I. T. A. NO. 4296/LB OF 1998, DECIDED ON 4TH MARCH, 1999. VS I. T. A. NO. 4296/LB OF 1998, DECIDED ON 4TH MARCH, 1999.
1999 P T D (Trib.) 4057
[Income-tax Appellate Tribunal Pakistan]
Before Nazeer Ahmad Saleemi, Accountant Member and S. Nadeem Saglain, Judicial Member
I. T. A. No. 4296/LB of 1998, decided on 04/03/1999.
(a) Words and phrases---
......Succeed" and "succession"---Meaning---"Succeed" means "to take the place of" and "succession" means "coming after or following", coming to another's place, or succeeding one to another.
(b) Income Tax Ordinance (XXXI of 1979)---
----Ss.66-A & 59(1)---C.B.R. Circular No:9 of 1993, dated 1-7-1993, c1.7, Expln. (b)---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Succession---Registered firm declaring sales in addition to income deriving from Commission---Firm was dissolved and the business premises/shop being rented property was handed over to the owner of the shop who rented the same to the assessee---No connection was found between the old and the new business ---Assessee filed return declaring sales only---Assessment was made under Self-Assessment Scheme---Inspecting Additional Commissioner revised assessment order under S.66-A, Income Tax Ordinance, 1979, treating the assessee as successor of the registered firm with observation that the assessment must follow the history of the registered firm---Validity---Nature of business of successor being different from the alleged predecessor's action under S.66-A, Income Tax Ordinance, 1979 was not justified as the assessment order passed under S.59(1) of the Income Tax Ordinance, 1979 was not new business which was a basic requirement authorising the supervisory officer to proceed under powers of revision-- Order of Inspecting .Additional Commissioner was cancelled by the Appellate Tribunal of circumstances.
1983 PTD 201 ref.
Mian Ashiq Hussain for Appellant.
Shahid Bashir, D.R. for Respondent.
Date of hearing: 16th February, 1999.
ORDER
NAZEER AHMAD SALEEMI (ACCOUNTANT MEMBER).---
The assessee/appellant, an individual, has come up in present appeal against -the revisional orders of the I.A.C., Range 3, Lahore passed under section 66A of the Income Tax Ordinance alleging that the learned I.A.C. has wrongly treated the assessee/appellant as successor although denied by the appellant specifically. The original assessment made under the self-assessment scheme held to be erroneous and prejudicial to the interest of revenue has also been contested.
Both the parties were heard.
The learned I.A.C. while proceeding under section 66A of the Income Tax Ordinance cancelled the earlier order passed under section 59(1) to be made a fresh and retrieve the loss of revenue on the following grounds:
(i) Examination of assessment record of M/s. Muslim Brothers H/1414, Akbari Mandi, Lahore reveals that up to the assessment year 1992-93 this business was carried out in the status of a registered firm and income for the assessment years 1991-92 and 1992-93 assessed at Rs.1,45,000 and Rs.2,75,336 respectively was confirmed in appeal.
(ii) The above registered firm was dissolved after 30-6-1992 and the running . business was taken over by Sh. Muhammad Riaz age. The successor.
(iii) While accepting the return of income of the assessee under section 59(1) of the Income Tax Ordinance, the Assessing Officer ignored the fact that Sh. Muhammad Riaz is the successor of the existing business and the assessment must follow the history of the registered firm.
(iv) The stay granted by the Honourable Lahore High Court, Lahore was vacated and reminders were issued in response to which they attended and sought the adjournment but then disappeared and was missing on the adjourned date.
The Board in their Circular No. 9 of 1993, dated 1-7-1993 in the Explanation (b) to clause 7 of the said Circular provided as under:
"Where a new taxpayer takes over business of the existing assessee, it. would be the case of succession in business until the place and nature of business changes and successor shall be taken to be an existing assessee."
It was because of the above instructions of the Board that the learned I.A.C. proceeded under section 66A. The learned A.R. strongly challenged the I.A.C. s action arguing that taking over of a business means handing over and taking over is continuation of business. It was argued that previously it was a case of a registered firm running business as commission agent. The firm was dissolved and the business premises/shop being rented property was handed over to the owner of the shop who rented it out to the assessee/appellant who had nothing to do with the previous business. He relied on the case-law in 1983 PTD 201 wherein their Lordship of Bangladesh Supreme Court while deciding a case of Mst. Zeb-un-Nisa - v CIT, Dakka held "that revision powers can be exercised only when it is found that assessment was erroneous and prejudicial to the interest o1 revenue. There must be some material before the Joint Commissioner for finding that order of the Assessing Officer was erroneous and prejudicial to the interest of revenue and some observation to that effect is not sufficient to assume jurisdiction".
A perusal of the record shows that the first show-cause notice dated 30-11-1995 was served on the assessee/appellant on the same day for compliance on 9-12-1993 to show cause as to why action under section 66A may not be initiated and the earlier orders may be cancelled, as the orders passed-under section 59(1) were erroneous and prejudicial to the interest of revenue. In the reply of 9-12-1995 it was explained that the assessee was neither a partner in the dissolved firm nor has any connection whatsoever with that business.
As per the inquiry report dated 19-12-1995, the following facts were revealed
(i) The assessee deals in various items of foodgrains, rice, pulses, grams etc. etc. duly confirmed by the salesman and reconfirmed by the neighbours.
(ii) The assessee also deals in wholesale and sale of foodgrains on commission basis.
(iii) The assessee runs his business at the same place and with the same nature of business which was of the defunct firm namely, M/s. Muslim Brothers.
The following show-cause notice dated 19-12-1995 was served on zr12-1995 for compliance on 26-12-1995:
"Local and spot inquiries conducted revealed that business is being run in the same manner and place that of defunct registered firm M/s. Muslim Brothers. It is, therefore, a case of succession of business and I intend to treat as such."
In his reply of 26-12-1995 an adjournment was sought and the case was accord adjourned to 10-1-1996 as; request of the assess, s A.R. The A.R. in his representation to the Chairman, C.B.R. requested the worthy Chairman to stop the proceedings against him on the plea that the learned I.A.C. had failed to establish:
(i) Whether the applicant was partner of, defunct registered firm?
(ii) Whether any partner of dissolved firm has joined the applicant for business purpose? .
(iii) Whether the applicant has blood relation with partners of defunct firm?
(iv) Whether the applicant has any information' about nature of trading of the defunct firm?
(v) Whether Karyana Faroosh and trading is same nature of business?
(vi) Whether having a shop on rental basis creates any liability on the new tenant?
The assessee also approached the Honourable High Court where the income-tax proceedings under section 61 were got stayed. The writ petition was dismissed on 18-5-1998 by the Honourable Judge of the Lahore High Court, Lahore. A final notice under section 66A was issued on 21-9-1998 for 30-10-1998 while C.I.T., Zone-A, Lahore granted his approval to proceed under section 66A of the Income Tax Ordinance.
On the contrary the learned I.A.C. had proceeded ex pane on 28-10-1998 on the basis of alleged default dated 16-1.0-1998. No order sheet entry had been made to indicate as to whether anybody turned up on 16-10-1998 or not Perusal of assessment record of M/s. Muslim Brothers, Akbari Mandi, Lahore shows that the registered firm had been dealing in foodgrains in addition to commission income. The two partners Mr. Abdullah and Muhammad Saeed do not seem to be relatives of the assessee/appellant or any other way connected with his family. The firm was in existence since 1960 while Mr. Ilam Din Momin father of Muhammad Saeed was member of the AOP/URF alongwith Abdullah Khan, the other partner of Muhammad Saeed. They never paid any rent for the shop as per computation chart of the registered firm. On the contrary the assessee is paying rent of Rs.9.600 per annum and only sales have been declared without declaring, any commission income. As per the, certificate of foodgrains and Karyana Merchants Association (Regd.) Akbari Mandi, Lahore, dated 17-12-1995 the firm of M/s. Muslim Brothers was dissolved because of one partner namely Mr. Abdullah Khan having left for abroad and 'he other partner had retired from business in view of his old age/illness. t he firm had also declared commission income only during the latest; asessment-cars.
The word" "succeed" means "to take the place of " and the word "succession "means "coming after or following, coming to another's place, of succeeding one to another.
Considering the above facts of the case specially passing of orders under section 66A before the last date fixed for hearing without noting down the sequence of events on 16-10-1998, the alleged date of default and the nature of business being different, of the alleged successor and his predecessor; the action under section 66A was not justified as the assessment order already passed under section 59(1) was not erroneous which is a basic requirement authorising the supervisory officers to proceed under the revision powers. The appeal succeeds and the orders of the learned I.A.C. stand cancelled.
C.M.A./85/Tax/(Trib.)Appeal succeeds.