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Official Citation: 2014 PTD 2085
Court / Jurisdiction: Appellate Tribunal Inland Revenue
Year of Decision: 2024
Decision Date: 2024-10-07
Parties: Mr. M Jahangir Muggo, Faisalabad vs The CIR, Zone-AEOI, Lahore
This judicial decision was delivered by the Appellate Tribunal Inland Revenue on 2024-10-07. The matter involves proceedings between Mr. M Jahangir Muggo, Faisalabad and The CIR, Zone-AEOI, Lahore, officially reported as 2014 PTD 2085. The court reviewed applicable Pakistani statutes, procedural requirements, and governing case-law authorities. The full text below contains the complete facts, arguments, and legal reasoning rendered by the honorable bench.
Case cited as 2014 PTD 2085
Court Name: Appellate Tribunal Inland Revenue Judge(s): Tariq Mahmood Khan, Ch. Muhammad Tarique Title: Mr. M Jahangir Muggo, Faisalabad vs The CIR, Zone-AEOI, Lahore Case No.: ITA No. 2460/LB/2024 (Tax Year 2022) Date of Judgment:2024-10-07 Reported As: PTCL 2025 CL. 163 Result: Appeal accepted
Judgment
ORDER: CH. MUHAMMAD TARIQUE MEMBER.--(1). The instant income tax appeal has been directly preferred by the taxpayer before this Tribunal against the impugned order passed under section 122(5A) of the Income Tax Ordinance, 2001 ("the Ordinance 2001"), on 24.05.2024 by the Additional Commissioner Inland Revenue, Range-II, Zone-AEOI, Lahore ("assessing officer") for the tax year 2022 because the Commissioner Inland Revenue (Appeals) did not have pecuniary jurisdiction to decide the appeal after coming into force of the Tax Laws Amendment Act, 2024. 2. At the outset, the learned AR attended the proceedings was specifically asked by us as to whether the appellant would like to opt for alternate dispute resolution u/s 134A of the Ordinance, 2001. The AR of the appellant after seeking instructions from the appellant refused to opt for alternate dispute resolution. 3. Succinctly, facts of the case are that the appellant, an individual, filed his income tax return for the relevant tax year declaring income at Rs. 54,683,823/-, which constituted deemed assessment under section 120(1) of the Ordinance, 2001. Subsequently, examination of assessment record revealed certain discrepancies owing to which it was observed by the assessing officer that the deemed assessm ent order was erroneous in so far as it was prejudicial to the interest of revenue. Accordingly, the appellant was confronted through show cause notice u/s 122(9) read with section 122(5A) of the Ordinance, 2001 seeking explanation in respect of foreign source income of Rs. 113,538,278/- declared as exempt in the income tax return for the tax year under consideration. Subsequently, a notice u/s 111(1)(b) of the Ordinance, 2001 was also issued to seek the explanation of the appellant on the issues under consideration. In response thereto, the appellant contested
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the issues on both factual and legal grounds through written and verbal arguments, however, the reply of the appellant was found unsatisfactory by the assessing officer, therefore, the proceedings were culminated by passing the impugned order u/s 122(5A) of the Ordinance, 2001 in the following manner: Income declared Rs. 54,691,390 Addition on account of Foreign Income u/s 11(5)Rs. 113,538,278 Total taxable income Rs. 168,222,101 Demanded income tax Rs. 39,738,397 4. On the date fixed for hearing the learned counsel for the appellant pleaded that the impugned order of the learned OIR suffers from serious legal and factual infirmities and is not maintainable. It was asserted that the order is bad in law and without jurisdiction as the same has not been passed within the period of adjudication prescribed under first proviso to section 122(9) as extension of time period allowed by the Commissioner is not lawful as per case law on the subject. Moreover, it was asserted that the OIR invoked the provisions of section 122(5A) on the ground that deemed assessm ent was erroneous and prejudicial to revenue. However, proceedings for probing the matter were conducted in audit-like manner which is beyond the scope of section 122(5A). Learned AR explained that the learned OIR, vide show cause notice dated 25.08.2023, required the taxpayer to produce relevant documents/record on which return has been relied. Subsequently, through an explanatory notice dated 14.12.2023, the taxpayer was required to provide relevant clause of the tax treaty and copies of the returns filed by the taxpayer with His Majesty's Revenues and Customs (HMRC). Through a further reminder dated 08.05.2024, the assessing officer again called for additional explanation along-with all the documentary evidence. Records show that by an online request dated 15.05.2024, the appellant requested the OIR to specify what documentary evidence was required and also contended that evidence cannot be called in proceedings under section 122(5A). However, instead of clarifying, the learned OIR passed the order on 24.05.2024 while "rejecting" the adjournment request. Hence, assumption of jurisdiction under section 122(5A) was clearly without lawful authority beside based upon presumption. It was pleaded that underlying assessm ent cannot be treated as "erroneous" where there is issue of interpretation of law on the point which is pending before the superior courts especially on the instance of the department. Learned counsel further argued that the learned OIR while refusing exemption of foreign source income solely relied upon the provisions of section 11(5) of the Ordinance and completely overlooked the fact that agreements made under section 107 for avoidance of double taxation have overriding effect against regular provisions of law. It was further stated that the learned OIR grossly erred in interpreting the provisions of double taxation treaties between Governments of Pakistan, United Kingdom and the United Arab Emirates. Referring to various Articles of the tax treaties of Pakistan with the UK and the UAE, learned AR explained that foreign source income declared by the appellant comprised property income, capital gain, and interest which could only be taxed by the foreign jurisdictions of source country. Therefore, exemption from Pakistan tax was rightly claimed by the taxpayer. Learned AR of the taxpayer further stated that the issue under consideration with special reference to overriding effect of tax treaties has already been elaborated by the Tribunal in an identical case vide order dated 08.09.2022 in ITA No. 4299/LB/2022 titled Arshad Gulzar versus the CIR, AEOI, Lahore. He added that the learned OIR refused to follow aforesaid judgment with the observation that the department was not bound to follow ATIR decision and that a reference against said order had been filed before the High Court. It
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was argued that the ignoring a binding judgment of ATIR by the learned OIR is against established principles as well as FBR instructions. 5. Learned DR, on the other hand, fully supported the OIR's order for the reasons recorded therein and argued that the order was passed within lawfully extended time limitation and no exemption from Pakistan tax was available to the foreign source income arising in the UK and the UAE as per respective Agreements for Avoidance of Double Taxation and Fiscal Evasion with the said jurisdictions. It was added that it is the foreign tax credit and not the exemption from Pakistan tax which has been provided for under the aforesaid treaties as well as under the Ordinance. Therefore, claimed exemption of foreign source income was illegal and had been rightly refused by the OIR. The DR pleaded that in ITA No. 1524/IB/2021 dated 07.11.2022 a different view has been taken by learned ATIR and the same precedent being later in time, ought to be followed. The learned DR requested to uphold the impugned amendment order. 6. We have given due consideration to the contentions of both sides and have carefully gone through the available record. Before dilating upon the legal issue of the time limitation within which adjudication/assessm ent proceedings could have been finalized, we deem it appropriate to place relevant facts on record which have been ascertained from the amendment order and copies of IRIS correspondence produced during hearing. As per amendment order, show cause notice was issued on 25.08.2023 and apart from reply dated 05.12.2023 another explanation was filed by the taxpayer on 02.04.2024 which was final compliance/reply by the taxpayer. After this compliance/reply amendment order should have been passed within the prescribed limitation of 180 days plus 90 days of adjournments which was expired on 15.04.2024. Instead of finalizing the proceedings and passing amended assessment order on or before 15.04.2024, another reminder was issued to the appellant-taxpayer on 16.04.2024. Through the said reminder, the taxpayer was informed that as per procedure laid down by the Supreme Court in C.P. No. 2447-L/2022, the OIR is of the opinion that addition under section 111(1)(b) is to be made. Before due date of 23.04.2024 the assessing officer requested the Commissioner for extension of adjudication period for 90 days and the Commissioner vide order sheet entry dated 19.04.2024 extended the time limitation to 24.07.2024. Later on, the order was passed on 24.05.2024 wherein no addition under section 111(1) (b) was made, however. As such, it is clearly evident that the order was passed after 273 days of issuance of show cause notice. 7. As per first proviso to section 122(9) the Commissioner ay, for reasons to be recorded in writing, extend the period of 180 days by 90 days. However, neither the extension order of the Commissioner was served upon the taxpayer nor the same has been attached on the IRIS with the impugned order to ascertain the reasons for giving extension. Question arises what the status of extension order will be if reasons for such extension are either not given or the reasons are not justified. This question was first settled by the Supreme Court in a case reported as PTCL 2017 CL. 736 in the following terms: "7. From the plain language of the first proviso, it is clear that the officer was bound to pass an order within the stipulated time period of forty-five days, and any extension of time by the Collector could not in any case exceed ninety days. The Collector could not extend the time according to his own choice and whim, as a matter of course, routine or right, without any limit or constraint; he could only do so by applying his mind and after recording reasons for such extension in writing. Thus the language of the first proviso was meant to restrict the officer from passing an order under Section 36(3) supra whenever he wanted. It also restricted the Collector from granting unlimited extension The curtailing of the powers of the officer and the Collector and the negative character of the language employed in the first proviso point towards its mandatory nature, This is further supported by the fact that the first proviso was inserted into Section 36(3) supra through an amendment (note:-- the current Section 11 of the Act, on the other hand, was
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enacted with the proviso from its very inception in 2012). Prior to such insertion, undoubtedly there was no time limit within which the officer was required to pass orders under the said section. The insertion of the first proviso reflects the clear intention of the legislature to curb this earlier latitude conferred on the officer for passing an order under the section supra. When the legislature makes an amendment in an existing law by providing a specific procedure or time frame for performing a certain act, such provision cannot be interpreted in a way which would render it redundant or nugatory Thus, we hold that the first proviso to Section 36(3) of the Act land the first proviso to the erstwhile Section 11(4) and the current Section 11(5) of the Act] is/was mandatory in nature." Bare reading of underlined part of the judgment supra indicates that giving justifiable reasons in writing for granting extension in limitation period is mandatory. After holding so, it was held in para 9 of the same judgment by the honorable Supreme Court that non-compliance to a mandatory provision would invalidate such act. Said para reads as follows: "9. Another aspect of the matter is that when a statute requires that a thing should be done in a particular manner or form, it has to be done in such manner. But if such provision is directory, the act done in breach thereof would not be void, even though non-compliance may entail penal consequences. However, non-compliance of a mandatory provision would invalidate such act. In this context, reference may be made to the case of Rubber House Vs. Excelsior Needle Industries Pvt. Ltd (AIR 1989 SC 1160). Thus, having held the first proviso to Section 36(3) supra to be mandatory, the natural corollary of non-compliance with its terms would be that any order passed beyond the stipulated time period would invalid" 8. It is thus established that an extension granting order without giving justifiable reasons for such extension is invalid and an order passed beyond initial limitation in such circumstances will be of no legal effect. In holding so, we are further strengthened by another judgment of the Supreme Court reported as PTCL 2020 CL. 159 wherein it was held that where extension was granted in routine and no actual reason existed, such extension order was invalid and inoperative, and that the order-in-original passed beyond initial time limit was nullity. Relevant, extract from the judgment reads as follows: "8. After having heard learned counsel as above, and considered' the record, we were of the view that the appeal ought to be allowed, and did so by means of a short order announced in Court. As noted above, the matter relating to the giving of reasons by the Collector had been considered by the learned High Court in the impugned judgment, in the context of the question of law proposed by the appellant as arising from the order of the learned Appellate Tribunal. Therefore, with respect, it cannot be said that the issue was raised here for the first time. As regards the merits of the point, it is clear that the order of extension made by the Collector was contrary to law, as explicated by this Court in para 7 of the judgment in Super Asia. Indeed, in cautioning his officers to make out a proper case for extension in the future by "giving solid reasons for delay" the Collector had very obviously taken the view that no such reasons existed in the actual case before him. In other words, in the appellant's case, the extension was granted "as a matter of course, routine or right" in direct contradiction of the law laid down by this Court. We may note that learned counsel for the Department had also sought to argue that the order of extension was made on 24.09.2010 whereas the judgment in Super Asia was given on 31.03.2017 and therefore, Anything said therein ought not to apply to the former. With respect, we are quite unable to agree. The law declared by this Court as to the proper interpretation and application of the first proviso to subsection (3) applied fully to the order of extension under consideration. 9. Since the Collector's order was invalid and inoperative in law, it followed that there had been no lawful extension of time, which meant that the order-in-original ought to have been made by the Additional Collector within ninety days of 13.06.2005, i.e., by 12.09.2005. Since it was admittedly
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made beyond that date it was invalid, and nonexistent in law. It ought therefore to have been quashed and the forums of appeal including the High Court in tax reference, erred materially in failing to do so." 9. It is further relevant to bring here that a full bench of the ATIR in a judgement reported as PTCL 2022 CL. 817 has considered the issue of giving opportunity of hearing before granting extension of period of adjudication with reference to action 11(5) of the Sales Tax Act, 1990 which is identical to section 122(9) of the Income Tax Ordinance, 2001. The relevant extract is as under: "15. From the above, it transpires that the Assessment Order shall be passed within stipulated period of 120 days from the date of issuance of the show cause notice. Reliance in this regard is placed on: 2015 PTD 1068; 2014 PTD (Trib.) 448; PTCL 2017 CL 736; PTCL 2020 CL 576; PTCL 2019 CL 555 and PTCL 2016 CL. 513. In all these cases, it has been held that the first proviso to the current section 11(5) of the Act is mandatory in nature, and the natural corollary of non-compliance with their terms would be that any order passed beyond the stipulated time period would be invalid. Suffice it to say that, if the 60 days time excluded for adjournments is taken into account, even then the impugned Assessment order is time barred. It is trite law that a thing required by law to be done in a certain manner must be done in the same manner as prescribed by law or not at all. Reliance is placed on PTCL 2002 CL. 1; 2003 SCMR 1505; 2014 SCMR 1015; 2020 CLC 106 (LHC) and 2020 YLR 2297. It is also settled law that an order passed on the file but not communicated to the affected party within the prescribed limit could not be treated as having been passed within the prescribed period. Reliance is placed on 2022 PTD 809; PTCL 2018 CL 72 and 2007 PTD 430. 16. As far as extension granted by the Commissioner I.R till 04 09 2018 is concerned, the appellant has asserted that the extension given by the Commissioner upto 04.09.2018 is illegal and in support thereof the judgments of the Honorable Supreme Court reported as 1989 SCMR 1881, PTCL 1983 CL. 46 have been referred. In these cases, it has been held; that an opportunity of being heard ought to have been given to the respondent before orders for extension were made. In addition, the issue relating to extension granted by the Commissioner has now been thoroughly discussed by the Appellate Tribunal Inland Revenue. Islamabad in a recent decision reported as PTCL 2022 CL. 281 wherein the following dictum has been laid down: "The aforesaid application was accepted by the CIR on the same date without giving any justifiable reasons and without any opportunity of being heard having been given to the appellant. The appellant therefore, got no chance to resist the application for extension and to show that no sufficient cause had been shown and that therefore, no order of extension was justified or should be granted. "In our opinion under such circumstances, a determination requires a judicial approach, and cannot be done ex-parte. After insertion of Article 10-A in the Constitution of Pakistan, 'fair trial" and "due process" are fundamental rights of every citizen for determination of his civil rights and obligations. Before passing the order, reason should be confronted and be given an opportunity of being heard. Reliance may be placed on in a recent judgment Sarfraz Saleem vs. FOP and others (PLD 2014 SC 232) has held: "4............ every person, for determination of his civil rights and obligations or in any criminal charge against him shall been entitled to a fair trial and due process." In another case Babar Hussain Shah and another vs. Mujeeb Ahmed Khan and another (2012 SCMR 1235) the Honorable Court has highlighted the import of Article 10A in the words:- "11.... concept of fair trail and due process has always been the golden principles of administration of justice but after incorporation of Article 10-A in the Constitution Islamic Republic of Pakistan, 1973 vide 18th Amendment, it has become mere important that due process should be adopted for conducting a fair trial and order passed in violation of due process might be considered to be void"
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Further in the judgment titled The University of Dacca through its Vice-Chancellor and the Registrar, University of Dacca v. Zakir Ahmed, (PLD 1965 SC 90) wherein it was observed that:- "19. Besides, it is an immutable principle that in all proceedings whether judicial or administrative, the principles of natural justice have to be observed if the proceedings might result in consequences affecting the person or property or other right of the parties concerned. Therefore, where a person is empowered to take decisions after a factual investigation into the facts which would result in consequences affecting the person, property, or any rights of any other person, then the courts have inclined generally to imply that the power so given is coupled with the duty to act in accordance with the principles of natural justice and fairness." Therefore, we are of the considered opinion that before passing the order for extension in time under the proviso of sub section (2) of Section 14 of the Act, the affected parties must be given an opportunity of being heard and thereafter pass a speaking order. Therefore, the answer to question No (iii) is in the negative against the department. In view of the above, it is now settled principle of law that prior to granting extension, it is the bounden duty of the Commissioner I.R to provide an opportunity of hearing to the affected parties. However, in the instant case, no such opportunity has been granted which renders the extension order illegal void. The impugned Assessment order is thus time barred and there is plethora of judgments. Reference in this regard may be made to 2009 PTD 1247, 2011 SCMR 676=2011 PLC (C.S) 856 and 2020 CLC Note 12 Hence, following these decisions, it is established that the extension, granted by the Commissioner I.R is not as per law and the Assessment order is not passed within the stipulated period of the Sales Tax Act, 1990 and hence is time barred." In the light of the aforesaid binding precedents of superior courts and full bench of the ATIR, the extension order of Commissioner dated 19.04.2024 is found to be unlawful and having no legal consequence. Therefore, we hold that the amendment order passed on 24.05.2024 is time barred as the time period of 180 plus 90 days' period expired on 15.04.2024 with reference to show cause notice issued on 25.08.2023. 10. As far as merits are concerned, it is noted that as per revised return for tax year 2022 filed under section 114(6) of the Ordinance 2001, the taxpayer had declared "exempt foreign income" as under: Foreign Sources Description Code Total AmountAmount exempt from tax/subject to Fixed/Final taxAmount subject to Normal tax Foreign Income6000113,538,278 113,538,278 0 Foreign Property Income/(Loss)6029 7,820,624 7,820,624 0 Foreign capital gains6049105,628,135105,628,135 0 Foreign Other Sources Income/(Loss)6059 89,519 89,519 00 From perusal of the prescribed columns of the return of total income reproduced above, it is evident that there was a column in the return of total income wherein the taxpayer was supposed
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to declare amount exempt from tax. The appellant-taxpayer in the relevant column of "amount exempt" entered the amount of his foreign source income. The country-wise detail of income provided to the learned OIR as well as produced before us reveals the following position: Country Property incomeCapital gainsInterest UK Rs. 3,104,413 Rs. 100,684,895Rs. 50,962 UAE Rs. 4,716,213 Rs. 4,943,239 Rs. 38,556 Total Rs. 7,820,626 Rs. 105,628,135Rs. 89,519 In order to see whether aforesaid classes of income are chargeable to tax in Pakistan, we have examined the Agreements for Avoidance of Double Taxation and Fiscal Evasion between Pakistan and the UK as well as between Pakistan and the UAE. Relevant provisions of both the treaties are reproduced below: Treaty with the UK: Article 6 Article 14 Article 11 Income from immovable propertyCapital gains Interest 6.1 Income derived by a resident of a Contracting State from Immovable property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other State.14.1. Subject to the provisions of paragraph 2 of this Article, capital gains which arise in a Contracting State may be taxed by that State in accordance with the provisions of its domestic law.11.1 Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other Contracting State. 6.2 The term "immovable property" shall have the meaning which it has under the laws of the Contracting State in which the property in question is situated. The term shall in any case include property accessory to immovable property, livestock and Equipment used in agriculture and forestry, rights to which the provisions of general law respecting landed property apply, usufruct of immovable property and rights to variable or Fixed payments as consideration for the working of, or the right of work: mineral deposits, sources and other natural14.2. Gains from the alienation of ships or aircraft operated in international traffic and any property, other than immovable property, pertaining to the operation of such ships or aircraft shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated.11.2 However, such interest may also be taxed in the Contracting State in which it arises and according to the laws of that State, but if the recipient is the beneficial owner of the interest the tax so charged shall not exceed 10 per cent of the gross amount of the interest.
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resources. Ships, boats, and aircraft shall not be regarded as immovable Property. Treaty with the UAE: Article 6 Article 14 Article 11 Income from immovable propertyCapital…
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