We proceed to decide all the appeals by one consolidated order.

3. Relevant facts of the case are that the appellants derive income from Coach Service Adda. Original assessment for assessment year 1989-90 was completed under section 62 on 22-6-1992 by the learned assessing authority. The initial assessments for the succeeding four years i.e. 1991-92 to 1993-94 were made under section 59 (1) of the Income Tax Ordinance, 1979 (hereinafter referred to as the Ordinance) on 30-6-1992, 30-6-1992, 10-5-1993 and 4-6-1994 respectively. The learned Assessing Officer had received information from Excise and Taxation Officer, Sahiwal on 20-9-1993 to the effect that M/s. Muhammad Jamil and Liaqat Ali purported proprietors of M/s. Chohan Flying Coach Service had got six vehicles registered in their names as co-owners in January, 1989. Consequently, a show-cause notice under section 65 for the assessment years 1989-90 to 1993-94 was issued on 9-2-1995. On behalf of the assessees, a reply was filed on 15-2-1995 which was not considered satisfactory and the combined assessment order for all the five years was passed on 13-5-1995. The total incomes assessed for assessment years 1989-90, 1990-91 and 1991-92 stood at Rs.23,65,000, Rs.12,72,000 and Rs.13,88,660 in the hands of the registered firm consisting upon M/s. Muhammad Jamil, Liaqat Ali and Mst. Ramzan Begum. Total incomes for 1992-93 and 1993-94 were assessed at Rs.15,61,460 and Rs.17,94,060 respectively in the hands of the R F consisting up M/s. Muhammad Jamil, Muhammad Yousaf, Muhammad Saleem and Mehmood Hussain.

4. Aggrieved by the assessment orders, appeals were filed by the assessee before the learned Appellate Additional Commissioner of Income Tax, Sahiwal who upheld the assumption of jurisdiction under section 65, deleted the income from commission assessed for the assessment year 1989-90 at Rs.5,40,000 and for the succeeding years partial relief was allowed in the estimate of commission income, reduced the estimates of income on account of plying of self-owned vehicles whereas the estimate of such ,income for assessment year 1989-90 was enhanced from Rs.25,000 to Rs.30,000 for each vehicle, estimate of income on account of plying of vehicle No. SLE-49 for three months was enhanced from Rs.12,000 to Rs.15,000 and additions under section 13(1)(b) of the Ordinance at Rs.16,50,000 and Rs.2,50,000 in the assessment years 1989-90 and 1990-91 respectively were maintained vide order, dated 31-8-1995. Hence these appeals.

5. The learned AR has challenged the validity of the combined assessment order as well as combined appellate order on number of grounds. It was also argued that even the assessments were baseless and unjustified. The jurisdictional and legal objections were also raised. It is contended that there was no definite information in terms of section 65 of the Ordinance for lawful assumption of jurisdiction for reopening the assessments. It is emphasised that information as explained in section 65 did not pertain to any of the distinct appellants during assessment years 1989-90 to 1993-94. The learned AR submits that clubbing the assessments of three distinct persons and making of combined assessments was without lawful authority. He has referred to the findings of the learned Appellate Additional Commissioner to the effect that admittedly the information pertain to the alleged co-owners, i.e. M/s. Muhammad Jamil end Liaqat Ali who got certain vehicles registered in their names in the record of Motor-Vehicle Registration Authority, Sahiwal, as proprietors of M/s. Chohan Flying Coach Service. He further contends that both the co-owners were assessed to tax for business income. It was pointed out that this fact that the present appellants were different sets of persons from the alleged co-owners of the vehicles was not taken into consideration. The learned AR submits that the partnership is a creation of an agreement. In the instant case information regarding any agreement of sharing of ownership of the vehicles between all the concerned persons of the three sets was not available. It is pointed out that the learned first appellate authority observed that no amount might have been invested by Mst. Ramzan Begum, Muhammad Saleem, Mehmoodul Hassan and Muhammad Yousaf for the acquisition of the vehicles. They could neither own nor transfer such vehicles. The learned AR contends that this fact proves that the unregistered firm and the registered firms were concerned with the sharing of profit and loss of the business and has nothing to do with the ownership of the vehicles. The learned AR further contends that the charge of tax under section 13(1)(b) was on the investments as there was no information, what to speak of definite information available with the learned Assessing Officer with regard to the alleged escapement of any income. It is further argued that even the alleged co-owners who allowed the appellants to use Adda Licence, did specifically deny any investment in the vehicles. It was explained that some friends had helped them to obtain licence and, therefore, they got their vehicles temporarily registered in their names. The learned A.R. has drawn our attention towards the affidavits submitted by the real owners and reply dated 15-2-1995. The learned AR contended that the affidavits were summarily rejected without cross-examination or introduction of counter evidence. A reliance was placed on a decision of the Supreme Court of India cited as 30 ITR 181 where it was held that rejection of statement of affidavit without cross-examination was unjustified. Another decision of the Lahore High Court cited as 1976 PTD 347 was referred where it was held that rejection of certificates without verification was whimsical and void. It was pointed out that the learned assessing authority built up his case on doubts and suspicions which is prohibited by law. Reference was made to the decision of Lahore High Court cited as 1988 PTD 1014 where it was held that burden to show that within the meaning of section 65, the income escaped assessment lies on the department. Reliance was also placed on the decision of Supreme Court of Pakistan to substantiate the concept of "definite information" which is the foundation stone of any action under section 65 of the Ordinance.

(1993) SCMR 1108 = 1993 PTD 766 (Supreme Court of Pakistan)

6. The learned A.R. has submitted that the alleged information and allegation pertain to assessment year 1989-90 only. Therefore, the information could not be used for the succeeding years against different and distinct persons. Reopening of assessments for assessment years 1990-91 to 1993-94 amounted to change of opinion. The learned counsel further pointed out' that even the allegation of escapement under section 13(1)(b) of the Ordinance pertaining to assessment year 1990-91 was baseless. He has relied upon the copy of the information letter issued by the Motor Registration Authority, Sahiwal which was filed alongwith the appeals. It was submitted that no allegation on account of alleged acquisition of the vehicle No.SLE-49 on 25-3-1990 could be substantiated, as on 3-3-1990 vehicle No.LHP-2026 had been transferred to third person namely Mr. Sikandar Ali s/o Haji Sultan Ahmed.

7. Mr. Shahbaz Butt, the learned Legal Advisor contended that the assessee (appellants) had filed returns in response to the notice under section 65 of the Ordinance, hence their case was hit by section 154 (6) of the Ordinance and the appellants were debarred to challenge the assumption of jurisdiction under section 65 of the Ordinance. He has. relied on the following decisions:

1989 PTD 271 (Ky. H.C)

1992 PTD 10 (Trib.) (14-b)

1962 PTD (Trib.) 125

1993 PTD 37, and

1968 SCMR 489

The learned Legal Advisor submitted that as there was no dissolution in partnership, therefore, the combined assessment order was correct. He has relied upon the following authorities:--

1975 SCMR page 4

1975 SCMR page 495

1985 PTD 85

(1958) 34 ITR page 669

(1963) 50 ITR page 9 and

(1970) 75 ITR 373.

The learned Legal Advisor contends that this plea that income of one person could not be taxed in the hands of other distinct persons unless legal provision justifies it, could not be raised at this stage as this plea was not taken before the learned Assessing Authority. He has submitted that honourable Courts have decided that a fresh plea on the point of fact could not be raised before the Tribunal if it was not raised before the learned lower authorities. The learned Legal Advisor pointed out the appellant's letter dated 15-4-1995 wherein the estimates of evaluation of the alleged vehicles were contested meaning there by the appellants had admitted the ownership of .the vehicles. The learned Legal Advisor concluded his arguments with the request that the departmental appeals are forceful whereas the assessee's appeals are without any merits.

8. We have heard both the parties and perused the record available before us. The fate of all the cross-appeals revolves around the assumption of jurisdiction by the learned Assessing Authority under section 65 of the Income Tax Ordinance, 1979. It is, therefore, essential to reproduce subsection (2) of section 65 of the Ordinance:--

"No proceedings under subsection (1) shall be initiated unless definite information has come into the possession of the Income Tax Officer (and) he has obtained the previous approval of the Inspecting Assistant Commissioner of Income-tax in writing to do so."

9 The documents produced by the assessee prove that the Assessing Officer proceeded on doubts without conducting any investigation and obtaining any definite information. Information from Excise and Taxation Officer, Sahiwal to the effect was received that M/s. Muhammad Jamil and Liaqat Ali purported proprietors of M/s. Chohan Flying Coach Service had got six vehicles registered in their names as co-owners in January, 1989. It was the duty of the learned Assessing Authority to probe the matter minutely and he should have formed a definite opinion based on definite information whether the vehicles were actually owned by the assessees are temporarily registered. Affidavits filed by the real owners also stand unrebutted. It is proved from the affidavits as well as statements of the real owners of the vehicles that Muhammad Jamil and Liaqat Ali had nothing to do with the income of the said vehicles. Definite information, is undoubtedly the foundation stone of any action under section 65 of the Ordinance. The learned Assessing Officer did not allege any income from allegedly self-owned vehicles. In assessment year 1993-94 at the time of making assessment for the year under section 59(1) of the Ordinance on 6-4-1994, alleged information was admittedly received vide letter No. 1405, dated 20-9-1993: Such a change of opinion could not be justified reopening of assessments for the years 1991-92, 1992-93 and 1993-94. In the assessment year 1990-91, too, the learned Assessing Officer took an one-sided view of the alleged information. Even if the allegation of escapement of income under section 13(1)(b) is considered in the hands of the present appellants in assessment year 1990-91, a vehicle No.SLE-49 was added on 25-3-1995 while a Vehicle No.LHP-2026 had been transferred in the name of Sikandar Ali on 3-3-1990. Charge of tax under the Ordinance is in respect of a person, sharing of a common name by two distinct persons could not be made basis for joint assessment of such persons. Assessment in exactly an identical case was annulled by this tribunal in a decision cited as 1978 PTD (Trib.) 54. In this cited case two associations of persons having one common member were deriving income from petrol pumps at two different stations. It was held by this Tribunal that both the associations of persons were separate entities liable for separate assessments. It was further held that confusion under description of names of both the persons in various years was no good basis to solve the issue of ownership. Co-ownership of distinct from partnership deed which are the basis of common business. Moreover co-ownership is not necessarily the result of agreement. One co-owner can without the consent of the other co-owners confer its interest to a stranger but a partner cannot do this etc. All appellant-firms and the members of URF could not be held liable for the acts of each other during period in which they had no concern whatsoever with the business activities of one another. Dissolution of partnerships was apparent on the face of record and the dissolution of firm brings a business to a standstill, assessments and liabilities stand distributed. New partners or firms are not liable for the payment of tax by the former distinct persons. Supreme Court of Pakistan in its decision cited as 1993 SCMR 287 = 1993 PTD 114 held that character of income-tax is essentially a tax on the income of a specific person. This contention raised by the learned Legal Advisor that a fresh plea on the point of fact could not be raised, is without any force. As the fundamental jurisdictional issue was raised before the learned Appellate Additional Commissioner, it is held in PLD 1965 SC at page 443 and 1988 SCMR at page 723 that it is open to a Court before which a point of jurisdiction is raised to deal with at the very last stage, even if the point was not raised at an earlier stage. It was also held that the inherent want of jurisdiction was not subject to waiver. The issue of clubbing of distinct persons in a combined assessment order was also raised before the learned first appellate authority as is apparent from the grounds taken in first appeal.

10. We have perused both the replies submitted under section 62 and section 13(2) of the Ordinance dated 15-4-1995 according to which the assessee had specifically contested the reopening of assessments and the alleged ownership of the vehicles. Argument regarding the valuation seemed to be advanced as alternate arguments. We are in agreement with the learned counsel for the assessee (appellants) that the alleged information pertain to two persons namely Muhammad Jamil and Liaquat Ali who were distinct from any of the three distinct persons. The learned Assistant Commissioner of Income-tax proceeded under section 65 of the Ordinance without any definite information and even on the basis of change of opinion as well. Law prohibits re-opening of assessment on doubts and suspicions. The learned Assessing Authority issued notices even without considering the status of the assessee (appellants) and eventually made re-assessment for the assessment year 1989-90 on the registered firm which did not even exist in this year. It is established that there was -no definite information before the learned Assessing Authority. Vagueness of notices and illegal assumption of jurisdiction is not rectifiable. Reference is made to the decision cited as 1983 PTD 344. Provisions of subsection (2) of section 65 of the Ordinance do not seem to be followed strictly. The learned Legal Advisor has miserably failed to establish his case. We reluctantly hold that citations relied upon by the learned Legal Advisor are not applicable on the question of jurisdiction. We therefore, hold that the learned Assessing Authority assumed jurisdiction under section 65 of the Ordinance unlawfully. We are deciding all these appeals on jurisdictional and legal issues. Therefore, we need not dilate upon the grounds and arguments regarding merits of assessment.

11. The upshot of the above discussion is that the combined re-assessment order for assessment years 1989-90 to 1993-94 dated 13-5-1995 is void and it is annulled.

12. The appeals filed at the instance of the assessee succeed while the cross appeals filed by the department fail.

M.B.A./173/TOrders accordingly.