COMMISSIONER OF INCOME TAX, KARACHI VS SHADMAN COTTON MILLS LTD., KARACHI through Director
2008 P T D 253
[Supreme Court of Pakistan]
Present: Rana Bhagwandas and Muhammad Nawaz Abbasi, JJ
COMMISSIONER OF INCOME TAX, KARACHI
Versus
Messrs SHADMAN COTTON MILLS LTD., KARACHI through Director
Civil Petition No.503-K of 2006, decided on 22/08/2007.
(On appeal from the judgment of High Court of Sindh, dated 18-8-2006 passed in I.T.R. No.D-425 of 1999).
(a) Income Tax Ordinance (XXXI of 1979)---
----S. 156(1)---Expression "mistake apparent on record" as used in S.156(1) of Income Tax Ordinance, 1979---Connotation stated.
The expression "mistake apparent on record" means the error or mistake so manifest and clear which, if is permitted to remain on record, may have material effect on the case. But an error of fact or law, which having direct nexus with the question of determination of rights of parties affecting their substantial rights or causing prejudice to their interest, is not a mistake apparent on the record to be rectified under S.156 of Income Tax Ordinance, 1979. The mistake must be of the nature, which is floating on the surface of record and must not involve, an elaborate discussion or detailed probe or process of determination.
(b) Income Tax Ordinance (XXXI of 1979)---
----Ss. 66-A & 156---Revision of assessment order or rectification of mistake therein---Powers of Revenue and Appellate Tribunal---Distinction stated.
The plain reading of sections 66-A and 156 of Income Tax Ordinance, 1979 would show that jurisdiction under section 156 is very limited, because under this section, Income Tax Authorities are authorized to amend an order to the extent of rectifying the mistake appearing on the face of the record, and notwithstanding the fact that order passed under this section. has the effect of enhancing the tax liability or reducing the same must be within the scope and domain of law and must not be passed with the intent and purpose to increase the tax liability of the assessee, and further such an order must be passed after giving reasonable opportunity of hearing to the concerned parties. The Tax Authorities or the Tribunal, as the case may be, cannot exercise jurisdiction under section 156(1) of the Income-Tax Ordinance, 1979 in respect of an order, which, due to some legal or factual defect, has to be examined by the next authority in exercise of powers under section 66-A of the Ordinance or appellate jurisdiction as the case may be. Similarly Assessing Officer does not enjoy the power of review to recall its earlier order under section 156(1) of the Ordinance; rather he has limited power of rectifying the mistake on the face of the order without any material change. The tax liability of an assessee in the process of rectification cannot be altered on the basis of a consideration, which was not part of the original proceedings and the concept of rectification of mistake to correct the error committed in the assessment order, which is found floating on the surface of the record, may not be beyond the assessment already made, therefore, the question as to whether certain expenses can or cannot be deducted for the purpose of assessment of the income is a material question, which cannot be brought within the purview of section 156(1) of the Ordinance for the purpose of rectification of the order of assessment, rather in such a case the proper course for the concerned party is to invoke the provision of section 66-A of the Ordinance or avail any other remedy provided under the law. The intention of law-maker was not to provide a regular or an alternate remedy under section 156 of the Ordinance to re-open the assessment after it is finalized. The scope of section 156(1) of the Ordinance cannot be enlarged to all errors of law and facts committed in the assessment.
1992 PTD 570; (1959) 36 ITR 350; 1999 PTD 570 SC (Pak) and 1998 PTD 147 ref.
Mumtaz A. Sheikh, Member Legal, Central Board of Revenue for Petitioner.
Nemo for Respondent.
Date of hearing: 22nd August, 2007.
JUDGMENT
MUHAMMAD NAWAZ ABBASI, J.--- This petition under Article 185(3) of the Constitution has been directed against the judgment, dated 18-8-2006 passed by a Division Bench of the High Court of Sindh, at Karachi, in an appeal preferred by the respondent against the judgment, dated 24-5-1999 rendered by Income Tax Appellate Tribunal, 'Karachi, in two connected income tax appeals arising out of the assessment pertaining to the years 1994-95 and 1995-96. The questions of law for the consideration' of the High Court in the appeals were proposed as under:--
"(1) Whether the learned Income Tax Appellate Tribunal was right to hold that the original order passed by the Deputy Commissioner of Income Tax under section 62 of the I.T. Ordinance, 1979 allowing freight expenses had not recorded any finding on the issue and was not a conscious decision and therefore, there arises no question of change of opinion and thus, provision of section 156 of I.T. Ordinance, 1979 could be invoked?
(2) Whether the learned Income Tax Appellate Tribunal was legally justified to say that the ratio of decisions 1992 PTD 570 (SC Pak.) relied upon by the authorized representative of the appellant were not applicable to the facts of the case?
(3) Whether the learned Income Tax Appellate Tribunal could hold that the Deputy Commissioner of Income Tax has not altered the specific finding of his predecessor or resolved a disputed matter but rectified a mistake committed by his predecessor about which there cannot be two opinions for any valid reasons and therefore, it is beyond the ambit of section 156 of I.T. Ordinance, 1979?
(4) Whether the learned Income Tax Appellate Tribunal through the M.A. (Rect) Nos.421 and 422/KB of 1998-99 (Assessment years 1994-95 and 1995-96, dated 28-6-1994 has committed an error of law by resorting to cases of Indian jurisdiction reported as (1959) 36 ITR 350 (SC) in the presence of our Honourable Supreme Court and High Court decisions reported as 1999 PTD 570 (SC Pak.) and 1998 PTD 147 (H.C. Kai.) to affirm the action taken under section 156 of the I.T. Ordinance, 1979 by the successor Assessing Officer?"
2. Question No.4 having been considered not relevant for the purpose of appeal was excluded from consideration whereas remaining questions were consolidated into a single question which was answered against revenue and consequently, the order passed by the Commissioner Income Tax (Appeals) was set aside and that of passed by the Deputy Commissioner Income Tax under section 156(1) of Income Tax Ordinance, 1979 was restored. The High Court in appeal filed by the department reversed the judgment of the Tribunal and restored the order of C.I.T. (Appeals) vide impugned judgment, hence this petition has been filed before this Court.
3. The brief facts in the background leading to the filing of this petition are that respondent, a public limited company being engaged in the manufacture and sale of yarn, filed income tax return for the assessment years 1994-95 and 1995-96. The Assessing Officer accepted the trading results of the assessee with the expenses in the profit and loss account computed on proportion basis as per past practice and recorded his finding in respect of the current years 1994-95 as under:--
"Total export sales of the assessee amount to Rs.463,492,425. Export Sales subject to tax under section 80-CC amount to Rs.269,260,367 and other sales of Rs.194,232,357. The other sales are 41.90% of the total sales. All the expenses and gross profit to other sales is allocated at 41.90%." Similarly the finding of the Assessing Officer for the assessment year 1995-96 were as under:---
"Total sale of the assessee amount to Rs.850,474,798. Export sales subject to tax under' section 8000 amount to Rs.247,385,307 and other sales of taxable Units Nos.1 and 2 Rs.303,084,928, the other sales are 47.17% of the total sales. All the expenses and gross profit to other sales is allocated at 47.17%."
4. Subsequently, on examination of record, the Assessing Officer issued a notice on 2-6-1998 under section 156(1) of Income Tax Ordinance, 1979 for rectification of the assessment order with the observation that freight and loading expenses (Export) were not accounted for in the relevant assessment year in terms of section 80CC(2) of Income Tax Ordinance, 1979. The notice was contested by the respondent with the assertion that it being beyond the scope of section 156(1) of the Income Tax Ordinance, 1979 had no legal force and the proceedings initiated thereon were nullity in law. The Assessing Officer however, forming an opinion that the assessment of the relevant years was suffering from a mistake apparent on record due to the wrong deduction of freight expenses (export) from the account and the mistake was required to be rectified under section 156(1) (ibid). In appeal preferred by the respondent, Commission Income Tax (Appeals) held that the defect in the assessment order, if any, would not fall within the purview of section 156(1) of Income Tax Ordinance, 1979 rather the same would be within the domain of section 66-A of (ibid) Ordinance and set aside the order passed by D.C.I.T. under the above section but Income Tax Appellate Tribunal in appeal filed by the department, reversed the order of C.I.T. (Appeals) and restored that of the order passed by D.C.I.T. However, the learned Judges in the High Court in the impugned judgment placing reliance on the case-law from Indian jurisdiction on the interpretation of section 35 of Income Tax Ordinance, 1922, an analogous provision to section 156 of Income Tax Ordinance, 1979 observed that it was not a case of rectification of mistake as envisaged under section 156 (ibid) and consequently, held that the scope of section 156 is limited to the extent of inadvertence of the Assessing Officer, therefore, in exercise of power under this section only a mistake apparent on the face of the record can be corrected whereas a wrong committed in the assessment order in respect of question of law or question of fact which needs determination on the basis of record, cannot be treated a mistake apparent on the face of the record rather it is an error falling within the ambit of revisional jurisdiction under section 66-A of the Ordinance for the purpose of correction.
5. Learned Member (Legal) C.B.R. heavily placing reliance on the judgment of the Tribunal, has contended that the mistake apparent on the face of it, is not only a clerical mistake or mathematical calculation rather an error of judgment based on admitted facts may also be treated a mistake for the purpose of rectification under section 156 of the Income Tax Ordinance and thus, an Assessing Officer on examination of the record if forms an opinion that there was an omission pertaining to a question of factor law in the assessment order, which can be corrected on the basis of available record, such omission would be treated a mere mistake or error on the face of record, liable to be rectified under section 156(1) of the Ordinance. In nutshell the argument of member (Legal) is that the error is not confined to the clerical or arthimatical mistake, rather any question of law or fact which escaped notice of Assessing Authority may be treated a mistake within the purview of section 156 of Income Tax Ordinance.
6. We deem it proper to discuss the proposition in the light of provisions of sections 156 and 66-A of the Ordinance for better appreciation of the question raised therein.
Section 156 provides as under:---
156 Rectification of mistakes.---(1) Any income tax Authority or the Appellate Tribunal may amend any order passed by it to rectify any mistake apparent from the record on its own motion or on such mistake being brought to its notice by any other income tax Authority or by the assessee.
(2) No order under subsection (1), which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, shall be made unless the parties affected thereby have been given a reasonable opportunity of being heard.
(3) Where any such mistake is brought to the notice of any income tax 'Authority by the assessee and no order under subsection (1) is made by such authority before the expiration of the financial year next following the date in which it was so brought to its notice, the mistake shall be deemed to have been rectified and all the provisions of this Ordinance shall have effect accordingly.
(4) No order under subsection (1) shall be made after the expiration of four years from the date of the order sought to be amended.
Section 66-A provides as under:-
66-A. Powers of Inspecting (Additional Commissioner to revise (Deputy Commissioner) order.---(1) The Inspecting (Additional) Commissioner may call for and examine the record of any proceedings under this Ordinance and if he considers that any order passed therein by the (Deputy Commissioner) is erroneous insofar as it is prejudicial to the interests of revenue he may, after giving the assessee an opportunity of being heard and after making, or causing to be made such enquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment to be made.
(1-A) the provisions of subsection (1) shall, in like manner, apply:
(a) where an appeal has been filed under sections 129, 134 and 137 or a reference has been made under section 136, against an order passed by the (Deputy Commissioner); and
(b) where an appeal or reference referred to in clause (a) has been decided, in respect of any point or issue which was not the subject-matter of such appeal or reference.)
(2) No order under subsection (1) shall be made after the expiry of four years from the date of the order sought to be revised.
7. Having heard learned Member (Legal) and examined the above provisions, we have not been able to find out any substance in this petition. The perusal of the orders of the Assessing authority, Commissioner Income Tax (Appeals) and the order of Income Tax Appellate Tribunal as well as the order passed by the High Court would make it clear that exercise undertaken by the Assessing Officer under section 156 of the Ordinance was not simply in respect of a mistake apparent on the face of the record within the contemplation of section 156 (ibid), rather it was re-assessment of the tax liability of the assessee on the basis of existing record. The expression "mistake apparent on record" means the error or mistake so manifest and clear which, if is permitted to remain on record, may have material effect on the case. But an error of fact or law, which having direct nexus with the question of determination of rights of parties affecting their substantial rights or causing prejudice to their interest, is not a mistake apparent on the record to be rectified under 5.156 (ibid). The mistake must be of the nature, which is floating on the surface of record and must not involve, an elaborate discussion or detailed probe or process of determination.
8. The plain reading of sections 66-A and 156 of the Ordinance, would show that jurisdiction under section 156 (ibid) is very limited, because under this section, Income Tax Authorities are authorized to amend an order to the extent of rectifying the mistake appearing on the face of the record, and notwithstanding the fact that order passed under this section has the effect of enhancing the tax liability or reducing the same must be within the scope and domain of law and must not be passed with the intent and purpose to increase the tax liability of the assessee, and further such an order must be passed after giving reasonable opportunity of hearing to the concerned parties. The Tax Authorities or the Tribunal, as the case may be, cannot exercise jurisdiction under section 156(1) of the Ordinance in respect of an order, which, due to some legal or factual defect, has to be examined by the next authority in exercise of powers under section 66-A of the Ordinance or appellate jurisdiction as the case may be. Similarly the Assessing Officer does not enjoy the power of review to recall its earlier order under section 156(1) of the Ordinance; rather he has limited power of rectifying the mistake on the face of the order without any material change. The tax liability of an assessee in the process of rectification cannot be altered on the basis of a consideration, which was not part of the original proceedings and the concept of rectification of mistake to correct the error committed in the assessment order, which is found floating on the surface of the record, may not be beyond the assessment already made, therefore, the question as to whether certain expenses can or cannot be deducted for the purpose of assessment of the income is a material question, which cannot be brought within the purview of section 156(1) of the Ordinance for the purpose of rectification of the order of assessment, rather in such a case the proper course for the concerned party is to invoke the provision of section 66-A of Income Tax Ordinance, 1979 or avail any other remedy provided under the law. The intention was not to provide a regular or an alternate remedy under section 156 of the Ordinance to re-open the assessment after it is finalized.
10. (sic) We having considered the provisions of law on the subject discussed by the High Court in its judgment and perused the record have not been able to find out any defect in the impugned judgment and do not agree with the contention of the department that scope of section 156(1) of the Ordinance can be enlarged to all errors of law and facts committed in the assessment.
11. In the light of foregoing reasons we do not find any substance in this petition, which is dismissed. Leave is refused.
S.A.K./C-31/SCLeave refused.