VS, 2009 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 2019 (2009)

Income Tax Ordinance (XLIX of 2001)---

----Ss.131 & 221---Rectification of mistake---Application for---Appeal to Appellate Tribunal---Respondent/assessee a Public Limited Company managed and controlled by Government being State enterprise---Such legal status of assessee having been taken as that of a Private Limited Company, company filed application under S.221 of Income Tax Ordinance, 2001 for rectification of mistake---Rectification application was dismissed by the Taxation Officer holding the company a Private Limited Company---Appeal before Commissioner Income Tax (Appeals) against order of Taxation Officer, having been accepted, department filed appeal before Appellate Tribunal alleging that Commissioner (Appeals) had erred in admitting and accepting appeal against rejection of application for rectification---Validity---Assessee company was a State owned enterprise whose 100% shares were held by State Engineering Corporation---Said company was nationalized in pursuance of the Economic Reforms Order, 1972---Documents which had been discussed in the impugned orders of the officers below, had shown that company had come under the definition of `Public Limited Company'---As 100% of shares of the company were held by State Engineering Corporation, which in turn was fully owned by Federal Government, shares of the company, would be deemed to have been held by the Federal Government---Legal issue involved in the case having already been settled in favour of assessee/company by the Tribunal, there was no justification not to follow the direction of the Tribunal, until and unless decision given by the Tribunal was reversed by the higher authorities---No justification was for interference in the impugned order of C.I.T. (A)/Commissioner (Appeals)---Same was upheld and appeals filed by the appellant/department were dismissed.

2003 PTD (Trib.) 1903; 1999 PTD 825 and 1992 PTD 570 ref.

Dr. Tariq Ghani, D.R. for Appellant.

S. Muniruzzaman for Respondent.

ORDER

Through these three appeals the appellant Department has objected against the consolidated impugned order of learned CIT(A) dated 18-10-2006 for assessment years, 2001-2002, 2002-2003 and tax year 2003 on the following common grounds:--

"2. That the learned CIT(A) has erred in admitting the appeal against rejection of application for rectification under section 221 of the Income Tax Ordinance, 2001.

It is submitted that the taxpayer itself claimed the status of `Private Limited and there was no mistake seen floating on the surface to attract the provisions of section 221 of the Income Tax Ordinance, 2001.

3. Without prejudice to ground No.2 above, the CIT(Appeals) has erred in placing reliance upon ITAT's decision reported as 2003 PTD (Trib.) 1903 when the afore-said decision has lost its finality upon filing the reference application before the Honourable High Court by the Department.

4. Without prejudice to grounds Nos.2 and 3 above, the CIT(Appeals) has erred in allowing the status of Public Limited Company when the taxpayer was admittedly incorporated as a private limited company and its 100% shares are held by State Engineering Corporation (Pvt.) Limited and not by the Government."

2. We have heard the learned representatives from both the sides and have also perused the consolidated impugned order of learned CIT(A) and the order passed by the Taxation Officer under section 221 of the Income Tax Ordinance, 2001. We have found that the Taxation Officer has refused to rectify the assessment as the assessee/taxpayer has filed applications regarding rectification on the ground that the tax rates of public limited company are to be applied in his case. According to the Taxation Officer, in the order passed under section 122(i) of the Income Tax Ordinance, 2001 for the tax year, 2003, the issue of status was discussed as under:-

"The assessee is a Private Limited company, was incorporated on July 23, 1975 in Pakistan as a private company limited by shares under the Companies Act, 1931 (now the Companies Ordinance, 1984). The assessee claims to be managed and controlled by Government of Pakistan being State Enterprise. However, its legal status for the purpose of First Schedule to the Income Tax Ordinance, 1979 is taken as that of a private limited company in the light of discussion made in the preceding years. The assessee-company has itself declared its status in the return as Private Limited Company i.e. Code 009.

In view of above, the issue of status is appealable which was contested by you before any appellate authority. The department filed reference application before Honourable High Court under section 133(1) of the Income Tax Ordinance, 2001, in other cases on the question that:--

(i) "Whether on the facts and in the circumstances of the case, the learned ITAT was justified to assign the status of public limited company to respondent assessee in view of explanation to Article 7D Economic Reforms Order, 1972, providing that for the purpose of Articles 7D, 7E and 7B of the Economic Reforms Order, 1972, the Federal Government shall be deemed to have majority portion of shares in company, if the said shares are owned by an institution owned or controlled by the Federal Government.

(ii) Whether on the facts and in the circumstances of the case the ITAT was justified to hold that the majority of shares of the assessee shall be deemed to have acquired by the Government and, therefore, qualifying condition of definition of public limited company as defined in para B(2) Part-IV of the first Schedule to the Income Tax Ordinance, 1979 is fulfilled."

In view of above this office is unable to rectify the orders as requested by your AR till the issue under reference is decided by Honourable High Court.

3. We have noted that according to the above referred order passed by Taxation Officer, the assessee has itself declared its status in the return as a private limited company i.e. Code 009 and, therefore, the Taxation Officer has rejected the applications filed by the taxpayer for the three years under review with the observation that as the issue of status is an appealable issue and the matters regarding the status in the other similar matters have not yet been finalized, the matter being pending before the Honouable High Court in reference applications tiled by the Department, therefore, there is no mistake apparent from the record of the case. Before the learned CIT(A) on behalf of the taxpayer, it has been contended that in the previous years, the Taxation Officer has placed reliance on the decision .of the Honourable High Court of Sindh reported as 1999 PTD 825 to treat the taxpayer as a private limited company for tax rate purposes. But according to the contention of the assessee before the learned CIT(A), this decision of the Honourable 'High Court is distinguishable both on legal as well as on factual plains.

4. Dr. Tariq Ghani, learned DR, is supporting the order passed by the Taxation Officer under section 221 of the Income Tax Ordinance, 2001 and has contended that there was no justification for the learned CIT(A) to allow the taxpayer the status as a public limited company as this issue required full deliberation and there was no mistake apparent from the record. He has in this respect placed before us the decision of the Honourable Supreme Court of Pakistan reported as 1992 PTD 570 which is regarding section 35 of the Repealed Income Tax Act, 1922 which is para materia to section 221 of the Income Tax Ordinance, 2001. The Honourable Supreme Court of Pakistan in this reported decision has held that when an officer exercising power under section 35 enters into the controversy, investigates into the matter, re-assesses the evidence or takes into consideration addition evidence and on this basis interprets the provisions of law and forms an opinion different from the order, then it will not amount to rectification of the order. Any mistake which was not patent and obvious on the record, could not be termed to be an order which could be corrected by exercising powers under section 35 of the Repealed Act.

5. The learned DR has placed before this Bench another decision of the Honourable High Court reported as 1999 PTD 825 in the matter of Indus Steel Pipes Limited wherein it has been held that shares held to the extent of 50% by the corporation in the assessee company could not be taken to be held by the Government of Pakistan as contemplated in the definition of public company and the assessee-company could not be accorded status of a public company.

6. We have considered the above referred arguments of learned DR and have also gone through the case laws referred by the learned DR and mentioned in the impugned order of the learned CIT(A). We have found that the assessee-company is a State-owned enterprise whose 100% shares are held by the State Engineering Corporation (Pvt.) Limited (formerly Heavy Engineering and Machine Tool Corporation) whose 100% shares in turn are held by the Government of Pakistan through Ministry of Industries, Production and Special Incentives. We have further noted that the assessee-company was nationalized in pursuance of the Economic Reforms Order, 1972 as a part of re-organization of public sector industries was taken over by the State Engineering Corporation (Pvt.) Limited within the WPIDC Memorandum No.AS(C)IDC/-1(1)/U dated 15-8-1973. These documents which have been discussed in the impugned orders of the officers below, show that the taxpayer company comes under the definition of public limited company as defined in para. B(2) Part-IV of the First Schedule to the repealed Income Tax Ordinance, 1979 wherein it has been said that public company means a company in which not less than 50% of the shares are held by the government. Form A of the assessee-company shows that all the 100% ordinary shares are held by the State Engineering Corporation (Pvt.) Limited which has been reproduced in the impugned order of the learned CIT(A) as follows:--

"Particulars of Holding Company

NameRegistration No.% shares held

State Engineering Corporation14/A/RO of 1973-1974100% shares

Column 11 and 20 of Form-A of holding company Messrs State Engineering Corporation in turn shows the following position:--

11. Paid-up Share Capital.

20. List of members and debenture holders on the date up to which Form-A is made

7. We have noted that except three shares allotted (one each to the Chief Executive, Director and Secretary of the Company) 9,99,999 ordinary shares and 100% cumulative shares of State Engineering Corporation (Pvt.) Limited ' are held by Ministry of Industries, Production and Special Incentives, Government of Pakistan. In addition to the above, as per Re-organization clause (7D) of the Economic Reforms Order, 1972, the re-organization may include provision for amalgamation of a managed establishment with other such establishments or with undertaking owned or managed by the Federal Government or be a corporation set up under the authority, of the Federal Government. In this regard, an explanation has also been given that the Federal Government shall be deemed to have a majority portion of share in a company carrying controlling voting rights or the controlling proprietary interests in an establishment of the aggregate face value of shares or proprietary interests in such establishment owned by the Federal Government and by an institution owned or controlled by the Federal Government exceeds 50% of the total voting rights in the issued and paid up share capital of the company. We have found that in the instant case, 100% shares of the taxpayer company are held by the State Engineering Corporation (Pvt.) Limited which in turn is fully owned by the Federal Government, therefore, shares of the assessee-company are deemed to have been held by the Federal Government thereby fulfilling the condi tion of `public company" including 'a company in which not less than 50% of the shares are held by the government in terms of para. B(2) of Part IV of the First Schedule to the repealed Income Tax Ordinance, 1979.

8. Regarding the contention of the learned DR that the taxpayer itself had shown its status as a private limited company, we are of the view that the learned CIT(A) has rightly .held that the Taxation Officer being custodian of law, was legally under obligation to grant correct status to the taxpayer even if he had failed to claim the same, while in the present case the assessee taxpayer has himself requested for rectification of mistake in the order which may have been in the return filed by him. Even otherwise, a wrong claim of a taxpayer does not permit or justify excessive charge of tax against lawful charge of tax which is legally chargeable.

9. Regarding view of the Taxation Officer that the Department has filed reference applications before the Honourable High Court in some other cases, therefore, assessment in the taxpayer's case would not be rectified, has also been rightly misplaced by the learned CIT(A). The case of the taxpayer has its own merits. It should have been decided accordingly keeping in view the legal position as on the date of disposal of its application for rectification. Filing of reference application in any other case does not stop or debar the Taxation Officer from passing a judicious order in the case of the taxpayer under section 221 of the Income Tax Ordinance, 2001 when the mistake of law is obvious and requires rectification. Since the legal issue involved in the case of the taxpayer already stands settled in favour of the taxpayer by this Tribunal, there is no justification not to follow the directions of this Tribunal until and unless the decision given by this Tribunal is reversed by the higher authorities, has been rectified in accordance with law or any provision of law has been inserted/amended through legislation nullifying that decision of the Tribunal.

10. Considering all these facts, circumstances and the legal position, we find no justification for interference in the impugned order of the learned CIT(A) which is upheld and all the three appeals filed by the Department are dismissed.

H.B.T./131/Tax (Trib.)Appeals dismissed.