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Petitioner: PRIME COMMERCIAL BANK LIMITED, LAHORE and others VS Respondent: COMMISSIONER INLAND REVENUE, L.T.U., LAHORE and others
Court Name: Appellate Tribunal Inland Revenue Judge(s): Jawaid Masood Tahir Bhatti, Sohail Afzal Title:PRIME COMMERCIAL BANK LIMITED, LAHORE and others vs COMMISSIONER
INLAND REVENUE, L.T.U., LAHORE and others Case No.:I.T.As. Nos.4324/LB, 4997/LB to 5000/LB of 2005, 1209/LB, 2125/LB, 2126/LB of 2006, 1268/LB, 1213/LB of 2007, 712/LB, 1154/LB, 916/LB of 2008, 806/LB, 1130/LB, 1236/LB of 2011 and 126/LB, 930/LB, 171/LB of 2012 Date of Judgment:2013-01-07 Reported As: 2013 PTD (Trib.) 1335 Result: Order accordingly Judgment ORDER ' These appeals were partly heard, on 19-10-2012 and were adjourned to 21-12-2012 on the request of the learned D.R. Both the parties have argued the matter at length. Brief facts of the case are that the taxpayer, a scheduled banking company registered under the Banking Companies Ordinance, 1962, is working under the rules and regulation framed by the State Bank of Pakistan from time to time. Earlier, it was working with the name of Prime Commercial Bank Limited. Subsequently, Pakistan branches of a non-resident bank namely ABN AMRO Bank N. V. Were merged in Prime Commercial Bank and its name was changed to ABN AMR Bank (Pakistan) Limited vide State Bank of Pakistan Notification No,BPRD(LCGD-04)/625-75/2007/9865 dated 31-8-2007. Later on, ownership of parent company ABN AMR Bank N.V. Was acquired by The Royal Bank of Scotland Group Plc. Consequently, the management changed the name of bank to The Royal Bank of Scotland Limited. ' Cross appeals have been filed, which are being disposed of through this consolidated order. These appeals arise from orders of Commissioner (Appeals) adjudicating orders passed under section 122(5A) of Income Tax Ordinance, 2001 [hereinafter "the Ordinance"] for tax years 2004 to 2007, 2009 and 2010 and section 122(5) for tax year, 2003 and 2008. These appeals were partly heard on 19-10-2012 and were adjourned to 21-12-2012 on the request of learned DR. Both the parties have argued the matter at length. The Authorized Representative (AR) of appellant-bank on previous dates of hearing provided a detailed chart showing issues involved and copies of relevant
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case-law for comments by the learned Departmental Representative (DR). The learned DR also submitted Department's point of view on all issues in writing and provided copies of case-law relied upon by him. After examining the impugned orders, written averments of both the sides and case-law cited, the titled appeals are adjudicated as under. ' Before deciding appeals on merits, we deem it necessary to decide legal grounds first having impact for most of the years under appeal: ' ASSUMPTION OF JURISDICTION UNDER SECTION 122(5A) OF INCOME TAX ORDINANCE, 2001 (TAX YEARS 2004 TO 2007, 2009 AND 2010) ' This has been a controversial issue as many conflicting judgments were in the field. On this issue, Five Member Bench of this Tribunal was constituted in I.T.A. No,1209/LB/2006 (tax year 2005) dated 22-3-2007=2007 PTR 279 (Trib.) wherein issue was decided against the taxpayer. A Miscellaneous Application for recalling of said order was also filed which was rejected vide order in M. A. No,67(LB) of 2008 dated 9-3-2010. The honourable Islamabad High Court in a recent judgment has decided the issue in favour of the department in Writ Petition No,2412 of 2009 dated 27-4-2012. No contrary decision of Lahore High Court or any other High Court is available at the moment. It was conveyed by the learned AR that the honourable Sindh High Court also decided the matter,--in favour of the Department through a short order, but detailed order is yet not released. The AR argued that on the basis of latest order by Islamabad High Court, the Tribunal has to decide the matter accordingly but arguments advanced and adjudicated against assumption of jurisdiction by the Additional Commissioner in 2010 PTD 705 [Trib], I.T.A. No,625/IB/2010 dated 16-3-2012 and I.T.As. Nos.691 to 694/LB/2011 dated 26-3-2012 should be considered as integral part of this order so that appellant- Bank could agitate the matter in Lahore High Court where many writs and appeals on the same issue were pending. We have no objection to this proposition and thus following the judgment of honourable Islamabad High Court (supra), we dismiss all the appeals of the appellant-bank on this issue and allow that of Department as was done earlier by a Division Bench of this Tribunal in a case of another bank reported as 2013 PTD (Trib.) 246. ' ASSUMPTION OF JURISDICTION UNDER SECTION 122(5) OF INCOME TAX ORDINANCE, 2001 [TAX YEARS 2003 AND 2008] ' Tax year 2003 ' Department selected the case for audit under section 177 and invoked section 122(5) of the Ordinance which was declared unlawful by Commissioner (Appeals). Department has contested the order of Commissioner (Appeals). Learned DR supported the order of Taxation Officer and argued that invoking of section 122(5) was lawful as taxpayer failed to substantiate its case before the department. ' The learned AR advanced the same arguments that were taken before the Commissioner (Appeals). He submitted that pre-requisite of invoking section 122(5) of the Ordinance was existence of definite information with regard to escapement or under-assessment of income or assessm ent at too low a rate or subjection of excessive relief or refund. Moreover, this definite information should have been fresh and must come into possession from a source after completion of assessm ent as held by Supreme Court of Pakistan in CIT v. Eli Lilly Pakistan (Pvt.) Ltd. 2009 SCMR 1279 = 2009 PTD 1392 and Central Insurance Co. And others v. CBR, Islamabad and others 1993 PTD 766 = 1993 SCMR 1232. He submitted that amendment under section 122(5) was made merely on certain disagreements on interpretation of statute on which judicial pronouncements were in the field. The AR pointed out that though many favourable judgments on the issues were announced after amended assessment, but even at the time of invoking section 122(5), the following decisions of higher courts and FBR's instructions were in field:-- S. No. Additions Favourable judgments/provision of law
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1. Disallowance of provision for non- performing loans(i) 2002 PTD (Trib.) 1898 (ii) 2002 PT.D (Trib.) 2185 (iii) 2003 PTD (Trib.) 1189 (iv) R.A No,349/LB//2002 (v) (2004) 90 TAX 116 (Trib.) 2. Allocation of expenses to dividend and capital gain(i) 1993 PTD (Trib.) 472 (ii) 2005 PTD (Trib.) 344 (iii) I.T.A. No,106/LB/2000 (iv) (2004) 90 TAX 116 (Trib.) 3. Concessional loan Interpretation of section 21(k) 4. Membership paid to Stock of Pakistan Expense is of capital or revenue in nature 5. Expenses on publicity of new branches I.T.A. No,93/LB/2001 dated 14-6-2002 6. Disallowance of 50% depreciation on vehicles used by Directors and ExecutivesI.T.As. Nos. 36 to 38/LB/2003 7. Disallowance of 50% travelling and motor vehicle expenses on vehicles used by Directors and ExecutivesI.T.As. Nos. 23 to 25/LB/2003 dated 13-12-2003 8. Amortization of intangibles Estimation of life of computer software ' The learned AR argued that legal disagreements over issues narrated above were lingering on for a long time and department had filed appeals with appellate authorities. The Tribunal had already adjudicated these issues in the favour of appellant bank. In view of this fact, he argued, the act of department of invoking section 122(5) was totally unjustified as no "definite information" was confronted as required under the law. He showed from record that information on the basis of which assumption of jurisdiction under section 122 was assumed was available on record, it was neither acquired through audit nor otherwise came to the knowledge of the Taxation Officer. According to AR since no definite information came in the possession of department, as a result of audit or otherwise, resort to section 122(5) was unlawful and proceeding were coram non judice. The AR also pointed out that for subsequent years, the Additional Commissioner invoked section 122(5A) on the same issues asserting that acceptance of declared version on these issues was "erroneous" as well as "prejudicial to the revenue". The Department by its own conduct, he argued, admitted that the issues involved were not subject matter of section 122(5). ' The AR further claimed that department did not issue prescribed notices. According to him, non- issuance of mandatory notice rendered the whole proceedings nullity in the eye of law. The law prescribed a specific notice to be issued for assumption of jurisdiction under section 122. As held by honourable Supreme Court in Collector, Sahiwal and 2 others v. Muhammad Akhtar 1971 SCMR 681 and followed in Baby-own v. Income Tax Officer 1997 PTD 47, failure to comply with such a mandatory requirement of the statute renders the act void ab initio as being an act performed disregard of the provisions of the statute. Hence, any further proceedings taken on the basis of such a void act are also vitiated and not maintainable in the eye of law. ' The learned DR argued that additions were made on factual basis too and this constituted definite information for the purpose of section 122(5).
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Arguments and case-law cited of both sides have been considered. We are persuaded to agree with the opinion of Commissioner (Appeals). He rightly mentioned that pre-requisite for invoking section 122(5) of the Ordinance was definite information with regard to escapement or under- assessm ent of income or assessm ent at too low a rate or subjection of excessive relief or refund. Further, the definite information must have come in the possession of Department after completion of assessm ent-this dictum is elaborated in detail by the honourable Supreme Court in CIT v. Eli Lilly Pakistan (Pvt.) Ltd. 2009 PTD 1392 = 2009 SCMR 1279 and Central Insurance Co. And others v. CBR, Islamabad and others 1993 SCMR 1232 = 1993 PTD 766. We are also in agreement with the observation of Commissioner of Appeals that there were favourable judgments of higher courts on the issues on which department invoked section 122(5) and this act was against the law. Mere disagreement with the decisions of higher courts cannot be termed as definite information. We want to cite the judgment of Lahore High Court reported as Saitax Spinning Mills Ltd. v. Commissioner of Income Tax 2003 PTD 808 (Lahore High Court) wherein the honourable High Court disapproved amendment/reopening of a completed assessment for want of definite information. We are also in agreement with the AR that non-issuance of mandatory notice rendered the proceedings untenable in the eye of law as held by the honourable apex court in Collector, Sahiwal and 2 others v. Muhammad Akhtar 1971 SCMR 681. We, therefore, uphold decision of Commissioner (Appeal) and dismiss departmental appeal on this issue. ' Tax year 2008 ' Department selected the case for audit under section 177 and made additions by invoking section 122(5) of the Ordinance. Invoking of sections 177 and 122(5) was upheld by Commissioner (Appeals) with the following observation:-- "To state that obvious the appeal before me has not been filed against order passed under section 177 by the Commissioner. The order under section 177 issued by the Commissioner is a separate order and distinct from the order under section 122 that has been passed by the DCIR. Obviously, two authorities cannot pass one order sitting in proceedings separately. The selection order under section 177 may be legal or illegal and the audit proceedings may again be legal or illegal that is not relevant for this appeal that has not been filed against the order under section 177. The appeal has been filed, to state the obvious, against order under section 122. Therefore, I have to see whether the requirements of section 122 were fulfilled in this case or not? The more important condition to pass an order under section 122 is the availability of definite information. Subsection (5) provides that the definite information may be obtained through audit or otherwise. If this condition of definite information is satisfied in this case, though the audit may be improper, it will not affect the legal effect of the impugned order. In other words, audit is a means through which definite information may be obtained. In other words, the information itself is never illegal, though it may be definite or otherwise in the context of this appeal. Therefore, the prerequisite to pass an order under section 122, inter alia, is availability of definite information and not the audit itself this ground therefore, is repelled in limine." ' The learned AR argued that issue was decided against the taxpayer on the basis of observation that appeal against selection of case for audit under section 177 by Commissioner was not filed. According to the learned Commissioner (Appeals), order under section 177 issued by the Commissioner was a separate order and distinct from the order under section 122 that was passed by the Deputy Commissioner and appeal was filed against order under section 122 only. The learned AR argued that Commissioner (Appeals) failed to appreciate that in Income Tax Ordinance, 2001 all proceedings are taken up by Commissioner. Even order under section 122 is passed by Deputy Commissioner by using delegated powers of Commissioner Inland Revenue. The learned AR further argued that for this year too, additions were made on the issues on which
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favourable decisions of higher courts were available at the time of amendments. In this respect, he furnished the following details:-- S. No. Additions Favourable judgments/provision of law 1. Disallowance of provision for non- performing loans. Bad debts written off(i) 2002 PTD (Trib.) 1898 (ii) (2002) 85 Tax 245 (Trib.) (iii) 2003 PTD (Trib.) 1189 2. Bad debts written off (iv) 2006 PTD (Trib.) 1292 (v) R.A. No,349/LB of 2002 (vi) (2004) 90 Tax 116 (Trib.) (vii) 2006 PTD (Trib.) 356 3. Reversal of provision against non- performing advances/ loansMisreading of fact. Double taxation as reversal has already been taxed when provision was claimed in P&L account after reducing it. 4. Loss on sale of securities/shares Estimation of loss 5. Other provisions (i) 2006 PTD (Trib.) 356 (ii) ITAs Nos.1012 and 1014/IB/1995 dated 18-7-2006 6. Depreciation on building Admissibility of an expense 7. Disallowance of 50% depreciation on vehicles used by Directors and ExecutivesI.T.As. Nos. 36 to 38/LB of 2003 8. Charge of Defined Benefit Plan (Gratuity)CIT v. Oriental Dyes and Chemicals Ltd. 1992 SCMR 763 9. Markup charged under repurchase agreementInterpretation of section 151(1) (d)---Department in another case (The Bank of Punjab) for the same year has interpreted provision in favour of taxpayer and allowed deduction. 10. Amortization on intangibles Estimation of life of computer software 11. Advertisement and publicity Expense is of capital or revenue in nature 12. Expenses related to Dividend (i) 2006 PTD 2678 (iii) 2005 PTD (Trib.) 2041 ' The learned AR argued that legal disagreements over issues narrated above were in existence and department had filed appeals with appellate authorities. The courts had adjudicated these issues in the favour of appellant bank. The resort to section 122(5) by Taxation Officer was not based on acquisition of definite information. He further submitted that information on the basis of which jurisdiction under section 122 was assumed was already available on record, it was neither acquired through audit nor otherwise came to the knowledge of the department as contemplated in section 122(5). The learned AR further argued that taxation of reversal was a case of misreading of fact. It was a case of double taxation as reversal had already been offered for tax when provision for the year was charged to profit and loss accounts after its netting off. He submitted that
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S. No. Issue Year Appellant 1. Non-issuance of notice under section 128(1)2003 and 2004 Department 2. Relief under section 124A 2006 to 2008 Department/bank 3. Provision for bad debts 2003 to 2008 Department/bank 4. Bad debts written off directly 2008 Department 5. Deletion of "amount written off"2010 Department 6. Reversal of provision for non- performing loans2004, 2008 to 2010 Department/bank 7. Adoption of wrong figure for the purpose of allowability of provision for non-performing advances2009 Bank 8. Charge for Defined Benefit Plan (Gratuity)2009 Bank 9. Diminution in value of investment20032009,2004,2009 and 2010Department/bank 10. Unrealized loss on revaluation of investment2008 Bank 11. Reversal of provision for diminution in value of investment2005 Department 12. Allocation of expenses to dividend and exempt capital gain2003 to 2010 Department/bank 13. Concessionary loans 2003 Departmentestimation of life of computer software or whether an expense is of capital or revenue in nature is not definite information. The learned AR also pointed out that for other years, the department invoked section 122(5A) on the same issues holding that acceptance of declared version on these issues is "erroneous" as well as "prejudicial to the revenue". The Department by its own conduct conceded that the issues involved were subject matter of section 122(5A) and not that of section 122(5). ' The learned DR supported orders of authorities below and argued that these additions were made on factual basis too and therefore provisions of section 122(5) of the Ordinance have rightly been invoked for this year too. ' We have considered arguments and case-law given by both sides. We do not want to go in detail for this year as this issue has been discussed in detail in tax year 2003. We are in agreement, with the AR that on above issues, there were judgments of higher courts in favour of taxpayer and mere disagreement with those judgments on the part of Department could not constitute any definite information that was a prerequisite for invoking section 122(5). Moreover, mere disagreement of legal interpretation, estimation of life of computer software or having a view that expenditure is of capital in nature is not definite information. We therefore, decide the appeal for this year in favour of taxpayer by declaring invoking of section 122(5) of above issues as unlawful. MERITS ' Summary of issues pending for adjudication in departmental and cross appeals for tax years 2003 to Tax year 2010 are tabulated as under:--
' Issue- wise and
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14. Membership paid to Stock Exchange2003 Department 15. Expenses on publicity of new branches2003 Department 16. Renovation of leasehold branches2005 to 2008 Department 17. Advertisement and publicity expenses2008 Department 18. 50% disallowance of depreciation on vehicles used by directors and executives2003 to 2008 Department 19. 50% disallowance of travelling and motor vehicle expenses on2003 Department vehicles used by directors and executives 20. Amortization of intangibles 2003 to 2005 and 2008Department 21. Intangibles written off 2003 Department 22. Provision against other assets and balance sheet items/other provisions2004,2007 to 2010 Department/bank 23. Amortization of premium on investment2006 and 2007 Department 24. Compensation on delayed refunds2004 and 2005 Department 25. Taxation of compensation on delayed refunds2005 Department 26. Loss on sale of securities 2008 Department 27. Depreciation on building 2008 Department 28. Profit charged on account of repurchase agreement2008 Bank 29. Confirmation of computation of income in violation of section 100A read with Seventh Schedule to the Ordinance2009 and 2010 Bank 30. Allowance of provision for non- performing advances @ 1% of gross advances instead of net advance2009 and 2010 Department 31. Tax credits - Calendar year v. financial year2003 and 2004 Department 32. Chargeability of WWF 2010 Bankyear-wise adjudication is made as under:-- 1. NON-ISSUANCE OF NOTICE UNDER SECTION 128(1)-TAX YEAR 2003 & 2004: ' The learned DR argued that appeals for these years were decided by learned CIR(A) without issuing notice to the department. The AR said that CIT(A) issued notices to both the parties and
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Department opted not . To appear. In this respect learned AR produced letter No,128/A-L dated 30- 11-2005 from Commissioner (Appeals) confirming this position. ' Since the Department did not provide any evidence in support of its claim, we dismiss the appeals. 2. RELIEF UNDER SECTION 124A OF THE ORDINANCE-TAX YEAR 2006, 2007 On the following legal issues, there were favourable judgments of this Tribunal decided in bank's own case after first day of July, 2002:--
S. No.Issue involve 2006 PTD (Trib.) 1292 Page No, and Para No, 1. Provision for bad debt Pages 1299, 1305 Paras A & B 2. Expenses incurred on renovation of lease hold branchesPage 1311, Paras L & M 3. Allocation of expenses to exempt capital gain Pages 1309, 1310 Paras I & J ' The appellant-bank argued before the department that in view of section 124A the department should have followed the judgment. The department rejected this argument on the ground that legislature has used words "may" which gives option to Commissioner to invoke or not to invoke said section. Commissioner (Appeals) in appeal for tax year 2006 accepted appeal with the following observation: "I have analyzed the language of section 124A and it is my view that it is binding on the Commissioner as it is well-established principle of law that if the statute authorize a person for exercise of discretion to advance the cause of justice, the power is not merely optional but it is the duty of such person to act in the manner it is intended - 2004 PTD 2187 (S. C. Pak) [Para D & F, pages 2196, 2197]. The word "may" in section 124A is to be construed as mandatory in view of dictum laid down by the honourable apex court in 2004 PTD 2187 (S. C. Pak.) [para E, page 2197]. Section 24A of General Clauses Act also requires that powers under section 124A shall be exercised for the advancement of the purpose of the enactment that is to avoid repletion of appeals on the same question of law. The point of view of Taxation in this regard is not maintainable under the law in the light of dictum laid down by the honourable apex court as discussed above." ' For tax year 2007, Commissioner (Appeals) accepted appeal on this issue by following her earlier decision. However, for tax year 2008, Commissioner (Appeals) did not follow decision of his predecessor and observed "the learned DCIR has rightly observed that this section is directory and not mandatory. It is up to the Commissioner to accept the earlier decision or not." ' The learned DR supported the observations of authorities below and argued that relief under section 124A is directory and not mandatory. ' First of all, we would like to show our concern about the conduct of the important office like Commissioner (Appeals). For tax year 2006 and 2007, by relying on well-established principle of law that if the statute authorize a person for exercise of discretion to advance the cause of justice, the power is not merely optional but it is the duty of such person to act in the manner it is intended and in the light of judgment of honourable Supreme Court of Pakistan in 2004 PTD 2187 (S. C. Pak.) it was observed that section 124A was mandatory whereas for tax year 2008 without giving any reason for distinguishing earlier decision it has been observed that this section is not mandatory. We do not expect such contradictory observations from an appellate office and that too without giving any cogent reasons. It needs to be pointed out that word "may" as used in section 124A of the Income Tax Ordinance, 2001 was rightly interpreted on the basis of judgment of Supreme Court cited supra as binding while adjudicating appeals for tax year, 2006 and 2007. The contrary finding
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for tax year 2008 by the Commissioner (Appeals) is against the clear violation of rule of consistency and judicial propriety. ' Before adjudicating this issue, we would like to ~reproduce section 124A of the Ordinance as under:-- 124A. Powers of tax authorities to modify orders, etc.--(1) Where a question of law has been decided by a High Court or the Appellate Tribunal in the case of an assessee, on or after first day of July 2002, the Commissioner may, notwithstanding that he has preferred an appeal against the decision of the High Court or made an application for reference against the order' of the Appellate Tribunal, as the case may be, follow the said decision in the case of the said assessee in so far as it applies to said question of law arising in any assessment pending before the Commissioner until the decision of the High Court or of the Appellate Tribunal is reversed or modified. (2) In case the decision of High Court or the Appellate Tribunal, referred to in subsection (1), is reversed or modified, the Commissioner may, notwithstanding the expiry of…
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