VS, 2009 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 938 (2007)

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

----S.22---Income from business or profession---Sale of export quota---Amount realized on sale of export quota was not offered to tax by the assessee with the contention that it was covered under presumptive tax regime being part of export sale proceeds like export rebate etc.---Assessing Officer assessed the same under normal tax regime as business income under the provisions of S. 22 of the Income Tax Ordinance, 1979 stating that it was recurring in nature and permission to export had been sold out within the country did not amount to export sales proceeds---Validity---Nothing had physically been exported by the assessee nor any amount had been realized in terms of foreign exchange by the assessee on export of it---Assessing Officer had charged it to tax as income from normal business activity under S. 22 of the Income Tax Ordinance, 1979 and with this background of the matter, certain questions arose which remained unanswered at assessment stage such as (i) exports were effected in whose name whether the assessee of the purchaser of export quota; that export sales proceeds had come into whose possession and what channel of its receipt was adopted and that various rebates on exports allowed by the Government were how actually received by whom and the mode of its receipts from such Government departments---Only on finding out the answers to such questions by the Assessing Officer that exactly the taxability of its could be determined in the hands of assessee---Matter was remitted back to Assessing Officer by the Appellate Tribunal to proceed by bringing on record the answers to such questions and also directed to pass speaking order after allowing proper opportunity of being heard to assessee.

(b) Income Tax---

----Deferred cost---Merger---Prior to merger amortization of deferred cost was allowed in the hands of assessee---Assessing Officer despite acknowledging the allowing of such amount in the hands of taken over company/assessee had still not allowed simply for the reason that addition was warranted---Arbitrarily departure from the history was against the principle of consistency as the right once granted could not be unilaterally withdrawn---Appellate Tribunal directed that amount claimed should be allowed as a deduction in the year also.

(c) Income Tax Ordinance (XLIX of 2001)---

----Ss.221 & 23(5)---Finance Act (I of 2003), Preamble---Rectification of mistake---Initial depreciation---Disallowance of claim of initial depreciation by rectification under S. 221 of the Income Tax Ordinance, 2001 when the department noticed that as per pre-amendment provisions contained in S. 23 (5) of the Income Tax Ordinance, 2001, the assessee was not entitled to claim the initial depreciation on building---Rectification proceedings were initiated against a deemed order by developing an understanding that pre-amended provisions of S.23(5) of the Income Tax Ordinance, 2001 remained relevant only for tax year 2003 so rectification under S. 221 of the Income Tax Ordinance, 2001 was made to disallow the initial depreciation claimed---Validity---When rectification proceedings were initiated, the amended provisions of S.23(5) of the Income Tax Ordinance, 2001 were on the statute book---Revenue was first required to establish that even the amended provisions were legally inapplicable but nothing had been spelled out on it; secondly, how far only the intervention period the claim was to be disallowed, when department was allowing .preceding and succeeding years; and thirdly, with this backdrop as to whether it was a mistake within the purview of S.211 of the Income Tax Ordinance, 2001 or not---Amendment in S.23(5) of the Income Tax Ordinance, 2001 was remedial or clarifactory in nature and had retrospective and retroactive effect---Revenue was not empowered to proceed under S. 221 of the Income . Tax Ordinance, 2001 on the basis of such provisions which, at the material date, were non existent---Appellate Tribunal directed that claim for initial depreciation was rightly made and should be allowed.

Jalal Ahsan, F.C.A. for Appellant.

Jan Muhammad Ch. L.A. and Muhammad Aslam, D.R. for Respondent.

ORDER

EHSAN-UR-REHMAN, (JUDICIAL MEMBER).---The titled appeal pertaining to assessment year 2002-2003 is directed against the order-dated 17-3-2005 whereas for Tax Year 2003 it is the order dated 19-1-2006 which has been agitated. Appeal for each year is disposed of independently as under, as the issues are distinct in each year.

ASSESSMENT YEAR 2002-2003.

Sale of Export Quota:--

The amount realized on the sale of export quota declared under the head of other income was not offered tax by the assessee with the contention that it is covered under the presumptive tax regime being part of export sale proceeds like export rebate etc. but the Assessing Officer assessed it under Normal Tax Regime, as business income under the provisions of section 22 of the repealed Income Tax Ordinance with the contention that it is recurring in nature. Secondly, simply permission to export has been sold out within the country does not amount to export sale proceeds. The arguments placed at bar before us by both the parties remained same which were adduced before both the authorities below. The available record has been perused.

The contention that it is a part of export proceeds could not be proved before us nor, its linkage to the export proceeds in the hand of appellant/assessee could be established. The income has been earned by a activity of sale of permission to export within the Pakistan by agreeing and realizing the amount thereon in terms of Pak Rupees.

Undisputedly nothing has physically been exported by the appellant/assessee nor, any amount has been realized in terms of foreign exchange by the appellant/assessee on the export of it, therefore, the Assessing Officer has charged it to tax as an income from normal business activity under section 22 of the repealed Ordinance. With this backdrop of the matter, certain questions arose which remained unanswered at the assessment stage namely are:--

(i) Firstly the exports were effected in whose name whether the appellant/assessee or the purchaser of export quota?

(ii) Secondly the export sales proceeds have come into whose possession and what channel of its receipt was adopted.

(iii) Thirdly the various rebates on exports allowed by the Government were how actually received by whom and the mode of its receipt from such Government Departments. It is only on properly finding out the answers to the above by the Assessing Officer that exactly the taxability of it could be determined in the hands of the appellant/assessee.

Therefore, we do not maintain the treatment accorded by the Assessing Officer in this regard and remit the matter back to Assessing Officer so as to proceed by bringing on record the answers to questions supra, anyhow a speaking order shall be passed after allowing proper opportunity of being heard to assessee/appellant.

DEFFERED COST.

In the years prior to merger of Maple Leaf Electric Company in the appellant/assessee company that the amortization of deferred cost used to be claimed and was allowed in the hands of this taken over company by the income tax department. The Assessing Officer despite acknowledging the allowing of such amount in the hands of taken over company namely Maple Leaf Electric Company has still not allowed simply for the reason that addition is warranted.

After hearing both the learned representatives and on perusal of the record we find that arbitrarily departure from the history is against the principle of consistency as the right once granted cannot be unilaterally withdrawn, so it is direct that amount claimed under this head shall be allowed as a deduction in the impugned year also.

The ground regarding taxability of dividend income as a separate block has not been contested, therefore, on being not contested is rejected.

As far as the various add-back/disallowances are concerned same have been found to be on the higher side so under the following head these are fixed as under:--

TAX YEAR 2003.

The sole issue which is being impugned in this year is disallowing of claim of initial depreciation by rectification under section 221, in the deemed order accepting the declared return version (sections referred to in this order hereinafter are of the present Income Tax Ordinance, 2001).

The sole controversy arose when the department noticed that as per pre-amended provisions contained in section 23(5), the appellant/assessee was not entitled to claim the initial depreciation on building. So initiated rectification proceedings against a deemed order by developing an understanding that pre-amended provisions of section 23(5) remained relevant only for tax year 2003 so rectification under section 221 was Made to disallow the initial depreciation claimed. With the amendment in section 23(5) vide Finance Act 2003,as per department, for the Tax Year 2004, i.e. the immediately succeeding year, assessee became entitled to such initial depreciation. The learned first appellate authority without dilating upon as to how legally section 221 could be invoked has proceeded further. The learned first appellate authority has also not commented upon the arguments of the learned AR that amendments in section 23(5) by Finance Act, 2003 were to correct the editorial mistake. This contention has duly been taken before us by the learned AR as well. The other contention of the learned AR that ambiguity in the pre-amended language of section 23(5) extends a benefit of doubt to assessee on which, the recording of findings have also been omitted. The learned first appellate authority preferred not to dilate on the legal and factual justification for the proceedings under section 221, and as to how the provisions of section 221 could become applicable in the given circumstances. The plain reading of the original as well as post amended provisions will necessitate to realize that only ambiguity could be evident from its language. Thirdly as to whether when undisputedly the department is allowing the claim of initial depreciation in earlier all the years as well as in the subsequent years then the amendment could be termed as beneficial in nature, thereby becoming retrospective in nature. Fourthly, concept of benefit of doubt becomes available to the appellant/ assessee or not. The learned first appellate authority has failed to take cognizance that not dilating upon the issues highlighted in earlier lines was not fair, proper and just. Such lacunas cannot be overlooked at this forum.

We have heard the learned representative and have also perused the available record. It should not go unnoticed that on the dates when rectification proceedings were initiated by notice dated 3-10-2005 and concluded vide order dated 1-11-2005 under the provisions of section 221 of the present Ordinance, the Amendment provisions of section 23(5) were on the statute book. At this juncture the Revenue was first required to establish that even the amended provisions were legally inapplicable but nothing has been spelled out on it, secondly, how, far only the intervening period the claim is to be disallowed, when department is allowing in preceding and succeeding years, thirdly, with this backdrop as to whether it was a mistake within the purview of section 221 of the person Ordinance or not.

We do not feel any hesitation in holding that the amendment in section 23(5) was remedial or clarifcatory in nature, thus has retrospective and retroactive effect. Secondly the Revenue was not empowered to proceed under section 221 ibid. On the basis of such provisions which at the material date were non existent.

In a nutshell, it is directed that claim for initial depreciation was rightly made and shall be allowed. Both the appeals are disposed of in the manner as indicated above.

C. N.A./24/Tax(Trib.)Order accordingly.