I.T.A. NO.557/KB OF 1996-97 VS I.T.A. NO.557/KB OF 1996-97
1997 P T D (Trib.) 1425
[Income-tax Appellate Tribunal Pakistan]
Before Muhammad Mujibullah Siddiqi, Chairman and
S. M. Sibtain, Accountant Member
I.T.A. No.557/KB of 1996-97, decided on 27/01/1997.
(a) Income-tax---
----Administration of justice ---Assessee is entitled to invoke any beneficial provision of law at any stage of assessment process irrespective of the fact that such provision has, not been invoked at the, preceding stage.
(b) Income Tax Ordinance (XXXI of 1979)---
----Second Sched., Part IV, Cl.(6)---Foreign Exchange Bearer Certificates Rules, 1985, R.5---Foreign Exchange. Bearer Certificates---Exception---Tax benefit on the amount invested in acquisition of Foreign Exchange Bearer Certificates is not to be allowed to two different persons twice---In the absence of any requirement of an application for purchase of the certificates or any provision for registration of the certificates issued, the "office of issue" cannot identify the person to whom such certificates were issued, for it cannot possibly have any record to substantiate the certification.
(c) Income Tax Ordinance (XXXI of 11979)-
----Second Sched., Part I, Cl(171) & Part IV, Cl.(6)---Foreign Exchange Bearer Certificates Rules, 1985, Rr.5, 6 & 7---Foreign Exchange Bearer Certificates--- Exemption---Scope and application of-Cl.(171), Part I and Cl. (6), Part IV of Second Sched. of Income Tax Ordinance, 1979.
The proposition that since Clause (171) of Part I and Clause (6) of Part IV are inserted in the Second Schedule to Income Tax Ordinance, 1979, simultaneously by the same Notification, these, therefore, are mutually exclusive extending two separate benefite one for investment in acquisition under clause (6) and again on encashment under clause (171) cannot be subscribed. These two mutually exclusive provisions have been made to deal with two different situations. Clause (6) of Part IV deals with a situation wherein the DCIT finds that an assessee is holding the F.E.BCs acquired by him either under Rules 5, 6 or 7 of F.E.B.C. Rules, 1985 but he cannot invoke the provisions of either section 13 or any of the sections of Chapters XI and XII of the Income Tax Ordinance as long as the assessee continues to hold such certificates. However, clause (171) of Part-I of the Second Schedule deals with a situation where an assessee is claiming exemption from tax on the certified sum on the basis of a certificate issued under Rule 13 of the F.E.B.C. Rules, 1985, by a Bank (office of issue) authorised in this behalf that the assessee named therein has encased F.E.B. Certificates bearing numbers mentioned therein from the said Bank and the specified amount in Pak Currency has been paid to him in exchange thereof. There is neither any identity of purpose nor any contradiction in objectives of the provisions of the two clauses. While one ensures that no question shall be asked nor any penal or prosecution proceedings shall be initiated under the Income Tax Ordinance against a person holding F.E.B.Cs. in acquisition whereof one has invested any amount, the other ensures that no question will be asked by the Income Tax Authorities regarding source of funds received by an assessee on encashment of F.E.B.C. if the office of issue has issued its his favour the Certificate prescribed in this behalf under Rule 13 of the F.E.B.C. Rules, 1985.
Messrs Julien Hoshang Dinshaw Trust and others v. I.T.O., Circle XVIII, South Zone, Karachi 1992 PTD 1= 1992 SCMR 250 distinguished.
(d) Income Tax Ordinance (XXXI of 1979)---
----Second Sched, Part 1, Cl. (171)& Part IV, Cl. (6)---Foreign Exchange Bearer Certificates Rules, 1985, R.13---Foreign Exchange Bearer Certificates ---Exemption ---Assessee at the end of the income year, had no amount that was claimed to have been received on encashment of F.E.B.Cs' as provided under R.13, Foreign Exchange Bearer Certificates Rules, 1985, similarly at the time of end of the income year he had no amount i0vested in the acquisition of F.E.B.Cs.---Held, assessee neither was entitled to exemption from tax available under Cl. (171) of Part I of Second Sched. of the Income Tax Ordinance, 1979 nor to immunity from the provisions of S.13, Chap. X or Chap. XII of the Income Tax Ordinance, 1979.
Iqbal Naeem Pasha for Appellant.
Inayatullah Kashani, D.R. for Respondent.
Date of hearing: 15th January, 1997.
ORDER
The appellant, in this appeal objects to the order of the learned I.A.C. under section 66-A of the Income Tax Ordinance, on the grounds that the order passed by the learned DCIT under section 62 is not erroneous in so far as it is not prejudicial to the interest of revenue and the learned I.A.C. is not justified in invoking his jurisdiction under section 66-A and, without prejudice to the foregoing, the learned I.A.C. is not justified in holding that the sum of Rs.17,744,500 invested in the acquisition of Foreign Exchange Bearer Certificates F.E.B.Cs. is chargeable to tax.
2. We have heard Mr. Iqbal Naeem Pasha, the learned counsel of the appellant, and Mr. Inayatullah Kashani, the learned D.R. Facts of the case, briefly are that the learned I.A.C. has invoked his jurisdiction under section 66-A vide notice dated 10-6-1996 wherein he has mentioned:
"During the course of examination of your assessment record for the Assessment Year 1992-93, it is transpired that order passed by the Assessing Officer is erroneous is so far it is prejudicial to the interest, of Revenue and liable for cancellation under section 66-A of the Income Tax Ordinance, 1979 for the following reason:---
(I)You filed your original return of Assessment Year 1992 on 16-8-1992.
(II)You specifically claimed exemption, on Rs.19,199,549 being encashment of FEBC in Pak Rupees, under Second Schedule in Part II of your Income Tax 11 Return Form.
(III) Before the completion of Assessment, you revised your income return on 22-2-1994 and subtracted the profit on encashment of F.E.B.Cs. amounting to Rs.14,55,049 from Part II of the Return and offered the same for tax in Part I of the Return as profit on F.E.B.C. and claimed exemption on the balance as in original return. '
The Revision of return and narrations in Part II obviously indicate that exemption is claimed under clause (171) of the Second Schedule to the Income Tax Ordinance, 1979 which reads as under:---
'(171) Any amount received on encashment of any certificate issued in pursuance of the Foreign Exchange Bearer Certificate Rules, 1985' .
"While processing the return, the officer allowed the credit of exemption amounting to Rs.1,77,44,500 without obtaining any, evidence to the effect that F.E.B.Cs. were encased by you or not. The office-note of the Assessment Order further strengthens my observation, which is also detailed below:
'Office Note:
In this assessment the assessee was required furnish evidence of encashment in bank, of F. E. B. C's. amounting to Rs.17,744,500, in support of exemption. The same was not furnished until 29-6-1995.
On 29-6-1995 Mr. H. Shaban appeared and he explained that since the matter was old, evidence has been misplaced and is being traced out which will take some more time while the assessment relates to 1992-93 which was soon to become barred by limitation and no further opportunity is to be granted. He, therefore, offered that the assessment may be got revised under section 65/66A, if the evidence is not furnished within a fortnight. His undertaking is borne on the order sheet which reads as under:---
'Declares on solemn affirmation:---
That exemption of Rs.1,77,44,550 has been claimed under clause (171) of the Second Schedule on the basis of their encashment made in 1991 (during 1-1-1991 to 31-12-1991) from the concerned bank. That evidence is being traced out and shall be filed within a fortnight or so as the matter is old'.
It is, therefore, to be watched whether the evidence promised is furnished within the stipulated time. In case of failure, the assessment shall have to be revised adding the exempt income as having been claimed without lawful authority'.
'Accordingly you are served with this show-cause notice to explain as to why the Assessment Order passed for, the Assessment Year 1992-93 by the Assessing Officer in your case may not be cancelled by treating it erroneous and prejudicial to the interest of Revenue and income claimed to be exempt amounting to Rs.1,77,44,500 subjected to tax with other penal actions, for making erroneous and false claim of exemption, under section 111 and under section 119 of the Income Tax Ordinance, 1979. Your compliance is due as on or before 17-6-1996' . "
3.The learned counsel of the appellant vide his letter dated 16-6-1996 has stated that Mr. Hashwani has been able to trace out letter dated 2-9-1991 addressed by him to M/s. A.N.Z. Grindlays Bank saying:---
"Kindly arrange for transfer to U.S. $ 720,000 with A.N.Z. Grindlays Geneva to Karachi for issue of F.E.B.C.".
'Please also arrange to dispose of the F.E.B.Cs and credit the proceeds together with profit thereon to the account No.11777025050516 of M/s. Hashwoo Holdings Pvt. Ltd. under advice to me. "
4. The learned counsel, therefore, requested the learned I.A.C. to appreciate that throughout the assessment proceedings the representatives of Mr. Sadruddin Hashwani, not being aware of the factual position had been acting under assumptions and misconceived notions. He further submitted. '
"The factual position is that Mr. Hashiwani had invested $ 720,000 in the acquisition of F.E.B.C. of the value of Rs.17,744,500 on 12-9-1991.
After having invested Rs.17,744,500 in the acquisition of the certificates, Mr. Sadruddin embarked on an adventure in the nature of Trade by disposing of the same through his bankers namely A.N.Z. Grindlays Bank."
The Trading Account of the F.E.B.C. is as under:---
| Investment in acquisition of F.E.B.Cs of the value of | Sale proceeds of F.E.B.Cs. received through A.N.Z. Grindlays Bank |
| Rs.177,44,500 | |
| RevenueRs.14.55,049 | Rs.191.99,549 |
| GainRs.191,99,549 | Rs.191,99,549 |
'Mr. Sadruddin vide revised 'return of income offered Rs.1,455,049 as income chargeable to tax under the Income Tax Ordinance, 1979.
'Your honour are aware that clause (6) of Part IV of the Second Schedule to the Income Tax Ordinance, 1979 was brought-on the statute book vide SRO-544(1)/85, dated July 1, 1985.'
Clause (6) of Part IV of the Second Schedule reads as follows:---
'(6) The provisions of section 13, Chapter XI or Chapter XII shall not apply in respect of any amount invested in the acquisition of Foreign Exchange Bearer Certificates issued under the Foreign Exchange Bearer Certificates Rules, 1985.'
'Thus, factually the amount of Rs.17,744,500 invested by Mr. Sadruddin Hashwani in acquisition of F.E.B.Cs. of the value of Rs.17,744,500 is immune from chargeability of tax under the Income Tax Ordinance, 1979.'
'Your honour would further appreciate that there is no provision in the Income Tax Ordinance, 1979 where under sale proceeds aggregating to Rs.1,91,95,549 received by Mr. Hashwani, by disposing of F.E.B.Cs. acquired by making investment of Rs.17,744,500 can be chargeable to tax'."
5. The learned counsel continued to submit before the learned I.A.C.:
... "Exemption in respect of investment in acquisition of F.E.B.C. under clause (6) of Party IV of the Second Schedule being absolute; same cannot be chargeable to tax merely because separate exemption has been allowed in respect of amount received on encashment of F.E.B.C. Certificates under other clause appearing in another part of the Second Schedule.
'There may be cases where an assessee has not made any investment in acquisition of F.E.B.C., but has received the same in Pakistan from an unverifiable party whose credentials are not available, or has received F.E.B.Cs. as gift from some non-resident relation of his who had made investment in the acquisition of F.E.B.C. outside Pakistan; in all such cases as well as in other similar cases which may come to surface, investment in acquisition bf F.E.B.Cs. not having been made by the assessee, the same are not immune from chargeability to tax under clause (6) of Part II of the Second Schedule to the Income Tax Ordinance, 1979'
'To my humble mind the purpose of insertion of clause (171) of Part II of the Second Schedule was two-fold'.
'Firstly to provide exemption in respect of cases not covered by the subject-matter of clause (6) of Part IV of the Second Schedule; and secondly to provide for exemption in respect of profit/interest accruing on the Foreign- Exchange Bearer Certificates of various denominations.
'Hence, the Legislature provided that the amount received on encashment of 1F.E.B.C. which would be inclusive of the profit/interest accruing thereof shall be exempt'."
6. The learned counsel has placed reliance on the decision of the Hon'ble Supreme Court of Pakistan in the case of M/s. Julien Hoshang Dinshaw Trust and others v. ITO, Circle-XVIII, South Zone, Karachi reported as 1992 PTD 1 = 1992 SCMR 250 wherein the two assessees had received "dividends" from M/s. Edulji Dinshaw Ltd. in respect of sale acquisition of properties in which the two assessees had specific shares.
7.Para. 14 of the judgment delivered by the Hon'ble Supreme Court of Pakistan reads:----
" 14. In the course of the proceedings before the I. T.O., in order to bring the receipts in the hands of the appellant, under charge, reliance was also placed on section 151 of the Ordinance, which is reproduced below:---
'Limitation of exemption.-----Whereby any income is- exempt from tax, the exemption shall, in absence of specific provision to the contrary contained in this Ordinance, be limited to the original recipient of that income and shall not extend to any person receiving any payment wolly or in part out of that income'.
'This section confines grant of exemption to an original recipient of the income and eliminates the award of double exemption on such income when passed on the another person. Thus, the income which has suffered immunity from payability of tax when received by another person cannot earn exemption for the second time. But, this section has absolutely no applicability to cases before us. The reason being that the concept of exemption postulates chargeability under the charging provisions of the statute. Here the receipt is basically outside the purview of taxing statute and rather there is a Constitutional bar on its taxability. According to the definition of the term income, as given in the Income Tax Act/Ordinance, the receipt cannot in any manner be categorised, as income of the Company. It is, therefore, wholly wrong to give the colour of income, to the receipt in the hands of the company and then treat it exempt from the income-tax. Thus, the department's reliance on section 151 is entirely misconceived.'
'In the opinion of the Highest Court of Pakistan 'the concept of postulates chargeability under the charging provisions of The observation of the- Supreme Court of Pakistan quoted supra which is binding on all Courts and Tribunals in Pakistan under Article 189 of the Constitution squarely covers instant case'.
"The amount invested on acquisition of F.E.B.Cs. or the amount received on sale thereof must, first, be chargeable to tax under the charging provisions of the Income Tax Ordinance, 1979, before the concept of exemption contained in clause (171) of Part II of the Second Schedule can be made applicable'."
8. Now we shall consider how the learned I.A.C., has proceeded to view of the explanation (supra), offered on behalf of the appellant, in response to his notice under section 66-A.
9. The, learned I.A.C. has found the explanation unsatisfactory. He holds, on the basis of narrations in Part II of the Original as well as the revised returns, that the appellant has all along been conscious that on the facts of his case he has no case for exemption. He knows that under the law and in view of the F.E.B.C. Rules, 1985, either the entire amount received against F.E.B.C. encashments inclusive of profit, is exempt or the entire amount, inclusive of any premium, received on sale of F.E.B.C. by transfer delivery is chargeable to tax. It is evident, according to the learned I.A.C., from the fact that in none of the two returns the appellant has mentioned the clause of the Second Schedule under which the exemption is claimed. He has dilated at length, in his impugned order, with the way the issue has been dealt with during the course of assessment proceedings. The learned D.C.I.T., according to the learned I.A.C., has fallen into the trap and has proceeded to pass an order which is erroneous in so far as it is prejudicial to the interest of revenue. According to the learned I.A.C., it is evident from the information gathered and placed on record by the learned DCIT that the appellant has not encashed the F.E.B.Cs. himself, as per Rule 13 of the F.E.B.C. Rules, 1985.
10. Thus, we find that the explanation offered by the learned counsel for the appellant, in response to the notice under section 66-A ibid and reiterated before us as well, is that the appellant has not been represented properly during the course of proceedings or that the learned D.C.I.T. has either misconstrued or misunderstood the facts. The finding only strengthens the basis of the I.A.C.'s. conclusion that the assessment order passed by the learned D.C.LT. is erroneous.
11. However, now it remains to be found if the assessment order has the interest of revenue as well.
12. In this regard as well, the learned counsel of the appellant, Mr. Iqbal Naeem Pasha has only reiterated before us whatever he has already submitted before the learned I.A.C., as reproduced (supra).
13. The main thrust of his submissions is on the point that the appellant has never claimed exemption under clause (171) of Part I of the Second Schedule. On the contrary, according to Mr. Pasha, the appellant has invested U.S. $ 720,000 in the acquisition of Foreign Exchange Bearer Certificates issued under the F.E.B.C. Rules, 1985, on 12-9-1991. He has further stated that necessary testimony of the Office of Issue, in the instant case the A.N.Z., Grindlays Bank, I.I. Chundrigar Road, Karachi, is available on record. He, therefore, has submitted that the amount so invested by the appellant is outside the purview of any enquiry by the learned CIT because under clause (6) of Part IV of the Second Schedule the provisions of, section 13, Chapter XI or Chapter XII, shall not apply in respect of any amount so invested. According to Mr. Pasha the subsequent encashment of such F.E.B.Cs. either under Rule 13 (encashment at the Office of Issue) or under Rule 5 (transfer by delivery) of the F.E.B.C. Rules, 1985, has no bearing on the immunity allowed to the amount so invested under clause (6) of Part IV of the Second Schedule. Precisely his contention is two-fold. Firstly, that the source of the amount invested by the assessee who acquires the F.E.B.Cs. originally from the "Office of Issue" is outside the purview of any enquiry under clause (6) ibid irrespective of the fact how and when he transfers the Certificates. Secondly the amount received on encashment of. any Certificates in pursuance of Rule 13 of F.E.B.C. Rules, 1985, from an "Office of Issue" is exempt from tax, in the hands of the recipient, under clause (171) of the Part I of the Second Schedule, irrespective of the fact how he acquires the certificates. He places reliance, in support of his contention (supra), on the fact that both clause (171) of Part I and clause (6) of Part IV have been inserted in the Second Schedule simultaneously by Notification No.S.R.O. 654(1)/85, dated 1-7-1985 and the two are mutually exclusive. He has submitted that any other interpretation would render either of the two provisions redundant and it is a well-settled principle of the interpretation of statutes that one cannot attribute redundancy or absurdity to any provision of law.
14. Further reliance has been placed by Mrs Pasha on the case-law reported as 1992 SCMR 250 = 1992 PTD 1 (ibid).
15. We find that the learned I.A.C., has not agreed with the view of the learned counsel for, the appellant because in his view the tax benefit of investing in acquisition of F.E.B.C. cannot be availed by two persons twice once on the basis of acquisition of F.E.B.Cs. and again on the encashment thereof. Further, he has held that clause (6) of Part IV of the Second Schedule cannot be invoked by the appellant, firstly, because it is "unrelated and secondly, because it amounts to changing of stands. He therefore, has held that the assessment order passed by the learned D.C.I.T. is prejudicial to the interest of revenue because it allowed exemption t0 the appellant on Rs.17,744,500 claimed on account of encashment of F.E.B.Cs. in to Pak.
16. At the outset we cannot subscribe to the view of the I.A:C., that appellant's claim that his case is covered by clause (6) cannot be considered because it amounts to change of stand. We agree with the proposition of Mr. Iqbal Naeem Pasha that an assessee is entitled to invoke any beneficial provision of law at any stage of assessment process irrespective of the fact that such provision has not been invoked at the preceding stage. However, we find substance in the I.A.C.'s. view that tax benefit on the amount invested in acquisition of F.E.B.Cs. is not to be allowed to two different persons twice. Further on careful perusal of the F.E.B.C. Rules, 1985, particularly Rule 5, we find that the learned D.R has correctly submitted that in the absence of any requirement of an application for purchase of the Certificates or any provision for registration of the Certificates issued, the "Office of Issue" cannot identify the person whom such certificates are issued because it cannot possibly have any record to substantiate the certification. Thus, we find that there is no basis for the foregoing proposition of Mr. Pasha that benefit of the provisions of clause (6) is available only to a person who originally invests the amounts in acquisition of Certificates from the "Office of Issue" and not to a person who acquires these Bearer Certificates through transfer by delivery.
17. Regarding the proposition of Mr. Iqbal Naeem Pasha that since clause (171) of Part I and clause (6) of Part IV are inserted in the Second Schedule simultaneously by the same Notification, these, therefore, are mutually exclusive extending two separate benefit once for investment in acquisition under clause (6) and again on encashment under clause (171), we regret we are not persuaded to subscribe to his view. We have no doubt in our mind that these two mutually exclusive provisions have been made to deal with two different situations. Clause (6) of Part IV deals with a situation wherein the D.C.I.T. finds that an assessee is holding the F.E.B.Cs acquired by him either under Rules 5, 6 or 7 of F.E.B.C. Rules, 1985 but he cannot invoke the provisions of either section 13 or any of the sections of Chapters XI and XII of the Income Tax Ordinance as long as the assessee continues to hold such Certificates. However, clause (171) of Part I of the Second Schedule deals with a situation where an assessee is claiming exemption from tax on the certified sum on the basis of a Certificate issued under Rule 13 of the F.E.B.C. Rules, 1985, by a Bank (Office of Issue) authorised in this behalf that the assessee named therein has encashed F.E.B. Certificates bearing numbers mentioned therein from the said Bank and the specified amount in Pak Currency has been paid to him in exchange thereof. We, therefore, find neither any identity of purpose nor any contradictionobjectives of the provisions of the two clauses ibid. While one ensures that no question shall be asked nor any penal or prosecution proceedings shall be initiated under the Income Tax Ordinance against a person holding F.E.B.Cs. in acquisition whereof one has invested any amount, the other ensures that no question will be asked by the Income Tax Authorities regarding source of funds received by an assessee on encashment of F.E.B.C. if the Office of Issue has issued in his favour the Certificat8 prescribed in this behalf under Rule 13 of the F. E.B.C. Rules, 1985. Thus, there being neither any contradiction in terms nor any ambiguity in the provisions of the two clauses ibid, we find that both the ratio of decision in, as well as the facts and circumstance of the case, relied upon ibid, by Mr. Iqbal Naeem Pasha are distinguishable.
18. In the instant case, the appellant, at the end of the income year, has no amount that is claimed to have been received on encashment of F.E.B.Cs. as provided under Rule 13 of the F.E.B.C. Rules, 1985. Similarly, the appellant, at the end of the income year has no amount invested in the acquisition of the F.E.B. Certificates.
19. Accordingly, we find that he, neither is entitled to exemption from tax available under clause (171) of Part I nor to immunity from the provisions of section 13, Chapter XI or XII of the Income Tax Ordinance.
20. It follows from the finding supra that the assessment order passed by the D.C.I.T., in appellant's case is not only erroneous but it is patently prejudicial to the interest of revenue in so far as the amount of Rs.17,744,500 has been incorrectly arid unlawfully held to be exempt from tax herein, and the learned I. A. C.., therefore, is justified both in invoking his jurisdiction under section 66-A as well as in holding that the sum (supra) is chargeable to tax.
21. Consequently, we confirm the impugned order of the learned I.A.C., and dismiss the appeal.
M.B.A./346/Trib. Appeal dismissed.