I.T.A. No. 2069/KB of 1999-2000, decided on 31st August, 2001. VS I.T.A. No. 2069/KB of 1999-2000, decided on 31st August, 2001., 2002 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1941 (2001)

Income Tax Ordinance (XXXI of 1979)---

----S.66A---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Issue of status was specifically agitated and adjudicated by the First Appellate Authority---Re-opening of same issue under S.66A of the Income Tax Ordinance, 1979 by the Inspecting Additional Commissioner---Validity---Jurisdiction of Inspecting Additional Commissioner under S.66A of the Income Tax Ordinance, 1979 could not be extended to portion of the order or issues decided or modified by the First Appellate Authority---Proper course for the Department was to file appeal against the order of the First Appellate Authority before the Tribunal and not to invoke jurisdiction under S.66A of the Income Tax Ordinance, 1979---Assessment order had already merged into Appellate order on account of theory of merger and there was no order in the field for the, Inspecting Additional Commissioner to exercise jurisdiction---Appellate Tribunal vacated the order of the Inspecting Additional Commissioner and the assessment order as modified in accordance with the direction of the First Appellate Authority.

1999 PTD (Trib.) 2294; 1996 PTD (Trib.) 492 and 1999 PTD (Trib.) 401 rel.

Syed Hassan Naeem, I.T.P. for Appellant.

Muhammad Umer Farooq, D.R. for Respondent.

Date of hearing: 21st June, 2001.

ORDER

JAWAID MASOOD TAHIR BHATTI (JUDICIAL MEMBER).---The appellant through this appeal has objected the order of the learned I.A.C. dated 15-5-2000 passed under section 66A of the Income Tax Ordinance, 1979. on the grounds as set forth in the memo. of appeal. The nutshell of the six grounds as framed by the appellant is that the learned I.A.C. was not justified in treating the appellant as a "Private Limited Company" and charging tax at the rate applicable to Private Limited Companies.

2. We have heard the learned representatives of both the parties and have also perused the impugned order and other relevant documents. Syed Hassan Naeem, I.T.P. learned counsel for the appellant apart from repeating his arguments which has already been reproduced in the impugned order of the learned I.A.C. has conceded that the same issue has already been discussed and decided by this Tribunal for the three previous years 1995-96 to 1997-98 vide order, dated 30-9-2000 in I. T. As. Nos. 1023 and 2025/KB of 1999-2000 but he is insisting that the matter is not here to decide the issue of status of the company but the issue is whether the learned I.A.C. has the justification in the present case to reopen the case of the appellant when the issue was already decided by the learned CIT(A). According to him, the original assessment in this case was finalized on 18-5-1999 treating the status of appellant company as public limited company, the appellant filed first appeal being aggrieved on the following issues:---

(1) Provision for taxation;

(2) Tax deducted at source;

(3) Overall working of depreciation;

(4) Depreciation on motor vehicles;

(5) Add backs under heads travelling/conveyance, vehicle upkeep and general expenses;

(6) Donation;

(7) Short credit of tax deducted;

(8) Erroneous computation of income and taxes.

Learned CIT (A) decided the appeal on 30-7-1999 setting aside the issues of disallowances and erroneous calculation of income-tax with direction that specific notice under section 62 shall be issued before forming any adverse inference. The DCIT while giving appeal effects under section 132/62 of the Ordinance, issued notice under section 61 alongwith notice under section 62/ 156(2) of the Ordinance, wherein apart from the disallowances and erroneous calculation, the D.C.I.T. also asked explanation regarding status of the appellant as public or private without considering the fact that the D.C.I.T. has already treated the appellant/assessee as public limited company as per history of the appellant and during the proceeding under sections 62/132 of the Ordinance. D.C.I.T. was bound to act only in accordance with the directions of the learned CIT(A) on the specific issues. Learned counsel has also drawn our attention to the order of D.C.I.T. under sections 132/62, wherein tax has been charged at the rates applicable to private company. According to learned counsel of the appellant, the learned CIT(A) set aside the issue of disallowances with direction that specific notice under section 62 shall be issued before filing any adverse inference. But the Assessing Officer while giving the appeal effects to the order of learned CIT(A) dated 30-7-1999 without any justification adjudicated the issue of the status of company in spite the fact that he has already while passing the original assessment order has accepted the status of the company as public limited company but treated the appellant as private company in his order dated 30-11-1999 passed under sections 132/62 in spite of the fact that learned CIT(A) has set aside the assessment order on specific issue with specific directions. According to learned counsel, appellant again went in appeal before the learned CIT(A) and the learned CIT(A) vide order dated 29-2-2000 directed the Assessing Officer to apply the rate as originally attracted and also observed that the Assessing Officer had no authority to go beyond what was directed in the appellate order and that the learned officer has gone beyond the pale of law. According to learned counsel the Assessing Officer vide his order dated 18-4-2000 passed an order giving appeal effect under section 132 of the Ordinance again treating the appellant as public company. Mr. Syed Hassan Naeem, has contended that the learned I.A.C. issued a show-cause notice dated April 13, 2000 showing his intention to invoke section 66A of the Ordinance on the issue of status of the appellant as private limited company despite the fact that there was no assessment in the field at that time due to merger of assessment order in the order of the learned CIT(A) in which this issue is already subject-matter of the appeal. According to him, therefore, the impugned order of the learned I.A.C. is violative of the provisions of subsection (IA) of section 66A of the Ordinance. Learned A.R. in this respect has placed reliance on the decision of this Tribunal reported as 1999 PTD (Trib.) 2294.

3. On the other hand, Mr. Muhammad Umer Farooq, learned representative of the Department is supporting the impugned order of the learned I.A.C. According to him, learned I.A.C. has discussed all the relevant laws and after considering all the facts and circumstances of the case has invoked the jurisdiction under section 66A. Learned D.R. has contended that even otherwise this Tribunal vide order, dated 30-9-2000 in the cross appeals of both the parties in I. T. As. Nos. 1023 to 1025 and 1917/KB of 1999-2000, has upheld the order passed under section 66A of the Ordinance by the learned I.A.C. treating the status of the appellant as private limited company for the previous assessment years i.e. 1995-96 to 1997-98.

4. We have heard learned representative of both the parties and have also perused all the relevant decisions passed in this case, the order of this Tribunal in the case of the assessee for the assessment years 1995-96 to 1997-98 referred by the learned D.R. and case-law referred by the learned counsel of the appellant in support of his contentions. We have found that the learned I.A.C. has discussed all the facts in detail in the impugned order but has not considered the main point arising out of the proceedings of the case which is the merger of the assessment order with the order of the learned CIT(A) despite the fact that the appellant has in reply to the notice of show cause has raised this issue before him: The relevant paras. 5 to 7 of the impugned order of the learned I.A.C. for the facility of decision are reproduced hereunder:---

"5. At the very outset, it will be pertinent to mention that the issue of status of 'public limited company', claimed and allowed in the original order passed under section 62 dated 18-5-1999 was neither raised nor contested by the assessee in the First Appeal No.319, filed on 15-8-1999 and decided by the CIT(A) on 30-7-999. Therefore, the issue about the status, in whatever shape was not the subject-matter of appeal up to 30-7-1999. It was so because there was no point of agitation for the assessee to assail the order passed under section 62. It was at the point of time when the Assessing Officer, while giving the effect, to the order of the Commissioner of (Appeals), dated 30-7-1999, raised the issue and decided the status of a private limited company as against the assessee's claim of 'status of a public limited company' purely on legal grounds and passed the order under section 62/132, dated 30-11-1999. It was against this order that the assessee preferred appeal bearing No.662, dated 31-12-1999 which was decided by CIT(A) on 29-2-2000 according to assessee's plea with specific direction. Here it will be advantageous to incorporate the contents of grounds of assessee's appeal and learned CIT(A) decision so that nature of plea and background of specific directions of CIT appeal are understood in its true perspective. The relevant portion of grounds of appeal reads as under:---

"That without prejudice to the ground heretofore recorded the learned Assessing Officer has travelled beyond his jurisdiction by treating the appellant as a 'private limited company' instead of a 'public limited company' and charging the tax at the rates applicable to the 'private limited companies'."

The A.R. of the assessee further contended in his written arguments before the CIT(A) on the point as under:---

"The point, which requires your attention is that while giving effect to your honour's appellate order, the D.C.I.T. altogether ignored that his jurisdiction is limited to the specific direction (with regard to the disallowance of the expenses) given by your honour in the appellate order. As such he did not have authority to go beyond what has been directed in appellate order and accordingly impugned order -is not sustainable being violative of the jurisdiction available to the D. C. I. T."

6. The finding of the learned CIT(A) on the plea of the assessee is also reproduced as under:---

"I have examined the merit of the case. Insofar as the issue of treating the appellant as 'private limited' company instead of 'public limited' company whereby charging the tax applicable to a 'private limited' company is concerned, I have no reasons to doubt that the plea of the appellant is based on correct footings when viewed in a context that the order has been passed under sections 132/62 of the Income Tax Ordinance, 1979. I wholly agree with the contention of the learned A.R. that under these specific circumstances the learned Assessing Officer had no authority to go beyond what was directed in the appellate order, It is thus clear that the learned officer has gone beyond a pale of law. It is, therefore, ordered, notwithstanding any other factor that the rate as originally attracted shall, be, applied. The plea succeeds."??????????

7. From the above reproduced grounds, pleas and the decision of the CIT(A) it is sufficiently clear that the issue which was subject-matter of appeal related to the jurisdiction of the learned Assessing Officer which was challenged on specific facts of the case as to whether the Assessing Officer was justified to examine the issue which was not the subject-matter of the decision made by the CIT(A) in its order dated 18-5-1999. The learned CIT(A) found and held that the Assessing Officer was acting beyond his jurisdiction while giving the effect -to the appellate order under section 136/62 and ordered .that the original status of public limited company appearing in order under section 62 be restored notwithstanding any other factor. The issue in respect of the legality of the claim of the status i.e. as to whether the company is entitled under the, law to enjoy the status of 'public limited company' was neither the subject-matter of the appeal nor it was decided by the CIT(A) within the provision statutory definition provided in the Income. Tax Ordinance, 1979, vide paragraph B-2 of Part IV of the First Schedule. There being no finding on the legal issue, raised in the ACIT's order under sections 132/62, dated 30-11-1999, given by- the CIT(A). A.R.'s contention that action under section 66A is hit by section 66A(lA) of the Income Tax Ordinance, 1979 is misplaced and merits rejection. For the purpose of examination of assessee's claim for status of `public limited' company the order of the learned A.C.I.T. passed under section 62 even after CIT's appellate order dated A-5-1999, restoring the status on the point of jurisdiction, leaves the issue unattended/undecided on account of its legality or otherwise for consideration of the offer having valid and proper jurisdiction under the law. The proper course in such circumstances leads to provision of section 66A of the Income Tax Ordinance, 1979, so that loss caused to the Revenue is retrieved. The plea of the A.R. on this point is therefore, rejected being devoid of merit."

5. We have further found that this Tribunal while deciding cross?-appeals in the present case through order dated 30-9-2000 related supra has already upheld the treatment of the learned I.A.C. treating the appellant status as private limited company but the issue of merger of the assessment order with that of learned CIT(A) was not involved for those assessment years. Relevant para.3 of the Tribunal order for the facility of the decision is reproduced hereunder:

"We have carefully analyzed the arguments advanced by both the parties. In our opinion the learned A.R. of the assessee company has not been able to make out good case for our undoing I.A.C.'s order under section 66A It is now a settled proposition of law both at this Tribunal's (Full Bench) level and that of the Hon'ble High Court Karachi that Government and Government Corporations are two different and distinct entities and these cannot be taken to be one and the same for the purpose of Income Tax Ordinance, 1979. Government of Pakistan is not liable to any tax under the law while the Government-owned Corporation are. The matter stands clarified as per Article 165A of the Constitution of Islamic Republic of Pakistan. Also there are many decisions on the issues which have been referred to in this Tribunal's (Full Bench) decision relied upon by. the I.A.C. Further, assessee-company's contention that the shares were taken over by the Government of Pakistan under scheme of nationalization is immaterial in the context. Mr. Syed Hassan was not able to prove whether before the I.A.C. or before us that no compensation for taken over shares was paid by the Government or that the Government of Pakistan retained the share till now and State Life Insurance Company merely held the shares as fiduciary or trustee and that the dividend on such share was directly remitted to the Government of Pakistan or separately received by the State Life Insurance Company and passed on G.O.P. as such. Thus the matter has not been elaborated in sufficient detail and with proper documentary material to make distinction with the case of Indus Steel pipes Ltd., decided by the Hon'ble Sindh High Court, Karachi or by this Tribunal (Full. Bench). Similarly his plea of ousting of I.A.C.'s jurisdiction due to filing and decision of assessee's appeal against the original order by the CIT(A). is also without substance. This matter was not before the CIT(A) and was not adjudicated by him. Subsection (IA) of section 66A further specifically validates I.A.C.'s action. Similarly the plea that assessee's company were always assessed in the status of public company is also immaterial in the context. I.A.C. has properly rebutted this contention as there are no legal basis for perpetual perpetration of a wrong once committed or for that matter committed over a number of years. Assessee's A.R. plea that the decisions relied upon were subsequently announced is also incorrect in the context because judicial decisions do not enact laws but only interpret them the way these are and always were (unless amended). We, therefore, uphold I.A.C.'s orders under section 66A for all the three (3) years and dismiss assessee's appeals .... "

After careful study of the above observations of this Tribunal, we have found that while deciding the appeals, this Tribunal in the order has specifically referred that the issue of status of appellant was neither agitated by the assessee nor adjudicated by the learned CIT(A) and therefore, the action of the learned I.A.C. was justified but in the present case the situation is totally different. Issue of status has, been specifically -agitated by the assessee and adjudicated by the learned CIT(A).

6. We have considered all the above facts and the legal position and the crucial point before us which remains to be decided in this matter as we have already said is the jurisdiction of learned I. A. C. in the matter when there was no assessment order on the file at the time of issuing show-cause notice, as the subject in issue was already decided by the learned CIT(A). We find force in the contentions of the learned A.R. that the jurisdiction of the learned I.A.C. under section 66A of the Ordinance cannot be extended to portion of the order or issues decided or modified by the learned CIT(A). In the present case, best course for the Department was to file appeal against the order of toe learned CIT(A) before the Tribunal and not to invoke the jurisdiction under section 66A to be invoked by the learned I.A.C. We have also perused the decision of this Tribunal referred by the learned counsel for the appellant reported as 1999 PTD (Trib.) 2294 wherein it has been held that:---

It must be reminded that the jurisdiction of the I.A.C. extends to `any order passed therein by the Deputy Commissioner is erroneous ....' and this jurisdiction .cannot be extended to portion of the order or issues decided or modified by learned CIT(A). This is very clear from a plain reading of subsection (1 A) of section 66A which is reproduced below for the sake of clarity:---

"(1A) The provisions of subsection (1 j shall, in like manner, apply,---

(a) where an appeal has been filed under sections 129, 134 and 137 or an appeal has been filed under section 136, against an order passed by the Deputy Commissioner; and

(b) where an appeal referred to in clause (a) has been decided, in respect of any point or issue which was not the subject-matter of such appeal".

Subsection (1A) reproduced supra was inserted by Finance Act, 1991 with a view to extend I.A.C.'s jurisdiction over those cases also where appeals had been filed or decided, and Assessing Officer's orders had merged into appellate authorities' order, and due to overwhelming consensus of judicial pronouncements, there was no order in the field for the I.A.C. to exercise jurisdiction. The theory of merger has more recently been discussed by the Appellate Tribunal in cases reported as 1996 PTD (Trib.) 492 and 1999 PTD (Trib.) 401. Both the reported judgments have made it clear that I.A.C.'s jurisdiction extends only to that portion or issue of assessment order which was not the subject-matter of the appeal???"

After considering the view taken by this Tribunal supra, we are of the view that principles as laid down in this case are fully applicable in the present case. We are, therefore, of the considered view that the learned I.A.C. was not justified to invoke the jurisdiction in the present case under section 66A of the Ordinance as the jurisdiction under section 66A cannot be extended to portion of the order or issue decided or modified by the learned CIT(A). In the present case, the assessment order had already merged into Appellate Authority order and there was no order in the field for the learned I. A. C. to exercise jurisdiction due to the theory of merger. We, therefore, considering all the above facts and case-law, vacate the impugned order of the learned I.A.C. and the assessment order as modified in accordance with the direction of the learned CIT.

6. Appellant succeeds

C. M. A. /M. A. K./269/Tax(Trib.)?????

Appeal accepted.