COMMISSIONER OF INCOME-TAX, COMPANIES ZONE-II, KARACHI VS MESSRS SINDH ENGINEERING (PVT.) LIMITED, KARACHI
2002 P T D 419
[Supreme Court of Pakistan]
Present- Iftikhar Muhammad Chaudhry, Javed Iqbal and Hamid Ali Mirza, JJ
COMMISSIONER OF INCOME-TAX, COMPANIES ZONE-II, KARACHI
versus
Messrs SINDH ENGINEERING (PVT.) LIMITED, KARACHI
Civil Appeals Nos.984 to 990 of 1999, decided on 04/10/2001.
(On appeal from the judgment dated 23-10-1998 passed by the High Court of Sindh, Karachi in I.T.Cs. Nos.298 to 301, 325, 327 and 329 of 1990).
(a) Income Tax Ordinance (XXXI of 1979)---
----S. 65 read with First Sched., Part IV, Para. B(1) & 136(2)---Income tax Act (XI of 1922), S.23(3)---Re-opening of assessment ---Assessee was initially assessed as public company entitled to 5 % rebate of super tax-- Subsequently, it transpired that assessee was not a public company as majority of its shares were not held by Government and tax charged from the assessee was too low comparing to the private limited companies, thus, additional assessment notices were issued calling upon the assessee to make payment of difference of the tax---Commissioner of Income-tax concurred with the conclusion of successor Assessing Officer that assessee was not a public company, while Income-tax Appellate Tribunal had found otherwise by relying on its earlier judgments---Commissioner filed appeal before High Court, which was dismissed---Validity---Tribunal had presumed the assessee to be a public company without assigning any reason therefor in absence of which benefit of doubt could not be extended to consider the same to be a public company---Tribunal was bound either to disclose facts and reasons of earlier judgments on which it had placed reliance or examine the case of assessee independently---Question of non-exercise of jurisdiction by Tribunal being a question of law was liable to be answered by High Court but the High Court had failed to do so---While making original assessment, assessee had consciously neither disclosed nor brought on record any material entitling it to claim additional relief of rebate---Correct position of shares of Government could be ascertained by producing authenticated documents or sending for it from office of Joint Stock Companies, but Tribunal neither cared to call for such record or get the same placed on record nor High Court examined such aspect of the case by remanding the case to Tribunal for its decision in accordance with law---In absence of any such material, reversal of decision of successor Assessing Officer was neither legal nor just not proper---Tribunal had not exercised its jurisdiction in accordance with law---Supreme Court allowed the appeals and remanded the case to Tribunal for decision of question, whether assessee organization was a public company in terms of Para. B(1), Part IV of First Sched. to the Ordinance.
I.T.As. Nos. 1872 to 1875/KB of 1987-88; Oriental Investment Co. Ltd. v. Commissioner of Income Tax, Bombay PLD 1958 SC (Ind.) 151 and North-West Frontier Province Government, Peshawar and another v. Abdul Ghafoor Khan and others PLD 1993 SC 418 ref.
Inspecting Assistant Commissioner and Chairman, Panel 20 Companies and another v. Pakistan Herald Ltd. 1997 SCMR 1256 distinguished.
(b) Income Tax Ordinance (XXXI of 1979)---
----S. 65(1)(a)(b)---Re-opening of assessment---Scope---Where assessment had been consciously completed after harming disclosed all facts by assessee and considered by Assessing Officer, then except on discovery of new fact of definite nature, but not gossip or surmises, there would be no scope to interfere with such concluded transaction on the ground that income chargeable to tax had either escaped assessment or 'had been underassessed within the meaning of S.65(1)(a)(b) of the Income Tax Ordinance, 1979.
1990 SCMR 697; PLD 1990 SC 399 and Messrs E.F.U. General Insurance Co. Limited v. The Federation of Pakistan and others PLD 1997 SC 700 ref.
(c) Income Tax Ordinance (XXXI of 1979)----
----S. 136---Reference to high Court---Question of law---Jurisdiction-- Forum/Tribunal seized with a proposition is free to form its independent opinion by exercising jurisdiction in a prescribed or settled manner-- Non-exercise or mis-exercise of such jurisdiction is relatable to question of law---Where a Tribunal declines to exercise jurisdiction on one or the other pretext, then basic question of law emerges, for consideration whether the decision under challenge is legally justified or not.
Akhtar Ali Mehmood, Advocate Supreme Court and S.M. Abbas, Advocate-on-Record (absent) for Appellants (in all Cases).
Iqbal Naeem Pasha, Advocate Supreme Court and M.S. Ghauhry, Advocate-on-Record (absent) for Respondents,(in all Cases).
Date of hearing: 4th October, 2001.
JUDGMENT
HAMID ALI MIRZA, J.---These appeals by leave of the Court are directed against the judgment, dated 23-10-1998 passed by High Court of Sindh, Karachi in I.T.Cs. Nos.298 to 301, 325 327 and 329 of 1990.
2. Precisely stating facts of the case are that Messrs Sindh Engineering (Pvt.) Limited, Karachi a concern which was nationalized in pursuance of Economic Reforms Order 1972, submitted tax returns claiming 5% rebate being a public company in Super Tax under Para. B(1) of Part IV of First Schedule of the Income Tax Ordinance, 1979 (hereinafter referred to as the "Ordinance"). Initially the Assessing Officer assessed the respondent-Company for the year 1977-78 to be a public company under section 23(3) of the Income-tax Act, 1922. Subsequently it transpired that 'respondent was not a public company because its majority of shares are not held by the Government and the tax charged from it was too low comparing to private limited companies, therefore, for additional assessment notices under section 65 of the Ordinance was issued on 14-2-1987 separately for the following assessment years:--
(1) 1977-78
(2) 1980-81
(3) 1981-82
(4) 1982-83
(5) 1983-84
(6) 1984-85
(7) 1985-86
3. The notices were contested by the respondent and the Successor Assessing Officer (Income Tax Officer) Companies Circle B-3, Karachi concluded that respondent-company is not entitled for 5 % rebate because of not being a public company. Therefore, the respondent-company was called upon to make payment of difference of tax vide order, dated 25-4-1987. The respondent preferred separate appeals for each assessment year before the Commissioner Income Tax (Appeals) Karachi. The appellate authority vide order, dated 23-6-1987 dismissed the appeals.
4. Against the appellate order passed by the Commissioner Income Tax respondent filed appeals before Income Tax Appellate Tribunal Pakistan, Karachi. The appeals were disposed of by the Tribunal on 8-9-1988. Thereafter request was made to the Tribunal by Commissioner Income-tax (Appeals) for making reference to the High Court of the question "whether on the facts and circumstances of the case, the learned I.T.A.T. was justified in holding that the company is a public company" and "whether on the facts and circumstances of the case the learned Income-tax Appellate Tribunal was justified in deleting the addition made when the assessment was finalized under section 59(1) of the Income Tax Ordinance, 1979". The request of the appellant was turned down vide order, dated 30th January, 1990. Then appellant filed Appeal under section 136(2) of the Ordinance before High Court of Sindh at Karachi which have been dismissed vide impugned judgment.
5. The Commissioner of Income-tax approached this Court by filing petitions for leave to appeal against the judgment of the High Court. After hearing appellant's counsel leave to appeal was granted inter alia to consider whether the High Court was justified in declining to answer the question referred to it by the petitioner.
6. Learned counsel for appellant argued that learned High Court after framing question regarding status of respondent to be a "public company" did not answer it by assigning reasons because the Income-tax Appellate Tribunal vide its order, dated 8th September, 1988 has held that respondent was a "public company" and the first order of the Predecessor Assessment Officer was restored, therefore, it was an academic discussion. whereas according to learned counsel fate of the case depended upon answering of this question. He further stated that Income-tax Appellate Tribunal has also not attended this proposition independently and disposed of such question by placing reliance on its earlier order stated to be of similar nature decided in 1.T.As. Nos. 1872 to 1875/KB of 1987-88 etc. Therefore, under these circumstances learned High Court in its appellate jurisdiction was under legal obligation to decide the proposition placed before it independently according to law.
7. Conversely learned counsel appearing for respondent argued that reopening of the case under section 65 of the Ordinance by successor Assessing Officer was unwarranted because the earlier assessment order was made by concerned officer with due diligence and application of mind. He further stated that as reopening of the case was illegal, therefore, learned High Court in its appellate jurisdiction had rightly declined to answer the question. It was also his opinion that question regarding determination of status of respondent company at the stage of High Court cannot be deemed to be a question law because evidence is required to ascertain whether the respondent was a. public or private limited company and High Court was not supposed to receive evidence from parties for determination of question of law.
9 (sic). We have given our anxious thought to the contentions put forth by the parties counsel and have also carefully examined the impugned judgment and order of Income Tax Appellate Tribunal. It may be seen that Administration and Management of the respondent, establishment was taken over by the Federal Government in pursuance of Economic Reforms Order. 1972 and since then its affairs are being controlled by the Managing Director appointed from time to time. A perusal of the Economic Reforms Order, 1972 does not indicate about the status of the respondent i.e. whether it would be a public or private limited company. Its such status is relevant only for the purposes of getting 5 % rebate of super tax as per clause (1) of Para A Part Il of First Schedule to the Ordinance. Therefore, reference in this behalf has to be made in relation to publiccompany as defined in Para B(1) of Part-IV of First Schedule to the Ordinance. For sake of convenience same is reproduced hereinbelow:---
"Public Company" means:--
(a) a company in which not less than fifty per cent of the shares are held by the Government.
(b) a company whose shares were the subject of dealings in a registered stock exchange in Pakistan at any time during the income year and remained listed on the stock exchange till the close of that year; or
(c) a trust formed by or under any law for the time being in force.
The Income Tax Appellate Tribunal in its judgment determined the status of respondent organization to be of a public company admittedly basing such conclusion on the earlier decision of the similar nature in I.T.As. Nos, 1872 to 1875/KB of 1987-88 etc. Relevant para therefrom is reproduced hereinbelow:---
"5. Aggrieved by this order the appellant has come to us in appeal in a case of similar nature decided by this Tribunal in I.T.A. Nos. 1872 to 1875/KB of 1987-88, I.T.As. Nos.3820, 52, 3821, 51, 114, 3092, 3093/KB of 1987-88, dated 25th June, 1988 where, after considerable discussion and examining all the issues relevant to this case, it was held:--
For the afore-said reasons and on the facts and circumstances shown above, the majority of shares of the appellant shall be deemed to have been held by the Governments and, therefore, qualify condition of the definition of `public company' as defined in Para B(2) of Part IV of the First Schedule of the Income Tax Ordinance, 1979 is fulfilled. The appellant, is therefore, held to be a `public company'. The learned two officers below have erred in holding otherwise: Mr. Muhammad Farid, the learned D.R. referred to Articles 165 and 165-A of the Constitution of Pakistan for making a distinction between corporation and Government but we are of the opinion that in view of fiction of law referred to above the general provision of law relating of the status of corporation is to be lifted out of consideration and becomes irrelevant and therefore, we need not to dilate on the contention raised by Mr. Muhammad Farid, in this behalf. After holding that the appellant is a `public company', the objection relating to the jurisdiction for re opening/rectifying the proceedings under section 65/156 of the Income Tax Ordinance respectively becomes a question of academic interest only. Without going into further details we would like to observe that the consistent view of this Tribunal has been that a reasonable balance is to be struck in the concept of finality of assessment and exercise of authority vested in the Assessing Officer in re-opening/rectifying the assessment orders ..
As far as High Court is concerned, it also did not attend this aspect of the case independently although specific question was framed in this behalf. Relevant para therefrom reads thus:---
"The only question of law raised before this Court by the applicant/Department for seeking its opinion is under:---
"Whether on the facts and circumstances of the case, the learned I.T.A.T. was justified in holding that the company is a public company"
It may be noted that instead of independently dilating upon above question learned High Court adopted the reasons which were advanced by Appellate Tribunal in the order, dated 8-9-1988 holding that respondent was a public company, therefore, the action of the Successor Assessment Officer in reopening of the case was without jurisdiction etc.
10. We have already reproduced relevant para. from the order 6f Appellate Tribunal hereinabove. A careful perusal whereof indicates that even in the earlier orders passed by it in I.T.As. Nos. 1872 to 1875/KB of 1987-88, dated 8-9-1988 no definite/positive opinion was expressed by the Tribunal that the respondent was a public company, rather by using the word "deem" some benefit was extended to it and it was held that thr, respondent-company shall be deemed to have been held by the Government, therefore, qualifying conditions of the definition of public company was fulfilled. Perhaps we may have also agreed with such conclusion of Income Tax Appellate Tribunal if it has incorporated those reasons on basis of which it was presumed that respondent was a public company but in absence of such reasons it was impossible for us to extend benefit of doubt to the respondent in order to consider it to be a public company. Undoubtedly when a Tribunal declines to exercise jurisdiction for one or the other pretext then the basic question of law emerges for consideration whether the decision under challenge is legally justified or not. Here we are not confronted with the situation of counting the shares of the Government or private persons in the respondents organization but our problem is whether jurisdiction has been justifiably exercised by the Tribunal and High Court or not. There is no cavil with the proposition that non-exercise or misexercise of jurisdiction by a forum/tribunal is relatable to the question of law. However, the forum/tribunal seized with a proposition is free to form its opinion independently by exercising jurisdiction in a prescribed or settled manner. As it has been pointed out hereinabove that Income Tax Appellate Tribunal had not independently assigned any reason in holding that respondent organization was a public company because it has based] its finding on some earlier decision referred to hereinabove and we were not aware that what reasons prevailed upon learned Tribunal while deciding those cases. Thus in such like situation it was obligatory upon the Tribunal either to have disclosed the facts as well as reasons or earlier case on which reliance was placed or the respondent's case should have been examined independently. As such, we are of the opinion that, the Income Tax Appellate Tribunal did not exercise its jurisdiction accordance with law. Therefore, question of non-exercising of jurisdiction properly by the Tribunal, being a question of law, yeas liable to be answered by the High Court in its appellate jurisdiction under section 136(2) of the Ordinance but it failed to do so.
11. It would be significant to note here that according to facts of instant case the question is as to whether respondent is a "public company", the forum seized with the matter could have conveniently decided it by summoning evidence from the office of Joint Stock Companies pertaining to the years in respect whereof notice under section 65 of the Ordinance was issued and the record so produced particularly Form-A etc. may have shown the correct position of the share of the Government and on basis of same the Court may have exercised the jurisdiction accordingly. Because the Income Tax Appellate Tribunal did not disclose any independent reasons to justify its conclusion that respondent organization was a public company, therefore, learned High Court on examining this aspect of the case may have remitted the matter to the Income Tax Appellate Tribunal for deciding it in accordance with law. Reference in this behalf may be made to (i) Oriental Investment Co. Ltd. v. Commissioner of Income Tax, Bombay (PLD 1958 SC (India) 151) and (ii) North-West Frontier Province Government, Peshawar and another v. Abdul Ghafoor Khan and others (PLD 1993 SC 418) at page 423.
12. Now turning towards next limb of the arguments advanced by respondent's counsel namely that Assessing Officer diligently and by application of mind had held that respondent is entitled for 5 % Super Tax being a public company, therefore, reopening of the case was unwarranted and according to him under these circumstances the High Court had rightly declined to answer the question framed by it. In continuation of his this argument he contended that powers under section 65 of the Ordinance can only be exercised when there is a definite information warranting reopening of the case for additional assessment. As there was no definite information therefore, proceedings initiated by Successor Assessing Officer have rightly been found illegal by the Income Tax Appellate Tribunal and learned High Court.
13. Learned counsel for appellant contended that the Successor Assessing Officer on having received definite information that the respondent has obtained excessive relief by availing benefit of 5 % rebate of Super Tax admissible to public company issued notice for reopening of the case for additional assessment on the premise that in respondent's organization Government's shares were less than fifty per cent, therefore, such information constituted a "definite information" in terms of subsection (2) of section 65 of the Ordinance.
14. There is consensus of judicial opinion "that once all the facts have been fully disclosed by the assessee and considered by the Income Tax Authority and assessments have been consciously completed and no new fact has been discovered, there can be no scope for interference with those concluded transactions under the provisions of section 65 on the ground that the income chargeable to tax under the Ordinance has escaped assessment or has been under assessed, etc. within the meaning of section 65(1)(a)(b) of the Ordinance. Reference in this behalf may be made to (i) 1990 SCMR 697, and (ii) PLD 1990 SC 399 at page 421 wherein this Court observed:
"Once all the facts have been fully disclosed by the assessee and considered by The Income-tax Authorities and the assessments have been consciously completed, and no new fact has been discovered there can be no scope for interference with these concluded transactions under the provisions of section 65 of the Ordinance on the ground that the income chargeable to tax under the Ordinance has escaped assessment or has been under assessed, etc., in the meaning of clause (a) or (b) of subsec tion (1) of section 65 of the Ordinance.. On the glaring facts and circumstances of this case the mischief of section 65 of the Ordinance was not attracted to all so as to call for the issuance of the impugned notices against the appellant-company, not to speak of passing the assessment orders, dated 2t-12-1982 which however have been already declared as nullity in law by the order of the this Court, dated 23-12-1982, for the reasons stated earlier."
15. A perusal of assessment order, dated 25-4-1987 would indicate that allegedly respondent obtained excessive relief on the pretext that it was a public company whereas according to information of the Successor Assessing Officer, Government was not holding majority of shares in it, but the shares were owned by Pakistan Auto Mobile Corporation Ltd. On basis of such information a notice was issued by the Successor Assessing Officer and he after providing hearing to respondent and having taken into consideration available material concluded that status of respondent was not of a public company because majority of shares were not owned by the Government. The Income-tax Commissioner concurred with such conclusion of Successor Assessing Officer that respondent was not a public company. In case reported as Messrs E.F.U. General Insurance Co. Limited v. The Federation of Pakistan and others (PLD 1997 SC 700) Full Bench comprising of five Judges of this Court has observed:
"The words `definite information' are the key words for the purpose of justifying action under subsection (1) of section 65 and as the said words have not been defined in the Ordinance, they will carry their literary meanings. Every information cannot be treated as the basis for reopening of the assessment but the information should be of the nature which should qualify so `definite information' and that the information `definite information' could not be given a universal meaning but it will have to be construed in each case. Where an assessee discloses all the material facts without any concealment and the assessment had been consciously completed by the Income Tax Officer, in such a case in the absence of the discovery of any new facts which can be treated as 'definite information', there cannot be any scope for re-opening of assessment under section 65. Any change of opinion on the basis of the same material by Income Tax Officer will not warrant pressing into the said provision. A Circular from the Board of Revenue interpreting any provision of law was not a 'definite information' for re-opening assessment by any Income Tax Officer. Expression 'definite information' will include factual formation as well as information about the existence of an winding judgment or a competent Court of law/forum for the purposes of section 65 of the Ordinance, but any interpretation of a provision of law by a functionary which has not been entrusted with the function to interpret such provision judicially cannot be treated as a 'definite information'.
Any interpretation by a functionary of the Revenue Department or a change in the interpretation of any provision by any functionary of the department including the Central Board of Revenue is not 'definite information' for being made a lawful basis for re-opening as assessment already made"
Therefore question arises whether 'definite information' was passed on to Income Tax Officer. In the instant case it came to the notice of Successor Income Tax Assessing Officer that while making original assessment no material- was brought on record to entitle the respondent to claim exemption of 5 % rebate of super tax being a public company which material fact was consciously neither disclosed nor brought to the I notice of the predecessor assessing authority thereby concealed the same consequently respondent-company was not properly and lawfully assessed and thereby got exemption of 5 % rebate of super tax. The Successor Assessing Officer in the circumstances was competent to issue notice and to impose additional assessment against the respondent being not 'public company' considering that there was no material in support o said fact. To elaborate this aspect of the case it is to be observed that for exercise of jurisdiction under section 65 of the Ordinance for the purpose of additional assessment condition precedent is that there should be a 'definite information' but it should not be gossip or surmises. The facts in the case reported as Inspecting Assistant Commissioner and Chairman Panel 20 Companies and another v. Pakistan-Herald Ltd. (1997. SCMR 1256) are quite different and distinguishable to the facts of the instant case as in the cited case at the time of original assessment, Assessing Authority had not taken into consideration se6tion 34-A promulgated under the Finance Act, 1980 which came to the notice of Successor Assessing Authority later therefore he held that it amounted to 'definite information'. In the circumstances this Court held that said provision of law was not applicable hence its non-applicability could hardly be a 'definite information'.
16. In the instant case if 'definite information' as said above would have been placed before the Successor Assessing Authority, then he would be legally justified to re-open the case under section 65 of the Ordinance -for the purpose of additional assessment' because the additional relief of rebate was obtained by assessee contrary to law applicable on the subject. But in the 'present case if the Income-tax Appellate Tribunal after recording the evidence and exercising they jurisdiction, would have found that respondent was a public company within the relevant provision of law we would have endorsed the decision but it was not done. The learned counsel contended that the respondent was public company because majority of shares are held by the Government in view of authentic material. The said fact could have bee ascertained by placing the authenticated documents or sending for the same from the concerned departments on record by the assessing authorities and then could have arrived at just and proper decision in accordance with the law. In the present case it is observed that the Income Tax Appellate Authority did root care to call for the record or get the same placed on record so as to determine whether the respondent was a public company or a private company and in absence of material, reversal of the decision of Assessing Officer was neither legal nor just J nor proper.
17. As we have held hereinabove that jurisdiction has not bee properly exercised by the Income Tax Appellate Tribunal in determining "whether the respondent was a "public company" or a private limited company and had disagreed with the opinion of Successor Assessing Officer contained in order, dated 24-5-1987 as well as contrary to the provisions of law, therefore, we are inclined to remand the case to the Income Tax Appellate Tribunal for deciding the question as to whether the respondent organization is a public company in terms of para B(1) Part-IV of 1st Schedule to the Ordinance.
18. For the foregoing reasons appeals are allowed with costs. Impugned order, dated 23rd October, 1998 is set aside and the case is remanded to the Income Tax Appellate Tribunal for fresh decision, keeping in view the observations made hereinabove, expeditiously, as far as possible within a period of three months, after receipt hereof,
S.A.K./M.A.K./C-4~/SCCase remanded.