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Petitioner: Messrs TRI-STAR INDUSTRIES (PVT.) LTD. through Director and 8 others VS Respondent: THE COMMISSIONER OF INCOME-TAX, COMPANIES-I, KARACHI and 5 others
Court Name: Sindh High Court Judge(s): Rasheed A. Rizvi Title:Messrs TRI-STAR INDUSTRIES (PVT.) LTD. through Director and 8 others vs
THE COMMISSIONER OF INCOME-TAX, COMPANIES-I, KARACHI and 5 others Case No.: Suit No,957 of 1996 Date of Judgment:1998-07-31 Reported As: 1998 PTD 3923 Result: Order accordingly Judgment ORDER ' This suit is filed by some nine plaintiffs who claim that they are Tri-Star Group of Companies and duly registered under the provisions of the Companies Ordinance, 1984. The defendants are various authorities working under the Commissioner of Income-tax as established by the provisions of the Income Tax Ordinance, 1979 (hereinafter referred to as the Ordinance, 1979). This suit is for recovery of Rs,200,000,000 (Rupees two hundred million only) as damages. There are three applications pending in this suit. The first application which I intend to deal first is C.M.A. 5242 of 1996 filed by the defendants under Order VII, Rule 11, of the Code of Civil Procedure, 1908 (hereinafter referred to as C.P.C.), seeking rejection of the plaint. The second application is under Order XXXIX, Rules 1 and 2, C.P.C. (C.M.A. 5117 of 1996) filed by the plaintiffs. The last application is again filed by the plaintiffs under section 151, C.P.C. (C.M.A. 4340 of 1998) seeking appointment of Commissioner for the purpose of supervising return of the original record seized by the Income Tax Authorities during a raid conducted on 10-9-1996. 2. The facts leading to filing of the instant suit are, that on 10-9-1996 at about 11-40 a.m. a team comprising several Income-tax Officers inclusive of defendant No,3 namely M. Musharraf Akhund, Additional Commissioner of Income-tax Range-III, Companies-III, Karachi, raided the two offices of plaintiffs situated at F-498 and F-538, S.I.T.E., Karkhi and collected/seized all office record, documents, books of accounts, computers and diskettes etc. Etc. Without preparing any memo/inventory and after packing them into 19 gunny bags and 54 cartons, took them away to the Income-tax Office. It is claimed in the plaint that the said acts and deeds of the defendants were highly unauthorized, illegal and mala fide. It is further claimed that such acts are also violative
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of the fundamental rights as guaranteed in the Constitution, 1973. It is further alleged in the plaint that despite all efforts of the plaintiffs, these documents and record were not delivered back to them and that the proceedings for assessment have been initiated on the basis of all such record seized during the above raid. It is this act of raid and confiscation of record which has been impugned in this suit with the following reliefs : "A. Declaration that the action of defendants in impounding/confiscating all the records of the plaintiffs, without preparation of the inventory at the plaintiffs' business premises is arbitrary, illegal, mala fide and is violative of rules of natural justice and Constitution. B. Permanent injunction against the defendants, their subordinates, person(s) working under or through them, restraining them from taking any coercive and prejudicial action against the plaintiffs and its Directors pursuant to their unlawful and arbitrary action based on unlawfully obtained evidence, if any, and/or from creating any hindrance in the management and operation of the plaintiffs' business. C. Direct the defendants to return the plaintiffs' seized record including F.E.B.Cs, Bearer NIT Units and other valuables in excess of Rs,100 Million, forthwith. D. In the alternative damages in the sum of Rs,200 Million may be paid by the defendants jointly and severally to the plaintiffs with mark-up at the rate of 20% from the date of filing the suit till realization thereof." 3. Defendants have filed their written statement as well as counter- affidavit denying various allegations of and mala fide as alleged in the plaint and justifying the act of raid and seizure of records. In addition to the denial of these allegations of the plaintiffs, some four preliminary legal objections were also raised in their written statement namely:--- (i) That the suit is barred under section 162 of the Income Tax Ordinance, 1979; (ii) that the suit is also barred by sections 42 and 56 of the Specific Relief Act; (iii) that the suit is bad for non-joinder of necessary parties, namely, Federation of Pakistan and Central Board of Revenue; and (iv) that the suit has been filed by an unauthorized person. 3. For early determination of the above objections, the defendants have also, filed an application under Order VII, Rule 11, C.P.C. (C.M.A. 5242 of 1996) with the prayer that the plaint be rejected. Since the plaintiffs have alleged in paras. 2 and 3 of their plaint that a very large number of items of records were removed from their office, which fact has not been specifically denied by the defendants in their written statement, and since it has come on record as a result of Commissioner's report that a very large number of documents and computer diskettes were recovered from the office of the plaintiff, I am inclined to take into consideration these admitted facts for the purpose of deciding the application under Order VII, Rule 11, C.P.C. I am fortified in my view by the rule laid down in the case Jewan and 7 others v. Federation of Pakistan and 2 others 1994 SCMR 826 at 830, where it was held, inter alia, by the Hon'ble Supreme Court that in addition to the plaint, if there is some other material before the Court at the stage when no evidence is recorded and which is admitted by the plaintiff, the same can also be looked into and taken into consideration by the Court while rejecting the plaint under Order VII, Rule 11, C.P.C. Why and under what circumstances the Commissioner was appointed is reflected in the order of this Court, dated 6-3-1997 which reads as follows:-- "Learned counsel for the defendants at the initial stage of the hearing of this application requested for time to file their counter-affidavits but they were refused since in my view sufficient time was granted to them and no plausible explanation was offered for not submitting the same today. I have heard all the parties. It is contended by Mr. Abid S. Zuberi that the defendants are not returning to the plaintiffs their records, computers, N.I.T. Units, F.E.B.Cs. Etc. Etc. Which is creating hurdles in running of their business. Perusal of counter-affidavit filed by the defendants in reply to injunction application shows that on 21-9-1996, one Assistant Commissioner of Income Tax, Karachi
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has already written to the plaintiffs that they should collect their documents on 21-9-1996 at 2-00 p.m. But the plaintiffs were not able to appear before the said officer. Even today, learned counsel for the defendants have taken the same stand that they are willing and prepared to deliver those documents as mentioned in Annexure 'D-XIX' to their counter-affidavit as referred above. In view of these circumstances, I grant this application with the following conditions: (i) Mr. Waqar Lodhi, Advocate, having office at 1st Floor, Assad Chambers, near Passport Office, Sadar, Karachi, is appointed' Commissioner in whose presence the plaintiffs, defendants and/or their nominees shall search and locate for records and after preparation of inventories, the same shall be handed over to the plaintiffs or their nominees in presence of the said Commissioner. Defendants shall be entitled to retain copies of all such documents as provided under section 146 of the Income Tax Ordinance, 1979. In case, any N.I.T. Units, F.E.B.Cs. Or any other valuable securities are found, the same shall be returned to the plaintiffs after obtaining acknowledgment. All such acceptance, search, sealing, descaling, acknowledgments, preparation of inventories etc. Etc. Shall be done in the presence of the above named Commissioner. (ii) The defendants shall also hand over all the six computers to the plaintiffs after the Commissioner has obtained the print outs of all the entries. The learned Commissioner shall deposit all such print outs, diskettes etc. With the Nazir of this Court in sealed envelopes which are to be retained till further orders from this Court." ' Tentatively, fee of the Commissioner is fixed at Rs,2,000 (Rupees two thousand only) per day as an interim arrangement. The plaintiffs, shall deposit a sum of Rs,10,000 as advance Commissioner's fee with the Nazir of this Court within one week. All the parties are directed to assemble on 12-3- 1997 at 3-00 p.m. In the office Dr. Muhammad Ali, Deputy Commissioner, Income-tax, Company Zone-II. This inspection shall be carried out on day to day basis in-between 3-00 p.m. To 5-00 p.m. (minimum two hours every day). 4. Pursuant to the above order, learned Commissioner Mr. Waqar Lodhi, Advocate, High Court conducted inspection of the record and filed his report dated 24-4-1997 which came up for consideration on 9-2-1998 when by consent but subject to all just exceptions, the Commissioner's report was accepted and was brought on record. According to the Commissioner's report, the proceedings were conducted for 22 days with minimum two working hours each day. During these proceedings, computer print outs were taken out of six computer process units and were kept in the envelopes where after they were sealed and signed in the presence of the parties; that some 13 disketts/floppies which were impounded were delivered by the Income Tax Authorities to the Commissioner. Nearly 45 full size envelopes were sealed containing computer print outs and disketts/floppies. The said record comprising of books of accounts and registers etc. Were checked and were locked in eight Almirahs in the premises of Income-tax office. Inventories of the record were also prepared by the learned Commissioner in the presence of the parties which he has also filed along with his report. These inventories are spread over 51 pages. 1 have referred all these facts as both the parties have heavily relied upon the provisions of section 146 of the Income Tax Ordinance, 1979 justifying and challenging the acts and deeds of the Income Tax Authorities in raiding and seizing of the aforesaid record. In order to understand their submissions, it would be pertinent to reproduce section 146 of the Income Tax Ordinance, 1979 which reads as follows:--- "146. Power to enter and search business premises.---The Inspecting Additional Commissioner or the Deputy Commissioner or any other officer authorised in this behalf by the Central Board of Revenue or if so authorised in writing by the Inspecting Additional Commissioner or the Deputy Commissioner to whom he is subordinate, an Inspector of Income-tax may, for the purpose of making any inquiry, enter the premises in which a person carries en, or is believed to carry on, his business or profession, and may-- (a) search such premises and inspect any accounts or documents;
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(b) stamp such accounts or documents or take extracts or copies thereof; (c) impound such accounts or documents and retain them for so long as may be necessary for examination thereof. Or for the purpose of prosecution; and (d) make any inventory of any articles found in such premises. (2) The Director-General ' of Investigation and Intelligence, the Commissioner and the Inspecting Additional Commissioner may make any enquiry which they consider necessary as respects any person liable or believed to be liable to assessment under this Ordinance or require any such person to produce or cause to be produced any accounts or documents which they consider necessary, and shall have the same powers for the purpose of making any such enquiry of requiring the production of accounts or documents under this Ordinance as the Deputy Commissioner has (3) Notwithstanding anything contained in this Ordinance, the Deputy Commissioner may, with the prior approval of the Commissioner, authorize any value to enter any place and inspect such accounts and documents as may be necessary' to enable him to make a valuation of any 'asset for the purpose of section 67." 5. I have heard Mr. Abid S. Zuberi and Mr. Athar Saeed, Advocates for plaintiffs and M/s. Nasrullah Awan and Munirur Rehman, Advocates for defendants. Mr. Nasrullah Awan has attacked the maintainability of suit and prayed for rejection of the plaint on the following four grounds:--- (a) that the suit is barred by section 162 of the Income Tax Ordinance, 1979; (b) that the suit is also barred by sections 42 and 56 of the Specific Relief Act; (c) that the suit is bad for non-joinder of necessary parties, namely, Government of Pakistan-and Regional Commissioner of Income tax; (d) and that the suit was filed without any resolution passed by any of the plaintiff companies and without any power of attorney as provided under Order XXIX, Rule 1, C.P.C. 6. Firstly, I intend to deal with the question of bar contained in section 162 of the Income Tax Ordinance, 1979 which reads as follows:--- "162. Bar of suits in Civil Courts.---No suit shall be brought in any Civil Court against any order made under this Ordinance, and no prosecution, suit or other proceeding shall lie against any person for anything in good faith done or intended to be done under this Ordinance." ' In support of his submissions that this Court has no jurisdiction, Mr. Nasrullah Awan has referred to an unreported case of Abbas S. Shroff and another v. Miss Farzana and 4 others (Suit No,1118 of 1990), Al-Ahram Builders (Pvt.) Ltd. v. Income Tax Appellate Tribunal (1993 SCMR 29) and The Batala Engineering Co. Ltd. v. The Income-tax Officer, Lahore (1973 SCMR 282). He has also relied upon the case of Pooran Mal v. Director of Inspection, Income-tax, New Delhi and others (1974) 93 ITR 505). It was argued that once the law has provided an hierarchy for settling income-tax disputes, a plaintiff cannot be permitted to circumvent the same by filing a suit. He has referred to the provisions of sections 129, 134 and 138 of the Income Tax Ordinance, 1979 and contended that the remedy, if any, available to the plaintiff is before the Income Tax Authorities. He has termed the acts of raid on the offices of the plaintiffs and seizure/impounding of their records as bona fide, legal and authorised. Reliance was placed on the provisions of section 146 of the Ordinance, 1979. In reply to the submissions of Mr. Awan, it was argued by Mr. Abid S. Zuberi that there is no assessment order in the field and that the plaintiffs are challenging the acts of the defendants which are beyond the scope of section 146. To meet this situation, it was contended by Mr. Nasrullah Awan that the raid conducted under section 146 is a step towards an assessment, and, therefore, it is to be deemed to be part and parcel of an act amounting to assessment, thus the jurisdiction of this Court is barred and no suit will be maintainable. Mr. Abid S. Zuberi has placed reliance on the cases of Abbas S. Sharoff (supra), Usman Panjwani and another v. Government of Sindh and another
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(1996 CLC 311). The Province of East Bengal v. Dewan Abdul Alim PLD 1960 Dacca 274 and The State of Tripura v. The Province of East Bengal (AIR 1951 SC 23). 7. Mr. Abid S. Zuberi as well as Mr. Nasrullah Awan both have relied upon the case of Abbas S. Sharoff and another v. Miss Marzana and 5 others (Order dated 2-4-1998 in Suit No,1118 of 1990) and argued for and against the maintainability of this suit. In the said unreported case, a suit for declaration and mandatory injunction was filed in respect of sale of an immovable property. One of the reliefs sought in the plaint was that the assessment order dated 31-8-1988 be declared to be mala fide, illegal, null and void and that the defendant No,5, who, in that case, was Income-tax Officer be declared to have no jurisdiction to pass the said order. Almost all the cases cited by Mr. Nasrullah Awan in this case were considered, in the case of Abbas S. Sharoff (supra) namely, Income-tax Officer and another v. M/s. Chappal Builders (1993 SCMR 1108), Al-Ahram Builders (Pvt.) Ltd. v. Income-tax Appellate Tribunal (1992 PTD 1671), The Commissioner of Income-tax, Karachi and 2 others v. M/s. N.V. Philip's Gloeilampenfabriaken (PLD 1993 SC 434) and Regional Commissioner of Income-tax, Corporate Region and 2 others v. Shafi Muhammad Baloch (1998 SCMR 376). In addition to these cases, some more cases from the Indian jurisdiction as well A from Pakistan jurisdiction were noted where question of jurisdiction of a Civil Court in an Income-tax matter was considered namely, Dayaram Ramdas v. Secretary of State (AIR 1925 Sindh 130), Raleigh Investment Company Ltd. v. The Governor-General-in-Council (PLD 1947 PC 19 = AIR 1947 PC 78), Ravi Paint Colour and Varnish Works Ltd. v Federation of Pakistan (PLD 1954 Lah. 551), Nagina Silk Mills Ltd., Lyallpur v. Income-tax Officer, Lyallpur (PLD 1963 SC 322). After resume of the above case-law, it was then held by me that where the legislators have established a special forum or Tribunal for redress of grievances, bringing such grievances before the Civil Courts after bypassing the remedy provided under the relevant statute, is contrary to the spirit of such special law and that section 9 of the C.P.C. Will come into play and no suit would lie. It was further held that in order to maintain a suit challenging any order passed by any authority duly constituted under the Income Tax Ordinance, 1979, a plaintiff is required to show presence of three elements, i,e, mala fides on the part of the authority who has passed the order which is subject-matter of the suit; secondly, any illegality which is patent on the face of record and lastly, absence of jurisdiction to pass order under challenge. 8. The question of ouster of jurisdiction of Civil Court was earlier considered by a Full Bench of the Hon'ble Supreme Court in the case of Zafarul Hasan v. The Republic of Pakistan (PLD 1960 SC 113). In that case an objection was raised by the then Attorney-General that in view of section 10 of the Public Conduct (Scrutiny) Ordinance, 1959 jurisdiction of all the Courts including the Supreme Court is ousted. It was held, inter alia, "If a statute provides that an order made by an authority acting under it shall not be called in question in any Court, all that is necessary to oust the jurisdiction of the Courts is that the authority should have been constituted as required by the statute, the person proceeded against should be subject to the jurisdiction of the authority, the ground on which action is taken should be within the grounds stated by the statute, and the order made should be such as could have been made under the statute. These conditions being satisfied, the ouster is complete even though in following the statutory procedure some omission or irregularity might have been committed by the authority. If an Appellate Authority is provided by the statute, the omissions or irregularity alleged will be a matter for that authority, and not, as rightly observed by the High Court, for a Court of law. Of course, where the proceedings are taken mala fide and the statute is used merely as a cloak to cover an act which in fact is not taken though it purports to have been taken under the statute, the order will not, in accordance with a long line of decisions in England and in this sub-continent, be treated as an order under the statute." Recently, the same view was renewed by another Bench of Hon'ble Supreme Court in the case Abbasia Cooperative
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Bank and another v. Hakeem Hafiz Muhammad Ghaus and 5 others PLD 1997 SC 3 at 8 where it was held as follows:--- ' ...It is a well-settled principle of interpretation that the provision contained in a statute ousting the jurisdiction of Courts of genera! Jurisdiction is to be construed very strictly and unless the case falls within the letter and spirit of the barring provision, it should not be given effect to. It is also well- settled law that where the jurisdiction of the Civil Court to examine the validity of an action or an order of Executive Authority or a Special Tribunal is challenged on the ground of ouster of jurisdiction of the Civil Court, it must be shown (a) that the authority or the Tribunal was validly constituted under the Act; (b) that the order passed or the action taken by the authority or Tribunal was not mala fide; (c) that the order passed or action taken was such which could be passed or taken under the law which conferred exclusive jurisdiction on the authority or Tribunal; and (d) that in passing the order or taking the action, the principles of natural justice were not violated. Unless all the conditions mentioned above are satisfied, the order or action of the authority or the Tribunal would not be immune from being challenged before a Civil Court. As a necessary corollary, it follows that where the authority or the Tribunal acts in violation of the revisions of the statutes which conferred jurisdiction on it or the action or order is in excess or lack of jurisdiction or mala fide or passed in violation of the principles of natural justice, such an order could be challenged before the Civil Court in spite of a provision in the statute barring the jurisdiction of Civil Court." (Emphasis added). 9. The scope of section 9 of the Indian Civil Procedure Code, which is similar in nature to section 9 of the Pakistani, C.P.C., camp up for consideration before the Indian Supreme Court in reference to the provisions of Madhya Bharat Sales Tax Act, 1950 in the case Dhulabhai etc. v. The State of Madhya Pradesh and another AIR 1969 SC 78. In that case different suits were filed for declaration that the provisions of law relating to assessment under the M.B. Sales Tax Act, 1950 be declared ultra vires and for consequential relief. It was prayed by the plaintiffs in that suit that the amount of the tax illegally collected be refunded. As much as 17 reported cases from Indian and English jurisdiction were considered. The four appeals arising out of the same question of law, were accepted, judgments of the High Courts were set aside and the suits filed by the. Appellants were decreed. After considering the adverse views expressed in different reported cases, it was held, inter alia, by the Indian Supreme Court that where the statute gives a finality to the orders of Special Tribunal and if there is an adequate remedy to do what the Civil Courts would normally do in a suit, the Civil Court's jurisdiction is excluded. It was further held that such provision shall not exclude the jurisdiction of a Civil Court where the statutory Tribunal has not acted in conformity with the fundamental principles of judicial procedure; that where the Special Act contains no machinery for refund of tax collected in excess of the Constitutional limits or illegally collected then suit lies for such recovery and that a civil suit does not lie questioning the correctness of assessm ent if the orders of the authorities are declared to be final. The view held in the case Dhulabhai (supra) was followed by another Bench of Indian Supreme Court in the case of Raja Ram Kumar Bhargava v. Union of India AIR 1988 SC 752. In that case the appellants were the legal successors of the deceased plaintiff who filed a suit for recovery of interest on certain refunds of income-tax and Excess Profit Tax which were made under the Indian Income-tax Act, 1922 and the Excess Profit Tax Act, 1940. The appeal was partly allowed by the Indian Supreme Court. It was held, inter alia, that wherever a right, not pre-existing in common law, is created by a statute and that statute itself provides a machinery for the enforcement of such right, both the right and the remedy having been created uno flatu and a finality is attached to the result of the statutory proceedings, then, even in the absence of exclusionary provisions, the Civil Court's jurisdiction is impliedly barred. It was further observed that "where a right pre-existing in common law is recognized by the statute and a new statutory remedy for its enforcement is provided, without
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expressly excluding the Civil Court's jurisdiction, then both the common law and the statutory remedies might become concurrent remedies leaving open an element of election to persons of inherence". 10. Now, I will proceed to examine the case of plaintiffs from the point of view whether the acts of the defendants in resorting to the modalities provided under section 146 of the Ordinance, 1979 are mala fide, in excess of authority conferred by the law and unauthorized as alleged by the plaintiffs. I am fully conscious of the rule that the Court should avoid giving any final opinion while deciding an interlocutory application. But in order to ascertain whether this suit falls within the purview of section 162 of the Ordinance, 1979, it is imperative to examine whether there exist, prima…
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