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Petitioner: COMMISSIONER OF INCOME TAX, COMPANIES-II, KARACHI VS Respondent: Messrs ALLWIN JUDGMENT
Court Name: Sindh High Court Judge(s): Qaiser Iqbal, Arshad Siraj Memon Title:COMMISSIONER OF INCOME TAX, COMPANIES-II, KARACHI vs Messrs ALLWIN
JUDGMENT
Reported As: 2009 PTD 1314 Result: Order accKordingly Judgment JUDGMENT ' ARSHAD SIRAJ MEMON, J.---The learned Income Tax Appellate Tribunal has referred the following question of law for the opinion of this Court under the provision of section 136(1) of the Income Tax Ordinance, 1979 (hereinafter referred to as "the Ordinance"). "Whether on the facts and circumstances of the case the learned Income Tax Appellate Tribunal was justified in holding that action under section 65 of the Income Tax Ordinance was not within the time limit?" 2. The brief and necessary facts for deciding the referred question are that the respondent- company enjoyed exemption from Income Tax under section 15-BB of the Income Tax Act, 1922, (hereafter referred as the Act) for the Assessment year 1971-72. Subsequent to the completion of assessm ent, notice under section 65 of 'the Ordinance' was issued by the Income Tax Officer in June, 1982, for the reason that the respondent had not properly utilized the reserve under section 15-BB of 'the Act', and consequently the re-assessment was framed. However, perusal of the record shows that no date is mentioned when the assessment under section 65 of 'the Ordinance' was passed. The respondent being aggrieved against such action, filed appeal before the Commissioner of Income Tax (Appeals), who annulled the assessment by holding that the period during which corrective action could have been taken by the Income Tax Officer under the provision of section 15-BB of 'the Act', had already expired before the promulgation of 'the Ordinance'. He, therefore, held that the Income Tax Officer had no jurisdiction to take action 'under the provision of section 65 of 'the Ordinance' for the assessment year 1971-72. The Income Tax Department being aggrieved against such finding of the Commissioner of Income Tax (Appeals),
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preferred an appeal before the learned Income Tax Appellate Tribunal which was decided in I.T.A. No.320-KB of 1984-85, vide order, dated 28-10-1989. The learned Income Tax Appellate Tribunal after examining the case and following its earlier decision concurred with the view of the Commissioner of Income Tax (Appeals) and rejected the department appeal, hence this Income Tax Reference. 3. Mr. Shakeel Ahmed, advocate on behalf of Mr. Nasrullah Awan, advocate of the applicant supported the order of the Income Tax Officer and submitted that action was taken in accordance with law. 4. On the other hand, Mr. Mazhar Jafri, learned advocate for the respondent has argued that after the repeal of 'the Act', there was no occasion to disturb the assessment by issuing notice under section 65, as the provisions of section 65 of 'the Ordinance' could not be applied retrospectively for completed assessm ent. He relied on the case of Manno Industries Ltd., v. Commissioner of Income Tax 2001 PTD 1525, where it was held that the provisions of section 66-A of 'the Ordinance' could not be retrospectively applied for the completed assessment years when such provision i.e. Section 66-A was not in the field. To further substantiate his arguments, he has relied upon judgment of this Court in Honda Shahrah-e-Faisal Association of Persons v. Regional Commissioner of Income Tax, Karachi and two others 2005 PTD 1316, wherein the view taken in Mannoo's case has been reiterated with reference to the provisions of section 122(5A) of the Income Tax Ordinance, 2001. 5. At the very outset, it may be stated that in Mannoo's case in Honda-e-Shahrah-e-Faisal's case referred (supra), the Hon'ble Lahore High Court and in the later case this Court had examined the provision of repeal and savings with reference to the provisions of section 66A of `the Ordinance' and section 122(5A) of the Income Tax Ordinance, 2001. With great respect to the learned counsel for the respondent, in the judgments referred by him the provisions of sections 15-BB and 34 of `the Act' and section 65 of 'the Ordinance' were not examined with reference to section 166 (Repeal and Savings) of 'the Ordinance'. Secondly, we may also observe that the facts and circumstances of the present case are entirely different so there would be no need to apply the principles of Mannoo's case and Honda-e-Shahrah Faisal's case referred supra. 6. In the present case, the assessee/respondent had availed facility of exemption under the provisions of section 15-BB of 'the Act'. The Income Tax Officer in June, 1982, discovered that allegedly the respondent had not utilized the reserves created under section 15-BB of `the Act' in accordance with law. Having made such alleged discovery he re-opened the assessment through issuance of. Notice under section 65 of 'the Ordinance' for the assessment year 1971-72 and framed the reassessm ent and made the addition of unutilized reserves in the income of the respondent. To appreciate the question of law referred to this Court for its opinion, it would be advantageous to reproduce section 15-BB of `the Act' in extenso:-- 15-BB. Tax holiday for new industries.---(1) Subject to the provisions of the Act, the income, profits and gains of an industrial undertaking set up in Pakistan between the first day of April, 1959, and the thirtieth day of June, 1965 (both days inclusive) shall be exempt from the income tax and super tax payable under this Act for a period of four years beginning with the month in which the undertaking is set up or the commercial production is commenced, whichever is the later: ' Provided that in the case of an industrial undertaking set up in such areas as may be specified in this behalf by the Central Government, by notification in the official Gazette, this subsection shall have effect as if for the words "four years", the words "six and eight years" were substituted. (2) The exemption under subsection (1) shall apply to an industrial undertaking which fulfils the following conditions, namely:- (a) that it is owned and managed by a company formed and registered under the Companies Act, 1913, or a body corporate formed in pursuance of a Central Act, having (i) its registered
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office in Pakistan and (ii) a subscribed and paid-up capital of not less than fifty thousandrupees; (b) that it uses wholly or mainly raw materials produced in Pakistan; (c) that it is an undertaking the income, profits and gains of which are liable to be computed in accordance with the rules contained in the First and Second Schedules to this Act; (d) that as respects any previous year ending on or before the 10th day of June, 1967, not less than sixty per cent of the income profits and gains exempted under this section are set apart in a special fund for the purpose of the expansion or development of the industrial undertaking from which such income, profits and gains have been derived, whether by the capitalization of such income, profits and gains for the purpose of issue of bonus shares to the shareholders of such company or body, or otherwise, for investment Schedules issued by the Central Government from time to time, which is owned and managed by a company registered under the Companies Act, 1913, or a body corporate formed in pursuance of a Central Act; (dd) that as respects any previous year ending after, the 10th day of June, 1967; (1) fifty per cent, of the income, profits and gains exempted under this section are set apart in a special fund for the purpose of expansion or development of the industrial undertaking from which such income, profits and gains have been derived, whether by the capitalization of such income, profits and gains for the purpose of issue of bonus shares to the shareholders of such company or body, or otherwise, or for investment in any other industry included in the Industrial Investment Schedules issued by the Central Government from time to time, which owned and is managed by a company registered under the Companies Act, 1913 (VII of 1913), or a body corporate formed in pursuance of a Central Act; and (2) the company declares before the due date for filing of the return laid down in subsection (1) of section 22, that it shall distribute as dividend the amount of the remaining fifty per cent of such income, profits and gains, or the amount required to distribute ten per cent dividend, to its shareholders, whichever is the less; and if any part of the said fifty per cent of income, profits and gains is left with the company after distribution of the dividend according to the declaration, such part shall be added to fifty per cent of the income, profits and gains of the next year for alike distribution of dividend: ' Provided that a company shall not be required to fulfil the condition is sub-clause (2) of this clause if--- (i) the fifty per cent of its income, profits and gains is less than the amount required to distribute five per cent dividend and so much of the amount of such income, profits and gains is not distributed shall be added to the fifty per cent of the income, profits and gains of the next year for distribution of dividend; or (ii) it is an industrial undertaking owned and managed by a company having its registered office in Pakistan and is not a public company as defined in the Companies Act, 1913 (VII of 1913), and the sum of the paid capital and free reserves of such company does not exceed five lakhs of rupees; (e) that it is approved by the Central Board of Revenue for the purpose of this section: ' Provided that the Central Government may, in any case, waive, by a general or special order, the application of the condition referred to in clause (b): ' Provided further that where any exemption has been allowed under this section and subsequently it is discovered by the Income Tax Officer that any one or more of the conditions specified in this subsection or subsection (4); was or were not fulfilled, as the case may be, the exemption originally allowed shall be deemed to have been wrongly allowed and the Income Tax Officer may notwithstanding anything contained in this Act, recomputed the total income of the assessee of the relevant previous year and the provisions of section 34 shall, so far as may be, apply thereto the period of four ycars specified in subsection (2) of that section being reckoned from the end of the assessm ent year relevant, to the previous year in which the infringement was discovered.
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(3) The profits and gains of an industrial undertaking to which this section applies shall be computed in accordance with the provisions of section 19: ' Provided that nothing contained in clauses (vi), (via), and (vii) of subsection (2) of section 10 shall apply to such profits and gains derived by the undertaking in respect of the period specified is subsection (1): ' Provided further that such profits and gains shall be computed separately from other income, profits and gains of the assessee, if any, and where the assessee sustains a loss or profits from such undertaking, it shall be carried forward and set off against the profits and gains of the said undertaking for the following year and where it cannot be wholly so set off, the amount of the loss not so set off shall be carried forward to the next year and so on but no loss shall be carried forward beyond the period for which the income, profits and gains of the undertaking are exempt under this section; (4) ....................... (4A)............... (4AA) ................................................................................. '(4B) ................................................................................... (4C).. 7. The perusal of section 15-BB will show that under third proviso to subsection (2) of section 15-BB, the legislature has provided the machinery for taking action in case, it is discovered by Income Tax Officer that any one or more of the conditions specified in subsection (2) or subsection (4) was or were not fulfilled, the exemption originally allowed shall be deemed to have been wrongly allowed and the Income Tax Officer notwithstanding anything contained in 'the Act', may recompute the total income of the assessee for the relevant previous year and the provisions of section 34 shall so far, as may apply thereto and the period of four years specified in subsection (2) of section 34 would be reckoned from the end of the assessment year relevant to the previous year in which the infringement was discovered. 8. Since the third proviso to subsection (2) of section 15-BB refers to section 34, it would be also advantageous to reproduce section 34 for the convenience and for ready reference:-- "34 Income escaping assessm ent.---(1) If for any reason income, profits or gains chargeable to income-tax have escaped assessm ent in any year, or have been under assessed, or have been assessed at too low a rate, or have been the subject or excessive relief or refund under this Act, or the total income and the total world income and the tax payable has been determined under subsection (1) of section 23, the Income Tax Ordinance may, serve on the person liable to pay tax on such income, profits or agains, or, in the case of a company, on the principal officer thereof, notice containing all or any of the requirements which may be included in-notice under subsection (2) of section 22, and may proceed to asses or re-assess such income, profits or gains, and the provisions of this Act, shall, so far as May be apply accordingly as if notice were a notice issued under that subsection: ' 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 subsection (1) of section 23 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 Commissioner of Income-tax in writing. (1-A) Notice under subsection (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 subsection (1) or subsection (2) of section 22, at any time;
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(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 particular, thereof or omitted or failed to disclose all material facts necessary for the assessment 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 assessment 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 of an order under section 31, section 33, section 33-A or in pursuance 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. (2) No order of assessm ent under section 23 or assessment or reassessment under subsection (1) of this section shall be made after the expiry, except in any case in which the assessee has not filed any return under subsection (1) or subsection (2) of section 22 or concealed the particulars of his income or deliberately furnished incorrect particulars of such income or omitted or failed to disclose all material facts necessary for the assessment for that year, or two years from the end of the year in which the income, profits or gains were first assessable: ' Provided that- (i) this subsection shall have effect as if for the words "two years"- (a) in relation to the income, profits or gains whicli were first assessable in the year 1965-66, the words "five years" were substitute; and (b) in relation to the income, profits or gains which were first assessable in the year, 1965-66, the words "five years" were substituted; (c) in relation to the income, profits or gains which were first assessable in the year, 1966-67, the words "five years" were substituted where the assessment or re-assessment, as the case may be, relates to an assessee under the jurisdiction of an Income-tax Officer having his office in the Province of East Pakistan; (ii) where a notice under sui,cction (1) was issued, within the time-limit specified in subsection (1- A), the assessm ent, or reassessm ent, as the case may be, may be made in pursuance of such notice within one year from the end of the year in which such notice was served; (iv) nothing contained in this section limiting the time within which any action may be taken or any order, assessm ent or reassessm ent may be made, shall apply to an assessment or reassessment, as the case may be, made on the assessment or any person in consequence of, or to give effect to, any finding or direction contained in an order under section 31, section 33, section 33-A, section 34- A, section 66 or section 66-A, or in the case of a firm, to an assessment made on a partner of the firm in consequence of an assessm ent made on the firm under this section; (v) nothing contained in this section limiting the time within which any action may be taken or any order; assessm ent or reassessm ent may be made, shall apply to an assessment or reassessment, as the case may be, made on any person in conformity with a decision of the Supreme Court in any case under section 66-A or Article 185 of the Constitution. ' Explanation I.---Where by an order under section 31, 33, 33-A, 34-A, 66 or 66-A any income is excluded from the total income of the assessee for an assessment year, an assessment of such income for another assessm ent year shall, for purposes of this section, be deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order. ' Explanation I1.---Where by an order under section 31, 33, 33-A, 34-A, 66 or 66-A any income is excluded from the total income of one person and held to be the income of another person, an assessm ent of such income on such other person, shall for purpose of this section, be deemed to
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be one made in consequence of , or to give effect to, any finding or direction contained in the said order. (2-A) A notice under subsection (1) may, where the Income Tax Officer has reason to believe that assessee, or any other person on his behalf, has not filed any return under subsection (1) or subsection (2) of section 22 or 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 that year, be issued at any time notwithstanding that at the time of the issue of such notice the period (specified in subsections (1), (1-A) and (2) before their) before its amendment had expired and no assessment or reassessment made or any other proceeding taken in consequence of such notice or any assessment- or re-assessment made under subsection (2-B) or any other proceeding taken in consequence of any notice issued for that purpose shall be called in question in any Court, Tribunal or other authority merely on the ground that, at the time the notice was issued or at the time the assessment or re-assessment was made, the time, within which such notice should have been issued or the assessment or the reassessment should have been made under this section as in force before its amendment, had expired: ' Provided that no notice under subsection (1) shall be issued in respect of income, profits and gains which were received or are deemed to have been received, or which accrued or arose or are deemed to have accrued or arisen to an assessee before the fourteenth day of August, 1947. (2-B) Notwithstanding anything in subsections (1) and (2) limiting the time within which any notice may be issued or any assessm ent or re-assessment made or any action taken, such notice may be issued, assessm ent or re-assessment made or action taken as respects the assessment (including re-assessm ent) for any year ending at any time between the thirty-first day of March, 1955, and the thirtieth day of June, 1965 (both days inclusive) on or before the thirtieth day of June, 1971. (2-C) In computing the period of limitation for purposes of making an assessment or re- assessm ent or taking any other proceeding under this Act, the period, if any, for which such assessm ent, re-assessm ent of other proceeding has been stayed by any Court, Tribunal or any other authority shall be excluded. (2-D) Where an assessm ent or re-assessment or any order has been annulled, set aside, cancelled or modified, the competent authority may start the proceedings from the stage next preceding the stage at which such annulment, setting aside, cancellation or modification took place and nothing contained in this Act shall render necessary the re-issue of any notice which has already been issued or the re-furnishing or re-filing of any return, statement, or other particulars which had already been furnished or filed, as the case may be. 9. From the perusal of third proviso to subsection (2) of section 15-BB and section 34 referred to above, it becomes clear that the assessment could be reopened by the Income Tax Officer, from the discovery of infringement and in terms of the said proviso, the reopening could have been made within the period of four years from the end of the assessment year relevant to the previous year in which such infringement was discovered. It is an admitted fact that the Assessing Officer discovered infringement of the provision of section 15-BB for the assessment year, 1971-72 in June, 1982 and in the terms of the provision of third proviso to subsection (2) of section 15-BB, the period of four years specified in subsection (2) of section 34 has to be reckoned from the end of the assessm ent year 1971-72. In view of the above observation, the time limit for issuing notice under section 34 expired on 30-6-1976. It would be noted that notice in the present case under section 65 of 'the Ordinance' was issued in June, 1982 after the expiry of the period i.e. 30-6-1976 and it would further be noted that 'the Ordinance' came into force on 1st July, 1979. 10. Since in the present case, the action was taken under section 65 of 'the Ordinance', it would be very important to examine whether such action could have been taken in view of section 166 of 'the
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Ordinance', which speaks of repeal and savings of 'the Act'. It Would be advantageous to re- produce section 166. 166. Repeal and savings.--- (1) The Income-Tax Act, 1922 (XI of 1922) is hereby repealed. (2) Notwithstanding the repeal of the Income-Tax Act, 1922 (XI of 1922) and without prejudice to the provisions of section 6 or section 24 of the General Clauses Act, 1897 (X of 1897),-- (a) where a return of income has been filed before the commencement of this Ordinance by any person or any assessm ent year, proceedings for the assessment of that person for that year may be taken and continued as if this Ordinance had not come into force; (b) where a return of income is filed after the commencement of this Ordinance otherwise than in pursuance of any notice under section 34 of the repealed Act, by any person for any assessment year ending on or before the thirtieth day of June, 1979, the assessment of the person for that year shall be made in accordance with the procedure specified in this Ordinance; (c) where in respect of any assessm ent year:-- (i) a notice under section 34 of the repealed Act had been issued before the commencement of this Ordinance, the proceedings in pursuance of such notice may be continued and disposed of as if this Ordinance had not come into force; (ii) any income chargeable to tax had escaped assessment, or had been underassessed or assessed at too low a rate, or had been the subject of excessive relief or refund or the total income or the total world income and the tax payable had been determined under subsection (1) of section 23 of the repealed Act and no proceedings under section 34 of the said Act in respect of any such income are pending at the commencement of this Ordinance a notice under section 65 may be issued with respect to that assessment year and all the provisions of this Ordinance shall apply accordingly; (d) in making any assessm ent for any year ending on or before the thirtieth day of June, 1979, the provisions of the repealed Act relating to the computation of total income and the tax payable…
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