DEANS ASSOCIATES (PVT.) LIMITED VS INSPECTING ADDITIONAL COMMISSIONER OF INCOME-TAX, RANGE NO.1, COMPANY ZONE I, LAHORE
2002 P T D 441
[Lahore High Court)
Before Ch. Ijaz Ahmad, J
DEANS ASSOCIATES (PVT.) LIMITED
versus
INSPECTING ADDITIONAL COMMISSIONER OF INCOME-TAX, RANGE NO.1, COMPANY ZONE I, LAHORE
Writ Petition No.3666 of 1999, heard on 10/05/2000.
(a) Income Tax Ordinance (XXXI of 1979)---
----S.66-A---Constitution of Pakistan (1973), Art.199---Constitutional petition---Show-cause notice---When Constitutional petition and show cause notice were put in juxtaposition, then it brings the case of assessee in the area of disputed questions of fact and High Court has no jurisdiction to resolve the disputed questions of fact in Constitutional jurisdiction.
Fort Properties Pvt. Ltd. v. Commissioner of Income-tax 1994 (Vol. 208) (Bom) and Muhammad Yunus Khan's case 1993 SCMR 618 rel.
(b) Interpretation of statutes---
---- Principle of strict construction of fiscal statute is applicable only to taxing provisions such as charging provisions and to those parts of the statute which contain machinery provisions.
1980 Tax LR 185 rel
(c) Income Tax Ordinance (XXXI of 1979)---
----S.66A---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Conditions for exercise of such powers.
Power under section 66A of the Income Tax Ordinance, 1979 can be exercised only when the following factors co-exist:
(i) There should be proceedings under the Act.
(ii) In such proceedings the I.T.O. must have passed the order.
(iii) The Commissioner should consider that the said order is erroneous and prejudicial to the interest of the Revenue.
(iv) It is only when all the abovementioned factors co-exist then the respondent will have jurisdiction to take action under section 66A.
(v) For the purpose whether the aforesaid factors are available to the respondent to take action needs factual inquiry for which propriety demands that the respondent should allow to proceed in the matter in accordance with law.
(d) Income Tax Ordinance (XXXI of 1979)---
----S.66-A---Constitution of Pakistan (1973), Art. 199---Constitutional petition---Show-cause notice under S.66A of the Income Tax Ordinance, 1979---Vires of the notice---Validity---Constitutional petition was not maintainable against the show-cause notice as the assessee could not be allowed to bypass jurisdiction vested by law in the Special Tribunal-- Assessee had alternative remedies before the Department under the provisions of the Income Tax Ordinance, 1979---Assessee was well within his right to raise all legal and factual pleas before the Inspecting Additional Commissioner by filing reply of the notice who was duty- bound to consider the same and pass speaking order including assumption of jurisdiction---Constitutional petition was disposed of accordingly by the High Court.
Messrs Friend Sons and Partnership Concerned v. Deputy Collector PLD 1989 Lah. 337; Messrs Bisvil Spinners Ltd. v. Superintendent, Central Excise Land Customs PLD 1988 SC 370; Pakistan through Secretary Finance v. Kohat Cement Company PLD 1995 *SC 659; Messrs Gadoon Textile Mills v. WAPDA 1997 SCMR 641; Messrs Hinjama & Company v. Commissioner of Sales Tax 1971 SCMR 128; Collector of Customs v. Messrs Abdul Majeed Khan 1977 SCMR 371; Commissioner of Income-tax, Peshawar Zone v. Messrs Siemens PLD 1991 SC 368; Glaxo Laboratories Ltd. v. Inspecting Assistant Commissioner PLD 1992 SC 549; Kh. Sharif's case PLD 1988 Lah. 725; Haji Saif Ullah's case PLD 1989 SC 166; Abdul Baqi's case PLD 1967 SC 373; Abual--A'la Maudoodi's case PLD 1964 SC 673; Ocean Industries Ltd. v. Industrial Development Bank PLD 1966 SC 738; Mian Abdul Hameed - Purrs case PLD 1979 Lah. 252; United Builders v. Commissioner 1984 PTD 137 and Shahab-ud-Din's case PLD 1988 Kar. 587 = 1988 PTD 723 ref.
. Shahab-ud-Din v. Inspecting Assistant Commissioner PLD 1988 Kar. 587; Messrs Pak-Arab Fertilizer v. Deputy Commissioner of Income-tax 2000 PTD 263; Mst. Shugufta Begum's case PLD 1989 SC 360; (1967) 63 ITR 333; (1972) Tax LR 1104; (1982) 134 ITR 385; Muhammad Mazhar Khan v. Muhammad Yousaf Khan PLD 1959 SC (Pak.) 9; Pir Sabir Shah v. Shad Muhammad Khan, N.-W.F.P. and another PLD 1995 SC 66; Collector Customs, Karachi v. Messrs New Electronics (Pvt.) Ltd. and 59 others PLD 1994 SC 363 and Riffat Askari v. State PLD 1997 Lah. 285 rel.
M. Saleem Sahgal for Appellant.
Shafqat Chohan for Respondent.
Date of hearing: 10th May, 2000.
JUDGMENT
Brief facts out of which the present writ petition arises are that the petitioner is private limited company which was incorporated on 8-4-1992 having authorized capital of Rs.20,000,000 consisting of 200,000 ordinary shares of Rs.100 each. Petitioner's company required money for the purchase of plot of land situated at 10-A, Gulberg-II, Lahore measuring 10 Kanals, 1 Marla and 52 sq. ft. The money was received by the petitioner's company as under:
| Share Capital | Rs.500 |
| Share Deposit Money | Rs.25,600,000 |
| Loan Account | Rs.2,650,000 |
Petitioner's company increased authorized capital vide resolution dated 8-5-1996 from Rs.20,000,000 to Rs.40,000,000. Petitioner's company also filed application before the Registrar of the Companies in Form XXVI on 16-5-1996 for the allotment of the shares under the increased authorized capital. Petitioner's company submitted income-tax return for the assessment year 1993-94 which was finalized by the Deputy Commissioner Income-tax vide order, dated 30-6-1996. Petitioner being aggrieved by the aforesaid order filed appeal before the Deputy Commissioner which was accepted vide order dated 10-3-1997. Respondent issued show-cause notice to the petitioner under section 66 `of the Income Tax Ordinance, 1979. Hence the present writ petition challenging vires of the notice issued by the respondent under section 66A of the Income Tax Ordinance, 1979 while copy of petition be sent to respondent for report and parawise comments and injunctive order was passed on 4-3-1999. During the pendency of the writ petition the respondent issued another notice to the petitioner on 27-4-2000 on the basis of judgment of Hon'ble Supreme Court in Civil Petitions Nos.218 to 232 of 1999 wherein Hon'ble Supreme Court has laid down principle in view of clause 4-A of Article 199 of the Constitution in cases involving recovery and assessment of- taxes, stay stands vacated on expiry of 6 months period from the date it was granted. Petitioner filed C.M. 1 of 2000 for extension of injunctive order which was dismissed vide order, dated 3-5-2000.
2. Learned counsel for the petitioner submits that respondent has no authority tot4ssue notice to the petitioner under section 66A as the matter has been finally decided between the parties qua the same subject matter by the Deputy Commissioner Income-tax and appeal was filed by the petitioner finally decided in favour of the petitioner. In support of his contention he relied upon the operative part of the order of the Deputy Commissioner which is to the following effect:
"However, assessee's explanation regarding share deposit money and loan has been found convincing because while finalizing the cases of Directors/Shareholders of Company, sources of investment, have already been probed. Moreover, perusal of assessment record shows that shares have been issued to the shareholders against abovementioned share deposit money in the subsequent assessment years and assessee has produced documentary evidence in this regard. Regarding loan of Rs.26,50,000 it has been pointed out by the assessee that Rs.26,00,000 had been received through banking channel and remaining amount of Rs.50,000 represents the interest accrued on capital amount."
Learned counsel for the petitioner further submits that petitioner does not conceal any material while filing income-tax return regarding the assessment year in question. He further submits that petitioner informed the Registrar of Companies under the provisions of the Companies Ordinance regarding increase in the authorized capital of the Company. Therefore, petitioner does not violate any provision of the Companies Ordinance. He further submits that there is no prohibition under the provisions of the Companies Ordinance to receive the share deposit money in excess of its authorized capital specially when the company decided to increase its authorized capital and to issue additional shares. He further submits that petitioner received Rs.25,600,000 for the purpose of allotment of share which cannot be termed as loan because it had been received otherwise than through cross cheque drawn by a bank. Therefore, ingredients of section 12(18) does not attract the Income Tax Ordinance, 1979 as the matter has already been concluded as mentioned above by the Deputy 'Commissioner and in the appeal before the C.I.T. Petitioner does not claim or shown to have been received as loan as is evident from the transaction and the books of the petitioner's company. Therefore, ingredients of section 12(18) are not fulfilled. He further submits that ingredients of section 66-A are also not attracted in the present case as the respondent issued the impugned notice in the absence of factors co-exists which are pre-conditions mentioned in section" 66A. He further submits that fiscal statute must be construed strictly and in case of doubt benefit must be given to assessee. In support of his contention he relied upon the following judgments:---
PLD 1989 Lah. 337 (Messrs Friend Sons and Partnership concerned v. Deputy Collector).
PLD 1988 SC 370 (Messrs Bisvil Spinners Ltd. v. Superintendent, Central Excise Land Customs).
PLD 1995 SC 659 (Pakistan through Secretary Finance v. Kohat Cement Company).
1997 SCMR 641 (Messrs Gadood Textile Mills v. WAPDA).
He further submits that in interpreting a taxing statute the Courts must look to the words of the statute and interpret them in the light of what is clearly expressed and Court has no jurisdiction to imply anything which is not expressed. In support of his contention he relied upon the following judgments:---
1971 SCMR 128 (Messrs Hinjama & Company v. Commissioner of Sales Tax).
1977 SCMR 371 (Collector of Customs v. Messrs Abdul Majeed Khan).
He further submits that after enforcement of Sharia Act, 1991 it is the duty of the Courts to interpret the law in accordance with Injunctions of Islam wherein discretionary judicial elements are involved. In support of his contention. he relied upon PLD 1991 SC 368 (Commissioner of Income-tax, Peshawar Zone v. Messrs Siemens). He further submits that petitioner increased its authorized captial by flouting share to the general public who have purchased the same by their sweet will and the respondent has no authority to interfere to destroy the aforesaid right of a third party. In support of his contention he relied upon Messrs Siemens' cage supra. Learned counsel for the petitioner highlighted the legislative history of section 66A of the Income Tax Ordinance, 1979. Section 66 was inserted by the Finance Ordinance XXV of 1980. Subsection (IA) of section 66A was added by the Finance Act (XX of 1991 and explanation was added to section 66A(2) by the Finance Act (VII of 1992). He further submits that subsection (1-A) was added after the judgment of the Hon'ble Supreme Court in Glaxo Laboratories Ltd. v. Inspecting Assistant Commissioner PLD 1992 SC 549. He further submits that it is the duty of the respondent to apply his independent mind after calling and examining the record of any proceeding as is evident from the word "used by the Legislature as if he considers". Meaning thereby he has to form his opinion before issuing a notice under section 66A to the petitioner but the respondent has not formed his opinion. Therefore, show-cause notice issued by the respondent is without lawful authority. In support of his contention he relied upon the following judgments:
PLD 1988 Lah. 725 (Kh. Sharif's case).
PLD 1989 SC 1166 (Haji Saif Ullah's case).
PLD 1967 SC 373 (Abdul Baqi's case).
PLD 1964'SC 673 (Abul-Ala Maudooddi's case).
He further submits that transaction of sale of shares does not fall in the definition of loan. In support of his contention he relied upon the following judgments:
PLD 1966 SC 738 (Ocean Industries Ltd. v. Industrial Development Bank).
PLD 1979 Lah. 252 (Mian Abdul Hameed Puri's case).
He turttter submits the other ingredient mentioned in section 66A is erroneous and the word "erroneous" means according to dictionary meaning "mistaken" "incorrect" in the legal sense an order was considered erroneous if it is deviated from the law. In support of his contention he relied upon the following judgment:
1984 PTD 137 (United Builders v. Commissioner).
He further submits that another conditioned precedent to invoke section 66A is prejudicial to the interest of Revenue which means as under:---
"that the order of assessment challenged or such as are not in accordance with law,"
In support of his contention he relied upon Shahab-ud-Din's case PLD 1988 Kay. 587 = 1988 PTD 723. He further submits that show-cause notice is not issued by the respondent in accordance with law laid down by the superior Courts. He further submits that section 66A was interpreted by the Division Bench of the High Court in Shahab-ud -Din v. Inspecting Assistant Commissioner PLD 1988 Kay 587 and the notice issued by the respondent is not in accordance with the aforesaid law.
3. Learned counsel for the respondent submits that writ petition has become infructuous as the respondent has issued fresh show-cause notice to the petitioner on 27-4-2000 and the petitioner has not challenged the subsequent show-cause notice. He further submits that petitioner even did not file another application for amendment of the writ petition. He further submits that writ petition is liable to be dismissed on the ground of laches as the show-cause notice was issued to the petitioner on 30-5-1998 and the petitioner has filed reply of the show-cause notice on 10-10-1998 and writ petition was filed on 4-3-1999. He further submits that petitioner is estopped to file writ petition after filing reply of the show-cause notice on the well-known principle of estoppel and waiver. He further submits that writ petition is not maintainable as the petitioner has more than one alternative remedies under the provisions of the Income Tax Ordinance. 1979 and finally appeal before this Court. He further submits that show-cause notice itself reveals that the same was issued to the petitioner after forming opinion coupled with the fact that the original assessment order was erroneous and prejudice to the interest of Revenue as is evident from the contents of the notice. The point in issue was not decided by the Deputy Commissioner at the time of passing assessment order against the petitioner and the same was also not decided by the Appellate Authority. He further submits that word "erroneous" means erroneous on question of law and facts. He further submits that amount in question was not shown required to be taxed and the action of the respondent is in accordance with section 12(18) of the I.T.O., 1979. He further submits entries in the accounts of the Director credited to the company which was received by the company. Therefore, same is the liability of the company which is evident from the balance-sheet attached by the company at the time of filing Income-tax Return qua the year in question. The general meaning of the loan cannot be taken into consideration while interpreting provisions of Income Tax Ordinance, 1979. The word "cross cheque" is mentioned in the section to avoid fictitious transaction: He further submits that the principle of merger is not applicable in the present case as the impugned assessment order is passed after the addition of subsection (1-A) in section 66A of I.T.O., 1979.
4. I have given my anxious consideration to the contentions of the learned counsel for the parties and perused the record myself. It is admitted fact that the petitioner has challenged the vires of notice dated 30-5-1998 on the ground that the notice was issued by the respondent without fulfilling the pre-conditions prescribed in section 66A and section 12(18) of the Income Tax Ordinance, 1979. The matter has been finally adjudicated to the level of Appellate Authority. Therefore, the same is past and closed transaction whereas the respondent has taken different stand while submitting reply of paras.2 and 3 of writ petition. It is better and appropriate to reproduce operative part of the show-cause notice, para.2(ii;iii) grounds A.B.C, of the writ petition and reply of para.2 (ii,iii) and grounds A.B.C. to resolve the controversy between the parties:
Operative part of the show-cause notice.
"For the period relevant to the assessment year 1998 authorized capital of your company was Rs,2,00,00,000 and paid-up capital at Rs.500. Against that your company has shown so-called share capital at Rs.2,56,00,000. Your company was not competent to call for share deposit money in excess of the authorized capital. The amount in excess of the authorized capital as a loan has been introduced in the garb of share deposit money. This loan had been received otherwise than through cross cheque account which required the application of section 12(18) of the Income Tax Ordinance, 1979. The D.C.I.T. failed to take note of it and passed an order which was erroneous as well as prejudicial to the interest of Revenue."
Para. 2(ii,iii) and grounds of A.B.C. of the petition
"As the authorized capital of the Company was Rs.20,000,000 the petitioner duly resolved on 8-5-1996 to increase the same to Rs.40,000,000. The Registrar of the Companies was moved accordingly in Form XXVI on 16-5-1996 and allotment of the shares under the increased authorized capital was made the same day.
The petitioner filed its income-tax return for the assessment year 1993-94 and one of the questions decided by the Deputy Commissioner Income-tax while making his assessment order, dated 30-6-1996 was as to the circumstances under which share deposit money had been received. The Deputy Commissioner of Income-tax accepted the explanation of the petitioner Company and held as follows:
"However, assessee's explanation regarding share deposit money and loan has been found convincing because while finalizing the cases of Directors/Shareholders of company, sources of investment have already been probed. Moreover, perusal of assessment record shows that shares have been issued to the shareholders against abovementioned share deposit money in the subsequent assessment years and assessee has produced documentary evidence in this regard. Regarding loan of Rs.26,50,000 .it has been pointed out by the assessee that Rs.26,00,000 had been received through banking channel and remaining amount of Rs.50,000 represents the interest accrued on capital amount."
Grounds
"(a) That there is no provision in the Companies Ordinance, 1984 forbidding a company to receive a share deposit money in excess of its authorized capital particularly when the company intends to increase its authorized capital and to issue additional shares. As has been submitted above, this is exactly what the petitioner had done.
(b)That the fact being that the sum of Rs.25,600,000 was received for the purse of allotment of shares no inference could be drawn that the sum had been received as a loan because it had been received otherwise than through "crossed cheque drawn on a bank". There is no justification in law for the respondent to draw such inference.
(c)That the question whether the sum had been received for the purpose of allotment of shares or as a loan was essential a question of fact to be determined on the documentary evidence. It was not a question of inference at all. The respondent was therefore, not entitled in law to invoke section 66A".
Reply of para. 2(ii, iii) and grounds A B.C.
"It is admitted to the extent of the authorized share capital of the company to the tune of Rs.2,00,00,000 and there is no such availability of approval by the Registrar of the Joint Stock Company regarding the increase of share capital."
"It is admitted to the extent of the return filed by the petitioner, but the aspect of the amount received by the petitioner as share allotment money in the absence of the authorized capital was not considered by the Assessing Officer, hence there is no such conscious application of mind on the part of the Assessing Officer."
GROUNDS
(a)It is incorrect, as the petitioner-company can call for money against the allotment of the shares, when the authorized share capital is available with the said petitioner, otherwise the petitioner cannot call for any money from the shareholder, hence the action of the respondent is according to the law and petition is not maintainable.
(b)It is incorrect, as the amount received by the petitioner for the year under consideration to avoid some of the expenses or other balances in the different accounts, same only can be done through the loan or increase of share capital. The petitioner has received the money to adjust all those expenses, hence the said amount has been shown as share allotment money, whereas it is in the nature of the liability of the petitioner until unless share, are allotted against the said money received from the other persons. Therefore, this transaction attracts the provision under section 18(12).
(c) It is admitted to extent of factual controversy regarding the purpose of the allotment of shares, meantime it is also pointed out that the share allotment money depends upon the authorized on the future acts of the petitioner, hence the action of the respondent is according to the law."
In case aforesaid paragraphs of parawise comments, writ petition and show-cause notice are put in juxtaposition, then it brings the case of petitioner in the area of disputed questions of fact. In arriving to this conclusion I am fortified by the principle laid down by the Bombay High Court 1994 (Vo1.208) Fort Properties (Pvt.) Ltd. v. Commissioner of Income-tax and observed as under:
"We also do not find any infirmity in the observations of the Tribunal in regard to the effect of the above property in the books of account of the assessee-company as `stock-in-trade' in the determination of the nature of the asset. It is well-settled that the way in which entries are made by an assessee in his books of account is not determinative of 'the question whether the asset was held as a capital asset or stock-in-trade. The assessee may by making entries which are not in conformity with the facts of the case or proper accountancy principles, conceal the real nature of the asset or the transaction. Entries made by him, therefore, cannot be regarded as conclusive one way or the other. The true nature of the transaction in each case has to be determined on a consideration of the totality of the facts and circumstances of that case.
It is, thus, clear that in the instant case the property in question was acquired by the assessee from its holding company as a capital asset and after its acquisition it was not converted by the assessee as its stock-in-trade. In other words, it was retained by the assessee as a capital asset."
It is settled proposition of law that this Court has no jurisdiction to resolve the disputed questions of fact in Constitutional jurisdiction as the -principle laid down by the Hon'ble Supreme Court in Muhammad Yunus Khan's case 1993 SCMR 618. This Court has considered almost all the case-law on the subject and laid down a principle in Messrs Pak-Arab Fertilizer v. Deputy Commissioner of Income-tax 2000 PTD 263 that writ petition is not maintainable against the show-cause notice and also observed that a party cannot be allowed to bypass jurisdiction vested by the law in Special Tribunal. It is pertinent to mention here that the learned counsel for the petitioner has laid down much emphasis in Shahab-ud-Din's case PLD 1 988 Kar. 587) and in the aforesaid case the writ petitions were dismissed and laid down the following principle:---
"The petitioner has not availed the statutory remedy available to him and he has rushed to the Court at the initial stage when only notice has been served. He will have the opportunity to examine the material if any produced before the Income-tax Authorities and rebut it, before any final order is passed. In the facts and circumstances of the case in our view the notice issued by the respondent No.2 is neither arbitrary, nor without jurisdiction. We, therefore, dismiss the petition with no order as to cost."
Similar view was taken by this Court in Writ Petition No.1171-2000 on the basis of the law laid down by the Hon'ble Supreme Court in Mst. Shugufta Begum's case PLD 1989 SC 360. I am also fortified by the following judgments:
(1967) 63, ITR 333:
(1972) Tax LIZ 1104.
(1982) 134 ITR 385.
It is also settled proposition of law that previous decisions should have been accepted and binding on me as per principle laid down by the Hon'ble Supreme Court in Muhammad Mazhar Khan v. Muhammad Yousaf Khan PLD 1959 SC (Pak.) 9. It is settled proposition of law that principle of strict construction of fiscal statute is applicable only to taxing provisions such as charging provisions and not to those D parts of the statute which contain machinery provisions as per principle laid down in 1980 Tax LR 185. Power under section 66A can be exercised by the respondent only when the following factors co-exist:
(i) There should be proceedings under the Act.
(ii) In such proceedings the I.T.O. must have passed the order.
(iii)The Commissioner should consider that the said order is erroneous and prejudicial to the interest of the Revenue.
(iv)It is only when all the abovementioned factors co-exist then the respondent will have jurisdiction to take action under section.66A.
(v)For the purpose whether the aforesaid factors are available to the respondent to take action needs factual inquiry, for which propriety demands that the respondent should allow to proceed in the matter in accordance with law.
As mentioned above the petitioner has alternative remedies before the Department under the provisions of the income Tax Ordinance, 1979 and similar controversy was considered qua the maintainability of the writ petition in presence of alternative remedy in Writ Petition No.4174 of 1998 and laid down the following principle:
"There is recent tendency to file Constitutional petitions without exhausting the remedies under the Statute. This recent trend is dangerous. Hon'ble Supreme Court clearly held in the case reported as Pir Sabir Shah v. Shad Muhammad Khan, N.-W.F.P. and another PLD 1995 SC 66, The Collector Customs, Karachi v. Messrs New Electronics (Pvt.) Ltd. and 59 others PLD 1994 SC 363 and Riffat Askari v. State PLD 1997 Lah. 285 that objection be raised in the proper forum but in spite of the petitioner without exhausting the remedies of appeal before the Collector of Customs (Appeals) and. the Tribunal has filed this petition. It is noteworthy that according to the amendment made through Finance Act, 1997 now third appeal is competent in this Court -also which is to be heard by at least a Bench of two Judges".
The petitioner is well within his right to raise all legal and factual pleas before the respondent by filing fresh reply of the notice dated 27-4-2000 who is duty-bound to consider the same and pass speaking order including assumption of jurisdiction. Since the case was argued at length and various questions of law raised. Therefore, the same has to be resolved but it is clarified for all the concerned that the order rendered and the case is not to be considered as expressed of any opinion on the merits of the case which shall be decided in accordance with law by respondent without being influenced in any manner by the above observation of this judgment meaning thereby respondent has to decide the same without influenced by the aforesaid observation.
In view of what has been discussed above, the writ petition is disposed of in the aforesaid terms.
C.M.A./M.A.K./D-26/LPetition disposed of