IRAM GHEE MILLS LTD. VS INCOME TAX APPELLATE TRIBUNAL
1998 P T D 3835
[Lahore High Court]
Before Mian Allah Nawaz and Mian Tariq Mahmood, JJ
IRAM GHEE MILLS LTD.
Versus
INCOME TAX APPELLATE TRIBUNAL
I.T.A. No of 1998, hard on 29th May, 1998.
(a) Words and phrases--- "Appeal" and "appellate jurisdiction" ---Connotation.
C.I.T. v. M.B. Qureshi PLD 1975 Lah. 1317; M/s. Bisvil Spinners Ltd. v. Superintendent, Central Excise and Land Customs, Circle Sheikhupura PLD 1988 SC 370; Ashok Motors Ltd. v. Commissioner of I.T. 1961 PTD 736; Haji Muhammad Ibrahim v. Surraya-un-Nisa and others PED 1992 SC 637; Pakistan v. Majestic Cinema PLD 1965 SC 379; Australian Sporting Club Ltd. Re Dash (1947) 47 NSWWN 283; Black's Law Dictionary; Board of Ed. of Cleveland City School District v. Cuvahoga County Bd. Of Revision, 34 Ohio St. 2d 231, 298 N.E. 2d 125, 128; Trengen v. Mongeon, N.D., 200 N.W. 2d 50, 53; Webster's Dictionary; Lakshmiratan Engineering Works Ltd. v. Assistant Commissioner (1968) 21 STC 154, 161 (SC); Chautala Workers Coop. T.S. Ltd. v. State of Punjab AIR 1962 Punj. 64; Namamal 'v. Radhey Shym AIR 1970 Raj. 26; Chiranji Lal & Bros. v. State of Delhi (1966) 18 STC 240 (Punj.); Story: Commentaries on the Constitution of the United States, Vol.2, S.176, p.80; Garikapati Veeraya v. N. Subbiah Ch. PLD 1957 SC (Ind.) 448; F.A. Khan v. Government of Pakistan PLD 1964 SC 520; Debi Prasad v. M. Phundan Lal AIR 1942 Oudh 291 and Jan Muhammad v. Rabia Begum 1992 CLC 78 ref.
(b) Interpretation of statues---
----Fiscal matters---Grants of tax exemptions have to be narrowly constru6d against taxpayer.
Statutory Construction by Sutherland, Vo1.3, 3rd Edn., p. 296 rel.
CIT v. Gohar Ayub Khan 1995 PTD 1074 and .Pakistan v. Majestic Cinema PLD 1965 SC 379 ref.
(c) Income Tax Ordinance (XXXI of 1979)---
----S. 14(1) & Second Sched., para. 118-E, S.136---Exemption---Tax holiday---Exemption from income-tax was only available to those undertakings which fulfilled conditions enumerated in Cls.(a), (b) & (c) of sub-para. (2) of para. 118-E of Second Sched., Income Tax Ordinance, 1979.
Statutory Construction by Sutherland, Vol.3, 3rd Edn., p. 296 and M/s. Bisvil Spinners Ltd. v. Superintendent, Central Excise and Land Customs, Circle Sheikhupura PLD 1988 SC 370 ref.
(d) Income Tax Ordinance (XXXI of 1979)---
----S.14(1) & Second Sched., para. 118-E---Exemption from income-tax-- Essentials---Assessing Officer's conclusions that income derived by assessee was from manufacturing sales and income derived from trading/commercial sale, was rightly affirmed by Income Tax Appellate Tribunal,, therefore, no question of law would arise in answering in appeal---Appellant, however, had failed to prove that machinery used in undertaking was new one and had been purchased for said purpose---Material pertaining to proof of purchase of new machinery was essentially relatable to domain of facts and not law-- Appellants, thus, failed to fulfil requirements of para. 118-E of Second Sched. of Income Tax Ordinance, 1979.
Black's Law Dictionary, 6th Edn. and Cain's Coffee Co. v. City of Muskogee 171 Okl, 635, 44 P.2d 50.52 ref.
(e) Income Tax Ordinance (XXXI of 1979)---
----Ss. 63 & 136---Reference---Best judgment---Claim for exemption Proceeding under S.63, Income Tax Ordinance, 1979 by Deputy Commissioner of Income Tax---Finding delivered by Deputy Commissioner, Income Tax in terms of S.63, Income Tax Ordinance, 1979, whether "best judgment "---Proceedings in terms of S.63, Income Tax Ordinance, 1979 pertained to domain of fact and were, thus, beyond power of High Court under S.136, Income Tax Ordinance, 1979---Assessees, however, neither produced audited accounts nor any evidence in support of their plea of claiming exemption.
(f) Income Tax Ordinance (XXXI of 1979)---
----Ss. 80-C & 136---Reference---Applicability of S.80-C to case of assessee---Controversy with regard to applicability of S.80-C, Income Tax Ordinance, 1979 having been finally resolved by High Court in 1995 PTD 493 as affirmed by Supreme Court in PLD 1997 SC 582, said question would need not detailed examination---Questions referred to High Court in appeal in terms of S.136, Income Tax Ordinance, 1979 being not question of law, would not call for High Court's answer within ambit of S.136 of the Ordinance---Appeal against assessment claiming exemption therefrom, being not competent was dismissed in circumstances.
Aisha Spinning Mills Ltd. v. Federation of Pakistan 1995 PTD 493 and Elahi Cotton Mills Ltd. v. Federation of Pakistan PLD 1997 SC 582 rel.
Ijaz Hussain Batalvi, Ali Sabtain Fazli, Imran Aziz and Syed Ibrar Hussain Naqvi for Appellants.
Shafqat Mahmood Chauhan for Respondents Nos. 1 to 3.
Kh. Saeed-uz-Zafar, Dy. Attorney-General for Pakistan, M. Ilyas Khan and Aftab Ahmad Khan: Amicus curiae.
Dates of hearing: 25th, 26th, 28th and 29th May, 1998.
JUDGMENT
MIAN ALLAH NAWAZ, J.---The questions of law, as formulated by the learned counsel for the appellants, in this Tax Appeal, are as follows:
(1)Whether, on the facts and circumstances. of the case, the Appellate Income Tax Tribunal erred in law in holding that the appellants/Company was not manufacturing/undertaking goods and so was not entitled to exemption under Para. (118-E) in, Second Schedule to Income Tax Ordinance, 1979?
(2) whether on the facts and circumstances of the case, the Deputy Commissioner Income Tax could proceed under section 63 of the Income Tax Ordinance and deliver best judgment?
(3)Whether sections 80-C and 80-C(2)(i) are applicable to the case of the appellant?
2. Undisputed facts, briefly stated, giving rise to this appeal are: that M/s. Iram Ghee Mills/appellant was incorporated as a Private Limited Company on 27-5-1993 with an object to set up an undertaking to manufacture and to process edible oils and cooking oil etc. The appellant was to file its first annual return for financial year 1994-95. However, the return was filed on 22-2-1995 with following figures:
Sales Rs.1,085,272,261
Gross Profit Rs.42,402,579
G. P. Rate3.90%
In paragraph No. l of the Return, business income was shown as Rs.7,658,011 and exemption was claimed from payment of income tax within the terms of clause (118-E) in first part of second schedule to Income Tax Ordinance, 1979 (described as 'Ordinance'). The Return was accompanied by unaudited Balance-Sheet, Trading Profit & Loss Account and Schedule of fixed assets. Pursuant to notice under section 62 of the Ordinance, Mr. M.A. Tabassum FCA/AR of the assessee entered appearance before assessing officer. It is necessary to note that original Books of Accounts and Vouchers were not annexed with the Return. It was revealed that the land, on which the factory was constructed, was purchased on 8-I1-1903 vide a registered sale-deed for a sum of RsA1,00,000 from Nabi Steels (Pvt.) Ltd. Lahore. The assessee claimed exemption on the premises that the plant. and machinery had been purchased from Messrs Zakraiya Engineering (Regd.) Multan. The Deputy Commissioner of Income Tax Circle 29 Multan Zone was appointed as 'Commission' to verify the above claim. Consequently, Deputy Commissioner recorded the statement of Mr. Sanaullah/one of the partners of seller's concern who stated that the claim of appellant was a sheer lie; that bill/vouchers ascribed to M/s. Zakaria Engineering firm were spurious documents; that the rate mentioned in the bills was simply exaggerated; that market price of Boiler/Heater was Rs.25,000 whereas in the bills it was quoted as Rs.9,25,000. The assessee had claimed that the production capacity of the Mills was 200 M.T. daily. This claim was got verified from Ghee Corporation of Pakistan whose Technical Advisor reported that the production capacity of the Mills was only 90 M.T. daily. This report was placed on record. The assessing officer obtained informations from WAPDA as well as Sui Northern Gas Pipe Lines Ltd. It was found that no Sui Gas was consumed till September, 1994 and connection had been installed on 22-9-1994. WAPDA reported that electric connection was given on 6-11-1993 and the first bill was issued for December, 1993; that only 53, 428 electric units had been consumed from 6-11-1993 to 30-6-1994. On the above enquiries, the Assessing Officer came to the following conclusions:
PRODUCTION ACCORDING TO ELECTRICITY CONSUMPTION.
| (1) Units of electricity consumed: | 53428 |
| (2) Units of electricity required to produce 1 M.T.-on ofGhee/cooking oil. | 133 Units. |
| (3) Maximum production 133 units per M. Ton. |
PRODUCTION ACCORDING TO CAPACITY:
| (1) Daily production capacity of assessee's mills if it works at100 % capacity and round the clock. | 90 M. Ton |
| (2) Number of working days. | 236 |
| (3) Maximum production capacity according to No. l above. | 21240 M.Ton |
No evidence was, produced by appellant to substantiate that he had purchased generator to run factory. On these findings a notice under section 62 of the Ordinance was issued to appellant on 10-4-1997.
3. The appellant approached the assessing officer and complained that the enclosures of notice had not been given. Accordingly, on 11-6-1997 the sought for enclosures were given to assessee and the case was adjourned to 13-6-1997. On this date the appellant requested for extention of 10 days for furnishing reply. The aforesaid prayer was allowed and hearing of case was put off to 17-6-1997 and then to 25-6-1997.
4. As the appellant failed to appear on the aforesaid date of hearing, the assessing officer proceeded under section 63 of the Ordinance and recorded finding that the appellant was not entitled to any exemption under Clause 118-E of the Second Schedule to Ordinance. On the basis of above conclusions the tax liability of appellant was determined as follows:
"As stated above production capacity of the industrial undertaking as determined by the Ghee Corporation's ex-parts comes to 90 M.Ton daily. The sale rate per M.T. was determined at Rs.22,000 vide assessment order, dated 20-6-1997 in the case of Nadia Ghee Mills (Pvt.) Limited. The same rate is applied in the instant case. In this way value of manufacturing sales comes to (236 x 90 x 22000) = Rs.4,672,80,000. The balance sales i.e., (Rs.1,085,272,261 4.672,80,000) Rs.617,992,261 are held to be the commercial sales Pr, to which the provisions of section 80-C of the Income Tax Ordinance, 1979 are applicable. Income is determined as under:
Income from own manufacturing:
Sales as discussed above. Rs.467,280,900 & GP (R 7% as in other parallel cases of Ghee Manufacturing Mills. Rs.32,709,600
P & L Account Expenses
The assessee has claimed total P & L Account expenses at Rs.34,744,568. Expenses proportionate to own-manufacturing sales work out to ks.14,959,787. In the absence of any books of accounts or vouchers produced, expenses are allowed at ....Rs.12,000,000 sales.
Rs.20,709,600 |
| Less: WWF | Rs. 414.192 |
| Balance Income | Rs.20,295,408 |
| Income tax @ 49% | Rs.9,944,750. |
Deemed income on commercial imports
As mentioned above sales pertaining to 80-C have been worked out to Rs.617,992,261, since the assessee has not furnished proof with regard to L.C.-wise imports to verify landed cost. The landed cost is taken 0 93 % on the said amount (as it involves G. P. rate of 7 % ) which comes to Rs.574,732,803.
Total income Rs.20,709,600 + 574,732,803=595,442,403
| Tax on commercial sales is charged @ 2% | Rs.11,494,656 |
| Less tax paid under section 50(5). | -Nil - |
| Balance tax payable. | Rs.11,494,656 |
| | Rs.11,494,656 |
Total tax is computed as under:--- |
| Tax on manufacturing income. | Rs.9,944,750 |
| Tax on commercial sales. | Rs.11,494,656 |
| WWF on manufacturing income | Rs.414.192 |
Total tax payable | Rs.21,439,406 |
Assessed as per IT 30 Issue DN & C. Also charge additional tax under section 88 of the Income Tax Ordinance, 1979. Issue notice under section 116 for late filing of return and for non-compliance of notice under section 61 as books of accounts were not produced."
Feeling aggrieved the appellant preferred first appeal under section 129 and Second appeal under section 134 of the Ordinance but in vain. This is how this third appeal under the amended section 136 of the Ordinance has come to this Court.
5. Mr. Ijaz Ahmad Batalvi, Senior Advocate, assisted by Syed Ibrar Hussain Naqvi, Mr. Sabtain Fazli and Mr. Imran Aziz, Advocates, appeared on behalf of the appellant and opened the debate. He was followed by Syed Ibrar Hussain Naqvi, Mr. Ali Sabtain Fazli and Mr. Imran Aziz, Advocates. On behalf of respondents Nos. l, 2 and 3 Mr. Shafqat Mahmood Chauhan, Advocate appeared. At the end of the arguments, Mr. Aftab Ahmad Khan and Mr. Muhammad Ilyas Khan, Advocates appeared on the request of the Court to explain the scope and nature of the amended provision of section 136 of the Ordinance. Mr. Ijaz Ahmad Batalvi, Mr. Ali Sabtain Fazli and Mr. Aftab Ahmad Khan, Advocates had filed written arguments, which had been placed on the record of this I.T.A. Mr. Ijaz Ahmad Batalvi, in support of appeal, urged as follows:
Firstly; that the appellant company had been incorporated on 27-5-1993; that its production started on 6-11-1993; that its sales were declared as Rs.1,08,52,761; that the Deputy Commissioner of Income Tax has bifurcated the sales as under:
| (1) From own manufacturing: | Rs.46,72,80,000. |
| (2) Commercial sales of oil: | Rs.61,79,92,261. |
and refused exemption by holding that all the three conditions incorporated in clause (118-E) (ibid) were not fulfilled by the appellant; that the first appellate Authority agreed with the conclusion of the Assessing Officer; that the Tribunal had found that Condition No.(c) of clause (118-E) ibid had not been satisfied by the appellant. On the strength of the above variant findings, it was canvassed that the' Income Tax Appellate Tribunal erred in law in holding that a Condition (c) of clause (118-E) (ibid) was not satisfied. According to the learned counsel, appellant was manufacturing undertaking;
Secondly; that section 80-C was not attracted to case in hand. According to learned counsel, under subsection (2) of section 80-C the income would be deemed to be that which was/is received or accrued or arose to a person; appellant had imported edible oil 49677.747 M.Ton; that the closing stock on 30-6-1994 was. 6860,500 M.Ton; that actual consumption was 41933,241 M.Tons; that High Court in earlier Writ Petition No.14771 of 1997 had held that production capacity of the appellant Company was 150 M.Tons; that on these facts, the calculation of tax under section 80-C was manifestly incorrect.
Thirdly; that assessment order was passed under section 63 of Ordinance on 30-6-1997; that notice, dated 21-6-1997 was not served on appellant; that no notice was issued for 30-6-1997. On these facts, it was claimed that the assessing officer had no reason to proceed under section 63 of Ordinance. Reliance was placed on C.I.T. v. M.B. Qureshi PLD 1975 Lah. 1317. On the above reasoning the learned counsel contended that the order of second appellate Forum suffered from error of law apparent on the face of it;
6. Syed Ibrar Hussain Naqvi, Advocate adopted the above reasoning, Mr. Ali Sabtain Fazli, Advocate also followed the same line of submissions. So, is the case of Mr. Imran Aziz, Advocate/a young Barrister. He was also afforded an opportunity pf arguing the case on account of his fresh entrance in the august profession of law. Mr. Shafqat Mahmood Chauhan, counsel for Department supported the impugned order. He submitted that points proposed by the appellants were questions of facts which had been correctly decided by the three Forums below. Reliance was placed on M/s. Bisvil Spinners Ltd. v. Superintendent C.E. & L.C. PLD 1988 SC 370 and Ashok Motors Ltd. v. Commissioner of I.T. (1961 PTD 736) in support of proposition that sub-clause of clause (118-E) (ibid) was an exemption clause and had to be construed strictly against the grantee. According to learned counsel requirements of clause (A), (B), (C) of clause (118) (ibid) were not shown by the assessee. Khawaja Saeed-uz-Zafar, Deputy Attorney-General appeared on behalf of Federal Government and canvassed that amended section 136 in fact was third appeal and so this Court was to decide it within the terms provided in the new clause. He placed reliance on Haji Muhammad Ibrahim v. Surraya-un-Nisa, etc. (PLD 1992 SC 637). Mr. Aftab Ahmad Khan, Advocate appeared as friend of the Court. After highlighting the legislative history of amended section 136 of Ordinance, he referred to section 66 of Act, 1922 to contend that this was the analogous provision in earlier Statute which provided for reference to High Court on questions of law arising out of order of Income Tax Appellate Tribunal; that the aforesaid provision was amended by Act VII of 1939 wherein subsection (5) was inserted; that section 66 provided an appeal to the Supreme Court from the judgment of High Court. Banking upon rule laid down in Pakistan v. Majistic Cinema, (PLD 1965 SC 379), he suggested that the amended provision had been brought in order to make section 136 of the Ordinance, 1979 in line with the observation of Supreme Court. Its object was to eliminate the cumbersome process of first filing application to Income Tax Tribunal and thereafter, filing of a petition in this Court. He further submitted that amended provision had not altered the scope of section 136 ibid but it had simply removed the procedural bottleneck. He relied upon Australian Sporting Club Ltd. Re Dash: (1947 47 N.S.W.W.N. 283 per Jordan C.J.). Mr. Ilyas Ahmad Khan, Advocate also appeared as amicus curiae and supported the line of reasoning of Mr. Aftab Ahmad Khan.
7. Having penned down the factual background of appeal in hand, the contentions raised by the learned counsel for the parties and points for consideration, we, now, proceed to determine the above-noted questions one by one. Before we proceed further, we feel that meaning of expression appeal' and 'appellate jurisdiction' are key to find out the nature/ambit of new section 136 (ibid). The aforesaid expression are nowhere defined in the Statute. In the context of above, we are required to follow the dictionary meaning of above expressions and also seek inspiration from the decisions of the superior judiciary. 'The appeal' and 'appellate jurisdiction' are defined in Black's Law Dictionary as under:
"Appeal---Resort to a superior (i.e. appellate) Court to review the decision of an inferior (i.e. trial) Court or administrative agency. A complaint to a higher tribunal of an error or injustice committed by a lower tribunal, in which the error or injustice is sought to be corrected or reversed. Board of Ed. of Cleveland City School District. V. Cuvahoga County Bd. of Revision, 34 Ohio St. 2d 231, 298 N.E. 2d 125, 128. There are two stages of appeal in the federal and many State Court systems; to wit, appeal from Trial Court to intermediate Appellate Court and then to Supreme Court. There may also be several levels of appeal within an administrative agency e.g. appeal from decision of Administrative Law Judge to appeals Council in social security case. In addition, an appeal may be taken from an administrative agency to a Trial Court (e.g. from Appeals Council in social security case to U.S. District Court). Also, an appeal may be as of right (e.g. form Trial Court to intermediate Appellate Court) or only at the discretion of the Appellate Court (e.g. by writ of certiorari to U.S. Supreme Court). Provision may also exist for joint or consolidated appeals (e.g. Fed. R. App. P.3) and for cross appeals (where both parties to a judgment appeal therefrom).
"Appellate Jurisdiction---The power vested in an Appellate Court to review and revise the judicial action of an inferior Court, evidenced by an appealable order or an appealable judgment rendered by such Court. Trengen v. Mongeon, N.D., 200 N.W. 200,53. The power and authority to take cognizance of a cause and proceed to its determination, not in its initial stages (i.e., original jurisdiction) but only after it has been finally decided by an inferior Court, i.e., the power of review and determination on appeal, writ of error, certiorari, or other similar process. Jurisdiction on appeal; jurisdiction to revise or correct the proceedings in a cause already instituted and acted upon by an inferior Court, or by a tribunal having the attributes of a Court. Limits of appellate jurisdiction are governed by statutes (e.g. 28 U.S.C.A. 1291 at seq). or constitutions. "
According to Webster's Dictionary 'Appeal' means:
"the removal of a cause or suit from an inferior to a superior judge or Court for re-examination or review". Wharton's Law Lexigon expresses it as 'the removal of a cause from an inferior to a superior Court for the purpose of testing the soundness of the decision of the inferior Court'. Reference may also be made to the definition of the term 'appeal' contained in the Law Dictionary by Sweet where it has been defined as a proceeding taken to rectify an erroneous decision of a Court by submitting the question to a higher Court, or Court of Appeal (Also see, Lakshmiratan Engineering Works Ltd. v. Assistant Commissioner, (1968) 21 STC 154, 161 (SC). It amounts in essence to a complaint to a higher forum that the decision of the subordinate officer or tribunal is erroneous and liable to be set aside (Chautala Workers Coop.' T.S. Ltd. v. State of Punjab, AIR 1962 Punjab 64; Namamal v. Radhey Shym, AIR 1970 Raj.26, 31). It embraces all proceedings whereby a superior Court is called upon to review, revise, affirm, reverse or modify the decision of an inferior Court (Chiranji Lal & Bros v. State of Delhi, (1966) 18 STC 240 (Punjab). 1
The essential criterion of appellate jurisdiction is, that it revises and corrects the proceedings in a cause already instituted and does not create that cause. In reference to judicial tribunals an appellate jurisdiction, therefore, necessarily implies that the subject-matter has been already instituted and acted upon by some other Court, whose judgment or proceedings are to be revised (Story: Commentaries on the Constitution of the United States, Vo1.2 section 176 page 80)."
8. From the above precedents of superior judiciary (we will refer the said rule); the following parameters of 'appeal' and 'appellate jurisdiction' emerge:
Firstly:that the appeal is mere continuation of original proceedings; it is in fact a complaint by an aggrieved party to superior forum for testing the soundness of conclusions of first forum. Furthermore, this right is not inherent but is created by relevant Statute. Conceptually the appeal is founded upon rule 'that Courts of law/Tribunal/Authorities are as fallable as human being' and so the civilized societies do provide one right of appeal at least. The scope of appellate jurisdiction is contingent upon the Statute, which creates it. Traditionally, the scope of appellate jurisdiction is co-terminous with first forum and appellate forum is entitled to exercise the power of first forum while deciding the appeal. This right is, however, subject to Creative Statute. The Legislature/Law Making Authority is well within its power to impose limits upon the powers of appellate forum.
Secondly: the right of appeal is vested and substantive right and continues to govern Hs till the rest of its carrier; that appeal is to be decided within terms of law which were in field at the commencement of his and not by law which is in vogue at the time of its decisions. This rule is also subject to condition to edict of amendatory law.
Thirdly: when the appeal is filed, the controversy becomes sub judice and decisions of the appellate forum occupies the field and decisions of the Courts below stands merged in the decisions of the appellate forum. It is known as doctrine of merger. (See Garikapati Veeraya v. N. Subbiah Ch: (PLD 1957 SC (Ind.) 448) and F.A. Khan v. Government of Pakistan (PLD 1964 SC 520).
Fourthly: we are tempted to reproduce the rule propounded by Benett, J., in Debi Prasad v. M. Phundan Lal (AIR 1942 Oudh 291).
"It appears to me to be clear, therefore, that the question whether a second appeal lies under the encumbered Estates Act, where the first appeal was filed before but decided after 30th September, 1939, when the amending Act introducing a second appeal came into force, cannot be decided upon the principle that the rights of the parties are determined, both for the purpose of appeal and for other purposes by the law as it stood when the-suit was instituted. I am inclined to agree with Medeley, J. that a distinction should be drawn between the case where the right of appeal is added. The interference with the rights of the parties is clearly of a different nature in the two cases. If the right of second appeal were taken away while the first appeal was pending both parties would have, I think, a greater sense of grievance than they would have if a second appeal were added during the pendency of the first. Indeed I do not think that in the second case they would feel any sense of grievance at all. On the contrary, there having been. no decision which they could regard as final, they would in the first case feel that they had lost a right, while in the second case they would feel that they had gained one. Both parties would normally have similar feelings in the matter so long as the litigation was pending. But the position would be quite different if under the law as it stood when the decision of the first Appellate Court was given the parties had no reason at that time to expect that the matter would be carried further, and a second appeal was added after that decision. The unsuccessful party gains and the successful party loses a right by the change in the law if it is held that a second appeal lies."
This rule was followed in Jan Muhammad v. Rabia Begum (1992 CLC 78) and was approved by the Supreme Court of Pakistan in Muhammad Ibrahim v. Surraya-un- Nisa (PLD 1992 SC 637).
9. The stage is now set to examine the nature and ambit of new provisions vis- -vis, the old one in the light of above-noted rules. Both Old and the New provisions are as follows:
| Old section 136. | Amended section 136. |
| Reference to High Court.---(1) within ninety days of the date upon which he is served with notice of an order under section 135; the assessee orthe Commissioner may, by application in such form and accompanied by such documents as may be prescribed, require the Appellate Tribunal to refer to the High Court Jay question of law arising; out of such order, and the Appellate Tribunal shall, within ninety days of the receipt of such application, draw up a statement of the case and refer it to the High Court. | Appeal to High Court.--(1) An appeal shall lie to the High Court in respect of any question of law arising out of an order under section 135. |
| (Explanation. ---The period of ninety days within which an application is to be made shall notwithstanding that the application relates to an assessment year prior to the assessment year beginning on the first day of July, 1979, if such application is made on or after the first day of July, 1979. | (2) This appeal under this section shall be filed within sixty days of the date upon which ,an assessee or the Commissioner is served with notice of an order under section 135 |
| (2) If, on an application made under subsection (1), the Appellate Tribunal refuses to state the case on the ground that no question of law arises, the assessee or the Commissioner, as the case may be, may within one hundred and twenty days from the date on which he is served with notice of the refusal, apply to the High Court, and the High Court may, if it isnot satisfied with the correctness of the decision of subsections (4), (5), (6) and (7) shall, so far as may be, apply as they apply to a reference made under subsection (1). | (3) Where an appeal under subsection (1) is filed by the assessee it shall be accompanied by a fee of one hundred rupees. |
| (2-A) If on any application made undersubsection (1) the Appellate Tribunal rejects it on the ground that it is time-barred the assessee or the Commissioner, as the case may be, may, within there, months from the date on which he is served with notice of the rejection, apple to the High Court, and the High Court, ifit is not satisfied with the correctness of the Appellate Tribunal's decision may require the Appellate Tribunal to treat the application as made within the time allowed under subsection (1). | (4) An appeal filed under this section shall be heard by a Bench of not less than two Judges of the High Court. |
| (3) If the High Court is not satisfied that the statement in a case referred under subsection (1) is sufficient to enable it to determine the question raised thereby, the Court may refer the case back to the Appellate Tribunal to make such modification therein as the Court may direct. | (5) The High Court upon the hearing of an appeal under this section shall decide the question of law raised therein and shall deliver its judgment thereon containing the grounds on which such decision is founded and shall send a copy of such judgment under the seal of the Court and the signature of the Registrar to the Appellate Tribunal, which shall pass such orders as are necessary to dispose of the case conformably to such judgment. |
| (4) When any case has been referred to the High Court under this section, it shall be heard by a Bench of not less than two Judges of the High Court, and in respect of such case the provision of section 98 of the Code of Civil Procedure, 1908 (Vof1908) shall, so far as may be apply notwithstanding anything contained in the Letters Patent applicable to any High Court or in any other law for the time being in force. | (6) Subject to subsection (7) notwithstanding that an appeal has been filed under this section, tax shall, unless recovery thereof has been stayed by the High Court be payable in accordance with the assessment made in the case as modified by the Order of the Appellate Additional Commissioner or as the case may be, the Appellate Tribunal. |
| (5) The High Court upon the hearing of any such case, shall decide the questions of law raised thereby and shall deliver its judgment thereon containing the grounds on which such decision is founded and shall send a copy of such judgment under the seal of the Court and the signature of the Registrar to Appellate Tribunal, which shall pass such orders as are necessary to dispose of the case conformably to such judgment. | (7) Where recovery of tax has been stayed by the High Court by an order such order shall cease to have effect on the expiration of a period of six months following the day on which it is made unless the appeal is decided, or such order is withdrawn, by the High Court earlier. |
| (6) Where a reference is made to the High Court under this section, the costs shall be in the discretion of the Court. | (8) The costs of the appeal shall be in the discretion of the Court. |
| (7) Notwithstanding that a reference hasbeen made under this section to the HighCourt, tax shall, unless the recoverythereof has been stayed by the HighCourt, be payable in accordance with theassessment made in the case. | |
| (8) Section 5 of Ate Limitation Act, 1908(IX of 1908) shall apply to an applicationunder subsection (1) or subsection (2). | |
| (9) When an application is made undersubsection (1) by the assessee, it shall beaccompanied by a fee of one hundred rupees. | |
10. Old and new provisions are in Chapter 13 of the Ordinance. This pertains to remedies provided to aggrieved parties. From the examination of the relevant provisions, it appear that the order, passed by the Deputy Commissioner Income Tax/first Assessing Officer, is subject to incident of appeal under section 129 of the Ordinance. This right has been bestowed upon the assessee/tax-payer only. The order passed by the first appellate authority is subject to second appeal before the Income Tax Appellate Tribunal. Now comes the old section 136. It provided reference to High Court on questions of law arising from the decision of Income Tax Appellate Tribunal passed under section 135 of the Ordinance. The express language of this section shows that only the questions of law, arising out of the order of the Income Tax Appellate Tribunal were to be decided by this Court and factual controversies were left to the Income Tax Appellate Tribunal. This jurisdiction was designated as 'Reference to High Court'. The old section comprised of nine subsections. Subsection (1) prescribed a right of Reference by Assessee and Commissioner Income Tax. The methodology provided therein was to first move an application to Income Tax Appellate Tribunal for moving a Reference to this Court on questions of law arising from its order. If the Appellate Tribunal acceded to such request, it was empowered to draw statement of case within 90 days of such application and refer it to High Court. If it refused to state the case holding that no question of law arose, the Assessee were given the right to move an application to this Court within 120 days from the date on which notice of refusal was served. The conditionality pertaining to filing of application, were provided in the remaining subsection. The aforesaid were embodied in subsections (1) and (2) of section 136. Subsection thereof empowered this Court to refer the case back to the Appellate Tribunal for making modifications in the statements of case, if it was found that order of Tribunal declining to refer the case, was not correct. Subsection (4) stated that such Reference shall be heard by a Bench of not less than two Judges of the High Court. Then come the most important Edict i.e., Subsection (5). It enumerated the powers of this Court. It enacted that the High Court shall decide the questions of law raised; shall deliver its judgment with reasons and shall send a copy of such judgment under the seal of the Court and signatures of its Registrar to the Appellate Tribunal, which shall pass such orders as are necessary to dispose of the case conformably with such judgment. Subsections (6), (7), (8) and (9) pertained to costs, proceedings of recovery of tax liabilities of the assessee, application for condonation of time; and the fee prescribed for moving a petition under this section. Section 137 of the Ordinance prescribed a right of appeal to Supreme Court against the decision of this Court. The nature and scope of section 137 of the Ordinance was considered by Division Bench of this Court in CIT v. Gohar Ayub Khan (1995 PTD 1074). It was held therein as under:
"Section 66(1) vests the assessee and the Commissioner with a right to move the Tribunal in order to refer any question of law arising out of its order for decision of this Court. If the Tribunal forms an opinion that the question of law arises then it has to draw up a statement of case and refer it to the High Court for decision, but if it comes to conclusion that no question of law arises from its order and dismisses the application under section (1) then the assessee or the Commissioner (as the case may be) has a right to file a petition under section 66(2) and if this Court is not satisfied about the correctness of the decision of the Tribunal, it can require it to state the case and refer such question to it for decision. Under section 66(4) the High Court can for the purpose of disposing of the Reference, which comes to it under sections 66(1) and 66(2) calls for additional statement from the Tribunal. Section 66(5) enables the High Court to decide the question of law raised in the case and send a copy of the judgment to the Tribunal, which is to pass appropriate order for giving it effect to.
(ii)That the jurisdiction of this Court, under section 66, is special in nature. It is neither akin to appellate jurisdiction nor to revisional jurisdiction nor of supervisory jurisdiction. This Court, while dealing with the reference under section 66(1), section 66(2) of the Act, acts in advisory capacity; it gives the Tribunal an advice and it was for the Tribunal to pass an appropriate order in order to give effect to it. In short this Court can answer the question, which are referred to it and not any other question. It clearly follows that it is the Tribunal, which must have the occasion; in the first instance, to consider the question so as to decide whether it should refer any such question of law to this Court. The power of the Court under section 66(2) so is analogous to writ of mandamus. It is settled that no order in form of mandamus can be issued by this Court, unless and until the aggrieved person shows that he had made the demand from appropriate authorities for relief, which he seeks to obtain through the mechanism of the Court. This power is subject to further limitation i.e., the question raised before this Court must be that question which was raised before the Tribunal Section 66(2) of the Act are co-extensive and the Court, while hearing the reference under section 66(1) of the Act.
(iii)That this Court can only deal with the questions of law arising out of the order of the Tribunal passed under section 34 of the Act. The question arising out of the order of Tribunal is that question which was raised before the Tribunal and which was dealt with by the Tribunal, of that question which was not raised before the Tribunal but was dealt with by it or that question which was raised and alleged before the Tribunal but was not dealt with by the Tribunal. All such questions are questions of law arising from the order of Tribunal.
(iv)That a question of law to this Court under section 66(1) may be argued and. looked different angles. This Court, in such a circumstance had to decide such question.
(v)That the question, which was neither raised in the application under section 66(1) of the Act by the aggrieved party, nor was dealt with by the Tribunal in its order, nor it was claimed in the petition under section 66(2) of the Act is a question outside the Reference and this Court had no jurisdiction to deal with it.
11. We now come to the new provisions. A bare look at it shows that for word 'Reference' expression 'appeal' has been substituted in the heading of the section as well as in subsections (1), (2), (3) and (4). Subsection (2) provides limitation of 60 days from the date upon which the assessee or the Commissioner is served with a notice under section 135. Subsection (3) fixes the court-fee leviable on appeal of Rs.100. Subsection (4) states that the appeal shall be heard by a Bench of not less than two Judges of - the High Court. We now reach subsection (5). It is really interesting to observe that subsection (5) is couched exactly in the same language in which subsection (5) of the old section was casted. Subsections (6), (7) and (8) relate to the recovery of Tax and the cost of appeal. These subsections are hardly material to the controversy.
12. From the aforesaid juxta-positional study of the old and new provision, we are quite clear to hold that amended section has not altered fundamentals of jurisdiction of this Court. The statutory mechanism of moving the Income Tax Tribunal in the first instance had been totally eliminated and the Assessee/Tax payer/Commissioner had been blessed with a right to claim answers on question of Law from this Court straightway. On this view of the matter, it is, thus, clear that the change brought in the nomenclature of this provision is cosmetic in nature and is designed to obligerate procedural pre-conditionalities. Manifestly, neither the nature of jurisdiction of this Court nor its ambit has been changed. This amendment has been made in deference to observation of Supreme Court made in Pakistan v. Majestic Cinema (PLD 1965 SC 379). On this analysis of old and new provision, we have thus, reached the conclusion that the expression 'appeal' employed in the new provisions is simply cosmetic in nature and powers of this Court under the old sessions.
13. As regards to first question, precisely the case of the appellant is that M/s. Iram Ghee Mills was set up to manufacture Banaspati Ghee and Cooking Oil; that it was installed up with machinery imported partly from outside and partly purchased from local manufacturers; that it manufactured Banaspati Ghee from the material imported from outside and was so entitled to total exemption from income tax under para. (118-E) in Second Schedule to Ordinance. It is settled that grants of tax-exemptions are to be narrowly construed against the tax payer. This rule was stated by Sutherland in his Statutory Construction (Vol.3, Ed.3 at page 296) as under:---
"As a general rule grants of tax exemptions are given a rigid interpretation against the assertion of the tax-payer and in favour of the taxing power. The basis for the rule here is positive revenue laws that the burdens of taxation should be distributed equally and fairly among the members of the society. However, exemptions claimed by the State or its subdivisions are usually liberally construed and the same rule has frequently been applied to exemptions made in favour of charitable organisation. "
The aforesaid rule was approved by our apex Court in Messrs Bisvil Spinners Ltd. v. Supdt. Central Excise and Land Customs Circle Sheikhupura (PLD 1988 SC 370). Seen from the above angle, it is manifest that para. (118-E) was issued by the Federal Government in exercise of its powers under section 14(1) of the Ordinance. Designed to encourage setting up of New Industrial undertakings. Paragraph (118-E) was casted into following words:
"(118-E)(1) Profits and gains derived by an assessee from an industrial undertaking set up anywhere in Pakistan, not covered by clause (118-C) or clause (118-D) between the first day of December, 1990, and the thirtieth day of June, 1995, both days inclusive, for a period of three years beginning with the month in which the undertaking is set up or commercial production is commenced, whichever is the later.
(2)The exemption under the clause shall apply to an industrial undertaking which fulfils the following conditions, namely:---
(a)that it is owned and managed by a company formed exclusively for operating the said industrial undertaking and registered under the Companies Ordinance, 1984 (XLVII of 1984), and having its registered office in Pakistan.
(b)that it is not formed by the splitting up or the reconstruction or reconstitution of business already in existence or by transfer to a new business of any machinery or plant used in a business which was being carried on in Pakistan at any time before the commencement of the new business; and
(c)that it is an undertaking engaged in the .manufacture of goods or materials, or the subjection of goods or materials to a manufacturing process, or mining (excluding petroleum and gas) or (extraction of timber.)
14. A plain reading of above provisions clearly indicates that profits and gains derived by the assessee from an Industrial undertaking, set up anywhere in Pakistan (not covered by clauses (C) and (D), were given tax holiday from income tax for a period of three years commencing from month in which undertaking is set up or commercial production is commenced/whichever is later. This exemption is only available to those undertaking which fulfils conditions enumerated in clauses (a) (b) and (c) of sub-para. (2) (ibid). The study of clause (a) shows that beneficiary undertaking must be owned and managed by the Company registered under the Companies Ordinance, 1984 with its head-office in Pakistan. The next clause (b) says that such undertaking is not formed by splitting up or reconstruction or reconstitution of some running business or by using old machinery in such undertaking. Last clause (c) states that it is an undertaking, which is engaged in the manufacture of goods or materials, or subjections of goods or material to manufacturing process or mining/excepting extraction of timber. All the three above clauses are condition-precedents for availability of tax holiday under para. (118-E) (ibid). Clause (c) clearly conditions that such industrial undertaking must be engaged in the process of manufacturing goods from raw material. The expression 'Manufacture' is defined by Black Law Dictionary (6th Edn.) as follows:
"'Manufacture' means---the process or operation or making goods or any material produced by hand, by machinery or by other agency, anything made from raw materials by the hand, by machinery, or by art. The production of articles for use from raw or prepared materials by giving such materials new forms, qualities, properties or combinations, whether by hand labour or machine. Cain's Coffee Co. v. City of Muskogee, 171 Okl, 635, 44 P.2d 50.52.
In patent law, any useful product made directly by human labour, or by the aid of machinery directed and controlled by human power, and either from raw materials, or from materials worked up into a new form. Also the process by which such products are made or fashioned."
Clearly manufacture/manufacturing activities involve the process of making finished goods from raw material by means of mechanical or manual process. So, it clearly follows that process of manufacturing activity does not embrace Trading Activity. In latter there is purchase and sales of goods/articles on the part of the seller and buyer without involving manufacturing of such raw-material. This is refined line of demarcation between Commercial activities. Keeping in view this line of distinction, we are very clear in our mind that the learned Tribunal was correct in affirming the decision two Tribunals below wherein the assessee officer came to the conclusion that the income derived by the appellant was as follows:
(i) Manufacturing Sales: Rs.3,37,09,600
(ii) The income derived from Rs.46,72,80,000
Trading/Commercial sale:
Very clearly clause (c) was not applicable to save income derived by appellants from Trading activity. On this analysis of the relevant provisions we have thus, no difficulty in concluding that para. (118-E) was correctly applied by the Taxing hierarchy and so no question of law arises for our answer in the instant appeal. We even, otherwise find that the appellant failed to prove, that the machinery used in undertaking was new one and had been purchased for the said purpose. We note it with regrets that the assessee did not at all produce before the taxing hierarchy the original audited record with regard to purchase of new machinery. The material pertaining to proof of aforesaid, was essentially relatable to domain of facts and not law. The appellants themselves remained negligent and did not produce any evidence to prove his claim. On- this state of affairs forums below were eminently correct in holding that appellants failed to fulfil the requirement of para. (118-E).
15. With respect to question No.2, suffice it to say that this pertains to domain of fact and is so beyond power of this Court under section 136 of the Ordinance. It is hardly necessary to reiterate that the appellants neither produced audited accounts nor any evidence in support of their plea of E claiming exemption; that the Assessing Officer granted numerous adjournments to enable the appellants to produce relevant material, but he failed to do so. In such circumstances the assessing officer had no other option but to proceed under section 63 of the Ordinance and deliver a decision known as "best judgment". Coming to question No.3, it is to be noted that the controversy with regard to application of section 80-C of the Ordinance has been finally resolved by this Court in Aisha Spinning Mills Ltd. v. Federation of Pakistan (1995 PTD 493). The said decision was affirmed by the Supreme Court in Elahi Cotton Mills Ltd. v. Federation of c Pakistan (PLD 1997 Supreme Court 582). This question so needs no detailed examination.
16. As a result of foregoing discussion we do not find any question of law calling for our answer within the ambit of amended section 136 of the Ordinance. This appeal is so found without any merit and is accordingly dismissed with no order as to costs.
A.A./I-65/LAppeal dismissed.