COMMISSIONER OF INCOME TAX, PESHAWAR VS GUL COOKING OIL AND VEGETABLE GHEE (PVT.) LTD, 2008 PTD-SUPREME-COURT 169 (2007)

(On review of the judgment of this Court, dated 25-4-2003 passed in Civil Appeal No. 1578 of 2000).

(a) Constitution of Pakistan (1973)---

----Art.188---Supreme Court Rules, 1980, O.XXVI, R.1---Invocation of review jurisdiction of Supreme Court---Scope---"Error on the face of record"---Where an error of law or fact is discovered in the order itself, such an error falls within the category of "error apparent on the face of the record"---Failure of the court to take into consideration the material facts or statutory provisions which, if so considered, would have material effect on the fate of the case, would also amount to an "error on the face of record".

The power of review is conferred upon Supreme Court Under Article 188 of the Constitution read with Order XXVI, Rule 1 of Supreme Court Rules, 1980 and Supreme Court may, subject to law and practice, review its judgment or order if an error of law or fact, having material effect on the case on merits, is found apparent on the face of record or if 'such a material question of fact or of law bearing effect on the decision, has been overlooked. The review jurisdiction of Supreme Court is certainly invocable in a case in which an error either of fact or law is manifest and is found floating on the surface of the record. The Court may not hesitate to review an order passed on erroneous assumption of material facts or misconstruction of law which has a substantial effect on the fate of case and is considered a wrong order.

Where an error of law or fact is discovered in. the order itself, such an error falls within the category of error apparent on the face of record. The failure of the Court to take into consideration the material facts or statutory provisions which, if so considered, would have material effect on the fate of the case, would also amount to an error on the face of record.

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

----Ss.50(5), 56, 61, 63, 80DD & 2(21)(24)---Constitution of Pakistan (1973), Arts.247 & 188---Review of Supreme Court judgment---Assessee, a private limited company was running business in Tribal Areas where Income Tax Ordinance, 1979 was not applicable within the meaning of Art.247(3) of the Constitution---Exemption from payment of income tax---Scope---Held, decision of the question as to whether assessee was liable to the payment of income tax or not depends on the determination of fact whether the company having established its office only in tribal area, was carrying its business only in non-taxable areas or the income was also being derived from taxable area---Such being a pure question of fact, could not be decided by raising a presumption only on the basis of location of the manufacturing unit or the registered office of the company in the non-taxable area---Immunity from payment of income tax cannot be claimed without establishing the fact that taxable income was not being derived from the area where the Income Tax Ordinance, 1979 is applicable---Such essential aspects of the case having been overlooked in the judgment which has caused serious prejudice to the case of department on merits, Supreme Court reviewed its judgment and in consequence thereto the department was declared to be competent to proceed in the matter in accordance with law---Principles.

Provisions of sections 50(5), 56, 61, 63 & 2(21)(24) in the Income Tax Ordinance, 1979 authorize the Assessing Officer to issue notice to file return, require a person to attend his office, and produce or cause to be produced any evidence including the accounts and documents to ascertain the tax liability and similarly an assessee is entitled to produce evidence in rebuttal. In the light of the legal position, the decision of the question as to whether assessee company was liable to the payment of income tax or not depends on the determination of fact whether the company having established its office in Tribal Area was carrying its business only in non-taxable area or the income was also being derived from taxable area. This being a pure question of fact, could not be decided by raising a presumption only on the basis of location of the manufacturing unit or the registered office of company in non-taxable area. The Collector of Customs, as provided under section 80(DD) of the Income Tax Ordinance, 1979, was obliged to collect the advance income tax on imported edible oil on the basis of its value in terms of section 50(5) of the Ordinance and without ascertaining the liability of payment of income tax by way of holding a proper factual inquiry, no presumption in respect of non-taxability of the income of the company, could be raised under the law, therefore, the issue of notices to the assessee-company under sections 56 and 61 of the Ordinance was quite in accordance with law.

Exemption under the law from payment of income tax is available to a person or company carrying its business in tribal areas and income tax cannot be collected from such person or company by the tax collecting authorities of the Government unless the law relating to the collection of income tax is extended to the tribal areas by virtue of Article 247 of the Constitution. However, the question whether a company or a person derives income from business being carried out in taxable or non-taxable area, is a pure question of fact which cannot be decided without holding proper inquiry for determination of controversial facts regarding the tax liability. The business of a person or Company may or may not be confined to a particular place or area rather it may be expanded beyond the local limits of the area in which Income Tax Ordinance is not applicable and thus if the income tax is derived from the sale of products, which are manufactured in the factory situated in non-taxable area, both from taxable and non-taxable area, the question relating to the tax liability of such a business concern cannot be determined only on the basis of location of factory or its registered office rather the requirement of law in such case is to hold a proper inquiry and ascertain the correct factual position for determination of tax liability. The exemption from payment of tax is certainly available on the business being carried in tribal area in which income tax law is not applicable but the real question for determination in such a case would be whether a company with its manufacturing unit and registered office in non-taxable area, if is also carrying business in taxable area, is exempted from payment of income tax on its income as a whole or only on the income being derived from non-taxable area.

In the present case the careful examination of the record would suggest that no material was brought before the High Court or the Supreme Court on the basis of which a positive opinion could be formed about the business activities of the company and its tax liability for the purpose of exemption of income tax. It is apparent on record that this essential aspect of the case escaped the notice of Supreme Court and instead the question of taxability was decided only on the basis of consideration that the registered office of the company was situated in tribal areas in which the Income Tax Ordinance, 1979, was not applicable.

The controversial question as to whether the company was carrying business only in the tribal area or it was also operating in the settled area and was liable to pay income tax, requiring determination, has not been attended. It is thus manifest on the record that this essential aspect of the case was overlooked in the judgment, which has caused serious prejudice to the case of department on merits. In this view of the matter, thereof, review of the judgment in the present case is fully justified as it is crystal clear that immunity from payment of income tax could not be claimed without establishing the fact that taxable income was not being derived from the area where the Income Tax Ordinance, 1979 was applicable.

Review petition thus succeeds and in consequence thereto the Income Tax Department is competent to proceed in the matter in accordance with law.

Malik Muhammad Nawaz, Advocate Supreme Court and Raja Abdul Ghafoor, Advocate-on-Record for Petitioner.

M. Sardar Khan, Senior Advocate Supreme Court, Mumtaz Ahmed, Member (Legal) and M.S. Khattak, Advocate-on-Record for Respondents.

Date of hearing: 5th March, 2007.

JUDGMENT

MUHAMMAD NAWAZ ABBASI, J.---This petition under Article 188 of the Constitution read with Order XXVI, Rule 1 of the Supreme Court Rules, 1980, has been filed for review of the judgment dated 25-4-2003 passed by this Court in Civil Appeal No.1578 of 2000 whereby the judgment dated 4-1-2000 rendered by the Peshawar High Court in a writ petition filed by the respondent, was upheld.

2. The facts of the case in small compass leading to the filing of present review petition are that Deputy Commissioner Income Tax, Peshawar issued a notice to the respondent No.1, a Joint Stock Company under section 56 of the Income Tax Ordinance, 1979, for filing return of income tax for the assessment year 1998-99. The Company without filing return, raised an objection to the legality of the notice with the assertion that Income Tax Ordinance, 1979, was not applicable in the tribal area of Malakand Dargai where the factory of the Company with its registered office, is situated and is carrying its business. The Deputy Commissioner of Income Tax then served a notice under section 61 of the ibid Ordinance to the Company for production of books of accounts of its business, but the Company instead of contesting the notice before the department, challenged its legality before the Peshawar High Court, Peshawar, in a writ petition which was allowed by a learned Division Bench of the High Court vide judgment dated 4-1-2000. The petitioner assailed the judgment of the High, Court before this Court in C.A. No.157 of 2000-but failed and hence this review petition.

3. The case of the petitioner department is that Collector of Customs, Karachi insisted for recovery of withholding tax from the respondent under section 80(DD) read with section 50(5) of the Income Tax Ordinance, 1979 as under the law, he was obliged to collect the advance tax on imported goods, in the present case edible oils on the basis of the value as provided thereunder and since the company was carrying business of manufacturing and sale of its products not only in Malakand Dargai where its industry was set up and registered office was established but was also running its business in the settled areas in which Income Tax Ordinance, 1979, was applicable and consequently, the respondent Company was liable to pay income tax in respect of the income derived by it from the business being carried on in the taxable area.

4. The learned counsel for the petitioner contended that the notices under sections 56 and 61 of the Income Tax Ordinance 1979, were issued to the respondent quite in accordance with law and without a proper factual inquiry, no finding could be recorded or a presumption could be raised to the effect that respondent Company was not carrying business of sale of its products beyond non-taxable area and was not liable to pay tax. Learned counsel submitted that the High Court, without having any material before it, raised a presumption of fact as to the place of business of respondent exclusively in non-taxable area.

5. The legality of the notices issued under sections 56 and 61 of the ibid Ordinance was challenged by the respondent in the Constitutional jurisdiction of the High Court seeking direction for release of the raw material without payment of withholding tax on the ground that Income Tax Ordinance, 1979 was not applicable to Malakand Division within the contemplation of Article 247 of the Constitution of Islamic Republic of Pakistan: Learned Division Bench of the Peshawar High Court having considered the question of jurisdiction of High Court and application of Income Tax Ordinance to the tribal area raised therein, held that the notices issued under sections 56 and 61 of the Income Tax Ordinance, 1979 were illegal and levy of withholding tax was without lawful authority. In consequence thereto, direction was issued for release of imported raw material without deduction of 2% withholding tax.

6. The judgment passed by learned Division Bench of the Peshawar High Court in the writ petition was assailed before this Court in the C.A. No.1578 of 2000 in which leave was granted to consider the question relating to the liability of respondent for payment of Income Tax and ultimately the appeal was dismissed vide judgment dated 25-4-2003, with the observation that the respondent, a private limited company was running business in tribal area where Income Tax Ordinance, 1979 was not applicable within the meaning of Article 247(3) of the Constitution therefore, the company was exempted from payment of Income Tax and consequently, the judgment of the High Court, was upheld.

7. The power of review is conferred upon this Court under Article 188 of the Constitution read with Order XXVI, rule 1 of Supreme Court Rules, 1980 and this Court may subject to law and practice review its judgment or order if an 'error of law or fact having material effect on the case on merits is found apparent on the face of record or such a material question of fact or of law bearing effect on the decision has been over-looked. The review jurisdiction of this Court is certainly invocable in a case in which an error either of fact or law is manifest and is found floating on the surface of the record. The Court may not hesitate to review and order passed on erroneous assumption of material facts or misconstruction of law which has a substantial effect on the fate of case and is considered a wrong order. This Court in Zulfikar Ali Bhutto v. State (PLD 1979 SC 741), M. Moosa v. Muhammad (1975 SCMR 115), Muhammad Abbas Khan Abbasi v. Government of Pakistan (PLD 1984 SC 67) and Sikandar Abdul Karim v. State (1998 SCMR 908) having interpreted the expression error on the face of record has held that where an error of law or fact is discovered in the order itself, such an error falls within the category of error apparent on the face of record. The failure of the Court to take into consideration the material facts or statutory provisions which if so considered would have material effect on the fate of the case would also amount to an error on the face of record.

8. Obviously, in the present case the question required to be decided was as to whether the establishment of office of the company in tribal area of Malakand, Dargai, would give rise to the presumption that the company was exclusively carrying its business in non-taxable area and was entitled to claim immunity from payment of Income Tax on the income derived from its business. This question would revolve upon the construction of material facts and the legal implications arising therefrom with reference to the notifications issued on the subject in the light of Article 247 of the Constitution. The case of the petitioner as canvassed in the appeal was that notwithstanding the location of the registered office of the respondent in non-taxable area, the company was also deriving income from taxable area and was liable to pay Income Tax under Income Tax Ordinance, 1979. In view of the nature of controversy, we deem it proper to examine the above question in the light of certain provisions of Income Tax Ordinance, 1979.

9. "Domestic Company" in context to the tax liability has been defined in subsection (21) of section 2 of Income Tax Ordinance, 1979 and Income has been explained in subsection (24) of section 2 of the ibid Ordinance as under:-

"Income" includes--

(a) any income, profits or gains, from whatever source derived, chargeable to tax under any provisions of this Ordinance under any head specified in section 15;

(b) any loss of such income, profit or gains; and

(c) any sum deemed to be income, or income accruing or arising or received in Pakistan under any provisions of this Ordinance, but does not include in the case of a shareholder of a domestic company, the amount representing the face value of any bonus shares or the amounts of any bonus declared issued or paid by the company to its shareholders with a view to increase its paid-up share-capital.

10. Section 50 (5) of Income Tax Ordinance, 1979. provides as under:-

"(5) Notwithstanding anything contained in any law for the time being in force;

(a) The Collector of Customs shall, in the case of every importer of goods, collect advance tax computed, on the basis of the value of such goods as increased by the customs duty and sale-tax, if any, levied therein, at-the rates specified in the First Schedule, and credit for the tax so collected in any financial year shall, subject to the provisions of section 53, be given in computing the tax payable by such importer for the assessment year commencing on the first day of July next following the said financial year, or in the case of an assessee to whom section 72 or section 81 applies, the assessment year in which the "said date", as referred to therein, falls whichever is the later;

(b) the tax under clause (a) shall be collected in the same manner and at the same time as the customs duty, as if such goods (even though exempt from such duty) were liable to such duty, and all the provisions of the Customs Act, 1969 (PV of 1969) shall, so far as may apply accordingly."

11. Sections 56, 61 and 63 of Income Tax Ordinance, 1979 are reproduced as under:--

"56. Notice for furnishing return of total income.---The Deputy Commissioner may, at any time by notice in writing require any person who in his opinion, is chargeable to tax or is required to file return of total income under section 55 for any income year to furnish a return of total income for such year within thirty days from the date of service of such notice or such longer or shorter period as may be specified in such notice or as the Deputy Commissioner may allow."

"61. Notice for production of books of accounts, etc:---The Deputy Commissioner may serve upon any person who has furnished a return of total income for any income year, or upon whom a notice has been served to furnish such return, a notice requiring him, on a date specified therein, to attend at the Deputy Commissioner office or to produce, or cause to be produced, any evidence on which such person may rely in support of the return, if furnished and such accounts, documents or evidence (including accounts or documents relating to any period prior or subsequent to the said income year) as the Deputy Commissioner may require:

Provided that the Deputy Commissioner shall not require the production of any accounts relating to a period more than three years prior to the income year."

"63. Best judgment assessment.---Where any person:--

(a) fails to furnish a return of total income required to be furnished by him under section 56, subsection (3) of section 72 or subsection (3) of section 81; or

(b) fails to comply with any of the terms of a notice issued under sections 58 or 61,

the Deputy Commissioner may, by all order in writing assess the total income of the assessee to the best of his judgment and determine the amount of tax payable by him."

12. The above provisions in the Income Tax Ordinance, 1979 authorize the assessing officer to issue notice to file return, require a person to attend his office, and produce or cause to be produced any evidence including the accounts and documents to ascertain the tax liability and similarly an assessee is entitled to produce evidence in rebuttal. In the light of the legal position, the decision of the question as to whether respondent company was liable to the payment of Income Tax or not depends on the determination of fact whether the company having established its office in Malakand, Dargai was carrying its business only in non-taxable area or the income was also being derived from taxable area. This being a pure question of fact, could not be decided by raising a presumption only on the basis of location of the manufacturing unit or the registered office of company in non-taxable area. The Collector of Customs as provided under section 80 (DD) of the Income Tax Ordinance, 1979, was obliged to collect the advance Income Tax on imported edible oil on the basis of its value in terms of section 50 (5) of the Ordinance and without ascertaining the liability of payment of Income Tax by way of holding a proper factual inquiry, no presumption in respect of non-taxability of the income of the' company could be raised under the law, therefore, the issue of notices to the respondent under sections 56 and 61 of the Ordinance was quite in accordance with law.

14. (sic) Learned counsel for the petitioner has vehemently argued that there is sufficient evidence on record in support of the fact that company was deriving its income from taxable area and notwithstanding the issue of exemption certificate to the Company by the concerned officials of the department in the past, the company would not be entitled to have the concession of payment of income tax on the income being derived from taxable area.

15. Learned counsel for the respondent on the other hand, has argued that there was no evidence with the department to substantiate the assertion that the company was carrying business in the taxable area and in view of the fact that not only manufacturing unit of the company is situated in the tribal area but its registered office is also located in non-taxable area and further the department without any objection has been regularly issuing exemption certificate to the company prior to the issue of notices, therefore, without any change in law or in the place of business of the company, there was no justification for the department to issue notices under sections 56 and 61 of the Income Tax Ordinance, 1979, and the High Court has rightly held that the notices in question were issued without lawful authority. Learned counsel argued that this Court having considered the matter in detail upheld the judgment of the High Court and no substantial question of law or fact was omitted to consider in the judgment to exercise the review jurisdiction.

16. There is no cavil to the legal position that exemption under the law from payment of income tax is available to a person or company carrying its business in tribal areas and income tax cannot he collected from such person or company by the tax collecting authorities of the Government unless the law relating to the collection of Income Tax is extended to the tribal areas by virtue of Article 247 of the Constitution. However, the question whether a company or a person derives income from business being carried out in taxable or non-taxable area is a pure question of fact which cannot be decided without holding groper inquiry for determination of controversial facts regarding the tax liability. The business of a person or Company may or may not be confined to a particular place or area rather it may be expended beyond the local limits of the area in which Income Tax Ordinance is not applicable and thus if the income tax is derived from the sale of products which are manufactured in the factory situated in non-taxable area both from taxable and non-taxable area, the question relating to the tax liability of such a business concern cannot be determined only on the basis of location of factory or its registered office rather the requirement of law in such case is to hold a proper inquiry and ascertain the correct factual position for determination of tax liability. The exemption from payment of tax is certainly available on the business being carried in tribal area in which income tax law is not applicable but the real question for determination in the present case would be that a company with its manufacturing unit and registered office in non-taxable area, if is also carrying business in taxable area is exempted from payment of income tax on its income as a whole or only on the income being derived from non-taxable area.

17. The careful examination of the record would suggest that no material was brought before the High Court or this Court on the basis of which a positive opinion could be formed about the business activities of the company and its tax liability for the purpose of exemption of income tax. It is apparent on record that this essential aspect of the case escaped the notice of this Court and instead the question of taxability was decided only on the basis of consideration that the registered office of the: company was situated in tribal areas in which the Income Tax Ordinance, 1979, was not applicable.

18. In the light of the factual position narrated above, the, controversial question as to whether the company was carrying business only in the tribal area or it was also operating in the settled area and was liable to pay income tax, requiring determination has not been attended. It is thus manifest on the record that this essential aspect of the cane was overlooked in the judgment, which has caused serious prejudice to the case of petitioner on merits. In view thereof, we are of the considered opinion that review of the judgment in the present case is fully justified as it is crystal clear that immunity from payment of Income Tax could not be claimed without establishing the fact that taxable income was not being derived from the area where the Income Tax Ordinance, 1979 is applicable.

19. The upshot of the above discussion is that this review petition succeeds and in consequence thereto the Income Tax Department is competent to proceed in the matter in accordance with law, The above' are the reasons for the short order dated 5-3-2007, which is reproduced' hereunder and made part of this judgment:-

"For the reasons to be recorded later, the review petition is accepted, judgment under review as well as the judgment of the learned Peshawar High Court are set aside, The Income Tax Department is directed to decide the cases of the respondent: in pursuance of the notices which have already been issued after providing opportunity of hearing to them. No order as to costs

M.B.A./C-33/SCPetition allowed.