MUHAMMAD SHAFI VS INCOME TAX OFFICER
2005 P T D 1014
[Karachi High Court]
Before Sabihuddin Ahmed and Khilji Arif Hussain, JJ
MUHAMMAD SHAFI and 3 others
versus
INCOME TAX OFFICER and others
Constitutional Petitions Nos. D-3204 to 3207 of 1992, decided on /01/.
19th November, 2004. (a) Income Tax Ordinance (XXXI of 1979)---
----S.65---Additional assessment---Scope---Proceedings under S.65(1), Income Tax Ordinance, 1979 can be initiated only in case where definite information has come into the possession of the Assessing Officer and that too after obtaining the approval of Additional Commissioner of Income Tax in writing.
(b) Income Tax Ordinance (XXXI of 1979)---
----Ss.65 & 13---Income Tax Rules, 1982, R.207-A---S.R.O. 550(I)/97 dated 20-7-1997---Stamp Act (II of 1899 ), S.27-B---Additional assessment---Definite information---Reopening of assessment on the ground that market price of the property in the vicinity was more than the price shown by the assessee in his statement---Validity---Merely because in the same locality some other property with construction had been sold at a price higher than the price shown by the assessee, could not be made basis for reopening the assessment---Once, while passing the assessment order value declared had been accepted in terms of R.207-A, Income Tax Rules, 1982, normally same could not be reopened except when the facts and circumstances of that particular case warranted and justified reopening of the assessment---Principles.
The phrase definite information in possession of Assessing Officer so as to reopen the assessment, used in section 65(2) of the Ordinance is in fact penal in nature and required that officerconcerned must have in his possession some information in respect of the particular matter which he wanted to reconsider. In the present case the Income Tax Officer wanted to reopen the assessment on the ground that market price of the property in the vicinity was more than the price shown by the assessee in his statement. It is not alleged in the show-cause notice that the Income Tax Officer was holding sale agreement executed between the assessee and the seller of the property wherein the price of the property in question has been shown much more than the price declared in the sale-deed, nor it is alleged in the show-cause notice that the seller in his statement had declared the value of the property in question more than the value of the property shown bythe assessee. It is a matter of common knowledge that the value of the property in the same locality varied due to number of considerations such as location of particular plot whether West open, East open, corner or situated on the main road or on by lane, open from more than one side and in respect of constructed property, the value of the property differs due to nature of construction, material used in its construction, etc. Therefore, merely because in the same locality some other property with construction has been sold on a price higher than the price shown by the assesseecannot be made basis for reopening the assessment. Without going into the question whether the alleged information, on the basisof which department wanted to reopen can be termed as a definiteinformation to reopen the assessment consciously made in exercise of powers under section 65(2) of the Ordinance, the petition can be disposed ofonthebasis of S.R.O. No.550(I)/97dated20-7-1997 whereby Rule 207-A was insertedin the Income Tax Rules, 1982. In terms of Rule 207-A, the Income Tax Officer was obliged to accept the valuation of immovable property for the purpose of section 13 of the Income Tax Ordinance, 1979 as determined by the District Collector for the purpose of stamp duty. The Collector in exercise of power under section 27-B of the Stamp Act fixed minimum valuation of the property for levying of stamp duty and registration fee. It is not disputed by either of the parties that the sale-deed in question had been registered without any objection from the Registrar about the valuation of sale and the consideration shown in the sale-deed was not less than the value determined by the District Collector for the purposes of stamp duty notified by the Collector. Once, while passing the assessment order, value declared has been accepted in terms of Rule 207-A of Income Tax Rules, 1982, normally same cannot be reopened except when the facts and circumstances of the particular case warrant and justify reopening of the assessment.
M.R. Sons v. Income Tax Officer 1989 PTD 1010; Car Tunes v. Income Tax Officer 1989 PTD 478; Commissioner of Income Tax v. American Express Int l Banking Corporation 1992 PTD 751; Commissioner of Income Tax v. Jennings Private School, Karachi 1993 SCMR 96; Messrs Julian Hoshang Dinshaw Trust and others v. Income Tax Officer 1992 PTD 1 = 1992 SCMR 250; Central Insurance Co. Ltd and others v. Income Tax Officer 1993 SCMR 1232; Inspecting Additional Commissioner of Income Tax v. Pakistan Heralds Ltd. 1997 SCMR 1256 and ANZ Grindlays Bank Inc and others v. Deputy Commissioner of Income Tax and others Constitution Petition No.D-1727 of 1994 ref.
Iqbal Salman Pasha for Petitioners.
Aqeel Ahmed Abbasi for Respondents.
Date of hearing: 8th September, 2004.
JUDGMENT
KHILJI ARIF HUSSAIN, J.---By this judgment we intend to dispose of Constitutional Petitions Nos. D-3204 to 3207 of 1992 as the common question of law and facts are involved. The petitioner questioned notice under section 65 of the Income Tax Ordinance, 1979 (hereinafter referred to as the Ordinance ) issued by respondent No.1 to reopen the assessment for the assessment year 1990-91.
The facts of the petitions for the purpose of deciding the same can be summarized as that the petitioners were partners in the partnership firm, namely, N. M. Chhotani, holding National TaxNo.11-00-3170017, issued by Income Tax Officer Circle VI Zone-C, Karachi. The petitioners filed their return of income for the assessment year 1990-91 under section 55(1) of the Ordinance, declaring their share income from the registered firm as Rs.58,078 by each petitioner. After examination and after reconciliation of the wealth statement, assessment was finalized by the Income Tax Officer on 30-6-1992 on an income of Rs.73,292. In the statement filed by the petitioners they have shown purchase of Property, bearing No.B-6,
South View Avenue, Phase II, Defence Housing Authority,Karachi in total sale consideration of Rs.16,10,375. The petitioner declared 1/5th share in the property and filed copies of FEBCs of Rs.350,000. After the assessment was finalized,theIncomeTaxOfficerissuedshow-causenotice,dated14-10-1992 requiring the petitioner to explain as to why the value of the Property, bearing No.B-6, South View Avenue, Phase II, DefenceHousing Authority, Karachi, may not be estimated at Rs.5,000,000. The respondent No.1 then issued notice under section 65 of the Ordinance on 3-11-1992 on the ground that he had reason to believe that the income has been escaped from assessment. The petitioner impugned the said notices. Heard Mr. IqbalSalman Pasha, learned counsel for the petitioner and Mr. Aqeel Ahmed Abbasi, learned counsel for the respondents.
Mr. Iqbal Salman Pasha, learned counsel for the petitioner, argued that being one of the partners, in partnership firm consists of five partners, the petitioner submitted his return, which was duly assessed by the concerned officers after examination of the wealth tax statement, reconciliation of the wealth tax statement as well as purchase price shown in respect of the property in question. Learned Advocate argued that assessment after its finalization cannot be reopened merely on basis of change of the opinion. He argued that the succeeding officer issued the notice without having any definite information before him. The property in question was purchased by the petitioner through registered sale-deed and the concerned officer ought to have accepted the value shown in the sale-deed under rule 207A of the Ordinance. He further argued that in case of total audit the assessment can be reopened only with the approval of the Regional Commissioner of Income Tax under rules 4 and 5 and the show-cause notice has been issued without taking prior approval. The learned counsel for the petitioner mainly questioned the impugned notice on the ground that without having definite information in possession of the concerned officer at the time of issuing the impugned notice and the said notice was issued by another officer who has some other opinion about the assessment then the officer who examined the return, issued the notice, which is liable to be struck down. In support of his contention he relied upon the following cases:--
(1) M. R.Sonsv.IncomeTaxOfficer1989PTD1010;(2)CarTunesv.IncomeTaxOfficer1989PTD478,(3) Commissioner of Income Tax v. American Express Int l Banking Corporation 1992 PTD 751, (4) Commissioner of Income Tax v.JenningsPrivateSchool,Karachi 1993SCMR96;(5) Messrs Julian Hoshang Dinshaw Trust and others v. Income TaxOfficer(1992)65Tax102); (6)CentralInsuranceCo.Ltd. and others v. Income Tax Officer(1993SCMR1232);(7) Inspecting Additional Commissioner of Income Tax v. Pakistan Heralds Ltd. (1997 SCMR 1256) and (8) Order, dated 26-3-2004, passed in Constitutional Petition No.D-1727 of 1994 (ANZ Grindlays Bank Inc. and others v. Deputy Commissioner of Income Tax and others).
On the other hand, Mr. Aqeel Ahmad Abbasi, learned counsel for the respondents, argued that the notice in question was issued after taking approval as required under rules 4 and 5 and learned Income Tax Officer has issued the notice after having definite information in his possession that the value of the property shown by the petitioner is much lesser than the prevailing price in the market. He argued that respondent first issued the show-cause notice and since the petitioner has failed to appear before the concerned officer, notice under section 65 was issued. The learned counsel further argued that the petitioner can approach the concerned officer and after hearing the petitioner an appropriate order in the matter can be passed. The learned Advocate in support of his contention relied upon the case Central Insurance Corporation v. C.B.R., Islamabad, etc. (1995 SCC 1049).
We have taken into consideration the arguments advanced by the learned counsel for the parties as well as scanned the documents available on record.
In order to appreciate the contentions raised by the learned counsel for the parties it will be in the fitness of the matter to reproduce section 65 of I.T Ordinance and Rule 207 of the Rules, which read as under:--
(65) Additional assessment.---(1) If in any year, for any reason---
(a)any income chargeable to tax under this Ordinance has escaped assessment; or
(b)the total income of an assessee has been underassessed, or assessed at too low a rate, or has been the subject of excessive relief or refund under this Ordinance; or
(c)the total income of an assessee and the tax payable by him has been assessed or determined under subsection (1) of section 59 or section 59A or deemed to have been so assessed or determined under subsection (1) of section 59 or section 59A.
207A. Valuation of Immovable properties.---The valuation of immovable properties for the purposes of section 13 of the Income Tax Ordinance, 1979, shall be taken to be---
(i)in the case of open plots the value, determined by the development authority or Government agency on the basis of auction price in respect of similar plots in the area where the plot in question is situated;
(ii)in other cases the value determined by the District Collector for the purposes of stamp duty;
(iii)in the case of properties given on rent, equal to ten years capitalized value based on annual rental value as defined in clause (b) of subsection (2) of section 19 of the Ordinance;
(iv)In the case of agricultural land equal to the average sale price of the sales recorded in the Revenue Record of the estate in which the land is situated.
From a bare reading of the above section, it appears that the proceedings under subsection (1) of section 65 can be initiated only in case definite information has come into the possession of the DC and that tooafter obtaining the approval of Additional Commissioner of Income Tax in writing to do so. The learned counsel in support of his contention relied upon a number of case-law where term definite information has come for consideration before this Court as well as before the Hon ble Supreme Court and we have gone through the same.
In the case of S.N.H. Industries (Pvt.) Ltd. v. Income Tax Department(2004) 84 Tax 252, the notice under section 65 was declared to be without lawful authority as the officer issued without having definite information before him.
In the case of S.N.H. Industries (Pvt.) Ltd. v. Income Tax Department and others (2004) 84 Tax 252). In the instant case assessment was made by the Income Tax Officer, but another officer was of the view that the sale of the commercial property by the petitioner within the span of 1-1/2 years was a transaction clearly in nature oftrade and business liable to be taxed. High Court held the same as nothing, but a change of view/mind and accordingly impugned notice under section 66-A was declared as unlawful.
In the case of Commissioner of Income Tax/Wealth Tax v. Sarfaraz Ali Shaikh (2000) 81 Tax 341,the appeal was filed against the direction of the Tribunal for acceptance of declared value which was in accordance with the rates prescribed by the Revenue/District for the purpose of levy of stamp duty undersection 8-A of the Stamp Act, the learned Lahore High Court dismissed the appeal holding that the determination of the valuation by the Tribunal on the basis of annual rent fixed by the assessing authority did not give base to a question of law.
In the case of Inspecting Assistant Commissioner and Chairman Panel of the Companies v. Pakistan Heralads Ltd. (1997 SCMR 1256), the Hon ble Supreme Court dismissed the petition on the ground that if a provision of law has beenignored or not applied cannot be made basis for reopening of the assessment.
In the case of Commissioner of Income Tax v. Jennings Private School, Karachi 1993 SCMR 96, the appeal was dismissed by the Hon ble Supreme Court holding that the Income Tax Officer has not (before him) in his possession definite information. On the contrary, he opted to collect information of the documents about the purchase of the two plots mentionedin the impugned notice and the source of purchase, etc. from the respondents.
In the case of M.R. Sons v. Income Tax Officer 1992 PTD 1 = 1992 SCMR 250, notice under section 65 was challenged and the Hon ble Supreme Court held that without having definite information that the plot purchased by the assessee was undervalued, notice was issued and as such the same was held void ab initio.
In the case of Car Tunes v. Income Tax Officer 1989 PTD 478 thisCourthasheldthatassessmentcannotbereopenedontheground that Income Tax Officer in his second thought has changed his opinion on the factual and legal aspect of the case or that a succeeding officer took a different view of the material considered by his predecessor.
On the basis of principle laid down by the various Courts now we have to examine whether the notice issued by the Income Tax Officer in the present case can be held as notice issued without having any definite information or can be termed as a change of opinion or alleged information was available before the Income Tax Officer at the time when the show-cause notice was issued. The Income Tax Officer vide his notice, dated 14-10-1992, informed the petitioner that in the sale-deed purchase price of the property in question has been drastically understated and informed the petitioner that as per information available, Property bearing No.B-4, Sixth Central Lane, measuring 1,000 square yards, situated in Phase II, Defence Housing Authority, Karachi, was sold at a price of Rs.40,30,000 and Property, bearing No.41-A/II, Third Street, measuring 1227 square yards, situated in Phase II, Defence Housing Authority, Karachi was sold in consideration of Rs.41,50,000 and accordingly fair market value of the property in questions is not lesser than Rs.50,00,000 in all circumstances.
The phrase definite information in his possession so as to reopen the assessment, used in section 65(2) of the Ordinance required is in fact penal in nature and required that officerconcerned must have in his possession some information in respect of the particular matter which he wanted to reconsider. In the instant case the Income Tax Officer wanted to reopen the assessment on the ground that market price of the property in the vicinity was more than the price shown by the assessee in his statement. It is not alleged in the show-cause notice that the Income Tax Officer was holding sale agreement executed between the petitioner and the seller of the property wherein the price of the property in question has been shown much more than the price declared in the sale-deed, nor it is alleged in the show-cause notice that the seller in his statement had declared the value of the property in question more than the value of the property shown bythe petitioner. It is a matter of common knowledge that the value of the property in the same locality varied due to number of considerations such as location of particular plot whether West open, East open, corner or situated on the main road or on by lane, open from more than one side and in respect of constructed property, the value of the property differs due to nature of construction, material used in its construction, etc. Therefore, merely because in the same locality some other property with construction has been sold on a price higher than the price shown by the petitioner cannot be made basis for reopening the assessment. Without going into the question whether the alleged information, on the basisof which respondent wants can be termed as a definiteinformation to reopen the assessment consciously made in exercise of powers under section 65(2) of the Ordinance, the petition can be disposed of on the basis of S.R.O. No.550(I)/97dated20-7-1997 whereby Rule 207-A was insertedin the Income Tax Rules, 1982. In terms of Rule 207-A, the Income Tax Officer was obliged to accept the valuation of immovable property for the purpose of section 13 of the Income Tax Ordinance 1979 as determined by the District Collector for the purpose of stamp duty. The Collector in exercise of power under section 27-B of the Stamp Act fixed minimum valuation of the property for levying of stamp duty and registration fee. It is not disputed by either parties that the sale-deed in question had been registered without any objection from the Registrar about the valuation of sale and the consideration shown in the sale-deed was not less than the value determined by the District Collector for the purposes of stamp duty notified by the Collector. In our view once, while passing the assessment order,valuedeclaredhasbeenacceptedintermsof Rule 207-AofI.T. Rules, 1982, normally same cannot be reopened except when the facts and circumstances of the particular case warrant and justify reopening of the assessment that can be done.
For the foregoing reasons we are of the view that the impugned show-cause notice had been issued without having definite information in possession of the Income Tax Officer and accordingly it has been issued without lawful authority. The petitions are, therefore, allowed and the impugned notice has been struck down.
M.B.A./M-192/KPetitions allowed.