1997 P T D 1485
[Supreme Court of Pakistan]
Present: Saleem Akhtar and Nasir Aslam Zahid, JJ
INSPECTING ASSISTANT COMMISSIONER and another
Versus
PAKISTAN HERALD LTD. through Director Finance and Corporate Affairs
Civil Petitions Nos.398, 399, 400 and.401-K of 1995, decided on /01/.
th
December, 1996. (On appeal against the judgment dated 20-9-1995 of the High Court of Sindh Karachi in C.Ps. Nos. D-200, 201 and 202/1990).
(a) Income Tax Ordinance (XXXI of 1979)---
----S.34-A---Set off of losses of companies---Application of S.34-A, Income Tax Ordinance, 1979---Pre-conditions and principles stated.
Section 34-A of Income Tax Ordinance, 1979 speaks of set-off of losses of certain companies in respect of an assessee which is a company listed on a registered stock exchange in Pakistan and owns the entire share capital of another company called the subsidiary company. Such an assessee in terms of this section is entitled to claim set-off in respect of losses of the subsidiary company.
If however, the company is not listed on a registered Stock Exchange in Pakistan nor there is anything on record to show that the same owns the entire share capital of the other company, in the absence of these ingredients and pre-conditions imposed for claiming set-off under section 34-A, it could not have been invoked at all.
(b) Income Tax Ordinance (XXXI of 1979)---
----S.65---Re-opening of assessment--"Definite information--"Connotation- What does and what does not constitute "definite information" ---Principles enunciated---Where an assessment had been framed consciously by applying mind and there being no concealment of facts by the assessee, discovery of the fact that a provision of law had been ignored or not applied, or the agreement made by the assessee was void, could not be called a "definite information" for purposes of S.65, Income Tax Ordinance, 1979.
The expression "definite information" will include factual information as well as information about the existence of a binding judgment of a competent Court of law/forum for the purposes of section 65 of the Income Tax Ordinance. This rule will not cover a case where, after framing assessment consciously, the Assessing Authorities realise that any provision of law has been ignored, not applied or misapplied. Such discovery does not fall within the ambit of term "definite information" as used in section 65 of the Income Tax Ordinance.
A definite information does not mean change of opinion or different interpretation of a provision of law or deriving a different conclusion from a given set of facts.
A provision of law which is not applicable to a case, its non -applicability can-hardly be a definite information.
A different interpretation of any provision of law or deriving a different conclusion from a given set Herald Ltd- k of facts will not amo%1;o a definite information.' It will be a change of opinion.
In the present case, there was no concealment of Everything had been declared right from the very beginning and every tier 1980 the legal position did not change as section 34-A of the Income Tax Ordinance, 1979 was not applicable to the assessee. In these circumstance, the opinion of the department that a definite information had been renewed it was discovered that section 34-A of the income Tax Ordinance Na ignored, was completely misconceived and based on misappreciation and misapplication of law.
Where an assessment has been framed consciously applying mind and there being no concealment of facts by assessee, discovery of the fact that a provision of law had been ignored or not applied, can be called a definite information.
Even if the authorities come to the conclusion aft, framing of the assessment that the agreement was void, it cannot be called defined information for purposes of section 65. It is a change of oblivion which they can employ in assessing the years in which assessment has not been completed so far.
Philips Electrical Company of Pakistan (Pvt.) Ltd, v. Income Tax officer and another 1990 PTD 389 and Republic Motors ltd v. Income Tax Officer and others 1990 PTD 889 ref.
Messrs Central Insurance Co. and others v. Central Board of Revenue, Islamabad and others 1993 SCMR 1232 distinguished.
Sheikh Haider, Advocate Supreme Court and S.M. Abbas, Advocate-on-Record for Petitioners.
Nemo for Respondent.
Date of hearing: 8th December, 1996
ORDER
SALEEM AKHTAR, J.---This order will dispose of all the four petitions in which parties, and questions of facts and law VC common.
2. The petitioners seek leave to appeal against judgment of the learned Judges of the High Court whereby Constitution petitions filed by the respondent challenging the validity of notice under section 65 of the Income finance were allowed. The respondent is a printer of Daily Dawn and Tax Ordinance other publications. It is a private limited company. It entered into an on 4-4-1968 with M/s. Matri Publications N. Ltd. (hereinafter agreement Hurriyat. Under called Matri), which owns and publishes Urdu Newspaper this agreement the management, policy and financial control of the Daily Hurriyat was taken over by the respondent inter alia on the term that all losses incurred in issuing and publishing Daily Hurriyat will be borne by the respondent and in the event of profit, the same would be shared by the parties, 60% of which was to be received by the respondent and 40% by Matri. The respondent in its returns declared all these facts and had claimed losses incurred by Matri. In the assessment years 1973-74, 1974-975 and 1976-77 Matri's losses were claimed by respondent No.l, which were disallowed by the Income Tax Officer, but in appeal the losses were allowed. Same situation occurred in assessment year 1982-83 when losses of Matri were not allowed adjustment against income of the respondent, but in appeal the same were allowed. The assessments of the respondent for the assessment years 1984-85, 1985-8 > and 1986-87 were completed under section 62 of the Income Tax Ordinance in which appeals were also filed and certain relief s were granted.. During the assessment proceeding for the assessment year 1988-89 the Assessing Officer objected to the agreement between the respondent and Matri dated 4-4-1968. The petitioner issued notice under section 65 of the Income Tax Ordinance to the respondent in respect of assessment years 1984-85, 1985-86, 1986-87 and 1987-88 that the income of the respondent has been under assessed and it will be re-assessed under section 59 of the Income Tax Ordinance. The respondent challenged the validity of the notice in Constitution petitions, which were allowed by the impugned judgment. .
3. The respondent had given all the aforestated facts in its petitions stressing that from the very beginning the respondent had disclosed all the material facts, which were considered and re-considered year after year and agreement dated 4-4-1968 was accepted and Matri's losses were adjusted and therefore there was no definite information on the basis of which the assessments could be re-opened. The petitioners filed counter-affidavits and pleaded as follows:--- -
"(c)The notice served under section 65 is based solely on the non- application of the provisions of section 34-A which was introduced by Finance Act of 1980; which has been ignored, not applied; which mistake came to notice while making assessment for A/Y 1988-89; hence the action taken is legal and with jurisdiction and authority.
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"(6) Contents of para. 4 are matters of record. It is submitted that the agreement being opposed to the provisions of section 34-A; and other provisions of the Ordinance hence the Order of assessment is inoperative and passed without application of mind to the provisions of section 34-A. The I.T.O. was misled with the earlier assessment orders and with the appellate orders passed prior to Finance Act of 1980; hence the I.T.O., overlooked, ignored and failed to take into account the relevant provision and committed mistake and did not apply his mind to the letter of the law, facts and circumstances of the case of the petitioners. The I.T.O. failed to apply the correct law in the assessment year; which legal error has vitiated the proceedings; as such the action taken under section 65 is fully justified".
4. Mr. Sheikh Haider, learned counsel for the petitioners contended that the Assessing Authorities had not taken into consideration section 34-A promulgated under the Finance Act, 1980, which was noticed later and therefore it amounted to a definite information for initiating action under section 65 of the Ordinance. A perusal of the reply quoted above and the contention raised clearly establish that entire emphasis of the petitioners was that application of section 34-A promulgated in the year 1980 was not taken into consideration and since it has come to the knowledge of the authorities in the A/Y 1988-89, the assessments are liable to be re-opened under section 65. Before taking up the, issue whether such knowledge will amount to a definite information in terms of section 65(2) of the Ordinance, it is necessary to examine whether section 34-A is at all applicable to the facts of the case. Section 34-A speaks of set-off of losses of certain companies in respect of an assessee which is a company listed on a registered stock exchange in Pakistan and owns the entire share capital of another company called the subsidiary company. Such an assessee in terms of this section is entitled to claim set-off in respect of losses of the subsidiary company. The learned counsel for the petitioners admitted that the respondent is not a company listed on a registered stock exchange in Pakistan nor is there anything on record to show that the respondent owns the entire share capital of Matri. In the absence of these ingredients and pre-conditions imposed for claiming set-off under section 34-A, it could not have been invoked at all. Confronted with this situation, the learned counsel conceded that section 34-A is completely irrelevant for the present controversy. The petitioners in their counter-affidavits clearly stated that notice under section 65 was based "solely on the non-application of the provisions of section 34-A. " The petitioners, therefore, were of the view that section 34-A applied and governed the respondent, which was not taken into consideration and therefore it amounted to a definite information. A provision of law, which is not applicable to a case, its non-applicability can hardly be a definite information. The words "definite information" have been subject- matter of judicial pronouncements of the superior Courts, particularly in the case of M/s. Central Insurance Co. and others v. Central Board of Revenue, Islamabad and others 1993 SCMR 1232 in which Ajmal Mian J., after examining a Most of authorities, approved the observations made in Philips Electrical Company of Pakistan Pvt. Ltd. v. Income Tax Officer, Companies Circle B-3, Karachi and another 1990 PTD 389 and Republic Motors Ltd. v. Income Tax Officer and others 1990 PTD 889 and it was held that a definite information does not mean change of opinion or different interpretation of a provision of law or deriving a different conclusion from a given set of facts. In Philips Electrical Co. notice under section 65 was challenged in which one of the grounds was that bad debts did not relate to the business" income and they could not be allowed adjustment. While considering this contention one of us (Saleem Akhtar, J.), had observed as follows:---
"A bare perusal of this notice will show that it recited facts and allegations for reopening the assessment under section 65 of the Ordinance. The notice refers to the claim of bad debts allowed by the Tribunal and goes on to recite that as these debts do not relate to the business income they could not be allowed. This. objection= to the grant of claim for bad debts is based on perusal of details filed by the petitioner alongwith the return of income. Therefore on respondent's own showing the objections are based on the return of income and documents filed by the petitioner which were available before the Income-tax Officer, Commissioner of Income-tax and the Income-tax Appellate Tribunal. At least it can be said that the points enumerated and raised in the notice dated 27-2-1987 which are the basis for reopening assessment under section 65 did not strike the aforestated authorities nor the department at any stage challenged that the debts did not relate to business income. The respondents are however of the opinion that the debts do not relate to the business income. This is merely -a change of opinion based on application of facts which were available to the assessing officer and cannot amount to a definite information which may have come to the possession of the respondent. The term 'definite information' conveys a meaning which is not the same as change of opinion. A different interpretation of any provision of law or deriving a different conclusion from a given set of facts will not amount to a definite information. It will be a change of opinion. Therefore the basis for reopening the assessment was a change of opinion of the respondent. The respondent therefore could not have taken any action under section 65 of the Income Tax Ordinance as it was not based on any definite information, but on change of opinion."
Mr. Sheikh Haider has referred to Central Insurance Company, but tote observations made therein do not support his contention. In this case the assessee had disclosed all the material facts without any concealment on the basis of which assessment was consciously completed by the Assessing Officer, but such assessment was sought to be reopened under section 65 relying on a circular issued by the Income Tax Department and the same was not treated to be a definite information. In the present case, there is no concealment of facts. Everything had been declared right from the very beginning and even after 1980 the legal position did not change as section 34-A was not applicable to the respondent. In these circumstances, the opinion of the petitioners that a definite information has been received as it was discovered that section. 34-A was ignored, was completely misconceived and based on misappreciation and misapplication of law. Where an assessment has been framed consciously by applying mind and there being no concealment of facts by the assessee, discovery of the fact that a provision of law had been ignored or not applied, cannot be called a definite information. In Central Insurance Co. it was observed that "the expression definite information' will include factual information as well as information about the existence of a binding judgment of a competent Court of law/forum for the purposes of section 65 of the Ordinance". This dictum h will not cover a case where after framing assessment consciously, the Assessing Authorities realise that any provision of law has been ignored, not applied or misapplied. Such discovery does not fall within the ambit of term 'definite information' as used in section 65 of the Ordinance.
5. The learned counsel then contended that the agreement is void. This is hardly a ground on which assessments could be re-opened. Even if the Authorities came to the conclusion now that the agreement is void, it cannot be called a definite information for purposes of section 65. It is a change of opinion which they can employ in assessing in the years in which assessment has not been completed so far. Leave is refused and the petitions are dismissed.
M.B.A./I-266/SPetitions dismissed.