COMMISSIONER OF INCOME TAX VS MUSLIM INSURANCE CO. LTD., 2015 PTD-LAHORE-HIGH-COURT-LAHORE 2624 (2015)

Income Tax Ordinance (XXXI of 1979)---

----S. 66-A---Income Tax Ordinance (XLIX of 2001), Ss. 62 & 133---Original order, revision---Inspecting Additional Commissioner---Powers of---Scope---Authorities were aggrieved of the order passed by Income Tax Appellate Tribunal whereby order passed under S. 66- A of Income Tax Ordinance, 1979, was vacated---Validity---Instructions/guidelines could not have overriding effect on statutory provisions of law---Main functions under S. 66-A of Income Tax Ordinance, 1979 was supervisory, in order to ensure that on account of any error, there was no loss of revenue, caused to department---To ensure so Inspecting Additional Commissioner could enhance, modify, cancel or direct for fresh assessment to be made---Two ingredients i.e., (i) if the order passed by Assessing Officer was erroneous; (ii) if the same was prejudicial to the interest of Revenue; should arise out of the assessment of Assessing Officer simultaneously so that Inspecting Additional Commissioner could invoke revisional jurisdiction under S.66-A of Income Tax Ordinance, 1979---If any of the such two ingredients was not available then Inspecting Additional Commissioner could not invoke jurisdiction under S.66-A of Income Tax Ordinance, 1979,---Provisions of section 66-A of Income Tax Ordinance, 1979, which had given supervisory jurisdiction to Inspecting Additional Commissioner could not be made redundant or dormant because of the application of word used "as approval accorded or discussion or consultation but the same was meant to safeguard the interests of revenue"---Consultation with Inspecting Additional Commissioner at assessment stage was purely administrative or ministerial in nature and it was not binding on Deputy Commissioner---Subsequent exercise of powers under S.66-A of Income Tax Ordinance, 1979, by Inspecting Additional Commissioner could not be termed as change of opinion---High Court set aside the orders passed by Income Tax Appellate Tribunal and the orders passed by Inspecting Additional Commissioner were upheld---Reference was allowed accordingly.

Commissioner of Income Tax v. Messrs Unilever P.L.C. U.K. 2002 PTD 44 and 1987 PTD (Trib.) 563 rel.

Malik Asad, Muhammad Ilyas Khan and Dr. Ishtiaq Ahmad Khan, Additional Commissioner Inland Revenue, LTU for Appellants.

Sh. Aqeel Ahmad, Kh. Farooq Saeed for Respondent (in I.T.As. No.409 of 1999).

Muhammad Ajmal Khan for Respondent (in I.T.As. Nos. 382 and 383 of 1999).

Date of hearing: 9th June, 2015.

JUDGMENT

SARDAR MUHAMMAD SARFRAZ DOGAR, J.---This common judgment decides upon the common questions of law raised in the instant PTR and I.T.As. Nos. 382, 383 and 409 of 1999.

2. This Reference is directed against the order dated 17-5-2007 passed by erstwhile Income Tax Appellate Tribunal ("Appellate Tribunal"). Only following question of law is argued:--

"Whether under the facts and in the circumstances of the case, the learned Income Tax Appellate Tribunal was justified to vacate the order passed under section 66-A as IAC granted approval while original order was passed?"

In the connected I.T.As. No.409/1999, this Reference is directed against the order dated 12-6-1999 passed by erstwhile Appellate Tribunal. Only following question of law is argued:--

"Whether under the facts and circumstances of the case, Learned Income Tax Appellate Tribunal was justified to cancel the orders under section 66-A merely on the ground that some equallant authority i.e. Inspecting Additional Commissioner of Income Tax, had given administrative approval of assessment framed by the DCIT"

In the connected I.T.As. Nos.382 and 383 of 1999, the References are directed against the consolidated order dated 18-5-1999 passed by erstwhile Appellate Tribunal. Only following question of law is argued:--

"Whether under the facts and circumstances of the case, the learned Tribunal was justified to vacate the orders under Section 66A holding that the original orders was finalized with the approval of IAC whereas no such approval is apparent from the assessment order."

3. Facts, common in all the References are that assessments of the appellants were completed under Section 62 of the Repealed Income Tax Ordinance, 1979 ("Repealed Ordinance"). Subsequently, Inspecting Additional Commissioner ("IAC") revised the original orders under Section 66A of the Repealed Ordinance. The appellants challenged the orders of the IAC before the Appellate Tribunal, who vacated the orders of the IAC passed under Section 66A of the Repealed Ordinance as IAC has become functus officio to invoke provision of Section 66A, after initially granting the approval of the original assessment order to the Assessing Officer.

4. Learned counsel for the appellants has contended that the IAC after the approval of assessment under Section 62 still had the revisional powers under Section 66A. Also argued that the Appellate Tribunal was not justified while vacating the orders of the IAC holding that the IAC had no authority and the jurisdiction under the Repealed Ordinance after the approval accorded to the Assessing Officer. Argued that the powers under Section 66A meant to call for and examine record to see whether orders passed by Deputy Commissioner was erroneous so far as prejudicial to the interest of revenue. He submitted that such statutory powers could not be taken away because of administrative consultation. Further submitted that the approval was purely administrative and consultative in nature which did not oust the powers of IAC under Section 66A. Argued that the Appellate Tribunal misdirected itself by holding that the IAC's powers ceased to exist by such consultation.

5. Learned counsel for the respondents-assessees vehemently opposed the arguments made by the learned counsel for the appellants and supported the reasons given by the Appellate Tribunal, which are speaking and well-reasoned. Further argued that once approval has been accorded by the IAC, it would amount to open its mind with the Assessing Officer and discussion/consultation would amount to application of judicious mind at assessment stage. Exercise of powers under Section 66A would amount to change of opinion.

6. Arguments of both the learned counsel for the parties have been heard, record perused.

7. In our opinion, the approval in question was merely a consultation. The term "consultancy" would denote tendering advice and counselling and surely not managing, controlling or supervising. Reliance can be placed on the judgment of the learned Sindh High Court passed in "Commissioner of Income-Tax v. Messrs Unilever P.L.C. UK" reported as (2002 PTD 44). We have given our anxious thought on the proposition whether the approval accorded by the IAC at the time of the assessment to the Assessing Officer would make the IAC as functus officio. If this proposition is answered in affirmative, it would render the provisions of Section 66A as redundant. Redundancy cannot, normally, be attributed to any provisions of law. Apparent conflicts between provisions of a statute are to be resolved by courts through harmonious construction of the provisions. For the purpose, we intend to examine provision of the Repealed Ordinance which are reproduced hereunder:--

Section 66A of the Repealed Ordinance:--

"The Inspecting Additional Commissioner may call for and examine the record of any proceedings under this Ordinance, and if he considers that any order passed therein by the Deputy Commissioner is erroneous insofar 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 enquiry 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 the assessment and directing a fresh assessment to be made."

Section 62 of the Repealed Ordinance:-

"62. Assessment on production of accounts, evidence, etc.---(1) The [Deputy Commissioner], after considering the evidence on record (including evidence, if any, produced under section 61 and such other evidence as the [Deputy Commissioner] may require on specific points, shall by an order in writing, assess the total income of the assessee and determine the tax payable by him on the basis of such assessment.

Provided that where the assessee produces books of accounts as evidence in support of the return, the Deputy Commissioner shall, before disagreeing with such accounts, give a notice to the assessee of the defects in the accounts and provide an opportunity to the assessee to explain his point of view about such defects and record such explanation and the basis of computation of total income of the assessee in the assessment order.

(2) Where a person is authorised by the Central Board of Revenue under section 7 to assist thy [Deputy Commissioner] in making an assessment and the Deputy Commissioner disagrees with the opinion of such person on any point concerning assessment, the [Deputy Commissioner] shall record, in the order under subsection (1), the opinion of such person and the reason for his disagreement with such opinion."

8. A perusal of the Section 66A shows that the power of the IAC is an independent power. It can, in suitable circumstances, be exercised in case IAC comes to the conclusion that the order passed by the Assessing Officer is erroneous insofar as it is prejudicial to the interest of the revenue. The language of both the provisions for the comparison makes it clear that assessment under Section 62 is exclusive domain of Assessing Officer. If Section 7 of the Repealed Ordinance is read with subsection (2) of Section 62, it would lead to conclusion that such consultation, assistance, guidance or instructions are not binding on the Assessing Officer, who can disagree after recording reasons. Section 7 is also reproduced for convenience:-

"7. Guidance to Income Tqx Officer: In the course of any proceedings under this Ordinance, the [Deputy Commissioner] may be assisted, guided or instructed by any other income tax authority to whom he is subordinate or any other person authorized in this behalf by the Central Board of Revenue."

The consultation by the Assessing Officer with the IAC in the advisory capacity and for policy guidelines were in the nature of administrative instruction meant for internal consumption of the department. Such consultations are not by exercise of judicious mind, therefore did not make him functus officio.

9. If the approval is administrative in nature, then the IAC has the power to invoke its jurisdiction under Section 66A in the supervisory capacity if he feels that the order which has been passed by the Assessing Officer is erroneous as well as prejudicial to the interest of the revenue. We are in agreement that the approval which has been granted by the IAC is administrative in nature and the same has been given without the application of the judicial mind. The Income Tax Appellate Tribunal in case reported as 1987 PTD (Trib.) 563 has held that "Administrative approval of an assessment does not make the assessment as that of the Inspecting Assistant Commissioner-Such an assessment for all purposes of the Ordinance remains an assessment of the concerned Income-tax Officer. Administrative approval of an assessment does not make the assessment as that of the Inspecting Assistant Commissioner. Such an assessment for all purposes of the Ordinance remains an assessment of the concerned Income-tax Officer".

10. The instructions/guidelines could not have overriding effect on the statutory provisions of law. The main function under section 66A is supervisory, in order to ensure that on account of any error, there is no loss of revenue, caused to the Department. To ensure so he can enhance, modify, cancel or direct for fresh assessment to be made. It is also important to consider that both of these ingredient i.e. (i) if the order passed by the Assessing Officer is erroneous; (ii) if the same is prejudicial to the interest of the revenue;, should arise out of the assessment of the Assessing Officer simultaneously so that IAC could invoke, the revisional jurisdiction under Section 66A. If any one of the above mentioned ingredient is not available, then the IAC could not invoke the jurisdiction under Section 66A. The provision of Section 66A which has given the supervisory jurisdiction to the IAC could not be made redundant or dormant because of the application of the word used as approval accorded or discussion or consultation but the same is meant to safeguard of the interest of the revenue. In our opinion the consultation with IAC, at assessment stage, was purely administrative or ministerial in nature, as it was not binding on the Deputy Commissioner. Subsequent exercise of powers under Section 66A by IAC cannot be termed as change of opinion.

11. For what has been discussed above, the orders passed by the Appellate Tribunal is hereby set-aside and the orders passed by the IAC is upheld. The answers to the proposed questions are in negative i.e. in favour of the appellant-department.

The Tax Reference along with I.T.As. Nos.382, 383 and 409 of 1999 are decided in favour of the appellant-department.

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

MH/C-22/LReference allowed.