BEFORE JAMEEL AHMAD BHUTTO, ACCOUNTANT MEMBER AND KARAMAT HUSSAIN NIAZI, JUDICIAL MEMBER VS BEFORE JAMEEL AHMAD BHUTTO, ACCOUNTANT MEMBER AND KARAMAT HUSSAIN NIAZI, JUDICIAL MEMBER
2002 P T D (Trib.) 141
[Income-tax Appellate Tribunal Pakistan]
Before Jameel Ahmad Bhutto, Accountant Member and Karamat Hussain Niazi, Judicial Member
I.T.As. Nos. 1465/IB to 1467/113 of 1999-2000, decided on /01/.
th
May, 2001. (a) Income Tax Ordinance (XXXI of 1979)---
----S. 66A---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Applicability of S. 66A, Income Tax Ordinance, 1979---Inspecting Additional Commissioner could always probe into the matter and judge the exact nature of a receipt or any entry in any of the documents relating to the record of proceedings under the Income Tax Ordinance, 1979.
(b) Income Tax Ordinance (XXXI of 1979)---
----Ss. 12(18), 66A & 59A---Addition---Assessment years 1996-97, 1997-98 and 1998-99---Assessee obtained house building advance from his company being a director and employee of such company which was termed as loan by the Inspecting Additional Commissioner and made addition under S.12(18) of the Income Tax Ordinance, 1979 for three years---Validity---Inspecting Additional Commissioner failed to appreciate that the provision of S.12(18) existing at the relevant time and applicable to the income years pertaining to the assessment years under appeal was not attracted because two conditions had to be simultaneously satisfied, first, that there was a "loan" received by the assessee and, secondly, that it was, "claimed" or "shown" by him as such---Letter of law in the taxing provision of the Income Tax Ordinance, 1979 had to be interpreted in the sense in which it was used and could not be ignored as to cause injustice to the assessee---Since the two requirements of S.12(18) as it stood before its substitution through Finance Act, 1998, were not fulfilled the provision of section 12(18) was not attracted; especially when the subsequent amendment made in the year 1998 supported the assessee that at the relevant time an advance, irrespective of its nature and use, could plot be deemed as income of the assessee under S.12(18) of the Income Tax Ordinance, 1979---Provision of S.12(18) of the Income Tax Ordinance, 1979 was not applicable at the relevant time for relevant income years and the exercise of revisional jurisdiction by the Inspecting Additional Commissioner was illegal-- Impugned order was cancelled and original assessment orders were restored by the Tribunal.
I.T.As. Nos. 156, 157, 158 and 167/LB of 1993-94 ref.
2001 PTD 1180 anti Prime Commercial Bank and others v. Assistant Commissioner of Income-tax 1997 PTD 605 rel.
(c) Interpretation of statutes---
---Where two interpretations are equally possible then the one favourable to the subject is to be adopted.
(d) Interpretation of statutes---
---- Fiscal statute---Where the transaction can equally be placed within or outside the dividing taxing line, the one falling outside should be preferred against the one falling inside.
Akhtar Hussain for Appellant. Muhammad Tahir Khan, D.R. for Respondent.
Date of hearing: 23rd May, 2001.
ORDER
JAMEEL AHMAD BHUTTO (ACCOUNTANT MEMBER).-
The above-captioned appeals at the instance of the assessee are directed against the order, dated 7-6-2000 (hereinafter the impugned order) passed by the learned Additional Commissioner of Income-tax and Wealth Tax and wealth tax under section 66.A of the Income Tax Ordinance, 1979 (hereinafter the Ordinance) whereby the orders finalized under section 59A for the assessment years 1996-97, 1997-98 and 1998-99 were declared to be erroneous insofar as prejudicial to the interests of revenue and the amounts of Rs. 2,96,917, Rs. 30,61,451 and Rs. 52,27,600 were added to the net income of the assessee under section 12(18) of the Ordinance for the three assessment years under appeal.
2. The impugned order has been assailed on the grounds set out below:---
"(1) The Inspecting Additional Commissioner of Income-tax passed order under section 66A of Income Tax Ordinance, 1979 and issued notice of demand under his own signature, which act is illegal under section 85 of Income Tax Ordinance, 1979 and has made the order, under appeal; illegal and void.
(2) The order, passed by the Inspecting Additional Commissioner of Income-tax under section 66A of Income Tax Ordinance, 1979 is illegal and erroneous because he could not appreciate the difference between "Advance" and "Loan" and has taxed the amount of "House building advance" while according to subsection (18) of section 12 of 1979, only "Cash Loans" were to be taxed during the years under consideration.
(3) The Inspecting Additional Commissioner of Income-tax has based the order under section 66A on "implied meanings" of your appellant's version/declaration, which act is not permissible/acceptable in application of fiscal laws.
(4) The Inspecting Additional Commissioner of Income-tax passed the order under section 66A without looking into the case judiciously and without giving proper opportunity to the appellant to prove his case."
It has been prayed that the impugned order may be cancelled and the order originally passed by the D.C.I.T. be restored.
5. Briefly stated, the facts leading to these appeals are that the assessments in the case of the assessee, an individual, for the assessment years under appeal were finalized under section 59A of the Ordinance. While examining the record, the learned I.A.C. found that the assessee had obtained cash loans of different amounts from Messrs Moin Sons (Pvt.) Ltd. During the periods relevant to the assessment years under appeal. She was of the view that these loans attracted the provisions of section 12(18) of the Ordinance. Accordingly, in exercise of the powers conferred upon her under section 66A of the Ordinance, a show-cause notice was issued to the assessee calling upon him to explain his point of view in this regard. The assessee explained that the amounts obtained from Messrs Moin Sons (Pvt.) Ltd. were not loans but "House Building Advance" since the assessee, being a director and employee of that company, was entitled to obtain such permissible advance. It was pleaded that the provisions of section 12(18) were not attracted to the case as the receipts in the nature of advances related to the period prior to the new section 12(18) brought w.e.f. 1st July, 1998. However, the learned I.A.C. was not convinced with the explanation submitted by the assessee. She, therefore, modified the assessment orders made under section 59A by adding the amounts of the alleged cash loans as deemed income under section 12(18) of the Ordinance. In this way, the assessments were finalized and a tax-demand amounting to Rs. 1,10,933, Rs. 11,75,279 and Rs. 16,76,598 was created against the assessee for the three assessment years respectively.
We have heard the arguments of learned representatives of both parties and considered the facts and circumstances of the case in the light of the material available on the case record produced by the learned D. R. and the evidence adduced by the assessee.
5. The main argument advanced by the learned A.R. of the assessee is that the assessee had never claimed or shown any amount or sum of money as loan during any income year relevant to the assessment years under appeal. Besides, there was nothing on record to suggest that any such amount or sum of money had been received by the assessee in cash from the company namely Moin Sons (Pvt.) Ltd. in which the assessee was a director. The record of proceedings under the Ordinance also did not show that there were any cash loans obtained from the said company which were ignored by the D.C.I.T. while passing orders under section 59A of the Ordinance. The show-cause notice issued by the learned I.A.C. under section 66A, as reproduced in the impugned order, was based on conjectures and surmises and there could be no reason to believe that any loan had been obtained otherwise than through banking channel. The learned I.A.C. did not apply her mind to the facts apparent from the record of proceedings and invoked jurisdiction under section 66A without appreciating the provision of section 12(18) of the Ordinance- before its substitution by the Finance Act, 1998, which read asunder:---
"(18) Where any sum, or the aggregate of sums, claimed, or shown, to have been received as loan by an assessee during any income year commencing on or after the first day of July, 1987, from any person, not being a banking company, or a financial institution notified by the Central Board of Revenue for this purpose, otherwise than by a crossed cheque drawn on a bank, exceeds one hundred thousand rupees, the said sum or the aggregate of sums shall be deemed to be the income of the assessee for the said income year chargeable to tax under this Ordinance:
Provided that, where the said loan is claimed, or shown, by way of the explanation, referred to in subsection (1) of section 13, in a case to which the first proviso to the said subsection applies, the income under this subsection shall relate to the assessment year referred to in the said proviso."
On the other hand, the learned I.A.C. erroneously relied upon the substituted section 12(18) which was not applicable to the income years relevant to the three assessment years under appeal. She reproduced new section 12(18), as substituted by Finance Act, 1998, in the impugned order as under:---
"Where any sum claimed, or shown, to have been received as loan or advance or gift by an assessee during any income year commencing on or after the first day of July, 1998, from any person not being a banking company, or a financial institution notified by the Central Board of Revenue for this purpose, otherwise than by a crossed cheque drawn on a bank, or through a banking channel from a person holding a National Tax Number, the said sum shall be deemed to be the income of the assessee for the said income year chargeable to tax under this Ordinance:
Provided that, where the said loan or advance or gift is claimed or shown by way of the explanation, referred to in subsection (1) of section 13, in a case to which the first proviso to the said subsection applies, the income under this subsection shall relate to the assessment year referred to in the said proviso."
It was argued that even by virtue of the afore-quoted provision of section 12(18), the learned I.A.C. could not say that any sum was claimed or shown by the assessee to have been received as loan or advance of gift during any income year commencing on or after the first day of July, 1998. It was further argued that the learned I.A.C. only provided one single opportunity to the assessee and that too to explain his point of view and not to produce necessary evidence in defence or in rebuttal of the inferences drawn by her. In the written reply submitted to the learned I.A.C. the assessee had clarified that there was some misunderstanding about the so called "loan" since he had obtained house building advance from the company and was entitled to do so being its director/employee and, therefore, the provision of section 12(18) of the Ordinance was not attracted. The learned I.A.C. did not provide any fair, and reasonable opportunity of being heard to the assessee and hastened to draw the conclusions, without supportive material/evidence, that (i) the amount was in fact loan obtained by the assessee from Messrs Moin Sons (Pvt.) Ltd.; (ii) the said loan was obtained in the shape of cash; (iii) it had been declared as loan by the assessee in wealth tax returns and reconciliation statement; and (iv) in the ledger account application of loan had been shown as gifts personal expenditure and purchase of land it was submitted that most of the amounts were advanced by the company to the assessee through cross cheques for which bank certificates are available. However, since no amount or sum of money was claimed or shown by the assessee to have been received as cash loan and the learned I.A.C. had no material in support of the finding that the amounts in question were cash loans, the contention of the assessee could not be rejected on the basis of one-sided arguments given in the impugned order, especially when the assessee was never asked to produce documentary evidence that the amounts in question were obtained through the banking channel. The wealth tax returns and reconciliation statement etc. were also misinterpreted by the learned I.A.C. without confronting the assessee about the nature of entries made therein. The learned counsel of the assessee has further argued that the original orders under section 59A did not contain any such point in issue, therefore, in view of the decision of this Tribunal, dated 29-2-1996 made in I.T.As. Nos. 156, 157, 158 and 167/LB of 1993-94, the provision of section 66A of the Ordinance could not be attracted since the issue was not examined or settled by the Assessing Officer.
6. The learned U.R. appearing for the department has defended the impugned order and submitted that the action of the learned I.A.C. under section 66A of the Ordinance was fully justified as the original assessment orders were not only erroneous but also prejudicial to the interests of revenue and both these conditions had been fulfilled.
7. Having considered the arguments advanced by both parties in the light of material evidence on record, we are of the firm opinion that the learned I.A.C. has failed to exercise powers under section 66A of the Ordinance in a fair and judicious manner and has not examined the record of proceedings under the Ordinance in such a manner as to lead to a definite conclusion that the original orders passed by the D.C.I.T. were erroneous insofar as these were prejudicial to the interests of revenue. The learned I.A.C. could always probe into the matter and judge the exact nature of a receipt or an entry in any of the documents relating to the record of proceedings under the Ordinance but she has not done so not made necessary enquiry under section 66A of the Ordinance. Besides, the assessee was entitled to a fair and reasonable opportunity of being heard which was also not provided to him. The learned I.A.C. also failed to appreciate the fact that the provision of section 12(18) existing at the relevant time and applicable to the income years pertaining to the assessment years under appeal was not attracted in this case because two conditions had to be simultaneously satisfied. First, that there was a "loan" received by the assessee and, secondly, that it was "claimed" or "shown" by him. The letter of law in this taxing provision of the Ordinance had to be interpreted in the sense in which it B was used and could not be ignored as to cause injustice to the assessee. Since the two requirements of section 12(18) as it stood before its substitution through Finance Act, 1998, were not fulfilled the provision of that section was not attracted in this case, especially when the subsequent amendment made in the year 1998 supported the case of the assessee that at the relevant time an advance, irrespective of its nature and use, could not be deemed as income of the assessee under section 12(18) of the Ordinance. In similar circumstances, it has been recently held by the Lahore High Court in the case reported as 2001 PTD 1180 that there was nothing to show that the amendment in sec tion 12(18) by Finance Act, 1998, was brought about to clarify the earlier provisions and not to bring a change in it all; more so when the amendment was not given retrospective effect as normally clarificatory or declaratory amendments are given. In that case also, the High Court expressed the view that the I.A.Cs. stretched their powers under section 66A unnecessarily to hook the assessees and they even acted in disregard to C.B.R. Circular No. 6 of 1987, dated July 6, 1987, which explained the provisions of section 12(18) when these were introduced. It would be pertinent to reproduce the relevant paragraphs from the High Court's judgment in that case, which equally applies to the instant case before us as under:---
"10. We are also in agreement with the contentions of the appellants that at the relevant time the express mention of the word 'loan' excluded all other similar or equivalent terms, transactions, or nature of the receipts. According to the findings of this Court .in re: Chairman Evacuee Trust Property v. Muhammad Din and another (supra) no maxim of law was of more general and uniform application than 'expression unions est exclusio alterious' According to their Lordships whenever a statute limits a thing to be done in a particular form, it necessarily includes in itself a negative, viz. that the thing shall not be done otherwise. Therefore, in our view both the IACs stretched their powers under section 66A unnecessarily to hook the appellants before us. They even acted in disregard of the Circular No. 6/87, dated July 5, 1987 which explained the provisions of section 12(18) when they were introduced. That being the first reaction of the Revenue and its interpretation of the provision, it had to be given serious thought at least by the Revenue Officers.
11. Learned counsel for the appellants also appear correct in suggesting that the purpose of introduction of the provisions of section 12(18) at the relevant time was to check fictitious loans and it was after quite some time that it was realized that the scope of the provisions needed to be expanded. It is also our opinion that no addition of the kind could possible be made not the defence taken by the appellants rejected without recording a finding of fact that these sums were injected in the business and were used as capital. Circulating or otherwise. In other words the defence of the appellants/assessee could have been demolished only by recording a finding of fact that the alleged share deposit monies were factually used in the business and therefore, could be taken as 'loan' taken for catering the capital needs of the companies. Such an exercise is absent in the cases of the appellant before us. Therefore, the findings of this Court in re: Prime Commercial Bank and others v. Assistant Commissioner of Income-tax 1997 PTD 605 are relevant. In that case a Single Bench of this Court on the authority of an earlier view held in K.G. Old, Principal Christian Technical Training Centre Gujranwala v. Presiding Officer, Punjab Labour Court Northern Zone and 6 others PLD 1976 Lah. 1097 found it to be a settled proposition that generally an amendment is brought to bring out a change in the state of law unless the amendment was clarificatory or declaratory in nature. In the present case there is nothing to show that the amendment in section 12(18) by Finance Act, 1998 was brought about to clarify the earlier provision and not to bring a change in it. All the more so when the amendment was not given retrospective effect as normally clarificatory or declaratory amendments are given.
12. Lastly, we will also agree that the settled principle of taxing statutes that where two interpretations are equally possible then the one favourable to the subject is to be adopted is attracted in this case. The principle can also at times be extended to factual situations warrants warranting application of deeming provisions. It means where the transaction can equally be placed within or outside the dividing taxing line, the one falling outside should be preferred against the one falling inside."
8. For the facts and reasons stated above, we hold that the original assessment orders made in this case were not erroneous and prejudicial to the interest of revenue, the provision of section 1-2(18) of the Ordinance was not applicable at the relevant time for the relevant income 1 years and the exercise of revisional jurisdiction by the learned I.A.C. was illegal. Therefore, the impugned order is cancelled and the original assessment orders are restored.
9. Resultantly, the appeals, of the assessee succeed.
C.M.A./M.A.K./131/Tax(Trib.)Appeals succeeded.