Al Wakeelo
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Petitioner: IRAM GHEE MILLS LTD. VS Respondent: INCOME TAX APPELLATE TRIBUNAL
Court Name: Lahore High Court Judge(s): Mian Allah Nawaz, Mian Tariq Mahmood Title: IRAM GHEE MILLS LTD. vs INCOME TAX APPELLATE TRIBUNAL Case No.: I.T.A. No, 11 of 1998 Date of Judgment:1998-05-29 Reported As: 1998 PTD 3835 Result: Appeal dismissed
JUDGMENT
JUDGMENT ' MIAN ALLAH NAWAZ, J.---The questions of law, as formulated by the learned counsel for the appellants, in this Tax Appeal, are as follows: (1) Whether, on the facts and circumstances of the case, the Appellate Income Tax Tribunal erred in law in holding that the appellants/Company was not manufacturing/undertaking goods and so was not entitled to exemption under Para. (118-E) in Second Schedule to Income Tax Ordinance, 1979? (2) Whether, on the facts and circumstances of the case, the Deputy Commissioner Income Tax could proceed under section 63 of the Income Tax Ordinance and deliver best judgment? (3) Whether sections 80-C and 80-C(2)(i) are applicable to the case of the appellant? 2. Undisputed facts, briefly stated, giving rise to this appeal are: that M/s. Iram Ghee Mills/appellant was incorporated as a Private Limited Company on 27-5-1993 with an object to set up an undertaking to manufacture and to process edible oils and cooking oil etc. The appellant was to file its first annual return for financial year 1994-95. However, the return was filed on 22-2-1995 with following figures: Sales: Rs,1,085,272,261. Gross Profit: Rs,42,402,579 G.P. Rate 3.90%. ' In paragraph No,1 of the Return, business income was shown as Rs,7,658,011 and exemption was claimed from payment of income tax within the terms of clause (118-E) in first part of second schedule to Income Tax Ordinance, 1979 (described as 'Ordinance'). The Return was accompanied by unaudited Balance-Sheet, Trading Profit & Loss Account and Schedule of fixed assets. Pursuant
---
## Page 2
to notice under section 62 of the Ordinance, Mr. M.A. Tabassum FCA/AR of the assessee entered appearance before assessing officer. It is necessary to note that original Books of Accounts and Vouchers were not annexed with the Return. It was revealed that the land, on which the factory was constructed, was purchased on 8-11-1993 vide a registered sale-deed for a sum of Rs,11,00,000 from Nabi Steels (Pvt.) Ltd. Lahore. The assessee claimed exemption on the premises that the plant and machinery had been purchased from Messrs Zakraiya Engineering (Regd.) Multan. The Deputy Commissioner of Income Tax Circle 29 Multan Zone was appointed as 'Commission' to verify the above claim. Consequently, Deputy Commissioner recorded the statement of Mr. Sanaullah/one of the partners of seller's concern who stated that the claim of appellant was a sheer lie; that bill/vouchers ascribed to M/s. Zakaria Engineering firm were spurious documents; that the rate mentioned in the bills was simply exaggerated; that market price of Boiler/Heater was Rs,25,000 whereas in the bills it was quoted as Rs,9,25,000. The assessee had claimed that the production capacity of the Mills was 200 M.T. Daily. This claim was got verified from Ghee Corporation of Pakistan whose Technical Advisor reported that the production capacity of the Mills was only 90 M.T. Daily. This report was placed on record. The assessing officer obtained information's from WAPDA as well as Sui Northern Gas Pipe Lines Ltd. It was found that no Sui Gas was consumed till September, 1994 and connection had been installed on 22-9-1994. WAPDA reported that electric connection was given on 6-11-1993 and the first bill was issued for December, 1993; that only 53, 428 electric units had been consumed from 6-11-1993 to 30-6-1994. On the above enquiries, the Assessing Officer came to the following conclusions: ' PRODUCTION ACCORDING TO ELECTRICITY CONSUMPTION. (1) Units of electricity consumed: 53428 (2) Units of electricity required to produce 1 M.T.-on ofGhee/cooking oil.133 Units. (3) Maximum production 133 units per M. Ton. PRODUCTION ACCORDING TO CAPACITY: (1) Daily production capacity of assessee's mills if it works at100 % capacity and round the clock.90 M. Ton (2) Number of working days. 236 (3) Maximum production capacity according to No. l above.21240 M.Ton ' No evidence was produced by appellant to substantiate that he had purchased generator to run factory. On these findings a notice under section 62 of the Ordinance was issued to appellant on 10-4-1997. 3. The appellant approached the assessing officer and complained that the enclosures of notice had not been given. Accordingly, on 11-6-1997 the sought for enclosures were given to assessee and the case was adjourned to 13-6-1997. On this date the appellant requested for extension of 10 days for furnishing reply. The aforesaid prayer was allowed and hearing of case was put off to 17- 6-1997 and then to 25-6-1997. 4. As the appellant failed to appear on the aforesaid date of hearing, the assessing officer proceeded under section 63 of the Ordinance and recorded finding that the appellant was not entitled to any exemption under Clause 118-E of the Second Schedule to Ordinance. On the basis of above conclusions the tax liability of appellant was determined as follows: "As stated above production capacity of the industrial undertaking as determined by the Ghee Corporation's ex-parts comes to 90 M.Ton daily. The sale rate per M.T. Was determined at Rs,22,000 vide assessm ent order, dated 20-6-1997 in the case of Nadia Ghee Mills (Pvt.) Limited. The same rate is applied in the instant case. In this way value of manufacturing sales comes to (236 x 90 x 22000) = Rs,4,672,80,000. The balance sales i,e,, (Rs,1,085,272,261- 4,672,80,000) Rs,617,992,261 are
---
## Page 3
held to be the commercial sales to which the provisions of section 80-C of the Income Tax Ordinance, 1979 are applicable. Income is determined as under: ' Income from own manufacturing: ' Sales as discussed above. Rs,467,280,900 & GP @ 7% as in other parallel cases of Ghee Manufacturing Mills. Rs,32,709,600 P & L Account Expenses. ' The assessee has claimed total P & L Account expenses at Rs,34,744,568. Expenses proportionate to own-manufacturing sales work out to Rs,14,959,787. In the absence of any books of accounts or vouchers produced, expenses are allowed at....Rs,12,000,000 sales. Rs.20,709,600 Less: WWF Rs. 414.192 Balance IncomeRs.20,295,408 Income tax @ 49%Rs.9,944,750. Deemed income on commercial imports ' As mentioned above sales pertaining to 80-C have been worked out to Rs,617,992,261, since the assessee has not furnished proof with regard to L.C.-wise imports to verify landed cost. The landed cost is taken @ 93% on the said amount (as it involves G.P. Rate of 7%) which comes to Rs,574,732,803. Tax on commercial sales is charged @ 2%Rs.11,494,656 Less tax paid under section 50(5). -Nil--- Balance tax payable. Rs.11,494,656 Rs.11,494,656 Total tax is computed as under:--- Tax on manufacturing income. Rs.9,944,750 Tax on commercial sales. Rs.11,494,656 WWF on manufacturing income Rs.414.192 Total tax payable Rs.21,439,406 ' Assessed as per IT 30 Issue DN & C. Also charge additional tax under section 88 of the Income Tax Ordinance, 1979. Issue notice under section 116 for late filing of return and for non-compliance of notice under section 61 as books of accounts were not produced." ' Feeling aggrieved the appellant preferred first appeal under section 129 and Second appeal under section 134 of the Ordinance but in vain. This is how this third appeal under the amended section 136 of the Ordinance has come to this Court. 5. Mr. Ijaz Ahmad Batalvi, Senior Advocate, assisted by Syed Ibrar Hussain Naqvi, Mr. Sabtain Fazli and Mr. Imran Aziz, Advocates, appeared on behalf of the appellant and opened the debate. He was followed by Syed Ibrar Hussain Naqvi, Mr. Ali Sabtain Fazli and Mr. Imran Aziz, Advocates. On behalf of respondents Nos.1, 2 and 3 Mr. Shafqat Mahmood Chauhan, Advocate appeared. At the end of the arguments, Mr. Aftab Ahmad Khan and Mr. Muhammad Ilyas Khan, Advocates appeared on the request of the Court to explain the scope and nature of the amended provision of section 136 of the Ordinance. Mr. Ijaz Ahmad Batalvi, Mr. Ali Sabtain Fazli and Mr. Aftab Ahmad Khan, Advocates had filed written arguments, which had been placed on the record of this I.T.A. Mr. Ijaz Ahmad Batalvi, in support of appeal, urged as follows: ' Firstly; that the appellant company had been incorporated on 27-5-1993; that its production started on 6-11-1993; that its sales were declared as Rs,1,08,52,761; that the Deputy Commissioner of Income Tax has bifurcated the sales as under: (1) From own manufacturing:Rs.46,72,80,000. (2) Commercial sales of oil:Rs.61,79,92,261.
---
## Page 4
' and refused exemption by holding that all the three conditions incorporated in clause (118-E) (ibid) were not fulfilled by the appellant; that the first appellate Authority agreed with the conclusion of the Assessing Officer; that the Tribunal had found that Condition No,(c) of clause (118-E) ibid had not been satisfied by the appellant. On the strength of the above variant findings, it was canvassed that the Income Tax Appellate Tribunal erred in law in holding that Condition (c) of clause (118-E) (ibid) was not satisfied. According to the learned counsel, appellant was manufacturing undertaking; ' Secondly; that section 80-C was not attracted to case in hand. According to learned counsel, under subsection (2) of section 80-C the income would be deemed to be that which was/is received or accrued or arose to a person; appellant had imported edible oil 49677.747 M.Ton; that the closing stock on 30-6-1994 was 6860,500 M.Ton; that actual consumption was 41933,241 M.Tons; that High Court in earlier Writ Petition No,14771 of 1997 had held that production capacity of the appellant Company was 150 M.Tons; that on these facts, the calculation of tax under section 80-C was manifestly incorrect. ' Thirdly; that assessm ent order was passed under section 63 of Ordinance on 30-6-1997; that notice, dated 21-6-1997 was not served on appellant; that no notice was issued for 30-6-1997. On these facts, it was claimed that the assessing officer had no reason to proceed under section 63 of Ordinance. Reliance was placed on C.I.T. v. M.B. Qureshi PLD 1975 Lah. 1317. On the above reasoning the learned counsel contended that the order of second appellate Forum suffered from error of law apparent on the face of it; 6. Syed Ibrar Hussain Naqvi, Advocate adopted the above reasoning, Mr. Ali Sabtain Fazli, Advocate also followed the same line of submissions. So, is the case of Mr. Imran Aziz, Advocate/a young Barrister. He was also afforded an opportunity of arguing the case on account of his fresh entrance in the august profession of law. Mr. Shafqat Mahmood Chauhan, counsel for Department supported the impugned order. He submitted that points proposed by the appellants were questions of facts which had been correctly decided by the three Forums below. Reliance was placed on M/s. Bisvil Spinners Ltd. v. Superintendent C.E. & L.C. PLD 1988 SC 370 and Ashok Motors Ltd. v. Commissioner of I.T. (1961 PTD 736) in support of proposition that sub-clause of clause (118-E) (ibid) was an exemption clause and had to be construed strictly against the grantee. According to learned counsel requirements of clause (A), (B), (C) of clause (118) (ibid) were not shown by the assessee. Khawaja Saeed-uz-Zafar, Deputy Attorney-General appeared on behalf of Federal Government and canvassed that amended section 136 in fact was third appeal and so this Court was to decide it within the terms provided in the new clause. He placed reliance on Haji Muhammad Ibrahim v. Surraya-un-Nisa, etc. (PLD 1992 SC 637). Mr. Aftab Ahmad Khan, Advocate appeared as friend of the Court. After highlighting the legislative history of amended section 136 of Ordinance, he referred to section 66 of Act, 1922 to contend that this was the analogous provision in earlier Statute which provided for reference to High Court on questions of law arising out of order of Income Tax Appellate Tribunal; that the aforesaid provision was amended by Act VII of 1939 wherein subsection (5) was inserted; that section 66 provided an appeal to the Supreme Court from the judgment of High Court. Banking upon rule laid down in Pakistan v. Majistic Cinema, (PLD 1965 SC 379), he suggested that the amended provision had been brought in order to make section 136 of the Ordinance, 1979 in line with the observation of Supreme Court. Its object was to eliminate the cumbersome process of first filing application to Income Tax Tribunal and thereafter, filing of a petition in this Court. He further submitted that amended provision had not altered the scope of section 136 ibid but it had simply removed the procedural bottleneck. He relied upon Australian Sporting Club Ltd. Re Dash: (1947 47 N.S.W.W.N. 283 per Jordan C.J.). Mr. Ilyas Ahmad Khan, Advocate also appeared as amicus curiae and supported the line of reasoning of Mr. Aftab Ahmad Khan.
---
## Page 5
7. Having penned down the factual background of appeal in hand, the contentions raised by the learned counsel for the parties and points for consideration, we, now, proceed to determine the above-noted questions one by one. Before we proceed further, we feel that meaning of- expression 'appeal' and 'appellate jurisdiction' are key to find out the nature/ambit of new section 136 (ibid). The aforesaid expression are nowhere defined in the Statute. In the contact of above, we are required to follow the dictionary meaning of above expressions and also seek inspiration from the decisions of the superior judiciary. 'The appeal' and 'appellate jurisdiction' are defined in Black's Law Dictionary as under: "Appeal---Resort to a superior (i,e, appellate) Court to review the decision of an inferior (i,e, trial) Court or administrative agency. A complaint to a higher tribunal of an error or injustice committed by a lower tribunal, in which the error or injustice is sought to be corrected or reversed. Board of Ed. Of Cleveland City School District. V. Cuyahoga County Bd. Of Revision, 34 Ohio St. 2d 231, 298 N.E. 2d 125, 128. There are two stages of appeal in the federal and many Stake Court systems; to wit, appeal from Trial Court to intermediate Appellate Court and then to Supreme Court. There may also be several levels of appeal within an administrative agency e.g. Appeal from decision of Administrative Law Judge to appeals Council in social security case. In addition, an appeal may be taken from an administrative agency to a Trial Court (e.g. From Appeals Council in social security case to U.S. District Court). Also, an appeal may be as of right (e.g. Form Trial Court to intermediate Appellate Court) or only at the discretion of the Appellate Court (e.g. By writ of certiorari to U.S. Supreme Court). Provision may also exist for joint or consolidated appeals (e.g. Fed. R. App. P.3) and for cross appeals (where both parties to a judgment appeal therefrom). "Appellate Jurisdiction---The power vested in an Appellate Court to review and revise the judicial action of an inferior Court, evidenced by an appealable order or an appealable judgment rendered by such Court. Trengen v. Mongeon, N.D., 200 N.W. 2d50,53. The power and authority to take cognizance of a cause and proceed to its determination, not in its initial stages (i,e,, original jurisdiction) but only after it has been finally decided by an inferior Court, i,e,, the power of review and determination on appeal, writ of error, certiorari, or other similar process. Jurisdiction on appeal; jurisdiction to revise or correct the proceedings in a cause already instituted and acted upon by an inferior Court, or by a tribunal having the attributes of a Court. Limits of appellate jurisdiction are governed by statutes (e.g. 28 U.S.C.A. 1291 at seq). Or constitutions." ' According to Webster's Dictionary 'Appeal means: "the removal of a cause or suit from an inferior to a superior judge or Court for re-examination or review". Wharton's Law Lexigon expresses it as 'the removal of a cause from an inferior to a superior Court for the purpose of testing the soundness of the decision of the inferior Court'. Reference may also be made to the definition of the term ' appeal' contained in the Law Dictionary by Sweet where it has been defined as a proceeding taken to rectify an erroneous decision of a Court by submitting the question to a higher Court, or Court of Appeal (Also see, Lakshmiratan Engineering Works an Ltd.. v. Assistant Commissioner, (1968) 21 STC 154, 161 (SC). It amounts in essence to a complaint to a higher forum that the decision of the subordinate officer or tribunal is erroneous and liable to be set aside (Chautala Workers Coop.. T.S. Ltd. v. State of Punjab, AIR 1962 Punjab 64; Namamal v. Radhey Shym, AIR 1970 Raj. 26, 31). It embraces all proceedings whereby a superior Court is called upon to review, revise, affirm, reverse or modify the decision of an inferior Court (Chiranji Lal & Bros v. State of Delhi, (1966) 18 STC 240 (Punjab). ' The essential criterion of appellate jurisdiction is, that it revises and corrects the proceedings in a cause already instituted and does not create that cause. In reference to judicial tribunals an appellate jurisdiction, therefore, necessarily implies that the subject-matter has been already instituted and acted upon by some other Court, whose judgment or proceedings are to be revised (Story: Commentaries on the Constitution of the United States, Vol.2 section 176 page 80)."
---
## Page 6
8. From the above precedents of superior judiciary (we will refer the said rule), the following parameters of ' appeal' and ' appellate jurisdiction' emerge: ' Firstly: that the appeal is mere continuation of original proceedings; it is in fact a complaint by an aggrieved party to superior forum for testing the soundness of conclusions of first forum. Furthermore, this right is not inherent but is created by relevant Statute. Conceptually the appeal is founded upon rule ' that Courts of law/Tribunal/Authorities are as fall able as human being and so the civilized societies do provide one right of appeal at least. The scope of appellate jurisdiction is contingent upon the Statute which creates it. Traditionally, the scope of appellate jurisdiction is co- terminous with first forum and appellate forum is entitled to exercise the power of first forum while deciding the appeal. This right is, however, subject to Creative Statute. The Legislature/Law Making Authority is well within its power to impose limits upon the powers of appellate forum. ' Secondly: the right of appeal is vested and substantive right and continues to govern lis till the rest of its carrier; that appeal is to be decided within terms of law which were in field at the commencement of Fis and not by law which is in vogue at the time of its decisions. This rule is also subject to condition to edict of amendatory law. ' Thirdly: when the appeal is filed, the controversy becomes sub judice and decisions of the appellate forum occupies the field and decisions of the Courts below stands merged in the decisions of the appellate forum. It is known as doctrine of merger. (See Garikapati Veeraya v. N. Subbiah Ch: (PLD 1957 SC (Ind.) 448) and F.A. Khan v. Government of Pakistan (PLD 1964 SC 520). ' Fourthly: we are tempted to reproduce the rule propounded by Benett, J., in Debi Prasad v. M. Phundan Lal (AIR 1942 Oudh 291). "It appears to me to be clear, therefore, that the question whether a second appeal lies under the encumbered Estates Act, where the first appeal was filed before but decided after 30th September, 1939, when the amending Act introducing a second appeal came into force, cannot be decided upon the principle that the rights of the parties are determined, both for the purpose of appeal and for other purposes by the law as it stood when the suit was instituted. I am inclined to agree with Medeley, J. That a distinction should be drawn between the case where the right of appeal is added. The interference with the rights of the parties is clearly of a different nature in the two cases. If the right of second appeal were taken away while the first appeal was pending both parties would have, I think, a greater sense of grievance than they would have if a second appeal were added during the pendency of the first. Indeed I do not think that in the second case they would feel any sense of grievance at all. On the contrary, there having been no decision which they could regard as final, they would in the first case feel that they had lost a right, while in the second case they would feel that they had gained one. Both parties would normally have similar feelings in the matter so long as the litigation was pending. But the position would be quite different if under the law as it stood when the decision of the first Appellate Court was given the parties had no reason at that time to expect that the matter would be carried further, and a second appeal was added after that decision. The unsuccessful party gains and the successful party loses a right by the change in the law if it is held that a second appeal lies." ' This rule was followed in Jan Muhammad v. Rabia Begum (1992 CLC 78) and was approved by the Supreme Court of Pakistan in Muhammad Ibrahim v. Surraya-un- Nisa (PLD 1992 SC 637). 9. The stage is now set to examine the nature and ambit of new provisions viz-a-viz, the old one in the light of above-noted rules. Both Old and the New provisions are as follows: Old section 136. Amended section 136.
---
## Page 7
Reference to High Court.---(1) within ninety days of the date upon which he is served with notice of an order under section 135; the assessee orthe Commissioner may, by application in such form and accompanied by such documents as may be prescribed, require the Appellate Tribunal to refer to the High Court Jay question of law arising; out of such order, and the Appellate Tribunal shall, within ninety days of the receipt of such application, draw up a statement of the case and refer it to the High Court.Appeal to High Court.--(1) An appeal shall lie to the High Court in respect of any question of law arising out of an order under section 135. (Explanation. ---The period of ninety days within which an application is to be made shall notwithstanding that the application relates to an assessm ent year prior to the assessme nt year beginning on the first day of July, 1979, if such application is made on or after the first day of July, 1979.(2) This appeal under this section shall be filed within sixty days of the date upon which ,an assessee or the Commissioner is served with notice of an order under section 135 (2) If, on an application made under subsection (1), the Appellate Tribunal refuses to state the case on the ground that no question of law arises, the assessee or the Commissioner, as the case may be, may within one hundred and twenty days from the date on which he is served with notice of the refusal, apply to the High Court, and the High Court may, if it isnot satisfied with the correctness of the decision of subsections (4), (5), (6) and (7) shall, so far as may be, apply as they apply to a reference made under subsection (1).(3) Where an appeal under subsection (1) is filed by the assessee it shall be accompanied by a fee of one hundred rupees. (2-A) If on any application made undersubsection (1) the Appellate Tribunal rejects it on the ground that it is time-barred the assessee or the Commissioner, as the case may be, may, within there, months from the date on which he is served with notice of the rejection, apple to the High Court, and the High Court, ifit is not satisfied with the correctness of the Appellate Tribunal's decision may require the Appellate Tribunal to treat the application as made within the time allowed under subsection (1).(4) An appeal filed under this section shall be heard by a Bench of not less than two Judges of the High Court. (3) If the High Court is not satisfied that the statement in a case referred under subsection (1) is sufficient to enable it to determine the question raised thereby, the Court may refer the case back to the Appellate Tribunal to make such modification therein as the Court may direct.(5) The High Court upon the hearing of an appeal under this section shall decide the question of law raised therein and shall deliver its judgment thereon containing the grounds on which such decision is founded and shall send a copy of such judgment under the seal of the Court and the signature
---
## Page 8
of the Registrar to the Appellate Tribunal, which shall pass such orders as are necessary to dispose of the case conformably to such judgment. (4) When any case has been referred to the High Court under this section, it shall be heard by a Bench of not less than two Judges of the High Court, and in respect of such case the provision of section 98 of the Code of…
Read the unabridged text and precedent citation network on Al Wakeelo Legal Research Platform.