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Petitioner: SITARA CHEMICAL INDUSTRIES LTD and another VS Respondent: DEPUTY COMMISSIONER OF JUDGMENT
Court Name: Sindh High Court Judge(s): Muhammad Mujeebullah Siddiqui, S. A. Sarwana Title:SITARA CHEMICAL INDUSTRIES LTD and another vs DEPUTY COMMISSIONER OF
JUDGMENT
Reported As: 2003 PTD 1285 Result: Petition dismissed Judgment JUDGMENT ' S. AHMED SARWANA, J.---Sitara Chemical Industries Limited (petitioner) is a public listed- company has filed this petition against the Deputy Commissioner of Income Tax, Circle 10, Companies Zone-II, Karachi (Respondent No,1) and Central Board of Revenue (Respondent No,2) seeking a declaration from this Court that Notice. No, DCIT/CIR-10/COS-II/1999-2000, dated June 3, 2000, issued by respondent No,1 is without lawful authority and of no legal effect and an injunction to restrain the aforesaid respondents from acting upon the impugned notice but may carry out the tax assessm ent otherwise. The brief facts giving rise to this petition are as follows: 2. Sitara Chemical Industries Limited, a public listed-company and Sitara Spinning Mills Limited also a public listed-company filed a petition under section 284 read with section 287 of the Companies Ordinance, 1984 for approval of the Scheme of Arrangement under sections 284 to 288 of the Companies Ordinance, 1984, for amalgamation between Sitara Chemical Industries Limited and its members and Sitara Spinning Mills Limited and its members in the High Court (J. Misc. No,16 of 1999) praying for various orders under section 287 of the Companies Ordinance, 1984. After all formalities of the Issue of Notice of the petition for merger. Meetings of the Members of the aforesaid two Companies and passing of, resolutions by the Members of the respective companies in support of the amalgamation, the major creditors of the petitioners also having given their no objection to the scheme and no objection having been received by the High Court after publication in various newspapers as required by law, the petition was placed for approval before the ,Court. On 19-10-1999, a learned Judge of this Court after considering the matter and being satisfied that all requirements of law had been complied with and there did not appear any hurdle in the grant
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of the petition, sanctioned the Scheme of Amalgamation of the two Companies subject to the' provisions of Companies Ordinance, 1984. Pursuant to the aforesaid Order, the following prayers made by the two petitioners in J. Misc. No,16 of 1999 stood granted. (i) An order under section 287(i)(a) of the Companies Ordinance, 1984 transferring to 'and vesting in the Petitioner No,1 the undertaking of the petitioner No,2 as more particularly described in the scheme of arrangement as set forth in "Annexure P/5" hereto, as subsisting immediately preceding the completion date as defined in the scheme. (ii) An order under section 287(i)(b) of the Companies Ordinance, 1984 directing the petitioner No,1 to allot to the shareholders of petitioner No,2 within ninety (90) days of the completion date as defined in the scheme in accordance with its terms ordinary shares of the nominal value of Rs,19,850,090 credited as fully paid-up in the petitioner No,1 to the shareholders of petitioner No,2 on or before or such date as the Board of Directors of the petitioner No,1 may agree "(Final Date"). (iii) An order under section 287(i)(c) of the Companies Ordinance, 1984 directing that all suits, appeal, arbitrations, governmental investigations and other legal proceedings instituted by or against petitioner No,2 pending immediately before the completion date shall be treated as suits, appeal and legal proceedings by or against the petitioner No,1 and may be continued, prosecuted and enforced by or against the petitioner No,1 accordingly. (iv) An order that petitioner No,2 shall stand dissolved without winding up on the date on which ordinary shares of petitioner No,1 are issued to the shareholders of petitioner No,2 in accordance with the scheme of amalgamation (Annexure P/5 to the petition)." 3. It transpires that petitioner filed its Return of Income for the Assessment year 1999-2000 wherein, inter alia, the assets of Sitara Spinning Mills Limited were shown as the assets of the petitioner Company in accordance with the provisions of the Amalgamation Scheme approved by the High Court, After examining the statement of accounts submitted by the petitioners, several questions arose in the mind of respondent No,1; consequently, by Notice, dated 3-6-2000, the latter issued Notice to the petitioner -under section 62, of the Income Tax Ordinance, 1979, asking it to explain certain points stated therein. The petitioner considering itself aggrieved by the Notice issued by respondent No,1 immediately filed the present petition on 17-8-2000 praying for the reliefs stated above. On 23-8-2000, the Court issued Pre-admission Notice to the respondents and D.A.-G. For 1- 9-2000 when Mr. Abbasi filed a counter-affidavit of respondent No,1 and both Counsel agreed that they would argue the petitioner for final disposal at the Katcha Peshi stage and the matter was adjourned to 4-10-2000. By consent of both counsels, it was agreed that the parties shall maintain status quo till the following date of hearing. The matter came up before the Court on several dates but was adjourned for various reasons including non-availability of sufficient time at the disposal of the Court. Ultimately, on 31-5-2001, the petition was admitted for regular hearing to consider, inter alia, the petitioner's contention, "whether amalgamation of two companies does not amount to sale and purchase of assets?" and the temporary injunction application was disposed of in the following terms:-- (i) The petitioner shall deposit an amount of Rs,43 Million with the department before 15-6-2001. (ii) The deposits shall be without prejudice to the petitioner's contention that this amount is not payable by them. (iii) Assessing Officer shall not pass any order until the decision of the petition." 4. The office was directed to fix the petition for regular hearing in August, 2001 which could not take place for various reasons until 28 January, 2003. 5. Mr. Akram Shaikh, learned counsel for the petitioner elaborated the history of the merger of Sitara Chemical Industries Limited (Petitioner) and Sitara Spinning Mills Limited which was approved by this Court by Order, dated 19-10-1999 and submitted that the reconstruction and amalgamation had been taken place with the approval of the Court, the transfer and vesting of the assets of
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Sitara Spinning Mills Limited with those of the Petitioner-Company and issuance of shares of Sitara Chemical Industries Limited to the Members of Sitara Spinning Mills Limited could not be termed as sale and purchase of assets as is used in the common parlance or under the provisions of the Income Tax Ordinance, 1979. While referring to section 12(12) of the Income Tax Ordinance, he submitted that "sale" as generally understood and envisaged under the Sales of Goods Act, 1930 and the Transfer of Property Act, 1882, means transfer of property in goods from a seller to buyer for consideration paid or promised to be paid with handing over of physical possession of property and consequently transfer of assets from one company to another and issue of shares of one company in place of the other by an order of Court does not amount to a sale. He added that the term "purchase" used in the said section contemplates the actual sale and purchase of assets and added that any transfer of property by way of gift, endowment or amalgamation is not included within the meaning of purchase. He urged that the power of the Income Tax Officer is limited to actual sale and purchase only and because the Legislature intentionally did not use the word transfer in section 12 but used the word "purchase" because transactions like gift, endowment or succession where no consideration is involved in the transfer of property from one person to another, would not come within the purview of section 12 of the Income Tax Ordinance. He vehemently urged that I.T.O. Is required to act within the bounds of law and the powers conferred on him by the statute and he cannot extend his jurisdiction by giving a meaning to the word "purchase" which was neither intended by the Legislature nor could be inferred from or interpreted on the basis of the provision of the Income Tax Ordinance. He then contended that respondent No,1 by issuing a notice contrary to the provisions of Income Tax Ordinance, 1979 exceeded his jurisdiction and alternately submitted that the act of issuance of a notice by Respondent No,1 was based upon erroneous assumption of jurisdiction which forced the petitioner to approach this Court for issue of a Writ of Certiorari as his fundamental rights guaranteed by the Constitution had been breached. ' Mr. Shaikh also submitted that carrying forward and setting off of losses by the petitioner- company in its accounts was done in accordance with the internationally accepted criteria and cited the case of CIT v. 'Amsons Dairies Ltd. 1971 PTD 1075 = 1971 SCMR 589 and CIT v. Messrs Bufco Tanneries PLD 1966 Lah. 244, in support of his contention. 6. Mr. Aqeel Abbasi, learned counsel for the respondents submitted that the petitioner in its Return of total income had revalued its assets which formed the basis of the impugned show-cause notice issued under section 62 of the Income Tax Ordinance. The said Notice was in continuation of the assessm ent proceedings and was issued to seek the views of the petitioner on the questions - which had arisen from the return of total income' filed by it. He added that no mala fide on the part of respondent No,1 had been alleged and that respondent No,1 issued the notice in the ordinary course in the exercise of his duty as an Assessing Officer because he wanted certain explanation from the petitioner/ assessee before passing any order. He vehemently urged that the notice issued under section 62 of the Income Tax Ordinance, 1979 was in accordance with law and an order under Article 199 of the Constitution cannot he sought to restrain respondent No,1 from exercising his authority and seeking clarification from the petitioner which the former is required to do under section 62 of the Income Tax Ordinance, 1979. He added that respondent No,2 had not passed any final order or formed any final opinion but had only asked the petitioner to communicate its view-point before taking any action in the matter and, therefore, the question of issuing a Notice without jurisdiction or on erroneous assumption of jurisdiction does not arise and the petition was liable to be dismissed. He referred to several judgments of the superior Courts including a judgment of this Court in the case of Roche Pakistan Ltd. v.. Dy. CIT 2001 PTD 3090 in support of his arguments.
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7. Exercising his right of reply, Mr. Shaikh', learned counsel for the petitioner, submitted that the question of maintainability could not be raised after the petition had been admitted in the presence of the counsel for the respondents. In any case, he added that the petition was maintainable because respondent No,1 had issued the impugned notice contrary to the provisions of section 12(12) of the Income Tax Ordinance, 1979, assuming that the transfer of assets and their revaluation pursuant to an order of the Court authorizing the amalgamation of two companies which was patently in violation of the provisions of the Income Tax Ordinance, 1979 and amounted to challenging the effect of merger as envisaged in Sections 284 to 288 of the Companies Ordinance, 1984 as well as the meaning of re-organization, re-structuring, merger and amalgamation of companies as understood in the Companies Ordinance and in all modern countries of the world where laws similar to Companies Ordinance and Income Tax Ordinance, 1979, are in force and respondent No,1 thus exceeded his powers and jurisdiction and referred, among others. To the following cases:-- (i) Julian Hoshang Dinshaw Trust v. ITO 1992 PTD 1 (SC); (ii) Kamran Industries v. Collector of Customs PLD 1966 Karachi 68; (iii) Adamjee Insurance Company v. Pakistan (Secretary MOF), 68 Tax 176; and (iv) Usmania Glass Sheet Factory v. Sales Tax Officer PLD 1971 SC 205. 8. We have heard the arguments advanced by Mr. M. Akram Shaikh, learned counsel for the petitioner and Mr. Ageel Ahmed Abbasi, learned counsel for the respondents, perused the Scheme of Amalgamation approved by this Court in J. Miscellaneous No,16 of 1999 on 19-10-1999 and considered the same in light of the provisions of income Tax Ordinance, 1979 and the Judgments of the superior Courts on the question of maintainability of the petition under Article 199 of the Constitution in the special facts and circumstances of this case. 9. Section 55 to section 67 contained in Chapter VII of the Income Tax Ordinance lay down the procedure for assessm ent of tax. Section 55 describes the person with specified qualifications who are required to file return of total income for any income year barring certain exceptions. Section 55A prescribes the method of furnishing return of income while section 59 lays down the conditions where the return of total income for any income year furnished by an assessee under section 55 qualifies for acceptance in accordance with the provisions of the Scheme of Self-Assessment made by the Central Board of Revenue for that year or under any instructions or orders issued thereunder. It" the Deputy Commissioner is satisfied without requiring the presence of the assessee or the production by him of any evidence that the return furnished under section 55 is correct and complete he is empowered under section 59A to assess the total income of the assessee and determine the tax .Payable on the basis of such return by passing a written order. Section 61 authorizes the Deputy Commissioner, inter alia., to serve upon any person who has furnished a return of total income for any income year to attend his office or to produce or cause to be produced, any evidence on which that person may rely in support of the return or any other evidence that the Deputy Commissioner may require. Under section 62, the Deputy Commissioner after considering the evidence on record including the evidence, if any, produced under section 61 and such other evidence as the Deputy Commissioner may require on specific points, is authorized to pass an order in writing assessing the total income of the assessee and determine the tax payable by him on the basis of such assessment. 10. The petitioner apparently filed a Return of total income before respondent No,1 for the assessm ent year 1999-2000 wherein it revalued the acquired assets at Rs,29,00,37,681. While Respondent No,1 was considering the Statement of Accounts, among others, a question arose in his mind that under theprovisions of section 12(12) of the Income Tax Ordinance, 1979, the difference of fair market value. And purchase price of the assets is deemed to be income of the assessee chargeable to tax and consequently, he issued to the petitioner a Notice, dated 3-6-2000 under section 62 of the Income Tax Ordinance, 1979 asking him to explain its point of view on the question
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and also explain how the losses of Sitara Spinning Mills Ltd. Could be adjusted against the income of Sitrar Chemicals Industries Ltd. The show-cause notice, dated 3-6-2000 issued by Respondent No,1 to the petitioner reads as follows:-- "The Principal Officer, Messrs Sitara Chemical Industries (Pvt.) Limited, Karachi. ' Subject: Assessm ent Year 1999-2000 Notice under section 62 of the Income Tax Ordinance, 1979- ' Please refer to the above noted subject. ' After examining the statements of accounts, I give you notice under section 62 of the Income Tax Ordinance, 1979 as under:-- (1) During the year under consideration, assets of Messrs Sitara Spinning Mils Limited have been transferred to you. You have got revalued these assets at Rs,29,00,37,681. As per amalgamation order the assets of Messrs Sitara Spinning Mills Limited have been transferred to you on the basis of the book value. As per your accounts, fair market value of these assets stands at Rs,29,00,37,681. Provisions of section 12(12) of the Income Tax Ordinance, 1979 lay down that in such event the 'difference of fair market value and the sale/purchase value of the assets is includible to the total income of the purchaser as deemed income. In this case the surplus of Rs,29,00,37,681 created by you is, in fact, difference in the fair market value and the assets of the company acquired by you at cost price/book value. Therefore, the difference of the created reserve and the Written Down value as per books of the seller is to be added under section 12(12) of the Income Tax Ordinance, 1979 to your total income at Rs,29,00,37,681. Please explain you point of view. (2) You have sought adjustment of B/F losses of Messrs Sitara Spinning Mills (Pvt.) Limited amounting to Rs,24,75,26,348. You are hereby required to explain how these losses are adjustable against the income of Messrs Sitara Chemical Industries (Pvt.) Limited. ' Please comply to the contents of this letter by 8-6-2000. In case of failure, addition would be made to your total income and the losses as claimed will be disallowed." 11. On receipt of the above Notice under section 62 of the Ordinance, the petitioner felt that the meaning and interpretation given by respondent No,1 to transfer of assets of Sitara Spinning Mills Ltd. To the petitioner under, the Scheme of Amalgamation sanctioned by the High Court was not correct and contrary to the provisions of section 12(12) of the Ordinance which relates to sale and purchase of property in the ordinary course of business and does not relate to transfer of assets under sections 284 to 288 of the Companies Ordinance, 1984 and instead of submitting his reply immediately approached this Court for a declaration that the aforesaid Notice was without lawful authority and of no legal effect. 12. To appreciate the arguments advanced by both learned counsels on the maintainability of the petition, it would be appropriate to reproduce here the relevant provisions of section 62 of the Income Tax Ordinance, 1979 which reads as follows:-- "(62) Assessm ent on production of accounts, evidence etc.--- (1) The Deputy Commissioner after considering the evidence on record (including evidence, if any, produced under section 61) and such other evidence as the Deputy Commissioner may require, on specific points, shall, by an order in writing, assess the total income of the assessee and determine the tax payable by him on the basis of such assessment: ' Provided that where the assessee books of account as evidence in support of the return, the Deputy Commissioner shall, before disagreeing with such accounts, give a notice to the assessee of the defects in the accounts and provide an opportunity to the assessee to explain his point of view about such defects and record such explanation and the basis of commutation of total income of the assessee in the assessment order. (2) ...." ' A perusal of the above section indicates that DCIT is authorized to seek clarification, explanation and point of view of the assessee on the questions which arise in his mind before passing any
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order of assessm ent of income and determine the tax payable on such assessment. He is obliged to do so because the law directs that if he disagrees with the accounts or evidence, he shall give the assessee an opportunity of explaining his point of view.. This is his, statutory duty which he cannot overlook or bypass in any case. 13. Mr. Shaikh, learned counsel for the petitioner, vehemently contended that transfer of assets from Sitara Spinning Mills Limited to the petitioner (Sitara Chemical Industries Limited) did not amount to sale and further urged that the transfer of assets having taken place pursuant to the order of the High Court under section 284 of the Companies Ordinance in J. Misc. No,16 of 1999 could not by any stretch of argument or imagination be termed as a sale/purchase which would attract the provisions of section 12(12) of the Income Tax Ordinance, 1979. He submitted that the Officers of the Income Tax Department are required to act strictly in accordance with the provisions of law and have no authority whatsoever to exceed the limits prescribed in the statute by giving meanings which are neither supported by the provisions of the Income Tax Ordinance nor are regarded as sale/purchase in the normal course of business and if any Assessing Officer takes any step or does any act which is patently beyond the authority prescribed by the Income Tax Ordinance, he would exceed his jurisdiction and his action would be subject to correction by an order of the High Court issued under Article 99 of the Constitution. 14. There is no cavil about the proposition advanced by Mr. Shaikh that the Assessing Officer has no authority to do any act or take any step beyond the authority which is vested in him under the provisions of the Income Tax Ordinance, 1979, however, it does not mean that if an assessee files a Return of total income under the provisions of the Income Tax Ordinance and the Assessing Officer has any question relating to the declared version or statement of account filed by the assessee, he has no power to ask the assessee to explain any entry, the statement of account or any other question that may arise in his mind in relation to the accounts submitted by an assessee. In the case of Roche Pakistan Limited v: CIT 2001 PTD 3090, after an elaborate discussion of the powers of the High Court under Article 199 of the Constitution to interfere the proceedings under the Income Tax Ordinance, 1979 and various respects of section 62 of the said Ordinance, a Division Bench of this Court held that the Income Tax Officer has full authority to ask any question in relation to the Return of Income filed by an assessee and before passing any order he is required to give a notice to the assessee to provide the necessary information or submit his explanation to the points raised by the Income Tax Officer and after providing him an opportunity of hearing 'and considering the reply given by the assessee pass the assessment order giving his reasons therefor including the reasons for the rejection of any explanation given by the assessee. As stated above an opportunity to the assessee to explain his point of view is a statutory requirement before passing an order of assessm ent. From the reading of the impugned notice, dated 3-6-2000 under section 62 of the Ordinance, it is clear that respondent No,1 asked the petitioner to explain his view point on the question raised in the notice. The notice also refers to section 12(12) of the Income Tax Ordinance, relating to re-valuation of assets and inclusion of the difference between the price of assets paid by the assessee and their fair market value as deemed income of the assessee chargeable to tax under the Ordinance. Mr. Abbasi submitted that Respondent No,1, has in exercise of his powers granted to him under section 62 of the Income Tax Ordinance, performed his duty as required by law and has not transgressed his authority conferred upon him under section 62 of the Income Tax Ordinance, Mr. Abbasi explained that the Assessing Officer has neither formed any opinion nor has he passed any final order. He has only issued a Notice to the petitioner because he is obliged to do so under section 62 of the Ordinance before passing the assessment order. The issuance of Notice by respondent No,1 therefore, cannot, be said to be without jurisdiction and lawful authority. Mr. Abbasi is justified in his argument and we agree with him that any order restraining Respondent No,1 from asking any question or deciding any question which is within his statutory duty and
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power would disturb the entire system laid down by the Income Tax Ordinance which the High Court should refrain from doing. The petitioner, in our opinion, should file its reply to the Notice supported by reported judgments cited by it in this Court and allow Respondent No,1 to consider the same and pass a written order with reasons therefor as required by section 62 of the Income Tax Ordinance. 15. The High Court under Article 199 of the Constitution of Islamic Republic of Pakistan on the application of an aggrieved party, if it is satisfied that no other adequate remedy is provided by law, is authorized to make an order directing the person performing within the territorial jurisdiction of the Court functions in connection with the affairs of the Federation to refrain from doing anything he is not permitted by law to do or to do anything he is required by law to do. Thus jurisdiction can be exercised only if there is no other adequate remedy provided by law. Under the Income Tax Ordinance, if a person is aggrieved…
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