Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss. 8, 3(1)(x), 4, 5 & 7‑‑‑Instructions/directions issued by Central Board of Revenue‑ ‑‑Binding on Assessing Officers and all other Tax Authorities performing administrative functions,‑but not on assessee and Appellate Authorities‑‑‑Central Board of Revenue is an apex Authority‑ in the hierarchy of Federal Tax Administration, but not a forum competent to adjudicate upon matters requiring interpretation of statute nor has any role in respect of judicial or quasi‑judicial functions.

Central Board of Revenue is apex Authority in the hierarchy of Federal Tax Administration and has been vested with the powers to appoint the Income‑tax Authorities under section 4 of the Income Tax Ordinance, 1979, and to assign and confer the jurisdiction on the Income‑tax Authorities under section 5 of the Income Tax Ordinance, 1979. Under section 7 of the Income Tax Ordinance, 1979, the Deputy Commissioner (Assessing Officer) may be instructed by an Officer to whom he is subordinate or any other person authorised in this behalf by the Central Board of Revenue in the course of any proceedings under the Ordinance. There can be no dispute to the proposition that the assessment proceedings and the assessment orders are the proceedings envisaged under section 7 of the Income Tax Ordinance. Section 8 of the Income Tax. Ordinance, comes at the end of chain of provisions contained in Chapter‑II of the Income Tax Ordinance, dealing with the administration and administrative set‑up employed in the execution of the Ordinance. Thus, section 8 is to be read in totality of scheme provided in Chapter‑II of the Income Tax Ordinance, 1979.

Central Board of Revenue is the apex Authority in the hierarchy of Federal Tax Administration and is supposed and empowered not only to watch but .to control and guide all the tax authorities under it in the execution of Income Tax Ordinance, therefore, it is not only logical but imperative that its instructions, orders and directions must have binding effect on all the officers and persons in the execution of Ordinance, except the Appellate Authorities exercising quasi‑judicial functions. The Central Board of Revenue, therefore, can issue instructions/directions from time to time for the implementation, execution and application of various provisions of law without abrogating or modifying the provisions of the statute and in order to maintain the discipline in tax administration. It must be of binding effect on all the tax authorities subordinate to the C:B.R. with the exception of Appellate Authorities performing quasi‑judicial functions. This is absolutely necessary in order to mitigate the rigours of law and to save the assessees from undue hardships in certain cases in the execution of various provisions of the Ordinance. As such instructions are not binding on the assessees as well Appellate Authorities, performing quasi‑judicial functions, and therefore, they can take exception to any such orders, instructions/ directions, but the Assessing Officers and the other tax authorities performing administrative functions cannot raise any objection to such instructions/directions, which are of binding effect on them.

C.B.R. has no role in respect of judicial or quasi‑judicial functions and is not a forum competent to adjudicate upon the matters requiring interpretation of any statute. However, the instructions and directions of the Central Board of Revenue are binding on the functionaries, discharging their functions under the Ordinance so long they are confined to the administrative matters.

The beneficial view taken by the C.B.R., which is not patently violative of any statutory enactment, but is merely aimed at mitigating the rigours of law or implementing, the law keeping in view the pragmatic considerations., requires all respects and is binding on the functionaries employed in the execution of Ordinance, including the Assessing Officers while involved in the assessment proceedings. The C.B.R. is the apex Administrative Authority in the tax administration of the Federation, and thus, occupies very important position. The C.B.R. by virtue of the position occupied by it and the duties assigned to, is not only supposed to implement and execute the revenue laws of the Federation and to supervise the tax administration, but is further supposed to oversee and watch that the law is justly and properly applied and implemented. In performance of this function, the C.B.R. is empowered to issue clarifications, circulars and guidelines containing order, instructions and directions, which are of binding nature. In order' to maintain better discipline, the subordinate Administrative Officer should not venture to circumvent or flout the instructions/directions of the C.B.R.

Addl. Commissioner of Income‑tax v. Mrs. Avtar Mohan Singh (1982) 136 ITR 645 and Central Insurance Company v. C.B.R. 1993 SCMR 1232 ref.

Nasrullah Awan for Appellant.

Sirajul Haque for Respondent.

Date of hearing: 15th November, 2001.

JUDGMENT

MUHAMMAD MUJEEBULLAH SIDDIQUI, J.‑‑‑In this application under section 136 (2i of the Income Tax Ordinance, 1979 the following question of law has been proposed for our opinion.

"Whether on the facts and circumstances of the case the learned Tribunal was justified in confirming the order of Commissioner of Income Tax (Appeals), Karachi holding the claim to be admissible under section 23(1)(x) of the Income Tax Ordinance, 1979."

2. Briefly stated the relevant facts giving rise to this application are that the respondent/assessee is a Pakistani Banking Company deriving income from banking business. The Assessing Officer, while finalizing the assessment order for the assessment year 1983‑84 made various additions, including add backs of Rs.50,40,000 on account of bad and doubtful debts relating to fraud and forgery. The original assessment order under section 62, was set aside in appeal by the learned CIT (A) Zone‑6, Karachi, with the direction that the claim be considered in the right of certificate issued by the State Bank of Pakistan as well as the instructions issued by the C.B.R. In the re‑assessment order under sections 62/132 of Income Tax Ordinance, the Assessing Officer, allowed the band doubtful debts as well as investment write offs by taking into consideration the certificate issued by State Bank of Pakistan and the C.B.R's. instructions, but maintained the disallowance of Rs.50,40,000 for the reason that although the claim was duly certified by the State Bank of Pakistan, yet the instructions of the Central Board of Revenue related only to the provisions of bad and doubtful debts and did not cover the provisions for fraud and forgery. The respondent again preferred first appeal before the CIT(A), contending that the claim pertained to ascertain losses duly certified by the State Bank of Pakistan, and therefore, the claim was admissible under the head bad and doubtful debts. It was further contended that firstly, it was covered by the C.B.R.'s instructions and in the alternative if it is held that it is not covered under the C.B.R.'s instructions, then the certificate issued by State Bank of Pakistan constitutes proof of losses to the appellant, during the course of carrying on its normal banking business and consequently it was an admissible deduction both as a bad debt under section 23(1)(x) as well as incidental to, business, deductable under the provisions of section 23(1) (xviii). It was pleaded that with the production of certificate issued by the State Bank of Pakistan, the losses were duly proved which were neither expenses of personal nature nor of capital nature.

3. The learned CIT (A) agreed with the contention and held that in a banking business, incident of fraud and forgery in the present days, was not uncommon anywhere in the world and must, therefore, be held to be a normal incident of the banking business. He ultimately held that both under the C.B.R.'s instructions as well under the provisions of section 23(1), clauses (x) and (xvii) the claim should be allowed. The addition was deleted accordingly. '

4. The department feeling aggrieved preferred second appeal before the ITAT. The same contentions were raised before ITAT, as canvassed before CIT(A). The learned Members of the ITAT held that after examining C.B.R. Circular, dated 8‑8‑1983 and the Certificate issued by the State Bank' of Pakistan, they were of the view that the document produced before them supports the contention of the assessee. The deletion of addition made by the CIT(A) was, therefore, upheld.

5. Being still dissatisfied the Department submitted reference application before the Tribunal under section 136(1) of the Income Tax Ordinance. A Division Bench of the ITAT examined the relevant instructions in the C.B.R. Circular No.C‑1 (48) IT‑1/82, dated 8‑8‑1983, which is reproduced as follows:

"..'The undersigned is directed to convey that in modification of the abovementioned instructions. In case of an assessee being a bank wholly owned by the Government of Pakistan production of certificate from the State Bank of Pakistan to the effect that provisions of bad debt as specified therein has been approved by the State Bank of Pakistan should be treated as sufficient evidence. In such cases the claims may be accepted on the basis of the said certificate without further investigations."

6. It was observed by the learned Members of ITAT, that .a perusal of the C.B.R.'s Circular, dated 8‑8‑1983 clearly indicates that amounts specified by the State Bank of Pakistan in their certificate are to be allowed as an expense by the Income Tax Officer. It was further held that the ITAT decided the appeal merely on the basis of instructions issued by the C.B.R. and .has not given any finding on the point of law and therefore, the question whether the ITAT was justified in confirming the order of CIT (A) holding the claim to be admissible under section 23(1)(x) of the Income Tax Ordinance, 1979 does not arise out of the order of the Tribunal. The reference application was rejected accordingly.

7. The department has thereafter, filed the present application directly in High Court under subsection (2) of section 136 of the Income Tax Ordinance, 1979.

8. Heard. Mr. Nasrullah Awan, learned counsel for the Applicant/Department and Mr. Sirajul Haq Memon, learned counsel for the respondent.

9. Mr. Nasrullah Awan has not contended that the claim was not covered under the instructions issued by the C.B.R. in its Circular, dated 8‑8‑1983. His sole contention is that such instructions of C.B.R. are not binding on the Assessing Officers.

10. On the other hand Mr. Sirajul Haq Memon, learned counsel for the respondent has submitted that the instructions contained in C.B.R's. Circular, dated 8‑8‑1983 are binding on the Assessing Officer and therefore, the Tribunal has rightly held that by virtue of the C.B.R. instructions, dated 8‑8‑1983 and the Certificate issued by the State Bank of Pakistan the claim was an admissible deduction.

11. We have carefully considered the contentions raised by the learned advocates for the parties. In order to appreciate the contentions, it would be appropriate to re‑produce section 8 of the Income Tax Ordinance, which reads as follows:

"8. All Officers to follow the orders of the Central Board of Revenue.‑‑‑‑All Officers and persons, employed in the execution of this Ordinance, shall observe and follow .the orders, instructions and directions of the Central Board of Revenue:

Provided that no such orders, instructions or directions shall be given so as to interfere with the discretion of the Appellate Additional Commissioner in the exercise of his appellate functions or any valuer in the exercise of his functions under this Ordinance."

12. We will examine the point, if the instructions/directions issued by the C.B.R. have binding effect on the Assessing Officer or not. A bare perusal of section 8 of the Income Tax Ordinance, 1979, shows that all Officers and persons employed in the execution of the Ordinance shall observe and follow the orders, instructions and directions of the Central Board of Revenue. An exemption has been made through the proviso, to the effect that no such orders shall be given, so as to interfere with the discretion of the Appellate Additional Commissioner in the exercise of his appellate functions or any valuer in the exercise of his functions under this Ordinance.

13. During the course of arguments, Mr. Sirajul Haq Memon, learned counsel for the respondent has submitted that the Assessing Officer is admittedly an officer employed in the execution of the cane Tax Ordinance and is not an appellate authority. therefore, the orders. instructions and directions of the Central Board of Revenue are binding on the Assessing Officer. Mr. Sirajul Haq Memon, further maintained that the assessee are not Officers and persons employed in the execution of the Ordinance, and therefore, the orders, instructions and directions of the C.B.R. are not binding on the assessees. The assessees may avail any orders, instructions and directions, issued by the C.B.R. which are beneficial to them but they are at' liberty to object to any orders, instructions or directions which are disadvantages to them or adversely effect their interest.

14. Mr. Nasrullah Awan, learned counsel for the department was not able to rebut the contention that the Assessing Officer is an officer employed in the execution of Income Tax Ordinance and was not an appellate authority.

15. There can be no dental to the fact that the Central Board of Revenue is apex Authority in the hierarchy to federal Tax Administration and has been vested with the powers to appoint the Income‑tax Authorities tinder section 4 to the Income Tax Ordinance, 1979, and to assign and confer the jurisdiction on the Income Tax Authorities under section 5 of the Income Tax Ordinance, 1979. Under section 7 of the Income Tax Ordinance, 1979, the Deputy Commissioner (Assessing Officer) may be instructed by an Officer to whom he is subordinate or any other person authorised in this behalf by the Central Board of Revenue in the course of any proceedings under the Ordinance. There can be no dispute to the proposition that the assessment proceedings and the assessment orders are the proceedings envisaged under section 7 of the Income Tax Ordinance. Section 8 of the Income Tax Ordinance, comes at the end of chain of provisions contained in Chapter‑II of the Income Tax Ordinance, dealing with the administration and administrative set‑up employed in the execution of the Ordinance. Thus, section 8 is to be read in totality of? scheme provided in Chapter‑‑II of the Income Tax Ordinance, 1979.

16. As explained above, the Central Board of Revenue is the apex Authority in the hierarchy of Federal Tax Administration and is supposed and empowered not only to watch but to control and guide all the tax authorities under it in the execution of Income Tax Ordinance, therefore, it is not only logical but imperative that its instruction, orders and directions must have binding effect on all the officers and Persons in the execution of Ordinance, except the appellate authorities exercising quasi?-judicial functions. The Central‑Board of Revenue, therefore, can issue instructions/direction from time to time for the implementation, execution and application of various provision of law with the abrogating or modifying the provisions of the Act and in order to maintain the discipline in tax administrative. It must be of binding effect on all the tax Authorities subordinate to the C.B.R. with the exception of appellate authorities performing quasi‑judicial functions. This is absolutely necessary in order to mitigate the rigours of law and to save the assessees from undue hardships in certain cases in the execution of various provisions of the Ordinance. As already explained such instructions are net binding on the assessees as well as appellate I authorities, performing quasi‑judicial functions, and therefore, they can take exception to any such orders, instructions /directions, but the Assessing Officers and the other tax authorities performing administrative functions cannot raise any objection to such instructions/ directions, which are of, binding effect on them. While considering analogous provision in the Indian Statute, a Division Bench of Delhi High Court held in the se of Additional Commissioner of Income‑tax v. Mrs. Avtar Mohan Singh (1982) 136 ITR 645 as follows:‑‑‑

"Though the circulars of the Central Board are not binding on the Court, yet in general, circulars are binding on the Income-?tax Authorities. Through them, the Board cannot impose a burden on the taxpayers greater than what the statute provides but it can relax the rigour of the law. The Supreme Court has recognized the validity of beneficent circulars and the right of the taxpayers to enforce these and get relief even in Court. (See Ellerman Lines Ltd. v. CIT (1971) 92 ITR 913 (SC)."

17. The Hon'ble Supreme Court of Pakistan in the case of Central Insurance Company v. C.B.R., 1993 SCMR 1232, while examining the authority of C.B.R. in 'interpreting any law, considered the provisions contained in section 8 of the Income Tax Ordinance as well, and held as follows ‑‑‑ '

"It. is evident from the above provisions that though the Central Board of Revenue has administrative control cover the functionaries discharging their functions under the Ordinance, but it does not figure in the hierarchy of the forums provided for adjudication of assessee's liability as to the tax. In this view of the matter, any interpretation placed by the Central Board of Revenue on statutory provisions cannot be treated as a pronouncement by a forum competent to adjudicate upon such a question judicially or quasi‑judicially. We may point out that the Central Board of Revenue cannot issue any administrative direction of the nature, which may interfere with the judicial or quasi‑judicial functions entrusted to the various functionaries under statute. The instructions and directions of the Central Board of Revenue are binding on the functionaries discharging their functions under the Ordinance in view of section 8 so long as they are confined to administrative matters. The interpretation of any provisions of the Ordinance can be rendered by the hierarchy of the forums provided for, under the above provisions of the Ordinance, namely, the Income‑tax Officer, Appellate Assistant Commissioner, Appellate Tribunal, the High Court and this Court, and not by the Central Board of Revenue. In this view, of the matter, the interpretation placed by the' Central Board of Revenue on the relevant provisions of the Ordinance in the Circular, can be treated as administrative interpretation and not judicial interpretation."

18. With the above authoritative pronouncement of 'the Hon'ble Supreme Court, the issue stands settled that C.B.R. has no role in respect of judicial or quasi‑judicial functions and is not a forum compe?tent to adjudicate upon the matters requiring interpretation of any statute. However the instructions and directions of the Central Board of Revenue are binding on the functionaries, discharging their functions under the Ordinance so long they are confined to the administrative matters.

19. Respectfully following the dictum laid dawn by the Hon'ble Supreme Court, we are, of the considered opinion that the beneficial, view taken by the C.B.R.; which is not patently violative of any statutory enactment, but is merely aimed at mitigating the rigous of law or implementing the law keeping in view the pragmatic considerations,; requires all respects and is binding on the functionaries employed in the execution of Ordinance, including the Assessing Officers while involved in the assessment proceedings. The C.B.R. is the apex Administrative Authority in the tax administration of the Federation, and thus, occupies very important position. The C.B.R. by virtue of the position occupied D by it and the duties assigned to, is not only supposed to implement and execute the Revenue laws of the Federation and to supervise the tax administration, but is further supposed to oversee and watch that the law is justly and properly applied‑ and implemented. In performance of this function, the C.B.R. is empowered to issue clarifications, circulars and guidelines containing order, instructions and directions, which are of binding nature: In order to maintain better discipline, the subordinate Administrative Officers should not venture to circumvent or flout the instructions /directions of the C.B.R. It is further held that in the present case the learned Members of the Tribunal have correctly upheld the deletion of addition by the learned CIT (A), which was made by the Assessing Officer, in violation of the instructions issued by the C.B.R. The question proposed in this reference is answered in affirmative.

S.A.K./C‑38/K??????????????????????????????????????????????????????????? Reference answered.