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Petitioner: BARNALA COMMISSION SHOP VS Respondent: THE INCOME-TAY OFFICER, B-WARD, LYALLPURHonorable Justice MANZUR QADIRJaved Hashmi,Sh. Abdul Haque with Riaz-ul-Haq
1963 P T D 534
1963 P T D 534
[Lahore Pakistan]
Before Manzur Qadir, C. J. and Shabir Ahmad, J
BARNALA COMMISSION SHOP‑Petitioner
Versus
THE INCOME‑TAY OFFICER, B‑WARD, LYALLPUR Respondent
Writ Petition No. 405 of 1961, decided on 3rd January 1963.
(a) Income‑tax‑--
----Writ petition‑(Grounds)‑Failure of Income tax Officer to comply with provision of condition precedent to issuing notice to assessee under S. 34 (I), Income‑tax Act (XI of 1922) Objection not raised to any part of proceedings on any ground at any stage before Income‑tax Officer‑Petition, otherwise deserving dismissal in limine, admitted to hearing since point of objection arose also in several other petitions.
(b) Income‑tax‑---
---Writ petition‑(Grounds)‑Income‑tax assess ment proceedings under S. 34, Income‑tax Act (XI of 1922), completed beyond time‑Alternative
remedy by appeal under Income‑tax Act (XI of 1922) availed but, without waiting for result, assessee preferring petition invoking writ jurisdiction of High Court‑Petition otherwise deserving dismissal in limine admitted to hearing, since point of objection arose also in several other petitions.
(c) Income‑tax Act (XI of 1922)-----
----S. 34(1), proviso‑Provision for protection of assessees‑Notice in contravention of proviso Order passed in such proceedings invalid‑"Definite information"‑‑ No absolute criterion of "definiteness"‑Matter for departmental regulation‑Mere use of incorrect form for notice not enough to establish that information was not "definite" [1961 P T D (Trib.) 211 approved]
Held, that an order passed in proceedings which are instituted on a notice that is found to be in contravention of the last proviso to the first subsection of section 34 of the Income‑tax Act, would not be a valid order.
1961 P T D (Trib.) 211 approved.
The provision of the proviso to section 34(1), Income‑tax Act, 1922 is obviously intended for the protection of the persons to be assessed. It impliedly gives them a guarantee that if an assessment which has once been made, or a closed case in which no assessment has been made, is to be re‑opened in the absence of "definite information", it shall not be so re‑opened, unless a decision to do so has been taken at a higher level of responsibility. It goes further, and lays down the mode by which that decision is to be signified and the stage at which it has to be taken. It must be expressed in writing, and it must be taken prior to the institution of proceedings ; so that neither an approval given orally, nor one given in writing but subsequently, would save the institution from being invalid.
The expression "definite information" has not been defined anywhere in the Act, or elsewhere for the purposes of this Act.
There is no absolute criterion of "definiteness" in relation to the context "information", and one can understand it only in a relative sense‑as one piece of information being more or less definite as compared with another.
Unless the Legislature decides to lay down some objective criterion as to what is and what is not definite information, the question of that which is to be regarded as definite information and that which is not be so regarded, must remain a matter for departmental regulation to be decided by the Income‑tax Authorities themselves. The High Court apparently will not be able to go beyond a case where proceedings are instituted without any information whatsoever, or where it is shown that the officer concerned did not himself regard the information he possessed as definite information, but nevertheless initiated proceedings without obtaining the approval of the specified authority.
However, mere use, by the Income‑tax Officer, of a form of notice other than that which set out the fact of "definite inform ation" being in the possession of such officer, did not necessarily indicate that he did not regard the information as "definite."
(d) Income‑tax Act (XI of 1922)-----
-----S. 34 (2) and first proviso-- Word "year" in subsection (2), and in first proviso‑Meaning "Year" in subsection (2) means "year" as defined by S. 2 (17), Income‑tax Act (XI of 1922), (with particular reference to the year comprising 15 months beginning on 1‑4‑1958 and ending on 30‑6‑1959‑"Year" in first proviso to subsection (2) means a "calendar year" from the date of relevant notice‑Assessment made on 4‑5‑1961, originally assessable in year ending 31‑3‑1957, held to be within four years according to definition of "year" as given in S.2 (17), Income‑tax Act (XI of 1922)‑Finance Ordinance (XXV of 1960), S. 6 (1) (b)‑[61 I A 50 distinguished].
(e) Interpretation of Statutes‑---
---Fiscal provision‑Interpretation in favour of subject‑Income‑tax Act (XI of 1922)‑Doctrine applies to charging provisions of Act and not to collecting provisions.
(f) Limitation Act (IX of 1908)----
----Ss. 3 & 28‑Statute of limitation‑Law of procedure‑Applies to all proceedings from moment of enforcement, subject to express provisions to contrary, or non‑revival of extinguished rights.
(g) Income‑tax‑----
----Writ‑Relief refused where petitioner partly to blame for being assessed to income‑tax beyond time of 4 years limited by S. 34 (2), Income‑tax Act (XI of 1922)‑Constitution of Pakistan (1956), Art. 170.
Javed Hashmi for Petitioner.
Sh. Abdul Haque with Riaz‑ul‑Haq for Respondent.
Dates of hearing : 3rd, 4th and 5th December 1962.
JUDGMENT
MANZUR QADIR, C. J.‑This is a writ petition in respect of an income‑tax matter.
2. The petitioning firm is an assessee in relation to income tax. The respondent, the Income‑tax Officer concerned, issued a notice to the petitioning firm under section 34(1) of the Income‑tax Act, on a printed form, which states, (omitting the portions that are inapplicable or unnecessary for the purposes of the points that arise here):
"Whereas I have reason to believe that your income assess able to income‑tax for the year . . . . . . . . . has escaped assessment.
I therefore propose to assess the said income that has escaped assessment.
I hereby require you to deliver to me . . . . . . within 35 days of the receipt of this notice a return . . . . . . of your total income and total world income . . . . . . (for that year)."
3. The petitioning firm put in the required return, and participated in the subsequent proceedings till the assessment was completed, without raising any objection to any part of those proceedings, on any ground at any stage. After the order of assessment had been made, an appeal was preferred against it under the Income‑tax Act, but without waiting for the appeal to be heard, that order has also been challenged by this writ petition on the assertions :‑
(i) that the notice under section 34(1) was given without complying with a condition precedent which was necessary for its validity, and for that reason, all proceedings consequent upon it including the order of assessment, are without legal effect, and
(ii) that the assessment was completed beyond the time limit permitted by law and for that reason also the order of assessment is invalid.
4. I have no doubt that if the first contention had been the only one arising for admission, and had this been the only case in which that point were involved, this petition would have been dismissed in limine on the short ground that the petitioning firm not having raised the objection to the validity of the notice at any time during the pendency of the proceedings consequent upon it, and having participated in those proceedings for years when, if its contention is sound, it could have prevented their infructuous course, cannot now be allowed to ask this Court to exercise a jurisdiction which it is in the discretion of this Court to refuse.
5. Again, I have no doubt that if these points were not arising in several similar cases which were being brought before; this Court, this petition, in spite of both its grounds, would have been dismissed in limine, for the reason, that alternative remedies under the Income‑tax Act were available.
6. Since, however, these points are arising in several petitions, I consider it desirable to decide both of them.
7. The first contention is based upon the last proviso to the first subsection of section 34 of the Income‑tax Act. It reads :‑
"Provided . . . . . that unless definite information has come into his possession the Income‑tax Officer shall not initiate proceedings under this subsection without obtaining the previous approval of the Inspecting Assistant Appellate Commissioner of Income‑tax, in writing."
8. It is the case for the petitioning firm that the notice given to it was not in consequence of any `definite information and, therefore, could not have been validly given without obtain ing the previous approval of the Assistant Appellate Commis sioner in writing. The respondent admits that he did not obtain, any such approval but his case is that he was in fact acting on definite information, and for that reason there was no occasion for him to obtain any such approval. In support of the belief of the petitioning firm that the notice given to it was not in consequence of any definite information, it was stated by its learned counsel at the hearing that the printed form on which the notice in this case had been given, is the one that the Depart ment uses when there is no `definite information', and that there is another printed form, which specifically states that the action taken is in consequence of definite information, which is used by the Department when it is in possession of such information. The learned counsel drew our attention to a case reported in 1961 P T D (Trib.) p. 211, in which the Appellate Tribunal while dealing with this very point, has said that at the hearing of the case before it, two specimens of another printed form were produced, in order to bring out the difference in the language of the printed form in question there‑which is the same as the form in question here and the other form which had been used in two other cases. That other form is reproduced at p. 215, and the relevant portion of it reads:
"Whereas in consequence of definite information which has come into my possession I have discovered that your income . . . . . . .
The Departmental Representative in that case stated before the Tribunal that there was only one form issued by the Department but in the face of the specimens of the other form which were produced, the Tribunal rejected that statement and proceeded to conclude that the notice given in that case‑which as already stated by me, is in the same form as the notice in question in this case‑must be held not to have been issued on `definite information'.
9. The learned counsel for the petitioning firm also placed reliance on that decision for the proposition that he was con tending for‑namely, that a notice in this form must be held to be invalid unless previous approval for issuing it were given in writing by the Appellate Assistant Commissioner. In that case the position was that the assessment made by the Income‑tax Officer had been upset on an appeal, and the Department was challenging that decision of the Appellate Assistant Commissioner before the Tribunal. The Tribunal, without going into the merits of the assessment on which the decision under challenge appears mainly to have been based, repelled the challenge on the ground that the notice was invalidly given and held that no assessment made in pursuance of such a notice could be held to be valid.
10. I find myself in agreement with the Tribunal on the point that in order passed in proceedings which are instituted, on a notice that is found to be in contravention of the last proviso to the first subsection of section 34 of the Act, would not be a valid order. My reason is this. The meaning of that proviso, in effect, is that when the case falls in a particular category which is specified therein, it is no longer for the Income‑Officer to decide whether proceedings should be instituted, but for another officer who is in a position of superior responsibility, to do so. This provision is obviously intended for the protection of the persons to be assessed. It impliedly gives them a guarantee that if an assessment which has once been made, or a closed case in which no assessment has been made, is to be re‑opened in the absence of `definite information', it shall not be so re‑opened, unless a decision to do so has been taken at a higher level of responsibility. It goes further, and lays down the mode by which that decision is to be signified and the stage at which it has to be taken. It must be expressed in writing, and it must be taken prior to the institution of pro ceedings; so that neither an approval given orally, nor ore given in writing but subsequently, would save the institution from being invalid.
11. I have, however, considerable difficulty in taking other steps which must be taken in order to apply that proposition in practice. To start with, what is the meaning of `definite infor mation' in the context in which it has been used? Assuming that the reasons for re‑opening the case were before me‑which they are not‑and one party claimed they amounted to "being in possession of `definite information' " and the other, that they did not, how would be expected to decide the issue. The expression `definite information' has not been defined anywhere in the Act, or elsewhere for the purposes of this Act, so far as I have been able to ascertain. If no objective definition can be given, does it not mean that `definite information' is that which the officer concerned regards as `definite information'? And if that be so, is not the issue before me this "Did the officer regard the information possessed by him as `definite information' ", and not as he has been assumed: "Is the information he possessed `definite information', in my opinion"? In case it turns out that the real issue is whether the officer concerned regarded the information he possessed as "definite information", would the fact that he used a wrong form assuming that the form he used was wrong‑be enough to contradict his positive assertion on the point, and enable the Court to decide that his claim that he was acting on "definite information" is being put forward mala fides? I now turn to the consideration of these points.
12. The first subsection of section 34 of the Income‑tax Act authorises the Income‑tax Officer to serve the assessee with a notice, if for "any reason" the previous assessment is less than what it should have been. To this there are three provisos, of which we are concerned with the last which has been reproduced earlier. It draws a distinction between proceedings initiated in consequence of "definite information", and those instituted otherwise than on "definite information." If in a given instance the information was that manufacturers of a particular commodity had made huge profits in a given year, and an Income‑tax Officer were to send notices to all manufacturers of that commodity in his jurisdiction, it might be said on the one hand that the infor mation received was "definite" in so far as it related to a particular industry and in so far as it related to a particular year. It might equally be said that it was not "definite" in so far as it did not relate to a particular firm. If the information related to a particular firm in a particular year, it might still be said that it was not "definite" because it did not relate to any particular transaction, or to particular transactions. If it did relate to a particular transaction, it might nevertheless be regarded as not "definite" if it did not specify the amount. If it did specify the amount, it would still be possible to look upon it as indefinite if the breakdown of the items of which it was composed were not given. It seems to me that there is no absolute criterion of) "definiteness" in relation to the context "information", and I can understand it only in a relative sense‑as one piece of information being more or less definite as compared with another.
13. The legislative history of this provision is not of much assistance either. It appears that prior to 1939, this subsection, in the aspect that is relevant here, was to the same effect as now without the proviso in question. At that time the difficulty I am confronted with now, would not arise because the provision would simply be that if for whatever reason it might be, an assessment completed previously, happens to be less than what it should have been the Income‑tax Officer was authorised to proceed, without the need of anyone else's approval to take certain steps within specified periods in order to make good the deficiency. In 1939, the main provision was altered. Instead of "for any reason", the words "in consequence of definite information which has come into his possession" were substituted. The power of re‑opening a closed case now was placed under a restriction. It could be exercised only in consequence of definite information and never otherwise. The question as to what did and what did not constitute definite information must have arisen, but could not have assumed much importance during this time because the same authority‑namely the Income‑tax Officer‑had to decide in all cases whether he should or should not initiate proceedings for re‑opening closed cases. In 1948, the main provision in this behalf was put back to what it was before 1939, and the proviso was added, bringing those portions of this subsection with which we are concerned, in their present form. And now that two different officers have the final responsibility for initiating proceedings in respect of the two categories‑those in which the case is to be re‑opened in consequence of definite information, and those in which it is to be re‑opened, without definite information‑the difficulty with which I am confronted has assumed importance. Unless the Legislature decides to lay down some objective criterion as to what is and what is not definite information, the question of that which is to be regarded as definite information and that which is not to be so regarded, must remain a matter for departmental regula tion to be decided by the Income tax Authorities themselves. This Court apparently will not be able to go beyond a case where proceedings are instituted without any information whatsoever, or where it is shown that the officer concerned did not himself regard the information he possessed as definite information, but nevertheless initiated proceedings without obtaining the approval of the specified authority.
14. It is argued that in this case the officer himself must have regarded whatever information he possessed as not being definite because the form he used was not the one he would have been used if he considered his information to be of the "definite" category. We asked the learned counsel for the respondent what the position in regard to these two forms was. He said his instructions were that there was only one form. In view of what is stated by the Tribunal in 1961 P T D 211, it seems to me clear that some time or other, another form has also been in use. The words of that form, as reproduced in the report of that case, are identical with the language of the opening part of section 34(1) of the Act, as it stood before the amendment of 1948. It can be safely presumed that all forms printed between 1939 and 1948 must have been in those words, because that was the only case to which the provisions of section 34 were restricted during that period. It is possible that though used in the year 1955, the forms which the Tribunal saw were left over from a stock prior to 1948. Or it may be that in some particular place, old forms had been reprinted without any change. In any case, it is not as if the language of the form on which notice was sent in this case, were in any way inconsistent with the claim that the officer who issued it regarded the information in his possession to be definite information. On the contrary, it is wholly consistent with that claim as also with the language of the provision authorising him to give the notice. The inference that he did not regard his information to be definite is derived only from the alleged existence of the other form, which it is said is more appropriate to a case like this. Even if it be assumed that both forms exist side by side and are used for distinguishing one category from the other, what is the case here? The officer used a particular form which was to be used when he had no definite information. His using of that form, it is said, must be taken to be the true index of what he really thought, and his statement that he had definite information must on that account be held to be untrue. But the officer did not only use that form. There was something else also. He did not obtain an approval which had to be obtained unless he had definite information. His omission to take approval is as much a part of his conduct as his using of al particular form, and that omission is as much entitled to be considered as a true index to what he really thought as his using of the form he did.
15. I am, consequently, of the opinion that the foundation of fact in this case, on which this question of law was raised, is far from satisfactory. I am further of the opinion that while a clear answer can be given to a part of this question of law, that answer is incapable of being applied in practice by a Court except in some extreme cases. I am also of the opinion that not having raised this objection at any stage of the proceedings which are now being challenged as having been without legal validity ab initio, and having participated in those proceedings all along, the petitioning firm has rendered itself disentitled to raise this particular objection.
16. As for the second point. The contention here is based upon the second subsection of section 34 of the Income‑tax Act, which prohibits, except in a specified case with which we are not concerned, the making of on order of assessment after the expiry of four years from the end of the year in which the income in question was first assessable. In the present case, the income in question was first assessable in the year which ended on the 31st of March 1957. Four years from that date would end on the 31st of March 1961. The assessment order was made on the 4th of May 1961, that is, one month and four days after the 31st of March. Had this been all, there would have been no difficulty in deciding this point. But by the Finance Ordinance of 1960, a new definition was added to the existing definitions in the Income‑tax Act, in these words :‑
"In section 2, after clause (16) the following new clause shall be added and shall be deemed to have been added on and from the 1st day of April 1959, namely :‑
Year means‑
as respects any period before the first day of April 1958, the period of twelve months beginning on the first day of April and ending on the 31st day of March next following ; as respects the period beginning on the first day of April 1958 and ending on the thirtieth of June 1959, the said period ; and
as respects any period beginning on or after the first day of July 1959, the period of twelve months beginning on the first day of July and ending on the thirtieth day of June next following."
It is the case for the respondent that the definition of "year" having been inserted into the Act itself, it is incumbent on the Court to compute all periods in accordance with the formula laid down by law. The learned counsel for the petitioning firm, however, contends that all the definitions in section 2 of the Act are subject to the condition, "unless there is anything repugnant in the subject or context", and that the periods of limitation which are expressed in terms of years, with different commence ment points are obviously not intended to be affected by the new definition, as, for example, the period of fours years mentioned in section 35, which is to commence from the date of an assessment order or a refund order, and the period mentioned in the proviso to clause (7) of section 46, which is to commence on the date on which the appeal is disposed of.
17. It seems that the Income‑tax Act, originally used the word "year" without defining it leaving the General Clauses Act to govern its meaning. Later amendments introduced the words "financial years" in a few places, instead of the word "year". When in 1959, the financial year was altered from its previous pattern of commencing on the first of April and ending on the 31st of March to a new pattern of commencing on the first of July and ending on the 30th of June, certain difficulties seem to have been experienced in the working of the provisions relating Io income‑tax. It seems that the new definition of the word "year" was inserted into the Act in order to remove those difficulties. (A `year' thus having become the same as a…
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