I.T.A. NO.221(PB) OF 1994-95 VS I.T.A. NO.221(PB) OF 1994-95
1997 P T D (Trib.) 276
[Income-tax Appellate Tribunal Pakistan]
Before Fazalur Rehman Khan, Judicial Member and Abdur Rehman Afridi, Accountant Member
I.T.A. No. 221(PB) of 1994-95, decided on 18/09/1996.
(a) Income Tax Ordinance (XXXI of 1979)---
----S.12(18)---C.B.R. Circular No. 3 of 1992, dated 27-1-1992---C. B. R. Circular No. 11 of 1992, dated 4-5-1992---C.B.R. Circular No. 12 of 1992, dated 19-5-1992---C.B.R. Circular No.1 of 1993, dated 11-1-1993-- Legislative history of S.12(18), Inc3me Tax Ordinance, 1979---Income deemed to accrue or arise in Pakistan---All the four C.B.R. Circulars having extended the exemption to the loans received otherwise than through crossed cheques beyond 30-6-1990, in one way or the other and in one form or the other, to that extent, were ultra vires of S.12(18), Income Tax Ordinance, 1979.
(b) Interpretation of statutes---
---- Rules etc. under a statute---Validity---If rules framed or orders/instructions issued under a statute are in excess of the provisions of the statute or in contravention of or inconsistent with such provisions, then those rules or orders/instructions will be regarded as ultra vires of the statute and could not be given effect.
(c) C.B.R. Circulars---
----Validity---If in a provision for relaxation contained in the Circular, there is a departure from the law involved then that Circular is, to the extent of such deviation is invalid and ineffective and power thereunder is illegally exercised.
Commissioner of Income Tax, East Pakistan, Dacca v. Noor Hussain PLD 1964 SC 657 ref.
(d) Income Tax Ordinance (XXXI of 1979)---
----S.8---Provision of S.8, Income Tax Ordinance, 1979 envisages only those orders, directions and instructions which are validly made and issued and Assessing Officer is not bound to follow wrong and illegal orders, directions and instructions of the C;B.R.
1993 PTD 786 fol.
1992 PTD 1 = 1992 SCMR 250; 1993 PTD 766 = 1993 SCMR 1232; 1992 SCMR 250; 1993 PTD 766; 1989 PTD 81 and PLD 1964 SC 657 distinguished.
Yousaf Ghaffar Khan, D.R. for Appellant.
Abdur Rauf Rohaila for Respondent.
Date of hearing: 18th September 1996.
ORDER
This Departmental appeal is directed against the order, dated 24-7-1994 of the learned Commissioner of Income-tax (Appeals-I), Peshawar whereby appeal of the assessee/respondent for Assessment year 1993-94 was accepted.
2. The brief facts, giving rise to this appeal, are that the respondent is a Private Limited Company, which was engaged, in the Assessment year 1993-94, in the process of setting up a Ghee Mills at Industrial Estate, Gadoon Amazai, Swabi. The respondent filed return for the year under appeal i.e. 1993-94., declaring Nill income. The return was accompanied by copies of accounts, duly audited by M/s. Tariq Ayub Anwar & Co Chartered Accountants. In order to process the return, a notice under section 61 of the Income Tax Ordinance (hereinafter called the Ordinance), was issued to the respondent, in response to which, Mr. Ashfaq Ahmed, FCA, the learned A.R. of the respondent attended the office of the Assessing Officer with books of accounts, consisting of cash-book and ledger. Copies of bank statement and other allied documents were also furnished. All these documents were placed on file. From the examination of the ledger, it transpired that the respondent had shown some liabilities therein as loans taken from the associated undertaking, namely; M/s. Swabi Flour Mills Limited, out of which, the biggest loan was of Rs.29,66,248. The learned A.R. for the respondent it appears, was questioned about these loans and he contended that these loans were received by the respondent through bearer cheques but in support of the same, he produced no documentary evidence and after holding that even though, if these were through bearer cheques, the same do not enjoy any immunity from the provisions of section 12(18) of the Ordinance, as such, the peak cash credit entry of Rs.29,66,248 was treated as deemed income and accordingly taxed.
3. Feeling aggrieved, the respondent went in appeal and the learned C.I.T. (A) vide his order quoted above, on the basis of C.B.R.'s-Circular No.3 of 1992 dated 27-1-1992, No.11 of 1992 dated 4-5-1992, No.12 of 1992 dated 19-5-1992 and No.l of 1993 dated 11-1-1993, deleted the deemed income from the assessment order. The, Department is aggrieved by the order of learned C.I.T. (A) and has filed the present appeal.
4. We have heard both. the parties and have also perused the record.
5. The contention of the Department, as given in ground No.2 of the memo of appeal is that,
"the action against the assessee (respondent herein) under section 12(18) was rightly taken as the amount of loan shown in the name of Swabi Flour Mills was claimed to have been received through bearer cheques whereas no proof was furnished in this context. Moreover, even loans received through bearer cheques do attract action under section 12(18) as per provisions of Board's circulars quoted by L/C.I7. (A), Peshawar in the appellate order. All the circulars i.e. Nos. 3, 11, 12 of 1992 and No. 1 of 1993 clearly stipulates that loans not received through cross-cheques, demand drafts, etc., after 30-6-1991 are to be treated deemed income of the recipient. The order of the learned C.I.T.(A) is thus against the provisions of law. "
6. The above ground of appeal of the Department , is not happily worded but the stand of the Department, in simple words, appears to be that the amount of loan was received by the respondent from the sister concern through a bearer cheque but in support, no evidence was produced; that even if, it is considered that the said loan was received -through bearer cheque, even then the provision of section 12(18) is attracted and the loan is not exempt and that the loan was received much after 30-6-1991 and the 4 Circulars of the C.B.R. quoted by the learned C.I.T.(A) in support of his order clearly state that any loan received after 30-6-1991 otherwise than through cross cheque will not be exempt. The learned D.R. also orally, submitted, that the 4 Circulars of the C.B.R. appear to be ultra vires of the Ordinance. On the other hand, the learned A.R. for the respondent contended that the 4 Circulars have been validly made and issued by the C.B.R. and that these are fully attracted to the facts of the case and under section 8 of the Ordinance, the learned Assessing Officer was bound to follow them and by not doing so, the learned C.I.T. (A) has correctly relied upon the same. In support of his contention, he placed reliance on (1) 1992 PTD 1 = 1992 SCMR 250, (2) 1993 PTD 776 = 1993 SCMR 1232, (3) 1992 SCMR 250, (4) 1993 PTD 766 (SC), and (5) 1989 PTD 81. In reply to the arguments of the learned A.R. of the respondent, the learned D.R. attracted our attention to the proviso of section 8 of the Ordinance. In order to examine the respective contentions of the parties, it would be appropriate to reproduce below, section 8 and section 12(18) of the Ordinance, and the 4 Circulars of the C.B.R.:---
Section 8. All Officers to follow the orders of the Central Board of Revenue.---All Officers and persons, employed in the execution of this Ordinance, shall observe and follow the orders, instructions and directions of the Central Board of Revenue:
Provided that no such orders, instructions or directions shall be given so as to interfere with the discretion of the Appellate Additional Commissioner in exercise of his appellate functions under the Ordinance.
Section 12(18);_--Where any sum, or the aggregate of sums, claimed, or shown, to have been received as loan by an assessee during any income year commencing on or after the first day of July, 1987, from any person, not being a banking company, or a financial institution notified by the Central Board of Revenue for this purpose, otherwise than by a crossed cheque drawn on a bank, exceeds one hundred thousand rupees, the said sum or-the aggregate of sums shall be deemed to be the income of the assessee for the said income year chargeable to tax under this Ordinance.
Circular No.3 of 1992 dated January 27 1992:
"It has been brought to the notice of the Board that genuine loans shown to have been received from identifiable persons through the banking channels are being deemed to be the income of the assessee under subsection (18) of section 12 of the Income Tax Ordinance, 1979, merely on the ground that the amount of loans has not been received through crossed bank cheques.
2. The matter has been considered in the Board. Since the basic purpose of the aforesaid provision of law is to check fictitious loans and to preclude back-dated introduction of creditors in the books of accounts, assessing officers should not invoke the provisions of section 12(18) in respect of genuine loans received by way of crossed cheques, payorders, demand drafts or telegraphic transfers etc., through the banking channels.
3. In any case, where the nature and source of the amount of money is not satisfactorily explained, addition to the income of the assessee can still be made under section 13, notwithstanding the claim that any loan was received through crossed bank cheque, pay order, demand draft, telegraphic transfer of any other instrument. "
Circular No. 11 of 1992 dated May 4 1992:
"It has been represented that genuine loans shown to have been received from identifiable persons through bearer cheques encashed by the borrowers from the banks on which these are drawn should not be deemed to be the income of the assessee under subsection (18) of section 12 of the Income Tax Ordinance, 1979.
2. In view of the fact that encashment of the aforesaid bearer cheques clearly establish the date of the credit and the name of the borrower and genuineness of the loans can be verified, it has been decided that the provisions of section 12(18) shall not be invoked in respect of such loans received by way of bearer cheques for the current assessments which are pending for want of clarification on this issue.
3. This issues in continuation of Board's Circular No.3 of 1992 dated 27th January, 1992. "
Circular No. 12 of 1992 dated May 19 1992:
"It has been represented that cash deposits in the account books maintained in the name of directors of the company or partners of the firm, which are otherwise genuine and verifiable, should not be treated as deemed income of the assessee under subsection (1) of section 12 of the Income Tax Ordinance, 1979. Similarly cash transaction/cash flow between sister companies and firms having common directors and partners should not fall within the ambit of section 12 (18) of the Ordinance because these amounts are for self -utilisation of funds already available in the possession of sister concerns.
2. The matter has been considered in the Board and it has been decided that although such amounts attract the provisions of section 12(18) yet in view of the general lack of awareness of this provision on the part of the tax-payers, the provisions of section 12(18) shall not be invoked for the Assessment year 1991-92 in respect of cash deposits and transactions referred to in paragraph 1 above.
3. It is also clarified that where any sum of loan is deemed to be the income of an assessee under section 12(18), it is only the peak credit of the lender which is to be taken as deemed income of the assessee and not the aggregate of all sums of loan received during the relevant income year.
4. This issues in continuation of Board's Circular No. II of 1992, dated the 4th May, 1992."
Circular No. 1 of 1993 dated January 11, 1993:
"Circulars Nos. l I and 12 of 1-992 (Income Tax), dated 4th May and 19th May, 1992 exempted from the provisions of section 12(18) for the Assessment year 1991-92 the loan through bearer cheques, cash deposits by directors and partners in the books of the company and the firm respectively, and cash transactions between sister companies and firms.
2. It has been pointed out to the Board that persons having calendar year as their income year would not be able to benefit from this concession in respect of such loans in their books which were repaid prior to 30 June, 1991 as these would fall in their case in Assessment year 1992-93.
3. The matter has been considered in the Board. It is clarified that the contents of Circulars 11 and 12 of 1992 shall be applicable in respect of transactions referred to in these Circulars (Nos. 11 and 12) undertaken during the financial year ending on 30th June, 1991 irrespective of the assessment year of the taxpayer. "
7. It will be also appropriate here to trace, in brief, the history of the legislation of section 12(18) of the Ordinance. Subsection (18) was inserted in section 12 of the Ordinance by Finance Act, 1987 but the Federal Government, in the exercise of their powers under subsection (2) of section 14 of the Ordinance, through a Notification NO.S.R.O'. 838 (1)/87, dated October 26, 1987, added clause (7) in Part-IV of the Second Schedule to the Ordinance which provided that, "the provisions of subsection (18) of section 12, the first proviso to subsection (1) of section 13 and section 62-A shall not apply in respect of any person", meaning thereby that the operation of section 12(18) was held in abeyance by the Federal Government since 26th October, 1987, but again the words, "subsection (18) of section 12" were omitted from the foregoing clause by Finance Act, 1990 or in other words though section 12(18) came into force with effect from 1-7-1987 but its operation was held in abeyance from 26th October, 1987 till 30-6-1990 which clearly means that any loan received by an assessee from any person otherwise through crossed cheque either before 26-10-1987 or after 30-6-1990 would not be exempt from the operation of section, 12(18), and placing any other construction on the provision of section 12(18) would be wrong and illegal, Now looking to the 4 circulars of the C,B.R., we find that these have extended the exemption to the loans received otherwise than through crossed cheque beyond 30-6-1990, In one way or the other and In one form or the other, It Is a well-recognized principle of interpretation of statutes that if rules framed or orders/instructions issued under a statute are in excess of the provisions of the statute or in contravention of or inconsistent with such provisions, then These rules or orders/instructions will be regarded as ultra vices of the statute and cannot be given effect to, The Hon'ble Supreme Court of Pakistan in the case reported as the Commissioner of Income Tax, East Pakistan, Dacca v. Noor Hussain, PLD 1964 SC 657 has held that, "if there is a departure from the law involved in the provision for relaxation contained in the Circular then that Circular is to the extent of the deviation, invalid and ineffective and power thereunder is illegally exercised". As already observed that the 4 Circulars of the C.B.R. had extended the exemption from the provision of section 12(18) to the loans received otherwise than through crossed cheques beyond 3Ur6-1990, as such the effects of these circulars to that extent are ultra vires of section 12(18) of the Ordinance and as the loan in the present case was received much after this date, we are, therefore, of the considered view that the learned C.I.T.(A) has wrongly applied these circulars to the case in hand, specially; in view of the proviso to section 8 of the Ordinance.
8. The argument of the learned counsel for the respondent that the Assessing Officer was bound to follow the 4 Circulars of the C.B.R. in view of section 8 of the Ordinance is without force on the ground that section 8 envisages only those orders, directions and instructions which are validly made and issued and an Assessing Officer is not bound to follow wrong and illegal orders, directions and instructions of the C.B.R. For this conclusion, we place reliance on the observations of their Lordships of the Hon'ble Supreme Court of Pakistan in the case reported in 1993 PTD 786:
"It is evident from the above provisions that though the Central Board of Revenue has administrative control over the functionaries discharging their functions under the Ordinance, but it does not figure in the hierarchy of the forum provided for adjudication of the assessee's liability as to tax. In this view of the matter any interpretations placed by the Central Board of Revenue on a statutory provision cannot be treated as a pronouncement by a forum competent to adjudicate upon such a question judicially or quasi -judicially. We may point out that the Central Board of Revenue cannot issue any administrative direction of the nature which may interfere with the judicial or quasi judicial functions entrusted to the various functionaries under a statute. The instructions and directions of Central Board of Revenue are binding on the functionaries discharging their functions under the Ordinance in view of section 8 so long as they are confined to the administrative matters. The interpretations of any provisions of the Ordinance can be rendered judicially by the hierarchy of the forums provided for under the above provisions of the Ordinance, namely, the Income Tax Officer, Appellate Assistant Commissioner, Appellate Tribunal, the High Court and this Court, and not by the Central Board of Revenue. In this view of the matter, the interpretation placed by the Central Board of Revenue on the relevant provisions of the Ordinance in the Circular, can be treated as administrative interpretation and not judicial Interpretation,"
9. We have gone through the authorities cited by the learned counsel for the respondent at the Bar and find that no such question as to whether an Assessing Officer Is bound to follow wrong and illegal orders, instructions and directions of the C.B.R., was involved.
10. The result of the foregoing discussions is that the order of the learned C.I.T.(A) Is wrong and illegal which cannot be maintained, as such, by the acceptance of this Departmental Appeal, the same Is set aside and that of the Assessing Officer Is restored.
M.B.A./273/Trib.Appeal accepted.