I.T.As. Nos. 998/LB and 999/LB of 2004, decided on 10th August, 2005. VS I.T.As. Nos. 998/LB and 999/LB of 2004, decided on 10th August, 2005., 2006 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1778 (2005)

(a) Income Tax Ordinance (XLIX of 2001)---

----S. 122---Income Tax Ordinance (XXXI of 1979), Ss. 62, 30 & 31---General Clauses Act (X of ,1897), S.6---Amendment of assessments---Interest income---Assessments were framed in respect of bank interest/mark-up under the head "business income"---Expenses were allowed and net income was assessed---Order under S.122 of the Income Tax Ordinance, 2001 resulted into modification of assessment by assessing the interest income under Ss.30 and 31 of the Income Tax Ordinance, 1979---Such order was upheld as justified and in accordance with law by the First Appellate Authority---Validity---Assessment for year 1998-99 was the result of order, dated 21-4-1999 and for assessment year 1999-2000 it was by an order, dated 14-2-2000 as such both the assessment orders were hit by limitation because provisions of S.122 of the Income Tax Ordinance, 2001 could not be attracted to orders passed prior to July, 2000---Assessee could be proceeded against only under the Income Tax Ordinance, 1979 in the light of S.6 of the General Clauses Act, 1897 with the result that the proceedings under S. 122 of the Income Tax Ordinance, 2001 could not be clothed with legality---Order passed under 5.122 of the Income Tax Ordinance, 2001 was annulled/cancelled by the Appellate Tribunal.

2005 PTR 70 rel.

(b) Income Tax Ordinance (XLIX of 2001)---

---Ss. 122 & 210(IA)---Amendment of assessments---Jurisdiction---Exercise of authority under 5.122 of the Income Tax Ordinance, 2001 by the Inspecting Additional Commissioner of Income Tax by bringing on record that proceedings were being undertaken by virtue of delegation of authority by the Zonal Commissioner of Income Tax---Validity---When subsection (IA) in S.210 of the Income Tax Ordinance, 2001 was inserted, subsection (IA) had put a restriction on the Commissioner of Income Tax that powers of amendment of assessment contained in subsection (5A) of S.122 of the Income Tax Ordinance, 2001 shall not be delegated to a Taxation Officer below the rank of Additional Commissioner---Revising authority had specifically mentioned that powers had been delegated by the Commissioner of Income Tax---Authority described in S.210(1A) of the Income Tax Ordinance, 2001 was Additional Commissioner of Income Tax and not the Inspecting Additional Commissioner of Income Tax.

(c) Income Tax Ordinance (XLIX of 2001)---

---S.122(5) & (5A)---Income Tax Ordinance (XXXI of 1979), Preamble--Amendment of assessments---Any action under S.122(5) or (5A) of the Income Tax Ordinance, 2001 for assessments completed under the Income Tax Ordinance, 1979 prior to July, 2000 was unlawful.

2005 PTR 70 rel.

(d) Income Tax Ordinance (XLIX of 2001)---

---S. 122---Amendment of assessments---Retrospective effect---S.R.O. No.633(I)/2002 of 14-9-2002 had introduced subsections in S.122 of the Income Tax Ordinance, 2001, so no retrospective effect could be given.

2005 PTR 70 rel.

(e) Income Tax Ordinance (XLIX of 2001)---

---S. 122(5A)---Amendment of assessments---Re-opening/revision the assessment for assessment years 2000-2001, 2001-2002 and 2002-2003 could not be permitted in exercise of jurisdiction under the provisions of S.122(5A) of the Income Tax Ordinance, 2001 as it had been inserted with effect from 1-7-2003 which could not be retrospective in operation.

2005 PTR 63 rel.

(f) Income Tax Ordinance (XLIX of 2001)---

----S.201(lA)---Finance Act (II of 2004), Preamble---Delegation---Subsection (IA) in S.210 of the Income Tax Ordinance, 2001 was inserted by Finance Act, 2004, so the delegation of authority to any officer of the rank of Additional Commissioner could become legally possible after said date when there was such provision in the statute book.

(g) Income Tax Ordinance (XLIX of 2001)

---S. 122(5A)-Amendment of assessments---No such authority was available in the Income Tax Ordinance, 2001 which had been designated as Inspecting Additional Commissioner---Assumption of jurisdiction by any authority designated as Inspecting Additional Commissioner was ab initio void and of no legal consequence.

(h) Income Tax Ordinance (XLIX of 2001)

---S. 122(5A)-Amendment of assessments---Basically subsection (5A) of S.122 of the Income Tax Ordinance, 2001 was as a result of S.R.O. though was rescinded subsequently by Finance Act but it had basically been brought into existence in an illegal manner and secondly legislative work could not be undertaken under S.240 of the Income Tax Ordinance, 2001 in the name of removal of difficulties.

(i) Income Tax Ordinance (XLIX of 2001)---

---Ss. 122(5A), 210 & 240---Amendment of assessments---Series of amendments in S.122(5A) of the Income Tax Ordinance, 2001 and in S.210 of the Income Tax Ordinance, 2001 and then one further amendment in S.240 of the Income Tax Ordinance, 2001 were indicative of scenario where the law makers were well aware that ambiguities/ inconsistencies existed in the statute book and with this background the penal proceedings were not to be initiated against the assessee as only precise and clear law could create a liability for the assessee, otherwise the benefit of ambiguities and doubts always goes in favour of the assessee and not in favour of the assessors---Requirement was that in a precise and unambiguous manner the liabilities of the assessee should be spelt out till such time that the actions of the revising authorities could get legal approval.

(j) Income Tax Ordinance (XLIX of 2001)---

----S. 122---Income Tax Ordinance (XXXI of 1979), Ss.22, 30 & 31---Initiation of proceedings simultaneously under two enactments---Validity---Assessee could not be proceeded simultaneously under two different enactments---"Income assessed" in S.22 of the Income Tax Ordinance, 1979 had been modified in terms of Ss.30 & 31 of the Income Tax Ordinance, 1979 but order had been passed under S.122 of the Income Tax Ordinance, 2001.

(k) Income-tax---

----Cancellation and annulment---No mention was found as to subsection or the clause under which the proceedings had been initiated as it was only after mentioning the exact provision of law that the proceedings were to be initiated and concluded---Such a defect was incurable and goes to the root of the case resulting into outright cancellation and annulment of order.

Ziaullah Kayani for Appellant.

Muzammal Hussain, D.R. for Respondent.

ORDER

The titled appeals are directed against single combined order, dated 3-12-2003. Common grounds have been submitted in respect of identical issues involved in both the years.

Relevant facts in respect of order under section 122 of the Income Tax Ordinance, 2001, are that originally assessment for each year was completed under section 62. Such completed assessments for both the years were contested before the learned first appellate authority. Assessments for both the years were framed in respect of bank interest/ mark-up under the head "business income". Expenses were allowed and net income was assessed. Such original assessment .when contested before the learned first appellate authority that disallowances/add backs were dilated upon. Here it is quite pertinent to mention that bank interest/mark-up was earned by depositing Rs.26,00,000 which was a sum total of contribution @ Rs.1,00,000 by each of the twenty six trustees. Mark-up/bank interest was also received on the application money for the plots but the same was statedly transferred to the respective individual applicants. It is not clear from the record as well as from the submission of the learned AR that which of the order i.e. original or the order as a result of appeal effect has been subjected to an action under section 122 of the new Income Tax Ordinance, 2001. The authority under section 122 has been exercised by the Inspecting Additional Commissioner of Income Tax by bringing on record that it is by virtue of delegation of authority by the Zonal Commissioner of Income Tax that impugned proceedings are being undertaken. Order under section 122 ibid has resulted into modification of the assessment of each year in a manner that by assessing the interest income under sections 30 and 31 of the repealed Income Tax Ordinance, 1979. This has brought the appellant/assessee in appeal before the :earned first appellate authority. The learned first appellate authority upheld as justified and in accordance with law the order passed under section 122 of the Income Tax Ordinance, 2001. Now as a result of second appeal the matter has been placed before this Tribunal.

At the very beginning of the arguments the learned AR has pointed out that assessment for assessment year 1998-99 is as a result of order, dated 21-4-1999 and for assessment year 1999-2000 it is by an order, dated 14-2-2000 as such, dated both the assessment orders are hit by limitation because provisions of section 122 could not be attracted to orders passed prior to July, 2000, as has been held by the Honourable Lahore High Court vide citation 2005 PTR 70 and Honourable Karachi High Court by judgment with citation as 2005 PTR 63. The learned AR produced before us the Photostat copies of both these judgments which have been placed on record. In this judgment passed by Honourable Lahore High Court it has been held that any action under section 122(5) or (5A) for assessments completed under the repealed Ordinance prior to July, 2000 are unlawful. As by S.R.O. No. 633(I)/2002 of 14-9-2002 subsection were introduced in the section 122 of the new Ordinance so no retrospective effect could he possible.

The learned DR in support of an action by invoking the provisions of section 122(5) ibid for the assessment years 1998-99 and 1999-2000 has submitted that it is quite legal as after the promulgation of the new Ordinance the proceedings were to be initiated under section 122. Nothing could be commented upon by the learned DR as to how simultaneously proceedings could be undertaken under two different enactments i.e. modification of order by Assessing Officer under sections 30 and 31 of repealed income Tax Ordinance with an action and order under section 122 of the new Ordinance, 2001. The learned DR has submitted that after the repeal of Income Tax Ordinance, 1979, the Assessing Officer was required to proceed as per provisions of new Ordinance. The learned DR has not referred to any reported order or judgment in support of his contention.

Arguments placed at bar have been heard. Available record has been perused. The case-law as referred has been studied minutely.

Relevant statutory provisions have also been looked into for seeking guidance for forming considered opinion. Even at the cost of repetition it is to be noted that order has been passed under section 122 without referring specifically to any subsection and ultimately the assessment framed was modified which apparently could be under the provisions of subsection (5A). For reaching to a meaningful conclusion it would be of immense help to start from the statutory provisions. The section 122 ibid has been captioned as "amendment of assessments" and an attempt has been made to make it a sum total of sections 65 and 66A of the repealed Income Tax Ordinance, 1979. After bringing it on the statute book it has been subjected to series of amendments, such amendments are by Finance Act and also through S.R.Os. Firstly the subsection (5A) was brought in the statute book by insertion through a Notification S.R.O. No.633(I)/2002, dated September 14, 2002 as a result of exercising the powers of the Federal Government conferred by section 240 of the Income Tax Ordinance, 2001. This section 240 empowered the Federal Government to issue S.R.Os. for removal of difficulties. This subsection (5A) as a result of S.R.O. ibid was again substituted by Finance Act, 2003. It is quite pertinent to mention that S.R.O. which resulted into insertion of subsection (5A) was also rescinded by another S.R.O. No.608(1)/2003, dated 24-6-2003 by giving effect from 1-7-2003. In the original section 240 which was for removal of difficulties was again modified by Finance Act, 2001 correcting the inaccuracy by insertion of word "not" in place of "no". The impugned order has been passed by an officer who designated himself as Inspecting Additional Commissioner of Income Tax by exercising the delegated authorities of the Zonal Commissioner of Income Tax vide CIT Letter No.3-2/2002-2003/CIT. Coys. Fsd/1795, dated 8-3-2003 which is making us to look into the provisions of section 210 i.e. captioned as "Delegation" in the new Income Tax Ordinance, 2001. This section was substituted by Finance Ordinance, 2002. This section was again amended in Finance Act, 2004, when subsection (IA) in section 210 was inserted. Subsection (IA) has put a restriction on the CIT that powers of amendment of assessment contained in subsection (5A) of 122 shall not be delegated to a Taxation Officer below the rank of Additional Commissioner. The revising authority here is specifically mentioning that powers have been delegated by the CIT vide letter referred supra. The????????? authority?????????? described???????? here????? in????????? section? 210(1A)?????????? is

??????????? Additional Commissioner of Income Tax and not the Inspecting Additional Commissioner of Income Tax.

The judgment of the Honourable Lahore High Court as referred by the learned AR has dealt with amendments as a result of S.R.Os., by holding that S.R.O. is not a valid and legal document, therefore, is of no consequence and it is so declared. Para No.36 of this judgment is dealing with it. Earlier from paras 30 to 35 it has been held that petitioners/ assessees could only be assessed under the previous Ordinance and not the present Ordinance. Such paras. for a proper understanding are being reproduced as under:-

"(30). A comparison of the relevant section of the repealed law and section 122 of the present law shows a different. Whereas, under sections 65 and 66A of the previous Ordinance, a lower-grade official could re-open the assessment, whereas, the new law has totally vested the powers in the Commissioner. Its section 112(2) reveals that the amendment to be made within the period prescribed is confined to a taxpayer. The taxpayer is defined in section 2(66) of the Ordinance and is confined to an assessee who can be assessed income tax under the new Ordinance, whereas, the petitioners-assessees could only be assessed under the previous Ordinance and not the present Ordinance.

(31) Coming back to the S.R.O. and the amendment it is making in section 122, it aims at substituting the words "assessment is incorrect" with the words "income has been concealed or inaccurate particulars of income have been furnished or the assessment is otherwise incorrect". An assessment to be incorrect relates to an error situation and where it has not been concealed. Because the latter case involves heavier penalties, mens rea and wickedness of innocence and inadvertence.

(32) The next question is whether the author of the S.R.O. could amplify the meaning of the words "assessment is incorrect" in this manner and overwrite a phraseology which is given by the legislature itself. The answer is that this was not possible.

(33) A general remark after reading the S.R.O. would be that here is classic case where the person sitting in a subordinate legislature has, under the excuse of removing difficulties, wrongly tried to usurp the powers of the legislature and passed and edict which aimed at overwhelming all intentions of the legislature in a fiscal matter which has always to be construed strictly.

(34) In the passing it may be remarked that there was hardly any necessity for using the S.R.O. under reference for re-opening the cases of the petitioners-assessments. Of course, the powers invalid cases and according to the prescribed limitations were available to be exercised according to the law read with the General Clauses Act even if the Ordinance had been repealed.

(35) This Court in the case of Home Service Syndicate v. Commissioner of Income Tax (2004) 89 Tax 55 (H.C. Lah.) has already defined the word "pending" which definition will also apply here.

(36) The upshot of the' above discussion is that the S.R.O. No.633(I)/ 2002, dated 14th September, 2002 is not a valid and legal document and, therefore, is of no consequence and it is so declared. These Writ Petitions stand disposed of with these observations and with no order as to costs, but of course, my thanks to learned counsel of the Petitioners Mr. Naveed A. Andrabi, Mr. Sajid Ijaz Hotiana, Mr.Siraj-ud-Din, Mr. lrfan Ahmed Sheikh, Mr. Shahbaz Butt and the others as well as Mr. Shahid Jamil Khan, counsel for the Income Tax Department for ask assistance."

It is clear from the above that assessee could be proceeded only under the previous Ordinance in the light of section 6 of General Clauses Act, 1897 so the proceedings under section 122 here in the instant case cannot be clothed legal in the instant case before us. In the judgment as passed by the Honourable Karachi High Court which is based on an earlier judgment in respect of proceedings under section 66A. The subsection (5A) of section 122 has been attempted to be made in pari meteria with the section 66A in the erstwhile Ordinance. In this reported judgment by placing reliance on the findings recorded in respect of section 66A it has been held that reopening/revising` the assessment for assessment years 2000-2001, 2001-2002 and 2002-2003, I could not be permitted in exercise of jurisdiction under the provisions of section 122(5A.) as it has been inserted with effect from 1-7-2003 which could not be retrospective in operation. So we hereby annul/cancel the order passed under section 122 for the following further reasons:--

(1) the order under section 122 of the new Ordinance, 2001 is ab initio void in the light of principles as enunciated in the judgments as referred supra of the Honourable Lahore High Court as well as of the Honourable Karachi High Court;

(2) the judgments as cited by the learned AR are squarely applicable to the facts and circumstances of this case;

(3) subsection (IA) in section 210 was inserted by Finance Act, 2004 so the delegation of authority to any officer of the rank of Additional Commissioner could become legally possible after this date when there was such provision in the statute book, the order passed under section 122 is devoid of legal sanction behind it;

(4) there is no such authority in the new Ordinance which has been designated as Inspecting Additional Commissioner, the assuming of jurisdiction by any authority designated as Inspecting Additional Commissioner is ab initio, void and of no legal L consequence;

(5) basically the subsection (5A) of section 122 is as a result of S.R.O. though was rescinded subsequently by finance Act but it has basically been brought into existence in an illegal manner and secondly legislative work could not be undertaken under section 240 of the present Income Tax Ordinance, 2001 in the name of removal of difficulties;

(6) the series of amendments in (5A); of section 122 and also in section 210 and then one further amendment in section 240 are indicative of scenario where the law-makers were well aware that ambiguities/inconsistence exist in the statute book and with this background the such penal proceedings were not to be initiated against the assessee as only a precise and clear law N could create a liability for the assessee, otherwise the benefit of ambiguities doubts always goes in favour of the assessee and not in favour of the assessors. It is required that in a precise and unambiguous manner the liabilities of the assessees' should be spelled out so till such time that this has not attained, the action of the revising authorities could not get legal approval;

(7) the assessee cannot be proceeded simultaneously under two different enactments as it is in the instant case when the "income assessed" in section 22 of the repealed Income Tax Ordinance has been modified in terms of sections 30 and 31 of the repealed Income Tax Ordinance but order has been passed under section 122 of the new Income Tax Ordinance, 2001. The reference to order under sections 59, 59A, 62, 63 or 65 has been visible by insertion under Finance Ordinance, 2002;

(8) section 122 of the present Ordinance is as a result of mixing up of two separate sections i.e. 65 and 66A of the erstwhile Income Tax Ordinance. In the instant case before us there is no mention as to subsection or the clause under which the proceedings have been initiated as it is only after mentioning the exact provision of law that the proceedings are to be initiated and concluded. Such a defect is incurable and goes to the root of the case resulting into outright cancellation and annulment of such order;

(10) the revising authority has not commented that as to how an order which has become a subject-matter of appeal could be modified or amended because it is only in respect of such portion of the order which has not been dilated upon at the appellate forum which could be modified. Secondly the revising authority was required to specify as to which, the original order or the order which has been merged into order of appellate authority has been revised/reopened.

Both the appeals are allowed in the manner as indicated above.

C.M.A./528/Tax (Trib.)??????????????????????????????????????????????????????????????????????? Appeals accepted.