VS, 2008 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1942 (2008)

(a) Income-Tax Ordinance (XXXI Of 1979)---

----Ss.156(3), 62 & Second Sched., Part-I, Cl. (118-D)---Rectification of mistake---Limitation---Direction of High Court---Extension of limitation period---Department pleaded that Taxation Officer was right in rejecting the rectification application as the High Court directed to decide the rectification application within two months from the date of its order and on such direction period of limitation provided under S. 156 (3) of the Income-Tax Ordinance, 1979 stood extended---Validity---Direction of High Court was twofold: It had been directed to decide the application within two months on one hand but the direction was not unbridled on the other hand---Such direction was qualified with the word "in accordance with law" which specially meant that the disposal or decision must remain within the admitted and allowed contours of the law---Since period provided for taking action and passing order on applications stood expired, no resort could be had to pass order on the subject application, which stood already acted upon by operation of law and within stipulated time---Time provided by law for adjudicating the application having once expired shall not be extended---When law provided a thing to be done in a particular manner, the same must be done in that manner and if it is not done in the manner so provided, the same shall be nullity in the eyes of law---Taxation Officer having failed to pass order in the manner and within the time frame provided under the law, rejecting the rectification application was not tenable in the eyes of law---Both the authorities below were incorrect in holding that due to direction of High Court, the statutory limitation provided for action under S. 156(1) of the Income-Tax Ordinance, 1979 stood extended by two months---Orders of both the authorities below were vacated by the appellate Tribunal and rectification sought through applications were deemed to have been granted.

Nagina Silk Mills, Lyalpur v. C.I.T. PLD 1963 SC 322; C.I.T. v. Hakim Ali Zardari 2006 PTD 271 and I.T.As. Nos.4847/LB to 4851/LB of 2005 ref.

2002 PTD 750; 2002 PTD 1470; PLD 1966 SC 738; 1991 MLD 25; 1991 MLD 889 and 2007 PTD 67 rel.

(b) Income-Tax Ordinance (XXXI of 1979)---

----S.156(3)---Rectification of mistake---Limitation---Principles---If an assessee brings a mistake to the notice of any tax authority, it casts a responsibility on such authority to pass an order on such application before the expiration of the financial year next following the date in which such mistake was brought to his notice---Provision is substantive and mandatory in nature for the reason that it is couched in a negative language and provides a consequence which clearly states that in case of failure on the part of such authority, to pass order on such application, "the mistake shall be deemed to have been rectified"---Consequence of non-passing of order within the stipulated time, the mistake brought to his notice, shall be deemed to have been granted by operation of law---Rectification application pointing out mistake was admittedly filed, Taxation Officer is legally bound to pass order thereon in terms of S.156(1) of the Income-Tax Ordinance, 1979---No such order having been passed till the due date, mistakes sought to be rectified shall be deemed to have been rectified on the operation of period of limitation provided in S.156(3) of the Income-Tax Ordinance, 1979.

Shahbaz Butt for Appellant.

Ghazanfar Hussain, D.R. for Respondent.

Date of hearing: 22nd May, 2008.

JUDGMENT

NASEER AHMAD, ACCOUNTANT MEMBER.---Titled appeals have been filed against the consolidated appellate order dated 5th September, 2005, passed by the Commissioner of Income-Tax (Appeals), Lahore. Through this consolidated appellate order the order passed by the Taxation Officer, Lahore, refusing to rectify the original assessment orders, has been confirmed.

2. Facts giving rise to these appeals are stated in brief that the appellant a public limited company is manufacturer of sugar, profits and gains whereof were exempt in terms of clause 118-D of Part-I of Second Schedule to the late Income-Tax Ordinance of 1979. In the stated background, the appellant company submitted its returns declaring losses, in all the years under appeal. Assessment was completed under section 62 of the Repealed Ordinance, whereby the claimed exemption were granted, but while preparing IT-30s in all the years set off of carried forward losses was not allowed. Therefore, the appellant moved an application on 4th March, 2000, in terms of section 156(I) seeking rectification of the original assessment orders to the extent of carrying forwarding of losses of the previous years. The department did not adhere to the request of the taxpayer. Therefore, the appellant moved a writ petition in the Lahore High Court, praying issuance of directions for expeditious disposal of rectification application in accordance with law. The Lahore High Court vide order dated 10th December, 2002 passed in writ petition No.21088/2002 was pleased to dispose of the same in the following manner:-

"2. The grievance as well as prayer made by the petition is reasonable. It is statutory duty of a public functionary to deal with and decide the application in accordance with, as expeditiously as possible. In view thereof the respondent is directed to deal with and decide the petitioners rectification application in accordance with law within a period of two months, after granting due hearing to the petitioner".

3. Subsequent to the above decision the department issued notice dated 3rd February, 2003, allowing hearing to the appellant. The appellant appeared before the Taxation Officer and through letter dated 10th February, 2003 submitted that the rectification sought through application dated 4th March, 2000 is deemed to have been allowed on 30th of June, 2001 by operation of law and within statutory time limit as contained in section 156 (3) of the late Ordinance. The jurisdictional objection so raised was turned down through consolidated order dated 10th February, 2003 on the ground that time for taking action on the subject applications stood extended by the Honourable High Court. The order dated 10th February, 2003 was impugned in first appeal and the learned Commissioner of Income-Tax (Appeals) vide consolidated order dated 5th September, 2005 confirmed the order passed by the Taxation Officer. The order of the first appellate authority has now been impugned in the present appeals before this Tribunal on the following ground:

"(1) That the orders of both the authorities below are bad in law and contrary to the facts of the case.

(2) That the worthy Commissioner of Income-Tax Ordinance (Appeals) was not right in rejecting the appeal on the basis that question of limitation in terms of section 156(3) of the repealed Ordinance, 1979 does not arise in the case keeping in view time period of two months for disposal of rectification application set out by the Honourable Lahore High Court.

(3) That while rejecting the appeal of the appellant, the worthy Commissioner of the Income-Tax (Appeals) has ignored the settled law that legal issue can be raised at any stage or forum.

(4) That while rejecting application/appeal, both the authorities below have ignored the directing of the Honourable Lahore High Court, Lahore that rectification application should be decided in accordance with law and limitation provided under the statute cannot be extended under the garb of order of the High Court.

(5) That admittedly application under section 156 was submitted on 4-3-2000 and the Assessing Officer was under legal obligation to pass orders thereon within one year front the end of financial year in which such application was filed.

(6) That since the application so filed was not adjudicated within stipulated time, the order passed on 10-2-2003 by the assessing authority and maintained by first, appellate authority is unlawful and without jurisdiction.

(7) That the rectification sought through application dated 4-3-2000 is deemed to have been finalized in terms of section 156(3) of Income-Tax Ordinance, 1979 on 30-6-2001 and subsequent order passed by the Assessing Officer on 10-2-2003. refusing the set off of the carrying forward of losses of the previous year is against the law:

(8) That neither the learned assessing officer was justified in refusing to allow the set off the carrying forward losses of the previous years nor the worthy Commissioner of Income-Tax(Appeals) was justified in leaving the said ground without adjudication".

4. Both the AR as well as DR have been heard and available record perused. The AR of the appellant had vehemently stated that .the facts regarding filing of rectification applications on 4th March, 2000 are not denied by the revenue. To support his contention AR drew our attention towards the impugned order dated 10th February, 2003, wherein the taxation officer admits in unequivocal terms that "subsequently the AR vide application dated 4th March, 2000 requested to rectify the IT-30s for the year mentioned supra by carrying forwarded the losses of previous years" AR further stated that as soon as the fact of filing of application is admitted, the provisions of section 156(3) of the repealed Ordinance shall come into play, which imposes statutory duty on the Taxation Officer to rectify the pointed out mistake within time frame provided under the statutory stipulations as contained in subsection (3) of section 156 of late Ordinance and thus the concerned authority was under statutory duty to pass an order either accepting or refusing the pointed out mistake, before the expiration of the financial year next following the date in which such mistake was brought to the notice of said authority. AR stated that in the circumstances of the present case passing of rectification order within the time frame provided under the law is sine qua non for the very simple reason that the relevant provision of law itself provides a consequence for non-passing of an order within the stipulated time, making the said provision mandatory. AR stated that effect of non-passing of order as provided in law shall be that rectification sought shall be deemed to have been allowed and by operation of law. Therefore, AR argued that the rectification sought through the application under reference was deemed to have been granted on 30th June, 2002 because of inaction and non passing of the requisite order within the time provided by the statute.

5. AR further stated that both the authorities below were incorrect in rejecting the rectification application on the ground that because of the order of the Lahore High Court the time provided under the statute stood extended by two months. AR stated that the reasons given by both of them for refusing rectification are not tenable in the eye of law for multiple reasons, firstly that by passing of statutory limit the appellant had acquired a vested right on the 30th June, 2002 and the said right cannot be withdrawn. Relying upon PLD (1963) SC 322 in re: Nagina Silk Mills, Lyalpur v. C.I.T. Lyalpur, AR stated that once the time begun to run, it never stops and cannot be extended unless the legislature intervene and therefore, he stated that according to the legislation provided in section 156(3) of the Late Ordinance, the rectification is deemed to have been made on the expiry of limitation provided therein. He further submits that the order of the Lahore High Court is twofold, firstly that it was directed that the applications for rectification be decided within two months and secondly that the same be decided in accordance with law. Therefore, it clearly follows that the directions contained in the order was qualified with the words "in accordance with law" and when the law has provided a time frame for such action, and since no order was passed and the time provided stood expired. No action beyond the statutory stipulation was warranted. Therefore, AR stated that the learned C.I.T. (A) as well as the Taxation Officer fell in grave error in holding that since the Lahore High Court has extended the time provided for deciding the subject application under section 156(3) of the repealed Ordinance, the objection of the appellant was not tenable.

6. AR further stated that the question of limitation being a matter of statutory stipulation and expiration of such limitation creates a vested right in favour of the appellant because of operation of a substantive and mandatory provision, the same cannot be waived or extended and even, if it is waived, the same can be taken up again by the party waiving such right. In this behalf AR has relied on a case cited as 2006 PTD 271 in re: C.I.T. v. Hakim Ali Zardari. AR further stated that the presumption that by virtue of direction of the Lahore High Court the period has been extended is totally unwarranted and contrary to the statutory stipulations. AR added that an order on rectification application was a separate and independent order and by passage of specific time, the deeming provisions were pressed into service and consequently the relief sought was deemed to have been allowed to the appellant creating a vested right in favour of the appellant, which cannot be abandoned or taken away.

7. AR drew our attention towards the order of the Income-Tax Appellate Tribunal passed in I.T.As. Nos. 4847/LB-2005 to 4851/LB-2005 (assessment years 1995-96 to 1999-2000) decided on 8th December, 2006 and stated that in the, said case the application for rectification was moved in the similar circumstances as that of the present appellant and because of non-action a writ petition was filed in the Lahore High Court and the Honourable Court made a similar direction. The Assessing Officer refused the rectification so sought which was challenged in first appeal before the Commissioner of Income-Tax (Additional Appeals), Zone-I, Lahore who vide an order dated 31st May, 2005 held that the application having been filed well within time the same are declared to have been accepted in terms of section 156(3) of the Repealed Ordinance. The order of the Commissioner of Income-Tax (Appeals) was challenged by the revenue before the Income-Tax Appellate Tribunal. The Tribunal vide order dated 8th December, 2006 confirmed the order of the first appellate authority holding that the first appellate authority was rightly holding that the order passed by the Taxation Officer beyond time limit was illegal and consequently the appeals filed by the department were dismissed. In this background he submits that the appeals filed by the appellant be allowed.

8. The learned DR representing the department has supported the impugned orders on the ground set forth therein AR stated that the Honourable High Court having directed that the applications of rectification be decided within two months from the date of its. Order, the period of limitation provided under section 156(3) stand extended and, therefore, Taxation Officer was right in rejecting the rectification applications.

9. After giving conscious consideration to the rival arguments, we found that there is no factual controversy involved in the present appeals. The Taxation Officer himself in Para-2, Page-I of order dated 10th February, 2003 records as under:

"Subsequently the AR vide application dated 4th March, 2000 requested to rectify the IT-30s for the years mentioned supra for carrying forward the losses of the previous years".

From the reading of above passage, it transpires that there is no dispute amongst the parties as far as the date of filing of the subject application is concerned. It is further observed that nowhere in the impugned orders, it has been objected by any of the authorities below that the said applications were not filed within the statutory period. Therefore, we have come to the conclusion that the rectification applications were filed were within time on 4th March, 2000. Having given to the above finding, we revert to the provisions of section 156(3) of the Repealed Ordinance, which read as under:

"Where any such mistake is brought to the notice of any Income-Tax authority by an assessee and no order under subsection (1) is made by such authority before the expiration of the financial year next following to date in which it was brought to its notice, the mistake shall be deemed to have been rectified and all the provisions of this Ordinance shall have effect accordingly".

From the perusal of the above statutory stipulation, it clearly follows that in case an assessee brings a mistake to the notice of any tax authority, it casts a responsibility on such authority to pass an order on such application before the expiration of the financial year next following the date in which such mistake was brought into his notice. The provision is substantive and mandatory in nature for the reason that it is coached with a negative language and provides a consequence which clearly states that in case of failure at the part of such authority, to pass order on such application, "the mistake shall be deemed to have been rectified". Meaning thereby the consequence of non-passing of order within the stipulated time, the mistake brought to his notice, shall be deemed to have been granted by operation of law. Applying the above position to the circumstances of the present case, in our view the rectification applications pointing out mistakes was admittedly filed on 4th March, 2000. Therefore, the taxation officer was legally duty bound to pass order thereon in terms of section 156(1) before 30th June, 2001. It is quite evident from the record of the proceedings that no such order was passed by the concerned authority till the due date. Therefore, the mistakes sought to be rectified shall be deemed to have been rectified on the expiration of period of limitation provided in section 156(3) of the late Ordinance.

10. Now coming back to, the order of the Lahore High Court directing the Taxation Officer to decide the applications within two months in accordance with law. In our considered opinion the direction of the 'Honourable Lahore High Court is twofold. It has been directed to decide the application within two months on one hand but the direction is not unbridled on the other hand. The same is qualified with the word "in accordance with law" which specifically means that the disposal or decision must remain within the admitted and allowed contours of the law. Since the period provided for taking action and passing order on subject applications stood expired on 30th June, 2001, no resort can be taken, so as to pass order on the subject application, which stood already acted upon by operation of law and within stipulated time. It is by now settled that there is no estoppels against law as has been held in case reported 2002 PTD 750, 2002 PTD 1470, PLD 1966 SC 738, 1991 MLD 25 and 1991 MLD 889 and 2007 PTD 67. Therefore, the time provided by law for adjudicating the subject application having once expired shall not be extended. It is now well settled that when a law provides a thing in a particular manner, the same must be done in that manner and if it is not done in the manner provided, the same shall be nullity in the eyes of law.

11. Since in our view the Taxation Officer has failed to pass the order in the manner and within the time frame provided under the law, therefore, the order dated 10th February, 2003 rejecting the rectification applications was not tenable in the eyes of law. Further we hold that both the authorities below were incorrect in holding that due to direction of the Honourable Lahore High Court, the statutory limitation provided for action under section 156(1) stood extended by two months. Under the circumstances, we hereby vacate the orders of both the authorities below and hold that the rectifications sought through applications dated 4th March, 2000 by the appellant are deemed to have been granted.

C.M.A./90/Tax(Trib.)Order accordingly.