COMMISSIONER OF INCOME TAX VS SKY PAK INTERNATIONAL (PVT.)
2008 P T D 1233
[Karachi High Court]
Before Mrs. Yasmin Abbasey and Pir Ali Shah, JJ
COMMISSIONER OF INCOME TAX
Versus
Messrs SKY PAK INTERNATIONAL (PVT.)
I.T.R. No. 82 of 1993, decided on 25/01/1925.
April, 2008.
Income Tax Ordinance (XXXIX of 1979)---
---Ss. 108 & 55---Penalty for failure to file return of income by assessee---Contention of the assessees was that as it was first year of their business and they had sustained losses therefore, they were under the impression that in case of losses no return was to be filed---Validity---Held, S.55 of the Income Tax Ordinance, 1979 gave a discretion to the assessee that when his total income to which he was assessable for any' income year along with the return of wealth tax exceeds the maximum amount, which was not chargeable to tax, he shall furnish a return of his total income as the case may be for the said income year---If the total income did not exceed the maximum amount which was not chargeable to tax, the assessee had an option not to file the return for the respective year---Income Tax Appellate Tribunal, in view of such statutory relaxation, was justified in deleting the penalty imposed on the assessees---Reasonable and probable cause for exempting from the penalty was absence of deliberate intention of non-compliance by the assessee---Mala fide intention as alleged having not been proved, the reference was dismissed.
Commissioner of Income Tax, Assam v. Assam Automobile and Accessories Agency (1978) 111 ITR 411; Commissioner of Income Tax v. N. Khan and Brothers (1973) 92 ITR 338 (All); (197'7) 107 ITR 214; The State v. Sardar Ataullah Khan Mangal PLD 1967 SC 78 and Messrs Elahi Cotton Mills Ltd. and others v. Federation of Pakistan through Secretary, Min. Finance, Islamabad and 6 others PLD 1997 SC 582 ref.
Aqeel Ahmed Abbasi for Applicant.
Muhammad Fareed for Respondent.
Date of hearing: 9th April, 2008.
JUDGMENT
MRS. YASMIN ABBASEY, J.---In appeal presented before Income Tax Appellate Tribunal against order of Commissioner of Income Tax on 10-6-1986 the question for consideration was that:---
"Whether for imposing penalty under section 108 of Income Tax Ordinance, 1979 for not filing return for the year 1982-83 could be deleted on the ground taken by the respondent, that as it was first year of their business and also because respondent had sustained losses therefore, they were under the impression that in case of losses no return is to be filed.
The Income Tax Appellate Tribunal vide its judgment, dated 19-1-1991 has observed that:---
"We concur with the views that a finding to the effect, that no reasonable cause for the delay of default existed is necessary for imposing a penalty, we further agree with the proposition that in order to consider whether an assessee had any reasonable cause for not filing the return, the income which is contemplated by the law is the income which as assessee believes to be his income and not which is finally assessed by the ITO, However, we would like to add a note of caution that the belief of an assessee is to be bona fide. If there is any slight evidence that belief is mala fide in any respect then such plea would not be available to an assessee. At the same time we are of the opinion that in the first year of business if an assessee due to sustaining of loss does not file the return of income it shall be treated as a reasonable cause for not furnishing the return of income in the absence of anything to the contrary. In these circumstances we are of the considered opinion that the imposition of penalty in the present case was not justified for want of finding that the plea of appellant was not bona fide."
Being aggrieved with the decision this reference has been filed by the Commissioner of Income Tax to consider that on failure to file return of the income voluntarily by due date as required under section 55 of Income Tax Ordinance whether Tribunal was justified in holding that the imposition of penalty under section 108 of Income Tax Ordinance was invalid.
Learned counsel for applicant referring to section 2(24)(b) of Income Tax Ordinance, 1979 has argued that income includes any loss of such income, profit or gain, therefore, non-filing of return for the year 1982-83 on the defence as pleaded by respondent of sustaining losses and that it was first year of their business is not acceptable. Being a private limited company such ignorance of law is no excuse by its proprietors having a large-scale business. According to him if this proposition of respondent is taken then no reason has been assigned that why in spite of losses, return for the year 1983-84 was filed.
In reply to it, it is contended by learned counsel for the respondent that when by reason of non-filing of return for the year 1982-83 they received a demand notice, therefore, for the next year in spite of sustaining losses in the business they filed return. There was no mala fide intention on their part not to file the return for the year 1982-83 with deliberation intention.
Section 55 of Income Tax Ordinance is relevant in this context, it gives a discretion to the assessee that when their total income to which he is assessable for any income year along with the return of wealth tax exceeds the maximum amount, which is not chargeable to tax, shall furnish a return of their total income as the case may be for the said income year. Meaning thereby that if the total income does not exceed to the maximum amount, which is not chargeable to tax, the assessee has an option not to file the return for the respective year. In view of this statutory relaxation Tribunal was justified in deleting the penalty imposed on respondent.
To support his argument of reasonable excuse, learned counsel for the respondent has referred (1978) 111 I.T.R. 411 (Commissioner of Income Tax, Assam v. Assam Automobile and Accessories Agency), wherein the same issue was under consideration and in the referred judgment observation made in Commissioner of Income Tax v. N. Khan and Brothers (1973) 92 ITR 338 (All) Allahabad discussing with same issue as is in instant case has been reproduced, which reads as under:---
"When a duty is cast upon every person to file a voluntary return if his income exceeds the maximum amount which is not chargeable to income-tax. The question arises as to which income is contemplated by this provision, the income which the assessee believes to be his income or which is finally assessed by the Income-tax Officer. It is clear that at the time when a person is required to file a voluntary return, no assessment has yet been made against him. He is thus to be guided by what he himself believes to be his income. It is possible and it happens very 'frequently that an assessee may not consider a particular item to be his income and yet the Income Tax Officer may hold otherwise. In such a case, if what he considers to be his income is less than the amount which is not chargeable to income-tax, he is not required to file a voluntary return even if the income finally assessed is more than the maximum amount which is not chargeable to income-tax. Of course, the belief of the assessee must be bona fide."
The Honourable High Court of Gohati in agreement to the referred.held that:---
"there is no finding that the assessee acted in any way mala fide in showing the income as it did in its returns. That being so, we hold that, on the facts and in the circumstances of the case, the Tribunal was justified in holding that there was no obligation on the assessee to file the return of income under section 139(1) since the income returned was below the taxable limit notwithstanding that the assessed income was chargeable to tax and on this ground to hold that no penalty was leviable under section 27(1)(a) of the Act. In the result, the question of law referred is answered in affirmative and against the defendant."
In the instant case also neither C.I.T. (A) Zone-VI, Karachi nor the Income Tax Officer, Co. Circle B-2, Karachi, who had initially taken the step to impose the penalty, at any stage and disclosed that the. income of the assessee succeeds the non-taxable limit. And by not filing return for the respective year he deliberately avoided to get himself assessed for the payment of tax.
In (1977) 107 ITR 214 (Gujarat), it is observed that:---
"Whenever a statute defines an offence and provides a punishment for it, it is for the prosecution to prove all the ingredients of the offence. In penalty proceedings under section 271(1)(a) of the Act, the assessee upon whom the penalty is sought to be imposed is in the position of an accused in a criminal trial and, therefore, all the ingredients of the offence for which the penalty can be imposed must be established by the Revenue. It is from this aspect that one has to consider the question whether the words `failure without reasonable cause' in section 271(1)(a) constitutes an ingredient of the offence or not. Looking to the wording of the section and on a plain reading of section 271(1)(a) it is obvious first that the failure to file the return may be with reasonable cause or without reasonable cause, but the offence for which the penalty is imposable is failure without reasonable cause to file the return within the time specified in the section and, therefore, it is for the Revenue to establish as an ingredient that the failure in the particular case was without reasonable cause. Once the department has discharged that initial burden, it will be for the assessee to show that there was reasonable cause on his part in failing to furnish the return in time. On the principles underlying section 106 of the Evidence Act, since the facts which constitute a reasonable cause are specially within the knowledge of the assessee it will be for him to establish those facts, but the department must first lead evidence which would go to show, prima facie, that the assessee had no reasonable cause in failing to file the returns within the time specified."
So is the issue in the present case that although by first order, dated 30-4-1984 respondent has been charged for non-filing of return for the year 1982-83 but no justifiable reasoning has been given by the appellant for rejecting the defence pleaded by the respondent. Judging the reasonable and probable cause for exempting from the penalty it has to be examined on case by case basis taken into account all relevant facts and circumstances. Without considering all the aspects any proceeding will be deemed to be malicious just for anticipating success.
To make out a case of deliberation non-compliance applicant has to prove intentional or malicious refusal of respondent to perform his legal duty and statutory obligation. Because an honest mistake does not fall down tax payee in the pool of deliberate act.
The term `intention' or `deliberate intention' although has been discussed in PLD 1967 SC 78 (The State v. Sardar Ataullah Khan Mangal) in some different context but somehow will be applicable in the present case also to prove that whether the non-filing of return for the year 1982-83 was an intentional act of the respondent or otherwise and it has been observed by the Honourable apex Court that:---
"Intention, as has often been said, is a state of mind and it can only be gathered from the evidence of his overt acts and expressions The Court cannot look into the minds of the persons accused and has, therefore, per force to gather their intention from their words and deeds. In each case they must be deemed to have intended the natural and inevitable consequences of their actions and utterances."
In the present case also it is found that after receipt of notice on 19-12-1983 under section 65, respondent immediately filed returns for the neat succeeding year realizing their mistake, in spite of losses sustained by them. Therefore, arguments advanced by learned counsel for the appellant that from a private limited company running a business v ignorance of law cannot be taken a, an excuse, does not appeal to reason as there is a difference between mala fide and omission. Law requires all persons in their transaction to act with good faith. Any omission in the conduct of business and transaction and excuse taken on reasonable cause is based on facts and circumstances unique to every individual case and circumstances. In this scenario in PLD 1997 SC 582 (Messrs Elahi Cotton Mills Ltd. and others v. Federation of Pakistan through Secretary, M/o Finance, Islamabad and 6 others), it has been observed that "when a statute enacts for something shall be deemed to have been' done which in fact in truth was not done, the Court is entitled and bound E to ascertain for what performance and between person the statutory functions are to be resorted to" at the same time it has also been observed that:---
"it is true that the power to tax cannot be used to embarrass and destroy the business/occupations which are sine qua non for the propriety of the people and the country. The object of the levy and recovery of taxes and pointed out hereinabove is to run the State and to make efforts for creation of an egalitarian society."
In view of the foregoing reasons, we are of the view that the appellant has failed to establish the fact that there was no reasonable cause with the respondent for non-filing of the return in the very respective year. Vague and illegal pleas have been taken for the imposition of penalty and that too have not been, established by them because it is an established principle of law that a person, who charges the other with some offence, has to prove the same with satisfactory evidence and he cannot take benefit of the weakness of the defence of the other. The existence of reasonable cause can serve a basis to eliminate penalties for not filing return. The existence of intention is usually a matter of inference and proof of eternal and visible acts and conduct serve to indicate more or less facility, the particular intention. And the rnala fide intention as alleged is missing in the present case.
The upshot of the above discussion is that the reference application has no merit and the same is hereby dismissed and the order of the learned Tribunal is maintained.
M.B.A./C-6/KReference dismissed.