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Petitioner: MESSRS CHAUDHRY TEXTILE MILLS VS Respondent: INCOME-TAX OFFICER, CENTRAL CIRCLE V, LAHORE
1988 P T D 542
1988 P T D 542
[Lahore High Court]
Before Rustam S. Sidhwa, J
Messrs CHAUDHRY TEXTILE MILLS
Versus
INCOME-TAX OFFICER, CENTRAL CIRCLE V, LAHORE
Writ Petitions Nos.235, 702, 773, 859, 860 and 1141 of 1985 and 236 of 1986 decided on 30th April, 1988.
(a) Income-tax Ordinance (XXXI of 1979)--
---S.65--Additional assessment--Where an additional assessment made after issue of notice under S.65(1)(a) or (b) was again to be re-opened for any matter relating to the same assessment year, it can only be done by a notice under S.65(1)(a) or (b)--Notice regarding the second additional assessment issued would ex facie be in order if in the notice Income-tax Officer had indicated that he proposed to open the assessment either on the basis that income had escaped assessment or had been under assessed.
Where a case assessed under the Self-Assessment Scheme' under section 59 has to be opened for direct scrutiny, that is to say, to be assessed like a normal assessment, on the basis of scrutiny of accounts and records, as is normally done under section 62 of the Ordinance, it is initiated on the basis of a notice issued under section 65(1)(c), in which the Income-tax Officer need not indicate that any income has escaped assessment, or has been under-assessed, or assessed at too low a rate or has been the subject of excessive relief or refund, and that he has secured any definite information in that respect, or has obtained the prior approval of the Inspecting Assistant Commissioner of Income-tax in writing. Where, however, a normal assessment made under section 62 of the Ordinance has to be reopened it is initiated on the basis of a notice issued under section 65(1)(a) or (b), where the Income-tax Officer has to indicate that some income has escaped assessment, or has been cinder-assessed, or assessed at too low a rate or has been the subject of excessive relief or refund under the Ordinance, and he has obtained the prior `approval of the Inspecting Assistant Commissioner of Income-tax in writing.
Where a direct scrutiny assessment made after issue of notice under section 65(1)(c) is again to be reopened for any matter relating to the same assessment year, it cannot be done by a notice under section 65(1)(c), but can only be done by a notice under section 65(1)(a) or (b). Likewise, where an additional assessment made after issue of notice under section 65(1)(a) or (b) is again to be re-opened for any matter relating to the same assessment year, it can only be done by a notice under section 65(1) (a) or (b). In this view of the matter, the notices regarding the second additional assessments issued ex facie appear to be in order, as in each of these notices the Income-tax Officers have indicated that they propose to open the assessments either on the basis that income has escaped assessment or been under-assessed.
(b) Income-tax Ordinance (XXXI of 1979)--
---S.65(3) & (3-A)--Finance Ordinance (XII of 1982), S.7(9)- Amendment of S.65(3) and addition of subsection (3-A) to S.65 by Finance Ordinance, 1982--Effect.
Prior to the Finance Ordinance, 1982, subsection (3) of section 65 of the Income-tax Ordinance, 1979, provided that no order under subsection (1) could be made in respect of any income year after the expiry of ten years from the end of the assessment year in which the total income was first assessable. It appeared that a case could be reopened without any limitation of time, but once it was reopened the Income-tax Officer had to complete the reassessment within ten years from the end of the assessment year in which the total income was first assessable. However, when put to practical application, it appeared that since no order could be made after the expiry of ten years from the end of assessment year in which the total income was first assessable, a notice, to be effective, had to be given before the expiry of ten years from the end of the said assessment year. If the Income-tax Officer gave a notice four years before the expiry of the tenth year, he had four years to complete the reassessment. If he gave a notice one month before the expiry of the tenth year, he had only one month to do so. To enable the Income-tax Officer to have a given period of time to complete the assessment and to provide a given period of time within which cases could be reopened, subsection (3) was amended and a new subsection (3-A) was added by the Finance Ordinance, 1982. By the amendment of subsection (3), notice under subsection (1), in respect of any income year, could only be issued within ten years from the end of assessment year in which the total income of the said income year was first assessable. By virtue of subsection (3-A), where a notice under subsection (1) had been issued, no order under the said subsection could be made after the expiration of one year 'from the end of the financial year in which such notice was served. Thus, no case could be reopened beyond the limitation period of ten years and where a case was so reopened within this period of time, the reassessment had to be completed within a year from the end of the financial year in which such notice was issued. By the Finance Ordinance, 1979, subsection (3-A) of section 65 was substituted by another subsection, as reproduced in para 5 above. The substitution was made effective from 14-6-1982. Under the said new subsection (3-A), where a notice under subsection (1) was issued on or after 1-7-1982, no order under subsection(1) could be made after the expiration of one year from the end of the financial year in which such notice was served. This substitution was necessitated to enable the Income-tax Officers to reopen assessments, which had become barred by limitation, where Income-tax Officers had not completed the reassessments within a year and their orders had been annulled. Subsection (3-A) has retrospective effect and enables an Income-tax Officer to issue a fresh notice again under section 65(1)(a) or (b) and complete a reassessment in respect of an income, year in respect of which notice under subsection (1) has been issued on or after 1-7-1982, but whether it will affect vested rights or past and closed cases, is a matter which calls for examination in each particular case.
Crescent Board Ltd. v. Income-tax Officer W.P.No. 3627 of 1983,decided on 3-3-1984 ref.
(c) Interpretation of statutes--
---Where the interpretation of the superior most Court changes, cases earlier decided on the basis of the old interpretation of law cannot be reopened to affect past and closed transactions.
Income-tax Officer Central-II, Karachi v. Cement Agencies Limited P L D 1969 S C 322 ref.
(d) Interpretation of statutes--
---Effect of curative statutes on pending litigation.
Crawford on Construction of Statutes, 1940 Edn., para. 284 and Craies on Statute Law, 7th Edn., p.399 ref.
(e) Income-tax Ordinance (XXXI of 1979)--
---S.65(3-A) [as added by Finance Ordinance, 1982, S.7(9)]---Second additional assessment--Provisions of S.65(3-A), do not have the effect of disturbing the rights vesting in the assessees as a result of decisions in their favour made by the Commissioner of Income-tax (Appeals) or by the High Court annulling the first additional assessments made against them--Where the assessing authority had lost its right, due to the limitation provided in S.65(3-A), to complete the assessments and vested rights had arisen in favour of the assessees of being free from the liability of being so re-assessed and the failure was attributable to the assessing authorities themselves, the department cannot re-open the assessments again on the same facts- Vested rights having arisen in favour of assessees by virtue of first additional assessment having been annulled, same cannot be re-opened by virtue of fresh notice under S.65 of the Act--Vested rights--What matters are covered and what are not covered by such rights.
The amended subsection (3-A) of section 65 of the Income-tax Ordinance, 1979, does not have the effect of disturbing the rights vesting in the petitioners as a result of decisions in their favour made by the Commissioner of Income-Tax (Appeals) or by the High Court annulling the first additional assessments made against them. In the instant case, the Income-tax Officer had jurisdiction to make the first additional assessments under section 65 of the Ordinance. He was obligated to do so before the expiration of a year from the end of the financial year in which notice had been served on the assessees. If they themselves permitted the period of limitation to lapse they cannot take advantage of their own negligence by re-issuing notices once again on the same facts. Had the earlier additional assessments been annulled on the basis that the Income-tax officers had no jurisdiction, it could have been said that the additional assessments did not legally exist as they were void. Had the first additional assessments been set aside due to a cause not attributable to the assessing authority, one could have looked into the matter.
Had appeals been taken against the earlier annulment orders and proceedings been kept alive, subsection (3-A) of section 65 would have been applicable. But where the assessing authority lost its right, due to the limitation provided in subsection (3-A) of section 65, to complete the assessments and vested rights having arisen in favour of the assessees of being free from the liability of being so reassessed and the failure being attributable to the assessing authorities themselves, the I.T.Os. cannot reopen the assessments again on the same facts. Vested rights having arisen in favour of the assessees by virtue of the first additional assessments having been annulled, the same cannot be re-opened by virtue of fresh notices issued again under section 65 of the Income-tax Ordinance, 1979. The vested rights cover only matters that were opened up by the Income-tax Officers when making the first re-assessments as are contained in these orders, which would include all the items which they assessed whether on the basis that they had escaped assessment, or been under-assessed, or assessed at too low a rate, or had been the subject of excessive relief or refund under the Ordinance. The vested rights only cover what was reassessed. They do not cover income which may have escaped assessment, or been under assessed, or assessed at too low a rate, or has been the subject of excessive relief or refund, over and above what was first re-assessed.
(f) Income-tax Ordinance (XXXI of 1979)--
---S.65(3-A)--Second additional assessment--Income-tax Officer had no fresh material with him, over and above that which he had already utilized against assessee in his first additional assessment--Income-tax Officer did not secure any prior permission of the Inspecting Assistant Commissioner before issuing notice for second additional assessment--Notice in question having been issued on the basis of same material which the Income-tax Officer had used while making the first additional assessment, same, held, could be treated as not having been issued on fresh material.
Muhammad Amin Butt and Abdul Qayyum Bhatti for Petitioner.
Ch. Muhammad Ishaq for Respondent.
Dates of hearing: 9?h, 14th, 15th and 16th March, 1988.
JUDGMENT
This judgment will dispose of seven writ petitions, namely, W.P.No-. 235 of 1985 and 236 of 1986 filed by Mian Muhammad Yousaf, hereinafter referred to as petitioners Nos.1 and 2, W.P.No.702 of 1985 filed by 7-Up Bottlers Company Limited, hereinafter referred to as petitioner No.3, W.P.No.773 of 1985 filed by Ch. Textile Mills Limited, hereinafter referred to as petitioner No.4, W. P. No.859 of 1985 filed by Crescent Textile Mills Limited, hereinafter referred to as petitioner No.5, W.P.No.860 of 1985 filed by Crescent Board Limited, hereinafter referred to as petitioner No.6, and W.P.No.1141 of 1985 filed by Rahmat Poultry Farm, hereinafter referred to as petitioner No.7, challenging the notices issued to them for the second time under section 65 of the Income-tax Ordinance, 1979, by their respective Income-tax Officers for the assessment years shown in the subsequent paragraph.
2. The brief facts of the case are that the petitioner No.l filed his income-tax return under section 55 of the Income-tax Act, 1922, for the assessment year 1978-79, whilst petitioners Nos.2 to 7 filed their income-tax returns under the Self-Assessment Scheme under section 55 of the Income-tax Ordinance, 1979, for the assessment years 1979-80, 1980-81, 1980-81, 1980-81, 1980-81 and 1980-81, respectively. The Income-tax Officers concerned assessed petitioner No.l under section 23(3) of the old Act on 24-1-1979 and petitioners Nos. 2 to 7 under section 59(1) of the new Act on 29-5-1980, 29-12-1980, 25-8-1980, 25-8-1980, 25-8-1980 and 23-8-1980, respectively. Notices of assessments and demands were accordingly issued to the petitioners. However, on 1-4-1981, 1-4-1981, 31-12-1980, 15-1-1981, 5-4-1981, 14-12-1980 and 10-2-1981, the Income-tax Officers issued notices to petitioners Nos.1 to 7 respectively under section 65 of the Income-tax Ordinance, 1979, to submit their returns afresh for additional assessment, on the grounds that they had been under assessed, or assessed at too low a rate, or they had been the subject of excessive relief. The petitioners accordingly submitted their revised returns.
3. In the meantime, section 65 of the Income-tax Ordinance, 1979, was amended .on 14-6-1982 by the Finance Ordinance, XII of 1982, which introduced a new subsection (3-A) as follows:
"(3-A) Where a notice under subsection (1) has been issued, no order under the said subsection shall be made after the expiration of one year from the end of financial year in which such notice was served."
4. Additional assessments were thereafter made by the Income-tax Officers on 30-6-1983, 30-6-1983, 30-6-1983, 30-4-1983, 29-6-1983, 30-6-1983 and 5-6-1983 on petitioners Nos.1 to 7, respectively. Being aggrieved by the said orders, petitioners Nos. l to 5 preferred appeals against the same, whereas petitioners Nos. 6 and 7 filed writ petitions in the High Court challenging the additional assessments. The Commissioner of Income-tax (Appeals) by his orders dated 26-3-1984, 26-3-1984, 10-3-1984, 10-3-1984 and 26-3-1984 passed in favour of petitioners Nos.1 to 5 respectively accepted their appeals and annulled their additional assessments, whereas the High Court by its orders dated 15-11-1983 and 15-11-1982 in favour of petitioners Nos.5 and 6 accepted their writ petitions and set aside their additional assessments. After these orders, the Income-tax Officers concerned passed consequential orders in favour of petitioners Nos.1 to 7 under section 132 of the Income-tax Ordinance, 1979, writing off the demands from their books.
5. On 14-6-1984, Finance Ordinance, XXXVIII of 1984, was promulgated, which amended section 65 of the Income-tax Ordinance, 1979, by substituting subsection (3-A) of the said section with the following:
"(3-A) Where a notice under subsection (1) is issued on or after the first day of July, 1982, no order under the said subsection shall be made after the expiration of one year from the end of the Financial year in which such notice was served."
This subsection was given retrospective effect from 14-6-1982.
6. Notwithstanding the fact that no appeals were filed by the Income-tax Officers concerned against the appellate orders of the Commissioner of Income-tax (Appeals) passed in favour of petitioners Nos.1 to 5, or against the decision of the High Court passed in writ petitions which were decided in favour of petitioners Nos. 6 and 7, the Income-tax Officers concerned on 8-1-1985, 8-1-1985, 26-1-1985, 31-1-1985, 23-2-1985, 23-2-1985 and 23-2-1985 issued fresh notices to petitioners Nos.1 to 7 under section 65 of the Income-tax Ordinance, 1979, calling upon petitioners Nos.1 to 7 respectively to file fresh returns in the prescribed form for additional assessments in respect of the same assessment years.
7. The notices issued by the Income-tax Officer to petitioners Nos. l and 2 on 8-1-1985 and 8-1-1985, respectively intimated that he proposed to re-assess the petitioners in respect of escaped income. The notice issued by the Income-tax Officer to petitioner. No.3 on 26-1-1985 intimated that he proposed to re-assess the petitioner in respect of escaped income and also on the ground that its income had been assessed under section 59(1). The notices issued by the Income-tax Officers to petitioners Nos.4, 5, 6 and 7 on 31-1-1985, 23-2-1985, 23-2-1985 and 23-2-1985, respectively intimated that they proposed to re-assess the said petitioners in respect of escaped income and also on the ground that its income had earlier been assessed under section 59(1).
8. Being aggrieved by the issue of the aforesaid notices by the income-tax Officers proposing to re-assess the petitioners Nos. 1 to 7 for the second time, the said petitioners filed writ petitions in the High Court as stated in para 1 above, challenging the issue of the said notices by the said officers. Further proceedings were stayed by the High Court in respect of petitioners Nos.1 to 7 on 15-4-1985, 15-4-1985, 18-2-1985, 2-3-1985, 2-3-1985, 2-3-1985 and 22-4-1985, respectively. In view of the expiry of the stay order, after the lapse of six months, as provided by Article 199(4-A) of the Pakistan Constitution, 1973, the Income-tax Officer issued notices to petitioners Nos. 1 and 2 on 20-5-1986 and 20-5-1986, respectively for the completion of the additional assessments, which he finally completed within the period of limitation on 31-12-1986 and 31-12-1986 respectively, after issue of notices to petitioners Nos.1 and 2. No notices were issued by the Income-tax Officers to petitioners Nos. 3 to 7 after the expiry of their stay orders and till date of conclusion of arguments in these cases, no second assessments were completed by the Income-tax Officers concerned in respect of these petitioners. All these writ petitions are now before me for disposal.
9. On behalf of the petitioners it is submitted that the substitution of the new subsection (3-A) to section 65 of the Income-tax Ordinance 1979, by the new subsection (3-A) with retrospective effect from 14-6-1982 cannot have the effect of disturbing the cases which were concluded and closed under the old law, as they amount to post and closed transactions. In this connection, learned counsel have cited Barnala Commission Shop v. Income-tax Officer P L D 1963 Lah. 311 and 320, Nagina Silk Mills Lyallpur v. The Income-tax Officer P L D 1963 S C 322, Ghulam Haider Shah v. Chief Land Commissioner, Sindh 1983 C L C 1585, Works Co-operative Housing Society v. Karachi Development Authority P L D 1969 S C 430, Commissioner of Sales-tax v. Kruddsons Ltd. P L D 1974 S C 180 and 184; Hotel Industries Pvt. Ltd. v. Province of West Pakistan P L D 1978 Lah. 53 and 57; Limm v. Mitchell L.R. 1912 A.C. 400; and Eyre v. Wynn-Mackenzie 1986 1 Ch. D. 135. It is also submitted that where a decision of the superior most Court changes, cases earlier decided on the basis of the old interpretation cannot be reopened to affect past and closed transactions. In this connection, the Income-tax Officer Central-II, Karachi. v. Cement Agencies Limited P L D 1969 S C 322 is referred. It is stated that in this case the Supreme Court referred with approval the cases of Lemm v. Mitchell (supra) and Eyre v. Wynn-Mackenzie (supra). It is next contended, relying upon para 284 of Crawford on Statutory Construction, that whilst pending appeals may not be exempted from the operation of curative statutes, the best rule is that a final judgment should not be effected. Or stated coversely, until the judgment is final, it is subject to the power of the legislature to enact curative legislation. It is further contended, relying upon page 339 of Craies on Statute Law, 7th Edition, that Courts endeavouring to protect vested rights have refused to allow statutes to have a retrospective operation, although their language seemed to imply that such was the intention of the legislature, because if they were so construed, vested rights would be defeated. It is next contended that the first additional assessments having all been annulled, the said decisions, which invested rights in favour of petitioners Nos.1 to 7, impliedly acted as res judicata and prevented the Income-tax Department from making second additional assessments on the basis of the same material and facts. In this connection, the Commissioner of Income-tax East Pakistan v. Wahid-uz-Zaman P L D 1965 S C 171 and 177 is referred. It is next contended that the issue of the second notices under section 65(1) of the Income-tax Ordinance, 1979, by the Income-tax Officers were ab initio void, for the Income-tax Officers neither had any fresh material to open up the cases nor had secured the approval of their Inspecting Assistant Commissioners of Income-tax, as a result of which they could not reassess the petitioners under clauses (a) and (b) of subsection (1) of section 65 and as no second assessment could be made under clause (c) of subsection (1) of the same section, they could not reassess the petitioners under that clause either.
10. On behalf of the respondents a number of submissions have been made. First, that the petitioners should first submit to the jurisdiction of their Income-tax Officers concerned, get their additional assessments finalized and then file appeals before the Commissioner of Income-tax (.Appeals) under section 132 of the Income-tax Ordinance 1979, for till such time that the same is done, it cannot be inferred whether the case of the petitioners is on the basis of the same old material and facts on which they were first reassessed, or on fresh material and facts over and above those on which they were reassessed before, and till this is established, it is not possible for the petitioners to assert that the second reassessments are hit by any principle of implied res judicata arising by virtue of the same matter hawing been dealt with and decided earlier. It is submitted that this High Court has always directed assessees to first submit to the jurisdiction of the Income-tax Officers, so as to get their re-assessments done under section 65 and then come up in writ jurisdiction to challenge the same. In this connection the two cases of Crescent Art Fabrics Ltd. v. Commissioner of Income-tax (W.P.Nos.1359 of 1986 and 1360 of 1986 both decided by the Lahore High Court on 14-4-1986) are referred. Second, it is submitted that the petitioners have a remedy of moving the Commissioner of Income-tax in revision under section 138 of the Income-tax Ordinance, 1979 and since the petitioners have not availed of the said remedy, they should be directed to do so. Third, it is submitted that there is no bar under section 65 of the Income-tax Ordinance in serving a second, a third, or a fourth notice on an assessee in respect of the same assessment year, provided definite information or material has come to hand showing that income has escaped assessment, or has been under assessed, or assessed at too low a rate, or has been the subject of excessive relief or refund. It is submitted that the only bar is that a detailed scrutiny under clause (c) of subsection (1) of section 65 cannot be made twice, by virtue of the bar contained in that clause. Fourth, that by virtue of the amendment made to subsection (3-A) of section 65 of the Income-tax Ordinance, 1979, by the Finance Ordinance, 1984, with retrospective effect from 14-6-1982, additional assessments on the basis of the second notices issued to the petitioners under section 65 can be completed before the expiration of one year from the end of the financial year in which such notices are served. It is submitted that since the amendment to subsection (3-A) took effect retrospectively from 14-6-1982, the second additional assessments under section 65 can be made. Enactments dealing with limitation are treated as relative to procedure and are retrospective in the sense that their provisions will apply to proceedings, which have already commenced at the time of their enactment. In this connection, Noor Muhammad v. The Province of the West Pakistan (P L. D 1966 B.J. 19) is referred. Fifth, that since the first additional assessments made under section 65 in respect of petitioners Nos.1 to 7 were annulled by the Commissioner of Income-tax (Appeals) or by the High Court only because of technical defects, the said orders did not bar the second additional assessments. In this connection, a decision of the Income-tax Appellate Tribunal, Dacca Bench, delivered on 2 7-12-1969 in S.T.A. 325 of 1958-69 (parties' names not available) and Chatturam Horilram Ltd. v. Commissioner of Income-tax, Bihar & Orrisa (1955, 27 I T R 709) are referred. Sixth, that wherever fresh information or material comes to light, a fresh…
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