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Petitioner: Muhammad Amin Butt for Appellant. VS Respondent: Aftab lqbal Lahore, D.R. for Respondent,
Court Name: Income Tax Appellate Tribunal Judge(s): Abrar Hussain Naqvi, Inam Elahi Sheikh Title:Muhammad Amin Butt for Appellant. vs Aftab lqbal Lahore, D.R. for
Respondent, Case No.: I.T.As. Nos.5585 to 5589/LB of 1986 Income Tax Appeal No.508/LB of 1989 Date of Judgment:1990-03-10 Reported As: 1991 PTD (Trib.) 758 Result: Appeal partly accepted Judgment ORDER ABRAR HUSSAIN NAQVI (JUDICIAL MEMBER).---to this appeal filed by an individual deriving income as a partner of registered firm, two additions made under section 13(1)(a) and under section 13(1)(aa) are contested. 2. Brief facts relevant to the disposal of this appeal are that the assessee's declared income from registered firm at Rs.28,128 was accepted by the assessing officer under section 59(1) of the Income Tax Ordinance on 20-2-1986. Subsequently, information was received by the Assessing Officer that the assessee had purchased plot No.15 (Muslim Street Ram Gali No.6, Lahore) measuring 13 marlas 75 sq ft. On 24-2-1985 in the registered sale-deed the value of the plot was shown at Rs.1,75,000. The I.T.O. Was of the view that the value of the plot shown in the sale-deed was not correct as the value of the plot was such higher than had been shown in the registered sale-deed. Consequently, he opened the assessee's case under section 65 of the Income Tax Ordinance with the prior approval of the I.A.C. A notice under section 65 was issued to the assessee in response to which the assessee filed the return declaring income as before. He also issued notice to file the wealth statement under section 58(1) of the Ordinance but the assessee did not file the wealth statement. The Assessing Officer made detailed inquiries in regard to the valuation of the plot and finally determined the value of the plot at Rs.13,00,000. As a consequence an addition of Rs.11,25,000 (Rs.13,00,000) minus Rs.1,75,000 was made under section 13(1)(d) of the Income Tax Ordinance and addition of Rs.1,90,000 (1,75,000) + Rs.15,000 as expenses was also made separately under section 13(1)(aa) of the Ordinance. The learned C.I.T.(A) confirmed the order of the I.T.O., hence this appeal.
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3. The learned counsel for the assessee has taken number of legal and factual plea. It may be stated at the outset that the assessee had also contested the reopening of the case under section 65 of the Ordinance before the C.I.T.(A) but withdrew that objection. Before the Tribunal as well the assessee had taken a plea contesting the initiation of the proceedings under section 65 of the Ordinance but at the time of arguments the learned counsel for the assessee gave up this plea. The other grounds of appeal are disposed of as under. 4. The first contention of the learned counsel for the assessee was that the I.T.O. Had no jurisdiction to fix the value of his own in the presence of the value in the registered sale-deed. The precise contention of the learned counsel for the assessee was that Qanoon-e-Shahadat was applicable in the assessm ent proceedings, which are judicial in nature. It was submitted that under the Qanoon---e-Shahadat no oral evidence can be led against the documentary evidence. 5. This contention of the learned counsel for the assessee is devoid of any force and can be summarily disposed of as the Tribunal in its order reported as 1988 PTD (Trib.) 754 has already held that Qanoon-e-Shahadat has no application in the Income-tax proceedings. The relevant portion of that order is reproduced below:---- "The next contention of the learned counsel for the assessee was that the value given in the registered sale-decd should have been accepted by the Income-tax Officer. The learned counsel first contended that Qanoon-e---Shahadat is applicable to the proceedings before the Income Tax Officer and under that law presumption of truth is attached to the registered documents and unless the Income Tax Officer had evidence to rebut that evidence, he had no jurisdiction to evaluate the property other than what had been in the registered sale-deed. He further submitted that Article 165 of Qanoon-e-Shahadat lays down that it overrides all other laws. This contention of the learned counsel is also devoid of any force. Qanoon-e-Shahadat is the special law and so is the Income Tax Ordinance, which empowers the Income Tax Officer to evaluate the properties shown by the assessee in their documents or in their wealth statement. Moreover, Qanoon-e-Shahadat makes the registered documents as admissible evidence but these documents are not the final documents so far as contents of these documents are concerned and in any case they can bind the contracting parties and not the third parties as the Government or the Income Tax Authorities. The learned counsel for the assessee has relied upon a number of cases in support of his contention. The cases relied upon are Khalid Bashir v. Fazal Abbasi 1981 SCMR 701, Ali Muhammad v. Malik Sanwal and others PLD 1961 Pesh. 62, Muhammad Latif v. Lala Ramchand and others PLD 1970 SC 299 and Rai Narendra Lai Roy Bahadur v. Ram Chandra Nashar and another AIR 1949 Privy Council 179. All the four cases are not relevant in the facts and circumstances of the present case. The two cases of the Supreme Court as well as the third case of Peshawar High Court, are in regard to the Pre-emption Act. Even in these cases it has not been said by the Courts that the Courts could not go behind the sale-deeds. What the superior Courts have held in these cases is that where it is proved that the sale price shown in the registered sale-deed has been paid, the registered sale- deed should be accepted as such for the purposes of value of the property sold. In the fourth case decided by the Privy Council, again it was a dispute between the two private parties namely proprietor and tenants in regard to apportionment of compensation on account of acquisition of land under the Land Acquisition Act. None of the above cases are related to the Income Tax Law. It may be noted here that under section 13(1)(d) of the Ordinance the Income-tax Officer has been empowered to refuse to accept the amount shown by the assessee recorded in his books of accounts or shown in his wealth statement and. Under subsection (2) of section 13 he has been further empowered to determine a reasonable value of the property acquired by the assessee." For the same reasons, we reject the assessee's plea.
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6. The next contention of the learned counsel for the assessee was against the valuation adopted by the assessing officer. It was first contended that this was a residential plot and the assessing officer has treated it as a commercial plot and the case which has been cited as parallel was also commercial in nature. It was further contended by the learned counsel for the assessee that the assessee had purchased the plot in question through a registered sale-deed and that the value shown in the Deed should have been accepted and unless there was a concrete evidence with the assessing officer the value could not be enhanced. In support of his contention the learned counsel has relied upon the Tribunal decision in I.T.As. Nos. 5585 to 5589/1,13 of 1986-87, dated 13-5-1987. 7. We are not inclined to agree with the learned counsel for the assessee on this plea as well. The Income Tax Law has given an authority to the Income Tax Officer to evaluate reasonable value and this is provided in section 13(2) of the Income Tax Ordinance. This power of the Assessing Officer cannot be taken away merely by referring to the registered sale-deeds where the parties arbitrarily fix the value as it suits both the parties. This is common knowledge that urban properties are generally undervalued for obvious reasons. The vendors (at the relevant time) served the gain-tax and the vendees got benefit in the shape of stamp duties and the registration fee apart from avoidance of explanation in regard to the source of investment. As for the Tribunal's decision quoted by the assessee that is distinguishable in that the value in that case was not adopted by the Tribunal on the basis of the registered sale-deed. There was other contradictory evidence available on record and the Tribunal preferred to adopt the valuation arrived .At by the Capital Gain-tax Authorities. The learned counsel for the assessee has further relied upon the observation of the Tribunal in that case that some credit had to be given to the registered sale-deed. However, observation of the Tribunal was qualified. It was observed that the registered sale-deeds, which were strictly in accordance with law deserved some sanctity. This is a question of fact as to whether a registered sale-deed is strictly in accordance with law or not. The assessing officer's case all along had been that the value given in the registered sale-deed was not the correct value and he had established it through various inquiries conducted through Inspector including inquiries through property dealers. The assessing officer has also cited some other parallel cases where much higher value in the same vicinity had been adopted. It may be noted here that this case was heard on various dates. One of the questions raised by the learned counsel for the assessee was that this was a residential plot. Consequently, we directed the learned D.R. To get a further inquiry conducted to ascertain as to what was the nature and location of the property. Consequently, the Inspector was directed to make an enquiry. He visited the plot in question on 31st May, 1990 along with Mrs. Farhat Rizvi, Advocate one of the Authorised Representatives of the assessee. This report is on our file. It was reported by the Inspector that the plot is situated in Ram Gali No.6 (Muslim Street Brandreth Road, Lahore) which is a plot of 26 marlas having a front of 78 feet and was jointly purchased by Muhammad Ayub, the assessee, and Mr. Muhammad Ajmal through separate sale-deeds. Then explaining the situation of the Ram Gali it was reported by the Inspector as follows:-- "Ram Gali No. 6 is running parallel to Brandreth Road Lahore at a distance of about 150 yards. In the west it opens at Circular Road and in the cast it crosses Ram Gali Nos.l to 5. Nearly all the street is occupied by shops having go-downs in the basement and markets. It is at the distance of about 15 yards from Ram Gali No.2, which is equal to Brandreth Road, Lahore in business. A map is enclosed locating the plot. Both sides (East and West) are covered with shops and markets Back side of the plot (north) is attached with a house, which opens in Ram Mali No.Ll. At the front side across the road a High School for boys is situated. Presently at the back half of the assessee's plot a tripple storey building has been constructed and in the ground floor of this building four godowns have been constructed. Keeping in view the location of the plot the value adopted by the I.T.O. Seems to be on the lower side."
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8. This report further supports the version given by the Assessing Officer that this was commercial property. It is well-known that the Brandreth Road and the Ram Gali are the Loha markets of Lahore. From the very nature of this business it is evident that it cannot be run without godowns. Therefore, it is obvious that the adjoining properties are needed for godown purposes although these properties may not be strictly commercial being not in the Main Bazar. The I.T.O has quoted a parallel case where a property having area of 136 sq. Ft. And situated in Ram Gali No.2 was sold for Rs.2,00,000 on 8-2-1981 through a registered sale-deed. The learned counsel for the assessee's objection in this regard was that this was a commercial property and had small area. It was submitted that smaller plots do fetch higher value but there are other factor:, which had to be taken into consideration. The first factor was that the property was sold as back as in February, 1981 while this property was purchased in February, 1985 i.e. After four years. Secondly its valuation as in 1981 would work out to Rs.52,00,000 as mentioned by the assessing officer. But he has evaluated the plot at Rs.26,00,000 after four years of that transaction. Keeping all these facts in view we feel that the property valued by the assessing officer at Rs.1,00,000 per marla could not be regarded as excessive in the year 1985 particularly when the property prices had tremendously increased year after year. 9. The next contention of the learned counsel for the assessee was in regard to the violation of the procedure laid down under section 13 of the Income-tax Ordinance which argument we shall deal with at the later stage. Before dealing with this issue we would like to dispose of very important legal plea raised by the learned counsel for the assessee. It was contended by the learned counsel for the assessee that in the assessm ent year 1985-86 there were no rates of tax and therefore no tax could be levied or demanded by the Income-tax Authorities from the assessee. The basis of this contention of the learned counsel for the assessee was that Finance Ordinance, 1984 was promulgated on 14th June, 1984 to give effect to the Financial proposals of the Federal Government from the beginning of the 1st July, 1984 and to amend certain laws. This Ordinance came into force at once. Under section 6 of this Ordinance. Various amendments were made in the Income Tax Ordinance, 1979. Subsection (1) of section 6 reads as follows:-- "The following amendments shall be made in the Income Tax Ordinance,1979 (XXXI of 1979) namely:-- Then follow various amendments and para. 16 of the First Schedule of the Income Tax Ordinance, 1979 was substituted. The relevant portion of this para reads as under:-- (a) in Part I: - (i) for paragraph A the following shall be substituted namely: ................. By virtue of this para, the earlier rates of tax were substituted and various rates of tax were given in the following paragraphs. Then in subsection (2) of section 6 the date of operation of substituted rates given in para. 16 was stated. Subsection (2) of section 6 is reproduced below:-- The provisions of sub-paragraph (i) of paragraph (a) of clause 16 of subsection (1) shall-- (a) for purposes of deduction of tax on salaries paid on or after the first day of July. 195-1 take effect on the first day of July, 1984, and (b) for purposes of assessm ent in respect of the assessment year commencing on or after the first day of July, 1985 take effect on the first day of July, 1985. The precise attack of learned counsel for the assessee was that by virtue of paragraph 16 cited above paragraph (a) of Part (1) of tile Schedule of Income Tax Ordinance was substituted which had the effect of repeal of the earlier Schedule of rates given in paragraph (i) of Part (I) of the First Schedule, Since, by virtue of subsection (2) of section 6 of the Finance Ordinance the operation of the rates of tax given in the Schedule has been postponed as they are effective from 1st day of July 1985 no rates of tax remained in the field and there was a state of vacuum. When it was confronted to the learned counsel for the assessee that we are concerned with the assessment year 1985-86
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and that the substituted schedule could take effect from 1st clay of July, 1985 his reply was that the same phenomena was repeated in the next Finance Act of 1985 and the rates of tax were again substituted and the substituted rates were again postponed for the next assessment year. It was pointed out by the learned counsel for the assessee that the Finance Act, 1955 was passed by the Legislature to give effect to the Financial Proposals of the Federal Government for the year beginning from the 1st July 1985. By virtue of section 4 of the Finance Act, 1985 the various provisions of the Income Tax Ordinance, 1979 were amended and subsection (1) of section 4 reads as under: "The following amendments shall be made in the Income Tax Ordinance, 1979 (XXXI of 1979) namely:-- Para. 11 of this subsection substituted the rates of tax given in paragraph (a) of Part (1) of the First Schedule of the Income Tax Ordinance. The relevant portion of paragraph 11 reads as under:--- "In the First Schedule,-- (a) in part I, for paragraph A the following shall be substituted namely ...... It, therefore, follows that the rates of tax were again substituted by virtue of this paragraph. The operating date of taxes was again postponed to first July, 1986. The subsection (2) of section 4 of the Finance Act, 1985 is reproduced below: "The provisions of,-- (a) paragraph (a) of clause (ii) of subsection (i) shall-- (i) for purposes of deduction of tax from salaries take effect on the first day of July, 1985; and (ii) for purposes of assessm ent of income in respect of the assessment year commencing on or after the first day of July, 1986, take effect on the first day of July, 1986." Now contention of the learned counsel for the assessee may be summarised as under:--' (i) The original paragraph (a) of Part I of the First Schedule of the Income Tax Ordinance was substituted by the Finance Ordinance, 1984 but its operation for assessment purposes was postponed to 1st July, 1985. Since, the original schedule was repealed and the new schedule was postponed to first July, 1985 therefore there was no schedule of rates of taxes with effect from 1st July, 1984. (ii) Secondly, before first July, 1985 even the substituted rates were again substituted by the Finance Act, 1985 and its effective date for assessment purposes postponed to first July, 1986. In other words the substituted rates given by the Finance Act, 1984 for assessment year 1985-86 died their natural death as before their operative day of first July, 1985 they were again substituted by another schedule of rates by the Finance Act, 1985. Since the relevant dates were again postponed to be given effect from first July, 1986 therefore, no rates of taxes were applicable in the assessm ent year 1985-86. The rates given by the Finance Ordinance 1984 having been substituted and the new rates given by the Finance Act, 1985 s having been postponed, there were no rates of tax applicable with effect from first July, 1985. 10. The learned counsel for the assessee has relied upon copious case-law to contend that the substitution of a law amounts to repealing the earlier law and enacting the new law. We do not contribute to this view expressed by the learned counsel for the assessee as the word substitution does not necessarily and always connote two severable steps of repealing and fresh enactment. The learned counsel for the assessee has placed reliance on the meaning of the word substitution as given in Bindra's "the Interpretation of Statutes" in which the word substituted has been defined as "this word is used where old rule is made to cease to exist, and new rule is brought into existence in its place. In other words the process is repeal and re-enactment". The argument of the learned counsel for the assessee was, as stated above that by virtue of the substitution made by the Finance Ordinance, 1984 and Finance Act, 1985 the new rates were substituted and the earlier rates given in the schedule have been repealed and new rates were enacted. The learned counsel for
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the assessee has relied upon two cases. The first case was Firm Mahtab Majid & Company v. State reported as AIR 1963 SC 928 and the other case relied upon was Koteswar Vittal Kameth v. K. Rangappa Baliga & Company reported as AIR 1969 SC 504. In the first case it was held that where a substituted statutory rule is held invalid the old rule does not get revived. Once the old rule has been substituted by the new rule, it ceases to exist and it does not automatically get revived when the new rule is held to be invalid. In the second case the Supreme Court reiterated the rule stated in Mehtab's case and observed that the process of substitution consists of two steps First repeal of earlier rule and second is to bring into existence the second substituted rule and that even if the new rule is held to be invalid the first step of the old rule being ceasing to exist comes into effect. However, both these cases are distinguishable. Firstly, both these cases were in regard to the statutory rules and not to the Legislative Act, which are placed on different footings altogether. Both these cases were explained and distinguished by the Supreme Court of India in a later case of Central Provision Manganese Company Limited v. State of Maharashtra reported as AIR 1977 SC (Tax) 212 wherein it was laid down by the Supreme Court that a void and inoperative legislative process does not affect the validity of the pre-existing law. It was further observed that the substitution by an amending Act cannot be split into two processes of repeal and substitution. Before the Supreme Court it was argued that notwithstanding the invalidity of the amending Act the provisions which were sought to be repealed stood repealed. Dealing with this question in para. 18 of the report the Court observed as follows:-- "We do not think that the word substitution necessarily or always connotes two severable steps, that is to say, one of repeal and another of a fresh enactment even if it implies two steps. Indeed, the natural meaning of the word `substitution' is to indicate that the process cannot be split up into two pieces like this. If the process described as substitution fails, it is totally ineffective so as to leave intact what was sought to be displaced. That seems to us to be the ordinary and natural meaning of the words `shall be substituted'. This part could not become effective without the assent of the Governor-General. The State Governor's assent was insufficient. It could not be inferred that, what was intended was that, in case the substitution failed or proved ineffective, some repeal, not sanctioned at all, was brought about and remained effective so as to create what may be described as a vacuum in the statutory law on the subject-matter. Primarily the question is one of gathering the intent from the use of words in the enacting provisions seen in the light of the procedure gone through. Here no intention to repeal, without a substitution, is deducible. In other words, there could be no repeal if substitution failed. The two were a part and parcel of a single indivisible process and not bits of a disjointed operation." In that case as well as in this case, the case of Firm Mahtab Majid & Company was relied upon but in paras. 20 and 21 of the report the Supreme Court explained that case in the following words: "Some help was sought to be derived by the citation of D.N. Tiwari v. Union of India and the case of Firm A.T.B. Mehtab Majid & Company v. State of Madras. Tiwari's case relates to the substitution of what was described as the `carry forward' rule contained in the departmental instruction, which was sought to be substituted by a modified instruction declared invalid by the Court. It was held that when the rule contained in a displaced instruction did not survive. Indeed, one of the arguments there was that the original `carry forward' rule of 1952 was itself void for the very reason for which the `carry forward' rule, contained in the modified instructions of 1955, had been struck down. Even the analogy of a merger of an order into another which was meant to be its substitute could apply only where there is a valid substitution. Such a doctrine applies in a case where a judgment of a subordinate Court merges in the judgment of the appellate Court or an order reviewed merges in the order by which the review is granted. Its application to a legislative process may be possible only in the cases of valid substitution. The legislative intent and its effect is gathered, inter alia, from the nature of the action of the authority which functions. It is easier to,
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impute an intention to an executive rule-making authority to repeal altogether in any event what is sought to be displaced by another rule. The cases cited were of executive instructions. We do not think that they could serve as useful guides in interpreting a legislative provision sought to be amended by a fresh enactment. The procedure for enactment is far more elaborate and formal. A repeal and a displacement of a legislative provision by a fresh enactment can only take place after that elaborate procedure has been followed in toto. In the case of any rule contained in an executive instruction, on the other hand, the repeal as well as displacement are capable of being achieved and inferred from a bare issue of fresh instructions on the same subject. In Mehtab Majid & Co.'s case a statutory rule was held not to have revived after it was sought to be substituted by another held to be invalid. This was prescribed for a repeal as it is in the case of statutory enactment of statute by legislatures. In every case, it is a…
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