I.T.As. Nos. 1381/KB to 1383/KB of 2002, deiced on 20th May, 2003. VS I.T.As. Nos. 1381/KB to 1383/KB of 2002, deiced on 20th May, 2003.
2003 P T D (Trib.) 2189
[Income-tax Appellate Tribunal Pakistan]
Before Jawaid Masood Tahir Bhatti, Judicial Member and Muhammad Akhtar Nazar Mian, Accountant Member
I.T.As. Nos. 1381/KB to 1383/KB of 2002, deiced on 20th May, 2003.
(a) Income-tax Ordinance (XXXI of 1979)--- ----Ss. 156, 68, 52 & 86---Rectification of mistakes---Registration of firm---Liability of person failing to deduct or pay tax---Change of status---Declaration of status as Registered Firm---Assessments were finalized under S.62 of the Income Tax Ordinance, 1979---Initiation of proceedings under Ss.52/86 of the Income Tax Ordinance, 1979 as the firm had not carried out its obligation as withholding agent under S.50 of the Income Tax Ordinance, 1979---Rectification application under S.156 of the Income Tax Ordinance, 1979 for change of status on the ground that one of the partners had died arid a certificate for change in constitution of firm was duly issued by the Registrar of Firms---Change of status from registered firm to unregistered firm by way of rectification by the Assessing Officer---Validity---Assessing Officer making original orders under S.68 of the Income Tax Ordinance, 1979 had not committed any mistake by distributing profit of the firm amongst the old partners which were shown as partners apparently in the return when the status of registered firm was claimed without having submitted any application for registration in any of the subsequent assessment years---Assessing Officer went beyond her jurisdiction while passing the order under S.156 of the Income Tax Ordinance, 1979 because an evidence not already available on record had been adduced before her to claim that there had been a change in the constitution of firm---Such additional evidence which was not before the Assessing Officer making assessments originally could not be considered by the succeeding Assessing Officer so as to hold that the mistake was apparent from record.
2001 PTD 2658 distinguished.
(b) Income Tax Ordinance (XXXI of 1979)---
----Ss. 68, 62 & 156---Registration of Firm---Change in status-- Rectification---Without rectifying the order under S.68 of the Income Tax Ordinance, 1979 no order changing the status from registered firm to unregistered firm could legally be made by rectifying the order 'under S.62 of the Income Tax Ordinance, 1979 because the status in order under S.62 of the Income Tax Ordinance, 1979 was consequential to what was held in S.68 of the Income Tax Ordinance, 1979---Changing the status of firm by rectifying the order under S.62 of the Income Tax Ordinance, 1979 without rectifying the order under S.68 of the Income Tax Ordinance, 1979 was of no legal consequence a and was nullity in the eyes of law.
(c) Income Tax Ordinance (XXXI of 1979)---
----Ss. 66-A, 68 & 156---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Registered firm---Constitution of firm---Death of a partner---Change of status by rectification-- Cancellation of such order under S.66-A of the Income Tax Ordinance, 1979---Validity---Not only the death of a partner had specifically been mentioned as a situation when the firm would not be dissolved but also one of the clauses of partnership deed impliedly prescribed that the change due to death of partner would not even mean the change in constitution because the legal heirs were considered as partners exercising all rights which the deceased, partner would have exercised if he had been alive---No change occurred in the constitution of firm on stepping into shoes of the deceased partner by legal heirs in the circumstances and firm could still be deemed to be a registered firm---Order 'under S.156 of the Income Tax Ordinance, 1979 passed by the Assessing Officer rectifying the order under S.62 of the Income Tax Ordinance, 1979 and thereby assigning status of unregistered firm was an order which was erroneous on the face of it.
(1984) 49 Tax 158; 1992 PTD 570; PLD 1977 SC 109; 1984 PTD 248 and 1980 PTD 33 ref.
(d) Income Tax Ordinance (XXXI of 1979)---
----Ss. 66-A, 156, 62, 68, 69(1), 52 & 86---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order-- Rectification of mistake---Registered firm---Non-deduction of tax-- Assessee in default---Change of status by way of rectification -- Validity---Order made by the Assessing Officer under S.156 of the Income Tax Ordinance, 1979 rectifying the order under S.62 of the Income Tax Ordinance, 1979 so as to change the status of the assessee from registered firm to unregistered firm was an order which was erroneous and prejudicial to the interest of revenue and of no legal effects without there being any legal change in the order under S.68 of the Income Tax Ordinance; 1979---Inspecting Additional Commissioner rightly proceeded under S.66-A of the Income Tax Ordinance, 1979-- Restoration of status as registered firm to the firm was maintained by the Appellate Tribunal.
Abdul Qadir Lakhani fox Appellant.
Aijaz Asad Rasool, I.A.C. for Respondent.
Date of hearing: 14th May, 2003.
ORDER
MUHAMMAD AKHTAR NAZAR MIAN (ACCOUNTANT MEMBER).---These appeals are directed against orders passed by the IAC under section 66-A of the Income Tax Ordinance, 1979 (hereinafter called the Ordinance).
2. Learned Representatives of both the parties have been heard, orders of the Authorities below perused and relevant income-tax record have been examined. Since the facts are similar in all the years under appeal, therefore, these appeals are intended to be disposed off through this consolidated order.
3. The facts so far as relevant for disposal of these appeals are that for the assessment years 1997-98, 1998-1999 and 1999-2000 returns were filed by the assessee appellant declaring status of registered firm as in the past. Assessments were made by the Assessing Officer in the status of registered firm in each of the assessment years under appeal and after determining income of the firm and charging the same to the levy of super tax and surcharge, through order under section 62, of the Ordinance, the Divisible income was distributed vide order under section 68 of the Ordinance in each of the assessment years 1997-98 to 1999-2000 in the following manner:--
| Assessment year | Date of order | Name of partner with share | Income distributed |
| | | | Rs. |
| 1997-98 | 20-4-1998 | Haji Muhammad Ali 1/3rd Shaikh Muhammad Anwar 1/3rd Shaikh Muhammad Aslam 1/3rd | 491060 491060 491061 |
| 1998-99 | 8-2-1999 | Haji Muhammad Ali 1/3rd Shaikh Muhammad Anwar 1/3rd Shaikh Muhammad Aslam 1/3rd | 514785. 514785 514785 |
| 1999-2000 | 6-3-2000 | Haji Muhammad Ali 1/3rd Shaikh Muhammad Anwar 1/3rd Shaikh Muhammad Aslam 1/3rd | 552791 552791 552791 |
(We have placed on our records photo copies of the orders under section 68 passed by the Assessing Officer and available on the departmental records).
4. The assessments having been made in this case in the status of registered firm which had capital exceeding rupees One million, it was found that the firm had not carried out its obligation as withholding agent under section 50 of the Ordinance and therefore, the Assessing Officer initiated proceedings under section 52/86 of the Ordinance for the assessment year 1992-93 to 2000-2001 and by 21-5-2001 he completed proceedings under sections 52 and 86 of the Ordinance as noted below:--
| Assessment year | Addl. Tax under section 86 charged | Tax under section 52 not levied |
| | Rs. | |
| 1992-93 | 39,938 | --- |
| 1993-94 | 55,769 | -- |
| 1994-95 | 72,315 | -- |
| 1995-96 | 88,840 | -- |
| 1996-97 | 16,30,346 | under process demand not created |
| 1997-98 | 10,23, 3,92 | -do |
| 1998-99 | 13,22,034 | -do |
| 1999-2000 | 6,98,423 | -do |
| 2000-2001 | 59,1825 | charged Rs.174663 under section 52 |
5. On 22-5-2001 the assessee filed an application under section 156 of the Ordinance to the following effect:--
"On behalf of our above named client we inform you that the partner of the firm Haji Muhammad Ali son of Shaikh Ahmed Din-expired on 9-2-1996, and change in the constitution of the firm had taken place in assessment year 1996-97, accordingly under section 68(4) the firm ceased to be registered firm shall be treated as unregistered firm as no application for renewal has been made by our client, the evidence being certificate issued by the Registrar of Firms showing change in constitution of the firm effective from 23-4-1996 duly signed and stamped is enclosed.
In view of the above, kindly rectify the order being mistake apparent from record."
6. The Assessing Officer on 30-6-2001 passed for each year separate orders under section 156 of the Ordinance accepting the application and by rectifying the orders already made under section 62 of the Ordinance, she assigned the status of URF to the assessee appellant.
7. The learned IAC on examination of assessment records found that this action on the part of the Assessing Officer of rectifying the order under section 62 of the Ordinance and thereby assigning status as URF to the assessee appellant was erroneous insofar as it was prejudicial to the interest of Revenue. He, therefore, exercised his revisional jurisdiction under section 66A of the Ordinance, whereunder he cancelled the orders of Assessing Officer passed under section 156 modifying the orders under section 62 already passed and thereby the learned IAC restored the status of the assessee as registered firm with the direction to the concerned DCIT to initiate de novo all the proceedings by applying the provisions of law. Thus order of the IAC is now under appeal before us.
8. It is submitted by the learned AR that the orders under section 156 passed by the Assessing Officer on 30-6-2001 were neither erroneous nor prejudicial to the interest of Revenue and, therefore, the IAC had exceeded his jurisdiction by proceeding under section 66A of the Ordinance. According to the learned A.R. the new constitution of the firm after death of Haji Muhammad Ali was brought to the knowledge of the Assessing Officer while the original assessments were being made by submitting copies of the final accounts indicating the new constitution. According to the learned A.R. it was a mistake on the part of the assessee to have shown status of registered firm on the face of returns of income for the assessment years 1997-98 to 1999-2000 but that notwithstanding the Assessing Officer should have assigned the status of URF to the firm because whenever there is change in the constitution of the firm, facilities of registration under section 68 automatically go and since in this case no application under section 68 had ever been made for the assessment years 1997-98 to 1999-2000, the Assessing Officer should have assigned the status as, URF: In support of his contention he has produced before us a copy of the register of Registrar of firms indicating that the death of Haji Muhammad Ali. partner, of the firm on 9-2-1996 and joining into partnership of his widow Mst. Zainab Muhammad Ali w.e.f. 10-2-1996 was duly registered by the Registrar on 23-4-3996. We may state that this document was. also produced before the Assessing Officer during the proceedings under section 156 of the Ordinance, which convinced her that status of URF should be assigned to the assessee appellant for the assessment years 1997-98 to, 1999-2000. On our questioning as to how could an evidence subsequently submitted during the proceedings under section 156 form a part of records of earlier proceedings under section 62 and justify action under section 156 of the Ordinance, the learned A.R. has relied upon a case decided by Madras High Court India and reported as 2001 PTD 2658 to contend that since the word "record" is not defined, the record as 'used in section 156 means the record which is available before the Assessing Officer at the time of making rectification under section 156 and not the record which was available at the material time of making the original assessment.
9. The learned A.R. has further referred to section 68 of the Ordinance and specifically to subsection (4) of the subsection to argue that the firm once registered under section 68 of the Ordinance is to, be treated as registered firm in the income-year for which it is first registered and for all subsequent income years for so long as there is no change in the constitution of the firm. According to the learned A.R. conversely when there is change in the constitution of the firm, the firm no more remains the same and, therefore, this change in the constitution of the firm results automatically into non-registration of the said firm. In support of his contention he has cited case reported as (1984) 49 Tax 158 (H.C. Kar). Further it is submitted by the learned A.R. that, without conceding even if it is presumed that the order made under section 156 by the Assessing Officer was erroneous, it could not be prejudicial to the interest of Revenue because a registered firm has to pay lesser tax than an unregistered firm on the same amount of income. It is submitted by the learned A. R. that reference to initiation of proceedings under section 52/86 of the Ordinance was not relevant because firstly the tax demand under section 52 is held by Courts to be not a source of Revenue for the department and secondly because there was no demand under section 52 when the orders under section 156 were passed and, therefore, the proposed demand under section 52 could not be counted as Revenue so as to determine whether the order by the Assessing Officer is or is not prejudicial to the interest of Revenue.
10. The author of the order assisted us by presenting himself the case before us. He has brought before us the assessments records to show that the returns had always been filed in the status of R.F., including that for the preceding assessment year 1996-97 when the partner Mr. Haji Muhammad Ali had actually expired but the return had still been filed in the status of R.F. showing in the annexure of the prescribed return the same old three persons as partners of the firm. For the assessment years 1997-98 to 1999-2000 (the orders under appeal) the pro forma of return of income (TT-11) had been amended by the C.B.R. and constitution of the firm was not required to be declared on the return as in the past. However, he contended that the details furnished by the appellant during the assessing proceedings under section 62 for the assessment year 1997-98 clearly show that the profit had been distributed amongst partners namely Haji Muhammad Ali, Shaikh Muhammad Anwar and Shaikh Muhammad Aslam as per details of capital furnished during the assessment proceedings for the assessment year 1997-98. No such details are on records to show that the assessee had given distribution of profit in names other than the names of the partners in original and therefore, the learned A.R. was not rightly saying that distribution amongst nevi' partners was duly notified to the Assessing Officer during original assessment proceedings under section 62. Similarly for the assessment year 1999-2000 the assessee had shown the status of R.F. on the return and during the assessment proceedings no such details were furnished which could show that the profit had not been distributed amongst the original partners. According to the learned IAC it was in these circumstances that the Assessing Officer had distributed divisible income as per orders under section 68 among the original partners. In brief the learned IAC has from departmental records tried to show that whatever information was available on the return for the assessment year 1996-97 and the record for the assessment year 1997-98 as was available to the Assessing Officer while making the original assessment lead to irresistible conclusion that the profit had rightly been distributed amongst the original three partners as shown on the return and by showing the status as R.F. in the subsequent assessment years 1998-99 to 1999-2000 in the returns, the obvious conclusion was that there was no change in the constitution of the firm and that the profit had thus been distributed amongst original three partners in these circumstances. It is submitted by the learned IAC that obvious conclusion is to the effect that at the time of making the assessment under section 62 or passing order under section 68, there was no evidence, whatsoever on record to show that there was any change in the constitution of the firm and therefore, by distributing profit amongst old partners, the Assessing Officer making original assessments had not committed any mistake which could be termed as mistake apparent from record and in this way rectifiable under section 156 of the Ordinance.
11. It is further submitted by the learned IAC that tire Supreme Court of Pakistan has laid down the principles as to when an order is rectifiable by the same authority. In the case reported as 1992 PTD 570 (SC Pak) it has been held where some enquires are required to be made in order to decide any issue then that issue cannot be said to be arising as mistake apparent from record rectifiable under the Ordinance. Relevant portion of the order reads as under:--
"Section 35 of the repealed Income Tax Act, 1922, hereinafter referred to as `The Act' confers a power to rectify any mistake in the order which is apparent from the record. Such power can be exercised suo motu or, if it is brought to the notice by an assessee. Therefore, essential condition for exercise of such power is that the mistake should be apparent on the face of record; mistake which may be seen floating on the surface and does not require investigation or further evidence. The mistake should be so obvious that on mere reading the order it may immediately strike on the face of it. Where an officer exercising power under, section 35 enters into the controversy, investigates into the matter, re-assesses the evidence or takes into consideration additional evidence and on that basis interprets the provision of law and form an opinion different from the order, then it will not amount to rectification of the order. Any mistake which is not patent and obvious on the record, cannot be termed to be an order which can be corrected by exercising power under section 35. In this regard reference can be made to Shaikh Muhammad Iftikharul Haq v. Income Tax Officer, Bahawalpur PLD 1966 SC 524 and Pakistan River Steamer Limited v. Commissioner of Income Tax, 1971 PTD 204."
12. The learned IAC argues that in the instant case the decision is primarily based on the additional evidence but even if new evidence brought before the succeeding Assessing Officer who passed the order under section 156 of the Ordinance is considered, no conclusion can be drawn merely on seeing this new evidence also that there was a mistake but in order to arrive at some conclusive result the Assessing Officer would have to conduct inquiries about status for the assessment year 1996-97, the partnership deed and subsequent conduct of the partners to conclude as to whether there was a change of constitution or not. According to the learned IAC this was obviously beyond the scope of rectifying an apparent mistake as held by the august Supreme Court of Pakistan referred supra.
13. An unfortunate situation arose when the departmental records were being examined by us with the assistance of representatives of both the parties as the learned A.R. stated at bar that Departmental records as seen by him, last time included an information about distribution of profit amongst new partners for the assessment year 1998-99, and this was not being produced by the Department at the time of present hearing on 14-5-2003. He further alleged that the distribution of profit for the assessment year 1997-98 as per- departmental record shown as having been made amongst the original partners, is, according to learned A.R., a manipulation in the assessment records since he had never submitted any details in the fashion as are presently available on record because he had always been submitting only computer generated details and the details referred by the learned IAC were photo copies of typed information. The learned IAC stated that the learned A.R. was indulging in insinuation without any evidence which was not fair on his part and the learned A.R. is not right in saying that he had never submitted any details except that which was produced on his computer because the details even now on records for the assessment years 1997- 98 and 1998-99 lying in file covers submitted by the appellant himself showed that some details were in human hands and others were photo copies.
14. When this order was being typed at the final stages an affidavit was received from the office of the learned A.R. stating as under:--
Affidavit
I Abdul Rahim Lakhany son of Ghulam Muhammad Lakhany Muslim, Adult, residing at Karachi, do hereby state on. solemn affirmation as under:--
(1)That I am an Advocate of High Court and practising at Karachi, having office at 211, Progressive Plaza, Beaumont Road, Near P.I.D.C., Karachi.
(2)That I had represented the case of Messrs Sindh Feed and Allied Products in respect of assessment years 1997-98, 1998-99 and 1999-2000 in ITA Nos.1381, 1382 and 1383 before this Honourable Income Tax Appellate Tribunal, Karachi on 14-5-2003 in which I presented the .copy of partner's capital account for year ended 30-6-1997, original of which was filed alongwith return of income in which Mst. Zainab Bibi had been shown as a partner of the firm.
(3)That on the above mentioned date i.e. 19-4-2000, during proceeding of the case I myself had seen the original partner's capital account in the record of department in the presence of the learned Inspecting Additional Commissioner of Income tax Range 1, Zone C, Karachi namely, Mr. Ijaz Asad Rasool, who is appearing on behalf of department.
(4)That the above named assessee always submits original computer generated statements alongwith return of income.
(5)That thereafter above said partner's capital account has been changed by the department showing Haji Muhammad Ali-as partner instead of Mst. Zainab Bibi with intention to misguide this Honourable Tribunal.
That whatever stated above is true and correct to the best of my knowledge and belief.
15. A plain reading of the clauses (2) and (3) of the affidavit shows that the learned A.R. is insisting upon production before us of Partners Capital Accounts for the assessment year 1997-98 with the contention that these accounts submitted already by him to the department showed Mst. Zainab Bibi as one of the partners. We candidly remember that at the time of hearing he had referred to the Partners Account for the assessment year 1998-99 where Mst. Zainab was shown. as partner, although photo copies of the partners' accounts for the assessment years 1997-98 and 1998-99 as submitted by him to us at the time of previous hearing indicated Mst. Zainab as one of the partners. In the affidavit he is insisting only on the capital account fox the assessment year 1997-98 submitted which showed Mst. Zainab as partner. Again in clause (4) of the affidavit learned A.R. has stated that the `assessee always submits the original computer generated statements alongwith return of income". As against this we, however, find from the departmental records that no such statements are attached with the returns for the assessment years 1998-99 and 1999-2000 and for the assessment year 1997-98 a copy of the return for the assessment year 1996-97 is attached showing (Haji Muhammad Ali, Shaikh Muhammad Anwar and Shaikh Muhammad Aslam as partners on 30-6-1996) and also a copy of the balance sheet as on 31-6-1996. Original return for the assessment year 1996-97 is not available in the return covers of the departmental records. Copies of the final accounts subsequently produced during assessment proceedings before the Assessing Officer for the assessment year 1998-99 show that different sheets had been, made in computer in different fonts and the details furnished for the assessment year 1999-2000 during the assessments proceedings included some statements in photo copies and others as original some details are photo copies of the lists made in human hands.
16. After examining the departmental records and contents of the affidavit submitted by the learned A.R. analysed by us as above we are unable to subscribe to the submission made by the learned A.R. specially when persons bias or mala fide is not attributed to any person. We would, therefore, examine and decide the case on the basis of whatever is available on the departmental records as such.
17. In order to dispose of these appeals we frame for ourselves the following questions for consideration and decision:--
(i)Was there any mistake apparent from records as applied by the assessee firm. In case there was a mistake in the original orders, could it be treated as mistake apparent from records and rectifiable under the Ordinance by the same authority i.e. the Assessing Officer?
(ii)Could the status of URF be assigned to the appellant, in the circumstances of the case?
(iii)Were the orders passed under section 156 of the Ordinance prejudicial to the interest of Revenue so as to give legal jurisdiction to the IAC for revising the orders under section 66A of the Ordinance?
18. We start examining these questions one by one:--
(i)Was there any mistake apparent from records as applied by the assessee firm. In case there was a mistake in the original orders, could it be treated as mistake apparent from records and rectifiable under the Ordinance by the same Authority i.e. the Assessing Officer?
19. The evidence produced before us in the form of returns submitted by the assessee appellant for the assessment years 1996-97 to 1999-2000 shows that the status of R.F. was claimed by the assessee in all the years and for the assessment year 1996-97 when an annexure to the return of income was prescribed to declare the constitution of the partnership, the firm was shown to have been constituted as on 30-6-1996 by the three original partners notwithstanding that one of the partners namely. Haji Muhammad Ali had admittedly died in February, 1996 and his widow had stepped into the partnership as per records of the Registrar of firms. Subsequent returns of income claimed the status of R.F. and in these circumstances when there was no evidence on record to the contrary and rather the appellant had itself, declared the status as R.F. in all the years and old constitution was shown in the return for .the assessment year 1996-97 when it was required to be so declared, any prudent man could conclude only that the firm continued to have old constitution in the assessment years subsequent to the assessment year 1996-97,. where the constitution was declared by the assessee itself. In these circumstances the Assessing Officer making original orders under section 68 had not committed any mistake by distributing profit of the firm amongst the old partners which were shown as partners apparently in the return for the assessment year 1996-97 and impliedly in the returns for the assessment years 1997-98 to 1999-2000 when the status of R.F. was claimed without having submitted any application for Registration in any of the subsequent assessment years. The Assessing Officer making order under section 156, therefore went beyond her jurisdiction while passing the order under section 156 of the Ordinance because an evidence not already available on record had been adduced before her to claim that there had been a change. in the constitution of the firm. This additional evidence which was not before the Assessing Officer making assessments originally could not be considered by the succeeding Assessing Officer so as to hold that the mistake was apparent from record.
20. This assertion of the learned A.R. is of no help to him in the circumstances of the case that a mistake could be-rectified not only on the basis of the record which was originally available to the first Assessing Officer but the record as was available at the time of making rectification was material. Suffice it to say that the facts of the case reported as 2001 PTD 2658 and relied upon by the learned A.R. in this context were manifestly different from the facts of the present case; in that case mistake was to be considered apparent from record of the Assessing Officer because the evidence relied upon for rectification was result of action in the preceding years by the Assessing Officer in accordance with the Indian Tax Act, which was required under the law to be given effect to through rectification in the subsequent year 'and was thus part of the record of the Assessing Officer at the time of making rectification but in the instant case the evidence on which the rectification was sought was an additional evidence which was not on record of the Income Tax Department and it was being made part of the record of the Department for the first time from extraneous sources, the records of the Registrar of firms. Such an evidence could, therefore, not be made a basis for rectification considered an evidence so as to treat the original order to contain a mistake apparent from record. On the other hand after examining evidence already on record we find that there was nothing-on record-of the department wherefrom it, could be deduced that in the years under appeal, any change in the constitution had taken place and, therefore, we hold that the Assessing Officer rectifying the order under section 156 went beyond her jurisdiction, when she looked into an evidence which was not already on the departmental records and thus erroneously arrived at a conclusion contrary to what had been held while passing the original orders under sections 62 and 68 of the Ordinance.
21. The matter does not end here. We find that the issue of status being that of a registered firm is the issue decided by original Assessing Officer in his order under section 68 of the Ordinance, which still exist on record and have not been rectified. Without rectifying the order under section 68 of the Ordinance no order changing the status of the appellant from R.F. to URF could legally be made by rectifying the order under section 62 of the Ordinance because the status in order under section 62 is consequential to what is held in section 68. This being the position there can be no second opinion that changing the status of firm by rectifying the order under section 62 without rectifying the order under section 68 is of no legal consequence and therefore, nullity in the eyes of law.
22. Our answer to the above question is thus obvious that in the original orders under section 62, there was no mistake apparent from records which could be rectifiable by the same authority in the circumstances of the case.
(ii)Could the status of URF be assigned to the appellant, in the circumstances of the case?
23. For this purpose we would like to quote section 68(4) with a caution in advance that no word used in a statute is in any way redundant:----
"Section 68(4): Where the Deputy Commissioner after making such enquiry or requiring the firm to furnish such particulars, documents or evidence as he may think fit is satisfied that the requirements of subsections (2) and (3) have been fulfilled and that there is, or was, a genuine firm in existence in the relevant income year constituted as shown in the instrument of partnership, he may by an order in writing, made within three months of the date on which the return of total income was filed under section 55 or six months of the end of the income year, whichever is the earlier, register the firm for the purposes of this Ordinance and subject to the provisions of subsection (5), such firm shall be treated as a registered firm for the income year for which it is first registered and for all subsequent income years for so long as there is no change in the constitution of the firm; and if he is not so satisfied, he may, by an order in writing made within the aforesaid period, refuse to register the firm:
Provided that where no such order is made within the aforesaid period, the firm shall be treated as a registered firm and all the provisions of this Ordinance shall, so far as may be, apply as they apply in the case of a firm registered under this subsection."
24. We have had the opportunity of going through partnership deed dated 8th August, 1976 entered into between Haji Muhammad Ali son of Shaikh Muhammad Din and Haji Muhammad Anwar son of Haji Muhammad Ali adult, forming the partnership in question and admitting Mr. Muhammad Aslam son of Haji Muhammad Ali minor to the benefits of partnership, who automatically upon attaining majority became full partner on 9-2-1977 and the change to this effect was notified by the Registrar of the firms, clause (14) of the partnership deed provides "that in the event of death of any partner the partnership shall not be dissolved and the heirs of the deceased partner shall be considered as partners of the firm and shall exercise all rights over the partnership business which the deceased partner had exercised if he was alive."
25. This clause (14) of the partnership deed is material and makes it abundantly clear that "successor" shall be considered as a partner of the firm. This means stepping in of heirs into shoes of a deceased partner would not be construed to have changed constitution of the firm. Subsequent conduct of the firm by filing returns of income in the status of R.F. also supports this view that in the maters of section 68(4) intention of partners of this firm (old and new) has always been that when on the death of a partner the heirs succeed, this will not be a matter to be considered as change in constitution but a matter pertaining to constitution of the same firm. There is plethora of case-law holding that in these circumstances the firm under the Income Tax Act, 1922 was required to file application for renewal for registration and not for new registration as the firm was considered to continue notwithstanding the legal heirs having stepped into shoes of the deceased partner. This view get further support from the case-law reported as (1984) 49 Tax 158 (H.C. Kar.). It has been held by the Honourable Sindh High Court that section 42 of the Partnership Act is subject to contract between partners of the firm and this contract need not be in writing or under an instrument. Such contract can be express or implied and the implied contract between the parties can be spelled out from their conduct and subsequent events. In the instant case not only the death of a partner has specifically been mentioned as a situation when the firm would not be dissolved but also the clause (14) of the partnership deed impliedly prescribes that the change due to death of partner would not even mean the change in constitution because the legal heirs are considered as partners exercising all rights which the deceased partner would have exercised if he had been alive. This being the position we find that in the circumstances of this case as implied in the partnership deed there was no change in the constitution of the firm on stepping into shoes of the deceased partner by his legal heir. We are fortified in taking this view by the cases reported as 1984 PTD 248 PLD 1977 SC 109 (High Court Kar.) and 1980 PTD 33 (H.C. Pesh.). In these circumstances even after considering facts and evaluating the evidence produced before the Assessing Officer passing orders under section 156 of the Ordinance we find that this was not a case for change of constitution of firm and the firm could still be deemed to be a registered firm in all the assessment years under appeal before us.
26. For the reasons given above we find that the order under section 156 passed by the Assessing Officer rectifying the order under section 62 and thereby assigning status of URF was an order which was erroneous on the face of it.
(iii) Were the orders passed under section 156 of the Ordinance prejudicial to the interest of Revenue so as to give legal jurisdiction to the IAC for revising the orders under section 66A of the Ordinance?
27. The learned A.R. asserts that for determining the quantum of revenue we should restrict ourselves to the amount of tax which would be payable by the firm in the status of URF in contrast to the status of R.F. In this connection we have drawn the attention of the learned A.R. to the provisions of section 68 which are included in Chapter VIII i.e. Tax Liability in Special Cases. Section 68 needs to be read with other provisions of law specially section 69 of the Ordinance. Moreover, the effect on tax revenue will have to be considered in the light of rights and liabilities placed on a firm due to its status being that of R.F. or URF. Section 69(1) (a) clearly lays down the procedure as to how a registered firm is to be treated for determining tax liability. Similarly section 69(1)(b) prescribes as to how the liability of a firm is to be determined in case it is an unregistered firm. There is no ambiguity that in case of registered firm total income of the partners and tax payable by them on the basis of such assessment is to be determined while making assessment of the firm under section 62 of the Ordinance. This means that for comparing tax so as to see as to which treatment is beneficial to the interest of Revenue, the tax of the firm and that of the partners has to be aggregated for the purpose of comparison. With this perspective in the background we have noticed that the IAC in his order for each year at pages 27 and 28 worked out the tax which would be payable in case the firm is treated as R.F. and URF and in each case he has calculated that tax as registered firm is more than that which is payable as URF. This calculation his not been agitated-in the grounds of appeal and therefore, is construed to be correct calculation of tax. We may add that as a registered firm, this firm was obliged to withhold tax under section 50 of the Ordinance and in case it is treated as "assessee" in default the tax liability so payable by the assessee in default is also an amount of Revenue which needs to be considered while comparing the tax Revenue by the firm as URF or as R.F. There can be no exception to this prince because legal obligations under two situations are obviously different and where tax remains unpaid by the recipients of payments from an R.F. and the legal resort to section 52 be made this amount of tax generated under section 52 would be Revenue in every sense of the word as it would be payable by the firm as "assessee" in default.
28. The net result of the discussion made above is that the order made by the Assessing Officer under section 156 rectifying the order under section 62 of the Ordinance so as to change the status of the appellant from R.F. to URF was an order which was erroneous and prejudicial to the interest of Revenue and of no legal effects without therebeing any legal change in the order under section. 68 of the Ordinance. We hold that the learned IAC had rightly proceeded in this case and his orders under section 66A, therefore, restoring the status as R.F. to the firm in all the years under appeal are maintained.
29. Appeals being devoid of merits are dismissed.
C.M.A./800/Trib.Appeals rejected.