Mst. YASMEEN BANO VS COMMISSIONER WEALTH TAX, 2011 PTD-KARACHI-HIGH-COURT-SINDH 666 (2010)

2011 PTD 666

[Sindh High Court]

Before Muhammad Ather Saeed and Munib Akhter, JJ

Mst. YASMEEN BANO and others

Versus

COMMISSIONER WEALTH TAX

Wealth Tax Reference Applications Nos. 27 to 30 of 1998, decided on 24/12/2010.

Wealth Tax Act (XV of 1963)---

----Ss. 2(m)(ii), 25(1)(2) & 35---Assessment, rectification of---Limitation---Wealth Tax Officer allowed rectification application of assessee and on 30-6-1987, passed rectification orders but the Commissioner Wealth Tax vide his order dated 29-3-1990, added back the liability claimed and allowed by Wealth Tax Officer---Order passed by Commissioner Wealth Tax was maintained by Appellate Tribunal on the ground that limitation provided under S.25(1) of Wealth Tax Act, 1963, did not apply to the orders passed under S.25(2) of Wealth Tax Act, 1963---Validity---In the totality of the scheme of entire Wealth Tax Act, 1963, Legislature did not intend to leave an assessee at the mercy of Commissioner Wealth Tax for indefinite period---Sword of Damocles in the shape of risk of enhancement of assessment could not be allowed to be hanging for all times to come---Order of Appellate Tribunal on the question of limitation could not be sustained and, therefore, question was decided in favour of assessee and against authorities---Reference was disposed of accordingly.

Commissioner of Income Tax, East Pakistan v. Hossen Kassam Dada PLD 1961 SC 375; Income Tax Officer 'A' Ward, Indore v: Gwalior Rayon Silk Manufacturing (Weaving) Co. Ltd. (1975) 101 ITR 457; Commissioner of Income Tax Bombay City v. Messes. Narsee Nagsce and Co. AIR 1957 Born. 1; (1961) 3 Tax 1; (1962) 3 Tax 374 ; Statutory Constitution by Crawford, 1940 Edn. Pp. 288 to 290; Khomchand Ramdas v. C.I.T. (1934) 2 ITR 216; Commissioner of Income Tax v. Khomchand (1938) 6 ITR 414; Shiv Kirpal Singh v. VV Giri (1970)-2 SCC 567; AIR 1970 SC 209; AIR 1946 PC 156; Babu Rao v. Zakri Hussain; (1968) 2 SCC 133; CIT v. SRY Ankineedu Parsad (1978) 115 ITR 78; Ram Niwaz Vs. Mithan Lal AIR 1979 P&H 262; AIR 1980 Madh. Pra. 166; Parashuran Pottery Works Co. Ltd. v. Income Tax Officer, Circle I, Ward A, Rajkot Volume 106 (1977) and Commissioner of Income Tax v. Kamran Model Factory 2002 PTD 14 ref.

Waseem Shaikh for Applicant.

Nasrullah Awan for Respondent.

Date of hearing: 9th December, 2010.

JUDGMENT

MUHAMMAD ATHER SAEED, J.---The Tribunal has vide its order dated 30-8-1994 in R.As. Nos.165/HQ of 1990-91 to 174/HQ of 1990-91 referred the following questions of law said to be arising from its common order dated 16-10-1990, for the opinion of this Court:--

(1) Whether in the facts and circumstances of the case the appellate Tribunal was justified in holding that the limitation provided under section 25(1) does not apply to the orders passed under section 25(2).

(2) Whether in the facts and circumstances of the case the appellate Tribunal was justified in confirming the view of the Commissioner of Wealth tax that the liabilities claimed by the assesses were not deductible under section 2(m)(ii) as they do not fall in the ambit of 'debt-owed'.

2. Brief facts of the case are that the Wealth Tax Officer vide his original orders in all these cases had assessed the wealth of the applicants without allowing the liability claimed by the applicants. After finalization of the assessment orders the applicants moved applications for rectification under section 35 of the Wealth Tax Act and the Wealth Tax Officer accepted the rectification applications vide his order dated 30-6-1987 and passed the rectification orders allowing the liabilities claimed. However, the Commissioner Wealth Tax exercising his powers under section 25(2) of the Wealth Tax Act vide his common order dated 29th March, 1990 modified the orders passed by the Wealth Tax Officer under Section 35 and added back the liability claimed and allowed, as according to him it was not allowable in accordance with the provisions of section 2(m)(ii) of the Wealth Tax Act.

3. Being aggrieved by the order of the Commissioner of Wealth Tax the applicants filed appeals before the Tribunal, which were dismissed by the common order mentioned above and the Tribunal has referred the questions stated above for the opinion of this Court.

4. We have heard Mr. Waseem Shaikh learned counsel for the applicants and Mr. Nasrullah Awan the learned counsel for the respondents.

5. Mr. Waseem Shaikh has ,argued that since no period of limitation has been prescribed in subsection (2) of section 25 of the Wealth Tax Act and since both subsections (1) and (2) of section 25 deal with the revisional powers of the Commissioner of Wealth Tax in respect of the orders of his subordinate officers therefore the period of limitation prescribed in subsection (1) will apply to subsection (2) also and no order which has been, passed more than one year after the passing of the original order can be revised under section 25(2) and therefore the impugned orders under section 25(2) in the present appeals, which had been passed more than two and a half years after passing of the orders which have been revised, are barred by the period of limitation.

6. To substantiate his arguments he relied on an order passed by another Division Bench of the Tribunal reported in 1991 PTD (Trib) 323 by which it was held that the period of limitation for the purpose of passing an order under subsection (2) is governed by limitation prescribed for passing an order under subsection (1) of section 25 and should therefore be read as one year. He submitted that he was aware that orders of Tribunal are not usually relied upon while arguing matters before this Court but he has relied on this order because the Tribunal has reached this decision after examining and relying on the judgments of the honourable Supreme Court of Pakistan and Indian Supreme Court and High Courts.

7. Arguing on the merits of the case the learned counsel submitted that the Tribunal has not examined the merits and has confirmed the action of the Commissioner Wealth Tax summarily without examining as to whether the word 'or' in section 2(m)(ii) has to be read in a disjunctive or conjunctive manner. He argued that the word `or' occurring in this section has to be read as `and' which means that both the prescribed conditions have to exist for the liability to be disallowed.

8. Mr. Nasrullah Awan learned counsel for respondent opposed the arguments of the learned counsel for the applicants and supported the orders of the Tribunal. He argued that the subject matter, which is dealt with in subsection (2) of section 25 is different from the subject matter, which is dealt with in subsection (1) of section 25. He argued that under subsection (2) an order which is erroneous in so far as it is prejudicial to the interest of the Revenue, has to be revised whereas under sub-section (1) no order prejudicial to the interest of the Revenue can be passed. It is therefore illogical that the sane period of limitation be provided for both these eventualities and therefore the intention of the legislature is clear that it did not want to impose any limitation for the purposes of revision under section 25(2). He submitted that section 2(m)(ii) of the Wealth Tax Act applies when any one of the two conditions prescribed in this subsection exists and therefore the Commissioner of Wealth Tax and the Tribunal were justified in holding that the debt claimed by the applicants fell within the ambit of section 2(m) (ii) and was therefore not an allowable debt. He therefore prayed that the questions may be answered in affirmative in favour of the respondents and against the applicants.

9. We have examined these reference applications in the light of the arguments of the learned counsel and have carefully perused the records of the case including the impugned order and the order of the Tribunal relied on by the learned counsel for the applicants.

10. Before we proceed with the case it will be relevant to reproduce subsections (1) and (2) of section 25 of the Wealth Tax Act, 1963 which read as under:

(25) Powers of Commissioner to revise orders of subordinate authorities.---(1) The Commissioner may, either of his own motion or on application made by an assessee in this behalf, call for the record of any proceeding under this Act in which an order has been passed by any authority subordinate to him, and may made such inquiry, or cause such inquiry to be made and, subject to the provisions of this Act, pass such order thereon, not being an order prejudicial to the assessee, as the Commissioner thinks fit:

Provided that the Commissioner shall not revise any older under this subsection in any case---

(a) where an appeal against the order lies to the Appellate Additional Commissioner, the, time within which such appeal' can be made has not expired, or, where the appeal lies to the Appellate Tribunal the assessee has not waived his right of appeal;

(b) where the order is the subject of an appeal before the Appellate Additional Commissioner or the appellate Tribunal.

(c) Where the application is made by the assessee for such revision, unless--

(i) the application is accompanied by a fee of two thousand five hundred rupees-or ten per cent of the tax levied, whichever is the less, but where no tax is levied, a fee of two thousand five hundred rupees shall be paid; and

(ii) the application is made within one year from the date of the order sought to be revised or within such further period as the Commissioner may think fit to allow on being satisfied that the. assessee was prevented by sufficient cause from making the application within that period; and

(d) where the order is sought to be revised by the Commissioner of his own motion, if such order is made more than one year previously.

Subsection (2) omitted by the Finance Act, VII of 1992. Earlier it was as follows:

(2) Without prejudice to the provisions contained in subsection (1), the Commissioner may call for an examine the record of any proceeding under this Act, and if he considers that any order passed therein by a Wealth Tax Officer is erroneous in so far 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 inquiry 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 it and directing a fresh assessment.

11. A perusal of the impugned order shows that the Tribunal after recording the facts of the case, the arguments of the learned counsel, before it and examining the arguments of the learned counsel and the judgments relied on by the learned counsel concluded as under:--

"17. It is true that the legislature has provided period of limitation under subsection (1) of section 25 whereas it is conspicuous by its absence regarding exercise of his powers under subsection (2) thereof. In my humble opinion, since the legislature provides a right to an assessee to move an application to the 'commissioner for rectification of some illegality or irregularity, it also thought it better to put some limitation on such powers on the assumption that no assessee would like to sleep over his right. The legislature appears to have imposed this limitation on the suo motu exercise of the power of the Commissioner also. An assessee is a better watch-dog of his own interest than the Commissioner and if he has a period of limitation of one year, why the Commissioner should have more time to act in favour of an assessee presumably for the reason that the knowledge of the order is to be imputed to him the moment it is made. However, under subsection (2) the position is just the reverse. Here the Commissioner has himself to detect an illegal or unlawful order which is prejudicial to the interest of revenue as there is no right of appeal to the Department against such order. The Legislature, therefore, appears not to have prescribed a definite period of limitation in subsection (2) of section 25 presumably because of the trite law that if no period of limitation has been provided, an authority has to exercise the power within a reasonable period. This reasonable period however, may vary according to circumstances of each statute. But, in any case, it should be there to allow an order attain ' finality after some time whatever be its span.

(18) It is true that under subsection (1) of section 25 a period of one year has been provided as limitation exercise of the powers of the Commissioner but in section 66-A of the Income Tax Ordinance, which vests in IAC exactly the same powers which have been vested in the commissioner by subsection (2) of section 25 of the Wealth Tax Act, the period of limitation prescribed is four years. In India, however, the Legislature has given two years to the CWT in 1964 to exercise his powers under section 25(2) of the Wealth Tax Act by introducing subsection (3) to section 25 of the Wealth Tax Act. But before Legislative intervention the BCR had issued a circular on 3-8-1958 to restrict the exercise of such power to two years. Mr. Nomani, the learned D.R. has not been able to point out any such circular which might have been issued in Pakistan. However, keeping into consideration the quantum of work before Commissioner of Income Tax and Commissioner of Wealth Tax, I think that a period of two years would be quite reasonable for exercising powers under section 25(2) of the Wealth Tax Act. Let me mention here that Finance Act of 1990 has prescribed period of two years for passing of penalty order under section 116 of the Income Tax Ordinance, and thus the gap created by the absence of period of limitation regarding passing of penalty order has been filled in after a long time though the judicial intervention had already restricted it to a reasonable period. Here again, the legislature has kept into consideration the reasonableness of the period of limitation vis-a-vis the quantum of work. However, it is suggested that the Legislature itself, like India, should fill in .this gap in order to allow an assessment order attain finality which is on judicial consensus an unavoidable necessity of all tax laws. Let me mention here that even in case of escaped wealth the period of limitation has been prescribed at eight years and four years for the cases falling under clauses (a) and (b) of section 17 of the Wealth Tax Act.

12. A perusal of the above extract reveals that the Tribunal has come to the conclusion that time the period of limitation of one year provided under subsection (1) of section 25 does not apply to sub-section (2), a reasonable period of limitation which may be applied for action under subsection (2) will be two years. However, the Tribunal in the light of its own above conclusion has failed to note that orders dated 30-6-1987 were revised under subsection (2) by order dated 29th of March, 1990 which date is much beyond the period of two years which in the opinion of Tribunal is a reasonable period of limitation. We are therefore of the view that even on this point, the order of the Tribunal cannot be sustained.

13. However, we have examined the order of the Tribunal in W.T.As. Nos.4/KB to 14/KB of 1986-87, dated 17th October, 1990 reported in 1991 PTD (Trib) 323 relied on by the learned counsel for applicants. The Tribunal while passing its decision has examined and relied upon the following judgments:--

(1)Commissioner of Income Tax, East Pakistan v. Hossen Kassam Dada (PLD 1961 SC 375).

(2)Income Tax Officer 'A' Ward, Indore v. Gwalior Rayon Silk Manufacturing (Weaving) Co. Ltd. (1975) 101 ITR 457

(3)Commissioner of Income Tax Bombay City v. Messes Narsee Nagsee and Co. AIR 1957 Bom. 1

(4)(1961) 3 Tax 1

(5)(1962) 3 Tax 374

(6)Statutory Constitution by Crawford, 1940 Edn. Pp. 288 to 290.

(7)Khomchand Ramdas v. C.I.T. (1934) 2 ITR 216.

(8)Commissioner of Income Tax v. Khomchand (1938) 6 ITR 414

(9)Shiv Kirpal Singh v. VV Giri (1970) 2 SCC 567

(10)AIR 1970 SC 209

(11)AIR 1946 PC 156;

(12)Babu Rao v. Zakri Hussain (1968) 2 SCC 133.

(13)CIT v. SRY Ankineedu Parsad (1978) 115 ITR 78

(14)Ram Niwas Vs. Mithan Lal AIR 1979 P&H 262

(15)AIR 1980 Madh. Pra. 166 ref.

14. After examining these judgments, the Tribunal has concluded as under:

"Now applying the above principle to the facts of the present case we find that under section 25 of the Wealth Tax Act, the Commissioner of Wealth Tax has been conferred with the power of revision. Under subsection (1) the power has been conferred which cannot be prejudicial to the assessee meaning thereby that it can be exercised in favour of assessee only. While under subsection (2) of this section the Commissioner can exercise revisional powers in favour of revenue and for this purpose can modify, enhance or cancel the assessment with the direction for fresh assessment. The purpose of subsections (1) and (2) both is to confer, power of revision on the Commissioner in respect of the orders passed by an authority subordinate to him. This, the purpose of both the subsections being same, it would be unreasonable and illogical to hold that in the first eventuality the legislature has fixed the time limit up to one year of passing of order by the subordinate authority and in the second eventuality the assessee has been left to the peril of Commissioner of Wealth Tax for indefinite period. When we examine the whole statute in the light of principles laid down by the honourable Supreme Court of Pakistan in the case of Hossen Kassam Dada as follows:--

"Be that as it may we for ourselves would prefer to follow the conventional path the endeavour .upon a construction on the entire provisions of the Business Profits Tax Act and to ascertain what the legislature intended, particularly, since the legislature has itself said that the liability to the payment of tax is to be "subject to the provisions of the Act."

We find that the concept of finality of assessment is firmly ingrained in the scheme under the Wealth Tax Act, 1963 as well as the Income Tax Ordinance, 1979. The assessments once completed under these statutes attain finality and cannot be disturbed or reopened except under the specific conditions provided in the statute and within reasonable period prescribed under various provisions of law. Thus, in the totality of the scheme of entire Wealth Tax Act it cannot be held that the legislature intended to leave an assessee at the mercy of Commissioner of Wealth Tax for indefinite period. The Sword of Damocles in the shape of risk of enhancement of assessment cannot be allowed to be hanging for all the times to come. It would be beneficial to reproduce an observation from the Statutory Construction by Crawford, 1940 Edition, page 288 to 290:

"If we assume--as we must--that the law--makers are conscientious, in event the statute is ambiguous and subject to several constructions, that one which operates in a harsh, unreasonable or absurd manner certainly does not represent the legislative intent. The basis and underlying purpose of all legislation, at least in theory is to promote justice. Because it must be presumed that the legislature has acted for the welfare of the people, the presumption that its enactments were not intended to operate other than for the best interest of the people is well-founded.

As a result, the Court should strive to avoid a construction which will tend to make the statute unjust, oppressive, unreasonable, absurd, mischievous, or contrary to the public interest. That construction should be accepted which will make the statute effective and productive of the most good, as it is presumed that these results were intended by the legislature. In order to carry out the legislative intent, it is, therefore, apparent that the statute should be given a rational, logical and sensible interpretation. Any construction should be avoided, if possible, as contrary to the intent of the law-makers, that produces any effect at a variance with the commonly recognized concepts of what is right, just and ethical."

(15) In the light of above principle and the principles laid down by the Bombay High Court, Dacca High Court, Supreme Court of India and Supreme Court of Pakistan (supra) we have no hesitation in holding that the only intention of the legislature which can be gathered from the reading of section 25 as a whole is that subsection (2) of section 25 is controlled by subsection (1) thereof and, therefore, the period of limitation provided in subsection (1) shall be attracted to the provisions contained in subsection (2) thereof.

"(22). All the judgments of the superior Courts discussed above are directed to the same principle that the intention of the legislature is to be gathered by examining the statute in entirety and the spirit of law is to be inferred by keeping a principle in view that the basic and underlying purpose of all legislation is to promote justice and that the Court should strive to avoid a construction which will attempt to make the statute unreason-able or which may, leave the subjects to the uncontrolled, unbridled and 'indefinite peril and risk at the hands of State functionaries.

(23) Applying the above principles to the facts of the present case we find that the plea taken by Mr. I.N. Pasha is on much better footing. Under section 33 of the Income Tax Act, 1922 as it stood in 1928 no period of limitation was provided and that section dealt with the power of revision vested in Commissioner. Sections 34 and 35 dealt with the reopening of assessment and rectification respectively by the I.T.O. However, since the effect of exercise of jurisdiction under section 33 by the Commissioner, and exercise of jurisdiction under sections 34 and 35 by the I.T.O. would be the same, i.e., enhancement of liability, therefore it was held that the period of limitation prescribed under sections 34 and 35 is to apply to the exercise of jurisdiction under section 33' of the Income Tax Act, 1922 without specific provision in this behalf. In the present case period of limitation is provided in the same section and in respect of the same officer as well as for the same purpose, to wit, revision of the order by a subordinate authority and, therefore, there is much more reason to hold that the period of limitation provided in subsection (1) of section 25 is applicable to the exercise of revisional jurisdiction by commissioner under subsection (2) of section 25.

(34) On a resume of the above case law regarding effect of the use of expression "without prejudice to the generality of provisions contained in subsection (1)", the following conclusions can be drawn:-

(a)That, wherever such expression is used the provisions following it, are in addition to the general provisions contained in the section or subsection referred to.

(b)The provisions following such expression are illustrative in nature and do not restrict the operation of general provisions contained in the sections or subsections referred to.

(c)The provisions following such expression are not to be construed independently but they are controlled by the provisions contained in the provisions so referred to. The provisions following such expression are subject to all limitations and are to be construed in accordance with the generality of provisions contained in the sections or subsections referred to and the two provisions are not to be divorced of each other.

(35) In the light of above conclusions we are inclined to agree with the submission of Mr. I.N. Pasha that since subsection (2) of section 25 starts with the expression "without prejudice to the provisions contained in subsection (1)", the powers conferred on the Commissioner of Wealth Tax under subsection (2) are merely illustrative in nature and indicate that the Commissioner of Wealth Tax while exercising the revisional jurisdiction vested in him can pass an order prejudicial to the interest of assessee as well, but at the same time it has to be subject to the provision contained in subsection (1) and has to conform to the limitations contained therein.

(36) Thus, looking at it from whatever angle we have no hesitation in holding that the Commissioner of Wealth Tax can exercise his power of revision vested under subsection (2) of section 25, within the period of one year of the passing of assessment orders by the Wealth Tax Officer therefore, all of them are barred by time and as such they are ultra vires, illegal, invalid and inoperative."

15. We have also seen that in the present case reliance before the Tribunal was also placed on the judgments which had been examined by the Tribunal in its order in W.T.A. No.4/KB quoted supra. In the impugned order the Tribunal has tried to distinguish these cases after perusing the above extracts from the order of the Tribunal which incidentally was authored by the then Chairman of the Tribunal Mr. Mujeebullah Siddiqui who later on went to serve as a very illustrious Judge of this Court. We are of the considered view that the judgments of the Honourable Supreme Court and the Indian Courts have carefully been interpreted by this order of the Tribunal and have incorrectly been. distinguished in the impugned order.

16. Our view has been fortified by a perusal of the observations of the Justice H.R.' Khanna in his judgment in the case of Parashuram Pottery Works Co. Ltd. v. Income Tax Officer, Circle I, Ward A, Rajkot reported in The Income Tax Reports volume 106 (1977) where he has observed as under:

"At the same time, we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity."

17. The same analogy emerges from the order of this Court in the case of Commissioner of Income Tax v. Kamran Model Factory (2002 PTD 14). We also fully agree with the following observations of the Tribunal made in the above order:--

Thus, in the totality of the scheme of entire Wealth Tax Act it cannot be held that the legislature intended to leave an assessee at the mercy of Commissioner of Wealth Tax for indefinite period. The Sword of Damocles in the shape of risk of enhancement of assessment cannot be allowed to be hanging for all times to come.

18. We are therefore of the considered opinion that the order of the Tribunal on the question of limitation cannot be sustained and therefore we answer question No.1 in negative against the respondent and in favour of the applicant. Since our answer to the first question has resolved the controversy therefore we are not inclined to answer question No.2 which has been rendered of academic interest only and will be adjudicated in some other appropriate case.

19. These Wealth Tax Reference Applications are disposed of in then above manner.

M.H./Y-2/KOrder accordingly.