I.T.A. NO.265(PB) OF 1995-96, DECIDED ON 16TH FEBRUARY, 1997. VS I.T.A. NO.265(PB) OF 1995-96, DECIDED ON 16TH FEBRUARY, 1997.
1998 P T D (Trib.) 2865
[Income-tax Appellate Tribunal Pakistan]
Before Nasim Sikandar, Fazalur Rehman Khan, Judicial Members and Muhammad Iqbal Khan, Accountant Member
I.T.A. No.265(PB) of 1995-96, decided on 16/02/1997.
(a) Income Tax Ordinance (XXXI of 1979)--
----Ss.66-A, 12(18) & 13(1)(aa)---Powers of I.A.C. to revise Deputy Commissioner's order---Amount received by Telegraphic Transfer (T.T.) and not by crossed cheque by the assessee as loan as provided in S.12(18), Income Tax Ordinance, 1979 accepted by the Assessing Officer---Inspecting Assistant Commissioner of Income Tax cancelled the assessment order and directed Assessing Officer to treat such amount as' deemed income under S.13(1)(aa) of the Ordinance as the requirement of S.12(18) regarding the crossed cheque was not fulfilled---Validity---Held, I.A.C. was legally correct to cancel the assessment order under S.66-A of the Income Tax Ordinance, 1979 in circumstances.
(b) Income Tax Ordinance (XXXI of 1979)---
----S.80-C(4)---C.B.R. Circular No.12 of 1991, dated 30-6-1991-- Applicability of circular---Expenses claimed in toto must be prorated to the supplies and other receipts i.e. commission received and income from freight etc. which had been taxed under S.80-C of the Ordinance and the expenses claimed against receipts taxed under S.80-C are not allowable by subsection (4) thereof.
(c) Interpretation of statutes---
---- Fiscal statute---Construction---Strict interpretation---Question of interpretation of statute or statutory instrument arises only where either language of the provision is not clear or it is opposed to the express objectives of the statute in which it appears, or is vague, uncertain or contradictory to the other provisions or that it leads to manifest absurdity-- Where the language employed is clear and does not admit of any ambiguity, resort to niceties of interpretation is not permissible.
(d) Income-tax---
----C.B.R. Circular---Circular No.7, dated 18-3-1992 only explains Circular No.12 of 1991, dated 30-6-1991 and does not in any manner change the mode, method, principle of computation or allocation of expenses.
Nazir Ahmed and Fazal-e-Rabi for Appellant.
Muhammad Umar Khan, D.R. for Respondent.
Date of hearing: 16th February, 1997.
ORDER
FAZALUR REHMAN KHAN (JUDICIAL MEMBER).---This appeal is directed against the order dated 31-12-1995 of the learned Inspecting Additional Commissioner of Income Tax/Wealth Tax, Range-I, Peshawar whereby the assessment order for assessment year 1993-94 was cancelled under section 66-A of the Income Tax Ordinance, 1979 with the direction to the Assessing Officer to frame the same afresh in accordance with law.
2. The brief facts, giving rise to this appeal are that the appellant is a Private Limited Company which derives income from the sales of Toyota Brand of Vehicles as Dealer of M/s. Indus Motor Company, from repairs of Motor vehicles and sales of spare-parts. The appellant filed return for assessment year 1993-94, declaring net income at Rs.56,623. The return was accompanied with statements of accounts, duly audited by M/s. Ghafoor & Co., Chartered Accountants. In order to process the case, a notice under section 61 of the Ordinance was issued to the appellant, in response to which, Fazal Rabi, authorised agent of the appellant appeared from time to time before the Assessing Officer. He also produced books of accounts, consisting of cash-book and ledger. After examination of the documents produced and already filed with the return, the learned Assessing Officer accepted the balance-sheet entries. The appellant had also shown a total supply of Rs.3,36,89,500 on which, advance tax of Rs.8,14,363 was deducted arid the balance of Rs.27.875 was payable. This version was accepted. Similarly, commission receipts, as declared from Indus Motor Company, being verifiable were also accepted. However, in the workshop receipts, the same were shown at Rs.15,22,742 showing a loss of Rs.59,853 and for this purpose that,. these receipts are not supported by proper vouchers. Last year, in this account, the appellant showed a net income at Rs.15,000 which was accepted and for the year under appeal, the net income from this source was taken at Rs.50,000, resulting in the gross addition of Rs.1,09,853. In the spare parts account, the appellant declared gross receipts from sales of spare parts at Rs.30,16,005 and claimed expenses at Rs.31,55,589. Last year, this loss was shown at Rs.16,144. The declared version was rejected and the declared sales were taken at Rs.31,00,000 to which G.I. was applied @ 6.2 % , against which expenses were allowed at Rs.90,000, resulting in the income from this source at Rs.1,03,750 and gross addition was made at Rs.2,43,344. Income from all the foregoing sources was worked out at Rs.50,50,817. In the P&L Account, the appellant claimed expenses at Rs.48,96,937, out of which, total add-backs from various heads were made at Rs.294,272 from which, depreciation, as claimed at Rs.109,772 was deducted and the balance addition at Rs.1,84,500 was added and the net income was taken at Rs.3,07,072.
3. During the inspection of the assessment record, the learned I.A.C. observed that the assessment made by the Deputy Commissioner is not only erroneous but prejudicial to the interests of Revenue as well. Accordingly, he by a Letter No.463 dated 21-9-1995 served the appellant with the following notice:
"To,
M/s. Toyota Frontier Motors (Pvt.) Ltd.,
Jamrud Road,, Peshawar.
SUB:PROCEEDINGS UNDER SECTION 66-A FOR THE ASSESSMENT YEAR 1993-94 IN THE CASE OF M/S. TOYOTA FRONTIER MOTORS (PVT.) LTD., JAMRUD ROAD, PESHAWAR---EXPLANATION REGARDING.
Please refer to the above.
Inspection of your assessment record revealed that your assessment order under section 62 dated 10-8-1995 for the assessment year 1993-94 passed by the Deputy Commissioner of Income Tax/Wealth Tax Circle-37, Peshawar is both erroneous as well as prejudicial to the interest of Revenue due to the following reasons:
(1)You have shown Security of Rs. 22,70,725 with the claim that it includes security of Rs.15,00,000 deposited with M/s. Indus Motor Company Limited, Karachi by M/s Tatara Motors, Peshawar. This claim has been accepted without determining its genuineness as well as questioning payment of wealth tax on the same by M/s. Tatara Motors, Peshawar.
(2)You have claimed private loan of Rs.21,80,000 from one Haji Abdul Hanan son of Haji Nawab Khan resident of Bara Khayber Agency through T.T. claiming, that the same has been credited to your Account No.694 in M/s. Muslim Commercial Bank, Jamrud Branch, Peshawar. This claim is incorrect as telegraphic transfer (T.T.) facility can only be availed from one city to another and not in the same city. Further, the said amount has not been received by a crossed-cheque drawn on a bank. Thus, the same should have taken your deemed income under section 12(18) of the Income Tax Ordinance, 1979 but was not done so.
(3)Your company's sources of income are as under:
(i)Supply of Motor Vehicles to the Government and Semi-Government
Departments.
(ii)Commission from M/s. Indus Motor Company Limited, Karachi.
(iii)Workshop Income.
(iv)Sale of Spare Parts.
(v)Income from Freight Damage and Carriage.
(vi)Miscellaneous income.
Your assessment record reveals that income from none of the above heads has properly been worked out.
(4)In the assessment order receipts of Rs.3.36,89,500 have been subjected to tax under section 80-C at Rs.8,42,238 against payment of tax under section 50(4) claimed at Rs.8,14.363. Balance tax demand under section 80-C ha,, been shown at Rs.27,875. This is not in order due to the reason that income has not been worked out in the light of C.B.R. Circular No.l2 of 1991 dated 30-6-1991. Please note that the same should have to be worked out in. the following manner:
Total Supplies:Rs.3,36,89,500
Tax @ 2.5%: Rs.8,42,238
Presumptive income should have been worked out as under:
Total tax paid under section 50(4): Rs.8,42,238
Income for tax of:Rs.57,000,Rs.3,00,000
Income for balance tax of: Rs.7,85,238,Rs.22,43,537.
Total presumptive income Rs.25,43,537
The Total Presumptive Income required to have been assessed was Rs.25,43,537 against Rs:3,36,89,500 shown in the assessment order. Thus, excess amount of Rs.3,l 1,45,963 has erroneously been converted into white money.
5.Additional tax under section 89 on the balance demand of Rs.1,59,667 working out at Rs.23,950 has not been charged.
6.In workshop account a round addition. of Rs.50,000 has been made against your declared receipts of Rs. 15,22,742 which is improper.
7.In spare parts account sales have been estimated at Rs.31,00,000 with application of G.P. @ 6.25% against your declared sales under this head at Rs. 30,16,085. Both the estimation of sales. as well as application of G.P. @ 6.25% are on the lower side.
8.Declared income from Freight Damage and Carriage at Rs.1,10,631 and Miscellaneous income at Rs.13,470 have been accepted without proper verification and its working out.
9.From the Selling, Administrative and General Expenses claimed at Rs.48,90,937 total add backs made at Rs.1,84,500 are on the extreme lower side.
10.Profit and Loss Expenses claimed at Rs.49,28,265 have been allowed in total without its verification and peroration to the supplies and other receipts as required vide C.B.R. Circular No. 12 of 1991, dated 30-6-1991.
11.Perusal of your assessment order revealed that expenses on account of Mobile Telephones in respect of the company as well as its Directors paid as per the following details were not disclosed in your Accounts but no adverse inferences were drawn.
| S. NO | Name of Party | A/Year | Security Rent | Billing |
| 1. | Fazal Hameed c/o | 1992-93 | Rs.1650 | Rs.33127 |
| | M/s. Toyota Frontier | 1993-94 | Rs.1650 | Rs.60713 |
| | Motors (Pvt.) Ltd, Pesh | 1994-95 | Rs.1650 | Rs.48.802 |
| | | Total: | Rs.4950 | Rs.142642 |
| 2. | Muhammad Saleem | 1992-93 | Rs.1650 | Rs.54235 |
| | c/o above. | 1994-95 | Rs.1650 | Rs.36.216 |
| | | Total: | Rs.3300 | Rs.90451 |
| 3. | M/s. Toyota Frontier | 1992-93 | Rs.1650 | Rs.23886 |
| | Motors (Pvt.) Ltd., | 1993-94 | Rs.1650 | Rs.23886 |
| | Jamrud Road, Peshawar. | 1994-95 | Rs.1650 | Rs.42807 |
| | -do- (Second number) | 1992-93 | Rs.1650 | Rs.48208 |
| | | 1993-94 | Rs.1650 | Rs.3000 |
| | | Total: | Rs.8,250 | Rs.1,41,787 |
In view of the above this office intends to initiate proceedings under section 66-A of the Income Tax Ordinance, 1979 in your case for the assessment year 1993-94, which may result in cancellation or modification of the above assessment order or directing that a fresh assessment be made as the circumstances of the case may justify.
You are, therefore, called upon to furnish your defence with documentary evidence during office hours on 28-9-1995 at my office on Hassan Garhi Lane, Shami Road, Peshawar. You are also allowed to represent your case personally or through a duly authorised representative on 28-9-1995. Please note that in case of non-compliance or unsatisfactory explanation an adverse inference may be drawn.
This may be treated notice under section 66-A of the Income Tax Ordinance, 1979."
4.The appellant submitted a detailed reply to the foregoing notice, in consequence of which, all the grounds except grounds Nos.2 and 10 were dropped.
5.So far as ground No.2 regarding the loan of Rs.21,80,000 is concerned, the plea of the appellant before the Assessing Officer was that it was an interest free loan taken from one Haji Abdul Hanan son of Haji Nawab Khan of Bara, Khyber Agency through T.T. and credited to Muslim Commercial Bank Account No.694, Jamrud Road, Peshawar. This plea was accepted by the assessing officer but the learned I.A.C. was of the view that as the transaction was neither through crossed cheque nor the appellant could prove the genuineness of the loan, therefore, the provision of subsection (18) of section 12 of the Ordinance can be invoked to it.
6. As far as ground No. 10 is concerned, the learned I.A.C. observed:
"Perusal of the details further show that against workshop receipts of Rs.15,22,742 expenses have been claimed at Rs.15,82,595 which mainly consists of spare parts purchases, PCO Mobile consumed, salaries and wages of workshop staff which are basically the expenses of trading account. Similarly, expenses claimed in (Note 13.2) mainly consists of purchases of spare parts. The above discussion establishes two facts:
(A) That no expenses have been claimed against commission receipts. Income from freight, Carriage and Miscellaneous Income;
(B) Expenses claimed in workshop receipts and spare parts income are also not P&L account expenses on the whole. These include trading expenses as a major chunk of the expenses claimed and very small amount can be attributed to P&L Account expenses.
On page No.5 of the assessment order the DCIT after making P&L Account expenses additions and estimating, sales/receipts on account of spare parts and workshop, allowed total expenses claimed by the assessee in his P&L Account expenses. Thus, it is clearly established that expenses attributable to the presumptive income assessed under section 80-C were allowed against other income. This also proves that the contention of the assessee that provisions of Circular No. 12 are not attracted because separate P&L Account expenses are claimed for different heads is also incorrect. "
7.Accordingly, the assessment order was cancelled for re-assessment in accordance with the directions given and according to law. In the present appeal, the appellant has challenged the impugned order of the learned I. A. C.
8. We have heard the learned A.R. for the appellant as well as the learned D.R. and have also perused the record.
9.So far as the addition of Rs.21,80,000 under section 12(18) of the Ordinance is concerned, the contention of the learned A.R. for the appellant is that as the loan was interest-free genuinely received from relative of the Directors of the Company through Telegraphic Transfer (T.T.) through banking channel on 6-12-1992, the same is exempt from the provision of section 12(18) of the Ordinance by virtue of C.B.R.'s Circular No.3 of the 1992, dated January 27, 1992. As such, the learned I.A.C. was not justified to add the same. The argument is without force. This Tribunal in the case reported in 1997 PTD (Trib.) 276, after giving history of the legislation of section 12(18), has held that any loan received beyond 30-6-1990 is not exempt from the mandatory provision of section 12(18) of the Ordinance and the above Circular of the C.B.R. to that extent is ultra vires. The learned I.A.C., therefore, has correctly directed the addition of Rs.21,80,000 under section 12(18) and the objection of the appellant is rejected.
10. As far as the allowance of profit and loss expenses in toto (Ground No.10) is concerned, perusal of the departmental record and the impugned assessment order shows that the appellant has claimed the same at Rs.48,96,937 which the Assessing Officer has allowed at Rs.49,96,937 (which appears to be due to some clerical mistake) without proration or in other words, some of these expenses have also been claimed against the commission received from Indus Motor Company, income from freight, ere, which had been taxed under section 80-C but the expenses thereof are not allowable by subsection (4) thereof. The contention of the learned A.R. for the appellant is that, while giving his finding on this issue, the learned I.A.C. has kept in view C.B.R. Circular No. 12 of 1991, dated 30-6-1991 but this Circular is not applicable to the facts of the case. At the time of arguments, he miserably, failed to give any strong reason for the non applicability of this Circular. We, therefore, agree with the observation of the I.A.C. that the allowance of the total expenditure under this account is without prorogation and wrong. This objection of the learned A.R. for the appellant is also rejected.
11.Accordingly, this appeal, being without merits, is hereby rejected.
(Sd.)
(Fazalur Rehman Khan)
Judicial Member.
MUHAMMAD IQBAL KHAN (ACCOUNTANT MEMBER).--I have not found myself sufficiently persuaded by the opinion expressed by my learned brother, the Member Judicial and consequently I take the liberty to express my own opinion on the issues raised.
2. My learned brother, the Judicial Member, has elaborately and rather pains-takenly, reproduced the facts of the case which need not be reiterated here again. It is, nevertheless, interesting to observe that the learned I.A.C., while examining the case, raised 11 objections but ultimately passed an order under section 66-A on two grounds alone --- the grounds Nos.2 and.10. The grounds No.2 involves an addition of Rs.21,80,000 under section 12(18). My learned brother, the Judicial Member, has referred to a case reported in 1997 PTD (Trib.) 276 (passed by the Peshawar Bench) wherein certain Circulars issued by the C.B.R. were held to be ultra vires of section 12(18).
3. Section 12(18) deals with loan received otherwise through crossed cheques. Subsection (18), it may be noted, was inserted in 1987. Simply put, it stipulates that wherein an assessee had claimed to have obtained loan or loans in any income year commencing w.e.f. i-7-1987 from any person other than a bank, a financial institution, notified by the C.B.R., otherwise than by a crossed cheque and the amount or the aggregate of the amounts exceeding certain limits laid down, the said sum or sutras shall be deemed to be the income of the assessee for such income year.
4.There were clearly two objectives behind this piece of legislation. The provision was inserted as a means for the documentation of the economy with a view to do away with bogus cash credit and not only to control non genuine transactions but to punish them as well. A lot of problems arose immediately after the insertion of this provision. The reason was that our economy, not being documented, loans had been obtained either in cash or through other means which were adversely hit by this provision. As a result, the provision was immediately suspended through a notification, which added a clause (7) in Part IV of the Second Schedule. It was revised by the Finance Act, 1990 w.e.f. assessment year 1991-92. However, the C.B.R. through a Circular directed that the provision of this subsection would not be invoked in the assessment year 1991-92. Likewise, the C.B.R. also instructed that for the assessment year 1992-93 the loans backed by bearer cheques tray also be accepted. On 27-1-1992 the C.B.R. issued a Circular known as Circular No.3 wherein it was clearly laid down that 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 account, the assessing officer should not invoke the provision of section 12(18) in respect of genuine loans received by way of crossed cheques, nay orders, demand drafts or telegraphic transfer etc. through banking channels. It was also laid down that in cases 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 or any other banking instrument. .
5.My learned brother, the Judicial Member who was a Member of the Bench which decided (the reported case as above) is of the opinion that the Circular issued by the C.B.R., referred to above, is ultra vires of the provision contained in section 12(18), and further held that any loan which is received otherwise than by crossed cheque (the "wording used in the subsection) will not be admissible
6.I do not find myself in agreement with the opinion expressed by the learned Judicial Member. While it may be true that the legislation has not been happily worded as it does not fully explain the intention of the Legislature which is loan received through banking channels, the learned opinion expressed in the above-decided case will put an absolute, strict and literal interpretation of the provision. Even the cross cheque can be crossed generally or crossed specially. The cheques crossed generally are negotiable instruments where the cheques crossed specially (account payee only) are not negotiable instruments. If the interpretation is so restricted to crossed cheques, it will throw out and indeed close all the other banking channels which 'are nowadays in operation for transfer of money. It may also be pointed out that now money is transferable through the latest mode of communication, i.e., the inter-net. As regards interpretation of statutes, generally strict interpretation is applied to charging provision. The taxing statutes has to be strictly construed. "The subject is not to be taxed without clear words for that purpose". "If a person sought to be taxed within the letter of the law he must be taxed, however, great hardship may appear to the judicial mind". On the other hand, if the Revenue is seeking to recover the tax, and cannot bring the subject within the letter of law, the subject is free. However, apparently within the spirit of the law the case might otherwise to be". "Thus, there is no room for any intendment". "There is no equity about a tax". "There is no presumption to tax". The subject is not to be taxed unless the words of the taxing statutes unambiguously imposed the tax on him".
7.The above Rule of strict construction, however, does not cover every provision of a taxing' statute. It has been laid down that if a taxing provision is wanting in clarity and the meaning is not reasonably clear then the Rule and the Principles of reasonable construction so as to give effect to the purpose or the intention of the provision may be followed. In the case of Varghese (1991) 131 ITR 597 (SC) it was laid down that the interpretation of statutory enactment is not mechanical but it is really an attempt to discover the intent of the Legislature from the language, remembering that the "language is at best an imperfect instrument for expression of a human thought". It was held in number of judicial decisions (Jodhamal v. CIT 82 ITR 570, 575 (S.C.); CWT v. Krinpashankar 81 ITR 763, 768 (S.C.); Maneckji v. CIT 17 ITR 561, 567; CJT v. Kamdin 95 ITR 476, 480; Malhotra v. Uol 88 ITR 110, 113) that tax laws have to be interpreted reasonably and in consonance with justice. It was also held in a number of judicial decisions (CIT v. National Taj 121 ITR 535, 542 (S.C.) that where a literal construction would defeat the obvious intention of the legislation and produced a wholly unreasonable result, the Court must "do some violence to the words" and so as to achieve that obvious intention. The interpretation of statute must keep pace with changing concepts and values and should under go adjustments to meet the requirements of the developing economy in the fast changing social condition. Yet in another case (C.P. Bank v. CIT 14 ITR 479, 481) it was held that if the interpretation of fiscal enactment is open to doubt, the construction most beneficial to the subject should be adopted. (CIT v. Shahzada Nand 60 ITR 392, 400 (S.C.) and a plethora of other judicial decisions). In case of the CIT v. South Arcot SOC 176 ITR 1 17, 1 19 (SC) India held, that provision for deduction, exemption or relief should be construed liberally and in favour of the assessee and should be construed as to effectuate the subject of the Legislature and not to defeat it.
8. Section 8 of the Income Tax Ordinance, clearly states that all officers and persons, employed in the execution of this Ordinance shall observe and follow the orders, instructions and directions of the C.B.R. I do not think that Circulars issued by the Board intra vires or ultravires of the provision of section 12(18).
9.The C.B.R. issued Circular on the subject with a view to lessen the burden of the assessee and to put flesh on the bare bones of the law. I, therefore, feel that the various Circulars issued by the C.B.R. on section 12(18) are not ultra vires of the provision contained therein and are indeed intended to help the genuine assessee by not punishing genuine transaction. Obviously, an absurd law or its interpretation can punish genuine transaction. In the present case, the amount of Rs.21,80,000 has been transferred- through a proper banking channel. The lender is identifiable person whose credentials have not been doubted nor the transaction, as such, has been held to be non-genuine
10.With the above observation, I am I therefore, of the considered opinion that the learned I.A.C. was not justified to take action under section 66-A on this basis.
11.The second objection raised, on the basis of which the learned I.A.C. passed the order under section 66-A, deals with the peroration of expenses combined claimed where income is to be assessed under different sections. The appellant/assessee, the Toyota Frontier Motors (Private) Limited, is the authorised dealer of Indus Motors Company for N.-W.F.P. and its main business activity is to provide new brand vehicles, workshop spare parts and after sales services to customers. It derives its income from sales and supplies, commission receipts from I.M.C. against vehicles, workshop receipts, spare-parts income, income from freight and miscellaneous income. As per record total expenses claimed were Rs.49,96,936. The expenses have been claimed separately under each heads of income for example under the head sales and supplies, a sum of Rs.3,32,78,141 have been claimed. Selling expenses had been claimed at Rs.7,30,559 and administrative and general expenses have been claimed amounting to Rs.40,65,371. Financial expenses have been claimed at Rs.1,01,007 and against commission receipts and workshop receipts expenses have been claimed at Rs.15,82,595. Under the spare parts head expenses had been claimed at Rs.31,55,589. Supplies are subject to tax as a separate block under section 80-C. Under Circular No. 12 dated 30-6-1991, the C.B.R. has given examples regarding peroration of expenses combined. claimed. Where business consists of local purchases and supplies covered by section 80-C and other sales or income---
(a) supplies covered by section 80-C shall be treated as a separate block of income and taxed 2.5;
(b) incomenot covered by section 80-C shall be assessable in the normal manner; and
(c) expenses debit able to the manufacture/trading account and expenses debit able to the P&L Account shall be admissible only against income not covered by section 80-C in the same ratio as sales not covered by section 80-C beat to the total sales.
12. It is thus obvious that where expenses cannot be bifurcated, only then Circular No. 12 issued under section 80-C will come into operation. As pointed out above, these expenses have been claimed separately. I, therefore, feel that Circular No. 12 is not applicable in the case of the appellant. The C.B.R. also issued Circular No.7 of 1992 dated 18-3-1992 wherein at para. 5, it was stated that under the head "income from indenting commission and brokerage" where income from imports/supplies is inseparable from indenting commission or brokerage receipts and the assessee cannot prove the extent of overhead expenses relating to the said receipts, allocation of expenses may be made on a pro-rata basis in the same ratio as the commission receipts not covered by section 80-C bear to the gross profit on sales and supplies. In other cases the assessee may be required to produce books of accounts and supporting evidence to claim actual expenses attributable to income from indenting commission or brokerage.
13. In. my opinion, therefore, the learned I.A.C. was not justified to take action under section 66-A on this ground as well. The order passed by the Assessing Officer, which was revised under section 66-A by the I.A.C. was, thus, neither erroneous in law nor prejudicial to the interest of revenue.
(Sd.)
(MUHAMMAD IQBAL KHAN),
Accountant Member.
14. As, there is a difference of opinion between the Judicial Member and the learned Accountant Member of the present Bench, by mutual consent, the following questions under subsection (7) of -section 136 of the Income Tax Ordinance, 1979 are framed for the opinion of the third Member of the Tribunal:
"(1) Whether on the facts and in the circumstances of the case, the learned I.A.C. was legally correct in directing the addition of Rs.21,80,000 under section 13(l)(aa) of the Income Tax Ordinance, 1979.
(2) Whether, on the facts and in the circumstances of the case, the learned I.A.C. was legally justified in holding that as peroration of the expenses had not been given, the allowance of the expenses in toto, as claimed, by the learned Assessing Officer is wrong?"
15. The record of the case may be sent to the Hon'ble Chairman with the request to entrust the case to a third Member of the Tribunal for his opinion.
(Sd.)
(Fazalur Rehman Khan),
Judicial Member.
(Sd.)
(Muhammad lqbal Khan),
Accountant Member.
16. By mutual consent the questions already framed are recast as follows:
"(1)Whether on the facts and circumstances of the case, the learned I.A.C. was legally correct to cancel the assessment order under section 66-A of the Income Tax Ordinance, 1979? .
(2)Whether on the facts and circumstances of the case, C.B.R. Circular No-. 12 of 1991, dated 30-6-1991 is applicable to the facts of the case?"
4.The record of the case shall be sent to third learned Member of the Tribunal at Lahore for disposal of the appeal.
(Sd.)
(Fazlur Rehman Khan),
Judicial Member.
(Sd.)
(Muhammad Iqbal Khan),
Accountant Member
17.The facts as detailed in para. 2 ante being admitted need not be repeated. As the other events reveal it is also not disputed that t- assessment earlier framed was sought to be reopened on as many as I1 grounds reproduced in para. 3 ante. However, only two of them listed at Serial Nos.2 and 10 of the notice reproduced in the above para. appear to have finally made it. The first related to the claimed and accepted loan of Rs.2,180,000 from one Haji Abdul Hanan of Bara Khyber Agency. The second being that expenses attributable to presumptive income under section 80-C were allowed against other income. With regard to this objection the revising authority also rejected the claim that separate profit and loss account expenses were claimed under different heads.
18.Learned J.M. agreed with the revising authority and repelled the contentions made before it that the claimed loan being a genuine transaction having been effected through telegraphic transfer could not be doubted. The submission that provisions of section 12(18) were not attracted in such circumstance was also rejected. The reliance of the assessee on C.B.R. Circular No.3 of 1992 was held to be of no use in view of the ratio settled in decision of the same Bench reported as 1997 PTD 236. Learned J.M. who was author of the reported judgment took no time to repeat his view as expressed there to say that the circular in question being against the expressed provision as contained in section 12(18) of the Ordinance could not be accepted as binding on the revising authority. Referring to the second objection learned J.M. again agreed with the revising authority that apparently some of the expenses were claimed and allowed against commission received from the principal as also other sources, which has been taxed under section 80-C of the Ordinance. The action of the revising authority under section 66-A in cancelling the assessment was, therefore, maintained on both accounts.
19. Learned A.M., however, thought otherwise. In his view the objectives behind the provisions of section 12(18) of the Ordinance only being to check claims of back dated fictitious loans these could not be pressed into service when a transaction was otherwise verifiable and genuine. He supported himself by relying upon the views expressed by the C.B.R. on the subject though the said Circular No.3 of 1992. Being conscious of the fact that the learned J.M. was the author of the aforesaid reported judgment wherein this Circular had been declared ultra vires of the statutory provisions and, therefore, ineffective, learned AM proceeded to opine that the approach adopted in that case "will put an absolute, strict and literal interpretation of the provision". To strengthen his way of thinking the learned A.M. made reference to a number of known norms of interpretation of statutes. From the famous quotation that "the subject is not to be taxed without clear words for the purpose", he re-counted almost all of them down to the phrase that in taxing statutes "there is no room for any intendment, there is no equity about a tax and that there is no presumption to tax". Therefore, he preferred to go for the principles of "reasonable construction" to hold that the transaction in question being genuine and verifiable could not have been taken as a ground for exercise of revisional jurisdiction under section 66-A. The second ground dealing with peroration of expenses claimed jointly also did not find favour with the learned A.M. In his view where the expenses could not be bifurcated only then Circular No.12 issued under section 80-C could come into operation. Since, to view of the learned A.M. the expenses had been claimed separately and since para. 5 of Circular No. 7 of 1992 dated 18-3-1992 required allocation of expenses to be made on pro-rata basis the assessee could be required to establish the actual expenses attributable to income from indenting commission etc. which was done by the assessing officer in this case. Therefore, per learned Accountant Member assessment so framed could not be considered as erroneous or prejudicial to the interest of the Revenue. Both reasons were, therefore, seen unjustified for an exercise of power under section 66-A of the Ordinance.
20. This resulted into a difference of opinion and framing of questions for a reference under section 133('7) of the Income Tax Ordinance. Subsequently the learned Division Bench reframed the questions in order to identify the exact issues on which they differed.
21. Parties have been heard. The Revenue has supported the revisional as also proposed order the learned Judicial Member while the assessee relies upon the reason advanced by the learned Accountant Member. In fact the learned counsel for the assessee has further supported the opinion expressed' by the learned Accountant Member by citing case-law on the preposition that the Revenue Authorities are bound by the Circulars and directions issued by the C.B.R. from time to item. The provisions of section 8 of the Ordinance have been amplified to bring home the point that interpretation placed upon section 12(18) by way of the said Circular 3 of the 1992 being binding upon the revising authority it could not take the alleged loan as one of the reasons to revise the assessment. To advance the argument the learned counsel for the assessee relies upon (1989) PTD 581 re: C.I.T. v. M/s. Amin Mohiuddin Foundation Limited and (1971) 82 ITR 43 Ellerman Lines Ltd. v. C.I.T. West Bengal. from various copies of the bank statements of the alleged lender of money and those of the assessee company the learned counsel has tried to establish that loan in question was genuine and from a person who was available for verification. Further, claims that the assessment revised in this case was neither erroneous nor prejudicial to the interest of the Revenue. As such the revising authority, according to the learned counsel, stretched itself unnecessarily to find a justification for its cancellation. The claim of expenses as made in the return is also stated to be in accordance with law.
22. After considering the assessment the reasons for invocation of revisional jurisdiction and the ultimate cancellation of assessment under section 66-A I do not entertain any doubt that the order as proposed by the learned Judicial Member commands subscription both on fact as well as in law. To start with it will be seen that reference to general principles of interpretation of taxing statutes in order to oppose the cancellation of assessment was of no use at all. A question of interpretation of statute or statutory instrument arises only where either language of the provision is not clear or it is opposed to the express objectives of the statute in which it appears or is vague, uncertain or contradictory to other provisions or that it leads to manifest absurdity. Where the language employed is clear and does not admit of any ambiguity resort to niceties of interpretation is not permissible. To seek alleged intention of Legislature by going beyond the clear words used in the provisions is totally unjustified. It was all the more unnecessary when the issues, namely, the vires of Circular No.3 of 1992 had already been ruled upon by the Division Bench at Peshawar and stood reported as noted above. In that case the learned Division Bench followed the principle settled by the apex Court in re: Central Insurance Company and others v. Central Board of Revenue, Islamabad and others 1993 PTD 766 wherein the validity of a Circular issued by the C.B.R. was authoritatively ruled upon keeping in view the provisions of section 8 of the Income Tax Ordinance. Their Lordships examined the parameters of the provision, the statute of C.B.R. and the other relevant consideration to observe as under:---
"Though the Central Board of Revenue has administrative control over the functionaries discharging their function under the Ordinance, but it does not figure in the hierarchy of the forums provided for adjudication of assessee's liability as to the tax. Any interpretation 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 question judicially or quasi judicially. 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 the 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 interpretation of any provision 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 the Supreme Court and not by the Central Board of Revenue. In this view of 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."
23. Thereafter the Court referred to their earlier decision in re: CIT East Pakistan v. Noor Hussain reported as PLD 1964 SC 657 to quote Cornelius, CJ:
"In my view, if there is a departure from the law involved in the provision of relaxation contained in the Circular, then that Circular is to the extent of the deviation, invalid and ineffective and power thereunder is illegally exercised. "
24. An identical situation arose in 1995 PTD (Trib.) 797. In that case the assessee was employed as an executive with a company engaged in running an industrial concern. In the wealth statement accompanying. the returns a loan liability towards his employer was declared. On reference by the assessing officer the employer confined having made advance of Rs.250,000 to the assessee for purchase of land without any strings. On this the assessing officer opined that if the assessee had taken the said amount from a bank he would have paid an interest 0 14% p.a. Therefore, he proceeded to take the advance as a "perquisite" as defined in section 16(2)(b)(iv) of the Ordinance and the deemed interest @ 14% was added towards income already declared from salary and brought to tax. The assessee failed in first appeal. Before us the C.B.R. Letter Circular No.4(8) IT-J/91, dated 13-6-1991-addressed by a Second Secretary to All Regional Commissioner was relied upon. The subject of the letter being "Notional interest in respect of interest-free loans to employees". The first two paras of that letter being relevant are reproduced in exact terms:
"I am directed to say that clarification has been sought from certain quarters whether the benefit accruing to an employee on account of provision of a loan either totally free of interest or at a concessional rate of interest, by the employer would constitute a taxable benefit in the hands of the employee in terms of Rule 18 of the Income Tax Rule, 1982.
2. The matter has been examined in the Board. Although such benefit does constitute a perquisite in the hands of the employee yet it is not desirable to impute notional income in such cases. The officers should, therefore, be directed not to tax such notional income under Rule 18 of the Income Tax Rules, 1982. "
25. Also the assessee relied upon a number of reported judgments from local as well as foreign jurisdictions to contend that even if part of the aforesaid letter was against the statutory provisions under which the addition was made still the assessee was entitled to the benefit doled out by way of this letter. It was further stated that when the prime taxing agency namely C.B.R. decided' not to make or enforce a levy against a particular assessee or class of assessees this Tribunal need not strain on such concession. The submission was rejected for a number of reasons. In the process both the aforesaid decisions re: Central Insurance Company (supra) re: Noor Hussain (supra) referred. An earlier view of the Tribunal cited in 1986 PTD 828 was also discussed where it was held that meaning subscribed by the C.B.R. to fiscal statute should be upheld if these were not otherwise in conflict with the principle of interpretation of statutes. The ratio settled in 1994 PTD (Trib.) 1288 was also recalled wherein it was found that C.B.R, had no authority to issue a Circular which could over-right, modify or in fact amend a provision of the Act. Finally, reliance was placed by us upon the case reported as PLD 1994 Karachi 67 re: Syed Ali Azhar Naqvi v. Government of Pakistan Secretary Finance and their Lordships' view that: "Where a statute provides a procedure for doing a thing in a particular manner that should be done in that manner and in no other way or it should not be done at all" was reproduced. In the second case re: Chairman Evacuee Trust Property, West Pakistan, Lahore v. Muhammad Din and another PLD 1997 Lahore 217 their Lordships of the Lahore High Court reiterated the principle that wherever a statute limits a thing to be done in a particular form, it necessarily includes in itself a negative, viz. that the thing shall not be done otherwise".
26. For these reasons it is submitted that the, aforesaid Circular issued by the C.B.R. cannot be supported nor the arguments based upon such Circular could be taken into consideration as a valid defence against revision of the assessment. I am also of the view that the learned A.R. was not justified in distinguishing the reported judgment of the Peshawar Bench recorded in this behalf. In a recent Full Bench decision reported as 1997 PTD (Trib.) 879, inter alia, it was decided that a decision of the Bench of equal strength was binding and the only alternate was to refer the matter for constitution of a larger Bench. In this connection I would like to make .a specific mention that a Division Bench judgment of this Tribunal reported as 1997 PTD (Trib.) 1241 decided on 18-4-1996 has already been referred for the constitution of a larger Bench. In that case the aforesaid Circular No.3 was interpreted in favour of the assessee who had obtained a loan by way of a bearer cheque. It will further be noted that the decision of the Peshawar Bench recorded on 18-9-1996 being later in time was binding upon the Division Bench at Peshawar. Therefore, the learned Judicial Member was right in following the same and holding the C.B.R. Circular No.3 of 1992 dated 27-1-1992 ultra vires of the powers of the C.B.R. For the other reason discussed in the reported judgment of the Lahore Bench 1995 PTD (Trib.) 797 (supra) to which I was a party the order proposed by the learned Judicial Member on this issue is supported. Although the assessing officer had not mentioned this Circular while accepting the alleged loan from said Haji Abdul Hanan of Khyber Agency. Yet the revising authority was quite justified in ignoring the same and to take it as one of the grounds for cancellation of the assessment. For the assessing officer may have had acted in accordance with that Circular but his action was not correct in view of the specific provision of law and also the view adopted by the Division Bench at Peshawar.
27. Before proceeding further it also needs to be stated that the reported cases relied upon by the assessee as mentioned in para. 21 and those by the learned Accountant Member on general principles of interpretation of statutes do not need a detailed discussion. The issues discussed in them having been settled by the Supreme Court of Pakistan in re: Central Insurance Company (supra) and re: Noor Hussain (supra) no useful purpose will be served to repeat the facts as well as the principles evolved therein.
28. As far the application of Circular No. 12 of 1991, dated 30-6-1991 is concerned again I find myself in agreement with the findings recorded by the learned J.M. in para. 10 ante. Earlier the revising authority while confronting the assessee on various issues successfully repelled the contention of the assessee that Circular No. 12 was not applicable in its case. In this regard the findings recorded by it at pages 2 and 3 of the impugned order do not appear open to exception. The submission that in earlier year the Revenue had accepted the declared pattern would not mean that the maintenance of accounts in such manner had assumed legality. Circular No.7 of 1992 dated 18-3-1992 was issued only to explain the administrative instructions issued through Circular No. 12 of 1991 dated 30-6-1991. Para 5 of Circular No.7 repeated the method of peroration in such-like cases. The stress of the assessee on concluding sentence of this sub-para even if accepted would amount to saying that at best the assessing officer could require it to support the actual expense attributable to income from commission, indenting or brokerage. However, the assessee lost sight of the fact that the action in question was not of reopening under section 65 which, by judicial authority prohibits consideration of the same material. In cases of revision of an assessment under section 66-A the bar against "charge of opinion" is not applicable as a difference in view is the foundation on which an assessment is seen as erroneous and prejudicial to the interest of the Revenue. Therefore, by not requiring the assessee to establish the actual expenses the assessing officer proceeded to make conclusions, which per revising authority were erroneous and in final analysis resulted in prejudice to the Revenue. Also it will be seen that the assessee has not made any material objection to the findings of the revising authority with respect to the claimed expenses. These findings having been based upon the balance-sheet of the assessee nothing was more pertinent and relevant than picking up the figures of claimed and allowed salaries etc., which were seen as relatable to both accounts of incomes.
29. The Revenue having been successful in bringing home both justifications to revise the assessment I will agree with the reasons as well as findings as recorded by the learned Judicial Member. Therefore, my answer to the question No.l is in the affirmative. The opinion expressed by the learned Judicial Member with respect to Circular No. 12 of 1991. dated 30-6 1991 is equally supported for the reason stated in the last para. It is, however, repeated that Circular No.7 dated 18-3-1992 on which the assessee relies only explains Circular No. 12 of 1991 and does not in any manner change the mode, method, principle of the computation or allocation of expenses in such cases. The Circular No.7 being only a supplement to Circular No. 12 no contradiction or mutual execution is found therein. The question No.2 as framed, therefore, is also answered in affirmative. Resultantlyas proposed in para. 11 ante this appeal shall be dismissed.
(Sd.)
(Nasim Sikandar),
Judicial Member.
30. In view of the majority opinion, this appeal fails and is hereby rejected.
M.B.A./538/Trib. Appeal dismissed.