GHULAM MUSTAFA JATOI, KARACHI VS COMMISSIONER OF INCOME TAX, CENTRAL ZONE-B, KARACHI, 2006 PTD-KARACHI-HIGH-COURT-SINDH 1647 (2006)

2006 P T D 1647

[Karachi High Court]

Before Muhammad Mujeebullah Siddiqui and Shamsuddin Hisbani, JJ

GHULAM MUSTAFA JATOI, KARACHI

Versus

COMMISSIONER OF INCOME TAX, CENTRAL ZONE-B, KARACHI

Income Tax Reference No. 240 of 1997, decided on 04/04/2006.

(a) Income Tax Act (XI of 1922)---

----S. 66---Income Tax Ordinance (XXXI of 1979), S.136---Income tax Ordinance (XLIX of 2001), 5.133---Reference/appeal to High Court under laws relating to direct taxes---Nature and scope of jurisdiction elucidated.

Income Tax Appellate Tribunal is the final facts finding authority and the High Court exercises merely advisory jurisdiction under section 66 of the repealed Income Tax Act, 1922, section 136 of the Income Tax Ordinance, 1979 under which the reference has been . made to this Court and section 133 of the Income Tax Ordinance, 2001. While exercising advisory jurisdiction the High Court is not supposed to probe into a question of fact not raised before the ITAT. The High Court derives advisory jurisdiction under the provisions of laws referred to above. All these provisions are very specific on the point that a reference can be made to the High Court in respect of a question of law arising out of the order passed by the Appellate Tribunal. Thus, a party who has not raised a point before the Appellate Tribunal is not permitted to raise it for the first time before the High Court under its advisory jurisdiction. The rationale for it is simple to the effect, that the High Court in exercise of its advisory jurisdiction decides the questions of law raised through a Reference Application, giving the answer in affirmative or negative, meaning thereby, a finding given by the Tribunal on the point of law is either held to be in accordance with the law or otherwise and thereafter the final order is passed by the Appellate Tribunal disposing of the case conformably to such judgment of the High Court. If a point is not raised before the Tribunal and there is no finding on the said point, then the question of giving any affirmative or negative finding by the High Court in respect of such non-existing finding of the Appellate Tribunal shall not arise. No doubt, new points of law can be raised before the High Court when exercising appellate jurisdiction and those questions should be pure questions of law and not mixed questions of fact and law requiring any factual probe. However, the scope of advisory jurisdiction of the High Court being very limited as compared to the appellate jurisdiction, no new points of law are allowed to be raised before the High Court specially when it is a mixed question of fact and law. The nature of appellate jurisdiction and, advisory jurisdiction have nothing in common, and are absolutely distinct to each other. An Appellate Court exercises all the powers vested in the Court below. including the Court of original jurisdiction to the extent that it can record additional evidence as well. However, the High Court, while exercising advisory jurisdiction is not clothed with such powers and has to confine its findings on the point of law decided by the Tribunal by interpreting the relevant provisions of law. In exercise of appellate jurisdiction, the High Court can allow a question of law which was neither raised nor considered by the forums below for the reason that the appellate jurisdiction is not restricted to the questions of law arising out of the order of the lower appellate forum. However, no such questions can be allowed to be raised and are not to be entertained by the High Court for the reason that the advisory jurisdiction is limited to the decision on the question of law arising out of the order passed by the Appellate Tribunal. The question of prior approval by the IAC sought to be raised before High Court cannot be allowed to be raised for the reason that it was not raised before the Tribunal and there is no finding of the Tribunal on this point. No question was proposed before the Tribunal that the addition was not sustainable for want of prior approval of IAC. If this issue is allowed to be raised it will require factual probe and any such exercise in respect of mixed question of fact and law by High Court would amount to travel beyond the jurisdiction vested in High Court under the advisory jurisdiction conferred under section 66 of the repealed Income Tax Act, 1922, section 136 of the repealed Income Tax Ordinance, 1979 and section 133 of the Income Tax Ordinance 2001.

Under the law relating to references, heard by High Court, arising under the tax laws, in exercise of its advisory jurisdiction; there is no scope for agitating the points which were never raised or considered by the Tribunal. The law on this point is settled, but, the settled principles in this behalf are being ignored by the bar and the points which cannot be raised before the High Court are being entertained with the result that the system has been distorted to the great extent. In every walk of life and particularly in the realm of law the preservation of system is absolutely necessary, without which, there could be no rule of law. The absence of the rule of law results in legal anarchy.

In the references emanating from tax laws the jurisdiction of High Court is confined to the question of law arising out of the order of Tribunal. The principles pertaining to the reference proceedings before the High Court under the direct tax laws namely Income tax and Wealth Tax, are fully established. The provisions pertaining to the references/ appeals uncle. the indirect tax laws namely Customs, Sales-tax and Excise laws 1.tve been introduced recently and the advocates practicing on indirect tax side have not gained sufficient sight in the principles and, system of tax references under these laws. The system under the indirect taxes has not taken its roots because the Appellate Tribunal under these laws has been established recently and on account of being run on ad hoc basis it has not created its impact as created by the Income Tax Appellate Tribunal which is working in the subcontinent from the year 1942. The law relating to the references before the High Court under the indirect taxes is same as in the case of direct taxes. Thus, the resume of the law, to be given presently, is equally applicable to the references under the direct taxes (income tax and wealth tax) and indirect taxes (Custom Act, Sales Tax Act and Central Excise Act/Federal Excise Act). [p. 1657] E

(b) Income Tax Act (XI of 1922)---

----Ss. 4(2)(c) & 66---Deemed income---Person holding public office receiving public money for public purposes---If such money was not spent for "public purposes" but was spent for his personal purposes, it would not lie with the said person to plead that amount so received could not be subjected to tax in his hands, for the reason that the Income Tax Law did not differentiate in the income received legally, and/or illegally---Income Tax Appellate Tribunal was right in holding that amount received by the person was liable to be subjected to Income Tax as 'deemed income' in the hands of the person under S.4(2)(c) Income Tax Act, 1922.

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

----S. 133---Income Tax Ordinance (XXXI of 1979), S.136---Income Tax Act (XI of 1922), S.66---Reference/appeal to High Court---Principles enumerated.

The following principles emerge:---

1. Any person submitting reference application before the High Court under the direct tax law or indirect tax law is required to formulate the questions of law and no vague reference application is to be submitted.

2. The question of law formulated should arise out of the order of Tribunal meaning thereby that it was raised, pressed, argued and decided by the Tribunal or it was considered and finding was given by the Tribunal.

. 3. If any question of law is not raised before the Tribunal it could not be raised for the first time before the High Court.

4. If a question of law is- raised before the Tribunal but it is not pressed, it shall be deemed as if it was never raised.

5. The Tribunal is final fact finding authority and all the findings involving factual controversy attain finality with the decision of the Tribunal and no point involving factual controversy can be subject-matter of reference application before the High Court.

6. If a point of law is not raised before the Tribunal but is raised in the reference, application only it is not to be entertained and considered by the High Court.

7. The question of law raised before the High Court should involve substantial point of law requiring interpretation by the High Court and the points of law answer to which is clear and obvious, are not to be raised in reference application.

8. Once a question of law is admitted to regular hearing then the jurisdiction of High Court is confined to answer the point of law involved in said question and no other point of law is to be raised or entertained.

9. While dealing with the reference application the High Court exercises advisory jurisdiction which is very limited in scope, as compared to the constitutional jurisdiction and the appellate Jurisdiction.

10. The reference application should contain the statement of facts as decided by the Tribunal. No new facts are to be inserted in the reference application which were not raised before the. Tribunal and were not considered and decided. The opinion in exercise of advisory jurisdiction is to be given on the basis of facts; as decided by the Tribunal until and unless a question of law is raised on the point that the finding itself was violative of any provision of law.

11. No reference application is to be entertained on the points of law which already stand decided by the High Court or Supreme Court.

Messrs Muhammad Idrees Barry & Co. v. Commissioner of Income Tax PLD 1959 SC 202; Seth Gurmukh Singh v. Commissioner of Income Tax, Punjab 1944 ITR 399; National Mutual Life Association of Australia, Limited v. Commissioner of Income Tax Bombay 63 IA 99; Abdul Ghani v. Commissioner of Income Tax PLD 1962 Kar. 635; Messrs Odeon Cinema, Lahore v. Commissioner of Income Tax PLD 1971 Lah. 632; Messrs Ahmad Karachi Halva v. Commissioner of Income Tax 1982 SCMR 489; Collector of Customs v. Pakistan State Oil' 2005 SCMR 1636; Pakistan State Oil Co. Ltd. v. Collector of Customs 2006 SCMR 425 and Messrs Nida-I-Millat (Pvt.) Ltd. v. Commissioner of Income Tax 2006 SCMR 526 ref.

Rehan Hassan Naqvi and Lubna Pervaiz for Applicant.

Nasrullah Awan for Respondent.

Date of hearing: 4th April, 2006.

JUDGMENT

MUHAMMAD MUJEEBULLAH SIDDIQUI, J.---The Income Tax Appellate Tribunal has referred the following question of law for our consideration:---

"Whether on the facts and in the circumstances of the case the learned Income Tax Appellate Tribunal was justified in holding the amount of Rs.410,000 deemed to be income of the appellant within the meaning of section 4(2C) of the repealed Income Tax Act, 1922?"

The facts giving rise to the above question are that the applicant derived income from Salary as Chief Minister of Sindh and in the assessment year 1976-77 filed return of total income declaring salary income at Rs.36,000. The Assessing Officer, however, completed assessment under section 23(3) of the repealed Income Tax Act, 1922 at Rs.4,72,544. The Assessing Officer added an amount of Rs.4,10,000 to the total income of assessee for the reason that as per press report published in Daily Jang and also in White Paper an amount of Rs.80,000 and Rs.3,30,000, were paid to the applicant from the Prime Minister's Budget and . Intelligence Bureau Budget respectively. The applicant preferred appeal before A.A.C. who set aside the assessment order. In the reassessment proceedings the I.T.O. again added the amount of Rs.4,10,000. The applicant again preferred appeal, which was dismissed, by upholding the reasons assigned by the I.T.O. for making the addition. The applicant filed second appeal before the Income Tax Appellate Tribunal. The ITAT also dismissed the appeal holding as follows:---

"The amount of Rs.410,000 has been deemed to be income of the assessee within the meaning of subsection (2C) of section 4 of the Income Tax Act, 1922 by the Income Tax Officer which has been confirmed through the impugned order for the reason that no verifiable explanation has been given by the assessee. Since the payment of the said amount to the assessee is admitted as such now the onus is upon the assessee to prove that the said amount was not paid to him in the personal capacity or that he is in any way exempted from making payment of tax on the said amount. However, the assessee has failed to discharge his onus.

Under these circumstances there is no reason to interfere with the impugned order which is maintained and this appeal is hereby dismissed."

We have heard learned Advocates for the parties.

Mr. Rehan Hassan Naqvi, learned counsel for the applicant has submitted that the amount added under section 4(2C) was received by the applicant in his capacity as Chief Minister and the details of expenditure were submitted to the Prime Minister's Secretariat and Intelligence Bureau. He contended that the Tribunal ought to have called for the record for ascertaining the above fact. We asked Mr. Rehan Hassan Naqvi, if any request was made to the Tribunal for calling the record to which he replied in affirmative. However, we do not find anything in the order of Tribunal in this behalf. We have asked Mr. Naqvi to show us any application submitted to the Tribunal in this regard. He was not able to show us that any request was made to the Tribunal for calling for the record from the Prime Minister's Secretariat and Intelligence Bureau. We do not find that any statement of expenditure was produced before the learned Tribunal.

We asked the learned counsel for the applicant to show whether any such request was made before the Assessing Officer or the C.I.T. (Appeals). The learned counsel was not able to show that any such request was made.

A perusal of the assessment order shows that the Assessing Officer , asked the applicant to furnish the following details:---

"(1)?????

??????????? ?(2)????

(3) In respect of the amount of Rs.4,10,000 the following details of evidence should be furnished:

(i) That the amount was received in the official capacity.

(ii) That the amount was to be disposed off for specific purposes.

(iii) That the amount was received spread over the period from 1971-72 to 1976-77.

(iv) That the details of disbursement were submitted to the Prime Minister and the Director Intelligence Bureau.

(v) That the Funds received were not utilized for personal purposes."

The explanation was furnished on behalf of applicant which reads as follows:

"The learned A.A.-G. has taken full account of the facts and has discussed in detail the legal effects to the an, ant of secret fund which was received by our client in the official capacity as Chief Minister of Sindh and has also summarized the arguments as under: ---

(i) The Income Tax Officer has ignored the fact that the amount in dispute was received by the appellant in his official capacity.

(ii) That these amounts were to be disposed off for specific purposes by our client.

(iii) That the amount of Rs.410,000 was spread over a period from 1971-72 to 1976-77.

(iv) The details of disbursement of the secret fund was submitted by our client to the Prime Minister's Secretariat and the Director, Intelligence Bureau, Government of Pakistan.

(v) That the diversion of the secret fund for the purpose of election cannot make these amounts an income of our client.

Moreover, the amount of secret fund cannot be treated as an income of our client in the light of the following:

(a) That section 4(2C) is not attracted as our client was not the owner of the money. In fact, the owner of the money was the Government of Pakistan on whose behalf these expenses were incurred under the directions of the Prime Minister of Pakistan and as well as the Director, Intelligence Bureau, Government of Pakistan.

(b) The money was not received in the personal capacity of our client as the same is clear from Annexure 23 of the White Paper Volume-III (wherein the payments have been shown to have been made to the Chief Minister of Sindh).

(c) The payment of Rs.4,10,000 as per Annexure-III of the White Paper appears to have been paid over a period of six years from 1971-72 to 1976-77. As such the same cannot be taxed in full in the assessment year 1976-77.

(d) The money was given to our client out of the secret fund and the details of its? disbursement was also submitted by our client to the Prime Minister's Secretariat and the Director, Intelligence Bureau.

From the above it is evident that the funds received by our client remained the property of the Government of Pakistan and we can safely compare the official funds received by our client in the capacity of Chief Minister of Sindh with the Official, funds available with the various Heads of the Departments of the Government of Pakistan who make disburse?ment on behalf of the Government against expenditure to be incurred in the official capacity for official use which are never treated as an income of that head of the Department and have never been included in the total income of that person. We are sure that the funds which are kept under imprest with the Commissioner of Income Tax would have never been taxed as his personal income. We further request you not to treat the amount of secret fund as an income in the hands of our client."

The Assessing Officer, did not accept the explanation for the reason that it was not supported with any evidence. It was observed by the Assessing Officer , that the burden of proof lies solely on the applicant who has failed to discharge this burden.

Mr. Rehan Hassan Naqvi, has reiterated the contentions raised before Assessing Officer. He has submitted that the amount of Rs.4,10,000 was received by the applicant in the capacity of Chief Minister and that the diversion of the secret fund for the purpose of election could not make this amount an income of the applicant.

We asked Mr. Rehan Hassan Naqvi, to show any evidence to the effect that the amount was received by the applicant in the capacity of Chief Minister and he was not required to prove that it was spent for specified purposes for which the amount was received. Mr. Rehan Hassan is not able to show any evidence establishing that the amount received by the applicant was spent for the specific purpose, for which the amount was received by him or the applicant enjoys any privilege or exemption under any law from producing the evidence establishing actual expenditure of the amount received. The Assessing Officer had specifically asked the applicant to show that the funds were applied for specific purposes and the applicant failed to produce any evidence in this behalf. It was stated in the explanation filed ;on behalf of the applicant that the amounts were to be disposed of by the applicant for specific purposes but it is not explained what were the specific purposes for which the amount was received. From the plea taken that the diversion of secret fund for the purpose of election could not make these amounts an income of the applicant, it is indicated that the amount was spent by applicant for some election. It is not known whether it was spent for the section of applicant himself or somebody else.

Mr. Rehan Hassan Naqvi next contended that an addition under section 4(2C) of the repealed Income Tax Act, 1922 could be made with prior approval of the IAC but in this case no prior approval was obtained.

It is primarily a question of fact whether prior approval was taken or not, therefore, we asked Mr. Naqvi, whether this objection was raised before the C.I.T.(A) or the Tribunal to which he replied in negative. He however, submitted that since the addition was made under section 4(2C) of the repealed Income Tax Act, 1922, therefore, the question can be raised for the first time before the High Court. We are not persuaded to agree with the submission, for the reason that Income Tax Appellate Tribunal is the final facts finding authority and the High Court exercises merely advisory jurisdiction under section 66 of the repealed Income Tax Act, 1922, section 136 of the Inc-me Tax Ordinance, 1979 under which the reference has been made t( this Court and section 133 of the Income Tax Ordinance, 2001. While exercising advisory jurisdiction the High Court is not supposed to probe into a question of fact not raised before the ITAT. The High Court derives advisory jurisdiction under the provisions of laws referred to above. All these provisions are very specific on the point that a reference can be made to the High Court in respect of a question of law arising out of the order passed by the appellate Tribunal. Thus, a party who has not raised a point before the appellate Tribunal is not permitted to raise it for the first time before the High Court under its advisory jurisdiction. The rationale for it is simple to the effect, that the High Court in exercise of its advisory jurisdiction decides the questions of law raised through a ' Reference Application, giving the answer in affirmative or negative, meaning thereby, .a finding given by the Tribunal on the point of law is either held to be in accordance with the law or otherwise and thereafter the final order is passed by the appellate Tribunal disposing of the case conformably to such judgment of the High Court. If a point is not raised before the Tribunal and there is no finding on the said point, then the question of giving any affirmative or negative finding by the High Court in respect of such non-existing finding of the appellate Tribunal shall not arise. No doubt, new points of law can be raised before the High Court when exercising appellate jurisdiction and those questions should be pure questions of law and not mixed questions of fact and law requiring any factual probe. However, the scope of advisory jurisdiction of the High Court being very limited as compared to the appellate jurisdiction, no new points of law are allowed to be raised before the High Court specially when it is a mixed question of fact and law. The nature of. appellate jurisdiction and advisory jurisdiction have nothing in common, and are absolutely distinct to each other. An appellate Court exercises all the powers vested in the Court below including the Court of original jurisdiction to the extent that it can record additional evidence as well. However, the High Court while exercising advisory jurisdiction is not clothed with such powers and has to confine its findings on the point of law decided by the Tribunal by interpreting the relevant provisions of law. In exercise of appellate jurisdiction, the High Court can allow a question of law which was neither raised nor considered by the forums below for the reason that the appellate jurisdiction is not restricted to the questions of law arising out of the order of the lower appellate forum. However, no such questions can be allowed to be raised and are not to be entertained by the High Court for the reason that the advisory jurisdiction is limited to the decision on the question of law arising out of the order passed by the appellate Tribunal. As already observed the question of prior approval by the IAC sought to be raised by Mr. Naqvi, before this Court cannot be allowed to be raised for the reason that it was not raised before the Tribunal and there is no finding of the Tribunal on this point. No question was proposed before the Tribunal that the addition was not sustainable for want of prior approval of IAC. If this issue is allowed to be raised it will require factual probe and any such exercise in respect of mixed question of fact and law by this Court would amount to travel beyond the jurisdiction vested in High Court under the advisory jurisdiction conferred under section 66 of the repealed Income Tax Act, 1922, section 136 of the repealed Income Tax Ordinance, 1979 and section 133 of the Income Tax Ordinance, 2001.

For the above reasons, Mr. Rehan Hassan Naqvi was not allowed to raise the question of prior approval from the I.A.C.

A perusal of the Tribunal's order impugned in this reference shows that the only ground raised before the Tribunal was that the Assessing Officer was not justified in holding that the amount of Rs.4,10,000 was an income of the applicant. The Tribunal considered this contention and observed that the' applicant failed to establish that an amount which was admittedly received by him was not paid to him in personal capacity or he is in any way exempted from making payment of tax on the said amount.

We are of the considered opinion that the applicant utterly failed to show that for what specific purpose the amount was received by him and that it was spent for that specific purpose. On the contrary from the plea taken, that diversion of the secret fund for the purpose of election cannot make the amount an income of applicant, shows that it was paid to the applicant in his personal capacity and in these circumstances it was incumbent on the applicant to prove that the amount received by him was actually spent for public purposes. If it was spent for personal election of the applicant it cannot be held to be for public purposes. The public money is. a sacred trust and if it is received by a person holding a public office and then it is spent for its personal purposes it would not with the said person to plead that amount received could not be subjected to B tax in his hands, for the reason that .the Income Tax Law does not differentiate in the income received legally, and/or illegally.

For the foregoing reasons, we are of the opinion that the Tribunal has rightly held that the amount received by the applicant was liable to be subjected to income tax as deemed income in the hands of applicant under section 4(2C) of the repealed Income Tax Act, 1922. The question referred to us is answered in affirmative.

Mr. Rehan Hassan Naqvi, learned counsel for the applicant is very senior and highly respected Advocate of this Court. In fact he is one of the leading Advocates in Pakistan practicing on tax side. Mr. Rehan Hassan Naqvi attempted to raise the mixed question of fact and law which was not raised and argued before the Tribunal and on which there is no finding of the Tribunal. Mr. Rehan Hassan Naqvi insisted that although the points attempted to be raised by him in this case were neither raised before the Tribunal nor considered, but still he may be allowed to address arguments on such point. We declined to grant such permission. With all due deference and respect to the learned counsel, we are of the opinion, that, under the law relating to references, heard by this Court, arising under the tax laws, in exercise of its advisory jurisdiction, there is no scope for agitating the points which were never raised or considered by the Tribunal. The law on this point is settled, but, we have observed during the past several years that the settled principles in this behalf are being ignored by the learned members of the bar and the points which cannot be raised before the High Court are being entertained with the result that the system has been distorted to the great extent. In every walk of life and particularly. in the realm of law the preservation of system is absolutely necessary, without which, there could be no rule of law. The absence of the rule of law results in legal anarchy. As already observed, the law pertaining to the advisory jurisdiction of the High Court and the system is fully established, but on account of deviation from the settled principles, causing distortion of the system, we feel it expedient and necessary to give a resume of case law in this behalf.

We have already discussed that in the references emanating from tax laws the jurisdiction of High Court is confined to the question of law arising out of the order of Tribunal. The principles pertaining to the reference proceedings before the High Court under the direct tax laws namely Income tax and Wealth Tax are fully established. The provisions pertaining to the references/ appeals under the indirect tax laws namely Customs, Sales-tax and Excise laws have been introduced recently and the learned advocates practicing on indirect tax side have not gained sufficient sight in the principles and system of tax references under these laws. The system under the indirect taxes has not taken its roots because the Appellate Tribunal under these laws has been established recently and on account of being run on ad hoc basis it has not created its impact as created by the Income Tax Appellate Tribunal which is working in the subcontinent from the year 1942. At this juncture, we would like to hold that the law relating to the references before the High Court tinder the indirect taxes is same as in the case of direct taxes. Thus, the resume of the law, to be given presently, is equally applicable to the references under the direct taxes (income tax and wealth tax) and indirect taxes (Custom Act, Sales Tax Act and Central Excise Act/Federal Excise Act).

The scope of jurisdiction under section 66 of the Income Tax Act, 1922 came for consideration before the Hon'ble Supreme Court in the case of Messrs Muhammad Idrees Barry & Co. v. Commissioner of Income Tax PLD 1959 SC 202. A question of law was referred by the Tribunal before the High Court of West Pakistan Lahore Bench. The learned Judges of the High Court did not agree with the form in which the question was framed by the Tribunal referred to High Court and they altered the form of question with the observation that they were not bound by the particular form in which the question has been framed by the Tribunal with further observation that although they could not frame a new question they were entitled according to Full Bench judgment in Seth Gurmukh Singh v. Commissioner of Income Tax, Punjab 1944 ITR 399, to change the form of question if they preserve the substance of it. The Hon'ble Judges in the High Court referred to certain decisions of the Privy Council which emphasized the fact that the High Court's jurisdiction was confined to the consideration of the question referred to it and that the procedure prescribed in provisions of section 66 of the Income Tax Act, should not be departed from. The reformulated question was answered by the learned Judges of the High Court in affirmative.

It was contended before the Hon'ble Supreme Court that the learned Judges of the High Court formulated the question different from the one referred by the Tribunal and that in doing so they exceeded in their jurisdiction which was only advisory and confined to answering the question actually referred. On behalf of Commissioner of Income Tax, it was not disputed that the High Court could not under section 66 formulate suo motu a fresh question but it was argued that what was done in the said case was only an alteration in the form but was not substitution in the question referred. The Hon'ble Supreme Court expressed opinion that the question formulated by the High Court was different from the one actually referred by the Tribunal and therefore, from the authority of the very decision on which the learned Judges had relied, they had no jurisdiction to formulate and answer it.

The arguments advanced by Mr. Rehan Hassan Naqvi, in this case that he wanted to raise new pleas before High Court which were not raised before the Tribunal because new points raised arise out of the facts of the case and the law is covered by further law laid down by the Hon'ble Supreme Court.

The Hon'ble Supreme Court held that, what is provided for in section 66(1) is not reference to any question arising of the facts of the case but only a reference of a question or questions which arise out of the order of Appellate Tribunal. The Hon'ble Supreme Court further held that, it is clear from the language of the section as well as from the decision on which the learned Judges had relied. It was observed that the Full Bench judgment on which learned Judges in the High Court placed reliance contains that the High Court could not formulate any question suo motu which is not covered by the reference. The reason assigned by the learned Judges in the High Court that they proceeded on the basis that order of the Tribunal covers the question which they formulated was not upheld. The Hon'ble Supreme Court after referring to the order of the Tribunal observed that though certain facts were referred in the order of the Tribunal but it does not indicate that it considered the questions and therefore, held that the question formulated by the learned Judges in High Court was not the one arising out of the order of Appellate Tribunal. Reference was made to the judgment of 'Privy Council in the case of National Mutual Life Association of Australia, Limited v. Commissioner of Income Tax Bombay 63 IA 99. In this case the High Court had decided a case on an argument raised for the first time by the Advocate-General. Their Lordships of Privy Council observed that any claim to the liability of tax based on that argument was a matter out side the letter of reference and irrelevant to the question submitted.

The Hon'ble Supreme Court further observed as follows:---

"It may well be that when the question referred is considered some point may emerge with regard to the assessee's liability which should have been raised before the Tribunal and dealt by it, but as long as that matter is not covered by the reference, the High Court could not formulate a new question and deal with it, for, as pointed to their Lordships of `he Privy Council in Raja Bahadur Sir Rajendra Narayan Bhanj Deo v. Commissioner of Income Tax, Bihar and Orissa, "the function of the High Court in cases referred to it under section 66 of the Act is advisory only' and is confined to considering and answering the actual question referred to it."

The Hon'ble Supreme Court set aside the answer recorded by the High Court and remanded the case for recording of the finding on the actual question referred to it.

Again the issue came for consideration in the case of Abdul Ghani v. Commissioner of Income Tax PLD 1962 Kar. 635.

Speaking for the Division Bench, Anwarul Haq, J (as his Lordship then was), after examining the provisions under section 66 of the Income Tax Act, 1922 observed that there were two initial conditions before a case can be referred to High Court viz:

(a) a question of law should arise, and

(b) it should arise out of the appellate order of the Income Tax Appellate Tribunal, passed under section 33(4) of the Act.

It was further observed as follows:---

"It is not necessary to say anything more at this stage about the first requirement, but about the second it must be said that it is not any-question of law which may arise out of the case as such that can be required to be referred to the High Court. It must be a question which has been raised before, or considered by, the Tribunal. An authority on the subject one may refer to R.S. Munshi Gulab Singh and Sons v. Commissioner of Income Tax, Punjab (1), Commissioner of Income Tax v. Sindh Light Rly C., Ltd. (2) Anant Ram Kanhaitalal v. Commissioner of Income Tax, U.P. (3) G.M. Chenna Basappa v. Commissioner of Income Tax, Hyderabad (4), B, Guha & Co. v. Commissioner of Income Tax, Delhi (5) Jamna Dhar Potdar & Co., Lyallpur v. Commissioner of Income Tax, Punjab (6) and Commissioner of Income Tax, New Delhi v. Basumal Jagat Nrain (7).

17. It is the general practice for an assessee making an application under section 66(1) to. formulate the particular question or questions of law which he wishes to be referred to the High Court. It is true that this practice has developed more as a rule of convenience than as a rule of law, but even if the assessee was under no legal obligation to state the precise question of law on which he desires a reference, it will be his duty to indicate, as best as he can, the points which he wishes to agitate. The phrase "any question of law" appearing in subsection (1) cannot be interpreted to mean "all questions of law" which may theoretically arise out of the appellate order of the Tribunal. It seems to us that the subsection does not contemplate that the assessee is only to make a vague application to the Tribunal requesting it to refer to the High Court any or all questions of law that may arise out of its order, The assessee is the aggrieved party and it would be a reasonable interpretation of the subsection to assume, if not to insist, that the assessee would indicate the points of law which he wishes to be referred to the High Court.

18. the next step contemplated by this subsection is that the Appellate Tribunal shall within 90 days of the receipt of the assessee's application draw up a statement of the case and refer it to the High Court. It is clear that at the time of deciding whether or not a question of law arises and whether a reference should or should not be made to the High Court, the appellate Tribunal shall not only consider the precise questions which may be formulated by an assessee, but also those which may appear to arise on the submissions made by the assessee in his application. In other words the position seems to emerge clearly that the questions of law which the assessee desires to be referred to the High Court must either be formulated by him at the time of making his application or must he such as arise on the submissions made in his application, subject, of course, to the overriding condition mentioned earlier, viz., that they must arise out of the appellate order of the Tribunal."

After considering various judgments from the Indian jurisdiction it was held that if a question was not raised before the Tribunal in an application under subsection (1) of section 66 of the Act, Tribunal has not had an opportunity of expressing its opinion on that question, the High Court has no jurisdiction to entertain an application raising such questions. It was further held that if a question regarding double taxation of the same income was not raised before the Tribunal no such question can be raised before the High Court. No new question of law can be raised before the High Court. A new question on which there is no decision of the Appellate Tribunal cannot be subject-matter of decision by the High Court. It was further held that if a question was 'raised before the Tribunal but it was not pressed then it would be treated as if the question was never raised before the Tribunal.

The issue was considered by the 'Lahore High Court in the case of Messrs Odeon Cinema, Lahore v. Commissioner of Income Tax PLD 1971 Lah. 632. Reference Application submitted before the Tribunal was dismissed and the point sought to be referred was refused for the reason that question was not the subject of dispute before the Tribunal. The view taken by the Tribunal was approved and it was observed that, it has been held in numerous cases that no reference can be claimed from the Tribunal on a point, which is not raised before it. It was argued that any question of law arising out of the order of the Tribunal regardless to the fact that the point was directly raised or not if it was otherwise arising out of the Tribunal's order can be referred to the High Court. After referring to the judgments considered in the judgments of Hon'ble Supreme Court and erstwhile West Pakistan High Court already referred to in the judgments cited above, it was held that the jurisdiction of the High Court under section 66 is very limited in scope and merely advisory in nature. It was held that in the exercise of such special jurisdiction and discretion, a High Court is not to answer purely hypothetical and academic questions which are not material for the case and on the facts found will be of no help to the applicant; nor a reference should he called for when the answer of the alleged question of law is self-evident or is already covered by decisions of Courts on the subject. It was held that these are sound principles which inter-alia regulate the discretion of the High Court in deciding to call a reference from the Tribunal.

The expression "arising out of such orders" was considered once again by the Hon'ble Supreme Court in the case of Messrs Ahmad Karachi Halva v. Commissioner of Income Tax 1982 SCMR 489. In this case the Income Tax Appellate Tribunal refused to refer a question to the High Court for the reason that issue was raised in the grounds of appeal but it was never stressed before the Tribunal. The Tribunal further observed that when a matter is setup before Tribunal and it is not discussed in order no question relating to matter can be said to arise out of order. The assessee preferred reference application under section 66(2) of the Income Tax Act, 1922. The High Court rejected the application for the reason that the question sought to be raised pertained to an objection which was not raised at the time of hearing of the appeal by the Tribunal. It was contended that the objection was included in the ground of appeal to the Tribunal therefore, it can be said to arise from the order of the Tribunal for the purposes of section 66 of the Income Tax Act, 1922. It was submitted that this view was taken by Chagla, C.J. of the Bombay High Court and it found favour that High Court of Nagpur as well, but the Madras, Calcutta, Patna and Punjab High Courts had taken contrary view. It was held by the High Court that in view of the language of law it will not be sound to take view that an objection which was contained in the grounds of the appeal preferred to Tribunal but neither agitated during the hearing nor mentioned in the order can be said to be an objection arising from an order of the Tribunal. It was held that the Tribunal rightly declined to refer the question to the High Court. The matter was taken up to the Hon'ble Supreme Court. It was observed by the Hon'ble Supreme Court that the question simpliciter is - as to whether the question of law taken into memorandum of appeal but not pressed can be said to arise from the order of the Tribunal for the purposes of section 66 of the Income Tax Act. It was contended before the Hon'ble Supreme Court that the ground was not urged for consideration before the Tribunal but nonetheless it must be assumed to have arisen from the order of the Tribunal by implication. After examining various judgments from Indian and Pakistan jurisdiction, the Hon'ble Supreme Court observed that there was a preponderance of views in favour of the proposition that expression "arising out of such orders" in section 66(1) of the Income Tax Act, does not include within its concept a question of law which was raised but not argued or decided by-the Tribunal. By making reference to the earlier judgment of Hon'ble Supreme Court in the case of Muhammad Idrees Barry v. Commissioner of Income Tax (supra) it was held that it has not given any wider import to the expression and has confined it to a question of law which is dealt with by the Tribunal. It was ultimately held that the expression would not include a question of law, which was neither raised nor dealt with by the Tribunal. It was further held that even on the general principle, where a ground is taken but not pressed, it should be regarded as having been abandoned for all intents and purposes. The appeal was dismissed and the view taken by the High Court was upheld.

This point again came for consideration before the Supreme Court in the case of Collector of Customs v. Pakistan State Oil 2005 SCMR 1636. In this case it was contended before the Hon'ble Supreme Court that the High Court was not justified to consider the plea that the show-cause notice was time-barred as this objection was never raised before the Tribunal. It was further contended that the scope of section 196(1) of the Customs Act, is very limited. The legislature has left no discretion with the High Court, hearing the appeal against order passed under section 194-B of the Act, to hear such appeal on factual aspect of the case or any other legal issue unless such question of law arises out of the order of the Tribunal. It was also emphasized that while sitting in appeal against the order of Tribunal the High Court could not stretch its jurisdiction to include any such ground, which was not raised before the forum below. It was further pleaded that the nature of jurisdiction of High Court under section 196(1) of the Customs Act and Article 199 of the Constitution are different and in case of former the scope is very limited.

The Hon'ble Supreme Court held that the High Court can exercise its jurisdiction only in respect of questions of law arising out of the order under section 194-B of the Act. It was also held that the plea of limitation was not raised before the customs hierarchy and therefore, the High Court was not competent to consider such plea as it was neither raised before the Collector of Customs nor before the Tribunal. It was observed that there was no discussion on the point of limitation in the orders passed by the Collector Customs and the Tribunal. Question of limitation is a mixed question of law and fact and unless it is raised before the forum below, it cannot be agitated before the High Court. The Hon'ble Supreme Court held that it can be concluded that such question never arose from ,the order passed by the Tribunal. The dictum was further laid down that factual controversy is sorted out up to the level of Tribunal. Remedy under section 196 is restricted to legal points . only, which was not available to the assessee before the High Court.

Here it would be pertinent to observe that the provisions contained in section 196 of the Customs Act, 1969 are similar as contained in section 136 of the repealed income Tax Ordinance, 1979 and section 133 of the Income Tax Ordinance, 2001.

A review petition was filed before the Hon'ble Supreme Court against the above finding which was dismissed. The judgment is reported as Pakistan State Oil Co. Ltd. v. Collector of Customs 2006 SCMR 425. The Hon'ble Supreme Court reiterated that a question of law does not require investigation of facts and thus, the question involving factual inquiry into facts or to which answer cannot be given without going into facts is not a question of law.

This point was lastly considered by the Hon'ble Supreme Court in the case of Messrs Nida-I-Millat (Pvt.) Ltd. v. Commissioner of Income Tax 2006 SCMR 526. The Hon'ble Supreme Court again upheld the view that if a question of law was not raised, argued or decided by the Tribunal it could not be said to have arisen out of the order of Tribunal and therefore, any such point of law is not to be entertained and answered by the High Court.

From the above resume of case law the following principles emerge:---

1. Any person submitting reference application before the High Court under the direct tax law or indirect tax law is required to formulate the questions of law and no vague reference application is to be submitted.

2. The question of law formulated should arise out of the order of Tribunal meaning thereby that it was raised, pressed, argued and decided by the Tribunal or it was considered and finding was given by the Tribunal.

3. If any question of law is not raised before the Tribunal it could not be raised for the first time before the High Court.

4. If a question of law is raised before the Tribunal but it is not pressed it shall be deemed as if it was never raised.

5. The Tribunal is final fact finding authority and all the findings involving factual controversy attain finality with the decision of, the Tribunal and no point involving factual controversy can be subject-matter of reference application before the High Court.

6. If a point of law is not raised before the Tribunal but is raised in the reference application only it is not to be entertained and considered by the High Court.

7. The question of law raised before the High Court should involve substantial point of law requiring interpretation by the High Court and the points of law answer to which is clear and obvious, are not to be raised in reference application.

8. Once a question of law is admitted to regular hearing then the jurisdiction of High Court is confined to answer the point of law involved in said question and no other point of law is to be raised or entertained.

9. While dealing with the reference application the High Court exercises advisory jurisdiction which is very limited in scope, as compared to the constitutional jurisdiction and the appellate jurisdiction.

10. The reference application should contain the statement of facts as decided by the Tribunal. No new facts are to be inserted in the reference application .which were not raised before 'the Tribunal and were not considered and decided. The opinion. in exercise of advisory jurisdiction is to be given on the basis of facts, as decided by the Tribunal until and unless a question of law is raised on the point that the finding itself was violative of any provision of law.

11. No reference application is to be entertained on the points of law which already stand decided by the High Court or Hon'ble Supreme Court.

After hearing the learned Advocates for the parties, the reference was decided by a short order. These are the detailed reasons in support thereof.

M.B.A./G-15/K?????????????????????????????????????????????????????????????????????????????????? Reference answered.