VS, 2010 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1121 (2010)

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

----Ss. 221, 122 & 39---Second Sched., Part-I, Cl. 132---Rectification of mistake---Assessee, a power generation project---Income from other sources---Exemption---Power generation project---Interest income---Taxation Officer found that income assessable under S.39 of the Income Tax Ordinance, 2001 could not be considered as attributable to the running of the project---Tax was charged on the aggregate income confronted through notice under S.221 of the Income Tax Ordinance, 2001---First Appellate Authority concluded that the matter being controversial and debatable did not fall within the scope of rectification provisions and should have been tackled by recourse to the provisions of S.122 of the Income Tax Ordinance, 2001---Order of the Taxation Officer was vacated by First Appellate Authority by holding that there was no mistake apparent on the face of record which could be rectified under S.221 of the Income Tax Ordinance, 2001---Validity---Interest income of a power generation project had been adjudicated by the hierarchy of the courts up to the level of Supreme Court of Pakistan---Ruling of apex court which held the field laid down the import of law vis-a-vis the taxability or otherwise of such income and if the disclosure made by the assessee in its returns of income or the treatment meted out by the Taxation Officer was in conflict with the ruling of the Supreme Court of Pakistan, the disclosure made by the assessee or the treatment accorded by the Taxation Officer would be considered to be mistake apparent on the record to the extent of repugnancy, which could be rectified under S.221 of the Income Tax Ordinance, 2001---Order of First Appellate Authority, transpired that she had not dilated upon the contentious issues in the light of ratio of judgments of competent courts---Order of the First Appellate Authority was vacated by the Appellate Tribunal and case was remanded for adjudication on contentious issues in the light of available judgments.

CIT v. National Food Laboratories 1992 SCMR 687 = 1992 PTD 570; 2004 PTD (Trib.) 452; 1998 SCMR 908; 1999 PTD 2899; CIT v. Shadman Mills Ltd. 2008 SCMR 204 = 2008 PTD 253; Generation Pakistan Ltd. and others v. Income Tax Appellate Tribunal of Pakistan and others 2004 SCMR 1319 and A.E.S. Pak., Gen. (Pvt.) Ltd. v. Commissioner Income Tax C.Ps. No.2211 and 2212-1/2005 and Civil Petition No.654, 746 and 747-L/2006, dated 13-12-2006 ref.

1998 PTD 3058 rel.

(b) Income Tax Ordinance, (XLIX of 2001)---

----Ss.221 & 122---Rectification of mistake---Controversy which hinges upon a process of arguments and counter-arguments for its resolution fall outside the scope of rectification action---For resolution of such debatable issues appropriate section was S.122 of the Income Tax Ordinance, 2001.

(c) Interpretation of Statutes---

----Real meaning of a provision of law---Court, through the process of interpretation crystalize the real meaning of provision of law which was to be followed by the administrative and also lower judicial fora.

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

----S.221---Rectification of mistake---Assessment---Assessments in past and closed transactions had been found to have been made in a manner contrary to the interpretation of the superior Court---Such assessments would be rectifiable under the relevant provisions of the statute so as to bring them in harmony with the interpretation of the superior court.

Sajjad Tasleem Azam, D.R. for Appellant.

Dr. Ikram ul Haq and Mansoor Baig for Respondent.

ORDER

Appeals for the tax years 2003 and 2004 have been filed by the Revenue, contesting the order of the CIT(Appeals), RTO, Lahore, dated 29-1-2008, whereby she vacated the order of the taxation officer passed under section 221 of the Income Tax Ordinance, 2001.

2. The facts leading to the present appeals are that the taxpayer which is a public limited company quoted on stock exchange derives income from running a power generation project. Income from the project enjoys exemption from the levy of income tax under Clause (132) Part-I of the Second Schedule to the Income Tax Ordinance, 2001. From the scrutiny of the accounts accompanying the relevant returns of income of the years under consideration the Taxation Officer noticed that the company also earned income from other sources which was assessable under section 39 of the Income Tax Ordinance, 2001. Break up of the Income from other sources for both years is tabulated hereunder:--

3. The Taxation Officer was of the view that the income from the above tabulated sources of income did not enjoy exemption under Clause (132), Part-I of the Second' Schedule to the Income Tax Ordinance, 2001 as they were not the profits and gains of the power project. Contention of the taxpayer company, on the other hand was that the income alleged to be assessable under section 39 of the Income Tax Ordinance, 2001 was part and parcel of the project income because the exemption clause referred to above could not be construed to refer only to income from the sale of electricity. The words "profit and gains" from an electric power project, the learned AR contended, were of much wider connotation and covered the profits earned by the company from sources which could be closely or remotely related to the running of the project. This argument, however, did not find favour with the Taxation Officer who placing reliance on the judgment of High Court, dated 14-1-1999 in the case of Messrs Generation Pakistan Limited and also other judgments, in the taxpayer's own case and Messrs Rousch Pakistan Power Limited held that the income assessable under section 39 of the Income Tax Ordinance, 2001 could not be considered as attributable to the running of the project. Accordingly he charged tax on the aggregate income confronted to the taxpayer company through notice under section 221 of the Income Tax Ordinance, 2001. The taxpayer's reliance on the case of CIT v. National Food Laboratories reported 1992 SCMR 687 = 1992 PTD 570 was also not considered to be relevant and it was held by the taxation officer that the facts of the case of the company were not covered by the ratio of reported judgment relied upon by the AR.

4. Aggrieved by the treatment meted out by the Taxation Officer the respondent company filed appeal before the CIT(Appeals) who relying upon the judgment of the Supreme Court in the case of National Food Laboratories quoted supra and also in other cases 2004 PTD (Trib.) 452, (1998) SCMR 908 and 1999 PTD 2899 held that the taxability of income from other sources pertained to the determination of tax liability which hinged upon a long-winded process of argumentation. She came to the conclusion that the matter being controversial and debatable did not fall within the scope of rectificationary provisions and should have been tackled by recourse to the provisions of section 122 of the Income Tax Ordinance, 2001. Accordingly, she vacated the order of the Taxation Officer holding that there was no mistake apparent on the face of record which could be rectified under section 221 of the Income Tax Ordinance, 2001. Now the department being aggrieved has come up in appeal before us.

5. The learned DR appearing on behalf of the Revenue vehemently argued that the exemption allowed to the respondent company in respect of income from other sources in contravention of Clause (132) of Part-I of the Second Schedule to the Income Tax Ordinance, 2001 was a mistake apparent on the face of record, which was taken cognizance of and corrected by the Taxation Officer by pressing into service the provisions of section 221 of the Income Tax Ordinance, 2001. He further argued that both the mistakes of fact and law were adequately covered by the provisions of section 221 of the Income Tax Ordinance, 2001 and there was no legal infirmity in the application of the said provisions to the taxability of income from other sources.

6. The learned AR of the company, on the other hand, contended that the "expression mistake apparent on record" means an error or mistake which is so manifest and clear that it does not require argumentation to prove its existence. Referring to the judgment of the Supreme Court of Pakistan in the case of CIT v. Shadman Mills Limited reported as 2008 SCMR 204 = 2008 PTD 253, the learned AR contended that the order passed under section 221 of the Income Tax Ordinance, 2001 by the taxation officer was not sustainable because the conclusion at which he arrived was the result of arguments and counter arguments. He further contended that the Clause 176 of Part-I to the Second Schedule of the late Income Tax Ordinance, 1979 which provided exemption to the profits and gains derived from the project of electric power generation (Clause 132 Part-I of the Second Schedule to the Income Tax Ordinance, 2001) had been given restricted meanings by the Supreme Court in the cases of Generation Pakistan Ltd. and others v. Income Tax Appellate Tribunal of Pakistan, and others (2004 SCMR 1319) and A.E.S. Pak, Gen. (Pvt.) Ltd. v. Commissioner, Income Tax (C.Ps. No.2211 and 2212-L/2005 whereas "profits and gains of project" were of a very wide import and included income which was incidental to the project. To substantiate his contention he filed a copy of the order in the case of the respondent company passed by the Supreme Court of Pakistan in Civil Petition Nos. 654, 746 and 747-L/2006, dated 13-12-2006 whereby leave to appeal was granted by the apex Court to determine the scope of the words "Profits of a Project of Electric Power Generation". Concluding his submissions the learned AR pleaded that the order of the CIT(Appeals) be maintained.

7. We have given due consideration to the arguments of both the sides and are of the considered opinion that the controversy which hinges upon a process of arguments and counter arguments for its resolution falls outside the scope of rectificationary action. For resolution of such debatable issues appropriate section is 122 of the Income Tax Ordinance, 2001. However, having said that, we are also conscious of the fact that as soon as a controversy is resolved through the judgment of a competent Court, that judgment becomes a norm to be followed by the lower fora. Determination of the correct import of a provision of law is the exclusive domain of the hierarchy of the Courts and as soon as categorical finding/ interpretation is given by a competent Court, that finding becomes the law. In other words, through the process of interpretation the courts crystallize the real meaning of a provision of law which is to be followed by the administrative and also lower judicial fora. If in some cases, which are not past and closed transactions, assessments are found to have been made in a manner contrary to the interpretation of the competent Court, such assessments would be rectifiable under the relevant provisions of the statue so as to bring them in harmony with the interpretation of the Competent Court. In coming to this conclusion we are fortified by the judgment of the I.T.A.T. reported as 1998 PTD 3058 in which it was held:--

"In view of the law as laid down by the Hon'ble Supreme Court the levy of tax on the appellant under section 80-D was without valid authority and sanction in law. Thus it was mistake apparent on record by virtue of being violative of the legislative provision as interpreted by the Hon'ble Supreme Court of Pakistan. The mistake was committed when the assessment orders in this behalf were made and shall not be deemed to be a mistake from the date of pronouncement of the judgment by the Hon'ble Supreme Court of Pakistan. The period provided in law for rectification of mistake had not expired when the rectification applications were submitted, meaning thereby that the assessment orders can be upset/modified in accordance with the provision of law and, therefore, the assessments sought to be rectified were not past and closed matters. The Assessing Officer was, therefore, required to rectify the mistake and allow refund to the applicant.

The assessment orders to the extent of levy of tax under section 80-D in the case of appellant's were not rendered void ipso fecto with the pronouncement of judgment by the Hon'ble Supreme Court of Pakistan because the appellant was not a party to the proceedings before Hon'ble Supreme Court of Pakistan. Nonetheless the orders being violative of the legislative provision and not having attained the status of past and closed matters, the appellant was within his right to seek rectification in the assessment orders in accordance with the provision contained in section 156 of the Income Tax Ordinance, 1979. Thus though the appellant could not seek relief on the basis of judgment of Hon'ble Supreme Court of Pakistan on its own force but could seek the relief flowing from the judgment of Hon'ble Supreme Court of Pakistan in accordance with the provision contained in the Income-tax Ordinance itself and within the limitation of period provided therein.

For the foregoing reasons and conclusions drawn by us it is held that the levy of tax under section 80-D on the appellant in the two assessment years under appeal is a mistake apparent on record and the learned two officers below have fell in error in not allowing the rectification."

8. Some of the issues like interest income of a power generation project have been adjudicated by the hierarchy of the courts upto the level of Supreme Court of Pakistan. Ruling of the apex Court which holds the field now lays down the correct import of law vis-a-vis the taxability or otherwise of such income and if the disclosure made by the company in its returns of income or the treatment meted out by the Taxation Officer is in conflict with the ruling of the Supreme Court of Pakistan, the disclosure made by the company or the treatment accorded by the Taxation Officer, as the case may be, will be considered to be mistake apparent on record to the extent of repugnancy, which can be rectified under section 221 of the Income Tax Ordinance, 2001. From the perusal of the order of the CIT(Appeals) it transpires that she has not dilated upon the contentious issues in the light of the ratio of judgments of the competent courts. We accordingly vacate the order of the CIT(Appeals) and remand the case to her for adjudication on contentious issues in the light of the available judgments. Before parting with the judgment we deem it appropriate to clarify that the judgment of the Supreme Court of Pakistan in Civil Petitions Nos. 254, 746 and 747/L/2006 will be binding on CIT(Appeals) if it is delivered when the appeals of the company are taken up for disposal.

9. The departmental appeals are disposed of as above.

C.M.A./55/Tax(Trib.)Order accordingly.