VS, 2008 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1884 (2008)

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

----Ss.221 & 234(4)---Income Tax Ordinance (XXXI of 1979), Ss.156 & 59-A---Rectification of mistake---Limitation---Assessment was finalized under S.59-A, of the Income Tax Ordinance, 1979 as on 30-6-2001---Limitation for rectification under S.156 of the Income Tax Ordinance, 1979 had expired on 30-6-2005---Such assessment was rectified as on 29-11-2005, under S.221 of the Income Tax Ordinance, 2001---Validity---Extended limitation of five years as provided in S.221 (4) of the Income Tax Ordinance, 2001 shall not apply to the assessments made under the Income Tax Ordinance, 1979---Rectification of any assessment made under Income Tax Ordinance, 1979 could be made within the limitation of four years as provided in S.156(4) of the Income Tax Ordinance, 1979---Provision of S.239(4) of the Income Tax Ordinance, 2001 will have an overriding effect and the proceedings saved under these provisions will continue to be completed accordingly under the Income Tax Ordinance, 1979---Rectification order was contradictory to the substantive provisions of law contained in S.239(4) of the Income Tax Ordinance, 2001---Rectification orders were annulled by the Appellate Tribunal in circumstances.

2005 PTD 14; 2006 PTD 734; 2003 PTD 2109 and (2008) 97 Tax 453 (Trib.) ref.

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

----Ss.239(4) & 221(4)---Income Tax Ordinance (XXXI of 1979), S.156---Saving---Conflict of provisions---Under the provisions of S.239(4) of the Income Tax Ordinance, 2001, any proceedings under the Income Tax Ordinance, 1979 pending on the commencement of Income Tax Ordinance, 2001 before any Income Tax Authority shall be continued and disposed of under the Income Tax Ordinance, 1979 in the manner as Income Tax Ordinance, 2001 had not come into force---Conflict/contradiction existed between the provisions of Ss.221(4) and 239(4) of the Income Tax Ordinance, 2001---Section 239(4) of the Income Tax Ordinance, 2001 clearly provides that all the proceedings pending under the Income Tax Ordinance, 1979 shall be completed under that Income Tax Ordinance, 1979---For making any rectification, limitation of four years was provided under S.156(4) of the Income Tax Ordinance, 1979---If any rectification was intended to be made with respect to any assessment made under the Income Tax Ordinance, 1979, the provisions of S.156(4) of the Income Tax Ordinance, 1979 shall apply where it was provided that no rectification shall be made after expiration of four years from the date of order sought to be amended---Provisions of S.239(4) of the Income Tax Ordinance, 2001 read with S.156(4) of the Income Tax Ordinance, 1979 were in clear conflict with the provisions of S.221(4) of the Income Tax Ordinance, 2001---Applicability of provisions of Income Tax Ordinance, 1979 in respect of pending assessments was saved under S.239(4) of the Income Tax Ordinance, 2001---Saving clause had an overriding effect and no other provisions contained in or inserted in the Income Tax Ordinance, 2001 could overrule the same---If any provision of Income Tax Ordinance, 2001 was in conflict with S.239(4) of the Income Tax Ordinance, 2001, it would automatically abate and would not have any binding effect.

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

----Ss.221(1A) & 221(4)---Income Tax Ordinance (XXXI of 1979), S.156---Rectification of mistake---Limitation---Provision of S.221(4) of the Income Tax Ordinance, 2001 in respect of rectification under S.221(1A) of the Income Tax Ordinance, 2001 did not represent the intention of legislature---Said provisions could not be applied in respect of any rectification intended to be made with regard to any order made under the Income Tax Ordinance, 1979.

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

----S. 221---Income Tax Ordinance (XXXI of 1979), S.65(1)(b)---Rectification of mistake--Application: of higher rate of tax through rectification---Validity---Section 65(i)(b) of the Income Tax Ordinance, 1979 provides that when lower rate of tax was charged on income of any assessee, the assessment should be reopened and a written order should be passed through which proper tax should be charged according to law---Rectification could not be made in the circumstances---Assessing Officer should have reopened the assessment under S.65 of the Income Tax Ordinance, 1979 and should have accordingly proceeded to charge proper rate of tax on assessee's income---Action under S.221 of the Income Tax Ordinance, 2001 was legally not correct---Case was not fit for rectification and the proceedings taken under S.221 of the Income Tax Ordinance, 2001 were contrary to law and were legally not maintainable---Order of rectification under S.221 of the Income Tax Ordinance, 2001 was annulled by the Appellate Tribunal in circumstances.

2006 PTD 2001 rel.

Hafiz Muhammad Idrees and Aurangzaib, ITP/ARs for Appellant.

Mir Alam Khan, D.R. for Respondent.

ORDER

These appeals have been filed by the assessee against order, dated 31-1-2006 passed by CIT (A-1), Islamabad.

2. As per facts the assessee is a non-resident individual deriving income from property. Returns were filed within due date declaring net income of Rs.16,53,028 for assessment years 1999-00 and Rs.15,04,037 for assessment years 2000-01 which were accepted through order under section 59-A, dated 30-6-2001. Subsequently, the Assessing Officer examined the assessment record and found that correct amount of tax was not charged on assessee's income in the light of provisions contained in clause (3) Para. (A) of Part-IV of the 1st Schedule to the Income Tax Ordinance, 1979, which provides that a non-resident person has to pay tax @ 20% or a higher rate applicable to his total income. The Assessing Officer found that the lower amount of tax was charged on assessee's income in the original assessment as per following details:--

3. Proceedings for rectification of assessments were started by way of issuing specific notice to the assessee. For the reasons recorded in the assessment order under section 221 of the Income Tax Ordinance, 2001, dated 29-1-2005 assessee's explanation was rejected and the assessments were rectified in the following manner:--

4. The assessee filed appeal against this order, which was rejected by CIT(A), vide his impugned order, dated 13-11-2006. The assessee has filed second appeal against the orders of CIT(A) on the following common grounds (reproduced verbatim):

(i) ------------------------------------;

(ii) that the order passed under section 221 of the Income Tax Ordinance, 2001 by the said learned Taxation Officer is patently illegal, void ab initio, barred by time and hit by limitation as such order is illegal and the worthy CIT(A) was not at all justified in confirming the order of Taxation Officer passed under section 221 of the Income Tax Ordinance, 2001 which is illegal and against the norm of natural justice;

(iii) that the order passed under section 221 of the Income Tax Ordinance, 2001 is clearly against the judgment of Honourable Lahore High Court in the case reported as 2005 PTD 14;

(iv) that no provision of law can extend the limit already given in the statute which affected vested rights of your appellant accordingly rectification order passed under section 221 of the Income Tax Ordinance, 2001 is illegal;

(v) that at the time of assessment there was provision under the Income Tax Ordinance, 1979 i.e., under section 156 which provides the limit of rectification for four years. This limit cannot be extended through a new Ordinance. In. fact the extended limitation is very fatal which caused heavy loss to the appellant. So the extended limitation is illegal and unjustified;

(vi) that as amendment regarding limitation of rectification is not remedial or curative as such is not applicable retrospectively or on completed assessment under the repealed Ordinance, 1979;

(vii) -------------------------------

5. The assessee has also moved miscellaneous applications for both the years raising following legal points (reproduced along with errors):--

(i) that issue involved in this case does not fall under the ambit of section 221 of the Income Tax Ordinance, 2001;

(ii) that the application of wrong tax rate can only be amend through section 221 of the Income Tax Ordinance, 2001 which provides the remedy under subsection (ii) of this section, so the order passed under section 221 of the Income Tax Ordinance, 2001 is illegal void ab initio and without jurisdiction;

(iii) that as per section 221 of the Income Tax Ordinance, 2001 only a mistake can be rectified whereas in the instant case no mistake is apparent from record as such the order is illegal.

6. Miscellaneous applications of the assessee have already been admitted by the Tribunal vide order, dated 19-9-2007 in M.A. Nos.45 and 46(IB) of 2007.

7. Limitation.--- Learned A.R. stated that returns were filed on due dates and assessment for both the years under consideration was made under section 59-A on 30-6-2001. He stated that limitation for rectification under section 156 of the Income Tax Ordinance, 1979 expired on 30-6-2005. He stated that the impugned order of rectification under section 221 was passed on 29-11-2005. In this manner, the impugned order under section 221 is illegal and void for having been passed after the expiry of limitation of four years.

8. Learned A.R. stated that provisions of section 221(1A) were initially inserted in the Income Tax Ordinance through S.R.O. No.633 and subsequently through Finance Act, 2003. He contended that the returns were filed under the provisions of the Income Tax Ordinance, 1979 (repealed). He stated that all the pending assessments and other matters relating to these assessments 'were required to be processed under the relevant provision of the repealed Ordinance of 1979. He stated that provisions of new Ordinance of 2001 are applicable only to those returns/assessments which relate to tax year 2003 and onwards. He emphasised that provisions of 156 of the Ordinance of 1979 were applicable in this case. The limitation for rectification had already expired on 30-6-2005 under these provisions. He contended that in a case reported as 2006 PTD 734 (HC Kar.) the issue of application of provisions of the old Ordinance vis a vis new Ordinance with reference to provisions of section 122(5A), were settled in the following manner:--

"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 2001-01 and 2001-02 were finalized before 1-7-2003 and consequently, in view of our earlier judgment in the case of Honda Shahrah-e-Faisal v. Regional Commissioners of Income Tax, 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."

9. Learned A.R. further stated that the definition of "pending" assessments has been given in a judgment reported as 2003 PTD 2109 in the following manner:--

"Whether word "pending" does not mean physically pending, but would also include within its definition what is proposed to be filed within unexpired periphery of time which has happened in present case. -- Held yes -- whether order of rejection of revision petition passed by CIT was without legal basis - Held yes."

10. Learned A.R. contended that the Tribunal in its recent judgment reported as (2008) 97 Tax 453 (Trib.) has clearly held that the provisions of rectification as contained in section 156 of the said Ordinance shall apply in respect of assessments covered under the repealed Ordinance, 1979, and extended limitation of five years as provided in section 221(1A) shall not apply in such cases. The principle has been 'explained by the Tribunal in the aforesaid judgment in the following manner (reproduced verbatim):--

"We have heard the arguments advanced on behalf of the vital parties and also carefully gone through the relevant record available on file. Subsequently enlarged limitation by the new Ordinance cannot be applied in case of those pending assessments which are to be governed by the repealed Ordinance and the section 156 of the repealed Ordinance, 1979 provides limitation of four years which was expired before passing of this impugned order. This contention of the department that limitation was already extended by way of new legislation does not carry weight because for the assessment year 1998-99 provision of old laws are applicable and limitation enlarged in the new Income Tax Ordinance, 2001 is not to apply."

11. Learned D.R. stated that it has been specifically provided in section 221(4) that the order of rectification can be passed under section 221 in respect of any order passed under the repealed Ordinance, of 1979. Learned D.R. contended that the substantive law contained in section 221(4) is very clear on this subject and in the presence of specific legal provisions available in respect of matter under consideration, no other interpretation can be placed in such a manner that a different limitation may apply.

12. We have noted from perusal of provision of section 221(1A) that the Commissioner may amend any order passed under the repealed Ordinance and limitation of five years as provided in section 221(4) shall be available for making such amendment. Subsection (1A) was inserted in section 221 through Finance Act, 2003. Previously subsection (IA) was inserted by S.R.O. 633(I)/2002, dated 14-9-2002 which stands rescinded by S.R.O. 608(I)/2003, dated 24-6-2003 with effect from 1-7-2003. The said rescinded subsection (IA) reads as follows:

"(1A) The Commissioner may be 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."

13. We are of the opinion that the provisions of section 239(4) are very significant because it is provided there that any proceedings under the repealed Ordinance pending on the commencement of new Ordinance of 2001 before any Income Tax Authority shall be continued and disposed of under the repealed Ordinance in the manner as the new Ordinance has not come into force. We have noted that there is a conflict/contradiction between the provisions of section 221(4) of section 239(4). Section 239(4) clearly provides that all the proceedings pending under the repealed Ordinance of 1979 shall be completed under that repealed Ordinance. For making any rectification, limitation of four years is provided under section 156(4) of the repealed Ordinance. If any rectification is intended to be made with respect to any assessment made under the repealed, Ordinance of 1979, the provisions of section 156(4) shall apply where it is provided that no rectification shall be made after expiration of four years from the date of the order sought to be amended. These provisions of section 239(4) of Ordinance, 2001 read with section 156(4) of Ordinance, 1979 (repealed) are in clear conflict with the provisions of section 221(4) of Ordinance of 2001. The applicability of provisions of the repealed Ordinance, 1979 in respect of pending assessments was saved under section 239(4). This saving clause has an overriding effect and no 'other provisions contained in order inserted in the Ordinance of 2001 can overrule it. Rather if any provision of Income Tax Ordinance, 2001 is in conflict with section 239(4), it will automatically abate and will not have any binding effect.

14. Section 239(4) is the umbrella which provides shelter and protection to all the assessments pending under the old Ordinance of 1979 at the time of promulgation of new Ordinance of 2001. This protection is so strongly built that without amending these very provisions; no other amendment could have any effect on it. If intention of the legislature was to extend the limitation of four years to five years for rectification under section 156 of the Old Ordinance of 1979, then following proviso could/should have been added to section 239(4):--

"provided that these provisions shall not apply to amendment to assessment under section 221."

15. But no such proviso was added to section 239(4). Therefore, it means that the legislature never intended to extend the limitation of four years to five years for rectification of any order made under the repealed Ordinance of 1979. The provision of section 221(4) in respect of rectification under section 221(1A) of the Income Tax Ordinance, 2001 do not represent the intention of legislature. These provisions, therefore, cannot be applied in respect of any rectification intended to be made with regard to' any order made under the Income Tax Ordinance, 1979 (repealed).

16. In the light of aforesaid legal analysis of the matter under consideration as well as ratio settled in the aforesaid judgments of higher forums we hereby hold that extended limitation of five years as provided in section 221(4) shall not apply to the assessments made under the repealed Ordinance of 1979. Rectification of any assessment made under the repealed Ordinance of 1979 could be made within the limitation of four years as provided in section 156(4) of the said Ordinance. The provisions of section 239(4) will have an overriding effect and the proceedings saved under these provisions will continue to be completed accordingly under the repealed Ordinance. We, therefore, hold that the impugned rectification order is contradictory to the substantive provisions of law contained in section 239(4) of the Income Tax Ordinance, 2001. Both the impugned rectification orders, are, therefore, annulled.

17. Reopeningor rectification.----Learned A.R. stated that provisions of section 221 were not applicable in this case because as per acts, the assessment was made at a lower rate of tax. He contended that under the provisions of section 65(1)(b), the Assessing Officer should have proceeded to assess or determine, by an order in writing the total income of the assessee and the tax payable by him. He contended that the scope of rectification is very limited. Learned A.R. further stated that there is no mistake floating on the surface, which could be rectified without any further investigation or evidence. The impugned rectification amounts to reappraisal of facts and law. There is no rectifiable mistake in impugned orders of the Deputy Commissioner who had given conscious decision after proper application of mind and taking into account all the relevant facts, at the time of making assessment under section (59A).

18. Learned A.R. stated that in a case reported as 2006 PTD 2001 learned High 'Court, Lahore has explained the scope of rectification under section 156 vis-a-vis reopening of assessment under section 65 in the following manner (reproduced verbatim):-

"A reading of the aforesaid notice undoubtedly shows its purpose to modify a considered finding given in the petitioner's assessment order for 1982-83 regarding admissible depreciation allowances. This purport turns on avoiding 1-7-2001 as the date of commercial production of the undertaking of UCM. The history of the case shows that the respondents are dissatisfied with their acceptance of the merger of UCM and the date of commercial production of its undertaking. The matters of depreciation allowances claimed by the petitioner were considered and decided by the respondent-authorities after a careful reading of the record without any concealment of misrepresentation by the petitioner and with full knowledge of the law. To alter the depreciation of allowance granted by the Assessing Officer to UCM requires the reopening of the matter whereas the remedy under section 156 of the Ordinance is available for correction of errors that float on the face of the record. The relief sought by the impugned notice is outside the purview of section of 156 of the Ordinance."

19. Learned A.R. contended that the Assessing Officer followed an absolutely wrong procedure by way of taking rectification under section 221. He stated that lower rate of tax was charged in assessee's case and in this situation the Assessing Officer should have re-opened the assessment under section 65 .and should have charged, by an order in writing a proper rate of tax on assessee's income. He emphasised that proceedings under section 221 in the given situation are ultra vires and of no legal effect.

20. Learned D.R. stated that the mistake was apparent from record and no further inquiry or investigation was required. He stated that the assessee's income was charged to a lower rate of tax. This was a mistake apparent from record and it could be rectified under section 221, without any further inquiry. He contended that no legal infirmity is involved in rectification proceedings or in the rectification order made by the Assessing Officer.

21. We have considered arguments of both the sides in the light of relevant provisions of law and we have noted that the provisions of section 65 are clearly applicable in this case. Section 65(1)(b) provides that when lower rate of tax is charged on income of any assessee, the assessment should be reopened and a written order should be passed through which proper tax should be charged according to law. In our opinion rectification could not be made in this case. The Assessing Officer should have reopened the assessment under section 65 and should have accordingly proceeded to charge proper rate of tax on assessee's income. The impugned action under section 221 is legally not correct. We, therefore, hold that this case was not fit for rectification and the proceedings taken under section 221 are contrary to law and are legally not maintainable. Hence the impugned rectification order under section 221 is hereby annulled, also on this account.

22. Order accordingly.

C. M.A./85/Tax (Trib.)Appeal accepted.