I.T.A. NO.914/HQ OF 1988-89 VS I.T.A. NO.914/HQ OF 1988-89
1997 P T D 1727
[Income-tax Appellate Tribunal Pakistan]
Before Muhammad Mujibullah Siddiqi, Chairman, S.M. Sibtain, Accountant Member and Nasim Sikandar, Judicial Member
I.T.A. No.914/HQ of 1988-89, decided on 05/01/1997.
(a) Income Tax Ordinance (XXXI of 1979)---
----S.25(c)---General Clauses Act (X of 1897), S.3(59)---Word "year" occurring in S.25(c), 'Income Tax Ordinance, 1979---Interpretation---Only interpretation of word 'year' is the assessment year as such the subject and context of its use in S.25(c) of the Income Tax Ordinance, 1979 is repugnant to the general definition of the word 'year' provided in General Clauses Act, 1897.
The definition of the word "year" given in subsection (59) of section 3 of the General Clauses Act is qualified with the words "unless there is anything repugnant in the subject or context" used both in section 3 as well as in section 4. One is, therefore, required to ensure, before considering the proposition that there is nothing repugnant in the subject or context in which the word "year" .is used in clause (c) of section 25 of the Income Tax Ordinance, 1979 to the ordinary definition of the word "year" given in the General Clauses Act, 1897 the subject of this clause is the trading liability or a portion thereof that is found not to have been paid within three years of the expiration of the income year in which it was allowed and the context in which the word "year" is used is that such unpaid liability shall be deemed to be income from business or profession of the year in which such finding is made. Obviously the word "found" and the words "finding is made" refer to the assessing officer who has found and who had made the finding. Similarly it is also obvious that, in the context of the scheme of assessment envisaged under the Income Tax Ordinance, 1979, the assessing officer makes such finding in the course of assessment proceedings.
Thus, the word "year" is used, in Clause (c) of section 25 of the Income Tax Ordinance, 1979 in the context of assessment proceedings and, therefore, in the context of its use, the only possible interpretation of the word "year" is the assessment year. As such the subject and context of its -use in clause (c) of section 25 of the Income Tax Ordinance is repugnant to the general definition of the word "year" provided in the General Clauses Act, 1897.
(b) Income Tax Ordinance (XXXI of 1979)---
----Ss.65(i), 66(2), 96(1), 64(2)(3), 66-A(2), 99(2) & 156---Word "year" as used in said sections---Connotation.
The word "year" as used in subsection (1) of section 65, in clause (i) of subsection (2) of section 66, and in subsection (1) of section 96 connotes "assessment year" and the word "year or years" as used in subsections (2) and (3) of section 64, subsection (2) of section 66-A, subsection (2) of section 99 and section 156 connote a period of 12 months or a multiple thereof to be calculated since a specified date.
(c) Income Tax Ordinance (XXXI of 1979)---
----S.25(c)---Liability remaining unpaid for three years---Effect---"Year" as used in S.25(c), Income Tax Ordinance, 1979 means "assessment year"-- Finding that a liability or a portion thereof has not been paid within three years of the expiration of the income year in which it was allowed can be made as soon as the balance sheet of the third year, after the expiration of income year in which it was allowed is looked at---Earliest such opportunity will arise during the course of assessment proceeding for the assessment year corresponding to the third income year after the expiration of the income year in which such liability was allowed.
The word "year" as used in clause (c) of section 25 means "assessment year". The finding that a liability or a portion thereof has not been paid within three years of the expiration of the income year in which it was allowed can be made as soon as the balance sheet of the third year, after the expiration of the income year in which it was allowed, is looked at. The earliest such opportunity shall arise during the course of assessment proceeding for the assessment year corresponding to the third income year after the expiration of the income year in which such liability was allowed. Thus, for example, as in the instant case, the income year in which such liability was allowed expired on 31-12-1984; the third income year after the expiration of the aforementioned date shall be the income year ending 31-12-1987 and the earliest assessment proceedings during the course whereof the unpaid liability referred to in section 25(c), reflected in the balance sheet as on 31-12-1987, can be found out by the assessing officer shall be the assessment year 1988-89.
(d) Income Tax Ordinance (XXXI of 1979)---
----S.25(c)---Liability remaining unpaid for three years---Effect---Discretion of Assessing Officer---Scope---Legislature itself has left it to the judicious exercise of the discretion by the D.C.I.T. to deem the liability found unpaid within three years, of the expiry of the income year in which it was first allowed to be income from business or profession in the year in which such finding is made or any other year as the D.C.I.T. may think fit---Discretion to postpone invoking the deeming provision is restricted to five assessment years beginning from the first assessment year in which it could be invoked.
The Legislature itself has left it to the judicious exercise of the discretion by the D:C.I.T, to deem the liability found unpaid within three years, of the expiry of the income year in which it was first allowed, to be income from business or profession in the year in which such finding is made or any other year as the Deputy Commissioner may think fit. However, the discretion to postpone invoking the deeming provision is restricted to five assessment years beginning from the first assessment year in which it could be invoked.
In the absence of any finding that the assessee during the course of assessment proceedings, had placed material facts, before the assessing officer, warranting exercise of the discretion vested in him under the law, in favour of assessee, the CIT(A) is not justified in holding the addition premature; hence the addition under section 25(c) was ordered to be restored.
1996 PTD (Trib.) 100 approved.
(e) Income Tax Ordinance (XXXI of 1979)---
----S.25(c)---No ambiguity in the provision of S.25 (c) exists.
Inayatullah Kashani, D.R. for Appellant
Iqbal Naeem Pasha for Respondent.
Date of hearing: 5th January, 1997
ORDER
The only objection of the Department to the order of the learned CIT(A), in this appeal, is on the following ground:---
(a) "That the learned Commissioner of Income Tax (Appeals) was not justified in deleting the additions under section 25(c) for Rs.24,365."
2. This appeal was originally fixed for hearing before a Division Bench on 11-12-1996. The learned D.R., Mr. Inayatullah Kashani had submitted that the objection raised in the appeal relates to an issue already decided by the Tribunal in I.T.A. No.936/HQ of 1988-89, dated 30-8-1993 reported as 1996 PTD (Trib.) 100. However, Mr. Iqbal Naeem Pasha appearing on behalf of the respondent had submitted that the judgment ibid required consideration by a Full Bench. The Bench found substance in his submission; hence the Constitution of this Full Bench.
3. We have heard the learned representative of the Department, Mr. Inayatullah Kashani. He has submitted that precisely the facts relating to the issue to be decided in this appeal are that the respondent, a Private Limited Company, has claimed an amount of Rs.24,365 on account of bonus payable to employees for the income year ending on 31-12-1984. The claim has been allowed by the Department in the corresponding assessment year 1985-86. However, it is found not to have been paid within three years of the expiration of the income year in which it was allowed i.e., by 31-12-1987. Since the finding has been made by the learned D.C.I.T. in the course of proceedings for the assessment year under appeal i.e., the assessment year 1988-89, he has deemed the unpaid sum of Rs.24,365 to be income from business of the year in which such finding is made. The respondent has felt aggrieved and an appeal has been preferred before the learned CIT(A) who, without recording any basis, has held that "the learned counsel has rightly pointed out that the addition on account of section 25(c) is not justified because this addition is premature and can only be made in the assessment year 1989-90".
4. The learned D.R. has submitted that it may be appreciated from the narration of the admitted facts (supra) that the provisions of Clause (c) of section 25 are unambiguous and do not admit of any interpretation other than the interpretation consistently given by the Tribunal in its judgment ibid. He has further submitted that the interpretation of section 25(c) by the C.B.R., referred to in the judgment ibid is at best an administrative instruction that is not binding upon the assessing officers as held by the Hon`ble Supreme Court of Pakistan in Central Insurance Co. and others v. CBR 1993 SCMR 1232 = 1993 PTD 766. He, therefore, pleads for vacation of the impugned order of the learned CIT(A) and restoration of the order of the learned DCIT.
5. Mr. Iqbal Naeem Pasha, the learned counsel of the respondent, on the other hand, submits that the correct meaning and import of the word "year" used in Clause (c) of section 25 is to be understood in order to find the correct interpretation of the provisions of this Clause. We, therefore, would reproduce hereunder the provisions of section 25 and Clause (c) thereof:
"25. Amounts subsequently recovered in respect of deductions etc. Notwithstanding anything contained in this Ordinance, where an allowance or deductions has been made under section 23 for any year in respect of any loss, bad debt, expenditure or trading liability incurred by the assessee, and subsequently:---
(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 (not being a year commencing after the expiration of five years from the end of the said three years) as the Deputy Commissioner may think fit. "
6. Mr. Pasha has specifically invited our attention to the words "shall be deemed to be income from business or profession of the year in which such finding is made" as used in the clause (c) (supra) and underlined by us for convenience of reference. He has submitted that while the terms "income year" and "assessment year" are defined in the Income Tax Ordinance, 1979 the word "year" as used in clause (c) supra, in subsection (1) of section 65, in clause (i) of subsection (2) of section 66, subsection (1) of section 96 or as used in subsections (2) and (3) of section 64, subsection (2) of section 66-A, subsection (2) of section 99 and section 156 of the Income Tax Ordinance, is not defined in the Ordinance. He has further submitted that in such an eventuality it is well-settled law that meaning of the word "year" shall be taken in accordance with the General Definition given in subsection (59) of section 3 of the General Clauses Act, 1897. Mr. Pasha, accordingly, submits that the word "year" shall mean a year reckoned according to the British Calendar. Proceeding on this premise, Mr. Pasha submits that the word "year" as used in clause (c) supra refers to the date on which such finding is made and it shall be reckoned with the British Calendar year in which the date of such finding falls. Since in the instant case the finding is made by the learned D.C.I.T. on 22-1-1989, i.e., the date of recording the assessment Pro order, that falls in respondent's income year corresponding to assessment year `1990-91, Mr. Iqbal Naeem Pasha submits that the addition can only be made in the assessment year 1990-91.
7. We have given our careful consideration to the foregoing submissions of the learned representatives of the two parties and have perused the provisions of subsection (59) of section 3 and subsection (1) of section 4 of the General Clauses Act, 1897 that read as under:---
"(3) In this Act, and in all Central Acts and Regulations made after the commencement of this Act, unless there is anything repugnant in the subject or context,---(59) 'year' shall mean a year reckoned according to the British Calendar".
(4) "The definitions in section 3 of the following words and expressions, that is to say affidavit, 'barrister', 'District Judge, 'father', 'immovable property', 'imprisonment', 'Magistrate, movable property', 'oath', 'person', 'section', 'son', 'swear', will', and 'year' apply also, unless there is anything repugnant in the subject or context, to all Central Act, made after the third day of January, 1868, and to all Regulations made on or after tire fourteenth day of January, 1887."
8. We find on the basis of foregoing that even the definition of the word "year" given in subsection (59) of section 3 of the General Clauses Act is qualified with the words "unless there is anything repugnant in the subject or context" used both in section 3 as well as in section 4. We, therefore, are required to ensure, before we consider the proposition of Mr Iqbal Naeem' Pasha supra, that there is nothing repugnant in the subject or context in which the word "year" is used in clause (c) (supra) to the ordinary definition of the word "year" given in the General Clauses Act, 1897. We find on careful perusal of clause (c) supra that the subject of this clause is the trading liability or a portion thereof that is found not to have been paid within (emphasis provided) three years of the expiration of the income year in which it was allowed and the context in which the word "year" is used is that such unpaid liability shall be deemed to be income from business or profession of the year in which such finding is made. Obviously the word "found" and the words "finding is made" refer to the assessing officer who has found and who has made the finding. Similarly it is also obvious that, in the context of the scheme of assessment envisaged under the Income Tax Ordinance, 1979, the assessing officer makes such finding in the course of assessment proceedings.
9. Thus, we arrive at the un-escapable conclusion that the word "year" is used, in Clause (c) of section 25, in the context of assessment proceeding and, therefore, in the context of its use, the only possible interpretation of the word "year" is the assessment year. As such the subject and context of its use in Clause' (c) of section 25 of the Income Tax Ordinance is repugnant to the general definition of the word "year" provided in the General Clauses Act, 1897. We, therefore, regret we cannot subscribe to the proposition of Mr. Iqbal Naeem Pasha (supra).
10. Before we part with this aspect of the issue we may briefly add that the word "year" as used in subsection (1) of section 65, in Clause (i) of subsection (2) of section 66, and in subsection (1) of section 96 connotes "assessment year" and the word "year or years" as used in subsections (2) and (3) of section 64, subsection (2) of section 66-A, subsection (2) of section 99 and section 156 connote a period of 12 months or a multiple thereof to be calculated since a specified date.
12. Having concluded that the word "year" as used in Clause (c) of section 25 means "assessment year" we find on plain reading of the Clause that the finding that a liability or a portion thereof has not been paid within three years of the expiration of the income year in which it was allowed can be made as soon as the balance sheet of the third year, after the expiration of the income year in which it was allowed, is looked at. The earliest such opportunity shall arise during the course of assessment proceeding for the assessment year corresponding to the third income year after the expiration of the income year in which such liability was allowed. Thus for example, as in the instant case, the income year in which such liability was allowed expired on 31-12-1984; the third income year after the expiration of the aforementioned date shall be the income year ending 31-12-1987 and the earliest assessment proceedings during the course whereof the unpaid liability referred to in section 25(c), reflected in the balance sheet as on 31-12-1987, can be found out by the assessing officer shall be the assessment year 1988-89.
11. Coming to the interpretation of the provisions of Clause (c) of section 25 by the C.B.R., referred to in the Division Bench judgment reported as 1996 PTD (Trib.) 100 we find on careful perusal of the second part of Clause (c) (supra) that the Legislature itself has left it to the judicious exercise of the discretion by the D.C.I.T., to deem the liability found unpaid within three years, of the expiry of the income year in which it was first allowed, to be income from business or profession in the year in which such finding is made or any other year as the Deputy Commissioner may think fit. However, the discretion to postpone invoking the deeming provision is restricted to five assessment years beginning from the first assessment year in which it could be invoked.
12. Accordingly, we have no hesitation to conclude that the majority decision of the Division Bench reported as 1996.PTD (Trib.) 100 is based on correct interpretation of the law. Consequently we find the impugned order of the learned Commissioner of Income Tax (Appeals) unsustainable because in the absence of any finding that the respondent, during the course of assessment proceedings, has placed material facts. before the assessing officer, warranting exercise of the discretion vested in him under the law, in favour of the respondent, the learned CIT(A) is not justified in holding the addition premature; hence the addition under section 25(c) restored.
13. Before parting with this, we may add that since we do not find any ambiguity in the provisions of section 25(c) we have not touched upon the cases cited by Mr. Iqbal Naeem Pasha, to strengthen his claim of the benefit of ambiguity during the Courts of his submissions.
M.B.A./348/(Trib.) Order accordingly.