FAUJI OIL TERMINAL AND DISTRIBUTION COMPANY LTD., KARACHI VS ADDITIONAL COMMISSIONER/TAXATION OFFICER-A, AUDIT DIVISION, KARACHI, 2006 PTD-KARACHI-HIGH-COURT-SINDH 734 (2006)

Jan. 24, 2006 KARACHI HIGH COURT SINDH 2006 PTD 734

2006 PTD-KARACHI-HIGH-COURT-SINDH 734

FAUJI OIL TERMINAL AND DISTRIBUTION COMPANY LTD., KARACHI VS ADDITIONAL COMMISSIONER/TAXATION OFFICER-A, AUDIT DIVISION, KARACHI

2006 P T D 734

[Karachi High Court]

Before Muhammad Mujeebullah Siddiqui and Khilji Arif Hussain, JJ

FAUJI OIL TERMINAL AND DISTRIBUTION COMPANY LTD., KARACHI

Versus

ADDITIONAL COMMISSIONER/TAXATION OFFICER-A, AUDIT DIVISION, KARACHI and 2 others

Constitution Petition No.D-378 of 2005, decided on 24/01/2006.

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

----Ss. 122(5), (5A), 120, 114, 115 & 153---Constitution of Pakistan (1973), Art.199---Constitutional petition---Notice under S.122(5A), Income Tax Ordinance, 2001---Validity---Scope of Ss.114, 115, 120, 122 & 152 of Income Tax Ordinance, 2001---Assessment years 2000-20001 and 2001-2002---Amendment of assessment---Scope---Jurisdiction under S.122(5A), Income Tax Ordinance, 2001 is revisional in nature and the jurisdiction under S.122(5) is original in nature which can be exercised by the Deputy Commissioner of Income Tax as well and the requirements of the two provisions being distinct to each other, coupled with the fact that the conditions precedent for exercise of the two jurisdictions are also entirely different and distinct---For the purpose of exercising revisional jurisdiction with reference to the conditions precedent prescribed in S. 122(5A) to the effect that the assessment order is erroneous and prejudicial to the interests of revenue, it is necessary that an assessment order should be in existence---Contention that for the purpose of exercising jurisdiction under S. 122(5A), it is necessary to have resort to S.122(5) was repelled---Principles.

Amin Textile Mills (Pvt.) Ltd. v. C.I.T. PTCL 2000 CL 316 and Honda Shahrahe Faisal v. Regional Commissioner of Income Tax and others C. P. No. D-643 of 2004 ref.

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

----Ss.114, 115, 122, 120 & 153---Presumptive Tax Regime---Notice under S.122(5A) Income Tax Ordinance, 2001-Validity-Assessment Year 2003-2004---No concept of any assessment order in the realm of Presumptive Tax Regime---Entire Presumptive Tax Regime revolves around taking the entire payment as income---Determination as to whether in the Presumptive Tax Regime, any assessment order of the nature which may be erroneous or prejudicial to the interests of revenue, was made---Considerations and principles elucidated---Non filing of return of income under S. 114, Income Tax Ordinance, 2001---Invoking of jurisdiction under S.122(5) of Income Tax Ordinance, 2001 by the Commissioner---Procedure---Conditions.?

Amin Textile Mills (Pvt.) Ltd, v. C.I.T. PTCL 2000 CL 316 and Honda Shahrahe Faisal v. Regional Commissioner of Income Tax and others C. P. No. D-643 of 2004 ref.

Khalid Anwar for Petitioner.

A.R. Akhtar for Respondents Nos. 1 and 2.

Date of hearing: 27th September, 2005.

JUDGMENT

MUHAMMAD MUJEEBULLAH SIDDIQUI, J.---The facts giving rise to this petition as contained in the Memo. of Petition are that the Fauji Oil Terminal and Distribution Company Limited (hereinafter referred to as 'FOTCO') is a joint venture entity sent up and sponsored by Fauji Foundation, for the purpose of financing, designing, constructing, maintaining and operating an oil terminal facility at Kadiro Creek, Port Muhammad 'Bin Qasim. The oil terminal has been set up under the Implementation Agreement, dated 8-12-1992, entered into between the petitioner and Port Qasim Authority. The oil terminal became operational on or about 18-4-1995. It is used for supply of oil to Pakistan. Ships carrying oil arrive at the terminal where the oil is off loaded using the petitioner's off loading facilities. It is stated that the payments received by the petitioner, pursuant to the Implementation Agreement are made by PQA alone. The third party shippers make payments directly and exclusively to PQA and the petitioner has no concern. The payments made to PQA under the Implementation Agreement are purely of contractual nature. In terms of the Implementation Agreement the petitioner is entitled to receive monthly payments from PQA which are referred to as the Throughput charges. The Throughput charges are computed and paid in the manner provided in the Implementation Agreement and are paid to PQA on the basis of Throughput of 330,000 tons of oil per month regardless to the amount of oil actually handled at the oil terminal. Thus, this payment is to be made to PQA even if no oil is handled by the petitioner during the relevant month. It is equally irrelevant whether the amount of oil handled is less or more than 330,000 tons per month. The petitioner is entitled only to the payment of Throughput charges. Further more, PQA is liable to make monthly payment of the throughput charges regardless of whether it has received payments from the third party shippers using the oil terminal facilities. The rate of 330,000 tons per month works out to about 4 million tons per-annum and Clause 5.1 of the Implementation Agreement expressly provides that in consideration of the petitioner undertaking the design, construction, operation, management and maintenance of the oil terminal, PQA undertakes to provide a Throughput of 4 Million tons oil per annum based on the Government of Pakistan Guarantee. The Government of Pakistan Guarantee is dated 29-12-1993.

2. It is averred in the petition that under section 50(4) of the Income Tax Ordinance, 1979, in case of payments on sale of goods, execution of contracts and services rendered, the person making the payment (known as the 'payer') was to deduct a specified amount while making the payment to the person receiving the same (known as the recipient). The amount so deducted, at source constituted payment of advance income tax by the recipient. When the income-tax payable by the recipient for the relevant year was finally assessed, the recipient was entitled to a suitable adjustment of the payments of income tax already made pursuant to section 50(4). The tax paid and assessed in this manner is commonly referred to as the 'normal tax regime.

3. Through Finance Act, 1991, section 80C was added to the 1979, Ordinance. Under this provision the payments received on which deduction was made under section 50(4) was deemed to be income and the tax was payable on this deemed income at the rates specified in the First Schedule. It is further provided in subsection (4) of section 80C, that if the assessee had no income other than the receipts being deemed to be income under section 80C, then the tax paid at the specified rates shall constitute final discharge of tax liability of the assessee. It is contended that the tax paid and assessed in terms as stated in section 80C is commonly referred to as the presumptive tax regime. According to petitioner section 80C did not apply to payment received in respect of rendering the services; which were excluded from the application of section 80C. Thus, section 80C and the Presumptive Tax Regime apply only to the payments made with reference to the sale of goods or the execution of contracts.

4. It is alleged that the foregoing provisions of 1979 Ordinance, i.e. section 50(4) and 80C, have been carried over to the Income Tax Ordinance, 2001, in all material respects and are now to be found in section 153 read with section 169 of the later Ordinance.

5. When the petitioner's oil terminal was commissioned, the 1979 Ordinance, was applicable. The payments received by the petitioner were liable to deduction of income tax at source in terms of section 50(4). It is pleaded that on a basic misunderstanding and misconception of the relevant provisions, the petitioner initially believed that section 80C was not applicable to it. Accordingly, when the petitioner started filing income tax returns (from the Assessment Year, 1995-96 onwards), it did so under the normal tax regime (initially the petitioner was being assessed at. Islamabad but now has been shifted to the Large Tax Payers Unit, Karachi). It is stated that the Income Tax Department however, was of the correct view that section 80C was applicable to the petitioner and therefore, it had to be assessed under the Presumptive Tax Regime. More specially the question was whether the payments being made in pursuance of the services rendered, or (which was the correct legal position) for the execution of contract. If, on a true and correct interpretation of the statutory provisions and their proper application to the relevant facts, if it was a case of rendering services, section 80C was inapplicable since it did not apply in respect of payments made for services rendered and tax had to be assessed under the normal tax regime. If however, the payments were made for the execution of the contract, then Presumptive Tax Regime was applicable. The petitioner was on a fundamental misconception of the statutory provisions and their proper application initially held the former view. The Income Tax Department, however, took the later view from inception.

6. The first assessment year applicable to the petitioner was 1995-96 and for the three assessment years, 1995-96 to 1997-98, the petitioner acting on a mistaken belief and misconception filed returns under the normal tax regime but was overruled and assessed by the relevant officer of the Income-tax Department under presumptive tax regime. The petitioner filed appeal against the aforesaid assessment, which was eventually heard and decided by the Income Tax Appellate Tribunal, by common order, dated 13-4-1999. The ITAT, concluded that section 80C was not applicable to the petitioner and therefore, it was not to be taxed under the Presumptive Tax Regime. It is alleged in the Memo of Petition that this view taken by the ITAT, was erroneous. The decision of the ITAT has been challenged by the Income Tax Department before the Lahore High Court and the appeal in this regard is pending adjudication.

7. Subsequently, upon a reappraisal of the entire matter and after receiving legal advise the petitioner accepted that the longstanding view of the Department was correct. By that time, the petitioner had already filed its return in respect of the assessment year 2000-2001 on the basis of its earlier mistaken belief that it was liable to be assessed under the normal tax regime. However, when the relevant Assessing Officer assessed the petitioner under the presumptive tax regime, vide order, dated 28-2-2001, the petitioner accepted the assessment as correct and did not pursue the matter further by way of appeal. Similarly the petitioner filed its return for the next assessment year i.e. 2001-2002 under the normal tax regime and presumptive tax regime as well and the Assessing Officer made assessment in terms of Presumptive Tax Regime by means of an order, dated 18-4-2002. No appeal was preferred, therefore, both these assessments attained finality. For the Assessment year 2002-2003 (last year in respect of which the assessment were made under the 1979 Ordinance), the petitioner filed return under the presumptive tax regime. The assessment was finalized by Respondent No.2, the Taxation Officer (III)/Deputy Commissioner of Income Tax, Audit Division, Large Tax Payers Unit, Karachi, vide order, dated 28-2-2005. This time, the Income-tax Department took a complete U turn, taking position that the petitioner was liable to be assessed under the normal tax regime and the provisions of section 80C are not applicable to the petitioner's case. This has been done notwithstanding the earlier position taken throughout by the Department that the petitioner was liable to be assessed under presumptive tax regime and had preferred appeals in this regard before the Lahore High Court. It is contended that the reversal of stance by the Department is contrary to law and of no legal effect. It is stated that for the next two years being taxed were tax year, 2003 and tax year, 2004 (in respect of which the 2001 Ordinance has become applicable), the petitioner again filed its returns in terms of the presumptive tax regime under the provisions contained in sections 153 and 169 of the 2001 Ordinance. It is urged that under section 120 of the 2001 Ordinance, the returns filed by the petitioner are to be regarded as assessments made by the relevant officer (i.e. the Commissioner or the officer to whom the relevant powers have been delegated). It is stated that the petitioner from time to time had some very small income from other sources also for which separate returns were filed. Respondent No. 1, issued show-cause notice on 12-3-2005 under section 122(5-A) of the Income Tax Ordinance, 2001, for the Assessment year 2000-2001, stating therein that the assessment record for the Assessment year 2000-2001 was called and examined. On the basis of examination the assessment order framed by DCIT under section 80-C of the Income Tax Ordinance, 1979, was found to be erroneous and prejudicial to the interest of Revenue because Clause (9C) of Part-IV of the Second Schedule to the Repealed Income Tax Ordinance, 1979, reads as under:

"The provisions of section 80C shall not apply in respect of payment received by a resident person for providing services by way of operation of container, or chemical or oil terminal at a sea-port in Pakistan or of an infrastructure project covered by the Government's Investment Policy, 1997."

It was further stated that in the light of above provisions operational receipts from the oil terminal were assessable in the normal course, however, instead of assessing the same in the normal course, the DCIT assessed the same under presumptive tax regime. The assessment framed by the DCIT is therefore, in violation of Clause (9C) of Part-IV of Second Schedule to the Repealed Income Tax Ordinance, 1979. It was also stated that taxation of operational receipts on presumptive basis has resulted in tax demand of Rs.67.403 million. Had the receipts been assessed in normal course the tax liability would have been Rs.222.685 million. Thus, DCIT by according wrong treatment has caused loss of Rs.155.282 million to the Revenue. The notice further contains that the erroneous assessment is prejudicial to the interest of Revenue therefore, the Respondent No.1, intends to amend the same under section 122(5A) of the Income Tax Ordinance, 2001.

8. Another notice of even date in respect of Assessment year, 2001-2002 was also received. It was stated that the assessment order was made under section 62/80C of the Income Tax Ordinance, 1979 and in the light of provisions contained in Clause (9C) of Part-IV of the Second Schedule to the Income Tax Ordinance, 1979, the operation receipts of the petitioner from the oil terminal were to be offered for normal taxation and the Taxation Officer was to assess the same, in the normal course. However, instead of filing normal return under section 56 of the Income Tax Ordinance, 1979, a receipts statement was filed under section 143-B of the Repealed Income Tax Ordinance, 1979, which was accepted by the Taxation Officer. Reference was given to the earlier orders of the Tribunal Islamabad and Karachi Benches to the effect that operational receipts of an oil terminal are in the nature of services rendered and is assessable in normal course and therefore, the petitioner was bound to offer operational receipts from oil terminal for normal taxation. It was also stated that from the Assessment year 1995-96 till Assessment year 2000-2001, the operational receipts from oil terminal were offered for normal taxation and that statement under section 143-B filed for the Assessment year 2001-2002 was a departure from the petitioner's instance. In case of normal taxation on the basis of declared accounting profit of Rs.517,871,752 the tax payable works out to Rs.222,684,853 which is much higher than the tax liability on the income declared and assessed under section 120 of the Income Tax Ordinance, 2001. It was further stated that the assessment made was erroneous and prejudicial to the interest of Revenue therefore, the Respondent No.1, intends to amend the same under section 122(5A) of the Income Tax Ordinance, 2001.

9. Similar notices were received for the tax years, 2003 and 2004. With reference to Clause 42 of Part-IV of the Second Schedule to the Income Tax Ordinance, 2001, which are similar to the provisions contained in Clause (9C) of Part-IV of the Second Schedule to the Repealed Income Tax Ordinance, 1979, it is pleaded that the only reason for taking U-turn on the part of the Department is their information to recover more tax from the petitioner which indicates of the mala fide on the part of Department.

10. The petitioner has challenged the show-cause notices and the assessment orders made in pursuance thereof without jurisdiction, void ab initio and contrary to law, and liable to be set aside on the following grounds:-

(1) The show-cause notices in respect of Assessment years 2000-2001 and 2001-2002 are wholly without jurisdiction. The assessment in respect of these years were made under the 1979 Ordinance and the assessment were finalized on 28-2-2001 and 18-4-2002 respectively. Reliance has been placed in this behalf on the judgments of Lahore High Court in the case of Monnoo Industries Ltd., v. Commissioner of Income Tax Central Zone (2001) 84 Tax 86 and by a Division Bench of this Court, dated 2-3-2005 in C.P. No.D-643/2004 Honda Shahree Faisal v. Regional Commissioner of Income Tax and others, wherein it has been held that the provisions contained in section 122(5-A) of 2001 Ordinance, does not apply to assessment finalized before 30th June, 2003 and any action purported to be taken under the aforesaid provisions in respect of such assessments were without jurisdiction, illegal and void ab initio.

(2) In each of the notices (except the one relating to the assessment year 2000-2001, the assessments are sought to be re-opened on the basis, inter alia, of the ITAT decision, dated 13-4-1999, which according to petitioner is fundamentally incorrect. It is contended that the Department itself does not agree with the view of the Tribunal and therefore, has preferred the appeal before the Lahore High Court, which is still pending. It is alleged that recourse can be made to section 122(5A) if, the concerned officer is satisfied that the relevant order is erroneous and is prejudicial to the interest of Revenue. When the Department has not agreed with the decision of ITAT, it cannot hold, on the basis of such decision that the assessment is erroneous. Several issues pertaining to the applicability of presumptive tax regime have been raised but we do not propose to consider the issues in this petition for the reason that it is likely to prejudice case of the petitioner or Department. Such contentions can be considered in any other properly constituted proceedings. However, it would be appropriate to observe that the petitioner has left no stone unturned in assailing the validity of the Tribunal's order in favour of petitioner, by accepting the contentions raised by the petitioner and repelling the earlier point of view of the Department.

11. It is also contended in the petition that Clause (9C) of Part-IV of the Second Schedule to the Income Tax Ordinance, 1979, and similar provisions contained in Clause 42 of Part-IV of the Second Schedule to the Income Tax Ordinance, 2001, are ultra vires. This point has not been pressed at the time of arguments by the learned counsel for the petitioner and therefore, we do not propose to examine this aspect.

12. The petitioner has sought declaration that all the show-cause notices, dated 12-3-2005 in respect of assessment year 2000-2001 and 2001-2002 and the tax years, 2003 and 2004 and the assessment, dated 28-2-2005, for the assessment year 2002-2003 are unlawful, void ab initio, without legal effect and liable to be quashed and set aside as such.

13. Further declaration has been sought in respect of vires of Clause (9C) of Part-IV of the Second Schedule to the Income Tax Ordinance, 1979 and Clause 42 of Part-IV of the Second Schedule to the Income Tax Ordinance, 2001. However, as already observed this issue was not pressed at the time of arguments therefore, it requires no consideration. A permanent restraint order against the respondents and direction for refund of any amount as has been collected from the petitioner has also been sought but these reliefs have not been pressed at the time of arguments.

14. Parawise comments have been filed on behalf of Respondent No.1, wherein it is stated that the oil terminal is on build, own and operate basis, therefore, the payments being made cannot be termed as payments towards the project cost. It is alleged that the payment on the basis of guaranteed throughput of 4 million tons per annum is a proof of the fact that the payments constituted operational revenue in the hands of the company. It is also contended that the payments being made to the petitioners are in the nature of fixed guaranteed return on the investment made by the petitioner and as such are not contractual receipts. According to Respondent No.1, in the case of Oil Refineries such guaranteed returns are being taxed in normal course as business receipts. It is also stated that it is immaterial as to whether payments are being made by third party shippers or PQA and it is the nature of the payment that matters. The payments being made to the company by PQA are for services rendered by way of operation of oil terminal. It is because of the guaranteed payment by the PQA that the company is rendering services to third party shippers. It is also alleged that the petitioner has received payments directly as well from, the shippers i.e. Messrs B.P. Pakistan Exploration and Production for handing crude oil at the company's terminal during the Assessment year 2002-2003. It is averred that the decision of ITAT is fully applicable to the company. It is stated that the Department was initially of the view that the receipts of the petitioner were contractual receipts and therefore, it was taxed under presumptive tax regime under section 80C of the 1979 Ordinance. The petitioner filed appeals and at their behest the ITAT held that the receipts are in the nature of services rendered and fall out of the ambit of section 80C of presumptive tax regime. The ITAT directed to assess the income of petitioner under the normal law. It is also stated that the Department filed reference application before the Rawalpindi Bench of Lahore High Court for the Assessment years 1995-96, to 1997-98. However, for the Assessment year 1998-99 onwards no appeal has been filed by the Department in the similar set of circumstances. It is also stated that the law was amended and Clause (9C) was inserted in Part-IV of the Second Schedule to the Repealed Income Tax Ordinance, 1979, through S.R.O. 55(I)/2000, dated 10-2-2000. This clause excluded the Oil, Chemical Container Terminal operators from the applicability of section 80C of Repealed Income Tax Ordinance, 1979. As a consequence, the above enactment in law with effect from Assessment year 2000-2001, the assessment in the case of oil, chemical and container terminal operator was required to be made under the normal law. Reference has been made to the order of Tribunal in the case of Messrs Engro Vopak Terminal Limited, Karachi. It is alleged that after the amendment in law the assessments were required to be made under the normal law with effect from 2000-2001. Hence the assessment for the Assessment year 2002-2003 was correctly made under the normal law. It is pleaded that the Department has erroneously finalized the assessment for the year, 2000-2001 under section 80C, which was contrary to the provisions of Clause (9C) of Part-IV of Second Schedule to the Income Tax Ordinance, 1979 and such assessments were erroneous as well as prejudicial to the interest of Revenue. It is maintained that the Respondent No.1 has rightly issued notice under section 122(5A) of Income Tax Ordinance, 2001 to amend the assessment order for the loss of Revenue. Similarly the assessments deemed to be finalized under' section 120 of Income Tax Ordinance, 2001 for the tax year, 2003 and 2004 were also erroneous and prejudicial to the interest of Revenue being violative of Clause 42 of Part-IV of Second Schedule to the Income Tax Ordinance, 2001. It is stated that for the Assessment year 2002-2003 the order has already been passed on 28-2-2005 against which the taxpayer has filed the appeal before Commissioner(A) which is pending adjudication. It is alleged that the petition in respect of Assessment year 2002-2003 is against the principles laid down by the Hon'ble Supreme Court in the case of Amin Textile Mills (Pvt.) Ltd. v. CIT, PTCL 2000 CL 316.

15. In reply to the discussion on the point of law in the Memo. of Petition, the Additional Commissioner has also expressed his view, which shall be considered while appreciating the contentions raised by the learned Advocates for the parties at the time of arguments.

16. We have heard Mr. Khalid Anwar, learned counsel for the petitioner and Mr. A.R. Akhtar, learned counsel for the respondent.

17. Mr. Khalid Anwar, has submitted that show-cause notices under section 122(5A) of the Income Tax Ordinance, 2001 have been issued for the Assessment years 2000-2001, 2001-2002, tax year, 2003 and tax year, 2004. We would like to observe here that in the prayer clause (a) the assessment order for the assessment year 2002-2003 has also been challenged as null and void. The assessment for the Assessment year 2002-2003 has been made on 28-2-2005 and admittedly an appeal has been preferred against the said assessment order before the CIT(A) which is still pending. There is no show-cause notice for amendment of assessment for the Assessment year 2002-2003, therefore, we will not advert to the legality or otherwise of the assessment for the Assessment year 2002-2003, CIT(A) shall decide the appeal on merits and any party aggrieved with his order shall have the right to prefer the appeal before the ITAT and any party aggrieved with the order of ITAT has the right to file reference application before this Court, Mr. Khalid Anwar has submitted that so far, show-cause notices for the assessment years 2000-2001 and 2001-2002 are concerned, this Court has already held in Constitutional Petition No. D-643 of 2004. Honda Shahrah-e-Faisal v. Regional Commissioner of Income Tax, that subsection (5A) has been inserted in section 122 of the Income Tax Ordinance, 2001 with effect from 1-7-2003 and is not retrospective in operation. Consequently, the assessments finalized before 1-7-2003 cannot be reopened/revised/amended in exercised of jurisdiction under this provision. He has submitted that admittedly the assessment orders for the Assessment years 2000-2001 and 2001-2002 were passed on 28-2-2001 and 18-4-2002 respectively, therefore, the impugned notices for these two assessment years are without jurisdiction illegal and void ab initio and are liable to be quashed.

18. Mr. Khalid Anwar has further dilated at length about the source of income earned by the petitioner. As already observed there is very interesting circumstances in this case, as both the parties have made a U-turn from their earlier views and have taken a complete somersault. Initially the plea of the petitioner was that they were rendering services and consequently, the income earned from providing services, did not fall under the Presumptive Tax Regime, covered under section 80C of the Income Tax Ordinance, 1979. The petitioner had filed return of income under section 55 of the Income Tax Ordinance, 1979 with the plea that they were to be assessed under the normal tax regime. The departmental view was that the petitioner was earning income from execution of contract and therefore, the income earned by the petitioner fell under Presumptive Tax Regime, and was covered by section 80C of the Income Tax Ordinance, 1979. In the Assessment years 1995-96 to 1997-98, the petitioner filed returns of total income under the normal tax regime but the Assessing Officer held in all the three assessment years that the income earned by the petitioner was covered under the Presumptive Tax Regime. The petitioner filed appeals against the orders holding that the income-tax covered by the Presumptive Tax Regime. The appeals were accepted by the ITAT and it was held that the income earned by the petitioner was not covered under section 80C of the Income Tax Ordinance, 1979 and did not fall under the Presumptive Tax Regime. The Income Tax Department challenged the order of ITAT in Lahore High Court, where the appeals are pending. From the Assessment year 2000-2001, the petitioner changed its view. According to the averments in the memo of petition, the earlier view of the petitioner was based on mistaken belief and the view taken by the departmental officer was correct. It is also alleged that the view taken by ITAT was erroneous. Thus, for the Assessment years 2000-2001 and 2001-2002, the petitioner accepted the assessments made under Presumptive Tax Regime and did not prefer any appeal against the said order, although in both these years the returns of total income were filed under section 55 of the income Tax Ordinance, 1979 under the normal tax regime. For the Assessment year 2002-2003 also the return of total income was filed in accordance with the consistent practice of the petitioner and the assessment has been completed under section 62 of the Income Tax Ordinance, 1979 under normal law vide assessment order dated 28-2-2005. An appeal against the assessment under normal law is pending before the CIT(A). For the tax years 2003 and 2004 covered under the Income Tax Ordinance, 2001, the petitioner is alleged to have filed returns in terms of presumptive tax regime under sections 153 and 169, (although under the Presumptive Tax Regime, no return is required to be filed and merely a statement showing particulars relating to a person's income for the tax year is required to be filed under section 115(4) of the Income Tax Ordinance, 2001, and as provided under section 169 an assessment is treated to have been made under section 120 of the Income Tax Ordinance, 2001). A resume of the assessment history has been given for the reason that the issue is under consideration with the Departmental Officer and we would not like to give any finding in this petition whether the income earned by the petitioner is to be assessed under Presumptive Tax Regime or the Normal Tax Regime. As and when the matter comes before us in reference, after decision of appeal by the ITAT, this point shall be considered.

19. We will confine our decision to the validity of the notices issued by the respondent No.1, under section 122(5A) of the Income Tax Ordinance, 2001 and consequently, we have requested the learned Advocates to restrict their arguments on this point only and our decision shall also be confined to this limited issue. Assailing the validity of impugned show-cause notices under section 122(5A) of the Income Tax Ordinance, 2001, Mr. Khalid Anwar, contended that issuance of notice under subsection (5) of section 122 is a condition precedent for issuance of notice under section 122(5A) of the Income Tax Ordinance, 2001. He has further contended that before invoking jurisdiction under sub-section (5A) of section 122 of the Income Tax Ordinance, 2001, the Commissioner is required to consider and decide if subsection (5) of section 122 is applicable and if so, notice is to be issued under section 122(5) and not under section 122(5A). Dilating on the point further Mr. Khalid Anwar, argued that for the purpose of invoking jurisdiction under section 122(5) of the 2001 Ordinance, the following conditions are to be satisfied:-

(a) There should be a definite information acquired from an audit or otherwise or information received as defined in subsection (8) of section 122;

(b) An income chargeable to tax has escaped the assessment; or

(c) Total income has been under assessed, or assessed at too low a rate, or has been the subject to excessive relief or refund; or

(d) Any amount under a head of income has been misclassified.

20. He has thereafter taken us to the contents of impugned notices and has urged that according to these notices, the income earned by the petitioner has been assessed at too low a rate and therefore, fall within the ambit of subsection (5) of section 122.

21. In the alternative, he has argued that in the Assessment years 1995-1996, 1996-97, 1997-98, 1998-99, 1999-2000, 2000-2001 and 2001-2002 petitioner filed returns of total income but for the tax years, 2003 and 2004 did not file any return of total income but merely filed the statements as provided under subsection (4) of section 115 with the result that the tax deducted under section 153(1) of the Income Tax Ordinance, 2001, became a final tax on the income of the petitioner. The income was thus, not assessed, consequently, the income escaped the assessment and therefore, the Commissioner was required to issue a notice under subsection (5) of section 122 and not under subsection (5A) of section 122 because there was no assessment order.

22. On the other hand Mr. A.R. Akhtar, learned counsel for the Respondents Nos.1 and 2, has supported the issuance of impugned notices. He has submitted that there is no illegality in the issuance of notices under section 122(5A) of the Income Tax Ordinance, 2001. However, he was not able to deny that this Court has already held in the case of Honda Shahrah-e-Faisal v. Regional Commissioner of Income Tax, that subsection (5A) of section 122 of the Income Tax Ordinance, 2001 inserted with effect from 1-7-2003 is not applicable to the assessments finalized before 1-7-2003 because subsection (5A) of section 122 has no retrospective effect and therefore, the assessments finalized before 1-7-2003 cannot be reopened/revised/amended in exercise of jurisdiction under section 122(5A) of the Income Tax Ordinance, 2001.

23. We have carefully considered the contentions raised by the learned Advocates for the parties and the material placed on record. It is admitted position that the assessments for the Assessment years 2000-2001 and 2001-2002 were finalized before 1-7-2003 and consequently, in view of our earlier judgment in the case of Honda Shahrahe Faisal v. Regional Commissioner of Income, dated 2-3-2005, in C.P. No. D-643 of 2004, it is held that the impugned notices under section 122(5A) of the Income Tax Ordinance, 2001 are without jurisdiction, illegal and void ab initio, which are hereby quashed.

24. Now we take up the notices pertaining to the tax years 2003 and 2004.

25. We are not impressed with the contention of Mr. Khalid Anwar, learned counsel for the petitioner that before exercising jurisdiction under section 122(5A) it is incumbent on the Commissioner to invoke jurisdiction under subsection (5), in the first instant and decide whether a notice under this provision is to be issued and in the case of negative finding in this regard can resort to the jurisdiction vested under subsection (5A). We however, agree with the first part of the alternative plea taken by Mr. Khalid Anwar to the effect that in the facts and circumstances of the case, the Respondent No.1, was not justified in issuing notice under subsection (5A) of section 122, but do not agree with the second part, that Commissioner ought to have resorted to subsection (5) of section 122 on fulfilment of the conditions specified in the section.

26. Before assigning reasons for the above view held by us, it would be appropriate to reproduce one out of the two notices issued for the tax years 2003 and 2004, because the two notices are identical, and then to reproduce the relevant provisions contained in sections 114, 115(1)(4), 120, 122, 153(1) & (6) and section 169.

Notice for Tax Year 2003

"OFFICE OF THE

ADDITIONAL COMMISSIONER/TAXATION OFFICER-A

AUDIT DIVISION, LARGE TAXPAYERS UNIT, KARACHI

No. AC/TO-A/AUDIT DIV/LTU/2004-2005

Dated 12-3-2005.

The Principal Officer,

Messrs Fauji Oil Terminal &

Distribution Company Limited,

C/O Taseer Hadi Khalid and Co. (CA)

First Floor, Sheikh Sultan Trust Bldg. No.2,

Beaumont Road, Karachi.

SUBJECT:--?? SHOW-CAUSE NOTICE UNDER SECTION 122 (5A) OF THE INCOME TAX ORDINANCE, 2001 FOR THE TAX YEAR, 2003.

Kindly refer to the subject noted above.

Your assessment record for the Tax year, 2003 was called for and examined by me. On the basis of examination the assessment order taken to have been made under section 120 of the Income Tax Ordinance, 2001 was found to be erroneous and prejudicial to the interest of Revenue because:

(i) Clause 42 of Part-IV of the Second Schedule to the Income Tax Ordinance, 2001 reads as under:--

"The provisions of subsection (6) of section 153 shall not apply in respect of payments received by a resident person for providing services by way of operation of container or chemical or oil terminal at sea-port in Pakistan or of an infrastructure project covered by the Government's Investment Policy, 1997."

In the light of above provisions operational receipts from the oil terminal were to be offered by you for normal taxation and the Taxation Officer was to assess the same in normal course, however, instead of filing a normal return of income under section 114 of the Income Tax Ordinance, 2001 in respect of operational receipts statement of final taxation was filed by you under section 115(4) of the Repealed Income Tax Ordinance, 2001 which stands accepted- by the Taxation Officer under section 120 of the Income Tax Ordinance, 2001.

(ii) I.T.As. Nos. 728 to 732, 609 and 610 (IB) of 1998-99 and 1997-98 of ITAT Karachi vide which it has been held that the operational receipts of an oil terminal are in the nature of services rendered assessable in normal course being binding on you, you were legally bound to offer operational receipts from oil terminal for normal taxation.

(iii) Right from assessment year 1995-1996 till assessment year 2000-2001 you have been offering the operational receipts from oil terminal for normal taxation. Statement of final taxation filed relevant to tax year, 2003 is therefore, a departure from your own stance.

(iv) On the basis of other income declared as per return of income and statement of final taxation tax payable works out at Rs.61,066,827. In case of normal taxation even on the basis of declared accounting profit of Rs.701,881,703 and without making any adjustment in the accounting profit for computing income for tax ,purpose the tax payable on accounting profit works out at Rs.317,354,785 which is much higher than the tax liability on the income declared and assessed under section 120 of the Income Tax Ordinance, 2001.

As the erroneous assessment is prejudicial to the interest of Revenue therefore, the undersigned intends to amend the same under section 122(5A) of the Income Tax Ordinance, 2001. Objection if any, on, the intended treatment duly supported by documentary evidence may please be furnished to this office by 21-3-2005 positively.

As only the working of accounting profit has been provided by you and the computation of tax profit has not been submitted therefore, it appears that the excess perquisites, donations, depreciation and financial charges on leased assets and other expenses which are inadmissible as per the provisions of the Income Tax Ordinance, 2001 have not been added back in the accounting profit to arrive at profit for tax purpose. It is therefore requested that computation for tax purpose may also be submitted on due date.

Prescribed Notice under Rule 68 of Income Tax Rules, 2002 is also enclosed which may be read as part of this notice.

?? ???????? ?????????????????(Sd.)

??????????? (Mahfuz-ur-Rehman Pasha)

Additional Commissioner/Taxation Officer-A,

????? (Audit Division, LTU, Karachi)."

Section 114. Return of income.---(1) Subject to this Ordinance, the following persons are required to furnish a return of income for a tax year, namely:--

(a) every company;

(ab) every person (other than a company)

whose taxable income for the year exceeds the maximum amount that is not chargeable to tax under this Ordinance for the year;

(i) has been charged to tax in respect of any of the two preceding tax years;

(ii) claims a loss carried forward under this Ordinance for a tax year;

(iii) owns immovable property with a land area of two hundred and fifty square yards or more or owns any flat located in areas falling within the municipal limits existing immediately before the commencement of Local Government Laws in the Provinces; or areas in a Cantonment; or the Islamabad Capital Territory.

(2) A return of income."

(a) shall be in the prescribed form and shall be accompanied by such annexures, statements or documents as may be prescribed;

(b) shall fully state all the relevant particulars or information as specified in the form of return, including a declaration of the records kept by the taxpayer; and

(2A) A return of income filed electronically on the web or any magnetic media or any other computer readable media as may be specified by the Board shall also be deemed to be a return for the purpose of subsection (1); and the Board may, by notification in the official Gazette, make rules for determining eligibility of the data of such returns and e-intermediaries who will digitize the data of such returns and transmit the same electronically to the Income Tax Department under their digital signatures.

(3) The Commissioner may, by notice in writing require a person, or person's representative, as the case may be, to furnish a return of income by the date specified in the notice for a period of less than twelve months, where---

(a) the person has died;

(b) the person has become bankrupt or gone into liquidation;

mitted

(e) the commissioner otherwise considers it appropriate to require such a return to be furnished.

(4) Subject to subsection (5), the Commissioner may, by notice in writing, require any person who, in the Commissioner's opinion, is required to file a return of income under this section for a tax year or assessment year but who has failed to do so to furnish a return of income for that year within thirty days from the date of service of such notice or such longer period as may be specified in such notice or as the Commissioner may allow.

(5) A notice under subsection (4) may be issued in respect of one or more of the last five completed tax years or assessment years.

(6) Any person who, having furnished a return, discovers any omission or wrong statement therein, may furnish a revised return within five years of the date that the original return was furnished.

(7) Every return purporting to be made or signed by, or on behalf of a person shall be treated as having been duly made by the person or with the person's authority until the person proves the contrary.

Section 115. Persons not required to furnish a return of income.

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

(3)??????? -------------

(4) Any person who is not obliged to furnish a return for a tax year because all the person's income is subject to final taxation under sections 5, 6, 7, 113A, 113B, 148, 153, 154, 156, 156A, subsection (3) of section 233, clause (a) and clause (b) of subsection (1) of section 233A or subsection (5) of section 234 shall furnish to the Commissioner a statement showing such particulars relating to the person's income for the tax year in such form and verified in such manner as may be prescribed.

Section 120. Assessments.---(1) Where a taxpayer has furnished a complete return of income (other than a revised return under subsection (6) of section 114) for a tax year ending on or after the 1st day of July, 2002;--

(a) the Commissioner shall be taken to have made an assessment of taxable income for that tax year, and the tax due thereon, equal to those respective amounts specified in the return; and

(b) the return shall be taken for all purposes of this Ordinance to be an assessment order issued to the taxpayer by the Commissioner on the day the return was furnished.

(1A) Notwithstanding the provisions of subsection (1), the Commissioner may select a person for an audit of his income tax affairs under section 177 and all the provisions of that section shall apply accordingly.

(2) A return of income shall be taken to be complete if it is in accordance with the provisions of subsection (2) of section 114.

(3) Where the return of income furnished is not complete, the Commissioner shall issue a notice to the taxpayer informing him of the deficiencies (other than incorrect amount of tax payable to taxable income, as specified in the return, or short payment of tax payable) and directing him to provide such information, particulars, statement or documents by such date specified in the notice.

(4) Where a taxpayer fails to fully comply, by the due date, with the requirements of the notice under subsection (3), the return furnished shall be treated as an invalid return as if it had not been furnished.

(5) Where, in response to a notice under subsection (3), the taxpayer has, by the due date, fully complied with the requirements of the notice, the return furnished shall be treated to be complete on the day it was furnished and the provisions of subsection (1) shall apply accordingly.

(6) No notice under subsection (3) shall be issued after the end of the financial year in which return was furnished, and the provisions of subsection (1) shall apply accordingly.

Section 122. Amendment of assessments.---(1) subject to this section, the Commissioner may amend an assessment order treated as issued under section 120 or issued under section 121 or issued under section 59, 59A, 62, 63 or 65 of the repealed Ordinance, by making such alternations or additions as the Commissioner considers necessary.

(2) An assessment order shall only be amended under subsection (1) within five years after the Commissioner has issued or is treated as having issued the assessment order on the taxpayer.

(3) Where a taxpayer furnishes a revised return under subsection (6) of section 114--

(a) the Commissioner shall be treated having made an amended assessment of the taxable income and tax payable thereon as set out in the revised return; and

(b) the taxpayer's revised return shall be taken for all purposes of this Ordinance to be an amended assessment order issued to the taxpayer by the Commissioner on the day on which the revised return was furnished.

(4) Where an assessment order (hereinafter referred to as the "original assessment") has been amended under subsection (1) or (3), the Commissioner may further amend, as many times as may be necessary, the original assessment within the later of---

(a) five years after the Commissioner has issued or is treated as having issued the original assessment order to the taxpayer; or

(b) one year after the Commissioner has issued or is treated as having issued the amended assessment order to the taxpayer.

(4A) In respect of an assessment made under the repealed Ordinance, nothing contained in subsection (2) or, as the case may be, subsection (4) shall be so construed as to have extended or curtailed the time limit specified in section 65 of the aforesaid Ordinance in respect of an assessment order passed under that section and the time-limit specified in that section shall apply accordingly.

(5) An assessment order in respect of a tax year, or an assessment year, shall only be amended under subsection ,(1) and an amended assessment for that year shall only be further amended under subsection (4) where, on the basis of definite information acquired from an audit or otherwise, the Commissioner is satisfied that:

(i) any income chargeable to tax has escaped assessment; or

(ii) total income has been under assessed, or assessed at too low rate, or has been the subject of excessive relief or refund; or

(iii) any amount under a head of income has been misclassified.

(5A) subject to subsection (9), the Commissioner may amend, or further amend, an assessment order, if he considers that the assessment order is erroneous insofar it is prejudicial to the interest of Revenue.

(5B) any amended assessment order under subsection (5A) may be passed within the time-limit specified in subsection (2) or subsection (4), as the case may be.

(6) As soon as possible after making an amended assessment under subsection (1), subsection (4) or subsection (5A), the Commissioner shall issue an amended assessment order to the taxpayer stating

(a) the amended taxable income of the taxpayer;

(b) the amended amount of tax due;

(d) the time, place, and manner of appealing the amended assessment.

(7) An amended assessment order shall be treated in all respects as an assessment order for the purposes of this Ordinance, other than for the purposes of subsection (1).

(8) For the purposes of this section, "definite information" includes information on sales or purchases of any goods made by the taxpayer, receipts of the taxpayer from services rendered or any other receipts that may be chargeable to tax under this Ordinance, and on the acquisition, possession or disposal of any money, asset, valuable article or investment made or expenditure incurred by the taxpayer.

(9) No assessment shall be amended, or further amended, under this section unless the taxpayer has been provided with an opportunity of being heard.

Section153. Payments for goods and services.--(1) Every prescribed person making a payment in full or part including a payment by way of advance to a resident person or permanent establishment in Pakistan of a non-resident person.

(a) for the sale of goods;

(b) for the rendering of or providing or services;

(c) on the execution of a contract, other than a contract for the sale of goods or the rendering of or providing of services

shall, at the time of making the payment, deduct tax from the gross amount payable at the rate specified in Division III of Part-III of the First Schedule.

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(6) The tax deducted under this section shall be a final tax on the income-of a resident person arising from transactions referred to in clause (a) or (c) of subsection (1).

Section 169. Tax collected or deducted as a final tax.---(1) This section shall apply where--

(a) the collection of advance tax is a final tax under subsection (7) of section 148 or subsection (5) of section 234 on the income to which it relates; or

(b) the deduction of tax is a final tax under subsection (6) or (7) of section 153, subsection (4) of section 154, subsection (3) of section 156 subsection (2) of section 156A of subsection (1) and (3) of section 233 or clause (a) and clause (b) of subsection (1) of section 233A on the income from which it has been deducted.

(2) where this section applies."

(a) the income shall not be chargeable to tax under any head of income in computing the taxable income of the person;

(b) no deduction shall be allowable under this Ordinance for any expenditure incurred in deriving the income;

(i) any deductible allowance under Part-IX of Chapter III; or

(ii) the set off of any loss;

(d) the tax deducted shall not be reduced by any tax credit allowed under this Ordinance; and

(e) there shall be no refund of the tax collected or deducted unless the tax so collected or deducted is in excess of the amount for which the taxpayer is chargeable under this Ordinance.

(3) Where all the income derived by a person in a tax year is subject to final taxation under the provisions referred to in subsection (1) or under sections 5, 6 and 7, an assessment shall be treated to have been made under section 120 and the person shall not be required to furnish a return of income under section 114 for the year."

27. A perusal of the above provisions shows that in substance they have been mainly copied out from the Repealed Income Tax Ordinance, 1979, with the difference that the drafting of the repealed Income Tax Ordinance, 1979 was much better and clear than the drafting of law contained in the Income Tax Ordinance, 2001. The scheme of law contained in the Income Tax Act, 1922 and Repealed Income Tax Ordinance, 1979 were clear and unambiguous while the provisions contained in the Income Tax Ordinance, 2001 are confusing on account of obvious ineptness, lack of dexterity and lack of clarity on the part of draftsman. In the Repealed Income Tax Ordinance, 1979, it was provided in section 66-A analogous to subsection (5A) of section 122 of the Income Tax Ordinance, 2001, that the Inspecting Additional Commissioner may call for an examine the record of any proceeding under the Ordinance and if considers that any order passed therein by the Deputy Commissioner is erroneous he may after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deemed necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling a assessment or directing a fresh assessment to be made. In the Income Tax Ordinance, 2001, this power has been conferred under subsection (5A) of section 122 on the Commissioner who may amend or further amend an assessment or if he considers that the assessment order is erroneous insofar it is prejudicial to the interest of Revenue. If this provision is compared with the provision contained in section 66-A of the Repealed Income Tax Ordinance, 1979, it appears that the provision contained in section 66-A of the Repealed Ordinance, was more elaborate and clear and was more comprehensive empowering the IAC to pass such orders thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment to be made. On the other hand, subsection (5A) of section 122 is ambiguous and appears to be more limited in its scope. It provides that the Commissioner may amend or further amend an assessment order, if he considers that the assessment order is erroneous insofar it is prejudicial to the interest of revenue. It does not empower Commissioner to cancel the assessment and direct a fresh assessment to be made. It is limited to the amendment and further amendment in the assessment order. As already observed the power under section 66-A of the Repealed Income Tax Ordinance, 1979 was vested in IAC and the power was in the nature of revision. Under subsection (5A) of section 122 of the Income Tax Ordinance, 2001, this power is vested in Commissioner and under section 2(16), Commissioner has been defined to mean a person appointed as Commissioner of Income Tax under section 208 and includes a Taxation Officer vested with all or any of the powers and functions of the Commissioner. The expression Taxation Officer has been defined in section 2(65) to mean, any Additional Commissioner of Income Tax, Deputy Commissioner of Income Tax, Assistant Commissioner of Income Tax, Income Tax Officer, Special Officer, or any other officer, however, designated, appointed by the Central Board of Revenue for the purpose of this Ordinance. In section 209(2) it is provided that the C.B.R. or a Regional Commissioner may by an order confer upon or assign to Taxation Officer all or any of the powers and functions conferred upon or assigned to Commissioner under this Ordinance in respect of any person or persons or classes of persons or areas as may be specified in the order. It is further provided in subsection (4) of section 209 that the Taxation Officer under subsection (2) shall for the purpose of this Ordinance be treated as the Commissioner. Originally it was provided in section 210(1) that the Commissioner may, by an order in writing delegated to any Taxation Officer all or any of the powers or functions conferred upon or assigned to the Commissioner under this Ordinance, other than the power of delegation, It was further provided in section 211 that where by virtue of an order under section 210 a Taxation Officer exercises a power or performs such power and function shall be treated as having been exercised or performed by the Commissioner. As already observed, the Income Tax Ordinance, 2001 is a very badly drafted document and has in fact distorted the entire law and scheme of the Income Tax in this country, which prior to the coming into force of Income Tax Ordinance, 2001 was very clear. The provisions referred to above, started creating confusion. In several cases the Commissioners of Income Tax delegated the powers under section 122(5A) to the Taxation Officers of the level of DCIT with the result that ambiguous situation was created. Complaints started pouring, in with the C.B.R. which took notice of the fact and .issued instructions vide Circular No.2(1)S. Asst./2002, dated 18-5-2004 observing that the situation has created ambiguity about the exercise of powers under section 122(5A), which was resulting in uncertainty amongst the taxpayers, and Bars alike. The Commissioners of Income Tax were therefore, advised to delegate powers under section 122(5A) of, the said Ordinance to the Taxation Officer at the level of Additional Commissioner (IACs). They were further advised to remain discrete in exercising such powers and, it was further directed that the powers delegated to the Deputy Commissioners Income Tax must be withdrawn forthwith. Subsection (5A) of section 122 was inserted by Finance Act, 2003, and on account of the provisions in the Income Tax Ordinance, 2001, that powers of Commissioner can be exercised by any Taxation Officer, whom the authority is delegated, so much confusion was created that subsection (1) of section 210 was amended by the Finance Act, 2004, whereby the power of the Commissioner to delegate his powers and functions was made subject to subsection (1A) and a new subsection (1A) was inserted which provided that the Commissioner shall not delegate the powers to amend any assessment contained under sub-section (5A) of section 122 to a Taxation Officer below the rank of Additional Commissioner of Income Tax. The result was that to some extent the jurisdiction under subsection (5A) of section 122 of the Income Tax Ordinance, 2001 was brought at par with the jurisdiction conferred on IAC under section 66-A of the Income Tax Ordinance, 1979. The ambiguity was clarified .with the amendment and confusion was removed to some extent. The confusion created by delegation of power to the Deputy Commissioners of Income Tax to exercise jurisdiction under section 122(5A) and the anxiety of C.B.R. contained in its Circular, dated 18-5-2004 referred to above read with sub-section (1-A) to section 110 leads to the conclusion that the power under subsection (5A) of section 122 of the Income Tax Ordinance, is not to be exercised by Deputy Commissioner of Income Tax but is to be exercised by Inspecting Additional Commissioner only. Although, it is not provided in so many words that the power contained under section 122(5A) is a power of revision but in substance and looking to the intention of legislature inferred from the insertion of subsection (1A) in section 210 of the Income Tax Ordinance, 2001 coupled with the restriction on the power of delegation contained in subsection (1) of section 210 is that the power under subsection (5A) of section 122 of the Income Tax Ordinance, 2001 analogous to the provisions contained in section 66-A of the Repealed Income Tax Ordinance, 1979, is still a power of revision is respect of an assessment order, which is erroneous insofar it is prejudicial to the interest of Revenue. This condition was prescribed in section 66-A of the Repealed Income Tax Ordinance, 1979, which has been retained in subsection (5A) of section 122 of the Income Tax Ordinance, 2001. This condition precedent for exercising jurisdiction under subsection (5A) is indicative of the fact that it cannot be exercised by the Deputy Commissioner of Income Tax who has passed the assessment order and it is exclusively within the jurisdiction of IAC or Commissioner to examine if any order sought to be amended is erroneous and prejudicial to the interest of Revenue. While considering the scope and purport of subsection (5A) of section 122 of the Income Tax Ordinance, 2001, we have examined the other relevant provisions of law keeping in view the principle of interpretation of statutes, that no provision of law is to be considered in isolation but has to be considered in the context of and in the totality of scheme under the statute. After arriving at the conclusion that the jurisdiction under subsection (5A) of section 122, is in the nature of revisional jurisdiction and contains the same salient features as were contained in section 66-A of the Repealed Income Tax Ordinance, 1979, with the difference that under the Repealed Ordinance, the said jurisdiction could be exercised by IAC only, while under the scheme of Income Tax Ordinance, 2001, this revisional jurisdiction can be exercised by IAC or Commissioner, we proceed to examine the nature of jurisdiction contained in subsection (5) of section 122 of the Income Tax Ordinance, 2001. There is a plethora of case-law interpreting the provisions contained in section 34 of the Income Tax Act, 1922 and section 65 of the Income Tax Ordinance, 1979. The provisions contained in section 65 of the Repealed Income Tax Ordinance, 1979 and subsection (5) of section 122 of the Income Tax Ordinance, 2001 are in pari meteria to each other. Subsection (5) of section 122 of the Income Tax Ordinance, 2001 has been reproduced in the earlier part of this judgment and the provisions contained in section 65 of the Repealed Income Tax Ordinance, 1979 are reproduced below:--

"(65) Additional Assessment.---(1) if, in any year, for any reason,--

(a) any income chargeable to tax under this Ordinance has escaped assessment; or

(b) the total income of an assessee has been under assessed, or assessed at too low a rate, or has been the subject of excessive relief or refund under this Ordinance; or

(c) the total income of an assessee and the tax payable by him has been assessed or determined under subsection (1) of section 59 or section 59A or deemed to have been so assessed or determined under subsection (1) of section 59 or section 59A,

the Deputy Commissioner may, at any time, subject to the provisions of subsection (2), (3) and (4), issue a notice to the assessee containing all or any of the requirements of a notice under section 56 and may proceed to assess or determine, by an order in writing, the total income of the assessee or the tax payable by him, the case may be, and all the provisions of this Ordinance shall, so far as may be, apply accordingly:

Provided that the tax shall be charged at the rate or rates applicable to the assessment year for which the assessment is made,

(2) No proceedings under subsection (1) shall be initiated unless definite information has come into the possession of the Deputy Commissioner and he has obtained the previous approval of the Inspecting Additional Commissioner of Income Tax in writing to do so."

28. A comparison of the above two provisions shows that the basic conditions for additional assessment under the Repealed, 1979 Ordinance, generally called a re-opening of the assessment were similar to the conditions specified in subsection (5) of section 122 of the Income Tax Ordinance, 2001 for amendment of the assessment. The point of difference in the two provisions, limiting the scope of latter provision shall be considered subsequently, as its appropriate place. In both the provisions the condition of definite information and the income chargeable to tax having been escaped assessment or total income having been under-assessed, or assessed at too low a rate or having been subjected to excessive relief or refund are common. One more condition has been added to subsection (5) of section 122, which is misclassifying of any amount under the head of 'Income'. We shall presently consider several aspects of the provisions contained in subsection (5) of section 122 of the Income Tax Ordinance, 2001 while delving on the second leg of arguments canvassed by Mr. Khalid Anwar. It would be sufficient for the purpose of first leg of argument that in order to exercise of jurisdiction under subsection (5A) of section 122, the condition precedent is to exercise jurisdiction under subsection (5) in the first instance, and if it is found that the jurisdiction under subsection (5) cannot be exercised then only resort can be had to subsection (5A), to hold that the jurisdiction under subsection (5) of section 122 is original jurisdiction while the jurisdiction under subsection (5A) is a revisional jurisdiction. As already discussed, jurisdiction under subsection (5A) can be exercised by IAC or Commissioner only and for the exercise of such jurisdiction it is necessary that after examination of such assessment order the revisional authority considers that the assessment order already made is erroneous as well as prejudicial to the interest of Revenue. After a finding that both the conditions are existing the assessment order can be revised by way of amendment or further amendment. On the other hand, the jurisdiction under subsection (5) is an original jurisdictional which under the 1979 Ordinance, could be exercised by the Deputy Commissioner only but under 2001 Ordinance, such jurisdiction can be exercised by Commissioner, or any Taxation Officer, including I.A.C. and D.C.I.T. For exercise of this jurisdiction the condition precedent is not the finding that the assessment order is erroneous and prejudicial to the interest of Revenue but for exercise of this jurisdiction the condition precedent is that there should be definite information leading to the decision that any income chargeable to tax has escaped assessment or total income has been under-assessed or assessed at too low a rate or has been the subject of excessive relief or income or any amount under head of Income has been misclassified. The exercise of this jurisdiction though original but is more stringent, because of the condition precedent of definite information, and the concept of change of opinion attracted to it. The draftsman while drafting this provision of law has also demonstrated his ineptness, inaccuracy, and lack of comprehension of the Income Tax Law, which we will consider while discussing the second leg of arguments canvassed by Mr. Khalid Anwar.

29. After arriving at the conclusion that the jurisdiction under subsection (5A) of section 122 of the Income Tax Ordinance, 2001 is revisional in nature, and the jurisdiction under subsection (5) is original in nature, which can be exercised by Deputy Commissioner of Income Tax as well and the requirements of the two provisions being distinct to each other, coupled with the fact that the conditions precedent for exercise of the two jurisdiction are also entirely different, and distinct, we are not persuaded to agree with the view canvassed by Mr. Khalid Anwar, that for the purpose of exercising jurisdiction under sub-section (5A), it is necessary to have resort to subsection (5). The contention is hereby repelled.

30. Now we proceed to examine the second contention canvassed by Mr. Khalid Anwar, that in the facts and circumstances of the present case, where no return of income under section 114 was filed and merely statements under subsection (4) of section 115 were filed, the notices under subsection (5A) of section 122, are unwarranted and without jurisdiction, and that the Commissioner could issue notices under subsection (5) of section 122 only.

31. Mr. Khalid Anwar, has submitted that the petitioner is deriving income covered under the Presumptive Tax Regime as well as Normal Tax Regime. In the earlier years the petitioner filed return of income inclusive of income from all sources. However, the Assessing Officer, finalized assessments in respect of income other than Throughput charges under normal tax regime under section 62 of the Repealed Income Tax Ordinance, 1979, while the income representing monthly payments from PQA described as Throughput charges were assessed under the Presumptive Tax Regime, applying section 80C of the Income Tax Ordinance, 1979. The petitioner subsequently corrected its earlier erroneous view and accepted the view point of the Department. For the tax years 2003 and 2004 the return of income was filed under the Normal Tax Regime in respect of the income other than Throughput charges and in respect of Throughput charges, statements were merely filed as prescribed in subsection (4) of section 115 of the Income Tax Ordinance, 2001. He has further, argued that the statements so filed were accepted and the return of income in respect of the Normal Tax Regime was taken for the purpose of the Income Tax Ordinance, 2001, to be assessment orders. However, on furnishing of statements as envisaged under subsection (4) of section 115, an assessment was treated to have been made under section 120 without furnishing of return of income under section 114. The result was that the income which the Department now alleges to be covered by Normal Tax Regime escaped assessment. In case the Department is able to establish that the assessment in respect of income classified as throughout charges is to be made under the normal tax regime, then the jurisdiction under subsection (5) of section 122 of the Income Tax Ordinance, 2001 is required to be invoked, instead of issuance of notice under subsection (5A) of section 122, as in the absence of any assessment order there is no question of it being erroneous or prejudicial to the interests of Revenue. The condition precedent for exercise of jurisdiction under subsection (5A) of section 122 lacking the notice under subsection (5A) of section 122 is without jurisdiction.

32. We have already held while considering the first contention of Mr. Khalid Anwar, that the jurisdiction under subsection (5A) of section 122 is in the nature of revision and for the purpose of exercising a revisional jurisdiction with reference to the conditions precedent prescribed in subsection (5A) to the effect that the assessment order is erroneous and prejudicial to the interests of Revenue, it is necessary that an assessment order should be in existence.

33. In order to determine whether in the Presumptive Tax Regime, any assessment order of the nature which may be erroneous or prejudicial to the interests of Revenue, is made, it is imperative to examine the relevant provisions of law. A perusal of section 114 shows that return of income for a tax year is required to be filed by the persons specified in subsection (1) of section 114. Under subsection (3) of this section the Commissioner may, by notice in writing may require a person or person's representative to furnish a return of income by the date specified in the notice for the period of less than 12 months. The persons to whom such notice can be issued are also specified in subsection (3). Under subsection (4) the Commissioner may by notice in writing require any person, who in his opinion is required to file, a return of income under this section, for a tax year or assessment year, but who has failed to do so, to furnish the income for that year within 30 days of such notice or such longer date as may be specified in such notice or as the Commissioner may allow. A notice under subsection (4) to may be issued in respect of one or more of the last five completed tax years or assessment years. Section 115 is in the nature of exception to section 114. Section 115 has been reproduced in the earlier part of this judgment, Under subsection (4) of section 115 it is provided that any person who is not obliged to furnish a return for a tax year because of the person's income is subject to final taxation, inter alia under section 153, shall furnish to the Commissioner a statement showing such particulars relating to the person's income for the tax year in such form and verified in such manner as may be prescribed. At this stage, we D would like to refer subsection (1) of section 115 whereby a taxpayer deriving entire income under the head `salary' is not required to file the return under section 114 but shall furnish merely a certificate from the persons empowered in the prescribed form and such certificate shall be for the purpose of Income Tax Ordinance, 2001 be treated as a return of income furnished under section 114. However, under subsection (4) it is not provided that the statement furnished in respect of income subject to final taxation shall also be treated as return of income furnished under section 114. It is admitted position that in the present case, the income received by the petitioner has been subjected to deduction under section 153 of the tax year, 2001. We would like to clarify that the issue whether this deduction is on account of payment on execution of contract or for rendering of services shall be finally determined by the departmental officers. For the time being we are only narrating the a facts admitted on record and the effect of the non-filing of return of income and filing of statements only in pursuance of subsection (4) of section 115. The rational of the provisions contained in subsection (4) of section 115 whereby the statement filed by a person is not treated as return of income, is found in the provisions contained in section 169, wherein it is provided that where, the deduction of tax is final tax, under subsection (6) of section 153 and some other sections, which are not relevant for the purpose of this petition, an assessment shall be treated to have been made under section 120 and the person shall not be required to furnish a return of income under section 114, for the year. It is further provided in subsection (2) of section 169 that such income shall not be chargeable to tax under any head of income in computing the taxable income of the person and no deduction, tax credit or refund shall be allowed unless the tax so collected was deducted in excess to the amount for which taxpayer is chargeable under the Ordinance. At this stage, we would like to point out that under section 120(1) where a complete return of income is furnished the Commissioner shall be taken to have been made an assessment of taxable income for that tax year and return shall be taken for all purposes of the Ordinance to be an assessment order issued to the taxpayer on the day, the return was furnished. However, the cases where return of income under section 114 is not filed and merely the statements as required under subsection (4) of section 115 are filed, the law does not provide that the Commissioner shall be taken to have made assessment of the taxable income and that the statement filed under subsection (4) of section 115 shall either be treated as return, or an assessment order issued to the taxpayers by the Commissioner, and it is merely provided that in such situation an assessment shall be treated to have been made under section 120. This assessment by fiction of law is not to be treated as assessment order but merely an assessment made under section 120 for the reason that the deduction is subject to final taxation as provided in subsection (3) of section 169 read with the provisions contained in subsections (6) and (7) of section 153 wherein it is provided that the tax deducted shall be final tax of the income arising from the sources specified therein. Thus, in case of Normal Tax Regime a return of income is filed which has to be completed in all respects under section 114 of the Income Tax Ordinance, 2001 and such return of income shall be taken under subsection (1) of section 120 as assessment to taxable income made by the Commissioner and the return itself shall be taken as assessment order issued to the taxpayer by the Commissioner. While in case of deduction of tax under subsection (1) of section 153 and other like provisions, the tax deducted shall be a final tax under subsections (6) and (7) of section 153 and it shall be merely treated as assessment under subsection (3) of section 169. In the entire scheme under the Income Tax Ordinance, 2001 pertaining to Presumptive Tax Regime, it is no where provided that an assessment order shall be taken to have been made by the Commissioner or such assessment shall be treated to be an assessment order issued or shall be deemed to be an assessment order. In analogous provisions contained in section 80C(7) of the Repealed Income Tax Ordinance, 1979, it was provided that in case to which subsection (4) of section 80C apply, an order under section 59-A shall be deemed to have been made in respect of income referred to in subsection (1) thereof. Although under the Repealed, 1979 Ordinance, also a deemed assessment under section 59-A of the said Ordinance was not subject to revision for the reason that no assessment order was made by the Assessing Officer and there was no question of such deemed order being erroneous or prejudicial to the interests of Revenue and that if any tax was not deducted or was deducted but not paid it could be recovered under section 52 or section 52-A of the said Ordinance, either from the person required to deduct or collect the tax or from the person from whom tax was to be deducted or collected. In the Income Tax Ordinance, 2001, similar provisions are contained in sections 161 and 162. Thus, in the cases covered by the Presumptive Tax Regime, neither any assessment order was made under the Repealed Income tax Ordinance, 1979 nor there is any provision for making any assessment order in the Income Tax Ordinance, 2001. There is no deeming provision as well under the Income Tax Ordinance, 2001 in respect of an assessment order in the realm of Presumptive Tax Regime. In the Presumptive Tax Regime, the deduction of tax is final tax on such income and it is treated as assessment. The legislature has not used the expression "the assessment order" purposely in the entire scheme pertaining to the Presumptive Tax Regime.

34. Now we come to subsection (5A) of section 122 and find that under this provision the Commissioner may amend of further amend an assessment order, if he considers that the assessment order is erroneous insofar it is prejudicial to the interest of Revenue. We have already shown that there is no concept of any assessment order in the realm of Presumptive Tax Regime and the entire Presumptive Tax Regime revolves around taking the entire payment as income, the deduction of tax as final tax on such income and then treating it as assessment made under section 120 of the Income Tax Ordinance, 1979. In the absence of any assessment order which is condition precedent for invoking the revisional jurisdiction under subsection (5A) of section 122, the question of invoking such jurisdiction does not arise.

35. This takes us to another aspect as to the action which may be taken by the Commissioner, in case tax has been deducted on an income under section 153 which is not covered by Presumptive Tax Regime and deduction is not a final tax on such income but instead of filing return of income under section 114, an assessee has merely filed statements under subsection (4) of section 115 which has been wrongly treated as assessment under section 169 read with section 153 further read with section 120.

36. We have already referred to the provisions contained in section 114, which provides that the persons specified therein are required to furnish a return of income for a tax year. We have also shown that under subsection (4) of section 114 the Commissioner may by notice in writing require any' person who in the Commissioner's opinion is required to file the return of income under this section for a tax year or assessment year but who has failed to do so, to furnish return of income for that year within 30 days from the date of service of such notice or such longer period as may be specified in such notice or as the Commissioner may allow. It is further provided in subsection (5) of section 114 that notice under subsection (4) may be issued in respect of one or more of the last five completed tax years or assessment years.

37. Now we revert once again to subsection (5) of section 122 which according to Mr. Khalid Anwar can be invoked in respect of tax years, 2003 and 2004 if the conditions specified therein are fulfilled.

38. This provision is analogous to the provisions contained in section 65 of the Repealed Income Tax Ordinance, 1979 and section 34 of the Repealed Income Tax Act 1922. A perusal of the provisions contained in section 65 of the Repealed Income Tax Ordinance, 1979 and section 34 of the Repealed Income Tax Act 1922, shows that both were more comprehensive as compared to subsection (5) of section 122. The provisions contained therein covered the cases where any income chargeable to tax had escaped assessment or the total income of an assessee had been under-assessed or assessed at too low a rate or had been subjected to excessive relief or refund or the total income had been assessed under self-assessment scheme or had been accepted on the basis of return or where no return of income was filed and consequently entire income of a person chargeable to tax had escaped assessment and there was no assessment as well as assessment order at all. Under both the repealed provisions a notice may be issued to the assessee containing the requirements of section 56 of the Income Tax Ordinance, 1979 and section 22 of the Repealed Income Tax Act 1922. Thus, under both the repealed provisions in addition to charging of an income which had escaped assessment or where total income had under assessed or assessed at too lower rate or had been subject to excessive relief or refund, an entirely new assessment could also be made and assessment order could be passed after service of notice on an assessee for filing of the return of income, which was not filed. The provisions contained in section 65 of the Repealed Income Tax Ordinance, 1979 and section 34 of the Repealed Income Tax Act, 1922 were not confined to mere amendment of an assessment order. However, an examination of section 122 of the Income Tax Ordinance, 2001, shows that it is merely confined to the amendment of assessment order it does not cater to the situation where no return of income has been filed under section 114 of the Income Tax Ordinance, 2001. Subsection (1) of section 122 contains that subject to this section, the Commissioner may amend assessment order treated as issued under section 120 or issued under section 121 or issued under sections 59, 59-A, 62, 63 or 65 of the Repealed Ordinance, by making such alternations or additions as the Commissioner considers necessary. Subsection (2) provides that an assessment order shall only be amended under subsection (1) within five years after Commissioner has issued or is treated as having issued an assessment order on the taxpayer. According to subsection (4) where an assessment order has been amended under subsection (1) or (3) the Commissioner may further amend as many times as may be necessary the original assessment within a period of five years after the Commissioner has issued or is treated as having been issued the original assessment order to the taxpayer or one year after the Commissioner has issued or is treated as having issued the amended assessment order to the taxpayer. Likewise subsection (5) also provides that an assessment order in respect of a tax year or an assessment year shall only be amended under subsection (1) and an amended assessment for that year shall only be further amended under subsection (4) where on the basis of definite information acquired from an audit or otherwise, the Commissioner is satisfied that any income chargeable to tax has escaped assessment or total income has been under assessed or has been assessed at too low a rate, or has been the subject of excessive relief or refund or any amount under head of income has been misclassified. It is nowhere provided in entire section 122 that if no return of income has been filed at all and consequently no assessment order is made the Commissioner may by notice in writing require a person to furnish a return of income. We have already shown that in case where income of person has been subjected to deduction of tax under section 153 and said person instead of filing the return of income under section 114 has merely filed statements under section 115(4) and by accepting the statement to the effect that the tax deducted is a final taxation an assessment shall be treated to have been made under section 120 and no assessment order is made. The result is that in the absence 'of assessment, order, neither subsection (5) is attracted nor subsection (5A) is applicable, for the simple reason that in the absence of assessment order which is contingent on filing of return under section 114, there would be no assessment order under section 120. The return itself shall be taken for all purposes of the Ordinance to be an assessment order issued to taxpayer by the Commissioner and the Commissioner shall be taken to have made an assessment of taxable income. In case of failure of a person to furnish return of income after being required by a notice under subsection (3) or subsection (4) of section 114, the Commissioner may make a best judgment assessment (ex parte assessment) under section 121 and after doing so shall issue the assessment order to the taxpayer. However, if no return has been filed under section 114 and no notice under subsection (3) or (4) of section 114, has been issued no assessment order shall be made, or issued or taken to have been issued.

39. Now the question arises that, if, as in the present case, the petitioner has not filed any return of income under section 114 and the Commissioner invokes his jurisdiction under subsection (5) of section 122, in what manner he will obtain a return of income from the assessee which may be taken as an assessment order issued to a taxpayer and thereafter be amended under section 122. It would be appropriate at this stage to observe that once an assessment order is treated/taken as issued under section 120 or is actually issued under section 121 then by invocation of original jurisdiction it can be amended or further amended on fulfillment of conditions specified under subsection (5) of section 122 only. Subsections (1), (3), (4) and (5) are to be read together and not in isolation or distinctly or separately. Thus, an assessment order or revised assessment order issued or taken/treated as issued can be amended by invoking original jurisdiction under subsection (5) of section 122, on fulfillment of conditions specified therein, and on no other ground. Such assessment orders can be revised by invoking original jurisdiction under section 122(5A). There is no other ground or method for amendment of an assessment order issued. This interpretation is in consonance with the concept of finality of an assessment, which is a basic principle of Tax Law. This principle provides protection to the assessee from the onslaught and vagaries of tax officials, as well as brings certainty. If this concept/principle is not observed strictly, it will result in hanging the sword of Damocles on the heads of assessees at least for a period of five years. As already pointed out, under section 65 of the Repealed Income Tax Ordinance, 1979 and section 34 of the Repealed Act, 1922, in such situation the Assessing Officer was empowered to issue notice calling upon an assessee to file the return of income but there is no such provision in subsection (5) or any other subsection of section 122. We have already observed that the Income Tax Ordinance, 2001 is a very badly drafted piece of legislation, which has created numerous confusions and ambiguities. We find that the legislature has taken notice of the deficiencies and ambiguities in the law and very large number of amendments have been introduced by Finance Ordinance, 2002, Finance Act, 2003, Finance Act, 2004 and Finance Act, 2005. When a law becomes too patchy on account of very large number of amendments it is always desirable to scrap the law and promulgate new law in order to remove the defects, confusions and ambiguities. Anyhow this is for the legislature to consider the revival of Income Tax Ordinance, 1979 with necessary amendments or to promulgate a new law or continue with the present law with large number of amendments through each Finance Act.

40. We have shown that the provisions contained in section 122 of the Income Tax Ordinance, 2001 have merely addressed to the amendments which can be made in an assessment order and is completely silent on the point as to what measures can be taken if no return of income has been filed. There is no assessment order and the entire income has escaped assessment with the result that no tax has been paid by an assessee or as in the present case instead of filing return of income as required by the Department on account of its view that the income earned by the petitioner is not covered under the Presumptive Tax Regime and is required to be assessed under the Normal Tax Regime, the assessee has not filed return of income under section 114 and has merely filed statements under section 115(4). In the present case, the entire income has not gone untaxed but the income has certainly escaped assessment and if the Department is able to establish that the income earned by the petitioner is not covered under the Presumptive Tax Regime and the deduction made under section 153 is not final tax on income and it was not to be treated as assessment under section 169 read with section 120, the provisions contained in section 122 are of no help to the Department.

41. In facts and circumstances of this case, the only course available to the Department for the tax years, 2003-2004, is the issuance of notices under subsection (4) of section 114 of the Income Tax Ordinance, 2001, requiring the petitioner to file a return of income on account of failure of the petitioner to furnish return of income. Under subsection (5) of section 114 a notice under subsection (4) may be issued in respect of one or more of the last five completed tax years or assessment years. At this stage, we would like to clarify that we have merely dealt with the scope of various provisions of law contained in the Income Tax Ordinance, 2001. Nothing in this judgment is to be taken for and against the liability of petitioner to be assessed under Normal Tax Regime or Presumptive Tax Regime, which issue we have left open to be decided by the forums provided in statute law.

42. Consequent to the above discussion and findings, the petition is allowed in the following terms:

(a) The notices issued by the Respondent No.1, under section 122(5A) for the Assessment years 2000-2001 and 2001-2002 are without jurisdiction which are hereby quashed in pursuance of our earlier judgment in the case of Honda Shahrahe Faisal v. Regional Commissioner, C.P. No. D-643 of 2004.

(b) The notices issued by the Respondent No.1, under section 122(5A) for the tax years, 2003 and 2004 are also declared to be without jurisdiction and are hereby quashed for the reasons stated in the judgment.

M.B.A./F-2/K????????????????????????????????????????????????????????????????????????????????????? Order accordingly.

FAUJI OIL TERMINAL AND DISTRIBUTION COMPANY LTD., KARACHI VS ADDITIONAL COMMISSIONER/TAXATION OFFICER-A, AUDIT DIVISION, KARACHI, 2006 PTD-KARACHI-HIGH-COURT-SINDH 734 (2006)

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