MEHRAN GIRLS COLLEGE VS COMMISSIONER OF INCOME-TAX
2001 P T D 987
[Karachi High Court]
Before Saiyed Saeed Ashhad, C. J. and Zahid Qurban Alavi; J
MEHRAN GIRLS COLLEGE
Versus
COMMISSIONER OF INCOME‑TAX
I.T.As. Nos. 10 and 38 to 42 of 1999, decided on 02/05/2000.
(a) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑S.2(7)‑‑‑Assessment‑‑‑Assessment relating to each assessment year is an absolutely different and independent proceeding under the Income Tax Ordinance, 1979, which does not permit the findings of a particular assessment year to be made applicable to the different facts and circumstances of another assessment year.
Commissioner of Income‑tax v. Pakistan Industrial Engineering Agencies Ltd. PLD 1992 SC 562 fol.
(b) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑S.136‑‑‑Appeal to High Court‑‑‑Question of law and fact‑‑‑Inference drawn from undisputed facts is a mixed question of law and fact.
Glaxo Laboratories Pakistan Ltd. v. Federation of Pakistan and others PLD 1992 SC 455 fol.
(c) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑S.136‑‑‑Appeal to High Court‑‑‑Finding of fact arrived at by misreading or misconstruing the evidence on record or on consideration of extraneous material could be subjected to scrutiny and inquiry by High Court in exercise of its powers under S.136, Income Tax Ordinance, 1979.
Harmones Laboratories Ltd. v. The Commissioner of Income‑tax 1988 PTD 84; Commissioner of Income‑tax v. Saeeda Nasreen 1994 PTD 949 and Commissioner, of Income‑tax (Appeals), v. Pakistan Industrial Engineering Agencies Ltd. PLD 1992 SC 562 fol.
(d) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑Second Sched., Part 1, cl. (86) & S.136‑‑‑Exemption from income‑tax was not allowed to the assessee by the Tribunal‑‑‑Appeal to High Court‑‑ Finding of Income‑tax Appellate Tribunal that assessee, a Girls College, which was being run by a society registered under Societies Act, 1860, was not an Educational Institution and its income was not being utilized solely for the running of the college/establishment as such assessee was not entitled for exemption under cl. (86) of Second Sched. to the Income Tax Ordinance, 1979‑‑‑Such finding of the Tribunal was not based on an evidence or material on record which warranted an inference that the earnings of the establishment/college were not utilized solely for the purpose of running of the college and were being utilized for the personal benefits and requirements of the members of the society running the college‑‑‑Finding not based on the material on record was open to challenge by way of an appeal under S.136, Income Tax Ordinance, 1979.
Commissioner of Income‑tax v. Saeeda Nasreen 1994 PTD 949 and Commissioner of Income‑tax (Appeals) v. Pakistan Industrial Engineering Agencies Ltd. PLD 1992 SC 562 fol.
M. Mazhar‑ul‑Hassan for Appellants
Javaid Farooqi for Respondent.
ORDER
SAIYED SAEED ASHHAD, C J.‑‑‑The aforesaid six Income Tax Appeals have been filed against the order of the Income‑tax Appellate Tribunal, dated 2‑3‑1998 in I.T.A. No. 626/KB of 1993‑94 and five other appeals pertaining to the aforesaid appellants/assessees in respect of the assessment years 1989‑90 to 1994‑95.
The questions of law, which according to the appellants establishment/college have arisen from the impugned order of the Income Tax Appellate Tribunal are as under:‑
"(1) Whether on the facts and circumstances of the case the learned Income Tax Appellate Tribunal was justified in holding that Mehran Girls College running by U.K. Educational Society formed under Societies Act, 1860 is not an Educational Institution and is not entitled for exemption under clause (86) of the 2nd Schedule?
(2) Whether on the facts and circumstances of the case the U.K. Educational Society formed under Societies Act, 1860, can be disclosed as an establishment organization or association instituted for the promotion of some objects?
(3) Whether on the facts and circumstances of the case learned I.T.A.T. was justified in passing an order without affording proper opportunity to the petitioners in the circumstances where the request for even short adjournment of his counsel was refused?
(4) Whether on the facts and circumstances of the case the learned I.T.A.T. was justified in withdrawing the exemption under clause (86) of Second Schedule for the assessment years 1990‑91 to 1994‑95 on the basis of the assessment for the year 1989‑90, whereas every year a separate entity?
(5) Whether on the facts and circumstances of the case the learned. Income Tax Appellate Tribunal was justified in cancelling the orders of 1st Appellate Authority i.e., Commissioner of Income Tax (Appeals) restoring the order of respondent for all the years on the basis of assessment for the year 1989‑90 without appreciating the facts that other ground of appeal in respect of rejection of accounts and other P&L A/C. Add Back, were remained un-disposed will also effect the petitioner's tax liabilities on the ground that exemption was granted?
The brief facts, which led to the filing of the aforesaid six appeals, are that the appellants area society registered under the Societies Act and are running a girls college under the name and style of M/s. Mehran Girls College in Block 6, Federal "B" Area, Karachi. The society was registered in December, 1982 and had claimed exemption under clause (86) of the Second Schedule to the Income Tax Ordinance in respect of their income derived from running of girls college and such exemption was granted to the appellants establishment/college up to the assessment year 1987‑88. However, in the assessment year 1989‑90, the Income Tax Officer disallowed the exemption. In the appeal filed by the appellants establishment/college before the Appellate Assistant Commissioner of Income Tax, the assessment was set aside and the income was treated to be exempt under clause (86) of the Second Schedule to the Income Tax Ordinance. In the subsequent assessment years 1989‑90 to 1994‑95, the Assessing Officer did not give the benefit of exemption under clause (86) of the Second Schedule to the Income Tax Ordinance to the appellants and subjected them to tax but in the 1st Appeal, the Appellate Authority set aside the finding of Assessing Officer and granted exemption to the appellants in respect of their income derived from running of a girls college under clause (86) of the Second Schedule to the Income Tax Ordinance. The department feeling aggrieved and dissatisfied with the finding of the Ist Appellate Authority in relation to the appeals pertaining to the aforesaid assessment years, had filed 2nd Appeal before the Income Tax Appellate Tribunal. The Income Tax Appellate Tribunal by its consolidated order, dated 2‑3‑1998, decided all the aforesaid six appeals, whereby the order of the 1st Appellate Authority in all the aforesaid assessment years was set aside and the assessments framed by the Assessing Officer were restored. The Tribunal had confirmed the finding of the Assessing Officer that the appellants establishment/college were not entitled to claim exemption of their income under clause 1,86) of the Second Schedule to the Income Tax Ordinance as the appellants college was not established or was being run solely for educational purposes. On the contrary, the object was to earn profits, which were diverted to the personal benefit of the members of the registered society, all of whom belong to one family. Feeling aggrieved and dissatisfied with the aforesaid order of the Income Tax Appellate Tribunal, the appellants have filed the aforesaid six appeals for each one of the aforesaid six assessment years.
We have heard the arguments of Mr. Mazhar‑ul‑Hassan and Mr. Javaid Farooqi, the learned counsel for the appellants establishment/college and the respondent/department and have also perused the material on record as well as the relevant provisions of law applicable to the facts and circumstances of the case.
The grounds on which the Income Tax Appellate Tribunal had disallowed the claim of exemption under clause (86) of the Second Schedule to the Income Tax Ordinance to the appellants establishment/college has already been enumerated above, that is from the material on record it came to the conclusion that the appellants establishment/college was not being run solely for imparting education or for any purpose allied to education but that the income derived by the appellants was being diverted and used for the personal benefits of the members of the appellants establishment/college, majority of whom belonged to one and the same family. According to the memorandum of association of the appellants establishment/college, following eight (8) persons were the subscribers for forming of the appellants establishment/college:‑
(1) Mr. Mazhar Siddiqui S/o late Muhammad Hanif Siddiqui.
(2) Mr. Ziauddin Fasihi S/o Nusratullah Fasihi.
(3) Mr. Moulana Abul Masood Fasihi S/o late Abul Khair Fasihi
(4) Mr. Faizul Bari Jalali S/o late Abdul Bari Jalali.
(5) Mr. Jalaluddin S/o Nusratullah Fasihi.
(6) Miss Farida Fasihi D/o late Niaz Ahmed.
(7) Mrs. Qudsia Begum D/o late Nusrutullah Fasihi.
(8) Mrs. Raquia Khatoon D/o late Muhammad Amin Khan.
It was submitted by Mr. Javaid Farooqi that the appellants establishment/college was a family affair and they had joined together to form the association for running the college with a view to earn huge profits as running of educational institution offered higher profits as compared to any other business. However, this fact would not be sufficient to establish that the aim and/or object of the aforesaid eight (8) persons was to earn profits for being used by them for their personal interest and for fulfilment of the means of life and not for educational purposes.
Mr. M. Mazhar‑ul‑Hassan, the learned counsel for the appellants establishment/college, submitted that the impugned order of the Income Tax Appellate Tribunal was not based on proper appreciation of the facts and material on record and suffered from misreading, misconstruing and mis -appreciation of the evidence on record. In this connection, he submitted that the Income Tax Appellate Tribunal on the basis of the material available before it in the appeal relating to the assessment year 1988‑89 proceeded to decide the remaining five appeals on the said material without realizing the fact that in the other five appeals pertaining to the assessment years 1990‑91 to 1994‑95 the material and the facts of siphoning of income from the appellants establishment/college by its members failure of the appellants establishment/college to produce the details of all the 25 teaching employees, who were said to have been employed during the assessment year 1989‑90; and the defects and other shortcomings found with regard to the expenditure of the income for non‑educational purpose were not available and the Income Tax Appellate Tribunal in deciding the appeals pertaining to the aforesaid assessment years 1990‑91 to 1994‑95 not only misread and misconstrued the evidence but also placed reliance on extraneous material, which made the aforesaid order pertaining to the five assessment years as absolutely illegal, void and of no legal effect.
Mr. Javaid Farooqi, the learned counsel appearing on behalf of the respondent/department was not able to rebut the aforesaid arguments and to satisfy us as to how the Income Tax Appellate Tribunal could have placed reliance on the evidence and material which was available in the appeal pertaining to the assessment year 1989‑90 for deciding the five appeals pertaining to the assessment years 1990‑91 to 1994‑95.
From perusal of the order of the Income Tax Appellate Tribunal, we find that the contention advanced by Mr. M. Mazhar‑ul‑Hassan is not without substance. The Income Tax Appellate Tribunal in its order has pointed out the details of the defects on the shortcomings which were found by the. Assessing Officer relating to the diversion or siphoning of the earnings of the appellants establishment/college, majority of whom belong to one family in respect of the assessment year 1989‑90. The fact that the appellants establishment/college had failed to produce service record of 13 out of the 25 teaching staff/employees allegedly employed by them during the assessment year 1989‑90 would establish that 13 employees, whose service record were not available for the assessment year 1989‑90, were never employed in other assessment year(s) and the members of the appellants establishment/college in the garb of payment of salaries to 13 employees had siphoned the amount of salaries for using it for their personal needs and benefits. The Income Tax Appellate Tribunal was required to examine the record/salary register and service record for all the remaining five assessment years pertaining to 1990‑91 to 1994‑95 for establishing that the appellants establishment/college had diverted or siphoned of the money/cash paid to the pseudo members of the teaching staff or other staff allegedly appointed for performing the duties and functions in relation to the running of the appellants establishment/college and had used the same for their personal requirements, benefits and needs. However, no such exercise was undertaken by the Appellate Tribunal and it on the basis of the facts and circumstances found by it in the assessment year 1989‑90, when admittedly the appellants establishment/college had failed to establish that a certain amount claimed by them to have been paid as salaries to the teaching staff of the college and in all probability the said amount had been diverted, siphoned of and used for personal requirements and benefits of the members of the appellants establishment/college made a general observation that in all the five assessment years 1990‑91 to 1994‑95 the appellants establishment committed the above wrongs and shortcoming was not at all legally possible and permissible in view of the fact that assessment relating to each assessment year is an absolutely different and independent proceeding under the Income Tax Ordinance, 1979, which does not permit the findings of a particular assessment year to be made applicable to the different facts and circumstances of another assessment year. In support of the above proposition, it will not be out of place to refer to the case of Commissioner of Income Tax v. Pakistan Industrial Engineering Agencies Ltd. (PLD 1992 SC 562), wherein the Supreme Court has laid down the principle in relation to the application of the principle of res judicata to the income tax proceedings and it will be appropriate to reproduce the relevant portion from the said judgment, which is as under:‑
"Applicability for orders on C.M.A. No. Principles of res judicata has been restricted as follows:‑
A previous decision of an Income Tax Authority will not be a bar in the following cases:
(i)Where the earlier decision is clearly open to some objections;
(ii)if it is a decision which is not reached after proper enquiry;
(iii)if it is a decision as could not reasonably have been reached on the material before the authority; .
(iv)it is a decision which suffers from such a defect which falls within the purview of the grounds mentioned in section 100, C.P.C. And liable to correction thereunder in second appeal, if it were a decision of Civil Court; and
(v)if fresh evidence having a material bearing on the point decided in the previous decision is available.
Mr. Javaid Farooqi objected to the maintainability of the I.T.As. on the ground that question which, according to the appellants, have arisen from the judgment of the Income Tax Appellate Tribunal, are not questions of law but purely questions of fact and this Court would not entertain an appeal on questions of fact in accordance with the principle applicable to the Income Tax Reference and Income Tax Cases under section 136 of the Income Tax Ordinance, 1979, prior to its amendment in 1997. He further submitted that in the present case, the Income Tax Appellate Tribunal was only required to take into consideration the facts whether the appellants establishment/college had employed the members of teaching and non -teaching staff as claimed by them and whether the money earned from running of the college was spent or utilized solely to meet the expenses of the educational institution and for promotion of educational activities without any part thereof for personal benefits and requirements of the members of the appellants establishment/college. It was submitted that the aforesaid investigation or inquiry did not require application or interpretation of any law and a finding arrived at on the basis of scrutiny of the aforesaid facts could not be said to be a question of law so as to entitle the appellants establishment/college to file an appeal under section 136 of the Income Tax Ordinance. This contention is without any force in view of the observation made by the Supreme Court in the case of Glaxo Laboratories Pakistan Ltd. v. Federation of. Pakistan and others (PLD 1992 SC 455) that an inference drawn from undisputed facts is a mixed question of law and fact. We may I also refer to the case of Harmones Laboratories Ltd. v. The Commissioner of Income Tax, reported in 1988 PTD 84 wherein it was observed that a finding of fact arrived at by misreading or misconstruing the evidence on record or on consideration of extraneous material could be subjected to scrutiny and C inquiry by this Court in exercise of its powers under section 136 of the Income Tax Ordinance.
Upon the above discussion, we are satisfied that the Income Tax Appellate Tribunal has not based its findings in regard to the appeals relating I to the assessment years 1990‑91 to 1994‑95 on any evidence or material on record which warranted an inference that the earning of the appellant's establishment/college were not utilized solely for the purpose of running of the appellant's establishment/college and were being utilized for the personal benefits and requirements of the members of the appellant's establishment/college. A finding not based on the material on record is open to challenge by way of an appeal under section 136 of the Income Tax Ordinance. A further authority in support of the above proposition is Commissioner of Income Tax v. Saeeda Nasreen (1994 PTD 949).
Upon the above discussion, we are satisfied that the impugned order passed by the Income Tax Appellate Tribunal cannot be sustained in relation to the assessment years 1990‑91 to 1994‑95 as it is based on evidence which was not available in the assessment proceedings pertaining to the aforesaid years and the Income Tax Appellate Tribunal in arriving at its finding has placed reliance on extraneous material by taking into consideration the facts and circumstances of the assessment year 1989‑90 which course could not have been resorted to by the Tribunal in deciding the appeals relating to other assessment years in view of the pronouncements made in the case of Commissioner of Income Tax (Appeals) v. Pakistan Industrial Engineering Agencies Ltd. (PLD 1992 SC 562).
Accordingly, the, impugned order of the income Tax Appellate Tribunal is set aside in relation to the assessment years 1990‑91 to 1994‑95 and the orders of the Commissioner of Income Tax (Appeals) pertaining to the assessment years 1990‑91 to 1994‑95 are restored. The finding of the Income Tax Appellate Tribunal relating to the assessment years 1989‑90 is upheld. The aforesaid appeals stand disposed of in terms of the above observations.
M.B.A./M‑19/K Order accordingly.