I.T.A. No.1307/LB of 2001, decided on 17th March, 2006. VS I.T.A. No.1307/LB of 2001, decided on 17th March, 2006., 2006 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 2623 (2006)

(a) Income Tax Ordinance (XXXI of 1979)-----

-----Ss. 62, 80C & Second Sched., Part-I, Cl. (118E)---Assessment on production of accounts evidence etc.---Exemption claimed was rejected on the ground that assessee was not engaged in manufacturing activities as the assessee could not provide E.O.B.I. and social, security record as .well as purchase vouchers and sale invoice---Proceedings were initiated under S.62 of the Income Tax Ordinance, 1979 and declared receipts were assessed to tax under S.80C of the Income Tax Ordinance, 1979---Validity---Assessing Officer had no lawful jurisdiction to suo motu convert the proceedings initiated under S.62 of the Income Tax Ordinance, 1979 to that of under S.80C of the Income Tax Ordinance, 1979 unless the proceedings under S.62 of the Income Tax Ordinance, 1979 were dropped at the first place---Assessment made was annulled by the Appellate Tribunal having not been lawfully made---Since exemption to income for the first time, was granted by the department, no justifiable reasons could be put forth while refusing the claim of exemption in the subsequent assessment years---Assessing Officer was directed to allow exemption.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss. 62 & 80C---Proceedings under S.62 of the Income Tax Ordinance, 1979 and those of under S.80C of the Income Tax Ordinance, 1979 were two distinct and independent proceedings---None of them could overlap or override each other until and unless the proceedings initiated under one section were to be closed.

(c) Income Tax Ordinance (XXXI of 1979)---

----Ss. 80C & 80CC---Presumptive Tax Regime---Explanation---Presumptive tax is, in fact, akin to capacity tax i.e. capacity to earn---Imposition of presumptive tax under Ss.80C and 80CC of the Income Tax Ordinance, 1979 was substituted of the normal method of levy and recovery of the income tax---Effect of a deeming provision in a taxing statute is that, it brings within the tax net an amount which ordinarily would not have been treated as an income, in other words, it brings within the ambit of chargeability some thing which might not actually accrue but which through a legal fiction shall be deemed to have accrued notionally.

(d) Income Tax Ordinance (XXXI of 1979)---

----Ss. 80C & 59---Provisions of S.80C of the Income Tax Ordinance, 1979 were deeming in their character whereby no order whatsoever was to be passed rather the order shall be deemed to have been passed under S.59 of the Income Tax Ordinance, 1979.

Saleem Abid, ITP for Appellant.

Dr. Shahid Siddique Bhatti, D.R. for Respondent.

ORDER

Vide this appeal the assessee-appellant has called into question the order passed by CIT(Appeals) Zone-III, Lahore, dated 5-1-2001 in respect of assessment year 1997-98.

2. This appeal has been heard for the second time. At the first place the assessee's appeal was dismissed on account of non-prosecution by virtue of order, dated 1-10-2003 which was subsequently recalled by the bench vide M.A. No.778/LB/03 order, dated 27-7-2004. Hence, this appeal has been taken up afresh for hearing today.

3. Both the learned representatives appearing at the bar have been heard in this regard. It was vehemently contended by the learned counsel for the assessee that the assessment allegedly made under section 62 of the repealed Ordinance is ab-initio illegal void and the learned Appeal Commissioner had fallen in grave error in confirming the impugned assessment order. Also pleaded that the exemption claimed from charge of income tax on the profit and gains derived from the industrial taking under Clause 118E of part, l of the Second Schedule to the Income Tax Ordinance, 1979 has illegally been refused by the Assessing Officer reason being the company was not executing/manufacturing activities in the year under appeal.

4. Facts giving rise to the present appeal are that income tax return was filed by the assessee-appellant declaring "Nil income" viz. the receipts declared at Rs.29,18,792. However, profit and kiss account and balance sheet for the period ending 30-6-1997 were annexed with the return. Moreover, exemption from charge of tax under Clause 118E of the Second Schedule to the Income Tax Ordinance, 1979 was also claimed by the assessee. During the course of assessment proceedings, in compliance to a statutory notice issued under section 61, books of accounts comprising of cash book an ledger, which were prepared on the computerized sheets, were furnished but no purchase vouchers and sales invoices were furnished. Even no production record was maintained. Thereafter notice under section 62, dated 23-2-1999 was issued requiring the assessee to prove as to whether the industrial undertaking, during the year under appeal, was engaged in manufacturing activities or not? In its reply execution of manufacturing activities was categorically confessed by the assessee. As the assessee could not provide E.O.B.I. and social security record as well as purchase vouchers and sale invoices, hence, was observed by the Assessing Officer that the assessee was not engaged in manufacturing activities in the year under appeal. According the claim of exemption claimed under Clause 118E of the Second Schedule to the Income Tax Ordinance was rejected. Consequently the total receipts declared by the assessee were subjected to tax under section 80C of the repealed Income Tax Ordinance, 1979. At the first appellate stage it was observed by the Appeal Commissioner, after having observed that since the appellant did not conduct any manufacturing activities during the year under appeal, thus exemption to the industrial undertaking was held to be rightly refused by the Assessing Officer.

5. The issue raised in the instant appeal is very 'important to be dilated upon. From the facts narrated supra, a question arises as to whether the proceedings initiated under section 62 of the repealed Income Tax Ordinance, 1979 can be converted suo motu to have been initiated under section 80C of the repealed Income Tax Ordinance, 1979. There is no denying the fact that the "proceedings under section 62" and those of "under section 80C" of the late Income Tax Ordinance, 1979 are two distinct and independent proceedings. None of them can overlap or override each other until and unless the proceedings initiated under one section are to be closed. In the present case, evidently the Assessing Officer at the first place had proceeded to formulate the assessment under section 62 of the repealed Ordinance, 1979 and for that purpose statutory notice under sections '61 and 62 of the repealed Ordinance were issued. But while concluding the assessment proceedings, declared receipts of Rs.29,18,792 have been subjected to tax under section 80C of the repealed Ordinance at the rate of 3.5%. In this manner, total tax was worked out at Rs.1,02,158.

6. It would be worthwhile to state here that provisions of section 80C refer to altogether different eventuality. This section speaks about presumptive tax regime. Since, sections 80C and 80CC of the Ordinance fall within the category of presumptive tax therefore the same the persons covered by them pay a predetermined amount of tax as full and final discharge of their tax liability. We ate inclined to hold that presumptive tax is in fact akin to capacity tax i.e. capacity to earn. Moreover, imposition of presumptive tax under sections 80C and 80CC is substitution of the normal method of levy and recovery of the Income Tax. Generally the effect of a deeming provision in a taxing statute is that it brings within the tax net an amount which ordinarily would not have been treated as an income. In other words, it brings within the ambit of chargeability something which might not actually accrued but which through a legal fiction shall be deemed to have accrued notionally.

7. It is also imperative to mention here that under this section issuance of statutory notices under sections 61 and 62 of the late Ordinance are neither required nor determination and computation of income is to be made. Actually the provisions of section 80C are deeming in their character whereby no order whatsoever is to be passed rather the order shall be deemed to have been passed under section 59 of the Ordinance. Reason being whole of the amount, on which tax has been deducted or collected under different subsection of (50), is received by or accrues or arises or is deemed to accrue or arise to any person that shall be deemed to be income of the said person and tax thereon shall be charged at the rate specified in the first schedule. The amount which shall be subjected to tax under section 80C shall be the payments received on which tax is deductible under section 50(4). These payments shall be other than the payments received or accrued or arose on account of services rendered. Such tax shall be deemed to be the full and final discharge of tax liability of that person. Admittedly no. tax under section 50 was deducted from the payments so received by the assessee-appellant from the payer.

8. In the given scenario we have come to an inescapable conclusion that the Assessing Officer had no lawful jurisdiction to suo motu convert the proceedings initiated under section 62 to that of under section 80C of the Ordinance unless the proceedings under section 62 of the repealed Ordinance are dropped at the first place. We are, therefore, inclined to annul the assessment made under section 62 of the Ordinance being not lawfully made. Since, exemption to income from charge of tax under clause (118E) of Part I of the Second Schedule to the Income Tax Ordinance, 1979 for the first time, was granted by the department in the assessment year 1995-96 and therefore too in the subsequent assessment year 1996-97, thus no justifiable reasons whatsoever could be put forth while refusing the claim of exemption in the subsequent assessment year. Accordingly, the Assessing Officer is directed to allow exemption under this clause in the year under appeal as well.

8. Hence, the assessee's appeal succeeds on legal premises.

C.M.A./103/Tax (Trib.)Appeal accepted.