COMMISSIONER INLAND REVENUE VS TARIQ MEHMOOD, 2015 PTD-LAHORE-HIGH-COURT-LAHORE 120 (2014)

Income Tax Ordinance (XLIX of 2001)---

----Ss.132, 133 & 221---Rectification of mistake---Limitation---Reference to High Court---Scope---Appellate Tribunal Inland Revenue declined to rectify mistake---Plea raised by assessee was that no reference could be filed against order declining to rectify mistake---Validity---Reference application under S. 133 of Income Tax Ordinance, 2001, could be filed only against order passed under S. 132 of Income Tax Ordinance, 2001---On exercise of jurisdiction under S.122 of Income Tax Ordinance, 2001, if order under S.132 of Income Tax Ordinance, 2001, was rectified in a way that a consequent change effected rights of either Commissioner or Taxpayer, then Reference Application could be filed---Doctrine of merger would apply i.e. order under S. 221 of Income Tax Ordinance, 2001, to the extent of rectification/change would merge into the order under S. 132 of Income Tax Ordinance, 2001---As cause of action was to accrue on the date of rectification Order, therefore, period of ninety days would start from such point---Conversely if no change/ rectification was made in the order under S. 132 of Income Tax Ordinance, 2001, the order passed under S. 221 of Income Tax Ordinance, 2001, would stand alone and independent, against which, Reference Application was not allowed---Appellate Tribunal Inland Revenue refused to rectify order under S. 132 of Income Tax Ordinance, 2001, therefore, Reference Application, proposing question from order under S. 221 of Income Tax Ordinance, 2001, was not entertainable---Reference was dismissed in circumstances.

Commissioner of Income Tax/Wealth Tax, Faisalabad Zone, Faisalabad v. Muhammad Sharif 2009 PTD 536 and Commissioner of Income Tax, Rawalpindi v. Mst. Shakeela Bano 2002 PTD 1209 ref.

Muhammad Irshad Chaudhry along with Tahir Mehmood Bhatti Inland Revenue Officer, Legal-1, Zone-1, Regional Tax Officer, Rawalpindi for Petitioners.

Hafiz Muhamamd Idrees for Respondent No.1.

Date of hearing: 19th August, 2014.

JUDGMENT

SHAHID JAMIL KHAN, J:---This Reference Application is filed, proposing some questions of law, asserted to have arisen out of order dated 28-5-2012 passed by Appellate Tribunal Inland Revenue, Islamabad ("Appellate Tribunal"), relating to Tax Year 2003.

2.At the outset, learned counsel for the respondent has raised preliminary objection on maintainability. It is pointed out that the decision, in question, by Appellate Tribunal is of rejecting an application for rectification. He contends that no reference can be filed against an order passed under section 221 of the Income Tax Ordinance, 2001 ("the Ordinance"). In support, he has relied on Commissioner of Income Tax/Wealth Tax, Faisalabad Zone, Faisalabad v. Muhammad Sharif (2009 PTD 536) and Commissioner of Income Tax, Rawalpindi v. Mst. Shakeela Bano [2002 PTD 1209].

Learned counsel for the petitioner could not deny the fact that this Reference Application is filed against an order passed by Appellate Tribunal under section 221 of the Ordinance. However, he has attempted to justify that the purposed questions need opinion of this Court.

3.Heard, record perused.

4.Perusal of record shows that appeal, filed against order of first appellate authority, was dismissed vide order dated 31-3-2010 in I.T.A. No.279-IB of 2010. An application for rectification, under section 221 of the Ordinance, was rejected by the Appellate Tribunal vide order dated 15-12-2010. Another application for rectification was filed on different grounds, which too was dismissed through order in question. The questions of law are proposed out of the order of rejecting second application for rectification.

5.The judgments, relied upon by learned counsel for the respondent, are examined. Ratio of the judgments rests upon provisions under repealed Income Tax Ordinance, 1979, nevertheless, the laid down principles apply to the legal proposition in this case as well. Relevant excerpt from Mst. Shakeela Bano case (supra) is reproduced hereunder:--

"It is that this Court in reference jurisdiction under section 136(1) of the Ordinance proceeds only on the findings recorded and answers a question which arises out of the order of the Tribunal recorded under section 135 of the Ordinance. An order on a reference application under section 156(1) cannot be equated with order of the Tribunal recorded under section 135 of the Ordinance."

"Even otherwise, this Court in a number of cases, have already held that no reference lies against the order of the Income Tax Appellate Tribunal, passed on miscellaneous application refusing to rectify the claimed mistake. This has been so held in an unequivocal terms in a chain of judgments including Messrs Hong Kong Chinese Restaurant Mian Boulevard Gulberg, Lahore v. Assistant Commissioner of Income Tax Circle 6 Lahore and another (2002 PTD 1878). An appeal filed by the assessee in the case mentioned supra was rejected under section 135 of the late Ordinance. His application for rectification of that order was also refused by the Tribunal. Speaking for the Court one of us (Nasim Sikandar, J) observed that by making a specific reference to section 135 of the late Ordinance in the reference provisions of section 136, the legislature clearly restricted the scope of reference to this Court only to the questions of law, which arise out of that order and from none else."

6.This issue was exhaustively discussed in Messrs Hong Kong Chinese Restaurant, Mian Boulevard Gulberg, Lahore v. Assistant Commissioner of Income Tax, Circle 6, Lahore and another (2002 PTD 1878). The ratio of this judgment can be ascertained from following paragraphs:--

"15. An order recorded under section 135 is "rectified" only if an actual modification or rectification is made therein. If no rectification is made and the prayer for rectification is refused then the order under section 135 already recorded stands intact. The refusal cannot, by any rule of interpretation be read as a part of the original order. An order by which an interference, rectification, correction or amendment in the original order is refused has no legal or factual nexus to become part thereof to give rise to a question to be considered in reference. For similar reasons in case of an unsuccessful application for rectification this Court will never entertain the issue as a question of law if the Tribunal was justified in refusing to rectify an order under section 135."

7.Relevant provisions of the Ordinance are also examined in light of the judgments, referred above, to answer the preliminary objection raised by the learned counsel for the respondent.

This Court is vested with advisory jurisdiction under section 133 of the Ordinance. Subsection (1) of section 133 is reproduced hereunder:-

"133. Reference to High Court.---(1) Within ninety days of the communication of the order of the Appellate Tribunal under subsection (7) of section 132, the aggrieved person or the Commissioner may prefer an application, in the prescribed form along with a statement of the case to the High Court, stating any question of law arising out of such order."

Literal interpretation of the reproduced provision is that a Reference Application can be filed, either by the aggrieved person (taxpayer) or the Commissioner, within ninety days of the communication of order by Appellate Tribunal, under subsection (7) of the section 132.

Procedure for disposal of appeals by the Appellate Tribunal is provided under section 132 of the Ordinance. It is mandatory upon the Appellate Tribunal, under subsection (7), to communicate its order to the taxpayer and Commissioner. Appeals before the Appellate Tribunal are filed under section 131 against an order by Commissioner (Appeals). The Commissioner (Appeals), being first appellate authority, exercises its jurisdiction under section 129, on appeals against the orders mentioned in this section.

Jurisdiction under section 221 of the Ordinance is independent. Commissioner, Commissioner (Appeals) or Appellate Tribunal is empowered to rectify any mistake apparent from record on its own motion or if brought to its notice by taxpayer or Commissioner. Subsection (1) of section 221 of the Ordinance of 2001 is reproduced:--

"221. Rectification of mistakes.---(1) The Commissioner, the Commissioner (Appeals) or the Appellate Tribunal may, by an order in writing, amend any order passed by him to rectify any mistake apparent from the record on his or its own motion or any mistake brought to his or its notice by a taxpayer or, in the case of the Commissioner (Appeals) or the Appellate Tribunal, the Commissioner."

8.Collective reading of the provisions (reproduced and discussed above) unequivocally spell out that Reference Application, under section 133, can be filed only against an order passed under section 132 of the Ordinance. As pre principles laid down in Messrs Hong Kong Chinese Restaurant Case (supra); on exercise of jurisdiction under section 122, if the order under section 132 is rectified in a way that the consequent change effects rights of either Commissioner or Taxpayer, then Reference Application can be filed. The doctrine of merger shall apply i.e., the order under section 221 of the Ordinance of 2001 to the extent of rectification/change, shall merge into the order under section 132. As the cause of action shall accrue on the date of rectification order, therefore, period of ninety days shall restart from this point.

Conversely, if no change/rectification is made in the order under section 132, the order passed under section 221 shall stand alone and independent, against which, Reference Application is not allowed.

9.Following the dictum in reproduced part of Messrs Hong Kong Chinese Restaurant Case (supra), provisions of the Ordinance of 2001 are analyzed; limitation provided under section 221 is four years; whereas limitation provided for filing Reference Application before this Court, under section 133, is ninety days. Their lordships were rightly skeptical in their view; if reference is allowed to be filed out of an order under section 221, it can be misused for extending the period of limitation provided under section 133 of the Ordinance. Yet, a person aggrieved by a change in order under section 132 cannot be deprived of the remedy provided under the Statute. It may be explained that parameters provided for exercise of jurisdiction under section 133, by this Court, shall apply with full force i.e., if any question of law arises out of the changed order, reference application shall be maintainable. This opinion is supported by their lordships observation in following paragraph from Messrs Hong Kong Chinese Restaurant Case:--

"12. In our view the provisions of section 136 both before and after the amendment in the year, 1997 and then in the year 2000 are sufficiently clear to reject the contention of the learned counsel. The provisions of section 136 continue to make a specific reference to the order of the Tribunal under section 135 which could possibly give rise to a question of law to the appellate jurisdiction of this Court. By making a specific reference to section 135 the Legislature has clearly restricted the scope of appeal or reference only to the questions of law which arise out of that order and none else. As noted earlier the Tribunal is competent to rectify its order under section 156 in exercise of that jurisdiction. However, it is only an order recorded on a successful application for rectification which can be read to be a part of the original order and covered by the provisions of section 135 if it goes to change the same to the prejudice of either the assessee or the Revenue. If an order on the application under section 156 simply refuses to rectify the original order, as observed earlier, it stands alone and remains a different order independent of the one originally recorded under section 135 of the Ordinance. Even where the Tribunal acts suo motu and rectifies the original order but such rectification does not change the order under section 135 to the prejudice of any of the parties, again such an order stands on its own and does not enter into the original order to give rise to a question of law to be considered by this Court. The order of rectification can be read as part of the rectified order and, therefore, subject to appellate or reference jurisdiction of this Court only if the change resulting therefrom disturbs the existing situation of liability of the assessee or the entitlement of the Revenue."

10.In view of the discussion, under the facts and circumstances of this case; since Appellate Tribunal has refused to rectify the order under section 132 the Ordinance, therefore, this Reference Application, proposing questions from order under section 221 is not entertainable hence, we decline to exercise jurisdiction under section 133 of the Ordinance.

11.Reference Application is decided against the appellant department.

12.Office shall send a copy of this judgment under the seal of the Court to Appellate Tribunal as required under section 133(5) of the Income Tax Ordinance, 2001.

MH/C-15/LReference refused.