COMMISSIONER OF INCOME TAX AND WEALTH TAX, GUJRANWALA ZONE, GUJRANWALA VS Messrs PAKISTAN ELECTRONICS, GUJRANWALA, 2007 PTD-LAHORE-HIGH-COURT-LAHORE 453 (2005)

Income Tax Ordinance (XXXI of 1979)---

----Ss.70, 71, 72, 73 & 108---Non-intimating department regarding change in status of assessee---Effect---Assessment could not be cancelled on such ground, which would entail penal consequences as provided under 5.108 of Income Tax Ordinance, 1979---Intimation required to be submitted in terms of S.72 of Income Tax Ordinance, 1979 pertained to an assessee, who discontinued business, but would not apply to change of status of assessee---Provisions of Ss.70 & 71 of the Ordinance did not require intimation to department in case of change in constitution of firm or 'dissolution of firm---Assessee according to S.73 of Income Tax Ordinance, 1979 would be assessed in its own status on date of its succession in following income year.

Shehbaz Butt for Appellants.

Waqar Azeem for Respondent.

ORDER

This single order will dispose of Income Tax Appeal No. 504 of 1998 titled "Commissioner of Income Tax and Wealth Tax Gujranwala Zone, Gujranwala v. Messrs Pakistan Electronics G.T. Road Gujranwala", Income Tax Appeal No.505 of 1998 titled "Commissioner of Income Tax and Wealth Tax, Gujranwala Zone, Gujranwala v. Messrs Pakistan Electronics G.T. Road Gujranwala", Income Tax Appeal No.506 of 1998 titled "Commissioner of Income Tax and Wealth Tax Gujranwala Zone, Gujranwala v. Messrs Pakistan Electronics G.T'. Road Gujranwala" and Income Tax Appeal No.507 of 1998 titled "Commissioner of Income Tax and Wealth Tax Gujranwala Zone, Gujranwala v. Messrs Pakistan Electronics G.T. Road Gujranwala" as common question of law is involved in all these appeals.

2. These appeals pertain to the assessment years 1992-93, 1993-94, 1994-95 and 1995-96. Learned Income Tax Appellate Tribunal has dismissed the appeals of the Revenue Department on the ground that the supposed result bringing loss to the Revenue department is not at all warranted in law.

3. The following questions of law were referred to us statedly arising out of the order of Income Tax Appellate Tribunal.

(a) "Whether assessment in a wrong status falls within the ambit and scope of error as contemplated under section 66-A."

If so;

(b) "Whether in the facts and circumstances of the case, the I.A.C. was right in invoking the provisions of section 66-A consisting the wrong assumption of status to be erroneous and prejudicial to the interest of revenue."

(c) "Whether the firm automatically dissolves without executing the document of dissolution and without fulfilling the requirements of Partnership Act and rules framed therein."

4. Facts necessary in these appeals are that assessee filed income tax return as Association of Persons (AOP) for the assessment years 1992-1993 to 1995-1996. The assessee had filed the income tax return for the previous years as registered firm. Status of the assessee was changed from a registered firm to the association of persons (AOP) and noticing this change a notice under section 66A of the repealed Income Tax Ordinance, 1979 was issued threatening the assessee for cancellation of assessment for the reason that by changing the status the assessee has avoided the levy of tax under section 80D of the Income Tax Ordinance, 1979. Resultantly it was held that tax was paid at lower rate. The assessee contested the show-cause notice filed its reply and through a consolidated order dated 30-6-1997 the Inspecting Additional Commissioner cancelled the original assessment and referred the case back to the Assessing Officer for fresh assessment. The IAC observed that it was obligatory on the part of the assessee to intimate the Department within fifteen days from the dissolution of the firm under section 72 of the Income Tax Ordinance, 1979. Since no intimation was given within the period of 15 days, therefore, the provisions of section 72 were violated and in the absence of due intimation the assessment already made requires cancellation and reassessment. The order of IAC was challenged before ITAT and after elaborate discussion the order of IAC was cancelled. Resultantly the assessment already framed was restored after hearing respective arguments of both the learned counsel.

5. Controversy, which needs resolution, is that whether intimation for the change in the status of an assessee is a requirement of law. The IAC has cancelled the assessment for want of intimation according to the provision of section 72 of the Ordinance, 1979 (now repealed). Section 72 is not relevant to the case of the change of the status of an assessee. The intimation required to be submitted in terms of section 72 pertains to an assessee who discontinues the business. Similarly provisions of sections 70 and 71 deal with the change in the constitution of the firm and discontinuance of business or dissolution of firm or A association of persons. Both the sections do not require the intimation to the Department in the eventuality of the change in the constitution of the firm or dissolution of the firm. The firm was dissolved and was succeeded by A.O.P. with certain variations. The AOP according to the provision of section 73 is liable to be assessed in its own status from the date of its succession in the relevant income year. The provisions of' section 73(1)(a) and (b) are reproduced hereunder:---

"73. Succession to business, otherwise than on death.---(1) Where a person carrying on any business or profession has been succeeded in any income year by any other person (hereafter in this section referred to as the "predecessor" and "successor" respectively), otherwise than on the death of the predecessor, and the successor continues to carry on the business or profession,---

(a) the predecessor shall be assessed in respect of the income of the income year in which the succession took place up to the date of succession and of the income year or years preceding that year; and

(b) the successor shall be assessed in respect of the income of such income year after the date of succession."

6. The cancellation of assessment on the ground that no intimation was addressed to the Department with regard to the change in status is hardly a ground for cancellation of assessment. According to the provisions of section 73 of the Ordinance, 1979 the assessee was to be assessed in its own status on the date of its succession in the following income year. The Income Tax Appellate Tribunal has rightly held that non-filing of intimation within the prescribed period cannot be said to have no legal effect. Non-filing entails penal consequences as provided under section 108, which provides for imposition of penalty.

7. The upshot of the above discussion is that the questions of law referred to us at numbers `a' and `b' are answered in negative. As far as question `c' above is concerned it cannot be answered unless factual background of the controversy is discussed. We are not inclined to answer this question as it involves factual controversy.

S.A.K./C-54/L???????????????????????????????????????????????????????????????????????????????????? Order accordingly.