Income Tax Ordinance (XXXI of 1979)---

----Ss.13(aa) & 66-A---Second Sched. to the Income Tax Ordinance, 1979-- Unexplained investment---Exemption claimed on encashment of F.E.B.C.-- Original assessment was completed under S.62---Exemption claimed on account of F.E.B.C. was accepted by the Assessing Officer ---I.A.C. revised the assessment order by recourse to the provisions contained in S.66-A and held .that exemption under C. (171) of the Second Sched. was not permissible---Assessing Officer was directed to make fresh assessment on this issue ---Assessee preferred appeal before Tribunal---Appeal was dismissed and the order under S.66-A was upheld---Assessing Officer specifically confronted the assessee on the point that exemption sought was not available in law and he was called upon to show cause as to why the addition may not be made to the total income under S.13(1)(aa)---In reply the source of investment in F.E.B.C. was explained that F.E.B.C. were purchased from the foreign remittances which was received through normal banking channels and' the evidence regarding the remittance was also produced---Assessing Officer did not accept the contention of the assessee for the reason that the same evidence was produced before the C.I.T.(A) and the Income Tax Appellate Tribunal during the appeal against order under S.66-A but the contention was not accepted and made the addition under S.13(1)(aa) which was confirmed by the C.I.T.(A) on the same grounds---Again appeal to Tribunal---Held, refusal of exemption claimed by an assessee did not mean that an addition was to be made ipso facto under S.13 of the Income Tax Ordinance, 1979---Refusal of exemption only meant that an assessee was required to explain the nature and source of investment under S.13 which had to be considered and decided on its own merits---Appeal allowed.

I.N. Pasha for Appellant.

Shaheen Aziz Niazi, D.R. for Respondent.

ORDER

MUHAMMAD MUJIBULLAH SIDDIQUI (CHAIRMAN). ---The above appeal at the instance of assessee is directed against the order, dated 19-3-1998 by the learned C.I.T.(A), Zone-IN', Karachi in I.T.A. No.726, relating to the assessment year 1992-93 and arises out of order under section 62/66-A.

2.The sole objection raised on behalf of appellant is to the addition of Rs.1,77,44,500 under section 13(1)(aa) of the Income Tax Ordinance, 1979.

3. Heard Mr. I.N. Pasha, learned counsel for the appellant and Mr. Shaheen Aziz Niazi, learned representative for the department.

4. Briefly stated the relevant facts giving rise to this appeal are that the original assessment in this case was completed under section 62 of the Income Tax Ordinance on 29-6-1995 at the total income of Rs.17,92,532. In the return of income exemption was claimed at an amount of Rs.1,77,44,500 on account of encashment of F.E.B.C. The exemption so claimed in the return of total income was accepted by the assessing officer Later on the learned I.A.C. Range. II, Cos. IV, Karachi revised the assessment order by the recourse to the provisions contained in section 66-A of the Income Tax Ordinance, 1979 and held that exemption was wrongly allowed to the encashment of F.E.B.C. under clause (171) of the Second Schedule to the Income Tax Ordinance, 1979. The assessment on the point of allowing exemption was cancelled and the assessing officer was directed to make fresh assessment on this issue. The assessee preferred appeal before this Tribunal. The appeal was dismissed, and the order under section 66-A was upheld. The assessing officer thereafter, started fresh assessment proceedings and issued notices under sections 61 and 62 of the Income-tax Ordinance. The assessee was specifically confronted on the point that the exemption sought was not available and was called upon to show as to why the addition of Rs.1,77,44,500 may not be made to the total income of assessee under section 13(1)(aa) of the Income Tax Ordinance. 1979. In reply to notice, the assessee took various pleas and explained the source of investment also. It was contended that the F.E.B.Cs. in the sum of Rs.1,77,44,500 were issued on 12-9-1991 which were equivalent to US Dollars 7,20,000 and that the remittances were received through normal banking channels. In this behalf a letter, dated 2-9-1991 by the appellant to M/s. A.N.Z. Grindlays Bank was produced which read as follows:

"Kindly arrange to transfer of US $ 720,000 with A.N.Z. Grindlays Geneva to Karachi for issue of F.E.B.C.

Please arrange to dispose of the F.E.B.C. and credit the proceeds together with profit thereon to the Account No.11777025050516 of M/s. Hashwani Holdings (Pvt.) Limited under advice to me."

5. A certificate from Manager, A.N.Z. Grindlays Bank addressed to Wealth Tax Officer, Special Circle-1, Southern Region, Karachi was also produced certifying that US $ 7,20,000 with which F.E.B.C were purchased were received through normal banking channel which was reported to the State Bank of Pakistan in the return for September, 1991. The said certificate reads as follows:

"Wealth Tax Officer,

Special Circle-1,

Southern Region, Karachi.

CERTIFICATE

This is to certify that F.E.B.C. of Rs.17,744,500 (Rupees Seventeen Million Seven Hundred Forty-Four Thousand Five Hundred only) detailed below, were issued to Mr. Sadruddin Hashwani a Rs.24.6453 equivalent to US $ 720,000 on 12th September, 1991.

The above remittances were received through normal banking channel and have been reported to State Bank of Pakistan in our appropriate returns for September 1991 on Schedule J3.

(Sd.)

Manager,

A.N.Z. Grindlays Bank."

6. It was further contended on behalf of appellant that the source of investment of F.E.B.C., which was subsequently encashed has been explained in the manner that the A.N.Z. Grindlays Bank has certified that remittances were received from the account of appellant with A.N.Z. Grindlays, Geneva and once it is proved that the foreign exchange was brought from outside Pakistan no further questions could be asked in respect of the said foreign exchange by virtue of the provisions contained in sections 3 and 4 of the Protection of Economic Reforms Act, 1992 which read as follows:

"3.Act to override other laws.---The provisions of this Act shall have effect notwithstanding anything contained in the Foreign Exchange Regulation Act, 1947 (VII of 1947), the Customs Act, 1969 (IV of 1969), the Income Tax Ordinance, 1979. (XXXI of 1979) or any other law for the time being in force.

4.Freedom, to bring, hold, sell and take out foreign currency.---All citizens of Pakistan resident in Pakistan or outside Pakistan and all other persons shall be entitled and free to bring, hold, sell, transfer and take out foreign exchange within or out of Pakistan in any form and shall not be required to make a foreign currency declaration at any stage nor shall any one be questioned in regard to the same.

7. It was pleaded before the assessing officer that the assessee has fully discharged its burden under section 13 of the Income Tax Ordinance, 1979 by proving up to the hilt that US $ 7,20,000 were remitted from the account of appellant in Switzerland his account in the A.N.Z. Grindlays Bank, Karachi, and with the said foreign exchange F.E.B.C. were purchased which were subsequently encashed. So far the source for acquiring foreign exchange is concerned it was not permitted under section 4 of the Protection of Economic Reforms Act, 1992, the provisions of which Act shall override the provisions of Income Tax Ordinance, 1979 or any other law for the time being in force by virtue of the overriding provisions in section 3 of the Protection of Economic Reforms Act, 1992.

8. The assessing officer did not accept the above contentions for the reason that the above evidence was produced before the C.I.T.(A) during the proceedings under section 66-A and the Income Tax Appellate Tribunal during the appeal against order under section 66-A but the contention was not accepted. The assessing officer produced findings of the Income Tax Appellate Tribunal in I.T.A. No.557/KB of 1996-97 whereby the appeal against order under section 66-A was dismissed. The relevant findings of the Tribunal on which the assessing officer placed reliance are as follows:

"Regarding the proposition of Mr. Iqbal Naeem Pasha that since clause (171) of Part 1 and clause (6) of Part IV are inserted in the Second Schedule simultaneously by the same notification, these, therefore, are mutually exclusive, extending two separate benefit once for investment in acquisition under clause (6) and again on encashment under clause (171), we regret we are not persuaded to subscribe to his view. We have no doubt in our mind that these rwo mutually exclusive provisions have been made to deal with two different situations. Clause (6) of Part IV deals with a situation wherein the D.C.I.T. finds that an assessee is holding the F.E.B.C. acquired by-him either under Rule 5, 6 or 7 of the F.E.B.C. Rules, 1985 but he cannot invoke the provisions of either section 13 or any of the section of Chapters XI and XII of the Income-tax Ordinance, as long as the assessee continues to hold such certificates. However, clause (171) of Part 1 of the Second Schedule deals with situation where an assessee is claiming exemption on the certified sum on the basis of a certificate issued under Rule 13 of the F.E.B.C. Rules, 1985, by a bank (office of issue) authorised in this behalf that the assessee named there in has encashed F.E.B.C. certificates bearing numbers mentioned therein from the said bank and the specified amount in Pak currency has been paid to him in exchange thereof. We, therefore, find neither any identity of purpose nor any contradiction in objectives of the provisions of the two clauses (ibid). While one ensures that no question shall be asked nor any penal or prosecution proceedings shall be initiated under the Income Tax Ordinance against a person holding F.E.B.C. in acquisition whereof one has invested any amount, the other ensures that no question will be asked by the Income Tax Authorities regarding source of funds received by an assessee on encashment of F.E.B.C. if the office of issue has issued in his favour the certificate prescribed in this behalf under Rule 13 of the F.E.B.C. Rules, 1985. Thus, there being neither any contradiction in terms nor any ambiguity in the provisions of the two clauses (ibid). We find that both the ratio of decision in as well as the facts and circumstances of the case relied upon ibid by Mr. Iqbal Naeem Pasha are distinguishable.

In the instant case, the appellant at the end of the income year, has no amount that is claimed to have been received on encashment of F.E.B.C. as provided under Rule 13 of the F.E.B.C. Rules, 1985. Similarly the appellant at the end of the income year has no amount invested in the acquisition of the F.E.B. certificates.

Accordingly, we find that he neither is entitled to exemption from tax available under clause (171) of Part 1 nor to immunity from the provisions of section 13, Chapter XI or Chapter XII of the Income Tax Ordinance.

It follows from the finding supra that the assessment order passed by the D.C.I.T. in appellant's case is not only erroneous but it is patently prejudicial to the interest of revenue in so far as the amount of Rs.17,744,500 has been incorrectly and unlawfully held to be exempt from tax therein, and the learned I.A.C., therefore, is justified both in invoking his jurisdiction under section 66-A as well as holding that the sum supra is chargeable to tax."

9. After placing reliance on the above findings of the Tribunal the assessing officer observed that no further discussion was required because it has been held by the Tribunal that assessee was neither entitled to exemption under clause (111) of Part I to the Second Schedule nor to immunity from the provisions of section 13 of the Income Tax Ordinance, 1979. With these observations the assessing officer made addition at Rs.1,77,44,500 under section 13(1)(aa) of the Income Tax Ordinance, 1979.

10. The assessee preferred first appeal before the learned C.I.T.(A) reiterating that in view of the evidence in respect of source of investment in F.E.B.C. by remittance of US $ 720,000 received through banking channel no addition could be made under section 13(1)(aa) for the reason that the source of acquiring foreign exchange cannot be probed into because of protection under section 4 of the Protection of Economic Reforms Act, 1992 and thus, the only burden which was required to be discharged was that the investment was made from the foreign exchange and the assessee discharged the said burden. The learned C.I.T (A), however, dismissed the appeal by holding that the point in issue already stands decided against the assessee by the Income-tax Appellate Tribunal in I.T.A. No.557/KB of 1996-97 by rejecting the plea of exemption on behalf of assessee. Being still dissatisfied the appellant has preferred this second appeal before us.

11. Mr. I. N.. Pasha has submitted before us that the learned two officers below have failed to distinguish the contentions and pleas taken on behalf of assessee in the proceedings under section 66-A and the appeal arising out of the order under section 66-A arid the pleas and contentions taken in the proceedings relating to the addition under section 13(1)(aa). Mr. Pasha while elaborating his arguments has submitted that in the earlier appeal before the Tribunal being I.T.A. No.557/KB of 1996-97 on which the learned two officers below have placed reliance, exemption was claimed under clause (171) of Part 1 to the Second Schedule of the Income Tax Ordinance, 1979 and clause (6) of the Part IV of Second Schedule. Thus, the plea taken in the earlier appeal was to the extent that the investment out of encashment of F.E.B:C. enjoyed exemption and, therefore, no proceedings can be initiated under section 13 of the Income Tax Ordinance, 1979. The plea was however, not accepted and it was held by `the Tribunal that the exemption was not available. Mr. Pasha has submitted that while accepting the verdict of the Income-tax Appellate Tribunal the appellant submitted to the jurisdiction of assessing officer in pursuance of show-cause notice to explain source of the investment. The assessee furnished explanation as required under section 13 which was not considered at all by the learned two officers below. Mr. Pasha has submitted that refusal of exemption does not mean that addition under section 13 can be made ipso facto. He has urged that by refusal of exemption, the assessee was not debarred from explaining the source of investment and the assessing officer was bound to consider if the source was satisfactorily explained or not. By refusing to consider the source of investment the assessing officer as well as C.I.T.(A) have acted arbitrarily and against the manifest provision of law. He has finally contended that the assessee has proved up to the hilt that the F.E.B.C. were purchased out of foreign exchange remitted from the assessee's account in A.N.Z. Grindlays Bank, Geneva Switzerland, to the assessee's account with A.N.Z. Grindlays Bank, Karachi, and on encashment of said F.E.B.C. the amount of Pak Rs.1,77,34,500 were deposited in the assessee's account. Thus, the source of investment was explained to the extent of remitting of foreign exchange and once the source of investment is related to foreign exchange the assessing officer is debarred- from making any probe, enquiry or question in respect of the foreign currency including its source by virtue of the provision contained in section 4 of the Protection of Economic Reforms Act, 1992 and that the jurisdiction vested in the Assessing Officer under Income Tax Ordinance, 1979 for making a probe into the source of acquiring foreign exchange ceases to exist because under section 3 of the Protection of Economic Reforms Act, 1992 the provisions of this Act shall override the Income Tax Ordinance, 1979 and any other law for the time being in force. The learned D.R. has supported the impugned findings of the learned two officers below.

12. We have given our anxious consideration to the entire facts and material available on record and have carefully considered the contentions very ably and elaborately canvassed by Mr. I.N. Pasha before us. We are persuaded to agree with the submission that the refusal of exemption claimed by an assessee does not mean that an addition is to be made ipso facto under section 13 of the Income Tax Ordinance, 1979. The refusal of exemption only means that an assessee is required to explain the nature and source of investment under section 13, which has to be considered and decided on its own merits. In the case of exemption from tax under Part 1 of the Second Schedule or exemption from specific provisions under Part IV of the Second Schedule, an assessee enjoys immunity from producing any evidence in respect of nature and source of the amount to the extent it enjoys exemption from tax or exemption from operation of provisions of the Income-tax Ordinance. If exemption is not allowed the effect whereof is that this immunity is not available and the assessee is required to, explain nature and source of any sum, investment, acquisition of the money or valuable article, excess amount/money from which the expenditure was met as the case may be, and once such explanation is offered then it is incumbent on the assessing officer to examine and consider the same and if in his opinion the explanation is not satisfactory to assign reasons there for. There is no concept of any ipso facto addition under section 13 by nature refusal of exemption. Thus, Mr. Pasha has very aptly argued that in the earlier appeal before Tribunal wherein the a of exemption on the part o1 assessee was not accepted would not be sufficient to per se, for addition under section 13(1)(aa) of the amount of Rs.1,77,44,500 which has been found invested in the account of assessee.

13.We further find force in the contention of Mr. Pasha that the assessee has fully proved that the source of investment was the foreign exchange remitted from the account of assessee in Switzerland to the account of assessee in A.N.Z. Grindlays Bank, Karachi, and once the source explained to be-the foreign exchange the income-tax authorities cease to have jurisdiction for asking any question or making any probe/enquiry into the source of said foreign exchange by virtue of the provisions contained in sections 3 and 4 of the Protection of Economic Reforms Act, 1992. We would like to observe that whether any provision of law is liked or not by the income-tax authorities or the Courts it has to be implemented and acted upon so long it is on the statute book. There is no question of morality or immorality in respect of any tax or exemption from tax and it is equally good in respect of any provision of law validly enacted by the Legislature. It is for the Legislature to consider if any provision of law is moral or immoral, good or bad, harsh or liberal, beneficial or non-beneficial. These considerations are immaterial for the Courts and so long the Legislature in its wisdom deems fit to retain ally law on the statute book it is to be strictly adhered to and acted upon by all the executive authorities and Courts are also bound to enforce the same. Thus, whether the provision contained in section 4 of the Protection of Economic Reforms Act, 1992 is morally or economically good or bad for the society at large and whether it affects favour ably or adversely the revenue of State and whether it is for or against the conscience of anybody it has to be acted upon being a valid piece of legislation. 'thus without going into the morality and economic effect of the provisions contained in the Protection of Economic Reforms Act, 1992 it is held that the appellant has successfully proved the source of investment to the extent of having been made from foreign exchange and no further probe can be made in the source of foreign exchange, therefore by virtue of the law for the time being in force the appellant has discharged its burden under section 13 of the Income Tax Ordinance, 1979 read with sections 3 and 4 of the Protection of Economic Reforms Act, 1992 and as such the addition made by the assessing officer for the sole reason that the Tribunal had not accepted the plea of exemption is not sustainable in law and is hereby deleted.

14.The appeal is allowed as above.

M.B.A./541/Trib.Appeal accepted.