I.T.As. Nos. 820(113) to 822(113) and 826(IB) of 1999-2000, decided on 30th November, 2001. VS I.T.As. Nos. 820(113) to 822(113) and 826(IB) of 1999-2000, decided on 30th November, 2001., 2002 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 2609 (2001)

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.56, Expln. & proviso‑‑‑Assessment procedure‑‑‑Provisions relating to assessment procedure, which were also commonly known as machinery provisions were to be given retrospective effect, if not otherwise expressly or impleadly provided.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.56, 62, 65, 13(1)(d), 13(2), 30(2)(c), 108, 110 & 111‑‑‑Notice to furnish return of total income‑‑‑Limitation‑‑‑Assessment year 1986‑87‑‑‑Issuance of notice under S.56 of the Income Tax Ordinance, 1979 on 12‑2‑1994 for filing of return for assessment year 1986‑87 i.e. beyond the period of five years‑‑‑Validity‑‑‑Powers of Assessing Officer to issue notice calling upon the assessee to file return was resolved by the Explanation to S.65, Income Tax Ordinance, 1979 through Finance Ordinance, 2000 and unlimited powers in point of time were given to the Assessing Officer to issue notices to any assessee, who was required to file return but had not done the same, for any period preceding the date of the issuance of the notice‑‑‑Result emanating from this very Explanation seemed to be initiating action and opening of a larger number of cases which had the effect of subjecting many a persons to file returns whose cases might understandably be pending , at different stages‑‑‑Such mischief was taken into cognizance by the Legislature and in order to suppress that mischief and provide cure and remedy, the proviso was added to S.56 through Finance Ordinance, 2001. which had curtailed the powers of the Assessing Officers to issue notice beyond a period of five years‑‑‑Intention of the Legislature thus appeared to be not to widen the mischief net and to reduce the agony which had already been let loose by the Explanation added to S.56 by Finance Ordinance, 2000‑‑‑Role of the proviso to S:56 was understandable, which had to be invoked for the pending cases as well‑‑‑Further amendments providing remedies and cure 'shall have to be retrospectively interpreted‑‑‑Present case .shall be governed by the proviso to S.56 which in its import had retrospective operation‑‑ Action of the Assessing Officer by issuing a notice under S.56 of the Income Tax Ordinance, 1979 on 12‑2‑1994 calling upon the assessee for filing the return for assessment year 1986‑87 was not warranted for the said notice was beyond the period of five years‑‑‑Assessment order which had resultantly been framed was not sustainable in law and merited to be annulled‑‑‑First Appellate Authority although annulled the assessment order yet the grounds mentioned by it were not correct‑‑‑While upholding the decision of the First Appellate Authority in respect of annulment of the assessment order relating to assessment year 1986‑87 the reasons given in the order were; set aside by the Tribunal and a sequel to such annulment of the assessment order, the penalty proceedings could not be initiated which were cancelled‑‑‑First Appellate Authority also found the same but on different reasons and thus the order of the First Appellate Authority was upheld in this respect by the Tribunal‑‑‑Appeals were rejected accordingly‑‑‑[(1998) 78 Tax 91 (Trib.) reversed].

(1998) 78 Tax 91 (Trib.) reversed.

2001 PTD 1998; 1985 PTD 276 and 1993 SCMR 73 rel.

Naushad Ali Khan, D.R. for Appellant.

Habib Fakhruddin, F. C. A. and Hafiz Muhammad Idrees for Respondent.

Date of hearing: 15th November, 2001.

ORDER

MUHAMMAD JAHANDAR (JUDICIAL MEMBER).‑‑‑This order shall dispose of above mentioned appeals relating to the assessment year 1986‑87, Which are directed. against two ord6rs passed by the learned CIT(A), Islamabad, I.T.A. No.826(IB) of 1999‑2000 challenges order dated 6‑12‑1999, whereas I.T.A. No.820(IB) of 1999‑2000 to I.T.A. No.822(IB) of 1999‑2000 impugns the vires of order dated 9‑12‑1999.

2. Relevant brief facts are that the assessee, an AOP, is engaged in the business of sale, purchase, and construction of property. For the year under consideration return of income was allegedly not filed by the assessee under section 55 of the Income Tax Ordinance, 1979 (hereinafter called an Ordinance). On receipt of an information from CDA that assessee had purchased a plot on 26‑6‑1986, a notice under section 56 of the Ordinance was issued for 12‑2‑1994, requiring the assessee to furnish the return of total income. The assessee could not be served whereon two further notices under sections 61 and 62 of the Ordinance were issued and on the given date of hearing, A.R. of the assessee attended and furnished a written reply alongwith certain documents. The reply was found to be unsatisfactory by the Assessing Officer who proceeded to issue a further notice under section 13(2) read with 13(1)(d) of the Ordinance. The A.R. appeared and filed reply which was again found to be unacceptable. Consequently, , on rejecting the assessee's contention, an alleged unexplained investment of Rs.4,641,280 was deemed to be the income of the assessee and through an order dated 10‑6‑1996 was charged to tax under section 30(2)(e) of the Ordinance. Alongwith this order, the Assessing Officer proceeded to impose penalties under section 108 for non‑filing of return under section 110 for non‑compliance of notices and under section 111 of the Ordinance for concealment of income.

3. The assessee aggrieved of this treatment challenged not only assessment but also the aforesaid penalty orders before the learned CIT(A), Islamabad who through impugned order dated 6‑12‑1999, observed that the A.R. has contested the legality of the issuance of notice by the Assessing Officer and held that a notice under section 56 of the Ordinance could only be issued for the current assessment year while for preceding years, the notice could only be issued under section 65 of the' Ordinance. He found that the proceedings were coram non judice and the assessment order thus passed was illegal and resultantly annulled the Assessment order. He relied on (1998) 77 Tax page 91 (Trib.). Besides annulling the assessment order, the learned CIT(A)' through another impugned order dated 9‑12‑1999 held that since the assessment order relating to year 1986‑87 stands annulled, the penalties are not maintainable and cancelled the same. The department has come up in appeal before this Tribunal.

4. Learned D.R. maintained that the learned CIT(A) was not justified to hold that for the assessment of previous years, a notice under section 65 of the Ordinance could only be issued instead of a notice under section 56 of the Ordinance. He referred to the explanation to under section 56 to contend that a notice under section 56 of the Ordinance may be issued in respect of any preceding assessment years including the current assessment years. While relying on this Explanation, which was inserted through Finance Ordinance, 2000 he argued that the Full Bench judgment reported as (1998) 78 Tax 91 (Trib.). no more holds the field where it was laid down that a notice under section 56 could be issued, calling for filing of return of income for the current assessment year only. Learned DR added that notice in the instant case was issued by the Assessing Officer on 12‑2‑1994 and the assessee was confronted with the investment having been made by him. Since the assessee had not filed the return and complied with the notices, the Assessing Officer after issuing a notice under section 116 of the Ordinance proceeded to impose penalty which action is in accordance with law. Learned DR in rebuttal to an argument by the learned AR that through the Finance Ordinance, 2001, the explanation inserted through Finance Ordinance, 2000 providing for issuance of the notice in respect of any assessment year including the current year was substituted with a proviso through Finance Ordinance, 2001 which is to the effect that no notice under section 56 shall be issued beyond five years from the end of the assessment year for which the return of income was due, contended that the assessee's case being a past and. closed transaction shall not be regulated by this proviso to infer that the same shall be operative retrospectively. He maintained that the cardinal rule of interpretation is that amendments are to be presumed to have a prospective operation unless the very words of the statutes provide otherwise The Legislature in its wisdom has brought into the tax net a person who were to file return, having income beyond non‑taxable limit but managed to evade tax. The Income Tax Ordinance being a fiscal statute primarily dealing with the assessment and collection of taxes chargeable on different kinds of incomes has to be strictly construed as the overall objective of the whole dispensation is to generate revenue for disbursing expenditures in connection with the functions of the Government. In respect of the proviso, being taken to be procedural in nature, learned DR contended that it deals with rights of the revenue to assess and collect taxes from assessee and is thus a substantive provision and shall operate prospectively. This can never be held to be relatable to a kind of limitation governing the procedural modalities. The Legislature has put a bar on issuing a notice calling upon an assessee to file the return beyond a period of five years from the assessment years in which the return was due. This bar cannot be construed to be applicable to those cases which have already been initiated. Assuming for sake of arguments that the proviso operates retrospectively and governs cases still pending at different levels, a somewhat ticklish position would emerge between the assessees who had already been issued notices under section 56 of the Ordinance before the insertion of the proviso for any preceding assessment year and his case has been concluded by bringing him within the tax net and the assessees whose cases have not yet been concluded. This kind of discrimination cannot be deemed to have been visualized by the Legislature.

5. As against this, learned AR at the outset referred to a recent judgment of the Lahore High Court reported as 2001 PTD 1998 page 1998 to contend that even before the insertion of the proviso through the Finance Ordinance, 2001, the operation of section 56 of the Ordinance was held to be not confined to the current assessment year and a notice for preceding assessment years could be issued. Learned AR contended that the whole exercise of the assessment, laid down under Chapter 7 of the Ordinance, entail machinery provisions and are procedural in nature. In this regard he referred to 1985 PTD 276 and maintained ‑that insertion of proviso through the Finance Ordinance, 2001 to section 56 puts a bar on the issuance of a notice beyond a period of five years from the end of the assessment year for which the return of income was due. The Legislature has circumscribed the powers of the Revenue Authorities. This proviso in its tenor is a procedural provision and shall have to be interpreted retrospectively covering all cases, which are pending before any forum at present. He maintained that in cases, in which notices were issued for assessment years that fell beyond the period of, five years shall be taken to be not within the contemplation or mischief of the assessment exercise for the purposes of chargeability. Learned AR also referred to (1976) 33 Tax 228 (H.C.Lah.) to contend that in consequence of an amendment in a law, which is procedural in nature, all pending cases, irrespective of the forum shall be dealt with in accordance with the amendment. Regarding the said proviso learned AR argued that it is a curative and remedial provision and such‑like provisions are to be given retrospective operation. He contended that the notice calling upon the assessee to file return was issued on 12‑2‑1994 for an assessment year 1986‑87, which is beyond the period of five years, thus assessment in these circumstances have to be annulled and resultantly the penalties are not called for, which have rightly been cancelled.

6. After hearing the arguments of the learned DR and AR, it appears that the assessee being an AOP, engaged in the business of sale and purchase of property, allegedly did not file income‑tax return as required under section 55 of the Ordinance for the assessment year 1986‑87, whereon a notice under section 56 of the Ordinance was issued for 12‑2‑1994 followed by other notices firstly under section 62 and then under section 13 of the Ordinance. Thereafter, assessment was framed by deeming certain investments to be income chargeable to tax. The assessee was also, after issuing of a notice under section 116 of the Ordinance, subjected to certain penalties under sections 108, 110 and 111 of the Ordinance. The assessee contested this treatment and the learned CIT (A) through the impugned Order dated 6‑12‑1999 annulled the assessment order on the ground that a notice calling upon an assessee to file return beyond the current assessment year, for which the return of income was due, is not permissible. The learned CIT (A) also proceeded through another impugned Order dated 9‑12‑1999 to cancel the penalty orders in consequence of his finding of the annulment of the assessment orders.

7. A perusal of the impugned Order dated 6‑12‑1999 passed by the learned CIT (A) shows that the basis of annulment of the Assessment Order is that of a judgment of Full Bench reported as (1998) 77 Tax 91 (Trib.), wherein it was 'held that a notice under section 56 of the Ordinance could not be issued to an assessee, who had not filed return, for a period beyond the current assessment year. This judgment incidentally does not hold the field at present in view of there being a recent judgment of the Lahore High Court reported as 2001 PTD 1998 (L.H.C.). It laid down that the language employed in section 56 of the Ordinance empowers an Assessing Officer to call for a return both for the current as well as previous years. Now a proviso to section 56 has been added through Finance Ordinance, 2001 which circumscribes the powers of Assessing Officer to issue .notice calling upon the assessee to file the return beyond a period of five years. Before this proviso, an Explanation was added through Finance Ordinance, 2000, which now stands substituted by the proviso, and it appears advantageous to reproduce both the explanations and the proviso as under:‑‑‑

Through Finance Ordinance, 2000 the following Explanation was added:

Explanation. ‑‑‑For the removal of doubt it is declared that a notice under this section may be issued in respect of any assessment year including the current assessment year and any preceding assessment year.

Through Finance Ordinance, 2001 the following proviso was added:

"Proviso. ‑‑‑Provided that no notice under this section shall be issued after the expiration of five years from the end of the assessment year for which the return of income was due."

First of all, it has to be determined whether or not the case of the assessee falls within the contemplation of the aforesaid proviso and for that, it is to be seen whether the operation of the proviso is prospective or retrospective. Section 56 falls under Chapter 7, of the Ordinance which deals with assessment procedure and it has throughout been laid down that provisions, in relation to the assessment procedure, which are also commonly known as machinery provisions unless otherwise expressly or impliedly provided are to be given retrospective effect. We do not find any thing inferable from the very language of the proviso that the Legislature has, intended to give prospective operation to it.

8. Learned AR relied on 1985 PTD 276 and it appears necessary that certain extracts thereof are reproduced below:‑‑‑

"The Finance Ordinance (XII of 1982) replaced subsection (3) and added subsection (3A) to section 65 (ibid). Subsection (3) now directs that the notice may be issued within those 10 years. In a way, it prescribes time for its issuance, though the period corresponds to the same length of 10 years. The added subsection (3A), however, seems to curtail the period of 10 years earlier prescribed for passing orders to only one year from the end of .the financial year in which ‑such notice was served. It may be reproduced as under:‑‑‑

"(3A) Where a notice under subsection (1) has been issued, no order under the said subsection shall be made after the expiration of one year from the end of the financial year in which such notice was served."

"The question was if this amendment applied or not to pending cases which were claimed to be many under the old dispensation when there was no idea of confronting the Income‑tax Authorities with such a limited period of exercising their powers. In my ,humble reading, the amendment is procedural inasmuch as it does not absolve the liability of an assessee in regard to his income which may have escaped assessment, nor does it curtail the powers of the Income Tax Officer to assess the same for the purposes of charging income‑tax. It, therefore, does not bring any change in regard to the liability of one party and the powers of the other, and hence it cannot be conveniently styled as something of substantive character. What it does is to limit the time for determining the liability of an assessee in the exercise of powers conferred upon the authorities. Limitation is undeniably a matter of procedure and the amendment in question was out and out procedural. There is no dearth of authority that any amendment in procedure or machinery provisions is applicable retrospectively affecting also the pending cases."

The amendment perhaps was intended to eliminate chances of misuse of the authority conferred upon the Income Tax Officers. Indeed to allow them to wield it for a period of long 10 years was something extremely unusual. It had the effect of giving them a handle of oppression vis‑a‑vis the assessee. It appeared to be in public good to straighten the year during which such a notice is issued and the next following were considered enough to constitute this period, if only the Income‑tax functionaries were vigilant about their job. If the idea was to provide relief to the public, there is little reason to deny the same to many people whose cases might be hanging fire for years together."

In the above mentioned judgment, a similar controversy was resolved by holding the question of limitation to be a procedural provision and was accordingly given retrospective effect and the pending matters were directed to be regulated by the amendment.

9. The question in dispute can also be viewed in the light of 1993 SCMR 73, which provides that remedial statutes having been introduced to redress an injury which was designed to soften the law in favour of taxpayers who could previously be charged to additional tax up to the date of assessment even though the finalization of assessment was delayed due to no fault on their part was retrospective in operation to the extent of only such cases which were pending at the time of amending law was enacted. Retrospective effect of the amended law would, therefore, apply to the cases where assessment had been made by the ITO or whether the appeal is pending before the Tribunal or reference sub judice before the High Court.

10. A reading of section 56 of the Ordinance before insertion of Explanation and proviso showed that there had been a controversy as to the powers of the Assessing Officer to issue notice calling upon the assessee to file return and it apparently was resolved by the Explanation through Finance Ordinance, 2000. Through this Explanation unlimited powers in point of time were given to the Assessing Officer to issue notices to any assessee, who was required to file return but had not done the same, for any period preceding the date of the issuance of the notice. The result emanating from this very Explanation seems to be initiating action and opening of a larger number of cases which had the effect of subjecting many a persons to file return whose cases might understandably be pending at different stages. This mischief was taken into cognizance by the Legislature and in order to suppress that mischief and provide cure and remedy, the aforesaid proviso was inserted through Finance Ordinance, 2001 which has curtailed the powers of the Assessing Officers to issue notice beyond a period of five years. The intention of the Legislature thus appears to be not to widen .the mischief net and to reduce the agony which had already been let loose by the Explanation. This being the intention, the role of the proviso is understandable, which has to be invoked for the pending cases as well. Further, amendments providing remedies and cures shall have to be retrospectively interpreted. In view of this matter the instant case shall be governed by the proviso which in its import has

retrospective operation. Thus the action of the Assessing Officer by issuing a notice under section 56 of the Ordinance on 12‑2‑1994 calling upon the assessee for filing of return for assessment year 1986‑87 is not warranted for the said notice is beyond the period of five years. The assessment order which has resultantly been framed is not sustainable in law and merits to be annulled. The learned CIT (A) although annulled the assessment order yet the grounds mentioned by him are not correct. Now while upholding the decision of the learned CIT (A) in respect of annulment of the assessment order relating to assessment year 1986‑87 the reasons given in the impugned order are set aside. As a sequel to this annulment of the assessment order, the penalty proceedings could not be initiated which are cancelled. The learned CIT (A) also found the same but on different reasons. Again the order of the learned CIT (A) in this respect is upheld after setting aside the reasons thereof. There is no force in these appeals which merit rejection and are thus rejected.

C.M.A./M.A.K./386/Tax(Trib.)

Appeals rejected.