R.As. Nos. 426/KB to 429/KB of 2004, decided on 15th February, 2005. (a) Income VS R.As. Nos. 426/KB to 429/KB of 2004, decided on 15th February, 2005. (a) Income
2006 P T D (Trib.) 1827
[Income-tax Appellate Tribunal Pakistan]
Before Jawaid Masood Tahir Bhatti, Judicial Member and Shaheen Iqbal, Accountant Member
R.As. Nos. 426/KB to 429/KB of 2004, decided on 15/02/2005.
(a) Tax Ordinance (XXXI of 1979)---
----Ss. 136 & 66-A---Reference to High Court---Question referred was "whether Appellate Tribunal was justified in vacating the order of the Inspecting Additional Commissioner on the ground, that S.66-A of the Income Tax Ordinance, 1979 could not be invoked on the basis of audit observation ignoring the provisions of S.7 of the Income Tax Ordinance, 1979 and the fact that the Inspecting Additional Commissioner invoked S.66-A etc. only after applying his mind and coming to conclusion that case for such action did exist on the basis of evidence/material on record"---Validity---Questions of law as framed by the Department did not arise out of order of Appellate Tribunal---Inspecting Additional Commissioner modified the assessments under S.66-A of the Income Tax Ordinance, 1979 on two issues: Capital loss set-off against operating revenue and payment of technical fee disallowed by the Inspecting Additional Commissioner, but on these two issues no question had been framed and this fact had also been mentioned in the statement of facts filed by the Department---Appellate Tribunal allowed the appeal after apprising the facts and had given its verdict on the factual grounds and recorded its finding of facts and no law point arose in this respect---Issues viz; allocation prorating of expenses between exempted capital gain and taxable income and payment of technical fee disallowed by the Inspecting Additional Commissioner had been allowed after apprising of facts and the verdict in this regard had been given on factual basis as well as by following earlier binding decisions of Appellate Tribunal, High Court and Supreme Court---Questions framed by the Department did not arise out of order of Appellate Tribunal.
2005 PTD (Trib.) 344; 2002 PTD 498; 2002 PTD 327; (1961) 42 ITR 589 (SC); (1987) 164 ITR 789 (P&H) and PLD 1984 Lah. 401 ref.
(b) Income Tax Ordinance (XXXI of 1979)---
----Ss. 136, 66-A & 62---Reference to High Court---Question referred was "whether Appellate Tribunal was justified in vacating the order of the Inspecting Additional Commissioner on the ground that S.66-A of the Income Tax Ordinance, 1979 could not be invoked because of involvement of predecessor Inspecting Additional Commissioner in the assessment proceedings under S.62 of the Income Tax Ordinance, 1979 who had just approved the assessment order and had not himself framed the same"---Validity---Question had been framed on the findings of fact that the issue of approval was given only for the assessment year 1995-96 and not arising out of the order of Appellate Tribunal and this issue had been decided, keeping in view the earlier orders of Appellate Tribunal and High Court.
(c) Income Tax Ordinance (XXXI of 1979)---
----S. 136---Reference to High Court---Question for reference was "whether Appellate Tribunal was justified to hold that the expenses could not be prorated for being off set against income from capital gains which was exempt from tax and had thus to be allowed against only taxable income though some of these did pertain to earning of capital gains"---Validity---Allocation of expenses was not made by the Department---Question was misconceived as neither any ground was taken by the assessee nor any finding was given by the Appellate Tribunal---As question did not arise out of the order of Appellate Tribunal, the same could not be referred to High Court---Question framed also did not affect the right of parties---Question was purely academic and need to be referred.
RA No.800/KB of 2003, dated 31-7-2003; RA No.39/KB of 1984-85, dated 28-11-1994; R.As. Nos.691 and 692/KB of 2002, dated 12-11-2002 and R.As. Nos.421, 422/KB of 2004, dated 27-1-2005 rel.
(d) Income Tax Ordinance (XXXI of 1979)---
----Ss. 136 & 66-A---Income Tax Ordinance (XLIX of 2001), S.209(9)---Reference to High Court---Question for reference was that "whether Appellate Tribunal was justified to hold that successor Inspecting Additional Commissioner could not legally proceed to frame reassessment under S.66-A of the Income Tax Ordinance, 1979 on the basis of show cause issued earlier by his predecessor ignoring the provision of S.209(9) of the Income Tax Ordinance, 2001---Validity---Question did not arise out of order of Appellate Tribunal as no finding on S.209(9) of the Income Tax Ordinance, 2001 had been given in the order and for referring the question of law it was necessary that the question must arise out of order of Appellate Tribunal.
(e) Income Tax Ordinance (XXXI of 1979)---
----S. 136---Reference to High Court---Jurisdiction of High Court---Scheme of Income Tax Ordinance provided that the High Court does not exercise appellate jurisdiction---High Court exercises advisory jurisdiction only, when invoking its advisory jurisdiction its opinion is sought on a point of law for guidance---Opinion is to be sought where a difficulty arises---General and abstract questions which are purely academic in nature do not require to be referred.
Lungia Tea Company v. Commissioner of Income Tax 1970 SCMR 872 rel.
Ms. Farzana Jabeen D.R. and Shafqat Hussain Kehar, DCT for Applicant.
Javaid Zakaria for Respondent.
ORDER
The applicant department through these four Reference Applications has framed following four common questions of law stated to be arising out of the consolidated order of this Tribunal, dated 1-1-2004 in I.T.As. Nos.1730 to 1733/KB of 2001 now reported as 2005 PTD (Trib.) 344 (Assessment years 1995-96 to 1998-99), for reference to the Hon'ble High Court of Sindh:--
Q.No.l. ?????????? Whether in the facts and circumstances of the case, the learned ITAT was justified in vacating the order of the learned IAC on the ground that section 66-A could not be invoked on the basis of audit observation ignoring, the provisions of section 7 and the fact that AC invokes section 66-A etc. only after applying his mind and coming to conclusion that case for such action did exist on the basis of evidence/ material on record?
Q.No.2.?????????? Whether in the facts and circumstances of the case, the learned ITAT was justified in vacating the order of the learned IAC on the ground that section 66-A could not be invoked because of involvement of predecessor IAC in the assessment proceedings under section 62 who had just approved the assessment order and not himself framed the same?
Q. No.3.????????? Whether in the facts and circumstances of the case, the learned ITAT was justified to hold that the expenses could not be prorated for being off set against income from capital gains which was exempt from tax and had thus to be allowed against only taxable income though some of these did pertain to earning of capital gains?
Q.No.4.?????????? Whether in the facts and circumstances of the case, the learned ITAT was justified to hold that successor IAC could not legally proceed to frame reassessment under section 66-A on the basis of show cause issued earlier by his predecessor ignoring the provision of section 209(9) of the Ordinance, 2001?
2. The assessee in this case is a Private Limited Company, corporate member of Karachi Stock Exchange, engaged as a brokerage house dealing in purchase and sale of shares for its international as well as local clients/customers and sometime for itself. The returns of income were filed along with audited accounts, computation of income, computation of tax liabilities and other documents statements. The assessment was finalized under section 62 of the Repealed Income Tax Ordinance, 1979..The Taxation Officer accepted the declared version with the observation that examination of assessee's records and verification of the details revealed that the system of book-keeping is satisfactory and are, therefore, accepted. However, disallowances out of Profit and Loss Accounts were made under some of the heads which were assailed before the learned CIT(A) and were partially allowed for all the four years under review. The appeals in this regard were also filed before this Tribunal. Subsequently revised assessment was made under section 66-A of the Income Tax Ordinance, 1979 for the assessment year 1995-96 for the reason that capital loss is to be adjusted set-off against the capital gain only as per provision of section 37 of the Repealed Income Tax Ordinance, 1979. Further, the disallowance of payment of technical fee was also made by the learned IAC. While for the assessment years 1996-97 to 1998, the assessments were revised under section 66-A by the learned IAC in respect of proration of expenses between exempt income and chargeable income and for the reason that the payments made to Messrs Indosuez W.I. Carr Securities (F.E.) Limited, Hong Kong were allowed by the Taxation Officer without any basis and tax thereon has not been deducted under the provision of section 50(4) of Repealed Income Tax Ordinance, 1979. The learned IAC in the orders for the assessment years 1996-97 to 1998-99 also observed that the payments made to Messrs Indosuez W.I. Carr Securities (F.E.) Limited, Hong Kong were not technical fee/local fee and professional charges but actually they pertained to trading liabilities. He therefore, inferred that the payments made in this regard are not on account of technical fee but in fact, the trading liabilities and cannot be charged to revenue expenses.
3. All the four impugned orders of the learned IAC passed under section 66-A for all the four years under review on the same date i.e. 31-5-2001 were assailed before this Tribunal and were decided vide order, dated 1-1-2004 which due to the difference of opinion was finally made on 27-8-2004. Now the applicant/department has proposed the above said questions of law for referring to the Hon'ble High Court.
4. The instant reference applications, according to the record of the case have been filed on 11-12-2004 and were fixed for hearing before this Bench on 12-2-2005 but on the request of the learned D.R. were adjourned for to day i.e. 15-2-2005. Learned D.R. at the very outset, has again requested for adjournment without any formal application in this regard. Although after the Court timings in late hours of the day when the hearings of the cases has been completed, in the chamber, an application has been received requesting for adjournment of the reference applications on the ground that the Legal Advisor, appointed in this case, is busy in some other important case, due to which he is unable to attend the Court. Neither the name of the Legal Advisor nor attorney/authority has been submitted. Even otherwise, we are of the view that under subsection (3) of section 133 of the Income Tax Ordinance, 2001, this Tribunal, within 90 days of the receipt of the Reference application has to draw its statements of the case and refer it to the Hon'ble High Court, if satisfied that a question of law, arises out of its order. As it is a mandatory requirement of law to draw the statement of the case and refer it to the Hon'ble Court or to refuse within 90 days of receipt of application. We, therefore, have refused to adjourn the instant application for further date of hearing.
5. Ms. Farzana Jabeen the learned D.R. has appeared along with the Taxation Officer Mr. Shafqat Hussain Kehar, DCT and has supported the Reference Applications on the grounds on the basis of which impugned orders under section 66-A of the Repealed Incorne Tax Ordinance, 1979 Ordinance. has been made by the learned IAC.
6. On the other hand, Mr. Jawed Zakaria the learned counsel for the Assessee/Respondent is opposing the Reference Applications and has supported the order of the Tribunal. He has taken the preliminary objection that the questions as framed by the Department are purely questions of fact and also do not arise out of the order of the Tribunal. Therefore, no question can be referred to the Hon'ble High Court. He has argued that as mentioned in the statements of facts by the applicant/ department the original assessments were revised by the learned IAC under section 66-A of the Repealed Income Tax Ordinance, 1979 on the following three points (i) Capital loss set off against operating revenue Allocation of Expenses between exempted income and taxable income Payment of technical fee disallowed by the learned IAC. Issues of adjustment of capital loss and technical fee relates to only for the assessment year 1995-96 while for the remaining years issues involved are in respect of allocation of expenses and technical fee. Learned counsel for the Assessee/Respondent has submitted that a cursory reading of the questions framed by the Department clearly shows that the Department has not framed any question on the issue of adjustment of capital loss and technical fee. According to learned counsel, the Tribunal has allowed the appeal on the above three issues after apprising of the facts and has given its verdict on factual grounds and recorded its finding of facts which is evident from the observations of the learned Tribunal contained in para 15 and were fully endorsed vide paras. 65 and 66 wherein the Tribunal has again recorded the findings of the fact that "even on factual plane the impugned order of the IAC is not sustainable in law." On the issue of technical fee which is common for all the years he has submitted that this issue was also decided on factual ground, observing that for these eminently factual reasons the order of the IAC cannot sustain on this point.
The learned counsel regarding the common question No.1 for all the years framed by the Department argued that the Tribunal has held that the invocation of section 66-A on the basis of audit party/superior authority is not permissible but the Department has taken a new plea of provision of section 7, which was neither taken nor any finding was given by the Tribunal. Therefore, no question of law arises as the findings of the Tribunal are based on the judgments of the superior Courts. He has contended that it is established proposition of law that if an issue has been decided by the higher appellate Court then it is no question of law to be referred to the Hon'ble High Court. Even otherwise the question No.1 does not affect or alter the Tribunal's order therefore, the question is purely of academic nature and it would be a futile exercise to make a reference.
As regards question No.2 it is submitted by the learned counsel for the Assessee/Respondent that the Tribunal has given the findings of fact regarding issue of approval, only for the assessment year 1995-96 while for the remaining years the question No.2 as framed is based on misconception. Learned counsel pleaded that the question sought to be referred by the Department is merely of academic nature and remains for the academic interest and would not alter the judgment of the Tribunal and need not be referred to the Hon'ble High Court as the appeal has been allowed on the above additions on factual grounds and on the basis of the findings of facts. Reliance in this regard has been placed on the case-law reported as 2002 PTD 498 (Lah. H.C.) (2002) PTD 327 (Lah. HC), (1961) 42 ITR 589 (SC), (1987) 164 ITR 789 (P&H).
For the remaining years it has submitted that question does not arise out of the findings of the Tribunal because, approval of the IAC does not pertain to the remaining years. Therefore, the question No.2 is misconceived as it does not arise out of the order of the Tribunal.
The learned counsel for the assessee has submitted that for the assessment year 1995-96 the question No.3 which pertain to allocation of expenses does not arise out of the order of this Tribunal. The issue of proration of expenses for this year neither agitated/involved nor any finding on this issue was given. According to him for referring a question of law it is necessary that such question must arise out of the order of the Tribunal.
For the remaining assessment years he has emphatically argued that the question No.3 set forth by the Department is not a question of law but it is purely a question of fact as such cannot be referred to the Hon'ble High Court. The issue of proration of expenses has been decided. He has contended that it is well settled proposition of law that if an issue or point has been decided in the light of the binding judgments of the superior Courts then the questions cannot be referred. Reliance is placed on the cases reported as PLD 1984 Lah. 401.
He has contended that the Tribunal has considered the various aspects of the case and restored the order passed under section 62 on the factual ground that learned IAC has no concrete evidence that the assessee has charged the expenses which are relatable to exempt income against revenue income and the learned IAC has failed to establish the nexus between the impugned expenditure to the income from capital gain.
According to learned counsel number of Reference application have already been rejected by the Tribunal on identical issue viz. allocation/proration of expenses. The learned counsel has cited the following cases in this respect:
(i)???????? R.A. No.800/KB of 2003, dated 31-7-2003; (ii) R.A. No.39/KB of 1984-85, dated 28-11-1994; (iii) R.As. Nos.691 and 692/KB of 2002, dated 12-11-2002 and (iv) R.As. Nos.421, 422/KB of 2004, dated 27-1-2005.
Learned counsel for the Assessee/Respondent has argued that the question No.4 which is common for all the years again does not arise out of the order of this Tribunal as no such finding in respect of section 209(9) of the Income Tax Ordinance, 2001 was given. Hence this question does not arise out of the order of the Tribunal and may not be referred to the Hon'ble High Court as for referring a question of law it is necessary that such question' must arise out of the order of the Tribunal.
The learned counsel submitted that no question of law has been formulated by the Department on this score meaning thereby that the Department has, itself accepted' this factual position. Further the Assessing Officer has finalized the Assessment under section 62 after examining various details, books of accounts, ledger etc. Therefore, there is no evidence in the hands of the Department to prove that the original order passed by the Assessing Officer is erroneous and prejudicial to the interest of Revenue. If these questions are referred to the Hon'ble High Court the result of the appeal will not be altered. The question is, thus of academic interest and combination of fact already answered by the Superior Courts as it is settled law that no reference is called for where related question is covered by the binding decisions of the Superior Courts.
7. We have heard the learned representatives of both the parties and have also perused the order of this Tribunal, the impugned orders of the learned IAC, the original assessments made under section 62, the reference application filed by the applicant department, written reply filed by the assessee and the case law referred by the learned counsel for the assessee and other relevant record of the case.
We have found that as for the assessment year 1995-96, the questions of law as framed by the applicant/department are not arising out of the order of this Tribunal. For this year, the learned IAC has modified the assessments under section 66-A on the two issues (i) Capital loss set-off against operating revenue (ii) Payment of technical fee disallowed by the learned IAC, but on these two issues no question has been framed and this fact has also been mentioned on the statement of facts tiled by the applicant/department. A cursory reading of the above mentioned questions framed by the Department clearly shows that these are not arising and the Tribunal has allowed the appeal for the assessment year 1995-96, after apprising of the facts and has given its verdict on the factual grounds and recorded its finding of facts and no law point is arising in this, respect.
8. Regarding the remaining three assessment years i.e. 1996-97 to 1998-99, we have found that the issues: (i) Allocation/proration of expenses between exempted capital gain and taxable income (ii) Payment of technical fee disallowed by the learned IAC has been allowed after apprising of facts and the verdict in this regard has been given on factual basis as well as by following the earlier binding decisions of this Tribunal and Hon'ble High Court and Supreme Court of Pakistan. Therefore, the questions as framed by the applicant/department are not arising out of the order of this Tribunal.
Likewise, the question No.2 as framed by the applicant Department has been framed on the findings of fact that the issue of approval was only for the assessment year 1995-96 and not arising out of the order of this Tribunal and this issue has also been decided keeping the earlier orders of this Tribunal and High Court.
Regarding question No.3 which pertains to allocation of expenses it is pointed out that for the assessment year 1995-96 allocation of expenses was not made by the Department hence the question No.3 is misconceived as neither any ground was taken by the assessee nor any finding was given by the Tribunal in this regard. As this question for the assessment year 1995-96 does not arise out of the order of the Tribunal therefore, the same cannot be referred to the Hon'ble High Court. For the remaining years the question referred by the Department is not a substantial question of law but it is a purely question of fact as such cannot be referred to the Hon'ble High Court because the issue of proration of expenses has been decided by the Tribunal on the basis of various binding decisions. It is also observed that the question No.3 framed by the Department does not affect the right of the parties. , Therefore, the question is purely academic and need not be referred.
Learned counsel for the assessee has pointed out that in a number of cases the Reference applications on the issue of proration of expenses income have already been rejected by this Tribunal. He has in this respect referred R.A. No.800/KB of 2003, dated 31-7-2003 R.A. No.39/KB of 1984-85, dated 28-11-1994 and R.As. Nos.691 and 692/KB of 2002, dated 12-11-2002. We are, ,therefore, of the view that the question No.3 regarding allocation/proration of expenses for the years under consideration does not arise out of the order of the Tribunal.
Regarding the question No.4 we are of the view that it does not arise out of the order of this Tribunal as no finding on section 209(9) of the Income Tax Ordinance, 2001 has been given in the order and for referring the question of law it is necessary that the question must arise out of the order of this Tribunal.
9. Before parting with these applications we may observe that in the scheme of the Income Tax Ordinance in the income tax matter, the Hon'ble High Court does not exercise appellate jurisdiction. The Hon'ble High Court exercise advisory jurisdiction only. While invoking advisory jurisdiction of the Hon'ble High Court opinion is sought on a point of law for guidance. The opinion is to be sought where a difficulty arises. The above referred questions as framed by the applicant/department are general and abstract questions which are purely academic nature and do not require to be referred. In this regard reliance is placed on the decision of the Hon'ble Supreme Court in the case of Lungia Tea Company v. Commissioner of Income Tax reported as 1970 SCMR 872 wherein it has been held that every question of law must not be referred to the Honourable High Court. There must be some substance in it. In the instant case the findings of facts recorded by the Tribunal are so obvious and clear and there is no ambiguity thus the Hon'ble High Court cannot be burdened for adjudication of the matter which has already been decided.
10. After considering all the facts, we decline to refer the above mentioned question of law as framed by the applicant/department and do not want to burden of the Hon'ble High Court, on the issues which have been already decided by the Hon'ble High Courts as the applicant/ department has failed to satisfy that the questions as framed by the applicant/department are questions of law and arising out of the order of this Tribunal.
11. All the four Reference Applications are therefore, refused.
C.M.A./483/Tax (Trib.)??????????????????????????????????????????????? Reference applications rejected.