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Petitioner: COMMISSIONER OF INCOME TAX and others VS Respondent: Messrs MEDIA NETWORK and JUDGMENT
Court Name: Supreme Court of Pakistan Judge(s): Iftikhar Muhammad Chaudhry, Faqir Muhammad Khokhar, Shakirullah Jan Title:COMMISSIONER OF INCOME TAX and others vs Messrs MEDIA NETWORK and
JUDGMENT
Reported As: 2006 PTD 2502 Result: Appeals allowed Judgment JUDGMENT ' FAQIR MUHAMMAD KHOKHAR, J.---The Central Board of Revenue (C.B.R.) announced Self- Assessm ent Scheme for the assessm ent year 2002-2003 through Circular No,7 of 2002, dated 15-6- 2002 in exercise of powers under section 59 of the Income Tax Ordinance, No,XXXI of 1979 (since repealed) (hereinafter referred to as the Ordinance). The last date for filing the returns for non- company cases was fixed as 30-9-2002 (subsequently extended to 15-10-2002) and for company cases 31-12-2002. Thereafter, the Board issued policy guidelines to all the Regional Commissioners of Income Tax vide letter, dated 17-12-2002 for selection of cases for total audit with the direction to finalise the process by 10-1-2003. By letter, dated 31-1-2003, the C.B.R. Informed the Regional Commissioners that in view of a small number of returns of companies, the holding of ballot for selection of 20% cases out of each category was not logical. Therefore, they were directed to select the returns for audit up to 20% at their own level under para. 9(2)(ii) of the Scheme and the guidelines, dated 17-12-2002. 2. The respondents, who were individual firms and companies limited by shares filed their returns under the Scheme for the year, 20022003. Their cases were selected by the concerned Regional
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Commissioners of Income Tax on the recommendations of Commissioners of the Income Tax after following the procedure laid down in the scheme and the policy guidelines, dated 17-12-2002. The respondents felt aggrieved and filed writ petitions in the Lahore High Court Lahore, which were allowed, by the impugned judgments and the selection of their cases by the Regional Commissioners of Income Tax was quashed. Hence, these appeals under Article 185 of the Constitution of Islamic Republic of Pakistan, by leave of the Court. 3. Mr. Makhdoom Ali Khan, the learned Attorney General for Pakistan submitted that Self- Assessm ent Scheme as announced on 15-6-2003 by Circular Letter No,7 and the policy guidelines issued by the Board vide letter, dated 17-12-2003 were not ultra vires any of the provisions of the Constitution and the law. They were issued in conformity with letter and spirit of section 59 (1-A) of the Ordinance and section 177 of the Income Tax Ordinance, 2001. There was no violation of the principles of natural justice. It was further contended that during the preliminary stage of the process of selection of cases through in-house mechanism in the light of the scheme and the guidelines, the respondents were not entitled to any show-cause notice or hearing as no adverse decision had yet been taken. However, they were issued notices by the Regional Commissioners before making a final selection. He referred to a Textbook titled Administrative Law by Sir William Wade Ninth Edition pages 547-548. He also relied on the cases of R v. Saskatchewan College of Physicians and Surgeons et al, ex parte Samuel (1966) 58 Dominion Law Reports (D.L.R.) (2nd) 622 at pages 638-640), Parry Jones v. Law Society (1969) 1 Ch Division 1 at pages 8 and 10), Norwest Holst Ltd. v. Secretary of State for Trade (1978) 1 Ch. D 201), Christopher John Moran v. Lloyd's (1981) 1 Lloyd's Law Reports (Volume-I) 423 at page 427) and Rees and others v. Crane (1994) 1 All E.R. 833 at P.P. 842-845), in support of his submission that hearing was not required to be afforded at preliminary stage of investigation or inquiry when no adverse action was taken. Under section 59 of the Ordinance, once a case was selected for total audit, the normal process as contemplated by section 62 was to take place, In any case, even under the guidelines, dated 17-12-2002 a definite, fair and reasonable procedure had been provided for to enable an income tax assessees to place his point of view before the final selection of a case. The discretion of the Regional Commissioners of the Income Tax and the Commissioner's of Income Tax had been further curtailed by the C.B.R. Through the scheme and the guidelines. 4. It was further argued that it would have certainly created more complications including the evasion of income tax if the guidelines were made known either simultaneously with, or immediately after, the announcement of the Self-Assessment Scheme. In such a case, all the assessees would have known before hand as to who were going to be selected or left out. A prior warning would have produced undesirable results detrimental to the Revenue and the public interest. The course adopted by the C.B.R. Had resulted in minimizing the evasion of the income tax as everybody could expect that his case might be scrutinized. If the C.B.R. Had identified the classes or categories of cases or persons and laid down guidelines before, the very purpose of provisions of section 59 of 1979 Ordinance and the Self-Assessment Scheme announced thereunder would have been defeated. The guidelines issued by the C.B.R. Vide circular letter, dated 17-12-2002 did not contravene the provisions of section 59 (1-A) of the Ordinance or the Self-Assessment Scheme. The guidelines could not be considered to be an amendment to the Self-Assessment Scheme as originally announced on. 15-6-2002. The Self-Assessment Scheme and the guidelines issued by letters, dated 17-12-2002 and 22-3-2003 were valid in all respects. 5. It was next contended by the learned Attorney General that although certain appeals of the appellants were barred by limitation but the delay ought to be condoned by this Court for the grounds stated in the applications for condonation of delay and in view of the law laid down in the cases of Ch. Manzoor Elahi v. Federation of Pakistan and others (PLD 1975 SC 66) (100), Mehreen Zaibun Nisa v. Land Commissioner, Multan and others (PLD 1975 SC 397) at P. 413), Fazal Ilahi and
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others v. P.T.C. And others (2001 SCMR 768) at P. 770) and Sheikh Muhammad Rashid v. Majid Nizami, Editor-in-Chief, The Nation and Nawa-e-Waqt, Lahore and another (PLD 2002 SC 514) at P.521). 6. It was further argued that in view of the substantial questions of law of public importance involved in these cases, failure to avail the alternate remedy of Intra-Court Appeal under section 3 of the Law Reforms Ordinance, 1972 was not an absolute bar for invoking the constitutional jurisdiction of this Court. He referred to the case of Province of Punjab through Secretary, Excise and Taxation, Government of Punjab and others v. Sargodha Textile Mills Ltd., Sargodha and others (PLD 2005 SC 988). It was emphasized that mala fide against a public functionary was not to be assumed but the same was required to be proved through positive evidence and material. The case of The Federation of Pakistan through Secretary Establishment Division, Government of Pakistan, Rawalpindi v. Saeed Ahmad Khan and others (PLD 1974 SC 151) was referred 7. On merits, it was stated by the learned Attorney General that the selection of the cases of the respondents was made after issuance of show-cause notices and receipt of the replies of the assessees who were afforded reasonable opportunity of hearing. The learned Attorney General referred to the case of Muhammad Asghar and others v. Income Tax Officer and others (1986 PTD 357) (Lahore) in that the selection of cases for scrutiny by Income Tax Authorities could not be objected to as the assessees were required to file true income tax returns under the Self- Assessm ent Scheme. The guidelines laid down an intelligible criteria with specificity which could not be said to be capricious or arbitrary. The respondents were disentitled to invoke the constitutional jurisdiction of the High Court conferred by Article 199 of the Constitution of Islamic Republic of Pakistan in the presence of availability of adequate remedies provided by the Income Tax Ordinance. Reliance was placed on the cases of Al-Ahram Builders (Pvt.) Ltd. v. Income Tax Appellate Tribunal (1993 SCMR 29), Khalid Mehmood v. Collector of Customs, Customs House, Lahore (1999 SCMR 1881) at P. 1887). It was lastly submitted that in cases in which notices had not been issued, the same would be issued by the relevant authorities before making a final selection for proceeding further in accordance with law. 8. On the other hand, Mr. Shahid Hamid, Senior Advocate Supreme Court, the learned counsel for the respondent (in Civil Appeal No,1046/2004) submitted that the appeal filed by the appellants was hopelessly barred by the time and no sufficient cause was shown in their application for condonation of delay. He referred to the cases of Muhammad Hussain and others v. Muhammad and others (2000 SCMR 367) and Ali Muhammad through Legal Heirs and others v. Chief Settlement Commissioner and others (2001 SCMR 1822) to impress upon that the delay in filing an appeal could not be condoned merely because some connected appeals filed within time were to be heard on merits. It was next contended that the remedy of Intra-Court Appeal provided by section 3 of the Law Reforms Ordinance, 1972, against the impugned judgment, passed by a learned Single Judge in Chambers of the Lahore High Court had not been invoked by the appellants in these cases. Therefore, a petition or an appeal before this Court under Article 185 of the Constitution was not competent in view of the law laid down by this Court in the case of Imtiaz Ali Malik v. Mst. Surrya Begum and others (1979 SCMR 22). 9. He further argued that the guidelines issued by the C.B.R. Were over-broad and went beyond the scope of section 59(1-A). They were ex facie discriminatory in nature and were also capable of arbitrary application. They conferred uncanalised power on the Regional Commissioners and the Commissioners of Income Tax to pick and choose. There was no method to ascertain as to how many cases were to be selected for computer balloting by the C.B.R. Or by the Regional Commissioners on the recommendations of the Commissioners. An unfettered discretion had been conferred on them. He pointed out that in the Self-Assessment Scheme for the year, 1998-99 a provision was made 'to outsource the selected cases for audit purpose under sections 4 and 4-A
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of the Ordinance and the C.B.R. Was required to specify classes/ categories of cases for special audit through a separate circular. However for the assessment years 2002-2003, the assessees were entrapped through the Self-Assessment Scheme and the guidelines. The conduct of the C.B.R. Was unconscionable, non-transparent and discriminatory in nature. 10. Mr. Siraj-ud-Din Khalid, Advocate Supreme Court, learned counsel for the respondents (in C.As. No,238 of 2004 and 1212 of 2005), adopted the arguments advanced by Mr. Shahid Hamid, Senior Advocate Supreme Court and further stated that the appeals were also liable to be dismissed on the point of limitation as no sufficient cause was shown for condonation of delay. 11. Mian Ashiq Hussain, Advocate Supreme Court, the learned counsel for the respondents (in Civil Appeals No,262, 265, 266, 269, 294, 298, 835, 844/2004 and 1214/2005) highlighted the history of the Self-Assessm ent Scheme in a chronological order. He submitted that selection of cases through random ballot as well as by the Regional Commissioners of Income Tax was not only against the basic concept and purpose of the scheme but the same also suffered from the vice of uncertainty. Para-9 of the Scheme was not clear as to the exclusion of cases from the Scheme on the basis of computer balloting and the ratio out of total of 20% of cases which were to be selected by the Regional Commissioners of Income Tax. No justification was spelt out by the C.B.R. While issuing the letter, dated 31st January, 2003 permitting the Regional Commissioners to select such cases at their own level. A long arm was given to the Revenue Officers to take advantage of the ambiguity of the Scheme as to the percentage to be allocated for computer balloting and Regional Commissioners of Income Tax. It was argued that the guidelines were required to be issued either before or at least simultaneously with the announcement of the Scheme so that the assessees were not kept in dark to exercise their option for the Scheme or otherwise before the period provided under section 59(4) of the Ordinance had run out. It was very unfair on the part of the C.B.R. To adopt a mechanism of laying a bobby trap for the assessees. The C.B.R. Was not expected to be secretive in the matter of identifying each category of cases to be selected for total audit or scrutiny till the last date of submission of returns. It would have been just and 'fair that the guidelines were made known to the assessee well in time and not to hold them back for considerable period even after filing of the returns. It was not the intention of law to give wide discretion to the C.B.R. To issue the guidelines as contemplated in para. 9 (a)(2) of the Scheme at its sweet will whenever it thought fit. It was further urged that Assessing Officer had no discretion but to make assessm ent under section 59(1) of Ordinance, 1979, in accordance with the returns once the requirements of the Scheme was satisfied. The guidelines, dated 17-12-2002 were in the nature of a bill of attainder i,e, pains and penalties and the net was so widened that no taxpayer could feel safe even if all the codal formalities were fulfilled. The parameters laid down by the guidelines were exhaustive in nature as if those were an independent Scheme. The hunt for cases involving "Revenue Potential" would give a licence and unbridled discretion to the Commissioners/Regional Commissioners of Income Tax to pick and choose anyone on unreasonable grounds. The guidelines could be invoked in a selective manner without providing any intelligible differentia and the same were hit by the equality clauses laid down by Article 25 of the Constitution of Islamic Republic, of Pakistan, ' 1973. Reliance was placed on the case of Messrs Novitas International v. Income Tax Officer (Films Circle) and others (1991. PTD 968).. It was lastly submitted, that exclusion of cases from benefit of the scheme by itself amounted to an adverse order which could not be done without affording adequate opportunity of hearing by the relevant authorities during the process of selection of cases by the Commissioners and Regional Commissioners of Income Tax. 12. Mr. M. Naeem Shah, Advocate Supreme Court, learned counsel for the respondents (in Civil Appeals No,276, 288, 315/2004) submitted that Circular No,7 of 2002, dated 15-6-2002 and the guidelines, dated 17.-12.-2002 issued by the C.B.R. Purportedly under section 59 of the Ordinance,
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1979, were violative of Article 4 of the Constitution and the principles of natural justice. It was an inalienable right of every citizen to enjoy the protection of law and no action detrimental to reputation or property of any person could be taken except in accordance with law. He argued that under the provisions of section 59(1) once a return filed under the Scheme qualified for acceptance, the Deputy Commissioner of Income Tax was under an obligation to assess the total income of the assessee on the basis of such return and to pass an order of determination of the tax accordingly. 13. Dr. Ilyas Zafar, Advocate Supreme Court, the learned counsel for the respondents (in Civil Appeals No,841 and 843/2004) submitted that the guidelines issued by the Board were required to be published in the official Gazette as required by section 165 of the Ordinance where-under the C.B.R. Was empowered, by notification in the official Gazette, to make rules and prescribe the manner and the procedure by which the income, profits and gains liable to tax and the tax payable under the Ordinance, would be determined in the cases of persons to whom section 59 was applicable. Since the guidelines, dated (?) therefore, they were not enforceable at law. It was next contended that the guidelines vested the Income Tax Authorities with the powers of reopening the cases for total audit in an arbitrary manner and without recording any reasons. Therefore, those were invalid ineffective for non-compliance of the requirements of section 24-A of the General Clauses Act, 1897, whereunder every authority, officer or person making any order or issuing any direction in exercise of powers conferred by or under any law was required to give reasons for such an order or direction. The guidelines also ran counter to and nullified the effect of section 59 ibid and those were an encroachment of quasi-judicial functions of the Income-tax Authorities. Reliance was placed on the case of Messrs H.M. Abdullah v. Income Tax Officer Circle v. Karachi and 2 others (1993 SCMR 1195) in which it was held that the C.B.R. Exercising administrative control or supervision could not give any directions or instructions to the Assessing Officer, Appellate Assistant Commissioners, Income Tax Appellate Tribunal or the Commissioners of Income Tax vested with quasi judicial powers. He also made a reference to the case of Messrs Central Insurance Company and others v. Central Board of Revenue and others (1993 SCMR 1232) wherein it was held that although the C.B.R. Had administrative control over the functionaries discharging their functions under the Ordinance, but it did not figure in the hierarchy of the forums provided for adjudication of cases of assessees as to the income-tax. It was further held therein assessees as to the income-tax. It was further held therein that interpretation placed by the C.B.R. On a statutory provision could not be treated as a pronouncement by a forum competent to adjudicate upon such a question judicial or quasi-judicial. Therefore, it was contended that the C.B.R. Could not issue any directions of the nature which would interfere with the judicial, or quasi-judicial adjudicatory functions entrusted to various functionaries under a statute. 14. Messrs Muhammad Iqbal Hashmi, Advocate Supreme Court, and Shahbaz Butt, Advocate Supreme Court, the learned counsel for the respondents (in Civil Appeals No,248-251, 256, 259, 303, 1014/2004) and (Civil Appeals No,233, 241, 243, 256, 261, 271, 274, 275, 279, 283, 286, 293, 296, 301, 304 of 2004) submitted that the C.B.R. Was not empowered to issue guidelines having the effect of modification of the Scheme already announced by it or to extend the date for scrutiny of cases for total audit unilaterally. 15. We have heard the learned Attorney General for Pakistan and the learned counsel for the respondents at length. Section 55 of the Ordinance required the filing of Income Tax return by every person whose total income or the total income of any other person in respect of which he was assessable for any income year exceeded the maximum amount which was not chargeable to tax under the Ordinance or who had been charged to tax for any of the four income tax years immediately preceding the said income year. Section 59 of the Ordinance made a provision for self-assessm ent of the income tax as under:--
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59. Self-assessm ent: (1) Where the return of total income for any income year furnished by the assessee (not being a public company or a company engaged in the business of banking leasing and modaraba), under section 55 qualifies for acceptance in accordance with the provisions of a scheme of self assessm ent made by the Central Board of Revenue for that year or under any instructions or orders issued thereunder the (Deputy Commissioner) shall assess, by an order in writing, the total income of the assessee on the basis of such return and determine the tax payable on the basis of such assessm ent. (Explanation: For the removal of doubt it is hereby declared that a return of total income furnished under section 55 does not include a return of total income furnished under section 57) (1-A) Notwithstanding anything contained in subsection (1), the Central Board of Revenue or any authority subordinate to it if so authorized by the Central Board of Revenue in this behalf, may in accordance with a scheme referred to in subsection (1), select out of returns referred to in that subsection any cases or classes of cases or persons or classes of persons howsoever determined, for assessm ent under section 62, and the (Deputy Commissioner) shall proceed to make the assessm ent under that section or, if the circumstances so warrant, under section 63 accordingly). ' In (assessing the total income and determining the tax payable under subsection (1)) (Deputy Commissioner) may make such adjustments as may be necessary, including any adjustment under sections 34, 35, 36, 37, 38,, 50, 53 or 54, the rules made under section 165, the First Schedule and the Third Schedule. ' No order under subsection (1) shall be made in any cases after the thirtieth day of June of the financial year next following the income year in respect of which a return of total income has been furnished under section 55: (Provided that if such order is not passed by such date, the acknowledgement issued under section 55A in respect of the return of total income shall be deemed to be the assessment order and notice of demand referred to in section 85) 16. However, section 59-A of the Ordinance laid down that if the Deputy Commissioner was satisfied without requiring the presence of the assessee or the production by him of any evidence that a return furnished under section 55 was correct and complete, he would by an order in writing assess the total income of the assessee and determine the tax payable on the basis of such return. It was further provided therein that the provisions of subsection (3) of section 59 would apply to an assessm ent and determination under section 59-A as they applied to an assessment and determination under section 59. 17. The C.B.R. By Circular No,7 of 2002 (Income Tax), on 15th June, 2002 announced the Self- Assessm ent Scheme (S.A.S.) for the Assessment year 2002-2003 under section 59 of the Ordinance. Paragraphs 1.1, 9 and 10 thereof are reproduced below for the sake of convenience:-- 1.1 All returns filed by taxpayers, other than those that are ineligible under para. 7 of this Scheme, shall qualify for acceptance subject to the fulfilment of the following conditions, namely:-- (a) tax has been fully paid under section 54 of the Ordinance and proof of such payment is attached with the return; (b) Return of income for the assessment year 2002-2003 has been filed under section 55 of the Ordinance, within due date as defined in this Scheme; (c) Returns of Public Limited companies quoted stock exchange, where tax payable on the income declared is equal to or more than the tax payable on the income last declared or assessed, whichever is higher; (d) Returns of other Companies where tax payable on the income declared is higher by ten percent (10%) or more compared to the tax payable on the income last declared or assessed, whichever is higher;
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(e) Returns of Registered Firms of Professionals not liable to pay Super Tax under clause (2B) of para (A) of Part-IV of 1st Schedule to the Ordinance, where the tax computed, under Part-II of the 1st Schedule to the Ordinance, on income declared is higher by twenty per cent. (20%) as compared to the similar tax computed on the income last declared or assessed, whichever is higher; and (f) Return of Persons not being Companies or Registered Firms of Professionals, as indicated in sub-paras (c) (d) & (e) above, where tax payable to income declare is higher by twenty per cent. (20%) or more as compared to the tax payable on the income last declared or assessed, whichever is higher; (9) SELECTION OF CASES FOR AUDIT: (a) From amongst the returns filed under the Self-Assessment Scheme (excluding salary and only property income cases), twenty per cent. (20%) returns may be selected for total audit in the following manner-- (i) through computer ballot which may be random or parametric, as deemed fit by C.B.R. (ii) by Regional Commissioners of Income Tax on the recommendations of Commissioners concerned, in the light of guidelines issued by the Central Board of Revenue in this behalf. (b) Returns qualifying for self-assessment shall be expeditiously processed either manually, or through computer, after the selection of cases for total audit. The Assessing Officer shall' make necessary adjustments under section 59(3) of the Ordinance, if so required, after giving a notice in writing to the assessee and considering his explanation, if any, These adjustments may include add-backs on account of:-- (i) expenses claimed which are legally inadmissible; (ii) any sum(s) deemed to be income under the Ordinance; and (iii) adding agricultural income to the chargeable…
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