2008 P T D (Trib.) 296
[Income-tax Appellate Tribunal Pakistan]
Before Jawaid Masood Tahir Bhatti, Judicial Member and Khalid Siddiqui, Accountant Member
I.T.A. No.2515/LB of 2005, decided on 04/12/2007.
(a) Income Tax Ordinance (XXXI of 1979)---
----S. 66-A---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Amalgamation of companies---Creation of liability against non-surviving company---Validity---Merger of the group of companies plays a vital role to minimize the expenses and raise/generate profits---.Merger theory was globally followed for survival economically---Assessee company had been merged with the other one---No action could be taken against the assessee being non-surviving company/defunct/dissolved/legally non-existing company---Only surviving/ transferee company could be sued and appeal could lie against the same and not against merged assessee company---Merger approved by the High Count had the legal effect of giving a continuity to the operations of the merged company, which was a part of the assessee company and vesting the assessee company with all assets and liabilities of the merged companies---If there was any un-discharged tax liability of the non-surviving companies, the same would be recoverable from the surviving company and that the surviving company would be bound to duly discharge the same.
2007 PTD (Trib.) 1885 ref.
(b) Income-tax---
----Amalgamation of companies---Liability of merged assessee company--All the liabilities of non-surviving company will be burdened by the surviving company---Law provides that if a tax payer dies then outstanding amount of tax payable is recoverable from their legal representatives; on the same analogy merged company would be deemed to have died and surviving company was its legal representative/heir and was liable to face any suit/case/litigation or to pay any amount or clear the liabilities of merged company.
2004 PTD 1173 distinguished.
(c) Income Tax Ordinance (XXXI of 1979)---
----S. 66-A---C.B.R. Notification No. 2 (1) S/ASSTT/2004, dated 25-8-2004---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Jurisdiction---Commissioner of Income Tax, Special Zone, had no jurisdiction to pass order under S.66-A of the Income Tax Ordinance, 1979 on 22-3-2005 as the assessee company was transferred to another Zone vide C.B.R Notification No.2(1)S/ASSTT/ 2004, dated 25-8-2004---Proper jurisdiction of the case, after transfer, vests is the transferee zone---Order passed by the Commissioner of Income Tax Special Zone, under S.66-A of the Income Tax Ordinance, 1979 lacked jurisdiction.
I.T.A. No. 85 of 2000-2001 and I.T.As. Nos. 1970 to 1972/KB of 1999-2000 ref.
(d) Income Tax Ordinance (XXXI of 1979)---
----S. 66-A---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Amalgamation of companies---Recovery proceedings or proceedings under S.66-A of the Income Tax Ordinance, 1979 against merged. company---Validity and scope---After amalgamation all the assets, properties, rights, privileges and liabilities of the assessee company stood transferred and vested in transferee company which was sole responsible for all kinds of liabilities, if the same had accrued to the merged assessee---Where a company was amalgamated with another company, recovery of tax due from transferor company from transferee company without making transferee company a party to re-assessment proceedings against transferor, was invalid---No proceedings under S.66-A of the Income Tax Ordinance, 1979 could be initiated against the assessee and recovery of any amount in consequence of such proceedings without making the transferee company a necessary party, was not permissible---If it is presumed that proceedings under S.66-A of the Income Tax Ordinance, 1979 were valid then it was not possible that recovery could be effected from transferor company after having been merged with transferee company---No notice was issued to transferor company---Proceedings enunciated by the Department against assessee when the assessee merged with transferor company would be null and void.
(e) Income Tax Ordinance (XLIX of 2001)---
----S.239---Income Tax Ordinance (XXXI of 1979), S. 66-A---Savings---Any proceedings---Meaning and impact---Words "any proceedings" used in S.239 of the Income Tax Ordinance, 2001 had been clearly categorized by the legislature as "appeal, reference, revision by the (Commissioner) and prosecution"---Appeal and revision fell under Chapter XIII of the Income Tax Ordinance, 1979---Appeal relates to Ss.129 to 137 of the Income Tax Ordinance, 1979 while revision by the Commissioner relates to S.138 of the Ordinance---Prosecution fell under Chapter XII of the Income Tax Ordinance, 1979---Commissioner of Income Tax misconstrued S.239(4) of the Income Tax Ordinance, 2001 as S.66-A of the Income Tax Ordinance, 1979 falls under Chapter VII, which was regarding "assessment"---No appeal, reference or revision was pending in assessee's case, order of Commissioner of Income Tax passed under S.66A of the Income Tax Ordinance, 1979 was without any merit.
2002 PTD (Trib.) 3027 and 2003 ITR 108 ref.
(f) Income Tax Ordinance (XXXI of 1979)---
----Ss. 66-A, 12(9A), 62 & First Sched. Paragraph (F)---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Finalization of assessment by the Panel---Cancellation of---Validity---Original assessment was finalized by the Panel comprising of senior officers by calling various details viz. published statement of accounts, consisting of cash book, ledger, stock register, bank book, sale and purchase vouchers, sales tax record and the same had been examined by the Panel---Panel, after giving due deliberation to these details, passed the conscious order by applying judicious mind and addition of Rs.10 Million only was made by the Panel---Such assessment could not be termed as erroneous and prejudicial to the interest of revenue---Order of Commissioner of Income Tax passed under S.66-A of the Income Tax Ordinance, 1979 was based on mere presumption, surmises and conjectures which was unjustified and mala fide as Commissioner had transgressed his powers by invoking S.66-A of the Income Tax Ordinance, 1979 and no such powers were available with the Commissioner to hold order of the Panel to be erroneous and prejudicial to the interest of revenue---Bona fide orders with good intentions has to be within the limits prescribed by the law---Order passed by the Commissioner under S.66-A of the Income Tax Ordinance, 1979 was cancelled by the Appellate Tribunal and the assessment made under S.62 of the Income Tax Ordinance, 1979 restored.
2002 PTD (Trib.) 3027 and 1997 PTD (Trib.) 2137 ref.
M. Jawed Zakaria for Appellant.
Ghanzanfar Hussain, D.R. for Respondent.
ORDER
Through this appeal, the appellant has objected to the impugned order of the learned CIT(A), dated 22-3-2005 passed by the learned Commissioner of Income Tax under section 66A of the repealed Ordinance, 1979.
The brief facts of the case are that the assessee is a public limited company listed on Stock Exchange. The company continued to derive income from spinning of yarn Original assessment in this case was finalized under section 62 on 28-3-2001 at an income of Rs.71,217,011 by the IAC (Chairman Panel). The assessee-company Messrs AA Textile Ltd. was. merged/amalgamated with Messrs IFL as per the Scheme of amalgamation/arrangement duly approved by the Hon'ble Lahore High Court Lahore through an order passed in C.P. No.49 of 2001 effective from 1-10-2000 and the case of surviving company Messrs IFL has been transferred from Special Zone Lahore to Large Tax payer Unit Lahore vide C.B.R's notification No.2(1)S/ Asstt/2004, dated 25-8-2004. However, the Commissioner of Income Tax, Special Zone-Lahore issued notices under section 66-A to the assessee terming the original assessment order passed under section 62 as erroneous and prejudicial to the interest of revenue as according to the Commissioner excess reserve over 50% of the paid up capital of R.36,246,110 was treated as deemed income of the assessee for the year under consideration under section 12(9A) of the repealed Income Tax Ordinance, 1979 and tax @ 10% amounting to Rs.3,624,611 under paragraph (F) of 1st Schedule to the Income Tax Ordinance, 1979 was directed to be levied by the Commissioner. Being aggrieved from the order of the Commissioner of Income Tax under section 66A of the repealed Ordinance, 1979, the instant appeal has been filed.
The assessee has assailed the order on the following grounds:--
(1) That the order passed by the Commissioner of Income Tax Special Zone, Lahore under section 66-A of the Income Tax Ordinance, 1979 (Repealed) is bad in law and on facts.
(2) That the learned Commissioner of Income Tax Special Zone, Lahore has erred and mis-directed himself under the facts/law and circumstances of the case by invoking section 66-A of the Income Tax Ordinance, 1979.
(3) That the learned Commissioner of 'Income Tax Special Zone, Lahore was not justified in enhancing/modifying the assessment order passed under section 62 of the Income Tax Ordinance, 1979 by the learned IAC (Chairman Penal) Lahore after thorough scrutiny and verification.
(4) That the Commissioner of Income Tax Special Zone, Lahore has by-passed the trite law on the invoking of powers vested in him under section 66-A as there did not exist such conditions and circumstances to attract the provisions of section 66-A.
(5) That the orders passed under section 66A by the learned Commissioner of Income Tax Special Zone, Lahore is without lawful jurisdiction or in excess of jurisdiction and is without lawful authority.
(6) That the learned Commissioner of Income Tax Special Zone, Lahore have failed to apply the correct law and proper lawful jurisdiction and their failure to do so have led them to pass erroneous order having no legal effect.
(7) That the learned Commissioner of Income Tax Special Zone, Lahore has exercised jurisdiction which was not vested in him by law, therefore, his order, act, deeds and direction have no lawful effect whatsoever.
(8) That the assessee appellant company is no more exists as the same has been merged into Messrs IFL as per the scheme of amalgamation/arrangement duly approved by the Hon'ble Lahore High Court, Lahore and the case of Messrs IFL has been transferred from Special Zone Lahore to Large Tax payer Unit Lahore vide C.B.R's. notification No.2(1)S/Asstt/2004, dated 25-8-2004 and the learned Commissioner of Income Tax Special Zone, Lahore has acknowledged this aspects in the impugned order, hence, the learned Commissioner of Income Tax Special Zone, Lahore has no jurisdiction on 22-3-2005 (date of impugned order) to revise/modify the case of Messrs A.A. Textile Limited which having been merged into Messrs IFL and the same is being assessed by the Large Tax Payer Unit Lahore.
(9) That the learned Commissioner of Income Tax, Special Zone, Lahore has adopted a very narrow and pedantic approach overlooking the correct law on the subject and correct lawful jurisdiction on the case and by-passing the real facts and without probing into those facts which were available on record.
(10) That it appears that the learned Commissioner of Income Tax Special Zone, Lahore was working with predetermined mind to invoke section 66-A which is evident from record, he did not bother to consider even those facts which having been acknowledged by him.
(11) That the learned Commissioner of Income Tax Special Zone, Lahore has grossly erred in passing order under section 66A of Income Tax Ordinance, 1979 on 22-3-2005 as on this particular point of time, the Income Tax Ordinance, 1979 was not in the field and was repealed, the same is also not covered, by the saving clauses.
(12) That the order passed by the Assessing Officer under section 62 is neither erroneous nor prejudicial to the interest of revenue and the learned Commissioner of Income Tax Special Zone, Lahore had seriously erred in invoking provision of section 66-A of Income Tax Ordinance, 1979. Section 66A can be invoked only when two conditions are simultaneously fulfilled i.e. the order passed should be erroneous and prejudicial to the interest of revenue. In the present case, the order passed by the Assessing Officer is neither erroneous nor prejudicial to the interest of revenue, therefore, the impugned order under section 66-A passed on 22-3-2005 is ab initio void and of no legal effect.
(12.1) That the term "erroneous" as used under section 66-A is a derivative of term "error" and is synonymous to the term mistake. A mistake of fact or law must be floating on surface and should be easily discernible in the order of assessment of Assessing Officer which is the subject of revision under section 66-A. There is no mistake in the assessment order floating on surface to be constituted as an error.
(12.2) That the learned Commissioner of Income Tax Special Zone, Lahore, has taken the action under section 66-A merely on the basis of disagreement with the Assessing Officer and mere disagreement with a view taken by the Assessing Officer cannot confer jurisdiction on a CIT. Since the very ingredients of jurisdiction are absent, the impugned order under section 66-A is illegal without jurisdiction or in excess of jurisdiction, arbitrary, capricious, perverse and without lawful authority.
(13) Without prejudice to foregoing grounds of appeal, the learned Commissioner of Income Tax Special Zone, Lahore in any case, has erred by modifying assessment under section 66-A whilst assessment under section 62 has been finalized admittedly on submission and examination of various details, documents and books of accounts as required by the Assessing Officer from time to time.
(14) The Commissioner of Income Tax Special Zone, Lahore cannot interfere with the Assessing Officer's order if the decision taken is not perverse or bad in law and the exercise of discretion on the part of Assessing Officer is fair, reasonable and based on justification."
WITHOUT PREJUDICE TO SUPRA:
(15) That the learned Commissioner of Income Tax Special Zone, Lahore was not justified in making addition as deemed income under section 12(9A) of Rs.36,246,110 and created tax demand thereon of Rs.3,624,611.
(16) That the learned Commissioner of Income Tax cannot invoke provision to section 12(9A) under the mask of section 66-A.
(17) That the provision of section 12(9A) is not applicable in the instant case for the said assessment year.
(18) That the payment of cash dividend during the year is in excess of required 40% distribution, hence, the learned Commissioner' of Income Tax Special Zone, Lahore has grossly erred in pressing the provision of 12(9A).
(19) That section 12(9A) is violative of Constitution of Pakistan, 1973 as it creates double taxation, penal in nature and against the entry of 47 of the Fourth Schedule to Constitution of Pakistan.
(19.1) The entire approach of the learned Additional Commissioner of Income Tax is contrary to the fundamental principles applicable to tax laws. Tax can be raised only if it falls within the four corners of law. There is no scope of any intendment, equities or implications when a tax is, being enforced by, the State. Under Article 77 of the Constitution no tax can be levied except strictly in accordance with law.
(19.2) The impugned order passed under section 66-A of Income Tax Ordinance, 1979 is in breach of the rights of appellant under Article 4 of the Constitution of Islamic Republic of Pakistan it is the inalienable right of the appellant to be treated in accordance with the law. That the learned Additional Commissioner of Income Tax under the garb of section 66-A has no authority, by way of colorable exercise of power to press into service the provision of section 12(9A). The impugned order under section 66-A and addition as deemed income under sec tion 12-(9A) is not only contrary to the Articles 24 and 25 of the Constitution but also against fundamental rights of the appellant as a corporate entity and of all citizens who chose to carry out economic activity in this corporate form.
PRAYER:
That the impugned order passed by the learned CIT Special Zone Lahore under section 66-A of the Income Tax Ordinance, 1979 on 22-3-2005 be declared as void in law and not legally maintainable.
The impugned order under section 66-A be declared as ab initio void, unlawful and without jurisdiction.
The impugned order under section 66-A be annulled, cancelled and knocked off.
The assessment was consciously framed by the Assessing Officer under section 62 for the year under review after applying his mind which may kindly be restored.
To pass any equitable order that may deem fit and proper in the interest of justice and as arise from the facts, circumstances and under the law.
Restrain the concerned Assessing Officer/Tax Department not to take any action in pursuance of order under section 66-A, and order the Assessing Officer/Tax Department not to initiate any coercive action for the recovery of the demand created as consequence of the impugned order.
Give any other relief this Hon'ble Income Tax Appellate Tribunal may deem fit and proper.
That your appellant further craves permission to raise/take/add/ alter/amend any grounds of appeal before or at the time of hearing."
2. Mr. Jawed Zakaria, Advocate the learned counsel for the appellant raised the first preliminary legal objection regarding effect of merger. He submitted that Messrs A.A. Textile Ltd. had been merged with Messrs IFL, the Commissioner had no jurisdiction to pass order under section 66A against defunct/dissolved/legally non-existent company i.e. against assessee Messrs A.A. Textile Mills Ltd. The order passed by the learned Commissioner of Income Tax Special Zone Lahore on 22-3-2005 is ab initio void and illegal having no jurisdiction as w.e.f. 1-10-2000 the assessee-company namely, A.A. Textile Mills Ltd. ceased to exist and stand dissolved and legally being not in existence as having been merged with Messrs IFL in pursuance of the order of the Lahore High Court. The Honourable Lahore High Court, Lahore approved the merger of A.A. Textile Ltd. along with other companies in Ibrahim Fibres Ltd. The learned Commissioner has no jurisdiction to initiate proceedings under section 66-A against defunct company. The Appellant-Assessee did not exist on that date because the assessee company stood dissolved on 1-10-2000. The Honourable High Court has been pleased to pass the following orders inter alia amongst others:
"(b) The business, assets, properties, rights, authorizations, licenses, privileges and liabilities of the petitioners Nos. 2 to 5 described in the Scheme of Arrangement stand transferred and vested in petitioner No. 1. "
As such, the fixed assets of the A.A. Textile Mills Ltd. got merged with those of, Messrs I.F.L. The Scheme of Arrangement approved by the Hon'ble Lahore High Court, assets, liabilities and reserves of Ibrahim Textile Mills Ltd., A.A. Textiles Ltd., Zainab Textile Mills Ltd. and Ibrahim Energy Ltd. have been merged with Ibrahim Fibres Ltd. w.e.f. 1-10-2000. After merger, the consolidated figures appeared .in the statement of accounts of the company for all the companies. The fixed assets of all the companies mentioned supra have been shown in the schedule of Operating Assets to the published accounts and depreciation charged thereon. Had there been any deviation, from the accepted principles of accounting, the auditors of the company would have qualified their report. The Auditor's Report to the member annexed to the published accounts, put before the AGM of the members, is clean and without any qualification as consolidated accounts prepared on the basis of Court's approval on merger of the companies and the accepted principles of accounting in consonance with international accounting and audit standards and the accounting policies consistently operated by the company. No action can be taken against the assessee being non-surviving company if any liability or debt is recoverable against non-existing company it is only surviving/transferee company i.e. IFL against whom a suit or appeal can lie. And not against AA Textile Ltd. Company legally non-existent merged company. Reliance is placed on the case-law reported as (2007 PTD (Trib.) 1885) wherein it has been held that "merger approved by the superior Courts was binding on all concerned including tax authorities.
2. (sic) The learned counsel for the assessee has raised second objection against the order passed under section 66-A by the learned Commissioner, Special Zone. According to him, the Commissioner of Income Tax, Special Zone, Lahore had no jurisdiction to pass order under section 66-A on 22-3-2005 as the assessee company was transferred to LTU, Lahore, vide C.B.R Notification No. 2(1)S/ASSTT/2004, dated 25-8-2004 therefore, proper jurisdiction of the case after transfer vests in LTU, Lahore. He produced before us, a copy of the said notification of C.B.R. He has contended that the order passed by the Commissioner Special Zone Lahore, dated 22-3-2005 under section 66-A lacks jurisdiction. Reliance in this respect is placed on the orders of this Tribunal in I.T.A. No. 85 of 2000-2001, dated 10-8-2000 and in I.T.As. Nos. 1970 to 1972/KB of 1999-2000, dated 8-1-2002.
The learned counsel for the assessee has raised next objection against the order passed under section 66-A by the learned Commissioner, Special Zone. He has argued that neither any proceedings under section 66-A could be initiated nor any Recovery proceedings could be initiated against the assessee-appellant (A.A. Textile Transferor) because all the assets and liabilities have been transferred and merged with Messrs IFL Transferee (Messrs IFL) is liable to Pay all the dues,-pay back, payment, tax liabilities and face all the litigations of any kind whether civil, income Tax or vice versa.
The learned counsel in respect of order passed under section 66-A by the learned Commissioner, Special Zone has submitted that the reliance placed by the Commissioner on the judgment reported as 2004 PTD 1173 in his order under section 66-A is misconceived and distinguishable and irrelevant, as that judgment deals with the delegation of powers to the Commissioner. This judgment was delivered in the context of facts and law involved in that case. Therefore, this judgment is distinguishable.
He has submitted that no order under section 66-A can be passed by the Commissioner of Income Tax Special Zone, nor by IAC/CIT, LTU. The Commissioner Special Zone misconstrued section 239 and issuance of notice was treated as pending proceedings for invoking section 66-A while section 239 clearly spells out that pending proceedings means by way of appeals, reference, revision or prosecution. He further submitted that the Commissioner of Income Tax Special Zone, Lahore has mis-understood the section 239 of the repealed Income Tax Ordinance, 1979. The said section is reproduced as under:--
"Section 239 of ITO, 2001.
(1) Saving ---(1) subject to subsection (2), in making any assessment in respect income year ending on or before the 30th day of June, 2002, the provisions of the repealed Ordinance insofar as these relate to computation of total income and tax payable thereon shall apply as if this Ordinance had not come into force.
(2) The assessment, referred to in subsection (1), shall be made by an income tax authority which is competent under this Ordinance to make an assessment in respect of a tax year ending on any date after the 30th day of June, 2002, and in accordance with the procedure specified in section 59 or 59A 3(or 61) or 62 or 63, as the case may be, of the repealed Ordinance.
(4) Any proceeding under the repealed Ordinance pending on the commencement of this Ordinance before any income tax authority, the Appellate Tribunal or any Court by way of appeal, reference, revision or prosecution shall be continued and disposed of as if this Ordinance has not come into force.
The learned counsel for the assessee analyzing the above section submitted that a bare reading of the above said section vividly spells out that if we read the above section conjunctively and in its totality it is manifest that subsection (1) relates to computation of total income and tax payable thereon as on or before 30th day of June, 2002 and repealed Income Tax Ordinance, 1979 will apply. In subsection (2) of the said section it is specifically mentioned that the assessment, referred to in subsection (1), shall be made by an income tax authority under section 59 or 59A or 62 and 63. It is submitted that no assessment of the appellant under the aforementioned heads is pending as the case had been finalized under section 62 on 28-3-2001 by the Chairman Panel. The subsection (4) of section 239 further enunciates that any proceedings will fall under the repealed Income Tax Ordinance, 1979 pertaining to the following:
(a) appeal;
(b) reference
(c) revision (by the Commissioner)
(d) prosecution.
The words used in section 239 "any proceedings" clearly categorized by the legislature as "appeal, reference, revision or portion". The appeal and revision fall under Chapter XIII of repealed Income Tax Ordinance, 1979. The appeal relates to sections 129 to 137 of the repealed Income Tax Ordinance, 1979 while revision by the Commissioner relates to section 138 of the repealed income Tax Ordinance. The prosecutions fall under Chapter XII of the repealed Income Tax Ordinance, 1979. However, the Commissioner of Income Tax misconstrued the above said subsection (4) of section 239. A perusal of section 66-A is very manifest which falls under the Chapter of "Assessment". No appeal, reference, revision is pending in assessee's case, therefore, department's contention is devoid of any merit.
The learned counsel has argued that in this case the original assessment was finalized by the Panel comprising of senior officers of the Income Tax Department by calling various details viz. published statement of accounts, consisting of cash book, ledger, stock register, bank book, sale and purchase vouchers, sales tax record and the same have been examined by the Panel. After giving due deliberation to these details the Panel passed the conscious order by applying mind. It is worth to mention here that the assessee has declared income of Rs.6,32,20,022 but the Panel assessed the income at Rs.7,12,17,011 by making almost addition of Rs.10 Million hence, the same cannot be termed as erroneous and prejudicial to the interest of revenue. According to the learned counsel, the order under section 66A is based on mere presumption, surmises and conjectures and is illegal and unjustified, as jurisdiction has not been validly exercised. In this respect, the following cases have been referred:--
(i) 2002 PTD (Trib.) 3027
(ii) 1997 PTD (Trib.) 2137
Learned counsel has contended that the order passed by the Panel is neither erroneous nor prejudicial to the interest of revenue. Mere dissatisfaction with the results of the Assessment order does not call for taking action under section 66-A of the repealed Income "Tax Ordinance, 1979. He has, in this respect, referred a reported "case as (2003) 87 Tax 264(T), wherein placing reliance on the decision of the Indian High Court reported as 2003 ITR 108, it has been held that:--
"That power of suo motu revision under subsection (1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revisions under this subsection, viz. (i) the order is erroneous, (ii) by virtue of the order being erroneous, prejudice has been caused to the interest of the Revenue. It has, therefore, to be considered firstly as to when an order can be said to be erroneous. We find that the expressions "erroneous", "erroneous assessment" and "erroneous judgment", have been defined in Black's Law Dictionary. According to the definition "erroneous" means "involving error; deviating from the law". "Erroneous assessment" refers to an assessment that deviates from the law of land is therefore, invalid, and is a defect that is jurisdictional in its nature, and does not refer to the judgment of the Assessing Officer in fixing the amount of valuation of the property. Similarly, "erroneous judgment" means "one rendered according to course and practice of Court, but contrary to law, upon mistaken view of law, nr upon erroneous application of legal principles."
"From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income Tax Officer acting in accordance with law makes certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him the order should have been written more elaborately. This section does not visualize a case of substitution of the judgment of the Commissioner for that of the Income Tax Officer, who passed the order, unless the decision is held to be erroneous. Cases may be visualized where the Income Tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making, some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income Tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income Tax Officer has exercised the quasi-judicial power vested in him in accordance with law of land arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the Revenue. But that by itself will not be enough to vest the Commissioner with the power of sou motu revision cannot be exercised. Any and every erroneous order cannot be the subject-matter of revision because the second requirement also must be fulfilled. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed."
On the facts of the case, the learned counsel for the appellant has argued that the learned Commissioner issued the show-cause notice intending to-impose levy of tax under section 12(9A) of the Income Tax Ordinance, 1979. The assessee has replied the same vide letter, dated 25-4-2002 wherein the following working, mode and manner for calculating of various figures have been furnished explaining that the payment of cash dividend during the year is in excess of required 40% distribution under section 12(9A). He has placed before us the following working:
| "Profit for the year ended 30-9-1999 | Rs.58,447,738 |
| Less: Current year taxation | Rs.19,287,754 |
| | Rs.39,159,984 |
| Less: Income Tax demand under section 85 of the Income Tax Ordinance, 1979 for the assessment year 1999-2000 | Rs.3,887,053 |
| Net profit for the year available for distribution | Rs.35,272,931 |
| Required distribution @ 40% | Rs.14,109,172 |
| Less: Distributed during the year | Rs.15,468,750 |
| EXCESS DISTRIBUTION | Rs. (1,359,578)" |
It is submitted by the learned counsel that from the above working it can be seen that prior year taxation is not just a provision of taxation, it is a demand created under section 85 of the late Income Tax Ordinance, 1979 and is payable as per finalized assessment for the assessment year 1999-2000.
Learned counsel has argued that excess reserve of Rs.87,808,610 had already been taxed in the succeeding year 2001-2002. The said levy imposed only for once, therefore, the same would tantamount to double taxation. Being excessive distribution, levy under section 12(9A) could not be imposed.
Mr. Ghazanfar Hussain, the learned D.R. representing the department on the other side has supported the order passed under section 66A and has submitted that the Commissioner of Income Tax was justified in modifying and exercising his jurisdiction under section 66A.
We have heard the learned representatives from both the sides and have also perused the impugned order under section 66A, the assessment order and the record of the case. We have also considered the case-law referred by the learned counsel for the appellant.
Regarding the amalgamation/merger of the assessee Messrs A.A. Textile Mill Ltd. with Messrs IFL we may add that due to present economic scenario prevalent in the country the merger of the group of companies plays a vital role to minimize the expenses and raise/generate profits. The merger theory is globally followed in whole world for survival economically. Messrs A.A. Textile Ltd. had been merged with Messrs IFL. No action can be taken against the assessee Messrs A.A. Textile Ltd. being non-surviving company/defunct/dissolved/legally non-existing company, if any liability or debt is recoverable against non-existing company it is only surviving/transferee company i.e. IFL against whom a suit or appeal can lie and not A.A. Textile Ltd. Merger approved by the Hon'ble High Court had the legal effect of giving a continuity to the operations of the merged company, which was a part of the assessee company and vesting the assessee company with all assets and liabilities of the merged companies---if there was any un-discharged tax liability of the non-surviving companies, the same would have been recoverable from the surviving company and that the surviving company would have been bound to duly discharge the same.
We are of the view that all the liabilities of non-surviving (Messrs A.A. Textile Ltd.) will be burdened by the surviving company (Messrs IFL). In income tax law there is a provision that if a tax payer dies then outstanding amount of tax payable is recoverable from their legal representatives. On the same analogy is this case Messrs A.A. Textile Ltd. is a deemed to have been died and Messrs IFL is his Legal Representative/heir and is liable to face any suit/case litigation or to pay any amount or clear the liabilities of Messrs A.A. Textile Mills Ltd.
As regards the point pertaining to proper jurisdiction is concerned we may observe that the Commissioner of Income Tax Special Zone, Lahore had no jurisdiction to pass order under section 66-A on 22-3-2005 as the assessee company was transferred to LTU, Lahore, vide C.B.R., Notification No.2(1)S/ASSTT/2004, dated 25-8-2004 therefore, proper jurisdiction of the case after transfer vests on LTU, Lahore. The learned counsel for the appellant has produced before us a copy of the said notification of C.B.R. Therefore, order passed by the Commissioner Special Zone Lahore, dated 22-3-2005 under section 66-A lacks jurisdiction.
Regarding the recovery proceedings or proceedings under section 66-A, we may observe that after the amalgamation all the assets properties, rights privileges and liabilities of the Assessee-Appellant stood transferred and vested in Messrs IFL. Messrs IFL is sole responsible for any kind of liabilities, if the same is accrued to the Appellant-assessee. Where a company is amalgamated with another company, recovery of tax due from transferor company i.e. Messrs A.A. Textile Mill from transferee company i.e. Messrs IFL without making transferee company i.e. IFL a party to re-assessment proceedings against transferor Messrs A.A. Textile Mill is invalid. Therefore, no proceedings under section 66-A could be initiated against the appellant-assessee and thereby recovery of any amount in consequence of this proceedings without making IFL a necessary party. For the discussing purpose, if it is presumed that proceedings under section 66A are valid then how is it possible that recovery can be effected from Messrs A.A. Textile Ltd. after having been merged with Messrs IFL. Messrs IFL has not been impleaded as party, no notice was issued to Messrs IFL. We therefore, hold that any proceedings enunciated by the Department against assessee after 1-10-2000 when the assessee-appellant merged with Messrs IFL would be null and void.
The Commissioner Special Zone, Lahore initiated the ,pro ceeding under wrong impression and he has treated the issuance of notice under section 66A as pending proceedings for invoking section 66-A while section 239 clearly spells out that pending proceedings means by way of reference, appeal, revision or prosecution.
We find force in the submission of the learned counsel for the appellant that the above provisions of law cannot be read in isolation and it has to be read conjunctively. A conjunctive reading of the above said section vividly spells out that subsection (.1) relates to computation of total income and tax payable thereon as on or before 30th day of June, 2002 and repealed Income Tax Ordinance, 1979 will apply. In sub-section (2) of the said section 239, it is specifically mentioned that the assessment, referred to in subsection (1), shall be made by an income tax authority, which is competent under the new Income Tax Ordinance, 2001 to make an assessment in respect of a Tax Year ending on any date after 30-6-2002 and in accordance with the procedure specified under section 59 or 59A or 61 or 62 or 63 of the repealed Ordinance, 1979. No assessment proceedings of the appellant under the aforementioned provisions was pending as the case had been finalized under section 62 on 28-3-2001 by the Chairman Panel.
The subsection (4) of section 239 further enunciates that any proceedings will fall under the repealed Income Tax Ordinance, 1979 pertaining to (i) appeal, (ii) reference, (iii) revision (by the Commissioner), (iv) prosecution. The words used in section 239 "any proceedings" have been clearly categorized by the, legislature as "appeal, reference, revision by the (Commissioner) and prosecution. The appeal and revision fall under Chapter Kill of the repealed Income Tax Ordinance, 1979. The appeal relates to sections 129 to 137 of the repealed Income Tax Ordinance, 1979 while revision by the Commissioner relates to section 138 of the Income Tax Ordinance. The prosecutions fall under Chapter VII of the repealed Income Tax Ordinance, 1979. However, the Commissioner of Income Tax misconstrued the above said subsection (4) of section 239. A perusal of section 66-A is very manifest which falls under the Chapter VII, which is regarding "Assessment". No appeal, reference, revision is pending in assessee's case, therefore CIT's contention is devoid of any merit. Further if two interpretations of a fiscal statute are possible then those which favours the assessee would apply is a cardinal principle of law. We, therefore, hold that the order of the learned Commissioner passed under section 66A is without any merit.
We have observed that the assessee is showing better trading results as compared to other parallel cases. This fact has been admitted by the Taxation Officer in the assessment order. We have noted that in this case the original assessment was finalized by the Panel comprising of senior officers of the Income Tax Department by calling various details viz. published statement of accounts, consisting of cash book, ledger, stock register, bank book, sale and purchase vouchers, sales tax record and the same have been examined by the Panel. ` After giving due deliberation to these details the Panel passed the conscious order by applying judicious mind. The assessee has declared income of Rs.6,32,20,022 but the Panel assessed the income at Rs.7,12,17,011 by making almost addition of Rs.10 Million hence, the same cannot be termed as erroneous and prejudicial to the interest of revenue. Therefore, the order of the learned Commissioner passed under section 66A is based on mere presumption, surmises and conjectures.
On the basis of the above detailed discussion made supra, the invocation of section 66-A by the Commissioner of Income Tax Special Zone, Lahore is unjustified and mala fide. The Commissioner has transgressed his powers by invoking section 66-A, no such powers were available with the Commissioner to hold the order of the Panel to be erroneous and prejudicial to the interest of revenue.
We are of the view that on legal as well as on factual grounds, the Commissioner in this case has exceeded his limits and jurisdiction in his anxiety to generate more revenue. The anxiety' to generate more revenue should not result in transgress the limit of law. The order under section 66A of learned Commissioner does not appear to be mala fide but the bona fide orders with the good intentions should also be within the limits prescribed by the law, because a society governed by law only, can be termed as a just and civilized society. We, therefore, expect that all the officers in the administration and collection of revenue shall always endeavor to remain strictly within the prescribed limits of law. The order passed by the Commissioner under section 66A is, therefore, cancelled and the assessment made under section 62 of the repealed Ordinance, 1979 is restored.
The appeal filed by the assessee is allowed.
C.M.A./178/Tax (Trib.)Appeal allowed.