Tax case laws 2011

PLJ 2011 Tax Cases (Lah.) 17
Present: Kh. Farooq Saeed, J.
M/s. NAZMAFK (PVT) LTD. through Chief Executive--Petitioner
versus
FEDERATION OF PAKISTAN through its Secretary, Islamabad and 3 others--Respondents
W.P. No 18776 of 2008, heard on 6.5.2009.
Constitution of Pakistan, 1973--
---Art. 199--Customs Act, 1969, S. 32--Maintainability of writ jurisdiction--Where the petitioner succeeded in persuading that the invocation of jurisdiction under the provision of S. 32 of Customs Act, 1969 was not lawful, the writ jurisdiction would be maintainable. [P. 20] A
Customs Act, 1969 (IV of 1969)--
----S. 195--Validity of--S. 195 of the Customs Act, 1969 could be applied where the legality or proprietary of any decision of the subordinate was challengable, however, the proceedings therein could be initiated only on the basis of inspection of record itself and not on the basis of information collected from outside--Petition was dismissed. [P. 20] B
Mian Abdul Ghaffar and Malik M. Arshad, Advocates for Petitioner.
Sh. Izharul Haq, Advocate for Respondents.
Date of hearing: 5.6.2009.
Judgment
This writ petition will dispose of W. P. No. 18776, W.P. No. 18777 and W.P. No. 18778 of 2008, as the common questions of law are involved in both these writ petitions.
2. Brief facts leading to this writ petition are that the petitioner is a limited company incorporated under Companies Ordinance, 1984. The company exported consignment of Stainless Steel Scrap at unit value of US$ 400.00 to 500.00 per Metric Ton, vide bill of export out side Pakistan. All the consignments were 100 % examined and assessed and thereafter allowed to be exported. The export of the aforesaid goods attracted regulatory duty @ 25 % in terms of SRO 482(I)/2007 dated 9.6.2007 on the assessed value and accordingly the same was sent abroad.
3. Now the petitioners were served with show-cause notices alleging therein that the respondent has received an information that the value of the aforesaid goods for export purposes and charging regulatory duty is at the lower side. Further, according to KCH data the value should have been assessed @ US$ 1450.00 per Metric Ton. The said show-cause notice has been issued under Section 32(1) read with Sections 178 and 179 punishable Clause (14) of Section 156(1) of the Customs Act, 1969.
4. All these notices have now been challenged inter alia on the basis of following grounds--
(a) that the initiation of the proceedings against the petitioners on the basis of the information is not justified further.
(b) That Section 32 in the situation does not come into picture.
(c) That it is a case where the import is already out of charge and the goods after receipt have been further alienated to the other parties. This case has attained finality and in the such situation the provision of Section 32 does not apply.
5. This in his opinion is covered under Section 195 and in this regard he has relied upon (2009 P.T.D 467) re: `Messrs S.T Enterprises through Proprietor Vs. Federation of Pakistan through Secretary (Revenue Division FBR), Islamabad and 4 others". Incidentally the said judgment has been decided by this Court. The judgment in fact is distinguishable in the manner that it has explained the circumstances in which the Section 32 can be invoked. However, it has not distinguished between the areas on which Section 32 or 195 can respectively be applied. The circumstances mentioned therein are in respect of the language provided of the said section.
6. Further reliance has been placed on (2009 P.T.D 246) re: `Messrs Zibtec (Pvt) Ltd. through Director and another Vs. Collector of Customs, Model Customs Collector and 3 others". In the judgment now referred this Court has explained the jurisdiction of the Collector of Customs. It has been said that the order passed by Principal Appraiser Customs can only be re-opened by Collector of Customs while exercising jurisdiction under Section 195. Further that Collector of Customs can only revise the order if any illegality or irregularity is committed by the Principal Appraiser or its subordinate. Any such order by Deputy Collector of Customs against the order of Principal Appraiser was without jurisdiction and lawful authority qua the right of the importer.
7. On an objection from the respondents side that the petitioners have alternate remedies, learned counsel claims that the writ petition in fiscal matter has been allowed to be entertained where the matter relates to the jurisdiction. Since in the present case issuance of a notice under Section 32 is without jurisdiction and the case could only be reassessed under Section 195, jurisdiction has not properly been exercised. Reliance is on (1992 S.C.M.R 250) re: "Messrs Julian Hoshang Dinshaw Trust and others Vs. Income Tax Officer, Circle XVIII Sought Zone, Karachi and others", (1999 S.C.M.R 1072) re: "Gatron (Industries) Limited Vs. Government of Pakistan and others", (PTCL 2001 CL, 196) re: "Maple Leaf Cement Factory Limited Vs. Collector of Customs, Customs House, Faisalabad" and (2008 P.T.D. 1494) re: "Messrs Toyo International Motorcyle thorough Proprietor Vs. Federation of Pakistan through Secretary (Revenue Division) Central Board of Revenue, Islamabad and 3 others".
8. The goods exported having properly been appraised under provision of Section 25(15), therefore, had attained finality, hence the invocation of provision of Section 32 is not lawful, the learned counsel finally concluded.
9. The respondents case on the other hand is that in any case alternate remedies are available, hence, approaching this Court directly is un-necessary. Further the petitioners value being ridiculously low in comparison to the similar items exported by the other traders, the department had full right to review and re-check and consequently re-appraise the consignments exported. He again objected to the maintainability of a writ petition and referred (1999 S.C.M.R 1881) re: "Khalid Mehmood Vs. Collector of Customs, Customs House, Lahore".
10. So far as the issue of maintainability of the writ jurisdiction is concerned, one would not refrain to entertain if the petitioner succeeds in persuading that the invocation of jurisdiction under the provision of Section 32 is not lawful. In fact this Court is not convinced with the arguments that the provision of Section 32 are not invokeable in this case.
11. The petitioners made a statement before the authorities with regard to the value of their imported goods knowingly that the same was not the correct value and have also submitted documents with regard thereto on the basis of which the same was determined and made out of charge. Subsequently on the basis of parallel cases, the petitioners if have got a reason to believe that the value earlier appraised is low, the Section 32 would apply with full force.
12. Knowledge of a document or import value at the time of filing G.D if not disclosed truly makes the person guilty. The language is very clear and leaves no doubt with regard thereto. Hence if information outside the record of the proceedings highlights such incorrect disclosure Section 32 applies.
13. Section 195 deals with a different situation. It starts from the language that the customs Collector or Federal Board of Revenue after calling for the record and inspection of the proceedings can further proceed in the matter. It does not apply where the information comes to the knowledge from the other sources.
14. It is true that it can be applied where the legality or proprietary of any decision of the subordinate is challengeable, but, however, the proceedings therein can only be initiated on the basis of the inspection of record itself and not for the reason of the information collected from out side. Apparently, this is the basic difference, but, however, this Court leaves it for some other case for detailed discussion.
15. In the present case, there are all the reasons to believe that Section 32 (1) is wide enough to cover the under statement or submission of wrong documents.
16. Regarding whether the information with the department is strong enough to re-appraise the value is concerned, the same is left for the consideration of the departmental hierarchy, where the petitioners shall obviously have the chance to avail of regular appellate jurisdiction.
17. The writ petition, therefore, is decided against the petitioners by holding that Section 32 is applicable in principle. However, whether the facts of the case in terms of evidence with the department is good enough for re appraisal or not is left for the consideration of the respondents where the alternate remedy is available and can be invoked if so advised.
18. Disposed of.
(A.A.) Petition dismissed.

PLJ 2011 Tax Cases (Pesh.) 21 (DB)

Present: Yahya Afridi & Liaqat Ali Shah, JJ.

M/s. A.G.E. INDUSTRIES (PVT.) LTD.--Appellant

versus

I.A.C. OF INCOME TAX--Respondent

F.A.O. No. 84 of 2000 Converted in S.A.O. No. 17 of 2000,

decided on 2.7.2010.

Interpretation of Statutes--

----Remedial legisation--"Statutory construction" by sutherland, observes that the term "remedial" has a limited meaning in two respects--They are usually used in connection with legislation, which is not penal or criminal in nature, in that such laws do not impose criminal or other harsh penalties and secondly the said term is often implied to describe legislation, which is procedural in nature in that it does not effect substantive rights. [P. 30] A

Income Tax Ordinance, 1979 (XXXI of 1979)--

----S. 80(c)--Clause 9 Part IV of 2nd Schedule--Amendment in Clause 9 is simply a change in the mode of assessment, thus procedural in nature--Under the original provision of Clause 9, the assessee was required to file written declaration to opt out or remain outside the scope of presumptive tax regime provided under Section 80-C of the Ordinance--Whereas after the amendment, the assessee would only be assessed under the presumptive tax regime of Section 80-C of the Ordinance, when it gave a written option to that effect--What the amendment has actually done is to change the mode, which is procedural. [P. 31] B

Interpretation of Law--

----The procedural law, if altered and that too for the benefit of the assessee then in such a case, the amendment would be retrospective and applicable to cases, which are pending before a forum prescribed by law. [P. 31] C

Mr. Issac Ali Qazi, Advocate for Appellant.

Mr. Eid Muhammad Khattak, Advocate for Respondent.

Date of hearing: 27.5.2010.

Judgment

Yahya Afridi, J.--By this single judgment, we shall decide the two appeals (SAO No. 17/2000 and SAO No. 18/2000) both preferred by M/s. AGE Industries (Pvt.) Limited under Section 136 of the Income Tax Ordinance, 1979 assailing the consolidated judgment of Income Tax Appellate Tribunal dated 30.11.1999, as common questions of law and facts are involved in both the appeals.

2. The appellant has raised the following questions of law for decision of this Court. By this single judgment, we shall decide the two appeals (SAO No. 17/2000 and SAO No. 18/2000), both preferred by M/s. A.G.E. Industries (Pvt.) Limited assailing the consolidated judgment of Income Tax Appellate Tribunal dated 30.11.1999, as common questions of law and facts are involved in both the appeals.

2. The appellant has through the instant appeals filed under Section 136 of the Income Tax Ordinance, 1979 ("Ordinance") sought the opinion of this Court on the following questions of law:--

I. Whether under the circumstances of the case where the Appellant, a corporate body who maintained proper audited account under the Companies Ordinance, 1984 and who derive Income both from manufacture and sales of wires and cables in the open market, through various other modes and who has been filing returns u/S. 55 ibid for composite income arising out of multiple income generation activities was liable to file declaration under clause-9 part-VI of the Second Schedule to the Ordinance for exclusion from the presumptive tax regime u/S. 80-C which exclusively dealt with income of the person who solely derive income either from Imports or contract supplies.

II. Whether under the circumstances the Appellant who has filed a proper return Under Section 55 ibid and finalized under Section 62 and have a multiple source of income can be assessed under Section 80. Tax on Income of certain contractors and importers the presumptive tax regime.

III. That without prejudice to the above, the Appellant's declaration dated 27.3.1993 of exclusion from Section 80-C is not a valid declaration as required by Clause-9 and its rejection on mere grounds that it has not been filed with the returns for the assessment years 1993-94 is not frivolous and mala fide and whether mere on the basis of the procedural lapse, exposing the Appellant to undue liability is justified.

IV. Whether reopening of the Appellant case u/S. 66-A is not mala fide to frustrate the legitimate Refund Claim of the Appellant.

V. Whether under the circumstances and provisos to Clause-9 where admittedly the Appellant filed a final and irrevocable declaration dated 27.3.1993 under Clause-9 Part-IV of second Schedule for the assessment year 1993-94 for exclusion from the presumptive tax regime is effective for the subsequent years, hence, the demand that option of exclusion should be filed every year is not misconceived one.

VI. Whether the reopening the assessment u/S. 66 is not tantamount to bifurcate of the income of Appellant made its income subject to criteria i.e. u/S. 62 and Section 80-C and allowable by the provisions of the Income Tax Ordinance 1979.

VII. That without prejudice to the all other questions whether the amendment brought in Clause-9 Part IV to the Second Schedule by way of replacing the phrase "who opts out of" by the phrase "unless he opts for" is not correcting the mischief in clearing the ambiguity existing to save the assessment who maintains proper account.

VIII. Whether under the circumstances of the case, the order u/S. 66-A is not illegal, where the original assessment completed under Section 62 with the approval and consultation of the Inspecting Assistant Commissioner Respondent-I.

IX. Whether the Respondents have not acted contrary to the spirit and soul of Income Tax Ordinance, 1979 in bringing the Company/assessce who is maintaining proper account and dragging them to the non-account record presumptive tax regime under Section 80-C which was only introduced to bring the income of those assessees who are not maintaining a proper account and books, hence the implementation of 80-C is not misconceived one."

2. The brief and essential facts, which form the background and led to the present appeals, are that the appellant company is a body corporate registered under the Companies Laws of Pakistan and is engaged in the manufacture and sale of wires and cables. The company derives its income from sale of wires and cables for which it has set up its manufacturing unit at Peshawar. The appellant company has since its incorporation been filing its income tax returns within the normal procedure based on audited account as provided under Section 55 of the Ordinance. The said returns filed were assessed under Section 62 of the Ordinance and on scrutiny and finalization, the assessment have been duly complied with by the appellant company.

3. The Inspecting Additional Commissioner Income Tax/Wealth Tax, Peshawar exercising his authority under Section 66-A of the Ordinance, served a notice dated 5.10.1998 upon the appellant company for revising the assessment orders for the years 1994-95 and 1995-96. The reason stated for the said notice was that during the relevant period, the appellant had made supplies to various Government Departments for which taxes had been deducted under Section 50(4) of the Ordinance. Thus it came within the presumptive tax regime under Section 80-C of the Ordinance. The option to remain outside the scope of the presumptive tax regime was the requirement to submit a written option with the returns for the said year as provided under Clause 9 of Part IV of the Second Schedule of the Ordinance ("Clause 9"), which appellant company had failed to submit as per requirement of law.

The record reveals that the assessment orders for the years 1993-94 to 1996-97 were scrutinized. The assessment orders for the years prior to 1994-95 were kept intact due to the period of limitation and for the years subsequent to 1995-96 were not disturbed or interfered with because of the amendment in Clause 9, Part IV in Schedule 2 of the Ordinance entertained by the Finance Act, 1996.

The appellant company in response to the said notice, resisted the claim of the Revenue and insisted that they had never opted for the said presumptive regime and in fact had rendered a written option to the Revenue to remain out of the presumptive tax regime.

The Inspecting Additional Commissioner Income Tax did not agree with the stance taken by the present appellant company and ordered the revision of the assessment orders of the appellant company for the years 1994-95 and 1995-96.

Accordingly, after the fresh assessment, the appellant company was assessed under Section 80-C of the Ordinance. The particulars of the income tax assessed under the two regimes are as follows:--

Assessment Under Section Under Section

years 62 80-C

1994-95 Rs. 1.773 million Rs.1.931 million

1995-96 Rs.3.180 million Rs.3.668 million

The present appellant being aggrieved of the revised assessment carried out in pursuance of notices under Section 66- A of the Ordinance, impugned the same. The said appeal finally came up to the Income Tax Appellate Tribunal and was dismissed vide impugned order dated 30.11.1999. Hence, the present appeals.

4. The learned counsel representing the Revenue raised a preliminary objection regarding the questions of law raised by the present appellant in the appeals. He contended that as the said questions of law have not been taken by the appellant as grounds of appeal before the Income Tax Appellate Tribunal, this Court could not entertain the same in its advisory jurisdiction under Section 136 of Ordinance. The learned counsel relied upon Commissioner of Income Tax Vs. Maqbool Ahmad Gill (2007 PTD 1757), Mountain States Mineral Enterprises Vs. Commissioner of Income Tax (2008 PTD 1087), Hirgina and Co. Vs. Commissioner Sales Tax (1971 SCMR 128), The Lunglatea Co. Vs. Commissioner of Income Tax (1970 SCMR 872).

5. The learned counsel for the appellant contended that that the jurisdiction of this Court under Section 136 of the Ordinance was extensive and it could decide any question of law, which arose from the order of the Income Tax Appellate Tribunal, even if the same had not been dealt with by the tribunal. Reliance was placed on Amin Spining Mills Vs. Deputy Collector Central Excise (2004 PTD 2479), Commissioner of Income Tax Vs. National Refinery Ltd. (2003 PTD 2020).

6. Before we move on to the merits of the case, it would be appropriate to resolve this preliminary issue. The august Supreme Court of Pakistan in Ahmad Karachi Halwa Marchant Vs. The Commissioner of Income Tax (1982 SCMR 489) while discussing the expression "rising out of such order" as provided in Section 66(1) of the Income Tax Act, 1922 stated that the said expression:

"....does not include within its concept a question of law which was not raised, argued or decided by the Tribunal. This Court in PLD 1959 SC (PAK) 202 has not given any wider import to the expression and has confined it to a question of law, which is dealt with by the Tribunal. This in our view would not include a question of law which was neither raised nor dealt with by the tribunal."

This view has been re-affirmed by the august Supreme Court in M/s. Madar-i-Millat Pakistan Ltd. Vs. Commissioner of Income Tax (2006 SCMR 526), Mst. Nisar Bibi Vs. Muhammad Shafique Ahmad (2007 SCMR 977).

In view of the above pronouncement of the Supreme Court, we would agree with the submissions of the learned counsel representing the Revenue, and hold that we shall under our advisory jurisdiction under Section 136 of Ordinance only consider the questions of law taken by the appellant as grounds of appeal, argued or discussed by the Income Tax Appellate Tribunal.

7. It would be pertinent to note that the grounds of appeal, which were raised by the present appellant before the Income Tax Appellate Tribunal were the following:--

"1. That the order cancelled and re-assessed by the L/IAC is un-lawful, un-justified and uncalled for.

2. As per Clause-9 of Part-IV of Second Schedule irrevocable option was to be given if the assessee intends to exclude the supplies out of tax regime of Section-80C.

3. Option for exclusion of tax regime u/S. 80-C as per Clause-9 Part-IV of Second Schedule was given vide letter dated 27.2.1993 and which is available on record. Even if such option was not exercised. The tax deducted at source could not be treated as final tax liability as per Clause-9 of Part-IV of Second Schedule.

4. That order u/S. 66 A is illegal because original assessment was completed u/S. 62 with the approval/consultation of the IAC."

8. Now keeping the aforementioned principle of law enunciated by the August Supreme Court and the grounds taken by the appellant in their appeals before the Income Tax Appellate Tribunal, our opinion on questions of law is as under:

Questions of law No. I, II, III, IV, V, VI, IX.

This Court considers that the aforementioned questions of law were not raised by the appellant before the Income Tax Appellate Tribunal and hence we are constrained not to render our opinion of the said questions of law.

9. Whereas, regarding questions of law raised, argued and discussed by the Income Tax Appellate Tribunal our decision on the same is as follows:--

Questions of law No. VII

That without prejudice to the all other questions whether the amendment brought in Clause-9 part IV to the Second Schedule by way of replacing the phrase "who opts out of" by the phrase "unless he opts for" is not correcting the mischief in clearing the ambiguity existing to save the assessment who maintains proper account.

Section 80 (C) of the Ordinance provides:--

"80-C. Tax on income of certain contractors and importers:--

(1) Notwithstanding anything contained in this Ordinance or any other law for the time being in force, where any amount referred to in sub-section (2) is received by or accrues or arises or is deemed to accrue or arise to any person, the hole of such amount shall be deemed to be income of the said person and tax thereon shall be charged at the rate specified in the First Schedule.

(2) The amount referred to in sub-section (1) shall be the following namely:--

(a) Where the person is a resident,--

(i) the amount representing payment on which tax is deductible under sub-section (4) of Section 50, other than payments on account of services rendered.

(ii) the amount as computed for the purpose of collection of tax under sub-section (5) of Section 50 in respect of goods imported, not being goods imported by an Industrial undertaking as raw material for its own consumption; and.

(iii) the amount on which tax is deductible under sub-section (7-A) of Section 50 in respect of lease of right to collect octroi duties, tools, fees or other levies, by whatever named called; and);

(b) Where the person is a non-resident, the amount representing payments on account of execution of a contract for construction, assembly or like project in Pakistan on which tax is deductible under sub-section (4) of Section 50.

(3) Nothing contained in this Ordinance shall be construed as to authorize any allowance or deduction against the income as determined under sub-section (1) or any refund of a deducted or collected under Section 50 set off of any loss under any provision of this Ordinance.

(4) Where the assessee has no income other than the income referred to in sub-section (1) in respect of which tax has been deducted or collected the tax deducted or collected under Section 50 shall be deemed to be the final discharge of his tax liability under this Ordinance and he shall not be required to file the return of total income under Section 55.

Clause 9 Part IV of 2nd Schedule of the Ordinance as it originally stood prior to the amendment brought in the said clause through the Finance Act of 1996 read as follows:--

"Clause 9, Part-IV of the Second Schedule

The provisions of Section 80-C insofar as they relate to payments on account of the supply of goods on which tax is deductible under sub-section (4) of Section 50 shall not apply in respect of any person, being a manufacturer of such goods, who opts out of the presumptive tax regime:

Provided that a declaration of final and irrevocable option is furnished in writing alongwith the return of total income under Section 55:

Provided further that nothing contained in this clause shall apply to any manufacturer of goods for which special rates of deduction of tax are specified under clause (c) of sub-section (4) of Section 50."

The Finance Act of 1995 amended the said clause by replacing the words "opts out of" with the words "opts for". Thus with the said amendment the said clause read as:

"Clause 9, Part-IV of the Second Schedule

Provided that a declaration of final and irrevocable option is furnished in writing alongwith the return of total income under Section 55:

The learned counsel for the appellant company contended that the amendment introduced in Clause 9, through Finance Act, 1996 was declaratory or remedial in nature and hence would have retrospective effect. He added that the presumptive tax regime would only apply to those persons who have opted for being assessed under the said regime as provided under Section 80-C of the Ordinance.

The assertion of the learned counsel for the appellant company that the amendment is declaratory or remedial in nature requires some elaboration.

A declaratory statute is described in Cranes on Statute Law is an--

"Act to remove doubts existing as to the meaning or effect of statute and it is also stated that the usual reason for passing a declaratory Act is set aside parliament deems to have been a judicial error."

We are afraid that we do not agree with the submission of the learned counsel for the appellant that the amendment is a declaratory statute. There is no evidence or any supporting material to suggest that there was a corrective measure to be taken, which resulted in this particular amendment being introduced through Finance Act, 1996.

Now to the contention of the learned counsel that the said amendment was remedial in nature as the intent of the legislation was to remedy the confusion caused because of the words "opt out of" used in the original Clause 9. By replacing the said words with "opt for", by the said amendment, the then prevailing confusion had been remedied.

Remedial legislation is described in N.S.Bindras Interpretation of Statues (9th Edition-Page 1382) states that the main purpose of remedial legislation;

"...is to keep pace with views of the society. They served to keep our society or system of jurisprudence upto date and in harmony with new ideas or conceptions of what constitute and just proper human conduct. There legitimate purpose is to advance human rights and relationship. Unless they do this they are not entitled to be known as remedial legislation nor to be liberally construed."

"Statutory Construction" by Sutherland, observes that the term "remedial" has a limited meaning in two respects. They are usually used in connection with legislation, which is not penal or criminal in nature, in that such laws do not impose criminal or other harsh penalties and secondly the said term is often implied to describe legislation, which is procedural in nature in that it does not effect substantive rights.

Corpus Juris Secundum, Vol.82 (paragraph 388), which, inter alia, is to the following effect:

"In construing remedial statutes, regard should be had to the forms law, the defects or evils to be cured or abolished, the mischief to be remedied, and the remedy provided, and they should be interpreted liberally to embrace all cases within their scope so as to accomplish the object of the legislature and to give effect to the purpose of the statue by suppressing the mischief and advancing the remedy provided it can be done by reasonable construction in furtherance of the object."

In view of the true import of the benevolent and remedial legislation as discussed hereinabove, we are afraid we do not agree with the submissions of the learned counsel for the appellant company that the amendment introduced in Clause 9 is strictly remedial in nature.

We feel that the amendment in Clause 9 is simply a change in the mode of assessment, thus procedural in nature. Under the original provision of Clause 9, the assessee was required to file written declaration to opt out or remain out side the scope of presumptive tax regime provided under Section 80-C of the Ordinance. Whereas, after the amendment, the assessee would only be assessed under the presumptive tax regime of Section 80-C of the Ordinance, when it gave a written option to that effect. What the amendment has actually done is to change the mode, which is procedural. No substantive right of the appellant has been affected, no new tax has been imposed and only the mode of assessment has been altered.

The procedural law, if altered and that too for the benefit of the assessee then in such a case, the amendment would be retrospective and applicable to cases, which are pending before a forum prescribed by law. We are fortified in our views on this issue by the judgments of the superior Courts in particular Army Welfare Sugar Mills Ltd. Vs. Federation of Pakistan (1992 SCMR 1652) and Commissioner of Income Tax Vs. Shah Nawaz Ltd. (1993 SCMR 73), M/s. Dreamland Cinema Vs. Commissioner of Income Tax Lahore (PLD 1977 Lahore 292), Commissioner of Income Tax Vs. J.D. Sugar Mills (2009 PTD 481).

Questions of law No. VIII

Section 66-A is a comprehensive power, vested in an Inspecting Additional Commissioner to reconsider any decision passed by Deputy Commissioner, which is erroneous and prejudicial to the interest of revenue. This discretion has to be exercised reasonably and on valid grounds. The decision of the said authority can only be made after providing an opportunity to the assessee in whose favour an order has been passed and is the subject of scrutiny. We, therefore, feel that there is no illegality in exercising powers under Section 66-A, even if the assessment orders were under Section 62 of the Ordinance. The only rider to the said opinion is that the conditions precedent provided in Section 66-A of the Ordnance have to be complied with.

10. In view of the above reasons, the decision of this Court on the questions of law are that:--

Question of law No. VII.

The amendment introduced through Finance Act, 1996 in Clause 9 Part IV of the Second Schedule of the Ordinance would have retrospective effect upon the cases of the present appellants. The assessment orders passed under the normal mode of assessment under Section 62 of the Ordinance were valid and the presumptive tax regime provided under Section 80-C of the Ordinance would not apply to the assessments of the present appellant company.

Question of law No. VIII.

The Inspecting Additional Commissioner was competent to exercise his authority under Section 66-A of the Ordinance to serve notices upon the appellant company even when the assessment orders were passed under Section 62 of the Ordinance.

The Registrar of this Court, therefore, shall send a copy of this judgment to the Income Tax Appellate Tribunal which shall pass such orders as are necessary to dispose of the case conformably to this judgment.

Accordingly, the impugned orders are set aside and the appeals are disposed off in the above terms.

(M.S.A.) Appeals disposed of.

PLJ 2011 Tax Cases (SC) 33

[Appellate Jurisdiction]

Present: Sardar Muhammad Raza Khan, Anwar Zaheer Jamali and Khilji Arif Hussain, JJ.

UCH POWER (PVT.) LTD. and others--Appellants/Petitioners

versus

INCOME TAX APPELLATE TRIBUNAL and others--Respondents

Civil Appeals No. 2652-2654/2006, 1328-1336/2009 and Civil Petition Nos. 1462-1482, 1718-1724 and 1772-1774/2009, decided on 29-1-2010.

(On appeal from the judgment dated 19-5-2005 passed by the Islamabad High Court, Islamabad in T.R. Nos. 26, 27 & 51/05, 1 & 2/06, 58, 59, 60 & 61/07 and 1, 2, 3, 63, 161, 162, 163 & 164/08 and 17, 19, 21 & 22/09 and judgment dated 27-7-2009 passed in T.R. No. 3 of 2009 and judgment dated 13-3-2006 passed by the Lahore High Court, Lahore in T.R. Nos. 87 of 88 of 2002 and 457 of 2003).

Income Tax Ordinance, 1979 (XXXI of 1979)--

----Ss. 34 & Cllause 176--Set off of losses--Where the respondent companies incurred losses from business or profession, these losses were not restricted to any particular head of income but the same were adjustable under any other head of income. [P. 48] A

Income Tax Ordinance, 1979 (XXXI of 1979)--

----Ss. 30 & Clause 176--Profit/interest from Bank deposits--Classification of--Where the companies obtained profit from bank deposits, the same was a separate income covered u/S. 30 of the Ordinance and was not entitled to exemption under Clause 176--Appeals were dismissed. [P. 49] B

Mr. Wasim Sajjad, Sr. ASC, Mr. M.S. Khattak, AOR assited by Mr. Mustafa Ramday, Advocate for the Appellants (in C.As. 1328-1336) & for Respondent No. 1 (in C.Ps. 1465, 1466, 1471-1482/09).

Mr. Shahid Hamid, Sr. ASC and Mr. Ikram-ul-Haq, ASC for Appellants (in C.As. 2652-2654/2006).

Hafiz Muhammad Idris, ASC for Petitioners (in C.Ps. 1718-1724, 1772-1774/09) & for Respondents (in C.Ps. 1462-1464, 1467-1470/09).

Mr. M. Iqbal Vehniwal, ASC for Respondents (in C.As. 2652-2654/06).

Mr. Shahid Raza, ASC and Mr. Mehmood A. Sheikh, AOR for F.B.R. (C.As. 1328-1336, C.Ps. 1718-1724 & 1772-1774).

Raja Abdul Ghafoor, ASC for FBR (in C.Ps. 1462-1482/09 only).

Dates of hearing: 28 & 29.1.2010.

Judgment

Anwar Zaheer Jamali, J.--All the above titled forty three civil petitions for leave to appeal/civil appeals, (Civil Petitions for Leave to Appeals No. 1462 to 1482/2009, 1718 to 1724/2009 and Civil Appeals No. 1328 to 1336/2009, preferred against the judgment dated 19.5.2009, passed by Islamabad High Court, Islamabad in T.R. No. 26/05 and twenty other connected T.Rs; Civil Appeals No. 2652 to 2654/2006 preferred against the judgment dated 13.3.2006, passed by the Lahore High Court, Lahore in P.T.R. Nos.87, 88 and 457/2002; Civil Petitions for Leave to Appeal Nos. 1772 to 1774/2009, preferred against the judgment dated 27.7.2009, passed by the Islamabad High Court, Islamabad in T.R. Nos.3, 20 and 55/2009) involving common questions of law and similar controversy for adjudication by this Court are being disposed of by this common judgment.

2. Though, broadly speaking, the questions of law for consideration involved in all these petitions for leave to appeal/civil appeals are about the interpretation and applicability of Clause-176 of Part-I of the IInd Schedule to the Repealed Income Tax Ordinance, 1976 [now corresponding to clause-132 of the Second Schedule to the Income Tax Ordinance, 2001] (hereinafter referred to as "clause 176"), but for better understanding of relevant facts, it will be useful to classify these petitions into five different categories as under:--

(a) Civil Petitions for Leave to Appeals No. 1462 to 1482/2009 (twenty one in number), have been preferred by the Commissioner of Income Tax/Revenue to question the legality of the impugned judgment dated 19.5.2009, to the extent, whereby keeping in view the provisions of clause (vii) to Section 23(1) with Section 34 and the scope of clause 176 of the Ordinance of 1979, set off of losses incurred by the respondent companies, in their respective businesses, were allowed against their interest income specified under Section 30 of the Ordinance, 1979, although their business income as assesses was already exempt from levy of income tax under clause 176 (ibid).

(b) Civil Petitions for Leave to Appeals No. 1718 to 1724/2009 (seven in number), have been preferred by the petitioners, who are engaged in the Private Sector Power Generation Projects, which have been setup in Pakistan on or after 1st July, 1988. In these petitions, the petitioners have challenged the same impugned judgment of the Islamabad High Court, Islamabad dated 19.5.2009, to the extent, whereby, they have been denied exemption under Clause-176 (ibid) on their income generated during the relevant assessment year from interest/profit received on bank accounts, though such Bank accounts were maintained by these companies exclusively for the purpose of their respective power projects, and therefore, such income was incidental to the power projects and thus, entitled for exemption.

(c) Civil Appeals No. 1328 to 1336/2009 (nine in number), are other civil appeals involving similar controversy as raised in the cases at category `b' (supra), wherein, leave was granted by this Court to examine, inter alia, the following contentions raised in these petitions:--

"(1) Whether profits and gains on deposit of funds in Banks maintained for the purpose of Company's electric power generation project, as part of Company's normal business, is exempt from Income Tax Ordinance, 1979?

(2) Whether interest paid on the amount borrowed is deductible under Clause (b) of Section 3(1) of the Income Tax Ordinance, 1979 from profit earned on deposits of such amount in Bank?

(3) Whether the learned Islamabad High Court has correctly interpreted Clause 176 of the Second Schedule Part I and Section 31(1)(b) of the Repealed Income Tax Ordinance, 1979?

(4) Whether exemption of "profits and gains from electric power generation project" under Clause 176 of Part I of the Second Schedule to the Repealed Income Tax Ordinance, 1979 include within its scope the entire income, as consequence of deliberate insertion of the word "Project"?

(5) Whether the judgment in the Genertech case is distinguishable from the present case? and

(6) Whether the learned High Court has correctly interpreted the provisions of the Economic Reforms Act of 1992?"

(d) In Civil Appeals No. 2652 to 2654/2006 (three in number), judgment of Lahore High Court, Lahore dated 13.3.2006, has been challenged by a public limited company (M/s. Kohinoor Energy Limited, Lahore), who are engaged in a Private Sector Power Generation Project, whereby, while interpreting Clause-176 (ibid) vis-a-vis Section 5(2) of the Protection of Economic Reforms Act, 1992, and relying upon the judgment of this Court in the case of Genertech Pakistan Ltd. and others Vs. Income Tax Appellate Tribunal of Pakistan, Lahore and others (2004 SCMR 1319), it was held that income of the petitioners from interest/profit on bank accounts maintained wholly and solely for the purpose and in connection with Power Generation Project was not exempt from income tax by virtue of either Clause-176 (ibid) or Section 5(2) of the Act of 1992. In these cases leave was granted by this Court vide its order dated 13.12.2006, inter alia, to examine the applicability of the above referred judgment of this Court as well as the other subsequent judgment of this Court in the case of AES Pak. Gen (Pvt.) Ltd. Vs. Commissioner Income Tax (C.Ps. No. 2211 and 2212-L/2005) decided on 16.6.2006.

(e) Civil Petitions for Leave to Appeals No. 1772 to 1774/2009 (three in number), arise from the common judgment dated 27.7.2009, passed by the Islamabad High Court, Islamabad, whereby, T.R. Nos. 3, 20 and 25/2009, preferred by the petitioner, a public limited company (M/s. Fouji Kabir Wala Power Company Limited), engaged in the Private Sector Power Generation Project, containing following questions of law for the opinion of the Court, were disposed of:--

(i) Whether the interest income of M/s. Fauji Kabirwala Power Company Ltd., is exempt from income Tax in view of entry 176 of Part-I of the Second Schedule and the said income is included in the profit and gains derived by the assesses from an electric power generation projects?

(ii) Whether the interest paid in respect of capital borrowed by the assesses can be deducted while computing interest income under clause (b) of Section 31 (1)?

(iii) Whether the petitioner is liable to pay worker welfare fund on the interest income?

(iv) Whether exchange loss is not a revenue expenditure on revaluation of Assets and Appellate Tribunal was justified in rejecting the arguments of the Petitioner?"

(v) Whether the income earned by the petitioner on letting out of property is assessable U/S 19 instead of Section 22 and Appellate Tribunal was justified in confirming the order of Assessing Officer?

(vi) Whether the interest received by the Petitioner from WAPDA on delayed payments is not exempt under Clause 176 of 2nd Schedule to the Ordinance being attributable to the business activities of its electric power generation project?"

These questions were answered by the High Court in the manner that following its earlier view contained in the judgment dated 19.5.2009, passed in T.R. No. 26 of 2005 and other connected T.Rs. Questions No. I and II were answered in negative and Question No. III was answered in positive. Further, Questions No. IV, V and VI were also answered in positive.

3. As stated earlier whole controversy involved in these petitions revolves around the interpretation and applicability of Clause 176 of Income Tax Ordinance 1979 (in short the Ordinance), inserted through SRO No. 1046(I)/88 dated 21.11.1988, to the facts of each case. Therefore, it will be advantageous that before recording respective contentions of the learned counsel in this context, for better understanding, same may be reproduced here as under:--

"[(176) Private Sector Power Projects.--Profits and gains derived by an assessee from an electric power generation project set up in Pakistan on or after the 1st day of July 1988:

[Provided that the condition laid down in sub-clause (a) shall not apply to the Hub Power Company Limited]

The exemption under this clause shall apply to such project which is--

(a) owned and managed by a company formed for operating the said project and registered under the Companies Ordinance, 1984 (XLVII of 1984) and having its registered office in Pakistan;

(b) not formed by the splitting up, or the reconstruction or reconstitution, of a business already in existence or by transfer to a new business of any machinery or plant used in a business which was being carried on in Pakistan at any time before the commencement of the new business; and

(c) owned by a company fifty per cent of whose shares are not held by the Federal Government or Provincial Government or a local authority or which is not controlled by the Federal Government or a Provincial Government or a local authority:

Provided that the condition laid down at sub-clause (a) shall not apply to the Hub Power Company Limited.".

4. Mr. Wasim Sajjad, learned Sr. ASC, who first made his submissions on behalf of some of the public limited companies, engaged in private sector power generation projects, making specific reference to the words "profits and gains" and "projects" used in Clause 176, vehemently argued that keeping in view the true import and connotation of these words no room was left for the revenue to disallow exemption to the power generating projects of the companies, under Clause 176, on their incomes earned by way of interests/profits on their bank accounts, which were wholly opened and maintained by them for the purpose of management of accounts of such projects. According to learned counsel, the income so derived by the companies engaged in private sector power projects was incidental in nature, which was covered by the words "profits and gains" of the company derived from their electric power generation projects set up in Pakistan, therefore, treatment to the contrary given to such companies by the revenue/department, as upheld in the impugned judgments of the High Courts, is contrary to the established principle of interpretation of fiscal statutes. In order to fortify his submissions, he also made reference to the definition of words "profits and gains" from the Blacks Law Dictionary, which read thus:

Profit: Most commonly, the gross proceeds of a business transaction less the costs of the transaction; i.e. net proceeds. Excess of revenues over expenses for a transaction; sometimes used synonymously with net income for the period. Gain realized from business or investment over and above expenditures.

Profit means accession of good, valuable results, useful consequences, avail, gain, as an office of profit, excess of returns over expenditures or excess of income over expenditure.

"Gain: Profits; winnings; increment of value. Difference between receipts and expenditures; pecuniary gain. Difference between cost and sale price. Appreciation in value or worth of securities or property.

Excess of revenues over expenses from a specific transaction. Frequently used in the context of describing a transaction not part of a firm's typical, day-to-day operations.

5. Mr. Wasim Sajjad also discussed in detail the contents of Implementation Agreement (IA) dated 24.9.1994 (as amended on 19.11.1995) between the President of Pakistan and petitioner Uch Power Private Limited (UPL), the Power Purchase Agreement (P.P.A) between petitioner (UPL) and WAPDA dated 23.11.1995, and the common Debt Agreement (CDA) dated 17.5.1999, to amplify the meaning of word "project" used in Clause 176. In addition to it, learned counsel made reference to Section 3 of Protection of Economic Reforms Ordinance 1992 (POER) to gain force to his submissions regarding exemption from tax of their income from interest/profit on the bank accounts earned by the companies, as, according to him, any view contrary to it will be a violation of such commitments made by the Government. In the end, learned counsel also candidly discussed the effect of two judgments of this Court in Genertech Pakistan Ltd. v. Income Tax Appellate Tribunal of Pakistan (2004 SCMR 1319) and AES Pak. Gen. (Pvt.) Ltd. v. Commissioner of Income Tax (in Civil Petitions No. 2211 and 2212-L of 2005) decided on 16.6.2006. According to him, though, in these two judgments, the Apex Court has formed a view contrary to the interest of the public limited companies engaged in Private Power Generation Projects, but on different premises, and therefore, these cases are distinguishable and have no relevancy or applicability to the controversy raised in these petitions.

6. Mr. Shahid Hamid, learned counsel for the appellants in Civil Appeals No. 2652 to 2654 of 2006, while adopting the arguments of Mr. Wasim Sajjad, further argued that in Pakistan total sixteen companies from private sector are engaged in the Power Generation Projects, having total production capacity of 4000 megawatts (MW) of electricity per day. All these companies ventured to enter in this field on clear understanding from the Government for extra concessions ensured to them as incentive, independent from the power supply agreement with WAPDA; policy framed by the Government in this regard, and Section 3 of Protection of Economic Reforms Act, 1992, and Power Policy of 1994. Precisely, according to the learned counsel, the treatment of interests/profits earned by the petitioner companies on their bank accounts given by the income tax department, as also upheld by the Lahore High Court in its impugned judgment dated 13.3.2006, is a clear negation of such protected rights of the petitioners. According to him Clause 176 (ibid) because of the use of words "profits and gains" of the "project" of electricity Generation, is to be widely interpreted in favour of assessee companies, in the manner that all incomes derived by such companies from any source shall be deemed to be exempt and not merely their income from business, which will amount to a narrow interpretation of a beneficial provision of statute, particularly, relating to fiscal matters. He further contended that the income derived in the form of interest/profit on the bank accounts/deposits maintained by the companies in connection with the working of their projects cannot be bifurcated for the purpose of tax exemption under Clause 176, even on the ground that for this purpose the income of the projects shall be deemed to have commenced from the date of their commercial production, as the word "project" makes such benefit allowable to such companies from the date of their incorporation and sanction of the scheme for installation of Power Generation Projects. In support of his submissions, learned counsel cited the following cases:--

1. Pakistan v. M/s. Lucky Cement (2007 PTD 1656)

2. C.I.T./W.T. v. Surraya Zafar (2008 PTD 202)

3. Federation of Pakistan v. Muhammad Sadiq (2007 PTD 67)

4. Facto Belarus Tractors Ltd. v. Pakistan (2001 PTD 1829)

5. Packages Ltd. v. Commissioner of Income Tax (1993 SCMR 1224)

6. Sanam Progetti S.P.A. v. Addl. C.I.T. (Delhi) (1981 (132) ITR 70)

7. (1995 (216) ITR 535)

8. A & B Food Industries Ltd. v. Commissioner of Income Tax/Sales (1992 SCMR 663).

9. State v. Qaim Ali Shah (1992 SCMR 2192)

10. B. P. Biscuit Factory Ltd. v. Wealth Tax Officer (1996 SCMR 1470)

11. Muhammad Rafique Goreja v. Islamic Republic of Pakistan (2006 SCMR 1317)

12. Messrs AES PAK GEN (Pvt.) Company, Lahore Vs. Income Tax Appellate Tribunal, Lahore and another (2006 PTD 1)

7. A careful reading of above cited cases goes to show that in all these cases superior Courts have laboured to elucidate and amplify different principles of interpretation of statutes, particularly in fiscal matters. In the case at Serial No. 1, dilating upon the subject of interpretation of statutes this Court held that:--

(a) Where two interpretations of some statutory provisions were possible or any ambiguity existed therein, the interpretation favourable to tax payer is to be preferred.

(b) While interpreting a statute, words used therein are to be assigned their ordinary meaning unless text dictates otherwise.

(c) Different words used in same section or sub-section of statute reveal intention of legislature not to assign them the same meaning.

In the case at Serial No. 2, discussing the principles of interpretation of statutes, it was observed that every word in a statute is to be assigned some meaning, and of course all provisions, ostensibly conflicting, have to be reconciled. In the case at Serial No. 3, amplifying the principles of interpretation of a statute, it was held that--

(a) in the absence of clear intention of legislature to apply provision of statute with retrospective effect, same would be deemed applicable prospectively.

(b) the Courts while interpreting laws relating to economic activities view the same with greater latitude than the law relating to civil rights, keeping in view the complexity of economic problems which do not admit of solution through any doctrine or strait-jacket formula.

(c) it was not safe to compare language of one statute with another, even though subject covered by the two statutes may involve similarities.

(d) the language used in a fiscal statute would be interpreted in its ordinary meaning in such a manner that, if possible, some should be saved rather than destroyed.

8. In the case at Serial No. 4, the effect of Section 3 of the Economic Reforms Act, 1992, regarding its overriding effect on other laws, was examined with reference to economic activities and it was held that while interpreting laws relating to economic activities the Courts should view the same with greater latitude and interpret it in the light of its phraseology and language. In the case at Serial No. 5, discussing the scope of Section 10(2)(iii)(xvi), it was held that where the assessee was running a business and has obtained loan for purchase of additional machinery, which was not obtained for installation of machinery in order to go for new products, but to improve efficiency of existing production, the amount of interest paid by him, being an integral part of profit earning process relating to carrying and conduct of business had brought his case within the fold of such provision of Income Tax Act, 1922. Therefore, deduction of interest was to be allowed in full regardless of the fact whether it was at pre-production stage or otherwise. In the case at Serial No. 6 from Indian jurisdiction of Delhi High Court, it was held that when the assessee had not come from abroad to make bank deposits in India but had come to carry on business the income earned by it by depositing spare funds in banks and earning interest thereon would also be business income and for the purpose of set-off it could not be treated as separate from business income. Following this principle, loss brought forward by the assessee was allowed as set-off against interest income of the assessee for the subsequent year. In the case at Serial No. 7, another case from Indian jurisdiction of Madras High Court, discussing the term "business" it was held that word business carry very wide connotation and by no means determinate its scope, which has to be considered with reference to each particular kind of activity and occupation of the concerned person. It was further held that where the interest has accrued on short-term deposits of the assessee made out of business funds available with the assessee before they were utilized for actual business, the same was incidental to the business activity of the assessee company, therefore, interest on the short-term deposits should be treated as business income. In the case at Serial No. 8, again dilating upon the principle of interpretation of fiscal statute in tax matter; it was held that reference to proceedings of legislature can be resorted to, when the words in a provision of statute were ambiguous, with the object to discover the real intention of the law-makers. However, where there was no ambiguity in the language employed in the relevant provisions of the statute, recourse to the proceedings of the legislature cannot be made in order to construe the same in violation of the language employed therein. It was further held that while interpreting a fiscal statute, the Court was competent to determine real nature of a particular levy with reference to relevant statute, but it was not empowered to read something into a clear provision of a taxing statute. When the language of a statute was clear and unambiguous, the Court was bound to construe and to give its effect without taking into consideration anything extraneous to it. In the case at Serial No. 9 relating to criminal proceedings in a case pending before the Suppression of Terrorist Activities, Special Court, touching the subject of interpretation of statutes, it was observed that a statute, which transgresses on the rights of a subject whether as regards his person or property should be so construed, which may preserve such rights. It was also observed that if two views of a provision of law of penal nature were possible, one which favours an accused person be preferred over the other. In the case at Serial No. 10, this Court reiterated the principle of interpretation of a fiscal statute that when the language of such statute was ambiguous and several interpretations of the same provisions were possible, doubt should be resolved in favour of the citizen. In the case at Serial No. 11, this Court dilated upon the scope of Article 189 of the Constitution and held that the law declared by the Supreme Court was binding on the State and its officers and they were bound to follow it, whether they were in a particular case party or not to the previous proceedings. It was further held that decision per incurium do not constitute binding precedent. Such decisions are those which are given in ignorance of the terms of the Constitution or of a statute or of a rule having the force of a statute. It was also observed that an order delivered without argument, without reference to the relevant provisions of the Constitution or the Act and without any citation of authority, is per incurium. Similarly, decisions sub silentio have no precedential value. Such decisions are those which are given on a point of law not perceived by the Court or present to its mind. Sometimes will considered obiter dicta of the Supreme Court is taken as precedent, but every passing expression of a Judge cannot be treated as an authority. In the case at Serial No. 12, discussing the principles of interpretation of a statute in fiscal cases vis-a-vis the impact of Protection of Economic Reforms Act, 1992, it was held that the provisions of law cannot be amended, rescinded or changed by any policy guideline agreed to between the Government and certain private individuals or private entities, as any policy framework or principle laid down by the Government, in any manner, cannot take precedent over the express provisions of law. (This judgment of a Division Bench of Lahore High Court was maintained by this Court vide its judgment dated 16.6.2006 in C.P. Nos.2211-L and 2212-L of 2005, which will be referred to and discussed in the later part of this judgment).

9. Replying to the above submission, Mr. Muhammad Iqbal, learned counsel representing Revenue in civil appeals Nos.2652 to 2654 of 2006, made reference to Sections 22 & 30 of the Ordinance to show that on one hand the income of respondents entitled for exemption in terms of Clause 176 was only business income, which was specifically covered by Section 22 of the Ordinance, as it is only under this head of income that words "profits and gains" of any business or profession are to be computed for the purpose of income tax, on the other hand Section 30 of the Ordinance clearly goes to show that it is residuary provision, which covers the income from all sources, not covered by other five heads of income under Section 15(a) to (e). Therefore, the income earned by the petitioner companies in the form of interests/profits on their bank accounts was not qualified for exemption under Clause 176 (ibid), as rightly held in the impugned judgments as well as by this Court in the case of Genertech Pakistan Ltd. (supra) and other case of KES Pak. Gen. (Pvt.) Ltd. He again made reference to Section 30 of the Ordinance to show that interest income earned by the petitioner companies was accordingly covered by such provision of law, and thus, not covered or influenced by the scope of words "profits and gains" used in Clause 176 ibid, which only find place in Section 22 of the Ordinance relating to income from business or profession.

10. Mr. Shahid Raza, another counsel representing revenue, argued that the term "profits and gains" is covered under Section 22(1) (a) of the repealed Ordinance 1979 relating to income from any business or profession carried on or deemed to be earned on by the assessee at any time during the year, whereas interest income is covered under Section 30(2)(b) of the Ordinance, "being income from other sources". In such circumstances, as the income earned under two different sources having no relevancy to each other and charged under different Sections of the repealed Ordinance, therefore, the contentions of petitioners that their interest income is actually accretion of income in the shape of profits and gains is not justified. More so, as the nature of the two sources of the income is different, therefore, rate of taxes under the repealed Ordinance were also different. In this regard he also made reference to Section 23(1)(vii) of the Ordinance, which stipulates that only interest paid in respect of capital borrowed for the purposes of the business or profession shall be allowed against income from business or profession, whereas as per Section 31(1)(b) any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) incurred, wholly and exclusively for the purpose of earning such income shall be allowed against "income from other sources" under Section 30 of the Ordinance, and not otherwise. In order to fortify his submissions, learned counsel made reference to the following two cases:

1. Commissioner of Income Tax, East Pakistan v. Liquidator, Khulna Bogerhat Railway Company Ltd. (PLD 1962 S.C. 128);

2. Genertech Pakistan Ltd. v. Income Tax Appellate Tribunal of Pakistan (2004 SCMR 1319); and

3. AES Pak. Gen. (Pvt) Ltd. v. Commissioner of Income Tax (in Civil Petitions No. 2211 and 2212-L of 2005).

In the case of Commissioner of Income Tax East Pakistan, Dacca, after discussion of relevant facts about the construction business of respondent railway Company, it was held that the normal business of the company was construction and running of railway/services and not investment of its money on interest. If the company, instead of retaining its surplus moneys in idle condition, invested it under the powers given to them by their Articles of Association, it would not follow that the income so derived would be part of the company's normal business income. In the case of Genertech Pakistan Ltd., which has been squarely relied by the learned counsel for the revenue, after discussion of number of citations referred to above, this Court held as under:--

"9. Now question for consideration is as to whether interest earned by the appellants from the share capital deposited in the Banks does fall within the scope of "income from other sources" under Section 30 of the Ordinance. To answer the proposition it is to be borne in mined that item 176 of Second Schedule of the Ordinance provides in clear terms that "profits and gains derived by an assessee from Electric Power Generation Project, set up in Pakistan on or after 1st of July, 1998 shall be exempted from total income tax.". Essentially, profits and gains from the Electric Power Generation Project is distinct and different from the interest being obtained by the Company on the deposit of share capital in the Banks, during the financial years for which the return of income under the relevant provision of Ordinance is filed and the exemption is claimed from the payment of income tax under Item 176 of Second Schedule of the Ordinance. It is informed that Electric Generating Plants of appellants-companies had started functioning in 1994-95 but they instead of claiming exemption on the profits/gains from Power Generation, claimed it from the deposit of the share capital lying in the Banks. It is to be seen that no sooner as a Company goes in production it cannot claim exemption of income tax on the interest of share capital deposited in Banks because on commencement of the production, profits and gains are to be earned out of the income of Electric Generation independently.

10. Learned counsel heavily relied upon the judgment report in the case of Messrs Packages Ltd. (ibid) but the question raised therein pertains to the claim of deduction on interest on loan borrowed by appellant for import of machinery. Income Tax Officer disallowed such claim on the ground that interest relating to pre-production stage was being capitalized by him, he however, allowed depreciation at 10% as the machinery was installed and used during the year under assessment. The Appellate Forums dismissed its appeals and this Court ultimately agreed with the contention of appellant to the effect that amount of interest paid by the purchaser of an Industrial concern to the vendee on the unpaid price was an integral part of the profit earning process relating to the carrying or conduct of business and satisfies the test laid down for bringing the case within the fold of Section 10(2) (xvi)."

In the unreported judgment of this Court dated 16.6.2006, referred to above, in addition to reference to the case of Genertech Pakistan Ltd. (supra) the case of Tuticorin Alkali Chemical and Fertilizer Ltd. v. Commissioner of Income Tax (1998 PTD 900) was also discussed and the conclusion recorded was as under:--

"From a bare perusal of the paragraph reproduced from the judgment of Tuticorin Alkali Chemical and Fertilizers Ltd. v. Commissioner of Income Tax (1998 PTD 900) it may be observed that the Supreme Court of India after considering relevant provisions of the Indian Income Tax Act, 1961 pronounced that anything which can properly be described as income is taxable under the Act unless expressly exempted and further that payment of interest on the capital generated/ borrowed by the petitioner for starting a business venture would not be adjustable or it could be set off against the income accruing to it by investing/utilizing the generated/borrowed capital or part thereof and caring interest thereon. There is no provision in the Ordinance exempting such income from being charged to tax.".

11. Mr. Wasim Sajjad, in his reply arguments again made reference to the Power Policy 1994 framed by the Government as well as Section 3 of the Protection of Economic Reforms Ordinance, 1992 to lay stress to his submissions that income earned by such power projects from any source was exempt from payment of income tax in terms of Clause 176, as the use of words "profits and gains" have a wide connotation and meaning, broad enough to cover all incomes of the project. However, he did not controvert that under Section 15 of the Ordinance, total income has been divided into six heads, and in this contexts words "profits and gains" only finds place in Section 22, which relates to the income from business or profession.

12. Mr. Raja Abdul Ghafoor, learned ASC, representing petitioners/Revenue in the petitions placed in category (a), vehemently contended that only such losses, which relate to the business of respondent companies engaged in electricity power generation projects set up in Pakistan on or after the 1st day of July, 1988, are exempt from income tax under Clause 176, therefore, losses incurred by them under any other head of account are not allowable as set off against their income under any other head. In this regard he also made reference of Section 15 of the Ordinance to show six different heads of income, meant for computation of total income under the Ordinance. The gist of his arguments was that set off of losses available to the respondent companies was only for those losses which fell under the same head of income, therefore, set off of business losses claimed by respondents against their income earned under any other head of income, covered by Section 30 of the Ordinance was not allowable set off. However, learned counsel, when confronted with the language of clause vii of Section 23(1) relating to allowable allowances and deductions in computing the income under the head "Income from business and profession" and Section 34 of the Ordinance, relating to "set off of losses" could not properly respond as to how, despite the clear language of these provisions of law, set off of losses suffered by the respondent companies in their business cannot be allowed to be adjusted against their income from other sources, covered by Section 30 of the Ordinance, as allowed to the respondent companies through impugned judgment.

13. Conversely, all the learned counsel for respondent companies in the petitions falling under category (a) strongly relied upon the language of clause vii of Section 23 (1) and Section 34 read with Clause 176 of the Ordinance to support the impugned judgments, to this extent. According to them, by virtue of these clear provisions of the Ordinance, business losses of respondent companies engaged in private sector power project, were entitled for set off against their income from any other source.

14. For better understanding of the controversy involved in these 21 petitions, it would be advantageous to reproduce hereunder clause vii of Section 23(1) and Section 34 of the Ordinance, which reads as under:--

"23. Deductions.--(1) In computing the income under the head "Income from `business or profession", the following allowances and deductions shall be made, namely--

(i) .................

(ii) .................

(iii) .................

(iv) .................

(v) .................

(vi) .................

(vii) any interest paid in respect of capital borrowed for the purposes of the business or profession;

(viii) .................

34. Set off of losses. Where an assessee sustains a loss (not being a loss to which Section 36 or Section 37 applies) in any assessment year under any head of income specified in Section 15, he shall [subject to clause (v) of sub-section (1) of Section 23] be entitled to have the amount of the loss set off against his income (other than income to which sub-section (7) or (9) of Section 12 applies), if any, under any other head assessable for that assessment year."

15. A careful reading of above reproduced Sections from the Ordinance and placing it in juxtaposition with Clause 176 of the Ordinance leaves no room for doubt in our mind to hold that the set off of losses from business or profession, if any, incurred by respondent companies, which are covered by above provisions of the statute were not restricted to any particular head of income, but the same were adjustable against their income under any other head, therefore, the impugned judgment of the Islamabad High Court, affirming this position, and thereby maintaining the findings of the Income Tax Appellate Tribunal in the same terms, is unexceptionable. This being the position in 21 petitions, relating to the issue of set off of business losses, claimed by the respondent companies, placed in category (a), being devoid of merits, are dismissed. Leave refused.

16. Reverting to the other set of twenty two petitions placed in categories (b) to (e); keeping in view the submissions of the learned counsel in this regard, we have carefully perused the case record and the relevant provisions of the Ordinance, which goes to show that by virtue of Section 15 of the Ordinance, for computation of total income, law makers have bifurcated all incomes into six heads, which are covered by Sections 16 (salary), 17 (interest on securities), 19 (house property), 22 (income from business or profession), 27 (capital gains) and 30 (from other sources) of the Ordinance. From the plain reading of these Sections, it is evident that it is only the language of Section 22, which carries the words "profits and gains" and for the purpose of allowable deductions, income generated under this head is regulated by Section 23, while inadmissible deductions have been categorized in Section 24. Relating to the controversy in hand, the other relevant section is Section 30, which is the residuary section and covers income from all other sources, which are not covered by Sections 16, 17, 19, 22 and 27. Thus a combined reading of these provisions of the Ordinance makes it abundantly clear that use of words "profits and gains" under Clause 176 is only with reference to the income generated by the companies, which is covered by Section 22 of the Ordinance. Admittedly, interest earned by the petitioner companies on their bank investments/savings accounts was an income covered by Section 30 of the Ordinance and thus not covered by exemption under Clause 176 ibid. Similarly, the use of word "project" in Clause 176 (ibid) has brought no significant change in this clear legal position. Thus, the arguments based on such premises are also devoid of force. Not only the Division Bench of Islamabad High Court has rightly examined this aspect of the case and decided the same against the petitioners/appellants/assessee but the findings of the Income Tax Appellate Tribunal in its judgments in the case of petitioner/appellant companies, following the same view, are unexceptionable.

17. In addition to it, from the above exhaustive discussion of relevant facts of these cases; the statutory provisions involved/applicable to the controversy, and the case law cited and discussed above, it is evident that the ratio of judgment in the case of Genertech Pakistan Ltd. v. Income Tax Appellate Tribunal of Pakistan (2004 SCMR 1319), and the judgment dated 16.6.2006 (AES Pak. Gen. (Pvt) Ltd. v. Commissioner of Income Tax), has in clear terms, already settled the controversy relating to the case of the petitioners (Private Power Generation Companies), regarding their claim of exemption of income earned from interest/profit on their Bank accounts under Clause 176 (ibid), against them. None of the arguments advanced by the learned counsel for the petitioner companies has convinced us to hold that the view formed by this Court in its two earlier judgments is distinguishable or it is not applicable to the facts of these petitions for any valid reason. Indeed, there is no cavil to the principles of interpretation of statute, dilated in various judgments, discussed above, but the applicability of such principles is dependent upon the peculiar facts and circumstances of each case. In the instant cases, the interest/profit earned by the Generation Companies/petitioners on their investments/bank accounts was clearly a separate income covered by Section 30 of the Ordinance, and thus not entitled for exemption in terms of Clause 176.

18. This being the position, the remaining twenty two petitions placed in categories (b) to (e) are also dismissed. The questions for consideration proposed by this Court in some of the appeals, vide leave granting orders dated 13.12.2006 and 22.10.2009, are also answered and disposed of in terms of the above discussion.

(A.A.) Petitions dismissed.

PLJ 2011 Tax Cases (Pesh.) 50 (DB)

Present: Ejaz Afzal Khan, C.J. and Mazhar Alam Khan Miankhel, J.

MOHTAMIM SHAH and others--Appellants

versus

DEPUTY COLLECTOR CUSTOMS and others--Respondents

S.A.O. No. 20 and F.A.O. No. 72 of 2001, decided on 8.3.2011.

Customs Act, 1969 (IV of 1969)--

----S. 181--Possession of copies of exchange control--Triplicate copies--Evidentiary value of--Payment of duty and taxes--Redemption fine of vehicle was reduced--Process of recovery and seizure of foreign origin black tea--Failure of appellant to produce any valid and legal documentary proof of lawful import--Question of--Whether copies of exchange control could be considered as valid documents--Validity--It was triplicate copy of bill of entry which was meant for consumer--Appellants were required to be in possession to justify their important as lawful--High Court have no doubt that only document which could provide validity to import of a person was triplicate copy of bill of entry--Such copies had no evidentiary value and were inadmissible in evidence--Triplicate copies in his possession were lost or destroyed so he produced the record, then for that purpose, they were required to produce sufficient further evidence to correlate entries of original documents--Appellants failed to justify possession of copies of exchange control and circumstances cannot be held as valid documents to support version of appellants--Appeal was dismissed. [Pp. 51 & 52] A, B, C & D

Mr. Khalid Khan, Advocate for Appellants.

Mr. Ishtiaq Ahmad, Advocate for Respondents.

Date of hearing: 1.3.2011.

Judgment

Mazhar Alam Khan Miankhel, J.--The appellants through instant appeal, have questioned the judgment of Appellate Tribunal dated 31.1.2001 whereby their appeal against the orders of Deputy Collector Customs (Adjudication) dated 29.8.2000 was partially allowed by directing release of confiscated foreign origin black tea to the appellant/owners on payment of duty and taxes and in addition to that 35% redemption fine on its appraised value was also affixed. The redemption fine of vehicle was also reduced from Rs. 50,000/- to Rs. 40,000/-.

2. Learned counsel for the appellants contended that the findings of the fora below are against the law and not based on proper appraisal of documentary evidence available on the record. His next contention was that the findings of the Appellate Tribunal are the result of unlawful exercise of jurisdiction as production of triplicate copy of the bill of entry is not the mandatory requirement of law and the record produced by the appellants regarding the remaining 22 bags in the shape of copy of the exchange control could have easily been verified by physical examination in order to correlate with the import documents.

3. As against that, Mr. Ishtiaq Ahmad, learned counsel appearing on behalf of the Department submitted that the process of recovery and seizure of the foreign origin black tea was quite in accordance with law as the appellants throughout the process have failed to justify the possession of the foreign origin black tea and as such there was no illegality in the findings of the fora below.

4. We have heard the learned counsel for the parties and have perused the record in the light of submissions made by them.

5. The perusal of the record would reveal that the customs mobile squad Mardan during the course of routine checking on Mardan-Sher Garh Road on 1.4.2000, recovered and seized 44 gunny sacks of foreign origin black tea being transported through a truck bearing Registration No. E-1591/Peshawar coming from Peshawar-Charsadda side, on failure of the appellants to produce any valid and legal documentary proof of lawful import. The appellants then were served with a show-cause notice on 6.4.2000 in reply whereof the appellants claimed it to be legally imported tea by referring to all the bill of entries and other related documents along with receipts of its transportation from Karachi to Takht Bhai. After hearing the parties, 24 bags were ordered to be released being legally imported and remaining bags were confiscated in favour of the State. The vehicle was also confiscated. However, an option in terms of Section 181 of the Customs Act, 1969 was given to the rightful owner to redeem the vehicle against a redemption fine of Rs. 50,000/-. Appeal there against was partially allowed by directing the release of the confiscated smuggled goods on payment of duty and taxes as stated above and redemption fine of vehicle was also reduced.

6. Now the only question requiring consideration by this Court would be as to whether the copies of "exchange control" could be considered as valid documents for making their import as lawful. Instant appeal on 22.5.2001 was also admitted only on one proposition which reads as under:

"Whether requirement of bill of entry in triplicate is mandatory, is question of law requiring consideration. Admit."

Perusal of the record in this regard would establish the fact that it is the triplicate copy of the bill of entry which is meant for the consumer. The appellants were also required to be in possession of the same to justify their import as lawful, as they produced similar triplicate copies for other 24 bags, released to them being lawfully imported. So, we have no doubt in our mind that the only document which could provide validity to the import of a person is the triplicate copy of bill of entry.

7. The "exchange control" copies produced by the appellants in our view would not serve the purpose as the same are meant for bank record only. Besides the above all, the "exchange control" copies so produced by the appellants cannot be termed as a document tendered in accordance with law as the same were not only the photo copies but were copied from the copies. We are afraid, such copies/documents have no evidentiary value and are inadmissible in evidence. Quite apart from this, the same would have no presumption of correctness as the same were not produced from proper custody. Had it been the case of appellants that the triplicate copies in his possession were lost or destroyed so he produced the other record, then for that purpose too, they were required to produce sufficient further evidence to correlate the entries of original import documents.

8. In this view of the matter, the appellants failed to justify possession of copies of "exchange control" and the same in the circumstances cannot be held as valid documents to support the version of the appellants. Since no other law point was raised before this Court, hence this appeal being merit less is dismissed.

(R.A.) Appeal dismissed.

PLJ 2011 Tax Cases (Pesh.) 50 (DB)

Present: Ejaz Afzal Khan, C.J. and Mazhar Alam Khan Miankhel, J.

MOHTAMIM SHAH and others--Appellants

versus

DEPUTY COLLECTOR CUSTOMS and others--Respondents

S.A.O. No. 20 and F.A.O. No. 72 of 2001, decided on 8.3.2011.

Customs Act, 1969 (IV of 1969)--

Mr. Khalid Khan, Advocate for Appellants.

Mr. Ishtiaq Ahmad, Advocate for Respondents.

Date of hearing: 1.3.2011.

Judgment

4. We have heard the learned counsel for the parties and have perused the record in the light of submissions made by them.

"Whether requirement of bill of entry in triplicate is mandatory, is question of law requiring consideration. Admit."

(R.A.) Appeal dismissed.

PLJ 2011 Tax Cases (Pesh.) 52 (DB)

Present: Syed Sajjad Hassan Shah and Sardar Shaukat Hayat, JJ.

COLLECTOR OF CUSTOMS, PESHAWAR--Petitioner

versus

IFTIKHAR ALI KHAN--Respondent

Customs Reference No. 5 of 2007, decided on 24.5.2010.

Customs Act, 1969 (IV of 1969)--

----S. 196--Custom Reference--Customs Mobile Squad detained the vehicle for verification--Registration number had already been cancelled--Reference not signed by collector--Question of maintainability of reference--No affidavit or verification with reference--Reference was only signed by counsel--Validity--Reference could be filed, signed or verified only by collector--None else was authorized to sign or verify the reference on behalf of collector--So long as appeal u/S. 196 of Customs Act, was not filed and verified by collector, it cannot be held to be competent--Reference being not filed in accordance with law was not maintainable. [P. 54] A, B & C

Mr. Moinuddin Humayun, Advocate for Petitioner.

Mr. Issae Ali Qazi, Advocate for Respondent.

Date of hearing: 24.5.2010.

Judgment

Sardar Shaukat Hayat, J.--Brief facts of the instant Reference are that the Customs Mobile Squad, Mardan intercepted a Toyota Hiace Van Model 1991 bearing Registration No. C-2101, Chassis No. LH1133-0000680, Engine No. 3L-2031286. The vehicle was detained for verification. The E.T.O. Mardan informed that the registration number used by the vehicle has already been cancelled on 27.9.2001. The vehicle was also chemically examined from Forensic Science Laboratory. It was reported that its chassis plate has been cut and another iron sheet has been welded at its place. The vehicle was accordingly seized under the relevant provisions of law and the case was forwarded to the Additional Collector of Customs (Adjudication), Peshawar, who after issuance show cause notice to the respondent and hearing the parties ordered outright confiscation of the said vehicle.

2. The respondent filed an appeal before the Collector of Customs (Appeals), Peshawar, against the order-in-original which was dismissed. The respondent aggrieved by the judgment of the Appellate Forum filed second appeal to the Appellate Tribunal, Peshawar Bench which was accepted and the orders of forums below were set aside and the vehicle was ordered to be released unconditionally to its rightful owner. Hence the instant Custom Reference under Section 196 of the Customs Act, 1969 against the Order-in-Appeal No. Cus.84/PB/2005 dated 31.1.2007.

3. Learned counsel for the appellant while arguing his case formulated the following law points for consideration:--

(i) Whether the learned Customs, Federal Excise and Sales Tax Appellate Tribunal, Peshawar Bench was right to release the vehicle when the seizing department has successfully shifted proved that the chasses plate of the vehicle was refitted and there was no sign of accident on it.

(ii) Whether the learned Customs, Federal Excise and Sales Tax Appellate Tribunal, Peshawar Bench was right to hold that the vehicle is legally imported.

(iii) Whether the learned Customs, Federal Excise and Sales Tax Appellate Tribunal, Peshawar Bench has not acted in access of its jurisdiction by shifting onus of proof on the seizing agency.

(iv) Whether the different in the FSL reports is so material that both reports be discarded and a smuggled vehicle be declared as legally imported one.

(v) Whether the vehicle in question is the same which was legally imported on 7.10.1991 or the chassis place of a smuggled vehicle has been cut off and another chassis sheet of legally imported vehicle has been welded on its chassis number place.

He prayed for acceptance of reference petition and setting aside of impugned order.

4. While on the other hand, learned counsel for the respondent defended the impugned order-in-appeal dated 31.1.2007 and further submitted that the reference in hand being not signed by the Collector is not maintainable and liable to be dismissed on this score alone. Placed reliance on PTCL 2009 CL 736, 2006 SCMR 129 and 2008 PTD 356.

5. Arguments heard. Available record perused.

6. Before proceed with the merits of the case, we will first satisfy ourselves whether the instant reference is maintainable in its present form. From perusal of the instant reference being filed under Section 196 of the Customs Act, 1969, it transpires that the appeal is filed in the name of Collector Customs but not signed by the Collector. Even there exists no affidavit or verification with the reference petition. The reference petition is only signed by the counsel for the appellant. Under Section 196 of the Customs Act, 1969 the reference could be filed, signed or verified only by the Collector. None else is authorized to sign or verify the reference on behalf of the Collector. The august Supreme Court of Pakistan has decided in the case of Director General Intelligence and Investigation vs. Messers Al-Faiz Industries (2006 SCMR 129) that the appeal could be filed by the Collector only and none else. And if not signed and verified by him, same would also be deemed not to have been filed in accordance with law. Similarly, in another judgment PTCL 2009 CL 736 titled Additional Collector Sales Tax vs. M/s. Associated Industries Ltd, this Court has held that so long as an appeal under Section 196 of the Customs Act, 1969 is not filed and verified by the Collector, it cannot be held to be competent.

7. Respectfully following the dictum laid down by the apex Court and also this Court in the matter, we are of the view that the instant reference petition being not filed in accordance with law is not maintainable in its present form. Hence without touching the merits of the case, the reference petition in hand is dismissed as such.

(R.A.) Petition dismissed.

-----------------

PLJ 2011 Tax Cases (Lah.) 55

Present: Ch. Muhammad Tariq and Hameed-ur-Rehman, JJ.

COLLECTOR OF CUSTOMS, MODEL CUSTOMS COLLECTORATE FOR SUPERINTENDENT ANTI0-SMUGGLING ORGANIZATION, CUSTOMS HOUSE, LAHORE--Petitioner

versus

REHMAT AFRIDI and 5 others--Respondents

Customs Ref. No. 24 of 2010, heard on 14.7.2010.

Customs Act, 1969--

----S. 196--Reference against modified judgment passed by Collector Appellate Tribunal--Recovery of foreign origin smuggled tyres with tubes--False cavity--Public transport--Scope of--Tyres were being smuggled in cavity of truck--A cavity made for time being or a cavity artificially made--Space behind the truck for loading goods does not fall within definition of false cavity--Petitioners cannot take benefit of words false cavity because customs authorities had badly failed to point out about any other false cavity made in truck--Reference was dismissed. [P. ] A & B

Mr. Sultan Mahmood, Advocate for Petitioner.

Mian Abdul Ghaffar, Advocate for Respondents.

Date of hearing: 14.7.2010.

Judgment

CH. Muhammad Tariq, J.--Through the instant Reference, the petitioner has assailed the judgment dated 09.03.2010 passed by Mian Muhammad Hanif Tahir, Member Judicial, Customs Appellate Tribunal, Bench-I, Lahore who modified the judgment dated 30.01.2010 passed by Collector (Appeals) Lahore and passed the following order:

"In view of the discussion above, the impugned order dated 30.01.2010 is modified and I order that the confiscated tires shall be released and handed over to the appellant, however subject to payment of duty and taxes as required under the law and redemption fine equivalent to twenty percent of the assessable value. By taking a lenient view the personal penalty is also waived off. The vehicle bearing Registration No. C-1582 (Dir) is ordered to be released subject to payment of redemption fine amounting to Rs. (100,000) one lac only."

2. Brief facts of the case are that on 06.10.2009, the custom staff `ASO' Lahore inspected a Truck No. C-1582 (DIR) which was being driven by Rehmat Afridi son of Khan Ahmad. Two other persons namely Ali Jan son of Lahore Jan of District Kohat and Wajidullah son of Usman Shah of Tehsil Bara, District Khyber Agency were accompanying the driver as second driver and helper respectively. The examination of the said truck conducted in presence of the witnesses led to the recovery of foreign origin smuggled tyres with tubes. On demand, none of the three persons could produce any evidence in support of lawful possession, legal import or carriage from Peshawar to Lahore of the recovered smuggled foreign origin tyres with tubes, therefore, the tyres were seized and confiscated alongwith Nissan Truck bearing Registration No. C-1582 (DIR) which was being used for the carriage and transportation of smuggled tyres with tubes. The appeal filed against the confiscation of the goods and the truck was dismissed by the learned Collector of Customs (Appeals), Lahore. Then the matter was agitated through appeal before the learned Customs Appellate Tribunal Bench No. 1 Lahore who allowed the appeal and passed the judgment dated 09.03.2010 as mentioned hereinabove. Hence this petition.

3. Learned counsel for the petitioner has emphasized more on Clause (b) of SRO No. 499(I)/2009 which is reproduced below:

"(b) lawfully registered conveyance including packages and containers found carrying smuggled goods in false cavities or being used exclusively or wholly for transportation of offending goods under clause (s) of Section 2 of the Customs Act, 1969 (IV of 1969)"

4. Learned counsel for the petitioner contends that Appellate Tribunal has erred while passing the order to release the impugned truck against a fine of Rs. 100,000/-. He argues that the impugned truck falls within the purview of Clause (b) of SRO No. 499(I)/2009 as the tyres were being smuggled/transported in the cavity of the truck, so the impugned judgment dated 09.03.2010 be set aside and the original judgment dated 30.01.2010 passed by the Collector Customs (Appeals) Lahore be restored.

5. On the other hand, the learned counsel for the respondent has vehemently opposed this Customs Reference and has fully supported the impugned judgment.

6. Arguments heard. Record perused.

7. The record reveals that the Customs Authorities have failed to establish that the truck in question had remained involved in smuggling previously nor they could provide the detail of other cases in which the above said truck was involved. Admittedly, it was a public transport which was hired and the tyres were transported from one place to another. Learned counsel for the petitioner has argued that the tyres were being smuggled in cavity of the truck, so it shall be confiscated under clause (b) of SRO No. 499(I)/2009.

8. We are of the considered opinion that the learned counsel for the petitioner has wrongly interpreted the words `false cavity' which means that a cavity made for the time being or a cavity artificially made. The space behind a truck for loading goods does not fall within the definition of `false cavity'. So, the learned counsel for the petitioner cannot take benefit of words `false cavity' because the Customs Authorities have badly failed to point out about any other false cavity made in the truck. Hence, clause (b) of SRO No. 499(I)/2009 does not attract in the matter in hand. The learned Appellate Tribunal has rightly adjudged the matter and imposed appropriate penalty on the truck driver. In the circumstance, no interference is called for. The instant custom reference is without any substance, hence it is dismissed.

(R.A.) Reference dismissed.

PLJ 2011 Tax Cases (Pesh.) 57 (DB)

Present: Dost Muhammad Khan and Yahya Afridi, JJ.

M/s. NATIONAL STEEL MILLS AND RE-ROLLERS (PVT.) LTD.--Petitioner

versus

COLLECTOR SALES TAX AND FEDERAL EXCISE REGIONAL TAX OFFICE, PESHAWAR--Respondent

T.Ref. No. 12 of 2009, decided on 27.1.2011.

Sales Tax Act, 1990 (II of 1990)--

----Ss. 35-B, 467, 36(1), 34 & 33(2)(cc)--Special Procedure Amendment Rules, 2004, R. 89(2)--Finance Act, (VII of 2005)--Promulgation--Appeal to Appellate Tribunal--Order In Original--Collector of Sales Tax and Central Excise served a show-cause notice for payment u/S. 36(1) alongwith additional sales tax u/S. 34 and penalty u/S. 33(2)(cc) of Sales Tax Act, 1990--Provisions of Ss. 45-B & 46 were amended--Department instituted an appeal against order in original before Customs, Sales Tax and Central Excise (Appellate) Tribunal--Appeal was returned to department--Department filed an appeal before collector appeals which was also dismissed--Department again moved appeal before tribunal--Tribunal declared the appeal to be within time--Company presented reference on legal issues--Rights, privileges, advantages and benefits, which accrued to any person under provisions of a statute prior to any amendment therein would be protected and not affected in any manner department had a right of appeal against an order in original provided u/S. 46 of the Act before Tribunal--Right of appeal was taken away from department through Finance Act, 2005, promulgated by parliament, which received assent of president valuable rights including the right of appeal, which had accrued in favor of department prior to amendment introduced in S. 46 of Act through Finance Act, 2005 would be protected and remain intact in favour of Department--Held: Provisions of amended Ss. 45-B and 46 of Act, were prospective in nature and did not affect the right of appeal vested in department under un-amended provision of Act--Condition of filing of appeal by an officer of rank of collector was not provided for in un-amended provisions of S. 46 of Act--Condition was introduced through Finance Act, 2005 and thus cannot be applied to the right of appeal available to department prior to amendment--Thus setting aside the appellate order would have consequences upon the order of Order-in-Original of original forum--High Court found that tribunal had correctly dealt with such issue--Issue raised by company would not have any adverse effect on final outcome of impugned decision of tribunal--Further held: High Court would again emphasis that tribunal in its decision had given opportunity to company to produce the record before appropriate officer of department for verification of input and output taxes--Only in case the company failed to verify its claims, department could be within its right to recover from company the principal amount of sales tax alongwith additional taxes and penalties determined by tribunal--Reference was dismissed.

[Pp. 63, 67 & 68] A, B, C, D, E & F

2007 SCMR 1256, 2010 SCMR 1408, PLD 2005 Pesh. 214, 1996 SCMR 83, PLD 1968 Kar. 107 & 2001 SCMR 103, ref.

Mr. Isaq Ali Qazi, Advocate for Petitioner.

Mr. Mudasir Amir, Advocate for Respondent.

Date of hearing: 27.1.2011.

Judgment

Yahya Afridi, J.--M/s. National Steel Mills & Re-rollers (Pvt.) Ltd. has instituted the present reference agitating the following questions of law:--

"I. Whether under the facts and circumstances of the case, specially considering the conduct of the Respondent, the learned Tribunal justified in entertaining the respondent's time barred appeal which was hit by limitation on many counts.

II. Whether under the facts and circumstances in view of amendments (w.e.f. 1st July, 2005) brought by Finance Act, 2005, inter alia, in Section 45-B and 46 of the Sales Tax Act, 1990 the department of sales tax was barred to invoke the jurisdiction under Section 45-B ibid of the learned Collector Appeals.

III. Whether in view of the amendments (w.e.f. 1st July, 2005) brought by Finance Act, 2005, inter alia, in Sections 45-B and 46 of the Sales Tax Act, 1990, the department of sales tax was barred EITHER to invoke the jurisdiction under Section 46 ibid of the learned Tribunal for assailing the Order-in-Original passed by the officer below the rank of Collector.

IV. Whether under the facts and circumstances of the case and in view of the provision of Section 46(4) ibid, the learned Tribunal's Order on merit is void ab initio for traversing beyond the scope of appeal wherein only the Order-in Appeal was prayed to be set aside which had a sole merit of non entertainment of their appeal and yet the Order-in-Original was set aside and it was further directed for recovery of the principal amount of the sales tax alongwith additional tax under Section 34 and 5% penalty under Section 33 of the Sales Tax Act, 1990 that is too without issuance a Show Cause Notice to the Applicant.

V. Whether under the facts and circumstances of the case, the pleading in Appeal was proper in form and signed by competent Officer.

VI. Whether under the facts and circumstances of the case, the honourable Tribunal not erred for holding that during July to October 2004 unit the Applicant mode of discharging of tax liability was in violation of Section 3, 7-A and Rule 89 (2) of the Special Procedure Rules 2004 notified vide SRO 484 (I)/2004.

2. The facts leading to the present Reference are that the Collectorate of Sales Tax & Central Excise, Peshawar ("Department") served a show cause notice dated 14.5.2005 ("Notice") upon M/s. National Steel Mills & Re-rollers (Pvt) Ltd, ("Company") for payment of Rs.6.745 million under Section 36(1) alongwith Additional Sales Tax under Section 34 and penalty under Section 33(2)(cc) of Sales Tax Act, 1990 ("Act") for having illegally adjusted the said amount against its carried forward amount of Rs. 12.609 million. This adjustments, the Collectorate alleged in the Notice, was an evasion of sales tax for violating Sections 3 and 7-A of the Act and Rules 89(2) of the Special Procedure Rules, 2004 ("Rules"). The Company contested the claim of the Department. The matter was adjudicated and was decided in favour of the Company vide Order in Original No.24 of 2005 vide dated 24.6.2005. ("Order-In-Original"), which was admittedly received by the Department on 1.8.2005.

4. After the passing of the Order-In-Original and before the same was received by the Department, the Parliament promulgated Act No. VII of 2005 ("Finance Act, 2005") whereby provisions of Sections 45-B and 46 of the Act were amended. The true significance thereof can be appreciated, when we compare the said provisions of the Act before and after the said amendment. The particulars of the same are as follows:--

PRIOR

46. Appeals to Appellate Tribunal.--(1) Any person including the Sales Tax Department, aggrieved by --

(a) any decision or order passed by a Collector or an Additional Collector of Sales Tax under Sections 11, 36 or 45;

(b) any order passed by the Collector of Sales Tax (appeals) under Section 45 B; and

may, within sixty days of the receipt of such decision or order, prefer appeal to the Appellate Tribunal.

AFTER

46. Appeals to Appellate Tribunal.--(1) Any person including the Sales Tax Department, aggrieved by--

(a) any order passed by the Collector under sub-section (4) of section 45 A or the Collector of Sales Tax (Appeals) under Section 45 B; and

(b) any order passed by the Board or the Collector of Sales Tax under Section 45-A,

may, within sixty days of the receipt of such decision or order, prefer appeal to the Appellate Tribunal.

PRIOR

45-B.--Appeals.--(1) Any person, including the Sales Tax Department, aggrieved by any decision or order passed under Sections 10, 11, 46, 45 or 66, by an officer of Sales Tax below in rank to Additional collector may, within thirty days of the date of receipt of such decision or order, prefer appeal to the Collector of Sales Tax (Appeals).

AFTER

45-B.--(1) Any person, other than the Sales Tax Department, aggrieved by any decision or order passed under Sections 10, 11, 36, 45 or 66 by an officer of Sales Tax may, within thirty days of the date of receipt of such decision or order, prefer appeal to the Collector of Sales Tax Appeals.

5. On receiving the Order-in-Original on 1.8.2005 and feeling aggrieved thereof, the Department instituted an appeal against the same before the Customs, Sales Tax & Central Excise (Appellate) Tribunal ("Tribunal") at Peshawar on 10.9.2005. The said appeal was returned to the Department by the Tribunal vide order dated 13.9.2005 with directions that:--

"This appeal was presented to this Custom Excise and Sales Tax Appellate Tribunal, Peshawar Bench on 10.9.2005 by Collector of Sales Tax and Central Excise, Peshawar through Assistant Collector Legal Division Sales Tax and Central Excise which is returned to the appellants today on 13.9.2005 on the analogy of Order VII, Rule 10, Civil Procedure Code, 1908 for presenting the same to the Collector (Appeals), Peshawar as this Tribunal has got no jurisdiction to entertain it for lack of jurisdiction in view of the amendment made in Section 46 of the Sales Tax Act, through Finance Act, 2005 according to which appeal against the order of Additional Collector Customs (Adjudication) Peshawar lies to the Collector (Appeals) Peshawar and not to this Tribunal".

6. Accordingly, the Department filed an appeal before the Collector (Appeals), Peshawar, which was, alongwith nineteen other appeals, dismissed vide order dated 4.1.2006 on the ground that the Department was not entitled to file the said appeal under the amended Section 45-B of the Act.

7. Aggrieved thereof, the Department moved an appeal before the Tribunal at Peshawar, which too was again returned vide order dated 5.9.2006 with directions that;

"....jurisdiction of cases pertaining to sales tax of Hattar Industrial Estate, District Haripur exclusively vests in Bench-I and II, Islamabad vide SRO 1199(I)/2005 dated 26.11.2005. therefore, this sale tax appeal by Collector Sales Tax in respect of National Steel Melters and Re-rollers (Pvt) Ltd., Hattar Industrial Estate is directed to be returned for want of territorial jurisdiction to the appellant for presentation to the proper forum."

8. In compliance with the aforesaid orders of the Tribunal, the Department again moved the appeal before the Tribunal at Islamabad. The Tribunal vide its impugned order dated 15.11.2008 was pleased to declare the appeal to be within time and filed by a competent person. It also held that the Company could not avail the adjustment on the basis of the sale tax returns in view of the special procedure provided under Rule 89(2) of the Rules. It was also stated that the Company could apply for refund, for which, it had to apply under the specific provision provided under the Act. However, the Tribunal, despite rendering afore mentioned findings against the Company, provided it with an opportunity to adjust the carried forward taxes in the following terms :--

"it is accordingly ordered that the appellant i.e. the Revenue Department shall provide an opportunity to the respondents to produce documentary evidence i.e. receipt of purchases of raw materials and payments of proceeds exceeding Rs.50,000/- through the Banking instruments as per provisions of Section 73 of the Sales Tax Act 1990 and other documentary evidence to prove that their income tax exceeded the output tax for the financial year 2003-2004 and the carried forward amount of Rs. 12609437/- had correctly been declared in the month of June, 2004 and allow the adjustment post facto on satisfaction that the declarations made by the respondents through the monthly sales tax returns for the tax period of 2003, 2004 and from July 2004 to October 2004 were correct and true. In case of failure of the respondents to produce the requisite record and to satisfy the Collector of Sales Tax and Federal Excise about the correct adjustment, the appellant shall be within the right to recover the principal amount of the sales tax of Rs.6745230/- alongwith additional tax under Section 34 and penalty at the rate of 5% under Section 33 of the Sales Tax Act, 1990. The order in appeal No.746-65/205 is set aside to the extent of this appeal which is disposed of in terms of the above orders. Announced. Parties may informed accordingly." (Emphasis provided)

9. In view of the above directions rendered by the Tribunal, it seems strange for the Company to agitate the present Reference, as the contention of the Company has in fact been substantially accepted by the Tribunal. The Tribunal has essentially, in order to verify the particulars of the input and output tax stated in the returns, directed the Company to provide supporting evidence to the Department.

10. The Company seeks the present Reference on legal issues, which require consideration. Hence, the same are answered, in seriatim:--

Question of Law No. I.

"Whether under the facts and circumstances of the case, specially considering the conduct of the Respondent, the learned Tribunal justified in entertaining the respondent's time barred appeal which was hit by limitation on many counts."

The rights, privileges, advantages and benefits, which accrues to any person under the provisions of a statute prior to any amendment therein would be protected and not affected, in any manner, by any provisions introduced through the same.

In the present case, the Department had a right of appeal against an Order-in-Original provided under Section 46 of the Act before the Tribunal. However, the said right of appeal was taken away from the Department through the Finance Act, 2005 promulgated by the Parliament, which received the assent of the President of Pakistan on 29th June 2005. It was notified and published in the Official Gazette on 1st July, 2005. The Finance Act, 2005 expressly provided that the same would take legal effect from 1st July 2005. In view of the clear provision regarding its applicability, the valuable rights including the right of appeal, which had accrued in favour of the Department prior to the amendment introduced in Section 46 of the Act through the Finance Act, 2005 would be protected and remain intact in favour of the Department.

The general principles of interpretation of statutes on the matter have been clearly explained in NS Bindra's Interpretation of Statutes (9th Edition), wherein it has been clearly stated that:--

"The following propositions are well-established:

(i) The legal proceedings of a remedy, suit, appeal and second appeal are really but steps in a series of proceedings all connected by an intrinsic unity and are to be regarded as one legal proceeding.

(ii) The right of appeal is not a mere matter of procedure but is a substantive right.

(iii) The institution of the suit carried with it the implication that all rights of appeal then in force are preserved to the parties thereto till the rest of the career of the suit.

(iv) The right of appeal is a vested right and such a right to enter the superior Court accrues to the litigant and exists as on and from the date the lis commences and although it may be actually exercised when the adverse judgment is pronounced such right is to be governed by the law prevailing at the date of the institution of the suit or proceeding and not by the law that prevails at the date of its decision or at the date of the filing of the appeal.

(v) This vested right of appeal can be taken away only by a subsequent enactment, if it so provides expressly or by necessary intendment and not otherwise."

"....There can be no doubt that the right of appeal has been affected by the new provision and in the absence of an express enactment. This amendment cannot apply to proceedings pending at the date when the new amendment came into force. It is true that the appeal may have been filed after the Act came into force but that circumstance is immaterial for the date to be looked into, for, this purpose is the date of the original proceeding which eventually culminated in the appeal."

In this regard, the august Supreme Court of Pakistan in Adnan Afzal Vs. Capt: Sher Afzal (PLD 1969 SC 187) relying on Colonial Sugar Refining Company Ltd. Vs. Irving (1905 AC 369) held that:--

"...`if the matter in question be a matter of procedure only', the provisions would be re-trospective, `on the other hand, if it be more than a matter of procedure, if it touches a right in existence at the passing of the Act', then `in accordance with a long line of authorities extending from the time of lord coke to the present day', the legislation would not operate retrospectively, unless the legislation have either `by express enactment or by necessary internment' given the legislation retroactive effect."

The Supreme Court went on to explain by stating that:--

"The principle has been admirably put by Crawford in his Book on Construction of Statutes, 1940 Edition, page 581, as follows:--

"As a general rule, legislation which relates solely to procedure or to legal remedies will not be subject to the rule that statutes should not be given retroactive operation. Similarly, the presumption against retrospective construction is inapplicable. In other words, such statutes constitute an exception to the rule pertaining to statutes generally. Therefore, in the absence of a contrary legislative intention, statutes pertaining solely to procedure or legal remedy may affect a right of action no matter whether it came into existence prior to, or after the enactment of the statute. Similarly, they may be held applicable to proceedings pending or subsequently commenced. In any event, they will, at least, presumptively apply to accrued and pending as well as to future actions."

In a more recent case of Khalid Qureshi Vs. United Bank Limited (2001 SCMR 103) the Hon'ble Supreme Court relying on precedents went on to hold that:--

"Thus, a statute purporting to transfer jurisdiction over certain causes of action may operate retroactively. This is what is meant by saying that a change of forum by a law is retroactive being a matter of procedure only. Nevertheless, it must be pointed out that if in this process any existing rights are affected or the giving of retroactive operation cause in convenience or injustice, then the Courts will not even in the case of procedural statute, favour an interpretation giving retrospective affect to the statute."

The aforementioned proposition of law has been consistently followed by the superior Courts in our jurisdiction. Reliance may be placed on M/s. Rais Khan's case (1996 SCMR 83), Pakistan Steel Mill's case (2002 SCMR 1023), Mian Rafiuddin's case (PLD 1971 SC 252), Mirza Mehmood Sharif Baig's case (PLD 1973 Lahore 114), Brkat Ali's case (1980 CLC 713) and Devachand Muljimal and others' case (PLD 1968 Karachi 107).

This takes us to another aspect, peculiar to the present case, regarding the "act of the Court", whereby the Tribunal vide its order dated 13.9.2005 returned the appeal to the Department for filing the same before the Collector Appeals. The appeal of the Department was returned on three different occasions by the appropriate forums and finally on 12.4.2006, the appeal was filed before the Tribunal at Islamabad and decided. The Department had under the original un-amended provisions of Section 46 of the Act, filed the appeal within sixty days from the receipt of the Order-in-Original, before the proper appellate forum i.e. the Tribunal. Thus for the "act" of the Tribunal, the Department should not "suffer".

The settled principle of "actus curiae neminem gravabit" (an act of the Court shall prejudice no person) would surely apply to the present case. In this regard this Court relying on celebrated judgments of the august Supreme Court of Pakistan in Mst.Baz Khana's case (PLD 2005 Peshawar 214) held that:--

"Assuming for a while that the appellants did not act with due diligence by prosecuting their remedy in a wrong forum, nonetheless, they, before it was too late, could be put on the right track by the learned District Judge, the day the memorandum of appeal was presented before him. This is what preliminary hearing stands for. In any case when it was entertained and even admitted by the learned Judge without adverting to its competency on account of his pecuniary jurisdiction, all the time so consumed from its entertainment to its return in his Court, cannot be debited in the account of the appellants, and thus they cannot be allowed to suffer for the act of the Court. Had it been returned on the first date of hearing the appellants could have presented it in this Court well within time. Since the time was consumed due to the act of the Court, it will certainly constitute a sufficient cause for condonation of delay as according to the principle enshrined in the maxim actus curiae neminem gavabit, `an act of the Court shall prejudice none'."

This settled principle has been consistently followed and annunciated in the subsequent decisions of the august Supreme Court of Pakistan in Mst.Razia Jafar's case (2007 SCMR 1256) and Akbar Shah's case (2010 SCMR 1408).

Accordingly, this Court hold that the appeal filed by the Department was within time and was not hit by limitation.

Question of Law No.II.

Whether under the facts and circumstances in view of amendments (w.e.f. 1st July, 2005) brought by Finance Act, 2005, inter alia, in Sections 45-B and 46 of the Sales Tax Act, 1990 the department of sales tax was barred to invoke the jurisdiction under Section 45-B ibid of the learned Collector Appeals.

For the reasons stated in answer to the Question of law No.l, this Court holds that the provisions of amended Sections 45-B and 46 of the Act were prospective in nature and did not affect the right of appeal vested in the Department under the un-amended provisions of the Act.

Question of Law No. III.

Whether in view of the amendments (w.e.f. 1st July, 2005) brought by Finance Act, 2005, inter alia, in Sections 45-B and 46 of the Sales Tax Act, 1990, the department of sales tax was barred EITHER to invoke the jurisdiction under Section 46 ibid of the learned Tribunal for assailing the Order-in-Original passed by the officer below the rank of Collector.

For the reasons stated in answer to the Question of law No.l, this Court holds that the provisions of amended sections 45-B and 46 of the Act were prospective in nature and did not affect the right of appeal vested in the Department under the un-amended provisions of Act. Furthermore, it is also reaffirmed that the condition of filing of the appeal by an officer of the rank of Collector was not provided for in the un-amended provisions of Sections 46 of the Act. The said condition was introduced through the Finance Act, 2005 and thus cannot be applied to the right of appeal available to the Department prior to the said amendment.

Question of Law No.IV.

Whether under the facts and circumstances of the case and in view of the provision of Section 46(4) ibid, the learned Tribunal's Order on merit is void ab initio for traversing beyond the scope of appeal wherein only the Order-in Apeal was prayed to be set aside which had a sole merit of non entertainment of their appeal and yet the Order-in-Original was set aside and it was further directed for recovery of the principal amount of the sales tax alongwith additional tax under Section 34 and 5% penalty under Section 33 of the Sales Tax Act, 1990 that is too without issuance a Show Cause Notice to the Applicant.

Appeal is the continuation of the original proceedings. The Order-in-Original and the order of the original forum finally merged into the order of the appellate forum. Thus setting aside the appellate order would have consequences upon the order of the Order-In-Original of the original forum. Even otherwise, this Court finds that the Tribunal has correctly dealt with this issue. Moreover, the issue raised by the Company would not have any adverse effect on the final outcome of the impugned decision of the Tribunal.

Question of Law No.V.

Whether under the facts and circumstances of the case, the pleading in Appeal was proper in form and signed by competent Officer.

For the reasons stated in our discussion relating to Question of law No.III, this Court finds that the appeal has been filed in a proper and legal manner by the competent officer of the Department.

Question of Law No. VI.

Whether under the facts and circumstances of the case, the honourable Tribunal not erred for holding that during July to October 2004 unit the Applicant mode of discharging of tax liability was in violation of Sections 3, 7-A and Rule 89 (2) of the Special Procedure Rules 2004 notified vide S.R.O. 484 (I)/2004.

This question of law was not argued by the learned counsel for the parties. However, this Court finds that the Tribunal has in fact correctly appreciated the facts of the case and applied the relevant provisions of the Act and the Rules.

This Court would again emphasis that the Tribunal in its impugned decision has given an opportunity to the Company to produce the relevant record before the appropriate officer of the Department for verification of the input and output taxes claimed by it in its monthly statements in order to avail the adjustments. It was further directed that only in case the Company fails to verify its said claims, the Department could be within its right to recover from the Company the principal amount of sale tax of Rs.6.745 million alongwith additional taxes and penalties determined by the Tribunal.

Conclusion.

Accordingly, the present reference is dismissed, the impugned decision of the Tribunal is maintained and the questions of law raised in the present reference are answered in the above terms.

The Registrar of this Court shall send a copy of this judgment to the Customs, Sales Tax & Central Excise (Appellate) Tribunal at Islamabad, which shall pass such orders as are necessary to dispose of the case in just and proper compliance to this judgment.

(R.A.) Reference dismissed.

PLJ 2011 Tax Cases (Lah.) 69 (DB)

[Multan Bench Multan]

Present: Muhammad Khalid Mehmood Khan and Muhammad Farrukh Irfan Khan, JJ.

COMMISSIONER OF INCOME TAX/WEALTH TAX, (LEGAL) REGIONAL TAX OFFICE, MULTAN--Appellant

versus

MR. INTIZAR ALI, PROP. M/s. EAGLE CYCLE AGENCY, MULTAN--Respondent

T.R. No. 52 of 2008, heard on 16.5.2011.

Income Tax (Repealed) Ordinance, 1979--

----S. 65--Income Tax Ordinance, 2001, S. 133(1)--Additional assessment--Effect of non-ticking--Original assessment was finalized--return filed under self assessment scheme was deemed to be final assessment--Discrepancy in return filed by assessee--Essentials--In absence of such disclosure by assessing officer it would not be possible for assessee to provide his response and provide the information--Proceedings u/S. 65 of repealed Ordinance being of substantive character and penal in nature there was an inherent requirement to serve notice issued in pursuance thereof strictly in accordance with letter and spirit of law and specific legal position be placed before him--In absence of any one specific reason for re-opening of the case for assessment, notice u/S. 65 of Repealed Ordinance, would cause a serious prejudice to assessee and be an exercise in futility and nullity in eye of law. [Pp. 73 & 74] A & B

Income Tax (Repealed) Ordinance, 1979--

----S. 65(2)--Return was filed under self assessment scheme--No proceedings u/S. 65(1) are to be initiated without definite information coming into possession of Deputy Commissioner and without having previous approval of inspecting Addl. Commissioner of Income Tax in writing to do so--Clause being not ticked was not sustainable--Validity--Proceedings were to be initiated on some definite information with prior approval of Addl. Commissioner--Notice would had been properly issued with specific allegation against respondent as such non-ticking of relevant clause also gives inference of non-compliance of requirements of S. 65(2). [P. 74] C

Syed Khalid Javaid Bukhari, Advocate for Appellant.

Mian Khalid Hussain Mitroo, Advocate for Respondent.

Date of hearing: 16.5.2011.

Judgment

Muhammad Farrukh Irfan Khan, J.--In this Tax Reference under Section 133(1) of the Income Tax Ordinance, 2001 against the order dated 22.11.2007 passed by Income Tax Appellate Tribunal, Lahore (hereinafter referred to as "ITAT"), the following questions have arisen for adjudication by this Court:--

1. "Whether on the facts and in the circumstances of the case the learned ITAT was justified to dismiss departmental appeal on the basis of non-ticking of clause of notice u/S. 65 of the repealed Income Tax Ordinance, 1979 whereas the Honourable Supreme Court vide judgment C.P. No.702-L of 2003 held that non-mentioning of sub-clause does not vitiate the whole proceedings?"

2. "Whether on the facts and in the circumstances of the case the learned ITAT was justified to uphold the order of CIT(A) whereby deleting the addition made u/S. 13(1)(c) of the Repealed Ordinance, 1979 for not ticking the sub-clause of Section 65 of the Repealed Ordinance, 1979, whereas the Apex Court has held in the number of cases that a technical error of flaw should not vitiate the proceedings if the substantial compliance is made as held by the Apex Court in its recent judgments reported in C.A. Nos. 991 & 992 of 2002 CIT Vs. Mr. Abdul Ghani & C.P. No. 702 of 2003 Collector of Sales Tax & CE Vs. M/s. Zamindara Paper & Board Mills"

2. Brief background of this Reference is that the assessee an individual derives income by running a bicycle shop. Original assessment was finalized under Section 59 of the Repealed Income Tax Ordinance, 1979 (hereinafter called as "Repealed Ordinance") whereby the return filed under Self Assessment Scheme (SAS) was deemed to be the final assessment. At a later stage it was found by the assessing officer that there was some discrepancy in the return filed by the assessee whereby proceedings under Section 65 of the Repealed Ordinance were initiated. The assessing officer after obtaining the prior approval from the Assistant Commissioner (Audit) and having fulfilled the mandatory statutory requirements re-opened the finalized assessment and an additional demand was raised in connection therewith whereafter amended assessment was issued. On an appeal, the learned Commissioner of Income Tax (Appeals), Multan, disallowed the further assessment done under Section 65 of the Repealed Ordinance on the ground that the assessing officer did not tick the relevant clause of notice under Section 65 of the Repealed Ordinance. The department preferred an appeal against this order before the ITAT who, after hearing the parties, refused the appeal on the ground that the notice issued, under Section 65 of the Repealed Ordinance, without ticking the relevant clause, is not sustainable in the eye of law.

3. Learned counsel for the appellant has contended that the ITAT could not have dismissed the appeal on mere technicalities and has relied on an un-reported case of the Honourable Apex Court in C.P. No.702-L/2003. He has further relied on the judgment in C.A. Nos.991 & 992 of 2002.

4. Learned counsel for the respondent has argued that the non-ticking of the relevant clause by the assessing officer clearly substantiates that the assessing officer was fishing and was not sure as to whether the case of the assessee was the case of escaped assessment or under assessment or was assessed at too low a rate or was a case of excessive relief. In support of the argument learned counsel for the respondent has relied on a judgment of this Court reported as 2001 (84) Tax 223 (High Court Lahore).

5. We have heard learned counsel for the parties and perused the relevant record and the case law cited by the respective parties.

6. The root cause of the first question raised before this Court is the effect of non-ticking of the relevant clause under Section 65 of the repealed Income Tax Ordinance, 1979, therefore, it would be useful to reproduce the same here:--

"65. Additional assessment.--(1) If, in any year, for any reason,--

(a) any income chargeable to tax under this Ordinance has escaped assessment; or

(b) the total income of an assessee has been under assessed, or assessed at too low a rate, or has been the subject of excessive relief or refund under this Ordinance; or

(c) the total income of an assessee and the tax payable by him has been assessed or determined under sub-section (1) of Section 59 or Section 59-A or deemed to have been so assessed or determined under sub-section (1) of Section 59 or Section 59-A.

the [Deputy Commissioner] may at any time, subject to the provisions of sub-sections (2), (3) and (4), issue a notice to the assessee containing all or any of the requirements of a notice under Section 56 [...] and may proceed to assess or determine, by an order in writing, the total income of the assesses or the tax payable by him, as the case may be, and all the provisions of this Ordinance shall, so far as may be, apply accordingly:

Provided that the tax shall be charged at the rate or rates applicable to the assessment year for which the assessment is made.

(2) No proceedings under sub-section (1) shall be initiated unless definite information has come into the possession of the [Deputy Commissioner] [and] he has obtained the previous approval of the Inspecting [Additional Commissioner] of Income Tax in writing to do so.

[Explanation. As used in this sub-section, "definite information" includes information in respect of sales and purchases, made by the assessee, of any goods, and any information regarding acquisition, possession or transfer, by the assessee, of any money asset or valuable article, or any investment made or expenditure incurred by him.]

(3) Notice under sub-section (1), in respect of any income year, may be issued within ten years from the end of the assessment year in which the total income of the said income year was first assessable:

[Provided that, where the said notice is issued on or after the first day of July, 1987, this sub-section shall have effect as if for the words "ten years" the words "five years" were substituted.]

(3-A) Where a notice under sub-section (1) is issued on or after the first day of July, 1982 no order under the said sub-section shall be made after the expiration of one year from the end of the financial year in which such notice was served.]"

7. A bare perusal of the said provisions shows that the said notice may be issued in any one of the following four conditions--

(a) escaped assessment; or

(b) under assessment: or

(d) Assessment being subject of excessive relief as refund.

If the assessing officer is not sure as to which of the aforesaid requirements; attracts the case of the respondent then the argument of learned counsel for the appellant has all the force that the assessing officer was fishing. It is also to be considered that in the absence of the indication of the relevant clause under which the notice under Section 65 of the Repealed Ordinance has been issued it would be like leaving the assessee (respondent here) marooned on an island in the middle of an ocean with no communication to the mainland. In the absence of such disclosure by the assessing officer it would not be possible for the assessee to provide his response and provide the relevant information. The proceedings under Section 65 of the repealed Income Tax Ordinance, 1979 being of a substantive character and penal in nature therefore there is an inherent requirement to serve the notice issued in pursuance thereof strictly in accordance with the letter and spirit of the law and the specific legal position be placed before him. The case law relied upon by the learned counsel for the respondent is directly applicable to the present case wherein it has been held that the relevant clause being not ticked is not sustainable in the eye of law.

8. The case law relied upon by the learned counsel for the appellant is not attracted to the present case as from the paragraph of the Honourable Apex Court's judgment, referred to at Page 2 of the Reference, it is apparent that the case in C.P. No.702-L/2003 was reported as 2007 PTD 1804 wherein it was observed by their lordships on Page 1806 that:

"In our considered opinion the substantial compliance has been made by making reference of the rules to identify the period of time during which tax has been allegedly evaded. Therefore, merely for the reason that sub-rules (2) and (3) of Rule 10 of the Central Excise Rules, 1944 have not been mentioned, it would have not been proper to declare the notice illegal. In this view of the matter, the judgment of the High Court is not sustainable. It is to be noted that instead of taking into consideration technicalities, the Court looks into the matter with different angels namely as to whether substantial compliance has been made or if any of the sub-rule has been omitted then what prejudice is likely to cause to the party to whom the show-cause notice is given. But in the instant case, we are of the opinion that no prejudice shall be caused to the respondents because the substantial compliance of the relevant rules has been made. Therefore, under the circumstances, the judgment which has been relied upon by the learned counsel is of no help to him."

As such, it was a case where in the opinion of the Honourable Judges of the Apex Court substantial compliance was made by virtue of making a reference to the rules to identify the period of time during which tax was alleged to have been evaded and mere omission of mentioning of the relevant rule in the body of the notice was considered to be of non-substantial character and thus a mere technicality. Besides, the said observation an instruction is also contained for the Courts in the dictum laid down in the case supra, i.e. to look into each matter through "different angles", in particular, as to whether "substantial compliance" has been made and as to quantum of "prejudice" likely to be caused to the party. Taking instructions from the said guideline in the case before us, in our humble opinion, the provisions of Section 65 ibid are substantial in nature and being penal provisions which will have a direct pecuniary affect on the parties, as such, in the absence of any one specific reason for re-opening of the case for assessment, notice under Section 65 of Repealed Ordinance would cause a serious prejudice to the assessee and be an exercise in futility and a nullity in the eye of law.

9. We have also considered the requirements laid down in sub-section (2) of Section 65 ibid which require that no proceedings under sub-section (1) are to be initiated without definite information coming into the possession of the Deputy Commissioner and without having previous approval of the Inspecting Additional Commissioner of Income Tax in writing to do so. It is, therefore, essential that the proceedings in sub-section (1) are to be initiated on some definite information with prior approval of the Additional Commissioner. This does not appear to be the case, otherwise, the notice would have been properly issued with specific allegation against the respondent, as such non-ticking of the relevant clause also gives the inference of non-compliance of the requirements of sub-section (2) of Section 65 ibid.

10. In view of the above discussion, this Tax Reference is disposed of by answering Question No. 1 in the affirmative. So far as the Question No. 2 is concerned the same is not arising out of the order passed by the learned ITAT, hence the same is left unanswered.

(R.A.) Reference disposed of.

PLJ 2011 Tax Cases (Pesh.) 75 (DB)

Present: Shah Jehan Khan and Yahya Afridi, JJ.

THE COLLECTOR CUSTOMS, PESHAWAR--Petitioner

versus

DAULAT KHAN and another--Respondents

Customs Ref. No. 27 of 2010, decided on 15.3.2011.

Customs Act, 1969 (IV of 1969)--

----S. 196--Constitution of Pakistan, 1973, Arts. 7 & 150--Customs Reference--Jurisdiction of High Court--Challenged the order passed by Customs, Federal Excise and Sales Tax Appellate Tribunal--Vehicle was not recorded as legally imported--Validity--High Court is of a firm and considered opinion that in peculiar circumstances of instant case, reference and questions of law agitated therein by petitioner did not warrant any legal consideration by High Court u/S. 196 of Customs Act--Reference was dismissed. [P. 80] A

2007 YLT 1920.

Mr. Moinuddin Hamayun, Advocate for Petitioner.

Mr. Isaq Ali Qazi, Advocate for Respondents.

Date of hearing: 14.2.2011.

Judgment

Yahya Afridi, J.--Additional Director, Customs Intelligence and Investigation, FBR, Peshawar has challenged the order and judgment passed by the Customs, Federal Excise and Sales Tax Appellate Tribunal, Peshawar ("Tribunal") dated 7.12.2009 by invoking the jurisdiction of this Court under Section 196 of the Customs Act, 1969 ("Act").

2. The present reference seeks this Court to consider the impugned judgment of the Tribunal on the following questions of law:--

"(a) Whether the honourable Appellate Tribunal has rightly appreciated the facts and law applicable to the case?

(b) Whether the sale of the vehicle u/S. 524 Cr.P.C. means that the owner/buyer or the seller has no liability toward the customs duty and taxes?

(c) Whether it was not the duty/responsibility of the seizing department to verify that customs duty and taxes has been paid or it is a non-duty paid vehicle?

(d) Whether the sale in such like circumstances will not encourage the smugglers of vehicles to first seize their non-duty paid vehicle and then purchase it with out payment of duty and taxes?

(e) Whether it was not the responsibility of the DOR or the purchaser to inspect the import documents from the concerned registration deportment?

(f) Whether it was not the responsibility of the purchaser to verify its import document before its purchase and to see that is there any defect in the vehicle or its documents?

(g) Whether the order of the appellate tribunal is a speaking order?

(h) Whether a vehicle purchase in scrap can be used as in running condition ?

(i) Whether it was not duty of the DOR to check that being an imported vehicle customs duty and taxes has been paid on it?

(j) Whether the sale is not in utter violation of the transfer of Property Act, 1882?"

3. The Facts leading to the present reference are that on a secret information, the Intelligence and Investigation Staff of FBR ("Intelligence Staff") at Peshawar at 1300 hours on 22.1.2009, intercepted a Toyota Corolla Car bearing Registration No. LZY 2427 ("Vehicle"). Riasat Mehmood, the present Respondent No. 2, on demand by the Intelligence Staff, produced an auction certificate bearing No.C. No.DN/MM-II/3445 dated 28.10.2004 ("Certificate") issued by District Officer (Revenue), Lahore-I ("DOR"). Despite the production of the Certificate, the Intelligence Staff detained the Vehicle for further verification. DOR in response to a written query by the Intelligence Staff vide letter dated 2.2.2009 confirmed that:--

"(i) The Letter No. DN/MM-II/3445 DATED 28.10.2004 has been issued by this office.

(ii) The vehicle has been auctioned under Sections 517 and 524 of Cr.P.C. read with amendment by Ordinance XXXVII of 2001 dated 13.8.2001.

(iii) the vehicle in question was received from the Police, who have taken the same in their custody under Section 500 Cr.P.C. The condition of the vehicle was in the shape of scrape.

(iv) Not applicable, as it was taken into possession by the police u/S. 550 Cr.P.C.

(v) Not known, as per above contention given in Paras (iii) & (iv), the condition of the vehicle was in the shape of scrape. Therefore, no previous number was available."

4. The Intelligence Staff being not satisfied with the aforementioned letter received from DOR, further sought the examination of the Vehicle from the Forensic Science Laboratory at Peshawar ("FSL"), which clearly brought to light that there was no tempering of the chassis number of the Vehicle.

5. Even this confirmation of FSL did not satisfy the anxiety of the Intelligence Staff and further checking the Customs Data Bank of the imported vehicles was carried out and it was found that the Vehicle was not recorded as legally imported. Accordingly, the Vehicle was seized and a show cause notice dated 26.2.2009 was issued to present Respondent No. 2 seeking:--

"Now, therefore, you Riazat Mehmood s/o Khalil-ur-Rehman & Daulat Khan s/o Hazrat Umer Khan are hereby called upon to show cause within ten days of the receipt of this notice as to why the seized vehicle should not be confiscated for violation of sections 2(s) & 16 of the Customs Act, 1969 read with Section 3(1) of the Import & Export (Controls) Act, 1950, besides taking against you any other action as envisaged by Section 156 (1)(8) (89) of the Customs Act, 1969 read with SRO 487(I)/2007 dated 09.06.2007."

6. The Adjudicating Officer vide Order-in-Original No. 63 of 2009 confiscated the Vehicle. The present Respondent No. 2, aggrieved thereof impugned the same in appeal, which was also dismissed vide Order-in-Appeal No. 429 of 2009 dated 28.8.2009.

7. This led the present respondents to invoke the jurisdiction of the Tribunal impugning the Order-in-Appeal No. 429 of 2009. The Tribunal relied upon the judgment of the august Supreme Court of Pakistan delivered in CPLA No. 4020-L of 2001 titled "Province of Punjab Vs. Arshad Mahmood", wherein it was held that:--

"4. We have considered the arguments of the learned counsel and minutely examined the record. The Deputy Commissioner auctioned the property after publication of notice in the Daily Nawa-i-Waqt of 9th August, 2000. The respondent was the highest bidder, who paid the entire amount in favour of the State. After acceptance of his bid, the District Magistrate wrote letter to the Motor Registration Authority for registration of the vehicle in question the name of the respondent. The Assistant Collector of Customs, Government of Pakistan, Nabha Road, Lahore, through a 'letter (available at page 32 of the paper book) informed the District Magistrate, Lahore to the effect that;

"2. At the outset, it is not clear from the contents of the letter referred to above that the vehicles in question were liable to confiscation under the provisions of the Customs Act, 1969 or otherwise. However, the confiscation, as apparent from the letter, has been done with reference to the provisions of the Code of Criminal Procedure, 1898, read with Section 25 of the Police Act, 1861. In other words, the cognizance of the case property has not been taken under the Customs Act, 1969.

After receipt of the aforesaid letter, the Deputy Commissioner, Lahore vide letter dated 12.7.2001, informed the Director (Motor Registration) Excise & Taxation, Lahore that "the confiscations of vehicles have not been made under the Customs Act, 1969, therefore, it is evident from the letter under reference that no NOC is required for the auction of said vehicles". He further informed that "in view of the above, NON is not required under Sections 516, 517, 524, 525 Cr.P.C. 1898, and for the vehicles confiscated under Section 25 of the Police Act, therefore, matter may please be closed and further action may be taken for registration of vehicles accordingly. "Even then, the vehicle in question was not registered in the name of the respondent. The contention of the learned counsel that no reasonable opportunity of hearing was afforded to the petitioners, is also not borne out from the record, because the impugned order shows that on the date of hearing i.e. 23.10.2001 Mr.Zahid Aslam Khan, AAG alongwith Mr.Muhammad Hanif ETO, was present in the Court and they were heard.

5. From the letters referred to hereinabove, it is crystal clear that objection of the Registration Authority that NOC from customs Department may be obtained or some other documents may be filed for registration of the vehicle in question, was totally irrelevant and rightly rejected by the learned Judge of the High Court in Chambers. It would be advantageous to refer to relevant portion of the impugned order, which reads as under:

"....it is evident that the State acquired title because the vehicle was confiscated. In the circumstances, the State was also entitled to pass on valid title to the petitioner who has purchased the vehicle in question through an open auction and has admittedly paid the entire amount of the auction price to the State."

6. In our considered view, the impugned order is based on the principles of equity, fair play and justice. There is no misconstruction of law, or mis-reading, or non-reading of the material evidence. This petition is without merit and substance, which is hereby dismissed and leave to appeal is declined.

8. The learned counsel for the petitioner-Department vehemently argued that the main issue in dispute in the present case was correctly dealt with in the judgment rendered by the worthy High Court in case titled Ch. Muhammad Ashraf Vs. Deputy Superintendent Anti-Smuggling Squad (PLD 1977 Lahore 300) and the judgment of the august Supreme Court was not relevant to the facts of the present case.

9. The learned counsel for the respondents rebutting the stance taken by the learned counsel for the petitioner-department contended that the Tribunal had correctly appreciated the correct legal position by relying upon the judgment of the august Supreme Court of Pakistan and in addition contended that any other view would shatter the faith and truth of the general public in the governmental functions. This, he stated would be contrary to the mandate provided under Articles 7 and 150 of the Constitution of Islamic Republic of Pakistan, 1973. Reliance was placed on Zahidullah Vs. Secretary Mines (2007 YLT 1920).

10. The learned counsel for the petitioner department was provided time to seek further instructions from FBR regarding any recent development in the matter relating to public auctions and also to research on any decisions thereon by the august Supreme Court of Pakistan but to no avail.

11. In view of the clear `ratio decedenti' laid down in the judgment of the august Supreme Court of Pakistan in Arshad Mehmood's case, ibid, it would not be appropriate for this Court to follow the `dicta' rendered by the Lahore High Court in Ch. Muhammad Ashraf's case, ibid.

12. Accordingly, this Court is of a firm and considered opinion that in the peculiar circumstances of the present case, the present reference and the questions of law agitated therein by the present petitioner do not warrant any legal consideration by this Court under Section 196 of the Act.

13. For the reasons stated, hereinabove, the present reference is dismissed.

(R.A.) Reference dismissed.

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