I.T.As. Nos.209/KB and 210/KB of 2005, decided on 29th April, 2006. VS I.T.As. Nos.209/KB and 210/KB of 2005, decided on 29th April, 2006., 2007 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 386 (2006)

Income Tax Ordinance (XLIX of 2001)---

----S. 221---Income Tax Ordinance (XXXI of 1979), Ss.65 & 11-Rectification of mistake---Rectification of order passed by the Appellate Tribunal and setting aside of the same by the First Appellate Authority in appeal---Validity---Obedience was the essence of law---Such constitutive aspect of law was missing in the orders under consideration---Treatment accorded by the Additional Commissioner/Taxation Officer and First Appellate Authority did not fall within their jurisdiction---Assessing Officer and First Appellate Authority did not have statutory powers to interfere in the issues decided by the Appellate Tribunal---Decisions of the Appellate Tribunal had material legal force i.e. the legal statements were binding for the parties involved in the proceedings---Possibility may exist that the material legal force could be eroded by limitation of ratione personae, ratione materiae and ratione temporis which was not obvious in the present case---No violation was found based on procedural errors or shortcomings of such gravity that. a serious doubt was cast on the Appellate Tribunal's proceedings---Principle of `Legal Certainty' required that, after a certain point, a judicial decision could not be questioned any more-Additional Commissioner/Taxation Officer and First Appellate Authority were bound not to interpose with the decision of the Appellate Tribunal which enjoyed material legal force besides being an authority over factual domain---Orders passed by both the authorities below were without lawful authority and tantamount to exercise of excess jurisdiction and not sustainable in the eyes of law---Order passed by Additional Commissioner/Taxation Officer and First Appellate Authority were directed to be annulled by the Appellate Tribunal.

Rehan Hasan Naqvi and Miss Lubna Pervez for Appellant.

Rehmatullah Khan Wazir, D.R., for Respondent.

ORDER

S. A. MINAM JAFRI (ACCOUNTANT MEMBER).---Appeals have been filed at the instance of the assessee a Private Limited Company. Principally assumption of jurisdiction under section 221 of the Income Tax Ordinance, 2001 by the Additional Commissioner/Taxation Officer have been agitated and also against the setting aside of orders by the Commissioner of Income Tax (Appeals). The said decision has been contested as without lawful authority and without jurisdiction A predominantly based on the following grounds of appeal:

(i) That the order passed by the learned Commissioner of Income Tax (Appeal)-I, Karachi is bad in law on facts and is without jurisdiction.

(ii) That the learned Commissioner of Income Tax (Appeal)-I, Karachi has erred in confirming jurisdiction assumed by the learned Additional Commissioner/Taxation Officer-VIII, Audit Division, Large Taxpayers Unit, Karachi under section 221 of the Income Tax Ordinance, 2001 rectifying the orders passed by the learned Income Tax Appellate Tribunal vide I.T.A. No.2099/KB of 2001 (assessment year 1995-1996), dated

10-4-2003.

(iii) That the learned Commissioner of Income Tax (Appeals)-I, Karachi has erred in confirming the invocation of section 221 of Income Tax Ordinance, 2001 in respect of the orders passed by the learned Income Tax Appellate Tribunal vide I.T.A. No.2099/KB of 2001 (assessment year 1995-96, dated 10-4-2003 by setting aside the orders of the learned Additional Commissioner/Taxation Officer-VIII, Audit Division, Large Taxpayers Unit, Karachi.

Since common issues have been raised hence these appeals are disposed of in a consolidated order.

2. The brief facts depict that the assessment for the assessment years 1995-96 and 1996-97 were re-opened under section 65 of the repealed Income Tax Ordinance, 1979 on the basis of definite information, and subsequently the orders were passed under sections 62/65 of the repealed Ordinance, at income of Rs.4,19,29,743 for the assessment years 1995-96 and at Rs.68,1 1,357 for the assessment year 1996-97. These orders were challenged before learned Commissioner of Income Tax (Appeals) and no relief was allowed. Being dissatisfied the assessee filed Appeal before this Tribunal contesting the action under section 65 of' late Ordinance, confirmation of receipts from Messrs Mitsubishi Corporation, Japan and issuance of notice under section for imposition of penalty under section 111 of the late Ordinance.

3. The Income Tax Appellate Tribunal vide order bearing I.T.A. No. 2099/KB of 2001 (assessment year 1995-96) I.T.A. No.2100/KB of 2001 (assessment year 1996-97) and I.T.A. No.313/KB of 2000-2001 (assessment year 1997-98), dated 10-4-2003 upheld the order for the assessment years 1995-96 and 1996-97 in the following manner:--

1995-96

The receipt of the above amount due at the time of

signing of contract and due at the time of receipt of mobilization advance become taxable during the year as the contract was duly signed on 13-12-1994 and the amount of mobilization advances were duly received in two instalments of Rs. 6,29,14,198 on 31-3-1995 and Rs.79,37,917 on 2-6-1995. The performance of these conditions of' contract having not been disputed and the agreed payment being not related to any other condition it is not clear as to why amount due as commission as per the terms and conditions of the contract, dated 25-1-1994 was not declared during the period relevant to the assessment year 1995-96. In the absence of such proper explanation the assessment of the commission income as per the computation adopted by the Assessing Officer in keeping with the terms of agreement, dated 25-1-1994 referred to above is held to be proper and its confirmation by the learned Commissioner of Income Tax (Appeals) is upheld (pages 21-22).

1996-97

While, therefore, upholding the initiation of proceeding

under section 65 the assessment with respect of determination of the amount of commission is set aside for determination as per terms appearing at serial Nos.3 and 4 of the Schedule for payment described in the agreement, dated 25-1-1994 between the appellant/assesses and Messrs Mitsubishi Corporation, Japan. The Appeal for the year under consideration is accordingly disposed of as above (Page 29).

4. In spite of the above mentioned findings of this Tribunal the Additional Commissioner/Taxation Officer invoked provision of section 221 of the Income Tax Ordinance, 2001 for rectification of the aforementioned orders and despite restraint pointed out by the assessee/ appellant she proceeded to pass orders under section 221 of the Income Tax Ordinance, 2001 as under::-

1995-96

RECTIFICATION UNDER SECTION 221

Original assessment in this case was finalized under section 62, of the Income Tax Ordinance, 1979 at net income of Rs.41,29,743. The income assessed was based on information collected from CDA regarding payment to Messrs Mitsubishi Corporation, Japan in pursuance of terms of agreement between the two entities, and consequent receipt of commission @ 2.7% of the contractual payment made by CDA to Messrs Mitsubishi Corporation, Japan according to the terms settled between the Corporation and the assessee.

In order to give effect to the learned I.T.A.T's. judgment against I.T.A. No. 1699/KB of 2002 (Assessment year 1998-99) directing to charge to tax the amount of commission in the assessment year relevant to the income year in which it is accrued rectification of' assessment for the current year is imperative as commission pertaining to subsequent years has been taxed in this year. The agreement between the Capital Development Authority and Messrs Mitsubishi Corporation Japan stipulated the schedule of payments as follows:--

Rupees:

Total contractual price in terms of Rupees:???????????????????????????????? 2,181,053,948

Share of the assessee @ 2.7%:???????????????????????????????????? 58,888,457

Schedule of payments and share of the

Assessee @ 2.7% of the scheduled payments,

Percentage?????????????????????????????? Amount??????????????????????? Financial Year

1.???????? 40% of the remuneration at ????? 23,555,383????????????????? 1994-95

the time of signing of the contract.

2.???????? 30% of the remuneration of ????? 17,666,537????????????????? 1995-96

mobilization advance.

3.???????? 20% of the remuneration upon 11,777,691?????????????????? 1996-97

each shipment of equipment and Machinery at Site.

4.???????? 5% of the remuneration upon??? 2,944,422??????????????????? 1997-98

arrival of equipment and Machinery at Site.

5.???????? 5% of the remuneration upon??? 2,944,422??????????????????? 1998-99

completion of the work.

As evident from the above schedule, the share of the assessee pertaining to this year amounts to Rs.23,555,383 only whereas total commission has been assessed at Rs.41,929,743. Since the receipts have to be allocated to the relevant assessment year in view of the learned I.T.A.T's. decision assessment is rectified accordingly under section 221, of the Income Tax Ordinance, 2001, as below:--

40% of receipts falling within the period

relevant to current assessment year:?????????????????????????????? Rs.23,555,383

Rectified as per IT-30, Issue demand notice along with copy of order and challan accordingly.

1996-97

RECTIFICATION UNDER SECTION 221

Pursuant to Tribunals decision against I.T.A. No. 1505/KB of 2002 for the assessment year under consideration, assessment was finalized under sections 62/124 vide order, dated 29-12-2003 bearing DCR No.8/91. Nil income was assessed in view of the fact that income pertaining to this year had already been assessed along with income assessable on account of receipt of commission, and also due to the fact that there was no difference in rates of tax applicable on income for both years.

However, pursuant to the directions of the learned Income Tax Appellate Tribunal against I.T.A. No. 1699/KB of 2002 (Assessment year 1998-99), income pertaining to the assessment year 1998-99 had to be taken for assessment in view of the agreed schedule of payments by the CDA to Mitsubishi Corporation Japan, and consequent accrual of commission to the assessee @ 2.7%.

Since the receipts pertaining to the year 1998-99 had already been included in the income for the year 1995-96, assessment for the said year has been rectified restricted income to commission receipt relevant to the referred year as per stipulated schedule of payments reproduced hereunder:--

Rupees

Total contractual in terms of Rupees:???????????????????????????????????????? 2,181,053,948

Share of the assessee??? 2.7%:?????????????????????????????????????????????????? 58,888,457

Schedule of payments and share of the Assessee @ 2.7% of the schedule payments.

Percentage?????????????????????????????? Amount??????????? Financial Year

1.???????? 40% of the remuneration at?????? 23,555,383????? 1994-95

the time of signing of the contract.

2.???????? 30% of the remuneration of?????? 7,666,537??????? 1995-96

mobilization advance.

3.???????? 20% of the remuneration upon 11,777,691?????? 1996-97

each shipment of equipment

and Machinery at Site.

???????????

4.???????? 5% of the remuneration upon??? 2,944,422??????? 1997-98

arrival of equipment and

Machinery at Site.

5.???????? 5% of the remuneration upon??? 2,944,422??????? 1998-99

completion of the work.

As evident from the above schedule, commission receipts relevant to the year under consideration amount to Rs.17,666,767. The said amount has already been reduced from the income assessed for the year 1995-96. Hence assessment finalized under sections 62/124, is also rectified and commission pertaining to this year is charged to tax.

Assessment is finalized accordingly as follows:

Income from commission received from

F.I.D., as per order under section 132????????????????????????? 173,230

Commission from Mitsubishi Corp.?????????????????????????????? 17,666,537

Total income assessed:????????????????????????????????????? 17,839,767

Rectified as per IT-39. Issue demand notice along with copy of order and challan accordingly.

The learned A.R. assailed the above orders as well as that of learned CIT (A) who held as under:--

"In view of the clear directions of the learned I.T.A.T. the impugned orders are accordingly set aside for fresh decision with the direction that the commission receipts of the appellant are to be worked out strictly as directed in the aforesaid two orders of the learned I.T.A.T., dated 10-4-2003 and 2-8-2003 for the said assessment years 1995-96, 1996-97 and 1998-99 respectively."

Before us the learned AR vehemently pleaded for maintaining the sanctity of the orders passed by the Income Tax Appellate Tribunal cited supra. According to him that the orders of the Income Tax Appellate Tribunal are so sacrosanct that in respect of the fact they are final authority and in respect of law the High Court exercises only the advisory jurisdiction. Therefore the assumption of jurisdiction by the Additional Commissioner/Taxation Officer to rectify/amend the orders of the Income Tax Appellate Tribunal tantamounts encroachment on authority of learned Income Tax Appellate Tribunal hence are besides being without jurisdiction, is without lawful authority and of no legal effect, and so is the case with the orders passed by the learned Commissioner of Income Tax (Appeals) in the manner cited above.

7(sic). The learned DR could not deny the mistake committed by the Additional Commissioner/Taxation Officer in passing the orders under section 221 of Income Tax Ordinance, 2001 yet he invited our attention to the provisions of section 184 of Income Tax Ordinance, 2001 which provides for imposing penalty for concealment of income if found by the learned Tribunal itself. But in the case of appellant the said issue has already been dealt by the Assessing Officer while passing order under sections 62/65 of Income Tax Ordinance, 1979. For reference provision of section 221 of Income Tax Ordinance, 2001 is reproduced below : --

(221) Rectification??????? of???????? mistakes.---(1) The Commissioner the Commissioner (Appeals) _or the Appellate Tribunal may, by an order in writing amend any order passed by him to rectify any mistake apparent from the record on his or its own motion or any mistake brought to his or its notice by a taxpayer or, in the case of the Commissioner (Appeals) or the Appellate Tribunal, the Commissioner.

(1A)The Commissioner may, by an order in writing, amend any order passed under the repealed Ordinance by the Deputy Commissioner, or an Income Tax Panel, as defined in section 2 of the repealed Ordinance to rectify any mistake apparent from the record on his own motion or any mistake brought to his notice by a taxpayer and the provisions of subsection (2), subsection (3) and subsection (4) shall apply in like manner as these apply to an order under subsection (1).

(2) No order under subsection (1) which has the effect of increasing an assessment, reducing a refund or 'otherwise applying adversely to the taxpayer shall be made unless the taxpayer has been given a reasonable opportunity of being heard.

(3) Where a mistake apparent on the record is brought to the notice of the, Commissioner or Commissioner (Appeals) as the case may be and no order has been made under subsection (1) before the expiration of the financial year next following the date on which the mistake was brought to their notice, the mistake shall be treated as rectified and all the provisions of this Ordinance shall have effect accordingly.

(4) No order under subsection (1) may be made after five years from the date of the order sought to be rectified.

8. We have considered the divergent viewpoint of both the sides and have given due cerebration.

In the given circumstances we derive guidance from Doctrine envisaged in `Obedientia Est legis Essentia' (obedience is the essence of law). This constitutive aspect of law is missing in the orders under consideration. The treatment accorded by the Additional Commissioner/ Taxation Officer and CIT(A) do not fall within their jurisdiction. In such scenario directional and analogical guidance is provided from principle envisaged in Factum A Judice Quod Ad Ejus Officium Non Spectat, Non Ralum Esi. (An action of a Judge which relates 'not to his office is of no force) which is well-established in jurisprudence and is attracted in the install, ease.

Decisions of this Tribunal constitute, binding precedent in respect of adjudicated matters, upon the concerned officials in the Department. Rather we would say that our decisions do fall in the domain similar to proximity of `Doctrine of Canonical Obedience' as well as in the principle envisaged in "officum cleri desiderium populi" with regard to relevant assessment proceedings by the Department.

The Assessing Officer and learned CIT(A) do not have statutory' powers to interfere in the issue decided by this Tribunal. It is not put into doubt that decisions of this Tribunal have material legal force (Materielle Rechtskraft), i.e. the legal statements are binding for -the parties involved in the proceedings. However possibility may exist that the material legal force can be eroded by limitation of Ratione Personae, Ratione Materiae and Ratione Temporis which is not obvious in the instant case. Principle of `Restitiutio In Integrum' is also not attracted. Also no violation is found based on procedural errors or shortcomings of such gravity that a serious doubt is cast on the relevant ITAT c proceedings. Indisputably the principle of `Legal Certainty' requires that, after a certain point, a judicial decision cannot be questioned any more. The Additional Commissioner/Taxation Officer and CIT(Appeals) are bound not to interpose with the decision of this Tribunal which enjoys material legal force (Materielle Rechtskraft) besides being an authority over factual domain.

Thus the orders passed by both the above referred officers are without lawful authority and tantamount to exercise of excess jurisdiction, hence not sustainable in the eyes of law. In view of the abovementioned stance, seeking ratiocination from Doctrine of Certiorari, the orders parsed by the Additional Commissioner/Taxation Officer and Commissioner of Income Tax (Appeals) are directed to be annulled.

Both these appeals are disposed of as indicated above.

C.M.A./171/Tax (Trib.)??????????????????????????????????????????????????????????????????????? Order accordingly.