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Petitioner: Arafat Woollen Mills Ltd. VS Respondent: Income Tax Officer, Companies Circle E-1
Court Name: Sindh High Court Judge(s): Mamoon Kazi, Abdul Qadeer Chaudhry Title:Arafat Woollen Mills Ltd. vs Income Tax Officer, Companies Circle E-1,
JUDGMENT
Reported As: PTCL 1987 CL. 427 Result: Writ Petition dismissed Judgment JUDGMENT ABDUL QADEER CHAUDHRY, J.--1. The petitioner is a private limited Company and according to the petitioner the company has been established to operate as Woollen Yarn Manufacturers. In the assessm ent year 1981-82 there was no business activity as the factory of the petitioner was in the stage of erection and trial production The petitioner for the first time filed nil return for the year 1981-82. The computation of the return is reproduced hereinbelow: "Trial and Test Production expenses 47,01,490.19 Less realised from Trial and Test Production 44,87,562.40 of Carpet Yarn. ____________ 2,13,927.79 Capitalised and Allocated to buildings; 71,310.00 To plant and machinery. 1,42,617.79 ___________ 2,13,927.79". According to the petitioner, no profit and loss account was prepared as the factory was still in process of erection and installation and has not yet started commercial production All details, evidence, explanation, books of accounts were produced and the learned Income Tax Officer after due scrutiny assessed the income tax under Section 62 of the Income Tax Ordinance, 1979 (hereinafter referred to as the Ordinance) at Rs. 6,21,469 and tax demand for Rs. 3,74,806 was created which was paid by the petitioner on 28th May, 1983 The petitioner filed appeal before the Commissioner of Income Tax against the above referred order which is still pending for decision On 18th September, 1984 petitioner received a notice under section 63 of the Ordinance which was replied to on 23th September, 1984. On 20th January, 1983 the petitioner received notice under Section 61 of the Ordinance which was also replied on 22nd January, 1983. On 26th January, 1983 petitioner received yet another notice under Section 61 and in the above letter it was mentioned that the completed assessment was reopened under section 63 of the Ordinance. The petitioner being dissatisfied with the notices, dated 18th September, 1984 issued under Section 65 of the Ordinance and subsequent notices, dated 20th January, 1985 and
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26th January, 1985 respectively filed the present constitution petition 2. Comments were filed by the Income Tax Officer wherein it has been stated that the conditions laid down under Section 65 of the Ordinance apply in this case. In this case the income of the assessee earned by sale of assets were not taxed, therefore, the same can be termed as under assessed The notice under Section 65 has been issued for the issue of capital gain In the counter-affidavit the respondent has stated that in clause (7) of the Articles of Association of the petitioner company it has to sell, let, exchange, lease or otherwise transfer the undertaking and property of the Company or any part thereof for such consideration as may be thought fit. The petitioner is vested with the power to sell which is an adventure and the profit received was taxable in the hands of the petitioner which has escaped assessm ent. The petitioner had installed the machinery, commenced the production, and initiated normal business activity. The then Income Tax Officer by mistake and over sight made the assessm ent and certain items of taxable income escaped assessment. 3. We have heard the learned counsels for the parties. Learned counsel for the petitioner has made the following submissions: (i) The escaped income means evasions, accidental or inadvertent omission as such no conditions exist for issuing notice under Section 65 of the Ordinance. On the part of the assessee there is no failure to submit all material and primary facts for the purpose of assessment which Income Tax Officer has considered in his order. (ii) The assertion as contained in comments is mere change of opinion on the facts already before him. It amounts to review and it is not contemplated under Section 65 of the Ordinance. (iii) The Inspecting Assistant Commissioner before grant of approval has to-apply his mind which he did not in this case, therefore, the notice issued under Section 65 is without jurisdiction In order to appreciate the contentions raised by the learned counsel it is profitable to deal Section 34 of the Income Tax Act, 1922 (hereinafter referred to as the Act), Sections 147 and 148 of the Indian Income Tax Act, 1962 and Section 65 of the Income Tax Ordinance, 1979 (hereinafter referred to as the Ordinance), which read as follows:-- "Section 34 of the Act-Income escaping assessm ent.-(1) If for any reason income, profits or gains chargeable to income tax have escaped assessme nt in any year, or have been under assessed, or have been assessed at too low a rate, or have been ,the subject of excessive relief or refund under this Act, or the total income and the total world income and the tax payable has been determined under sub- section (1) of Section 23, the Income Tax Officer may, serve on the person liable to pay tax on such income, profits or gains, or in the case of a company, on the principal officer, thereof, a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of Section 22 and may proceed to assess or re-assess such income, profits or gains, and the provisions of this Act, shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section; Provided that the tax shall be charged at the rate at which it would have been charged had the income, profits or gains not escaped assessment or full assessment, as the case may be; Provided further that except in case in which an order has been made under sub- section (1) of Section 23 unless definite information has come into his possession the Income Tax Officer shall not initiate proceeding under this sub-section without obtaining the previous approval of the Inspecting Assistant Commissioner of Income Tax in writing. (1-A) Notice under sub-section (1) may be served by the Income Tax Officer-- (a) in any case in which he has reason to believe that assessee or any other person on his behalf has not filed any return under sub-section (1) or sub-section (2) of Section 22, at any time. (b) in any case in which he has reason to believe that the assessee has for any year concealed the particulars of his income or deliberately furnished inaccurate particulars thereof or omitted or failed to disclose all material facts necessary for the assessm ent for such year, within six years from the end of the year in which the assessment for such year was first made and where no assessment has been made, within six years from the end of the last year in which assessm ent for such year could be made, had clause (c) been applicable to such case: Provided that in a case where a fresh assessment is made for any year in pursuance
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of an order under Section 31, Section 33, Section 33-A or Section 34-A the period of six years referred to in this clause shall commence from the end of the year in which the fresh assessment is made; (c) in any other case, within four years from the end of the year for which assessment is to be made." Sections 147 and 148 of the Indian Income Tax Act. "Section 147. If-(a) the Income Tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under Section 139 for any assessment year to the Income Tax Officer or -to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessm ent for that year, or (b). . Notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income Tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessm ent for any assessment year. He may, subject to the provisions of Section 148 to 1 53 assess or re-assess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessm ent year concerned (hereinafter in sections 148 to 153 referred to as the relevant assessm ent year). Explanation 1.-For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely: (a) where income chargeable to tax has been under assessed; or (b) where such income has been assessed at too low a rate; or (c) where such income has been made the subject of excessive relief under this Act or under the Indian Income Tax Act, 1922 (XI of 1922); or (d) where excessive loss or depreciation allowance has been computed Explanation 2.--Production before the Income Tax Officer of account books or other evidence from which -material evidence could with due diligence have been discovered by the Income Tax Officer will not necessarily amount to disclosure within the meaning of this section: Section 148.-(1) Before making the assessment, reassessm ent or recomputation under Section 147, the Income Tax Officer shall serve on the assessee a notice containing all or any of the requirements which may be included ln a notice under subjection (2) of Section 139; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice was; a notice issued under that sub-section. (2) The Income Tax Officer shall, before issuing any notice under this Section, record his reasons for doing so. Section 65 of the Ordinance. Section 65--Additional assessment.--(1) If, in any year, for any reason,-- (a) any income chargeable to tax under this Ordinance has escaped assessment; or (b) the total income of an assessee has been under assessed or assessed at too low a rate or has been the subject of excessive relief or refund under this Ordinance; or (c) the total income of an assessee or the tax payable by him has been .Assessed or determined under sub-section (1) of Section 59 and no order of assessm ent has subsequently been made under this section or any other provision of this Ordinances The Income Tax Officer may, any time, subject to the provisions of sub-sections (2), (3) and (4), issue a notice to the assessee containing all or any of the requirements of a notice under section 56 and may proceed to assess or determine, by an order in writing, to total income of the assessee or the tax payable by him, as the case may be, and all the provisions of this Ordinance shall, so far as may be, apply, accordingly; Provided that the tax shall be charged at the rate or rates applicable to the assessm ent year for which the assessment is made. (2) No proceedings under sub-section (1) shall be initiated unless definite information has come into the possession of the Income Tax Officer or he has obtained the previous approval of Inspecting Assistant Commissioner of Income Tax in writing to do so. (3) No order under sub-section (1) shall be made in respect of any income year after expiration of ten years from the end of the assessment year in which the total income was first assessable. (4) Nothing contained in sub-section (2) shall apply to any such case or class of cases to which clause (c) of sub-section (1) applies as may be specified by the Central Board of Revenue. Sub-sections (1), (1-A) and (1-B) of Section 34 were added in 1969 so far Pakistan Statute is concerned. Section 34 was amended from time to time so as to meet the requirement and the exigencies of the situation Section 63 of the Ordinance has taken into account
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all the relevant provisions contained in Section 34 of the Act. In order to interpret the law the intention of the Legislature is to be kept in view. The Income Tax Act/Ordinance, provides the structure for levying and collection of tax and the purpose of the scheme of the Act/Ordinance relating to this object must be kept in view. The provisions of Income Tax Ordinance are to be construed in such a way as to make it workable. Those sections which impose the charge should be strictly construed and those which deal with the machinery of assessment and collection should not be subjected to strict construction The other aspect of the case is that is one side affair. In civil and criminal proceedings there are two parties before the Court but under the Income Tax Ordinance there is Income Tax Officer and the assessee. Then there is no remedy provided against the decision of the Income Tax Officer. The assessee can file appeal but the department cannot file appeal against the order of Income Tax Officer. 5. Learned counsel for the petitioner in support of his contention has referred to the case of Messrs Burhan Engineering Co. Limited vs. The Income Tax Officer, Companies Circle II, Karachi and another reported in 1985 PTD 465 = PTCL 1985 CL 394 = (1985) 52 Tax 55, where a Division Bench of this Court has considered escaped income while interpreting Section 34(1-A) of the Income Tax Act and from the cited case law the principles of law were deduced in para 8 of the judgment. However, Section 65 of the Ordinance was not before the Court and, therefore, no observation was made. In the matter before us the interpretation of Section 65 is to be considered The learned counsel has also referred to the cases of Messrs Dada Limited vs. Commissioner of Income Tax reported in PLD 1974 SC 310 = (1974) 30 Tax 91, Kishen Kishore vs. Commissioner of Income Tax AIR 1933 Lah. 284, Diwan Bahadur Diwan Kishen Kishore vs. The Commissioner of Income Tax Indian Cases Vol. 141 1933 page 415, Calcutta Discount Company Ltd. Vs. Income Tax Officer, Companies District I, Calcutta and another, reported in I.T.R. Vol 41, 1961 page 191 = (1961) 3 Tax 124 (S.C.) and Commissioner of Income Tax Bombay City vs. Bhagwandas K. Bros. 1973 I.T.R. Vol 91 page 256, and contends that as the whole income was disclosed by the assessee, therefore, the respondent had no authority to reopen the matter afresh. In order to consider this contention it is necessary to reproduce the relevant observations in the context of the facts stated in these authorities:-- PLD 1974 S.C. 310r-A comparison of Section 22 of the Income Tax Act and Section 11 of the Business Profits Act will show that in sub-section (2) of Section 22, the words are 'during the previous year', whereas in sub-section (1) of Section 11, the corresponding words are 'any chargeable accounting period specified in the notice'. The effect of the words 'during the previous year' is that a notice under this sub-section is valid only if given within the immediately following year. The" word 'any' in sub-section (1) of Section 11 is important and that shows that a notice can be given at any time. (P. 314) A. The contention that failure to initiate proceedings under Section 11(1) of the Business Profits Tax Act within the accounting chargeable year amounts to escapement of income is not well-founded. The words 'escaped assessment' in Section 34 of the Income Tax Act means to evade or to elude or an accidental or inadvertent omission In the present case, no such thing has happened and, therefore, it is not a case of escapement of income. (P. 318) B. AIR 1933 Lah 284,-- The expression 'escape' in Section 34 connotes failure by the taxing authority to tax the income owing to accidental or deliberate omission by the assessee to declare it or to some similar circumstances. It does not, however, include cases where the income is known or disclosed to the Income Tax Authority and has been the subject of assessm ent which has, however, been set aside by superior authority owing to some mistake in procedure or to the income being treated in a wrong category. Indian Cases Vol 141 (1933) page 415k-Where a Hindu family was found to be impartible and governed by the rule of primogeniture and under an award it was provided that all that the younger son could demand was certain specific allowance for maintenance and houses for residence: Held, that the allowance payable to the younger member was not part of income of the family or of the eldest member, but was a sort of charge on the estate and should, therefore, be deducted in calculating the
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assessable income of the head of the family. The rule that an allowance given by the head of a Hindu coparcenary to its members by way of maintenance is liable to be assessed as the income of the family has no application to a case of this nature. The allowance in the case of impartible estate is the separate property of the younger members upon which they can be assessed Held further, that the estate of a Hindu family though governed by the rule of primogeniture and impartible, is still the property of the family and not the sole property of the person who holds it for the time being and an assessm ent' of the head of the family in respect of the income of the estate must be deemed to be an assessme nt of the income of a Hindu family, liable to super-tax. Hari Kishen vs. Chandan Lai 43 Ind. Cases 667; 105 P.R. 1917 (F.B.), Naraganti Achammagaru vs. Venkatachalapati Nayaminaru 4 M 250, Subrah- mania Pandya Chokka Talvar vs. Siva Subrahmany Pillai 17 M 316, Baijnath Prasad Singh vs. Taj Bali Singh 38 Ind. Cases 894 A 590; 14 AKLJ 913 and Baijnath Prasad Singh vs. Taj Bali Singh 60 Ind. Cases 534; 43 A 228 19 ALJ 317; 33 CLJ 388; 40 MLJ 387; (1921) M.W.N. 300; 25 C.W.N. 564; 2 PLT 257; 23 Bom. LR 654; 3 UPLR (PC) 35; MLT 358 and 48 1A 195 (PC) referred to. I.T.R. Vol 41 1961 page 191,-- (i) that to confer jurisdiction under Section 34 to issue notice in respect of assessme nts beyond the period of four years, but within a period of eight years, from the end of the relevant year, two conditions had to be satisfied The first was that the Income Tax Officer must have reason to believe that income profits or gains chargeable to income tax had been under assessed The second was that he must have also reason to believe that such 'under-assessm ent' had occurred by reason of either (1) omission or failure or (2) omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessm ent for that year. Both these conditions were conditions precedent to be satisfied before the Income Tax Officer could have jurisdiction to issue a notice for the assessment beyond the period of four years but within the period of eight years, from the end of the year in question. (ii) That the words 'omission or failure to disclose fully and truly and material lads necessary for his assessm ent for that year', used in Section 34 postulated a' duty on every assessee to disclose fully and truly all material facts necessary for his assessment. What facts were material and necessary for assessm ent differed from case to case. 1h every assessment proceedings, the assessing authority would, for the purpose of corrupting or determining the proper tax due from an assessee, require to know all the facts which help him in coming to the correct conclusion From the primary facts in his possession, whether on disclosure by the assessee, or discovered by him on the basis of the facts disclosed, or otherwise, the assessing authority had to draw inferences as regards certain other facts and ultimately from the primary facts and the further facts inferred from them, the authority had to draw the proper legal inferences, and ascertain, on a correct interpretation of the taxing enactment, the proper tax leviable. So far as primary facts were concerned, it was the assessee's duty to disclose all of them-including particular entries in account books, particular portions of documents, and documents and other evidence which could have been discovered by the assessing authority, from the documents and other evidence disclosed The duty however, did not extend beyond the full and truthful disclosure of all primary facts. Once all the primary facts were before the assessing authority, it was for him to decide what inferences of facts could be reasonably drawn and what legal inferences had ultimately to be drawn. It was not for anybody else far less the assessee to tell the assessing authority what inferences, whether of facts or law, should be drawn. (iii) That if there were in fact some reasonable grounds for the Income Tax Officer to believe that there had been any non-disclosure as regards any primary fact, which could have a material bearing on the question of under-assessment that would be sufficient to give jurisdiction to the Income Tax Officer to issue the notices under Section 34. Whether these grounds were adequate or not for arriving at the conclusion that there was a non-disclosure of material facts was not open for the Court's investigation In other words, all that was necessary to give this special jurisdiction was that - the Income Tax Officer had, when he assumed jurisdiction, some prima facie
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grounds for thinking that there had been some non-disclosure. (iv) That the question whether the Income Tax Officer had reason to believe that under assessment had occurred by reason of nondisclosure of material facts was not a mere question of limitation only but was a question of jurisdiction which could be investigated by the High Courts in an application under Article 226 of the Constitution. (v) That though the writ of prohibition or certiorari would not issue against an executive authority, the High Courts had power to issue in a fit case an order prohibiting an executive authority from acting without jurisdiction When such action of a executive authority acting without jurisdiction subjected, or was likely to subject, a person to lengthy proceedings and unnecessary harassm ent, the High Courts would issue appropriate Orders or directions to prevent such consequences. The existence of such alternative remedies as appeals and reference to the High Court was not, however, always a sufficient reason for refusing a party relief by a writ or order prohibiting an authority acting without jurisdiction from continuing such action when the constitution conferred on the High Courts the power to give relief it became the duty of the Courts to give such relief in fit cases and the Courts would be falling to perform their duty if relief were refused without adequate reasons This appeal is against an appellate decision of a Bench of the Calcutta High Court by which in reversal of the order made by the trial Judge the Bench rejected the present appellant's application under Article 226 of the Constitution The appellant is a private limited company incorporated under the Indian Companies Act and has its registered office in Calcutta. It was assessed to income tax for the assessment years 1942-43, 1943-44 and 1944-45, by three separate orders, dated January 26, 1944, February 12, 1944 and February 1 5, 1945, respectively. These assessm ents were made under Section 23(3) of the Indian Income Tax Act upon returns filed by it accompanied by statements of account. The first two assessments were made by Mr. L.D. Rozario the then Income Tax Officer and the last one by Mr.K.D. Banerjee. The taxes assessed were duly paid up. On March 28, 1951, three notices purporting to be under Section 34 of the Indian Income Tax Act, 1922, were issued by the Income Tax Officer calling upon the Company to submit fresh returns of its total income and the total world income assessable for the three accounting years relating to the three assessment years 1942-4 3, 1943-44 and 1944^45. The appellant company furnished returns in compliance with the notices but on September 18, 1931, I applied to the High Court of Calcutta for issue under Article 226 of the Constitution of appropriate writs or orders directing the Income Tax Officer not to proceed to assess it on the basis of these notices. The first ground on which this prayer was based was mentioned in the petition in these terms: "The said pretended notice was issued without the existence of the necessary conditions precedent which confers jurisdiction under Section 34 aforementioned, whether before or after the amendment in 1984," The other ground urged was that the amendment to Section 34 of the Income Tax Act in 1948 was not retrospective and that the assessment for the years 1942-43, 1943-44 and 1944-45 became barred long before March, 1951. The trial Judge held that the first ground was not made out but being of opinion that the amending Act of 1948, was not retrospective, he held that the notices issued were without jurisdiction Accordingly he made an order prohibiting the Income Tax Officer from continuing the assessment proceedings on the basis of the impugned notices. 1973 I.T.O. Vol. 91 page 256.--A notice under Section 34(1)(b) of the Indian Income Tax Act, 1922, can only be issued to reopen assessm ent where the Income Tax Officer 'has in consequence of information in his possession reason to believe' that the…
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