2000 P T D 2407
[Karachi High Court]
Before Dr. Ghous Muhammad and Zahid Kurban Alavi, JJ
Messrs PAKISTAN ELECTRIC FITTINGS MANUFACTURING CO., LTD.
through Directors
versus
COMMISSIONER OF INCOME-TAX and 2 others
Income Tax Appeal No. 158 of 1998, decided-on 3rd January, 2000.
(a) Income Tax Ordinance (XXXI of 1979)---
----S.154---Constitution of Pakistan (1973), Art. 199---Service of notice by affixture---Validity---Constitutional petition--- Maintainability ---Consti tutional petition challenging the service of notice by affixture was dismissed in limine on the ground that the matter regarding service of notice was a factual controversy and a Constitutional petition would not lie.
(b) Income Tax Ordinance (XXXI of 1979)---
----Ss.156 & 62---Rectification of mistakes---Merger of orders---Where Assessing Officer had passed an order under S.62 or any other provision of the Income Tax Ordinance, 1979, the same would be subject to rectification under S.156 of the Income Tax Ordinance, 1979---Once the order under S.156 was passed that would merge with the former---Appellate order passed by Appellate Authorities under S.132 or under S.135 of the income Tax Ordinance, 1979 were also subject to rectification under S.156 and once the orders allowing or dismissing the application for rectification were passed by Appellate Authorities, the rectification orders merge with the original appellate orders and the final merged orders were to be read as orders under S.132 read with S.156 or under S.135 read with S.156 of the Income Tax Ordinance, 1979, as the case may be.
Karsan Das Bhagwan Das Patel v. G.V. Shah Income-tax Officer (1975) 98 ITR 273 (Guj.), S. Sankappa v. Income-tax Officer (1968) 68 ITR 760 (SC) and Mandal Ginning and Pressing Co. Ltd. v. Commissioner of Income-tax (1973) 90 ITR 332 (Guj.) rel.
(c) Income Tax Ordinance (XXXI of 1979)---
----Ss.156 & 136---Rectification of mistakes---Appeal to High Court-- Appellate Tribunal dismissed the miscellaneous application of assessee filed under S.156 of the Income Tax Ordinance, 1979---Assessee filed appeal before the High. Court against such order under S.136 of the Income Tax Ordinance, 1979---Department objected that appeal. filed on 16-6-1998 was barred by limitation since it was directed against the original order of the Tribunal, dated 5-5-1996 which was issued on 26-6-1996 and a period of one year an& eleven months had elapsed since the original order was passed by the Tribunal---Validity---Order passed under S.156, Income Tax Ordinance, 1979 was to be construed as an order that had merged with the earlier order passed under S.135 of the Income Tax Ordinance, 1979---Order under S.156 was to be read with the order under S.135---Order would become appealable under S.136, being an order under S.156 read with S.135 of the Ordinance and S.136 which provide for an appeal against the order under S.135-- Appeal was maintainable and the objection on the maintainability of appeal was repelled by High Court.
Commissioner of Income-tax v. Adam Ltd. PLD 1969 Kar. 300; Hassan Ali Karabhai v. CIT PLD, 1974 Kar. 473 and Imperial Chemical Industries Ltd. v. CIT (1979) 116 ITR 516 (Cal.) rel.
(d) Income Tax Ordinance (XXXI of 1979)---
----S.136---Constitution of Pakistan (1973), Art. 199---Appeal to High Court---Conversion of appeal into Constitutional petition---If the High Court had come to the conclusion that appeal under S.136 of the Income Tax Ordinance, 1979 was not maintainable, it would have been a fit case to have converted the appeal into a Constitutional petition under Art. 199 of the Constitution of Pakistan (1973) where there was no remedy and the only remedy was a Constitutional petition under Art. 199 of the Constitution of Pakistan (1973).
Engineering Industries Ltd. v. The Bank of Bahawalpur Ltd. and another 1979 SCMR 32 rel.
(e) Income Tax Ordinance (XXXI of 1979)---
----S.136---Constitution of Pakistan (1973), Art. 199---Constitutional jurisdiction of High Court---Scope---High Court has power to adopt a procedure not provided by law but which was not barred by law---No prohibition in law against conversion of a writ petition into an appeal---High Court could convert a writ petition into an appeal but a writ petition could not be converted into a miscellaneous application in a disposed of confirmation case/criminal appeal---Revision could also be converted into a second appeal.
Akhtar Nasimi v. MLA, Zone C PLD 1982 Kar. 130; Saleh v. SP, Central Prison PLD 1982 Kar. 542; Abdul Aziz v. Sh. Abdur Rehman PLD 1984 SC 164; Karamat Hussain v. Muhammad Azam PLD 1987 SC 139 and Noorul Amin v. Muhammad Hashim 1992 SCMR 1744 rel.
(f) Income Tax Ordinance (XXXI of 1979)---
----S.156---Constitution of Pakistan (1973), Art. 199---Rectification of mistakes---Authorities were bound to rectify mistakes brought to their knowledge and in case Authorities failed to rectify the mistake, High Court was empowered to issue writs.
Hirday v. ITO 78 ITR 26 and Vithal Das v. ITO 1971 PTD 411 rel.
(g) Income Tax Ordinance (XXXI of 1979)---
----Ss.156(4) & 136---Rectification of mistakes ---Limitation---Assessee filed appeal before High Court against the order passed by Appellate Tribunal on miscellaneous application under S.156 of the Income Tax Ordinance, 1979-- Department objected that appeal filed on 16-6-1998 was barred by limitation since it was directed against the original order of the Tribunal, dated 5-5-1996 which was issued on 27-6-1996 and a period of one year and eleven months had lapsed since the original order was passed---Validity---Law provides a period of four years to move the application for rectification which had been duly done---Original order having merged in the order passed on application under S. 156 of the Income Tax Ordinance, 1979 objection on the aspect of limitation was repelled by High Court.
P. Kuttikrishna Nair v. ITAT (1948) 34 ITR 540 distinguished.
(h) Limitation---
----Orders in contravention of mandatory provisions of law were a nullity and no limitation would run against such orders.
Khawaja Muhammad v. Marduman Babar Kahol 1987 SCMR 1543 and Ali Muhammad v: Hussain Bakhsh PLD 1976 SC 37 rel.
(i) Income Tax Ordinance (XXXI of 1979)---
----Ss.27, 22, 2(11), 9 & 156---Constitution of Pakistan (1973), Fourth Sched., Entry No.50---C.B.R. Circular No.10 of 1979, dated 1-10-1979-- Adventure in the nature of trade ---Assessee acquired plots of land and construction was raised thereon for factory/manufacturing unit which was shown in the Balance Sheet as Capital Asset--- Assessee could not establish manufacturing unit due to financial crisis and construction/plot remained undeveloped for almost 23 years---Plots and building were transferred to a sister concern of assessee against share of the said concern---Controller of Capital Issues approved the transaction---Said transaction though resulted in surplus in the shape of share but Department did not treat same as "adventure in the nature of trade"---Terms of transfer having failed between the parties, plots and construction thereon was released back after a period of five years ---Assessee ultimately sold the plot along-with the construction thereon---Capital" gain ,from such sale accrued to the assessee which was declared in the income-tax return---Assessing Officer treated such capital gain as income from business by way of "adventure in the nature of trade" under S.2(11) of the Income Tax Ordinance, 1979 and levied tax thereon-- Validity---Assessee was not in the business of real estate---Plots were purchased in 196.4 and sold nearly after 23 years---Transaction was an isolated one---Plots and construction were shown in the Balance Sheet as capital .assets and not as a stock in trade during all the past years without any dispute from the Department---No intention of trade in the property could be inferred at the time of purchase of such plots and even when the property was sold by assessee to its sister concern, the Department did not treat such transfer as an "adventure in the nature of trade"---Once the transaction was reversed the consequent sale could not have altered the original intention of .the assessee which was not treated as an adventure in the nature of trace---Such circumstance would, thus, make it a clear case of estoppels---Sale of capital assets was admittedly not treated by the Department as, a stock. in trade nor could it be---Authorities fundamentally erred it assumption of jurisdiction so as to bring a surplus from the sale of plot/building as an adventure in the nature of trade in the circumstances and also violated provision of law;, on the subject, orders of the Appellate Tribunal and Authorities, therefore suffered from obvious mistakes floating on the surface of the record--- transaction to question which was treated as an adventure in the nature of trade and taxation of surplus capital gain was, declared to be without lawful authority which was cancelled by High Court:
G. Venkataswami Naidu Co. v. CIT (1959) 35 ITR 594; Saroj Kumar Mazumdar v. CIT West Bengal (1959) .37 ITR 242: Jankitam Rahaduratn v. ('IT (1965) 5' ITI2 71: CIT v. PKN Co. Ltd. (1966) 60 ITR 65; Bhogilal H. Patel v. CIT (1969) 74 ITR 692 and CIT, West Beiqal v Rajasthan Mines Ltd. (1970) 78 ITR 45 ref.
Julian Hoshang Dinshaw Trust v. ITO 1992 PTD 1 = 1992 SCMR 250 and CIT.v. Habib Bank Executors and Trustees Co. 1985 SCMR 284 ref.
(j) Income Tax Ordinance (XXXI of 1979)---
----S.156---Rectification of mistakes---Jurisdiction---Scope---Jurisdiction to rectify mistakes apparent on the face of record is obligatory---Once mistake was pointed out, the Authority was under a mandatory obligation to rectify the mistakes brought to its knowledge---Once the mistake, which was apparent on the face of record, was detected by the Authority, the power to correct the mistake was wider and not confined to only such rectifications which were available and floating on the face of record---In other words, once the mistake was corrected all consequential orders could be passed-- While looking into any mistake apparent on the face of record it was not necessary to look only at the order---Term "record" contemplated proceedings, evidence and record which were relatable to the order of assessment including the applicable law determining the error---Scope of rectification had been spelt out to eliminate errors even to the extent of cancellation of the whole order, if necessary---Power of rectification did not authorize investigation or reassessment of evidence---However, such powers were to be exercised where any mistake was apparent from the record.
Hirday v. ITO 1978 ITR 26; Sidhramappa Andannappa Manvi v. CIT, Bombay (1952) 21 ITR 333; Maharana Mills (Pat.) Ltd. v. ITO (1959) 30 ITR 350; (1969) 73 ITR 287 and CIT v. National Food Industries (1992) 62 Taxation 25 ref.
Muhammad Naseem for Appellant.
Shaikh Haider for Respondents.
Date of hearing: 23rd December, 1999.
JUDGMENT
DR. GHOUS MUHAMMAD, J.---This appeal is directed against the order passed by a Division Bench of Income-tax Appellate Tribunal (hereafter "the ITAT") rejecting the application filed by the appellant under section 156 of the Income Tax Ordinance, 1979 (hereafter "the 1979 Ordinance") seeking to rectify the mistakes which the appellant claimed to be apparent on the face of the record of the case.
2. The facts of the case are that the appellant was incorporated as a private company in 1963 with an authorized capital of Rs. l crore with the main object to manufacture electric fittings. For raising the factory the appellant company acquired four adjacent Plots of land bearing Nos.7, 8, 22 and 23 in the Korangi Industrial Area for a sum of Rs.2,42,069.27. Construction was raised during the period from 1965 to 1975. The expenditure on construction work in the assessment year 1966-67 was Rs.30,495, in the assessment year 1967-68 it was Rs.36,698, in the assessment year 1969-70 it was Rs.90,366 and in the assessment year1970-71 it was Rs.37,877; the boundary wall was constructed for Rs.59,911. Apart from the construction of factory, a water connection was also acquired by spending Rs.950.
3. It is not disputed that in all past years the consolidated plot and construction thereon was shown in the balance-sheets of the appellant company as a capital asset and not as a stock-in-trade and the Department of Income-tax never disputed the above position at any point of time in the past. It is alleged that during all these years the appellant could not establish manufacturing since loans from banks could not be acquired. This aspect has not been denied. It is also not disputed that having been unable to raise manufacturing by itself the appellant company in the year 1997-98 proposed to transfer the plots and construction thereon to another sister concern, Hyesons Concrete Products Limited. Accordingly, agreements were signed between the appellant company and Hyesons Concrete Products Limited and the construction and the plots were transferred to the said company. At that point of time since no cash funds were available even with M/s. Hyesons Concrete Products Limited, the plots and building were transferred against shares of the latter company representing the value of the plots and construction, In this behalf the then Controller of Capital Issues approved the transaction vide Letter No.R-50-C-1(11)/1977, dated 23-6-1977. The agreements between the two companies were signed on 27-5-1977 and 29-5-1977 and in pursuance of the said agreements a transfer lease deed, dated 27-8-1977 in respect of the plots and the construction in favour of M/s. Hyesons Concrete Product Limited was executed. It has been specifically pointed out on behalf of the appellant and not disputed by the Department that although the above transaction resulted in surplus in the shape of shares but the transaction at then in 1977 was not treated by the Department as an "adventure in the nature of trade" and the Department never held at any' time before that the purpose of acquiring the plots and raising the construction thereon was other than for raising a manufacturing concern.
4. Subsequently, the Controller of Capital Issues vide its Order No.A-55-CC-1(11)/77, dated 19-7-1979 withdrew the earlier sanction of transfer of shares of Hyesons Concrete Product Limited to the appellant. The terms of transfer having failed, the said plots and construction thereon had to be released back by way of de-leasing on 23-3-1983, after a period of about five years. It was also alleged by the appellant that the manufacture of electric fittings could not be undertaken and the site remained undeveloped for almost 20 years; also infrastructure was not available which had created perpetual insurmountable difficulties for the appellant company.
5. It is alleged that the appellant and Hyesons group fell into financial difficulties and ultimately the plots and the construction thereon were sold on 25-2-1987 on which a capital gain of Rs.98,74,360 became available to the appellant which was declared in the income-tax return of appellant for the assessment year 1988-89. Taking notice of the above surplus in the income tax return, the Assessing Officer treated the sum of Rs.98,74,360 as income from business by way of adventure in the nature of trade under section 2(11) of the 1979, Ordinance and levied a tax of Rs.48,87,808 thereon.
6. After an unsuccessful appeal before the Commissioner of Income-tax (.Appeals), a second appeal bearing I.T.A. No.641/KB of 1988-89 was filed before the ITAT which came up for hearing on 18-9-1995. The record of the case suggests that the notice for hearing, dated.18-9-1995 was pasted by a notice server as per the orders of an Assistant Registrar of the ITAT. The notice server states the following in his report in Urdu (Translation in English):---
"I solemnly stale that notice, dated 18-9-1995 was taken by me as per orders of the Court to the address of Hye Chambers, West Wharf Road where the responsible persons and the Chowkidar stated and refused to receive the notice and thereafter, pasted the notice on the main gate before them.
(Sd.) Nadeem
14-9-1995"
The Assistant Registrar noted that "the statement was recorded, on oath.
7.The ITAT heard the matter on 18-9-1995 and passed an ex parte order on 5-5-1996 i.e. after about eight months of the date of hearing, while rejecting the appeal. On behalf of the assessee an application for restoration was submitted alongwith an affidavit but this restoration application was also rejected vide MA (Rect) 252 KB of 1996-97, dated 20-5-1997. Thereafter, tile appellant filed a Constitutional Petition No. 1590 of 1997 challenging the service of notice by affixture which was also dismissed in limine on the plea that the matter regarding service of notice was a factual controversy and a writ would not lie. Subsequently, a miscellaneous application bearing No. MA(Rect) No. 156/ICB of 1997-98, under section 156 of the 1979 Ordinance was submitted before the ITAT which was also dismissed after hearing vide order dated 14-3-1998.
8. Section 136 of the 1979 Ordinance was amended by the Finance Act, 1997 conferring the appellate jurisdiction on the High Court instead of an advisory reference. Accordingly the instant appeal has been filed under section 136 of the 1979 Ordinance which is the subject-matter of this judgment. On behalf of the respondents, Mr. Shaikh Hyder learned Advocate has, raised certain preliminary objections; the first objection is that the appeal is not competent since it has been filed against an order passed on a miscellaneous application filed under section 156 of the 1979 Ordinance which was dismissed; the second objection is that the present appeal filed on 16-6-1998 is barred by limitation since it is directed against the original order of the ITAT, dated 5-5-1996 which was issued on 27-6-1996 and a period of one year and eleven months has lapsed since the original order was passed by the ITAT.
9. Mr. Muhammad Naseem, the learned counsel appearing for the appellant, in reply to the above preliminary objections submitted as follows:---
(a) Section 136 of the 1979 Ordinance provides for the appeal to, the High Court in relation to any questions of law arising out of the order of the ITAT. Any order of the ITAT under section 156; either rejecting or allowing the application for rectification, has to be construed as a continuation, part and parcel of the original order passed by the ITAT under section 135 of the 1979 Ordinance; as such an order of the ITAT rejecting an application of rectification is an order passed under section 156 read with section 135 and hence appealable under section 136;
(b) without prejudice to the above, even if the Court finds the impugned order passed by the ITAT under section 156 not to be appealable,' the present appeal in substance can be treated and converted into a Constitutional petition under Article 199 of the 1973 Constitution since it is settled law that where no appeal or other remedy lies, the only remedy is a Constitutional petition under Article 199 of the 1973 Constitution, while in the present proceedings the appellant alleges violation of law and the Constitution and seeks their direct enforcement;
(c) as regards the bar of limitation, it is contended that section 156 provides an assessee with a limitation period of 4 years to challenge an order through rectification; in the present case the original order of the ITAT was passed on 5-5-1996, while the application for rectification, has admittedly been moved within 4 years of the latter date; the order rejecting the application for rectification under section 156 was passed by the ITAT on 14-3-1998, while such order was received by the appellant's counsel on 5-5-1998 and the present appeal has been filed within 60 days of the latter date in keeping with the limitation provided under section 136(2) of the 1979 Ordinance;
(d) copious case law has been .submitted and reference invited to Entry 50 of . the 4th Schedule of the Constitution to forward the points that the impugned order of the ITAT suffers from fundamental errors apparent on the face of record which fails to consider the basic point that the Constitution prohibits the levy of tax on capital gains on immovable property by the Federal Government/Legislature;
(e) the ITAT has not followed binding decision of the Hon'ble Supreme Court, thus, violating Article 189 of the Constitution, since through the material on record the appellant by no figment. of any imagination can be construed to have transacted on adventure in the nature of trade; as such it is vehemently stated that the impugned orders are mala fide, coram non judice, perverse and based upon no evid9nce and have been rendered in ignorance of law, Constitution and the evidence available on record.
10. We have heard the arguments of parties, gone through the record and the law on the subject. The questions of law which arise for determination are as follows:---
"(1) Whether the order passed by the ITAT in refusing the application for rectification is appealable in the High Court under section 136 of the 1979 Ordinance?
(2) Whether the application for rectification under section 156 moved before the ITAT was barred by limitation?
(3) Whether the orders of the ITAT and the Income-tax Authorities suffer from any mistake apparent on the face of record?"
11. Before answering the above objections it would be pertinent to refer to section 156 of the 1979 Ordinance, in particular subsections (L) and (4) thereof which read as under:---
"(I) Any, Income-tax Authority or the Appellate Tribunal may amend any order passed by it to rectify any mistake apparent from the record on its own motion or on such mistake being brought to its notice by any other Income-tax Authority or by the assessee."
(2) & (3) ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... . ...
(4) No order under such section (1) shall be made after the expiration of four years from the date of the order sought to be amended. "
The above provision i.e. section 156 would reveal that the-Income-tax 'Authorities including the ITAT are competent to rectify mistakes and errors apparent on the face of record in their orders passed under the 1979 Ordinance. Accordingly, where the Deputy Commissioner of Income-tax would pass an order under section 62 (i.e. main assessment) or any other provision of the 1979 Ordinance, the same would be subject to rectification under section 156. Once the order under section 156 is passed the latter would merge with the former; thus the final order shall emerge as an order under section 62 read with section 156. Similarly, the appellate orders passed by the Commissioner of Income-tax (Appeals) under section 132 or the 1TAT under section 135 are also subject to rectification under section 156 and once the orders allowing or dismissing the application for rectification are passed by the Appellate Authorities, the rectificatory orders merge with the original appellate orders and the final emergent orders are to be read as orders under section 132 read with section 156 or under section 135 read with section 156, as the case may be in coming to this conclusion we are fortified by Karsan Das Bhagwan Das Patel v. G.V. Shah Income-tax Officer (1975) 98 ITR 273 (Guj.), wherein a Division Bench of the Gujarat High Court while relying upon the earlier decisions of the Indian Supreme Court in S. Sankappa v. Income-tax Officer (1968) 68 ITR 760 (SC) and the Gujarat High Court, in Mandal Ginning and Pressing Co. Ltd. v. Commissioner of Income-tax (1973) 90 ITR 332 (Guj) was pleased to hold that the order of rectification corrects the assessment and the corrected assessment-is the final assessment. In other words, the corrected assessment is to be read with the assessment which is corrected. In the present case the impugned order is the one passed by the ITAT on 14-3-1998 (Annexure A-1), whereby the appellant's application. for rectification was dismissed. This order can be visualized only as an order under section 156 read with the order earlier passed under section 135 (Annexure B-4); the order under section 156 has,. thus, merged with the order under section 135. This brings us to the question as to whether the present appeal under section 136 is maintainable. Section 136(1) provides that "an appeal -shall be to the High Court in respect of any question of law arising out of an order under section 135". The impugned order passed under section 156 is to be construed as an order to have merged with the earlier order passed under section 135. Thus, the inescapable conclusion would be that the order under section 156 is to read with the order under section 135. Accordingly, the impugned order would become appealable under section 136, being an order under section 156 read with section 135, and the provision of section 136 providing for an appeal against the order under section 135. This being the obvious legal position, the appeal is found to be maintainable and the preliminary objection on this score is hereby repelled. The fact that orders of rectification are otherwise appealable can further be confirmed from Commissioner of.-Income-tax v. Adam Ltd. PLD 1969 Kar. 300, Hasan Ali Karabhai v. CIT PLD 1974 Kar. 473 and Imperial Chemical Industries Ltd'. v. CIT (1979) 116 ITR 516 (Cal.). We may also clarify that in case we had come to the conclusion the appeal under section 136 was not maintainable, it would have been a fit case to have converted this appeal into a Constitutional petition under Article 199 of the Constitution since it is settled law that where there is no remedy, the only remedy is a Constitutional petition under Article 199. The Court's inherent power to convert one form of action into another seems now quite settled. In Thal Engineering Industries Ltd. v. The Bank of Bahawalpur Ltd. and another 1979 SCMR 32 the Supreme Court held that there was no bar in the law if once an appeal had been treated as revision to again treat the same as an appeal and dispose of the same in accordance with law. In Akhtar Nasimi v. MLA Zone C PLD 1982 Kar. 130 a Division Bench of this Court recognized the Court's power to adopt a procedure not provided by law but which was not barred by law; in doing so the learned Division Bench also observed that there was no prohibition in law against conversion of a writ petition into an appeal. Similarly, in Saleh v. S.P. Central Prison PLD 1982 Kar. 542 a Division Bench of this Court held that it could convert a writ petition into an appeal but a writ petition could not be converted into a miscellaneous application in a disposed of confirmation case/criminal appeal. In Abdul Aziz v. Sh. Abdur Rehman PLD 1984 SC 164 the Hon'ble Supreme Court approved the conversion of revision into a second appeal by the Peshawar High Court. In Karamat Hussain v. Muhammad Azam PLD 1987 SC 139 the Hon'ble Supreme Court had observed that the High Court had erred in refusing to convert second appeals into revisions since the appeals exhibited features which demonstrated that it fell within the scope of interference under section 115, C.P.C. In Noorul Amin v. Muhammad Hashim 1992 SCMR 1744 the Hon'ble Supreme Court was pleased to observe as follows:---
"The Courts, in order to do justice between parties, would generally allow treatment/conversion of proceedings of one kind into another, unless there exists some legal bar against such treatment/conversion. "
In this case the Supreme Court was pleased to observe that the mere fact that a plaint in a suit was described as a plaint and was registered as a plaint could not deprive the Court of its jurisdiction to decide it as an application under section, 12(2) of the C.P.C., if otherwise such jurisdiction was available to the Court under the law. Even otherwise it is further settled law that authorities are bound to rectify mistakes brought to their knowledge (see Hirday v. ITO 78 ITR 26 decided by the Supreme Court of India), and in case the authorities fail to rectify the mistake the High Court is empowered to issue writs (see Vithal Das v. ITO 1971 PTD 411, decided by the Allahabad High Court).. Accordingly, the question No. l is answered in the affirmative.
12. The second preliminary objection. relates to the point of limitation. The learned Advocate for the appellant has relied upon subsection (4) of section 156 of the 1979 Ordinance where a rectification can be ordered in a period of four years. In this. behalf the learned counsel for the Department has cited the case of P. Kuttikrishna Nair v. ITAT (1948) 34 ITR 540 of the Madras High Court. In this case it was held that the time limit within which mistakes are to be rectified as given under the statute is four years. It has further been held that once the application is made to the ITAT within the said four years period, it was not incumbent upon the ITAT to decide the same within sixty days, the time limit prescribed for making a reference to the High Court against the order of the ITAT. This case hardly supports the contention that the application for rectification was time-barred. On the contrary, it lends supports to the contention- of the appellant that the law provides a period of four years to move the application for rectification which has been duly done. The preliminary objection on the aspect of limitation is also repelled and the second question of law is answered in the negative. It is further pointed out that if at all a question of limitation could have been involved, the ITAT would have rejected the application in limine. On the contrary, the miscellaneous application was entertained and decided on /03/1987.
13. This brings us to question No.3. Entry 50 of the Fourth Schedule of the Constitution reads as follows:---
"50 Tax on capital value of the assets, not including capital gains on immovable property."
The above Constitutional entry categorically confirms that the Federal Legislature is not empowered to impose any tax in the shape of capital gains on immovable, property. Article 142 of the Constitution prescribes that the subjects enumerated in the Federal Legislative list contained in the Fourth Schedule fall within the ambit of the Federal Legislature. Though subjects which are either not mentioned in or specifically excluded from the Federal Legislative list fall within the domain of the provincial Legislature. Taxes on capital gains on immovable property having been specifically excluded in the Federal Legislative list leaves no, doubt that no tax by the Federal Government, its agencies including the Income-tax Department could be imposed on capital gains from immovable property. Not only this but section 27(2)(a)(ii) of 1979 Ordinance also specifically excludes the imposition of income tax on any capital gains relatable to any immovable property. Furthermore, Central Board of Revenue's Circular No. 10 of 1979 contained in C. No. l(37)IT-1/79, dated 1st October, 1979 also specifically prohibits any levy by the Income-tax Officer on any capital gains on immovable property. For the sake of convenience the said Circular which is reported in (1979) 40 Taxation 197/198 (Statutes) is reproduced as follows:--
The above Circular being in consonance with the law and the Constitution becomes binding on all Officers of the Income-tax Department as prescribed through section 8 of the said 1979 Ordinance. All the above questions were discussed, debated and finally decided by the Hon'ble Supreme Court in Julian Hoshang Dinshaw Trust v. ITO 1992 PTD 1 = 1992 SCMR 250, wherein a Full Bench of the Supreme Court while appreciating the above provisions of law and the Constitution came to the conclusion that the taxation of any capital. gains on immovable property was beyond the taxing power conferred on the federation. The Income-tax Authorities including ITAT in not following this pronouncement of the Hon'ble Supreme Court, have thus violated the mandate contained in Article 189 of the Constitution whereby all authorities are required to follow the pronouncement of the Supreme Court.
14. While capital gains on immovable property cannot be taxed, however, where the assessee conducts the business in a manner that he trades in immovable properties, whereby the said immovable properties or real estate becomes his stock, in trade or goods, the transactions do not attract the exclusion of tax on capital gains on immovable property, however, the same are then heated as his "business" and income there from becomes taxable under section 9 read with section 22 of the 1979 Ordinance. The term "business" has been defined in subsection (11) of section 2 of the 1979 Ordinance to include "any adventure or concern in the nature of trade". The latter term has not been statutorily defined, however, plethora of case law exists on the subject. In G. Venkataswami Naidu & Co. v. CIT (1959) 35 ITR 594 the Supreme Court of India while elaborating on this point was pleased to clarify that where a person invests money in land intended to hold it, enjoys its income for some time, and then sells it at a profit, it would be a clear case of capital accretion and not profit derived from an adventure in the nature of trade. .It was held in this case that cases of realisation of investments consisting of purchase and resale, though profitable, are clearly outside the domain of adventure in the nature of trade. In deciding the character of such transactions the Indian Supreme Court pointed out to a number of relevant facts which taxing authorities have to consider before treating a transaction to be an adventure in the nature of trade. These factors as stated are as follows: ----
"whether the purchaser was a trader and the purchase of the commodity and its resale were allied to his usual trade or business or incidental to it; the nature. and quantity of the commodity purchased and resold; any act subsequent to the purchase to improve the quality of the commodity purchased and thereby make it more readily resalable any act prior to the purchase showing a design of purpose; the incidents associated with the purchase and resale; the similarity of the transaction to operations usually associated with trade or business; the repetition of the transaction, the element of pride of possession. A person may purchase a piece of art, hold it for some time and if a profitable offer is received sell it. During the time that the purchaser had its possession he may be able to claim pride of possession and aesthetic satisfaction; and if such a claim is upheld that would be a factor against the transaction being in the nature of trade. The presence of all these relevant factors may help the Court to draw an inference that a transaction is in the nature of trade; but it is not a matter of merely counting the number of facts and circumstances pro and con; what is important to consider is their distinctive character. In each case, it is the total effect of all relevant factors and circumstances that determines the character of he transaction.
In cases where the purchase has been made solely and exclusively with the intention to resell at a profit and the purchaser has no intention of holding the property for himself or otherwise enjoying or using it, the presence of such an intention is a relevant factor and unless it is offset by the presence of other factors it would raise a strong presumption that the transaction is an adventure in the nature of trade. Even so, the presumption is not conclusive; and it is conceivable that; on considering all the facts and circumstances in he case, the Court may, despite the said initial intention, be inclined to hold that the transaction was not an adventure in the nature of trade. The presumption may be rebutted."
In another case i.e. Saroj Kumar Mazumdar v. CIT West Bengal (1959) 37 ITR 242 the Indian Supreme Court held that where a transaction was not in the line of business of the assessee and was an isolated or a single instance of a transaction, the onus was on the Department to prove that the transaction was an adventure in the nature of trade. Jankiram Bahaduram v. CIT (1965) 57 ITR 21 is another case where the Indian Supreme Court held that just because the assessee makes a profit in sale of assets would not render it an adventure in the nature of trade. The burden was on the Department to establish that in the totality of facts and circumstances the profits were in the nature of trade; one such factor was as to whether the transaction was relatable or akin to the normal business of the assessee. In CIT v. PKN Co. Ltd. (1966) 60 ITR 65 the Supreme Court of India was pleased to hold that where the primary object of the assessee was to take over the assets of another firm, to carry on the business of planter and to earn profits by the sale of rubber, the acquisition of the assets was not for the purposes of carrying on business in real estate. Accordingly, the incidental sale of uneconomical or inconvenient plots of land could not convert which was essentially an investment into a business transaction in real estate. It was also held that the profit motives in entering into a transaction was not at all a decisive factor. In another case i.e. Bhogilal H. Patel v. CIT (1969) 74 ITR 692 a Division Bench of the Bombay High Court was pleased to emphasize upon the intention which existed at the inception of 'the purchase of the property. In CIT West Bengal v Rajasthan Mines Ltd. (1970) 78 ITR 45 the Supreme Court of India was pleased to hold that just because an assessee had purchased a property and sold the same at a profit did not make the same an adventure in the nature of trade.
15. It is an admitted position that the appellant is not in the business of real estate. The consolidated plot in question was purchased in 1964 and sold nearly after 23 years. The transaction was an isolated incident. The consolidated plot and construction thereon was shown in the balance sheets of the appellant as a capital asset and not as-a stock-in-trade for all the past years without any dispute from the Department. The circumstances in which the plot was transferred 'to the sister concern by acquisition of shares of the latter and withdrawal of the sanction of the shares by the Controller of Capital Issues, thus, reversing the transaction, were also not disputed. No development work was carried out on the property. At the time of initial purchase there was no intention to trade in the property and even when the property was sold to the sister concern, the Income-tax Department did not treat such transfer as an adventure in the nature of trade. In other words in 1977-78 when the sister concern had acquired the plot the Income-tax Department by not taxing such sale accepted that the original intention was not to trade in the property and as such the transaction was not an adventure in the nature of trade. Once that transaction was reversed, the consequent sale in 1987 could not have altered the original intention of the appellant in 1964, which was not treated as an adventure in the nature of trade in 1977-78 by the Department. This would thus be a clear case of estoppel. Our own Supreme Court in CIT v. Habib Bank Executors and Trustees Co. 1985 SCMR 284 has distinguished between a profit realised on sale of investments as opposed to sale of stock in trade. In the present case the sale of the capital assets was admittedly not treated by the Department as a stock in trade and it could not have been. From the facts and circumstances of the matter, it was morel than obvious that all the authorities fundamentally erred in assumption of jurisdiction so as to bring a surplus from the sale of a plot/building as an adventure in the nature of trade. In doing so not only the Department had failed to discharge the onerous burden thrust upon it by law, the following also stood consequentially violated:
(c) Central Board of Revenue's Circular No.10/79, dated 1-10-1979 and hence section 8 of the 1979 Ordinance;
(d) the authoritative pronouncement of the Hon'ble Supreme Court in CIT v. Habib Bank Executors and Trustees Co. and Julian Hoshang Dinshaw Trust v. ITO (cited supra), thus also violating Article 189 of the Constitution.
16. The jurisdiction to rectify mistakes apparent on the face of record is obligatory. Once such mistake is pointed out, the Authority is under a mandatory obligation, to rectify the mistakes brought to its knowledge (see Hirday v. ITO 1978 ITR 26 (SC of India). Also in Sidhramappa Andannappa Manvi v. CIT Bombay (1952) 21 ITR 333 the Bombay High Court has held that once the mistake which is apparent on the face of record is detected by the Authority, the power to correct the mistake is wider and not confined to only such rectifications which are available and floating on the face of record. In other words, once the mistake is corrected all consequential orders can be passed. In Maharana Mills (Pvt.) Ltd. v. ITO (1959) 30 ITR 350 the Indian Supreme Court was pleased to hold that while looking into any mistake apparent on the face of record it was not necessary to look only at the order. The term "record" contemplated proceedings, evidence and record which were relatable to the order of assessment including the applicable law determining the error. In India, section 154 of the Indian Income Tax Act, 1961 is paramateria with our section 156 of the 1979 Ordinance. In one case reported in (1969) 73 ITR 287 at pages 299 and 300 (extract reproduced below) the scope of rectification has been spelt out to be elimination of errors even to the extent of cancellation of the whole order, if necessary:
"The power intended to be given under section 154 is to rectify an error apparent on the face of the record. Amendment of the order is the consequence of the rectification and its purpose is to give effect'' to the rectification. If the rectification involves an amendment, which will affect the whole of the order, it cannot be said that simply because of the use of the word 'amend', which normally may not mean the cancellation of the whole order, the Income-tax Officer should be powerless to rectify the mistake or error which is apparent on the face of the order. The word 'amend' with reference to legal documents means correct an error and the expression 'amend the order' would mean correct the error in the order. Under section 154 power to rectify the error is to be exercised by correcting the. error in the order and the correction must, therefore, extend to the elimination of the error. What the effect- of the elimination of the error will be on the original order will depend upon each case. It may be that the elimination of the error may affect only a part of the order. It may also be that the error may be such as may go to the root of the order arid its elimination may result in the whole order l falling to the ground. In our opinion the Income-tax Officer will be able to amend or correct the order to the extent to which the correction is necessary for rectification of the error and such correction may extend either to the whole of the order or only to a part of it. In our opinion, therefore, the Tribunal was right in the view that it has taken and the question raised on the reference must consequently be answered against the Department."
Our own Supreme Court has dilated upon the powers to rectify in CIT v. National Food Industries (1992) 62 Taxation 25 (SC of Pak.) where it was held that the power of rectification does not authorize investigation or reassessment of evidence. However, such powers are to be exercised where l any mistake is apparent from the record.
17. In our opinion the orders of the ITAT and other .tax authorities suffer from obvious mistakes floating on the surface of the record. In this respect attention is invited to para. 15 above. In consequence the appeal is allowed, question No.3 is answered in the affirmative and the treatment of respondents whereby the transaction in question was treated as an adventure in the nature of trade and the surplus capital gains was taxed is hereby declared to be without lawful authority and is cancelled.
18. There shall be no orders as to costs.
19. Before parting, we may point out that the learned counsel for the appellant has raised other points on the plane that the notices were not properly served and, thus, the impugned orders were void. It is not necessary to decide this question as we have allowed the appeal on other grounds discussed as above.
C. M. A. /M. A. K./P-10/KAppeal allowed