I.T.As. Nos. 578/LB and 579/LB of 2004, decided on 21st April, 2006. VS I.T.As. Nos. 578/LB and 579/LB of 2004, decided on 21st April, 2006., 2006 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 2554 (2006)

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

----S. 122(4-A)---Income Tax Ordinance (XXXI of 1979), Ss. 62 & 30-Amendment of assessments---Limitation---Two assessments were framed separately under S.62 of the Income Tax Ordinance, 1979 as on 23-6-1997 and 20-6-1998 respectively---Show-cause notice, dated 7-4-2003 was issued under S.122 of the Income Tax Ordinance, 2001 and assessee was confronted with the position that entire expenses were to be prorated to dividend income and non-dividend income---Further, dividend/mark-up income had wrongly been assessed under S.22 of the Income Tax Ordinance, 1979 as business income as a result of which the provisions of S.30 of the Income Tax Ordinance, 1979 remained inapplicable---Finally order under 5.122 of the Income Tax Ordinance, 2001 was passed on 31-5-2003 with the conclusion that the entire income of the assessee fell under S.30 of the Income Tax Ordinance, 1979---Validity---Assessments framed under S.62 of the Income Tax Ordinance, 1979 for an action under S.65 of the Income Tax Ordinance, 1979 were already hit by limitation on 30-6-2001 and 30-6-2002 respectively for each year---Department initiated proceedings under S.122 of the Income Tax Ordinance, 2001 on 7-4-2003 and culminated the same on 31-5-2003 after the expiry of said prescribed limitation---Even by taking the impugned re-computing of income by an action under S.66A of the Income Tax Ordinance, 1979, the proceedings by 22-6-2001 and 19-6-2002 were hit by limitation, whereas the impugned order under S.122 of the Income Tax Ordinance, 2001 was, dated 31-5-2003---After promulgation of Income Tax Ordinance, 2001, the department had illegally extended the limitation period to 8 years instead of expiry much earlier---Such extending the period of limitation was prima facie illegal void ab initio which merited outright cancellation.

Ellahi Cotton Mills Ltd. v. Federation of Pakistan PLD 1997 SC 582 = 1997 PTD 1555 rel.

1993 SCMR 73 and 1997 PTD 1555 (SC Pak.) irrelevant.

2002 PTD (Trib.) 159 distinguished.

I.T.A. No. 578/LB/2004 ref.

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

----S. 122(4A)---Amendment of assessments---Retrospective effect--Section 122 (4-A) of the Income ,Tax Ordinance, 2001 and the background of its insertion made it abundantly clear that it was retrospectively applicable---As the law is not to encourage the absurdity which is against precision and exactness meaning by it that period when no such limitation was there that revenue/department was free in its action on the point of limitation---Absence of the limitation clause is an ambiguity which is to be interpreted in favour of the assessee---Insertion of said section 122(4A) had proved, that earlier the law was not complete, thus the lacuna was removed which had a curing effect.

Amjad Zubair Tawana, DCIT for Appellant.

Asim Zulfiqar, ACA for Respondent.

ORDER

The titled appeals are directed 'against the single combined order, dated 10-11-2003. Common grounds have been submitted in respect of identical issues involved for both the years.

Facts in brief of the case are that originally assessment was framed by two separate orders under section 62 of the repealed Income Tax Ordinance, 1979 on 23-6-1997 and 20-6-1998 respectively for each year. By a show-cause notice, dated 7-4-2003 issued under section 122 of the new Ordinance that the assessee was confronted that entire expenses were to be prorated to dividend income and non-dividend income, secondly that dividend/mark-up income has wrongly been assessed under section 22 of the repealed Ordinance as business income as a result the provisions of section 30 remained inapplicable. To give effect to such pointed out issues that finally order under section 122 was passed on 31-5-2003 with .the conclusion that the entire income of the assessee company falls under section 30 of the repealed Ordinance. The learned CIT/WT(A) vacated this order passed under section 122. For a better comprehension the concluding paras from, the impugned order are being reproduced as under:

"The facts of the case have been perused in light of the arguments of the learned AR, the ratio settled in the above judgments are that an amendment in the law which is of remedial nature and extends benefit to a taxpayer is regarded as retrospective in operation. Since the introduction of sub-section (4A) in section 122 clearly restricts the time limitation for the purposes of amendment and is also beneficial to the taxpayer, therefore, it has a retrospective effect. In a famous case of Ellahi Cotton Mills Ltd. v. Federation of Pakistan the honourable Supreme Court of Pakistan held that.---

"We may point out that an executive order/notification, which is detrimental or prejudicial to the interest of a person, cannot operate retrospectively. However, a beneficial executive order/ notification issued by an executive functionary can be given retrospective effect. In this regard it will suffice to refer to the judgment of this Court in the case of Army Welfare Sugar Mills Ltd. and others v. Federation of Pakistan and others (1992. SCMR 1652). The above written undertaking of the Central Board. of Revenue to make this circular applicable retrospectively is in consonance with the aforesaid judgment of this Court."

"A full Bench of the honourable Supreme Court of Pakistan in a case reported as (1992) SCC 931 titled as C.B.R. and others v. Chanda Motors has decided that the assessment proceedings attain finality after it has gone through all the appellate forums, the relevant portion of the judgment is reproduced as under:---

"(18) Legally speaking order of assessment passed by Income Tax Officer is an order of original authority but is not final for the reason that it can be challenged in appeal or revision as the case may be and would be final only when it goes through all the forums and the findings of the last forum shall be binding as conclusive.

(19) The question whether appeal and other remedies provided under the law formed part of, the proceedings or not came up for consideration before the Supreme Court of India in the case of Garikapati Veeraya v. N. Subbiah Choudhry and others reported in PLD 1957 Supreme Court (Ind.) 448. It is held as per majority opinion that legal pursuit of a remedy, suit, appeal and second appeal really but steps in a series of proceedings all connected by an intrinsic unity and are to be regarded as one legal proceeding. Reference can be made .to the case of Commissioner of Wealth Tax v. Vimlaben Vadilal Mehta reported in (1984) 145. ITR 11, in which it is held that it is well settled that when an appeal is filed against an assessment order before the AAC, the assessment is thrown open and the appellate proceedings constitutes a continuation of the assessment proceedings."

Therefore, in view of these facts, the proceedings having not attained finality and the fact that the amendment is retrospective in nature the order passed is considered as time barred and is vacated as such. No other ground need to be discussed for these years in view of this vacation of order."

Before us the learned DR has referred to the following citations to challenge the findings as recorded in this impugned order:

(1) 1993 SCMR 73, (2) 1997 PTD 1555 (S.C. Pak.), (3) 2002 PTD 159 (Trib.) and (4) I.T.A. No. 578/LB of 2004.

In reply the learned AR has submitted that citation at Sr. No.3 is dilating upon the issue due to the repealed provisions of law when time limitation has been only specified but here the impugned issue is not as result of the repealed provisions of law but has arisen due to insertion of new subsection (4-A) of 122 of the new Ordinance so as to prescribe the time limit. The learned AR by explaining further it has submitted that the provisions of such subsection (4A) are beneficial in nature and had curing effects so are retrospectively applicable.

The learned DR has totally failed to explain as to how the judgment as referred at Sr. Nos.1 and 2 could help out the action of the department. The department was represented by the author of the order who failed to quote a single para. From these two judgments in support of what it has been done by him. When the attention of the learned author of the order was drawn that assessment has been framed under the provisions of section 62 of the repealed Ordinance, respectively on 23-6-1997 and 20-6-1998 which is under the provisions of section 65 of the old Ordinance then the limitation when expired, on getting no reply, the respective dates as 30-6-2000 and 30-6-2001 were confronted, even then no answer could be obtained. The learned author of the order could not submit anything as to how the provisions of section 122 could be invoked on determining the statedly default for assessing the class of income under tile old Ordinance, ultimate working out of the income also in accordance with the provisions of old Ordinance.

We have heard both the parties and have perused the available record.

The department/revenue after the promulgation of new Income Tax Ordinance, 2001, has made attempt to give new life to an already bygone matter, as the assessment framed under section 62 of the Ordinance for an action under section 65 of the old Ordinance were already hit by limitation on 30-6-2001 and 30-6-2002 respectively for each year. But the department initiated proceedings under section 122 of the new Ordinance on 7-4-2003 and culminated the same on 31-5-2003 after the expiry of this prescribed limitation. Even by taking the impugned re-computing of income by an action under section 66A of the repealed Ordinance, the proceedings by 22-6-2001 and 19-6-2002 were hit by limitation, whereas the impugned order under section 122 of the new Ordinance, 2001 is dated as 31-5-2003.

It is after the promulgation of the new Ordinance that the revenue/department has illegally extended the limitation period to 8 years instead of expiry much earlier as given in the earlier lines. Such extending the period of limitation is prima facie illegal, void ab initio which merit outright cancellation. A bare reading of subsection (4-A) and the background of insertion makes it abundantly clear that it is retrospectively applicable. As the law is not to encourage the absurdity which is against precision and exactness meaning by it that period when no such limitation was there that revenue/department was free in its action on the point of limitation. The absence of the limitation clause is a ambiguity which is to be interpreted in favour of the assessee. Insertion of this section has proved, that earlier the law was not complete, thus the lacuna was removed which has a curing effect. So for the reasons as recorded in the impugned order and also for the discussion supra we feel inclined to uphold the order passed at the first appeal stage. Both the departmental appeals being devoid of any merits are dismissed.

C.M.A./110/Tax (Trib.)Appeals dismissed.