I.T.AS. NOS.1473(IB) AND 1129(IB) OF 1996-97, DECIDED ON 31ST JULY, 1998. VS I.T.AS. NOS.1473(IB) AND 1129(IB) OF 1996-97, DECIDED ON 31ST JULY, 1998., 1998 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 3892 (1998)

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss.62 & 68(4)---Assessment---Registered firm---Death of partner during financial year---Surviving partner with the introduction of a new partner constituted new firm under Partnership Act, 1932 and continued the existing business---Registration was also granted by the Assessing Officer under S.68(4) of Income Tax Ordinance, 19:'9 to the newly-constituted firm---Two separate returns of income were filed by the assessee for the first and second periods on the ground that two separate registered firms were in existence in the accounting year---Assessing Officer clubbed the income of both the periods---First Appellate Authority observed that Assessing Officer was not justified to club the income of the two periods---Validity---Income Tax Appellate Tribunal maintained finding of the First Appellate Authority with the remarks that two separate firms did exist in the accounting year and the Assessing Officer had misdirected himself in clubbing the income of the two periods for the purpose of charging super-tax on the total net income.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.59---Self-Assessment Scheme, 1994-95---C.B.R. Circular No.9 of 1994, dated 11-7-1994, paras. 1(d) & 7(b)---Registered firm dissolved by death of a partner---New firm constituted continuing the same business-- Two separate returns were filed under Self-Assessment Scheme---Returns were set apart to be assessed under normal law on the ground that same was a case of succession in business---Validity---Newly-constituted firm fell within the category of a "New Taxpayer" and for the purpose of availing the benefits of Self-Assessment Scheme, it would be taken to be an existing assessee---Returns filed by the assessee were rightly set apart to be proceeded under normal law being hit by mischief of cl. (b) of para. 7 read with cl. '(d) of para. 1 of C.B.R. Circular No.9 of 1994, dated 11th July, 1994.

(c) Income Tax Ordinance (XXXI of 1979)---

----S.62---Assessment---Assessment on production of accounts, evidence etc.---Sale rate per ton of coal was enhanced by the Assessing Officer -- Evidence regarding low rate was produced by the assessee---First Appellate Authority set aside the assessment---Validity---Normally such orders were set aside as a whole or any part thereof, where verification of certain facts or additional facts, were required for the finalization of the assessment---Where primary facts of a case were available appropriate cause was to decide the issues raised on merits rather than setting aside the order to be made afresh.

(d) Income Tax Appellate Tribunal Procedure Rules, 1981---

----R.10---Memorandum of appeal, contents of---Requirements---Appellate Tribunal refused to interfere with the appellate order on behalf of the assessee on the ground of appeal not coming up to the requirements of R. 10 of Income Tax Appellate Tribunal Procedure Rules, 1981.

Raja Manzoor-ul-Haq for Appellant (in I.T.A. No.1473(IB) of 1996-97)

Waqar Ahmed, D.R. for Respondent (in T.A. No.1473(IB) of 1996-97)

Waqar Ahmed, D.R. for Appellant (in I.T.A. No.1129(IB) of 1996-97)

Raja Manzoor-ul-Haq for Respondent (in I.T.A. No.1129(1B) of 1996-97).

Date of hearing: 31st March, 1998

ORDER

RASHEED AHMED SHEIKH (JUDICIAL MEMBER).---Both the assessee as well as the department have assailed the order of the A.A.C., Islamabad, dated 9th May, 1996 in respect of assessment year 1994-95.

Raja Manzoor-ul-Haq, Advocate appearing on behalf of the assessee and Mr. Waqar Ahmed, the learned D.R. for the department have been heard.

DEPARTMENTAL APPEAL:

The departmental appeal is being taken up first because out of the controversy of the parties the following issues are framed:---

(1)Whether the income of an assessee, having two. periods is to be clubbed for the purpose of charging super tax where a firm is reconstituted after the death of a partner in an accounting year?

(2)Whether the assessee was successor in business in terms of clause (b) of para. 7 of C.B.R.'s Circular No.9 of 1994, dated 11th July, 1994 and whether the returns filed by it was rightly set apart out of the purview of the relevant Self-Assessment Scheme?

The facts relevant to Question No. 1 are that from assessment years 1990-91' to 1993-94 the assessee was carrying on its business as a registered firm having three partners. It stood dissolved after the death of one of the partner namely Malik Ghulam Akbar on 14-3-1993. Subsequently a new partnership deed was executed on 9-9-1993, the terms and conditions of which were effective from 15-8-1993, whereby the widow, the son and one of the relative of the deceased were introduced as partners in the newly constituted firm. This partnership was got registered with the Registrar of Firm on 21-11-1993 under section 59 of the Partnership Act, 1932. The accounts of this firm were closed on 31-12-1993 and the profit earned for the period 15-8-1993 to 31-12-1993 was duly divided and credited to the respective ledger account of the partners as per their stipulated shares. The registration to the firm was also granted by the Assessing Officer under section 68(4) of the Ordinance for the period referred to above on 21-4-1996. After which two separate returns of income were filed by the assessee under the Self-Assessment Scheme in the following manner:---

During course of the assessment proceedings, the Assessing Officer showed his intention to club the income of both the periods for the purpose of charging super tax. In response thereto, it was stated by the assessee that as two separate registered firms were in existence in the accounting year, therefore, the income of each one of the period, mentioned above, be assessed separately rather than clubbing the income of the two periods to charge super tax thereon. The explanation furnished was not considered satisfactory by the Assessing Officer. Accordingly net income was determined at Rs.4,14,479 for the first period while it was computed at Rs.1,48,865 for the second period. Afterwards, the income of both the periods was clubbed by the Assessing Officer which resulted into arriving at total net income of Rs.5,63,344. In this manner, super tax was charged at Rs.1,08,019 thereon by him.

Felt aggrieved with the above treatment, the assessee instituted appeal before the First Appellate Authority which held that it was not a case of succession, therefore, the Assessing Officer was not justified to club the income of the two periods.

Upon having perused the foregoing facts, we do not find any substance in the contention of the learned D.R. that the newly constituted firm succeeded the formerly constituted firm and hence, the Assessing Officer was fully justified in clubbing the income of the two periods for the purpose of charging super tax on the total net income so assessed by him. It is so because according to clause (c) of section 42 of the Partnership Act, 1932, the partnership automatically stands dissolved by the death of a partner. So, there always exists interregnum between the constituting firm and the formerly constituted firm upon the death of a partner though it may be insignificant. It means that two separate firms come into existence on the happening of the death of a partner, if a new partnership deed is executed in between the existing partners and the legal heirs of the deceased. There is also no obligation on the legal representatives to join as partner in the newly constituting partnership. Certainly new partners(s) can be admitted in the partnership by the death of a partner of a firm.

It is, therefore, held that a firm stands dissolved the day a partner of a firm exhales and if a new partnership deed is subsequently executed amongst the existing partners or alongwith the deceased's legal representatives or new partner(s) are introduced in the firm, whether carries on similar business or uses the same place or the name of the erstwhile firm, a new partnership has come into existence. It is, further held that the formerly constituted firm and the constituting firm are two separate assessable entities and their income cannot be clubbed for the purpose of charging super tax.

Coming to the facts of the present case, the partnership ceased to exist on the happening of death of one of the partner namely Malik Ghulam Akbar on 14-3-1993. The partnership deed subsequently executed on 9-9-1993 w.e.f. 15-8-1993, by admitting the widow, the son and a distinct partner was certainly a new partnership because it was also got registered with the Registrar of Firms on 21-11-1993 under t1fe Partnership Act. The profit of the newly constituting firm was divided and credited to the personal account of the partners as per their stipulated shares in the partnership deed. The Assessing Officer had granted the registration to the firm under section 68(4) of the Income Tax Ordinance, 1979, as well, for the period commencing 15-8-1993 to 31-12-1993. In view of this position, it cannot be said that the constituting firm succeeded the formerly constituted firm. We, therefore, hold that two separate firms were in existence in the accounting' year and the. Assessing Officer had misdirected himself in clubbing the A income of the two periods for the purpose of charging super tax on the total net income so assessed by him. The findings of the First Appellate Authority are hereby maintained on this point.

As regard question No.2, for each one of the period mentioned above, the assessee had filed separate returns of income under the Self- Assessment Scheme. For the first period, commencing 1-1-1993 to 13-8-1993, net income was returned at Rs.1,76,120 and for the second period, starting from 15-8-1993 to 31-12-1993, it was declared at Rs.17,618. However, these returns were outcast from the purview of the Self Assessment Scheme on the ground that it was a case of succession in business and the total net income declared by the assessee was less than the income last assessed which in the instant case was at-Rs.2,58,285 for assessment year 1993-94.

To contemplate as to whether it was a case of succession in business and whether the assessee could be treated an existing assessee or a new tax payer for the purpose of availing the benefits of the Self-Assessment Scheme, para. l of Circular No.9 of 1994, dated 11th July, 1994 enunciates that all returns of total income filed under section 55 of the Ordinance, for the ,assessment year 1994-95 by individual, unregistered firm, registered firm, association of person and Hindu undivided families shall qualify for acceptance under the Self-Assessment Scheme. However, as per the conditions specified under clauses (a) to (n) of the said para. the returns which fall in any of these clauses shall stand excluded out of the ambit of the Self-Assessment Scheme. None of the clauses of para. 1 of the said circular provides that return filed by a new tax payer shall not be processed under the Self-Assessment Scheme. The term "New Tax Payer" and the return filed by the "New Tax. Payer", whether qualifies under the Self-Assessment Scheme or not, has been explained in para. 7 of the circular. According to the Explanation added to clause (a) of para. 7 of the circular "New Tax Payer" means a person who has never filed a return under section 55 or 56 of the Income Tax Ordinance, 1979 in the past and no assessment has ever been made in his case.

Then a question arises that what would be the status of a "New Tax Payer" where he takes over the business of an existing assessee. Clause (b) of para. 7 of the circular answers this question that where a "new Tax Payer: takes over the business of an existing assessee, it would be case of succession in business unless the place or nature of business change and the successor shall be taken to be an existing assessee. Now we revert to para. 1 of the circular wherein it has been laid down that the return which do not accomplish the requirements mentioned in clauses (a) to (n) shall stand disqualified for acceptance under the Self-Assessment Scheme. In the present case clause (d) of para. 1 of the circular applies which expounds that returns in cases where the income last assessed or income last declared was Rs.2 lac or more shall not qualify for acceptance under the Self-Assessment Scheme. In any case, this clause does not apply to the returns which qualify for immunity.

Having taken regard to the above paras although the newly constituted firm for the period 15-8-1993 to 31-12-1993 falls within the category of a "New Tax Payer" but for the purpose of availing the benefits of the Self-Assessment Scheme, it would be taken td be an existing assessee in e terms of clause (b) of para. 7 of Circular No.9 of 1994, dated 11th July, 1994 because it succeeded the business of an existing assessee. Had the newly constituted firm changed its place or the nature of business, as was being executed by the erstwhile firm, it would have then taken to be a new tax payer and not the successor in business.

Referring to the facts of the case, for the year under appeal, the total net income declared by the assessee for the two periods was at Rs.1,93,788 against the income last assessed at Rs.2,58,285, .which was obviously less than the income last assessed. Since it was a case of succession in business and the successor was taken to be an existing assessee as far as the Self Assessment Scheme is concerned, therefore, the returns filed by the assessee were rightly set apart to be processed under the normal law, being hit by mischief of clause (b) of para. 7 read with clause (d) of para. 1 of C.B.R.'s Circular No.9 of 1994, dated 11th July, 1994.

ASSESSEE'S APPEAL:

The first objection of -the assessee relates to confirmation of G.P. rate. The facts are that the assessee, a registered firm, derives income from extraction and sale of coal from four mines. The year under appeal consisted of two periods. In the first period (1-1-1993 to 13-8-1993), the assessee had yielded gross profit rate of 38.17 % while for the second period (15-8-1993 to 31-12-1993) it was conceded 0 22.76%. Thus, the consolidated G.P. rate disclosed by the assessee was at 33.33 % . It was considered on the lower side by the Assessing Officer and he proposed to apply G. P. rate of 45% in view of the comparable cases. In reply thereto the assessee did not object to application of such rate of gross profit. However, gross profit rate of 40% was applied by the Assessing Officer, after referring to a case bearing N.T.N. 18-28-0360400 wherein such rate of gross profit stood confirmed in appeal. When the issue regarding application of gross profit rate came up for adjudication before the First Appellate Authority it confirmed the action of the Assessing Officer by observing that the gross profit rate applied at 40% was reasonable in this line of business.

We do not find any erroneousness in the order of the A.A.C. whereby he confirmed the action of the Assessing Officer regarding application of G.P. rate of 40% in the present case because it was applied by the Assessing Officer in view of the history of the case. Although the principle of estoppel does not apply to the Income Tax Proceedings because each and every year is a separate assessable entity, nevertheless, departure from the history of the case can be made only when it could be shown by the Assessing Officer that a particular assessee enjoys higher margin of profit for special reasons. We also remember that gross profit rate ranging between 40 % to 45 % is generally applied in the cases engaged in the extraction and sale of coal from mines depending upon the facts and circumstances of each case. Accordingly the findings of the A.A.C. are endorsed by us on this point.

SALE RATE OF COAL:

The assessee had effected sale of coal at 2033 tons in the first period and at 910 tons in the second, totalling 2933 tons for Rs.16,13,150, which gave average sale rate of coal at Rs.550 per ton. It was considered extremely moderate by the Assessing Officer and he intended to adopt sale rate of coal at Rs.700 per ton. In response thereto, it was stated by the assessee that the coal extracted from the mines was of very poor quality which resulted into selling of coal at lessor rate in the market. As regards quality of coal, the assessee produced a. certificate issued by the Senior Research Officer, Inspector of Mines Punjab, Mines Sample Testing Laboratory, Khushab who certified that coal extracted from assessee's mines was of poor quality. The explanation tendered by the assessee was not found satisfactory by the Assessing Officer. He, thus adopted sale rate of coal at Rs.700 per ton, as was proposed by him in the notice issued under section 62 of the Ordinance. Although the A.A.C. had categorically observed in his order that the sale rate of coal adopted by the Assessing Officer was excessive on account of being poor and low quality thereof, yet he set aside the assessment on this point to be decided afresh in the light of his observations.

We do not ratify such findings of the First Appellate Authority because there was no occasion with the Appeal Commissioner in setting aside the issue regarding adoption of sale rate of coal. Normally and usually that order is set aside as a whole or any part thereof where verification of certain facts or additional facts are required for the finalization of the assessment. Where primary facts of a case are available on record, the appropriate course available with the Appellate Authority is to decide the issues raised before him on merits rather than setting the order to be made afresh. Otherwise it would amount to ensnare the assessee into another unindispensable round of litigation.

In the present case the Appeal Commissioner after examining the certificate regarding quality of the coal which was also placed before the Assessing Officer for his consideration, reached to the conclusion that the coal extracted by the assessee was of poor quality he should then have decided this issue after getting aid from the history of the case. Considering that the sale rate of coal was adopted at Rs.550 per ton in the immediately preceding assessment year 1993-94 linked together the coal extracted by the assessee was not of good quality, as certified by the Inspectorate of Mines Punjab, we deem it expedient to fix sale rate of coal at Rs.650 per ton for the year under appeal.

ADD BACKS OUT OF P&L ACCOUNT:

The assessee has challenged the additions made out of various heads of the P&L Account on the following ground:---

"That add backs out of profit and loss account was without any basis and there was no justification with the learned A.A.C. to set aside the same."

The ground raised by the assessee does not come up to the requirements of rule 10 of the ITAT Rules, 1981 we, therefore, feel no hesitation in holding that the ground raised is vague and, as such, not admitted for hearing. Accordingly, we refuse to interfere with the impugned appellate order on behalf of the assessee on this point.

As a result, both the assessee and the departmental appeal pertaining to assessment year 1994-95 is disposed of as indicated above.

C.M.A./574/Tirib. Order accordingly.