(a) Administration of justice‑‑‑

‑‑‑‑ Relief available to a person in law should not be denied on account of technicalities.

(b) Taxation‑‑‑

‑‑‑‑ Tax Officer, duty of‑‑‑Duty of Tax Officer is to act in accordance with law and keep principle of justice in view.

(c) Administration of justice‑‑‑

‑‑‑‑ Justice should not be crucified on the altar of technicalities.

(d) Taxation‑‑‑

‑‑‑‑ Assessee should not be required to perform impossibilities, which in itself amounts to negation of justice.

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

‑‑‑‑S. 99(2)‑‑‑Refund, claim for‑‑‑Period of limitation provided in S.99 of the Income Tax Ordinance, 1979‑‑‑Applicability‑‑‑Such period would be relevant, when a refund was assessed in assessment order for a particular period.

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

‑‑‑‑Ss. 2(20)(e), 96(2), 99, 100, 156(4) & 136(1)‑‑‑Refund of addition on repayment of loan, claim for‑‑‑Loan advanced to appellant by company was deemed as dividend and taxed under S.2(20)(e) of the Ordinance‑‑ Appellate Authority confirmed such addition, but Tribunal set aside assessment with direction to re‑examine‑‑‑Appellant in re‑assessment proceedings taken in year 1998 claimed refund on the ground that loan taken by him in, assessment year 1986‑87 had been repaid during assessment year 1987‑88‑‑‑Assessing Officer declined such request‑‑‑Appellant then made written request for refund under S.96(2) of the Ordinance‑‑‑Assessing Officer treated such request as an application for rectification relating to assessment order for assessment year 1987‑88, and found same hit by limitation envisaged under S.156 of the Ordinance‑‑‑Tribunal upheld rejection of application‑‑‑Validity‑‑‑Refund to appellant became available because of finalization of assessment for assessment year 1986‑87 through order, dated 31‑3‑1998‑‑‑Present case was not of rectification as assessment for assessment year 1987‑88 was completed on the basis of facts and circumstances prevailing on 30‑4‑1988‑‑‑Question of rectification did not arise as !here was no mistake apparent on record‑‑‑Present claim for refund was not governed by provisions contained in Ss.99 & 156 of the Income Tax Ordinance, 1979, thus, period of limitation provided therein was not relevant‑‑ Appellant was entitled to refund of addition made under S.2(20)(e) of the Ordinance by the way of consequential relief‑‑‑High Court answered question in affirmative and accepted appeal.

Irfan Saadat Khan for Appellant.

Nasrullah Awan for Respondent.

Date of hearing: 3rd October, 2002.

JUDGMENT

MUHAMMAD MUJIBULLAH SIDDIQUI, J.‑‑‑This appeal under section 136(1) of the Income Tax Ordinance,1979 is directed against the order of learned ITAT, dated 17‑7‑1999 in I.T.A No. 1157/KB of 1998‑99 (assessment year 1987‑88).

The appellant has proposed the following questions of law, allegedly arising out of the order of Tribunal:‑‑‑

"(1) Whether on the facts and circumstances of the case the learned ITAT was justified in holding that your appellants letter submitted to the Deputy Commissioner of Income Tax (DCIT) seeking consequential relief legally admissible under section 96(2) of the Income Tax Ordinance, 1979 (the Ordinance) in respect of the year 1987‑88 with regard to the amount added under section 2(20) (e) of the Ordinance in the year 1986‑87 was an application for rectification and not one for consequential relief.

(2) Whether on the facts and circumstances of the case the ITAT was justified in holding that the consequential relief sought by your appellant was hit by the provisions of section 156(4) of the Ordinance, whereas your appellant made the request for grant of consequential relief only `and hence not barred by limitation."

After hearing the learned Advocates for the parties at some length, we are of the opinion that, the above questions are not properly formulated and the question of law which arises out of the order of Tribunal is as follows:‑‑‑

"Whether in the facts and circumstances of the case the ITAT has misdirected in applying section 156 of the Income Tax Ordinance, 1979?"

The appeal is admitted to regular hearing, to consider the above question.

Since a short point is involved in this appeal and it pertains to the assessment year 1987‑88, therefore, with the consent of learned advocates for the parties, we have heard the appeal on merits.

The relevant facts as contained in the impugned order of Tribunal, dated 17‑7‑1999 are that, the appellant is Director in Private Limited Company, in the name and style of Rehmatullah Hossein Ltd., Karachi. During the income year ending 30‑6‑1986, the said company advanced a loan of Rs.4,55,911 to the appellant which was deemed as dividend and taxed under section 2(20)(e) of the Income Tax Ordinance, 1979. The appellant feeling aggrieved by the said treatment filed appeal before the learned CIT(A), who confirmed the addition. The assessee preferred second appeal before the Income Tax Appellate tribunal. Vide order, dated 3‑12‑1995, the ITAT set aside the assessment with direction to re‑examine the issue. The set aside proceedings were taken up by DCIT, in the year 1998. A plea was taken on behalf of appellant that, the loan taken in the assessment year 1986‑87 was returned back during the assessment year 1987‑88, and certificate in this behalf was also filed. The purpose of submitting the said certificate was, that, any loan or advance deemed as dividend income, taxed in one year, was to be refunded back in the year in which it was repaid as per section 96(2) of the Income Tax Ordinance. This plea was not accepted by the DCIT on the ground that, as far as assessment year 1986‑87 was concerned, the said loan was liable to be included as dividend income, and the question of refund of the said amount would arise in the relevant assessment year and would be considered in the said year. He, therefore, included the said loan as dividend income and added the same to the total income and taxed it accordingly. The Assessing Officer did not consider the request for refund under section 96(2) for the reason that, the assessment for the assessment year 1987‑88 was already completed in April 1988 and no proceedings against the said assessment were pending. Thereafter, the appellant submitted an application on 16‑7‑1998, stating as follows:‑‑‑

"While computing the total income you have added an amount of Rs.4,55,911 under section 2(20)(e) of the Ordinance. We would like to inform you that the said sum has been paid in the assessment year 1987‑88. Copy of audited accounts and certificate from the Company have already been provided to you vide Letter No.T/2695/98, dated 27‑3‑1998 and is available on record. You would appreciate the fact that in pursuance of section 96(2) of the Ordinance our above client is entitled to a refund of taxes on repayment of the any sum added under section 2(20)(e) of the Ordinance. We, therefore, request you to revise the assessment for the assessment year 1987‑88 by giving consequential effect in respect of payment of loan."

The DCIT, treated the request as an application for rectification pertaining to assessment order for the assessment year 1987‑88 and communicated the appellant vide letter, dated 18‑8‑1998 that, the same cannot be done as it is hit by limitation envisaged under section 156 of the Income Tax Ordinance, 1979.

The appellant preferred appeal before the learned CIT(A) against the addition made in the assessment year 1986‑87, contending that, the deeming of loan as dividend income for the assessment year 1987‑88 shall not serve any purpose as the loan was already paid in the period relevant to the assessment year 1987‑88. It was further contended that, the appellant was thus, entitled to automatic refund under section 96(2) during the assessment year 1987‑88. The learned CIT(A) did not accept the contention and held that, the loan which was taken in the period relevant to assessment year 1986‑87 and was paid in the period relevant to the assessment year 1987‑88 was liable to be added to the total income in the assessment year 1986‑87, by virtue of the provisions contained in section 2(20)(e). The learned CIT(A) upheld the rejection of application on the ground that, it had become time barred and the appellant was not entitled to automatic refund.

Being still dissatisfied, the appellant preferred second appeal before the Appellate Tribunal.

The learned ITAT after narrating the facts observed, that the appellant had not claimed refund during the original proceedings pertaining to the assessment year 1987‑88 after the assessment order for the assessment year 1986‑87 was set aside by the Tribunal and the re examined proceedings were taken up by the DCIT. It was further observed that, the said application for rectification was filed only to facilitate the filing of appeal for the assessment year 1987‑88, the assessment whereof was already finalized and no issues were pending. In respect of issue pertaining to refund the learned members of the Tribunal held that, the refund was to be issued on an application made by the appellant as provided in section 99(1) of the Income Tax Ordinance, 1979. It was further held that, the period of limitation was provided, for such application, under section 99(2) (a) to be one year from the end of the income year in which the loan or advance is repaid. It was further held that, the refund application could be submitted by 30‑6‑1988 which was not done and therefore, the issue could not be revived by a rectification application made belatedly on 16‑7‑1998 much after the period prescribed under section 156(4) of the Income Tax Ordinance, 1979.

Mr. Irfan Saadat Khan, learned counsel for the appellant has submitted that the learned members of the Tribunal failed to apprehend the contention of appellant which was to the effect that, the appellant was entitled to the consequential relief provided in section 96(2) of Income Tax Ordinance, 1979. According to him, the addition under section 2(20)(e) of the Income Tax Ordinance, is made by a deeming provision as rightly held by the ITAT, but they have omitted to consider the real import and effect of the provision contained in section 96(2) whereby the Legislature has provided the consequential relief. He has contended that, the appellant vide application, dated 16‑7‑1998 had not prayed for any rectification in the assessment order pertaining to the assessment year 1987‑88, but had prayed for consequential relief as the addition by recourse to the provisions under section 2(20)(e) of the Income Tax Ordinance, attained finality vide assessment order, dated 31‑3‑1998. He has submitted that, no refund could be claimed when the assessment pertaining to the assessment year 1987‑88 was completed in the year 1988 for the simple reason that, the assessment for the assessment year 1986‑87 was finalized subsequently and no addition was made by 30th April, 1988 when the assessment for the assessment year 1987‑88 was completed. Thus, when no addition was made by that time, there was no question of claiming any refund under section 96(2) of the Income Tax Ordinance, 1979, which becomes operative after addition is made under sub‑clause (e) of clause (20) of section 2 of the Income Tax Ordinance, 1979. He has submitted that when the assessment for the assessment year 1987‑88 was completed there was no mistake in it and the assessment order for the assessment year 1987‑88 as a stands up till now does not suffer from any mistake apparent on record, requiring rectification under section 156 of the Income Tax Ordinance, 1979 and for the said reason the appellant in his application, dated 16‑7‑1998, never requested for any rectification in the assessment order for the assessment year 1987‑88 and had merely asked to give the consequential effect to the addition made in the assessment year 1986‑87, by recourse to the provisions contained in section 2(20)(e) of the Income Tax Ordinance, 1979, by revising the assessment order for the year 1987‑88 as the purpose of law could not be served in any other manner. He has. vehemently argued that the learned members of the Tribunal failed to consider the contention raised before them and misdirected in construing the application for refund as a consequential relief in pursuance of section 96(2) of the Income Tax Ordinance, as an application under section 156 of the Income Tax Ordinance. Due to misconstruing of the facts and ignoring the real issue urged before it, the learned Tribunal directed to the wrong conclusion that, section 156 was applicable and further misdirected in holding that the period of limitation provided in subsection (4) of section 156 was attracted. He has argued that the learned members of the Tribunal fell in serious error, in holding that the refund was not permissible on account of the expiry of period of limitation in subsection (4) of section 156 of the Income Tax Ordinance. According to the learned counsel the period of limitation provided in section 99(2)(a) of the Income Tax Ordinance, was not attracted in the facts and circumstances of the case. He has submitted that the period of limitation provided in section 99 shall be applicable when an addition under sub‑clause (e)(20) of section 2 is first made in an assessment order and therefore, the advance or loan representing the addition is repaid during income year corresponding to any subsequent assessment year. He has maintained that when no addition is made in any earlier year by recourse to the provisions contained in sub‑clause (e) of clause (20) of section 2 and the loan is repaid during the income year corresponding to subsequent assessment year the period of limitation provided in section 99(2)(a) shall not be attracted for the simple reason that repayment precedes the addition as in this case. He has submitted that in this case, the loan was repaid during the period falling in the assessment year 1987‑88 and the assessment for the assessment year 1987‑88 was completed prior to the finalization of assessment for the assessment year 1986‑87. The assessment for the assessment year 1986‑87 attained finality in the year 1998. He has further submitted that the consequential effect envisaged under section 96(2) was mandatory requirement of law under the provisions contained in section 100 of the Income Tax Ordinance, which provides that where as a result of any order passed under sections 59, 59‑A, 62 or 63 or in appeal, revision of other proceedings under the Ordinance, refund of any amount becomes due to the assessee, the Deputy Collector shall except as otherwise provided in the Ordinance, refund the amount to the assessee irrespective of whether he has or has not made any claim in that behalf. He has contended that refund became available to the appellant as result of finalization of assessment by the Assessing Officer for the assessment year 1986‑87, consequent to the Tribunal's order in appeal under section 135, read with section 62 and therefore, the Assessing Officer after production of the evidence that the loan was already repaid ought to have made appropriate order for the refund of the addition as envisaged under section 96(2) of the Income Tax Ordinance, without lodging of any claim in that behalf by the appellant.

Mr. Nasrullah Awan, learned counsel for .the respondent has supported the impugned finding of the learned Income Tax Appellate tribunal, however, he has not denied that, the appellant had not submitted any rectification application but had sought a consequential order through the application, dated 16‑7‑1998 and therefore, the learned Tribunal ought to have considered if the relief sought by the appellant should have flowed from the assessment order for the assessment year 1986‑87 finalized by the Assessing Officer on 31‑3‑1998. He has further conceded that, the provisions contained in section 156 of the Income Tax Ordinance are not attracted to the case of refund governed under section 96(2) of the Income Tax Ordinance, 1979.

We have given a careful and anxious consideration to the material available on record. The entire facts have been narrated in earlier part of this judgment and we need not to repeat the same.

We find substance in the contention of Mr. Irfan Saadat Khan, that, in the facts and circumstances of the case the provision contained in section 96(2) is to be read with section 100 of the Income Tax Ordinance, 1979. It is admitted position that, in this case the assessment for the assessment year 1987‑88 was finalized on 30th April, 1998 and evidence was produced, by the assessee in the said proceedings to the effect that, the loan advanced to the appellant during the period relevant to year 1986‑87 was repaid. By that time, the assessment for the assessment year 1986‑87 was not made and consequently, no addition was made in the assessment year 1986‑87 by recourse to the provisions contained in section 2(20)(e) of the Income Tax Ordinance and thus, there was no question of claiming any refund during the proceedings for the assessment year 1987‑88. No application for refund could be made during the period specified in section 99(2)(a) of the Income Tax Ordinance, for the reason that, the assessment order for the assessment year 1986‑87, dated 29‑6‑1988 was assailed in appeal and the assessment order was upheld by the learned CIT(A) and the said order was challenged in second appeal before ITAT and the assessment order, dated 29‑6‑1988 was set aside on 3‑12‑1995. The assessment order was finally made on 31‑3‑1998. It was contended before the Assessing Officer that, the loan was taken during the period relevant to the assessment year 1986‑87 and was repaid during the period relevant to assessment year 1987‑88 and the certificate in this behalf was also produced. The Assessing Officer observed in the assessment order, dated 31‑3‑1998 that, at the time of framing original assessment for the assessment year 1986‑87, dated 29‑6‑1988, no question of repayment was considered as it was not raised. The Assessing Officer observed that, it was for the assessee to seek relief from the income for the assessment year 1987‑88 when the loan was repaid by him to the company and further observed that, mere repayment of loan in the subsequent year does not bar the Assessing Officer from making addition under section 2(20)(e) of the Income Tax Ordinance, 1979, in the year in which the loan was taken. He further observed that, the Legislature has taken care of the fact and has provided in law a relief when a repayment is made. With these observations he made the addition, and further observed that, the assessee may seek relief on account of repayment of loan in the assessment year in which the loan was repaid. However, when the assessee submitted application, dated 16‑7‑1998 seeking the relief which was alluded to in the assessment order, dated 31‑3‑1998, the Assessing Officer instead of allowing the relief, engaged himself in technicalities saying that, the application seeking consequential relief was a rectification application and was hit by the law of limitation, provided in section 156 of the Income Tax Ordinance. The learned CIT(A) and the learned Income Tax Appellate Tribunal proceeded in the same direction, little realizing that relief available to a person in law is not to be denied on account of technicalities. It is the duty of the tax officials to act in accordance with the spirit of law and keeping the principles of justice in view. The justice should not be crucified on the altar of technicalities and an assessee should not be required to perform the impossibilities, which in itself amounts to negation of justice. We find that, while making addition under section 2(20)(e) vide order, dated 31‑3‑1998, the Assessing Officer has himself observed that, the Legislature has taken care of and has provided relief to an assessee and has further observed that, the assessee may seek relief on account of repayment of loan in the assessment year in which the loan was repaid. After making these observations, the Assessing Officer was not justified in rejecting the claim for the reason that, it was barred by limitation provided to subsection (4) of section 156 of the Income Tax Ordinance. The learned ITAT, also misdirected itself in holding that the refund could be claimed by the appellant after rectification in the assessment order for the assessment year 1987‑88 and the same was barred by limitation, therefore, the refund was not permissible. We are, of the considered opinion that, in the facts and circumstances of the case, the period of limitation provided in section 99 is not attracted because this period shall be relevant when a refund is assessed in the assessment order for a particular period. The refund to the appellant became available because of the finalization of the assessment for the assessment year 1986‑87 vide order, dated 31‑3‑1998 and thus, there was no question of any claim in the proceedings for the assessment year 1987‑88 and in the absence of a finding on this issue in the assessment order for the assessment year 1987‑88, dated 30th April, 1988. It was not a case of rectification as well, because assessment for the assessment year 1987‑88 was completed on the basis of facts and circumstances as prevailing on 30th April, 1988. At that time, neither any addition under section 2(20)(e) of the Income Tax Ordinance, was made in any assessment year prior to the assessment year 1987‑88, nor any claim for the refund could be made on 30‑4‑1988. The refund became available when the addition under section 2(20)(e) of the Income Tax Ordinance, 1979, attained finality on 31‑3‑1998. Thus, it is a case of consequential relief to the appellant as a result of assessment for the assessment year 1986‑87, dated 31‑3‑1998. The Legislature in its wisdom realized such eventualities and therefore, in order to deal with such situation, section 100 was enacted in the income Tax Ordinance, 1979. In the original section 100, the submission of application for refund was dispensed with and in the amended section 100 as substituted by Finance Act, 1985 even the requirement of tiling such a claim has been done away with. Thus, in all cases in which the refund becomes available as a consequential relief, the requirement of submission of application or even lodging of claim has been eliminated. The logical conclusion is that, the period of limitation provided for submission of application under section 99 of the Income Tax Ordinance, become automatically irrelevant. The question of any rectification also does not arise where there is no mistake apparent on record as is evident in this case and, therefore, the period of limitation provided for rectification in section 156 of the Income Tax Ordinance, 1979 is also irrelevant. In the facts and circumstances of the present ease, we are of the considered opinion that, the refund became available to the appellant as a consequential relief on account of addition made under section 2(20)(e) of the Income Tax Ordinance, 1979 vide assessment order, dated 31‑3‑1998 and the issue pertaining to the refund in this case is not governed by the provisions contained in sections 99 and 156 of the Income Tax Ordinance, 1979, therefore, the period of limitation provided in these two sections are not relevant at all. We are, of the opinion that, the learned ITAT, failed to consider tie issue of refund of the appellant in its right perspective and thereby fell in error in holding that, the application for consequential relief was an application for rectification and that, the refund was rightly refused by the Assessing Officer, because of the provisions contained in sections 99 and 156 of the Income Tax Ordinance, 1979. We, further hold that, the appellant is entitled to the refund of addition made under section 2(20)(e) of the Income Tax Ordinance by way of consequential relief.

Consequent to the above findings, the question formulated above, is replied in affirmative and the appeal is allowed accordingly.

A copy of this judgment be sent under the seal of the Registrar High Court, to the Registrar of the Income Tax Appellate Tribunal Karachi. The ITAT, shall pass necessary orders to dispose of the case conformably to this judgment.

S.A.K./S‑248/KAppeal

allowed.