COMMISSIONER OF INCOME TAX/WEALTH TAX VS Mst. HAMEEDA BEGUM, 2016 PTD-LAHORE-HIGH-COURT-LAHORE 511 (2015)

Income Tax Ordinance (XXXI of 1979)---

----Ss. 66A, 59 & 55---Self-assessment----Assessment on basis of return---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Exercise of powers under S. 66A of the Income Tax Ordinance, 1979 in absence of order in writing under S.59 of the Income Tax Ordinance, 1979---Factual and legal position of exercise of powers under S. 66A of the Income Tax Ordinance, 1979 before insertion of proviso to S. 59(4) of the Income Tax Ordinance, 1979---Order passed against taxpayer under S. 66A of the Income Tax Ordinance, 1979 was set aside by Appellate Tribunal on the ground that Assessing Officer was required to pass an order in writing under S.59(1) of the Income Tax Ordinance, 1969, and since no such order was passed in the present case, provisions of S. 66A of the Income Tax Ordinance, 1979 could not have been invoked---Contention of Department was, inter alia, that S. 66A of the Income Tax Ordinance, 1979 could be invoked in terms of proviso to S. 59(4) of the Income Tax Ordinance, 1979----Validity----Section 59 of the Income Tax Ordinance, 1979 showed that procedure was given therein for dealing with a return qualified in terms of Self Assessment after being filed under S. 55 of the Income Tax Ordinance, 1979 and Deputy Commissioner was required to assess the income and determine payable tax through an order in writing under S. 59(1) of the Income Tax Ordinance, 1979; however he was restrained from passing such an order after time specified in S. 59(4) of the Income Tax Ordinance, 1979----Necessary effect of not passing order in writing was that payable tax worked out as per declaration in the return stood accepted under the scheme, however, vide amendment in the year 1995, a proviso was added to S. 59(4) of the Income Tax Ordinance, 1979 whereby under an order under S. 59(1) of the Income Tax Ordinance, 1979 was deemed to have been passed---"Order by Deputy Commissioner" as stated in S. 66A of the Income Tax Ordinance, 1979 was a precondition for invoking provisions of S. 66A of the Income Tax Ordinance, 1979---High Court observed that an order passed by operation of law (fiction), could also be subjected to powers under S.66A of the Income Tax Ordinance, 1979; however, fact that such insertion of proviso to S. 59(4) of the Income Tax Ordinance, 1979 was made on 02.7.1995 could not be ignored, and factual and legal position till such insertion of proviso was that in absence of an assessment order in writing, provisions of S. 66A, could not be invoked---Present case related to period prior to insertion of said proviso to S. 59(4) of the Income Tax Ordinance, 1979; therefore S.66A could not have been invoked in the case---Impugned order therefore could not be interfered with---Appeal was dismissed, accordingly.

Commissioner of Income Tax/Wealth Tax, Zone-C, Lahore v. Messrs Haroon Medical Store, Sheikhupura 2003 PTD 1530 rel.

Saeed-ur-Rehman Dogar for Appellant.

Shoaib Ahmad Sheikh, Shahbaz Butt and Muhammad Iqbal Hashmi for Respondents.

Date of hearing: 29th October, 2015.

JUDGMENT

SHAHID JAMIL KHAN, J.---This judgment shall decide captioned Appeal along with I.T.As. Nos. 15, 16, 17 and 18 of 1998. Following common questions of law, in all the Appeals, are arising out of composite order dated 20.04.1998 passed by erstwhile Income Tax Appellate Tribunal ("Appellate Tribunal"):--

"Whether on the facts and in the circumstances of the case the learned Income Tax Appellate Tribunal was justified to hold that action under section 66A cannot be initiated merely due to the reason that order under section 59(1) was not passed whereas the case stood entered in Demand and Collection Register and Demand Notice under section 85 of the Income Tax Ordinance, 1979 was issued and served upon the assessee?"

2.Facts briefly are that an action under Section 66A of the Repealed Income Tax Ordinance, 1979 ("Repealed Ordinance") was initiated by Inspecting Additional Commissioner ("IAC"), after perusal of record relating to assessment year 1993-94, which resulted into an order. The order, under Section 66A, was assailed before Appellate Tribunal throwing challenge on very initiation of proceedings for the reason that no order of assessment was in existence. The Appellate Tribunal found, on facts, that return for relevant assessment year was filed under Section 55 availing Self Assessment Scheme ("SAS"). Assessing Officer (Deputy Commissioner) was required to pass an order in writing, under Section 59(1) of the Repealed Ordinance, however no such order was passed. Appellate Tribunal entertained the ground and held that provisions of Section 66A could not have been invoked under the circumstances. Relevant part from Appellate Tribunal's order is reproduced for facility:--

"4. The parties have been heard and relevant orders perused. The first contention of the learned Counsel is that the provisions of Section 66-A of the Ordinance are not applicable in this case as no order in writing has been passed under section 59(1) of the Ordinance. A Division Bench in Islamabad has decided an appeal hearing I.T.A. No. 1214/LB/1995-96 pertaining to assessment year 1992-93 on 9.6.1996 wherein a similar objection of the assessee was accepted and it was held that the IAC was debarred to initiate proceedings under section 66A of the Ordinance on the strength of a notice of demand issued under section 85 of the Ordinance and copy of IT-30A form. Respectfully following that decision, we accept the assessee's appeal in this case as well and in view of this order, the other contention is not adjudicated. The appeal of the assessee succeeds to the extent that the order passed under section 66A of the Ordinance is cancelled. The appeal succeeds."

3.Learned counsel for the appellant department asserted that assessment, in writing, was passed but could not substantiate it from the record. He argued, alternatively, that a deeming order had taken place under Section 59(4), upon which provisions of Section 66A could have been invoked.

4.Learned counsel for the respondent has opposed the contentions and submitted that subsection (4) of Section 59 was not available for relevant assessment years, because relevant proviso under this subsection was inserted, for the first time, in the year 1995.

5.Messrs Shahbaz Butt and Muhammad Iqbal Hashmi, Advocates were asked to assist the Court as amici curiae. They have affirmed that proviso to subsection (4) of Section 59 was introduced in 1995, before which practice was of issuing IT-30 Form, followed by notice of demand under Section 85 of the Repealed Ordinance; in case order under Section 59(1) was not passed, in writing, by the Deputy Commissioner.

They have produced copy of judgment by learned Division Bench of the Court in Commissioner of Income Tax/Wealth Tax, Zone-C, Lahore v. Messrs Haroon Medical Store, Sheikhupura (2003 PTD 1530) to assist that, under similar circumstances, cancellation of an action under Section 65 of the Repealed Ordinance was upheld.

6.Heard, record perused.

7.Before proceeding to answer the proposed question, a glance is necessary on the provisions of subsections (1) and (4) of Section 59, as were available at relevant period, same are reproduced for this purpose:--

59. Self-assessment.--

(1)Where the return of total income for any income year furnished by the assessee not being a company engaged in the business of banking, leasing and modaraba, under section 55 qualifies for acceptance in accordance with the provisions of a scheme of self assessment made by the Central Board of Revenue for that year or under any instructions or orders issued thereunder, the Deputy Commissioner shall assess, by an order in writing, the total income of the assessee on the basis of such return and determine the tax payable on the basis of such assessment.

(1A)

(3)

(4)No order under subsection (1) shall be made in any case after the thirtieth day of June of the financial year next following the income year in respect of which a return of total income has been furnished under section 55:

Provided that if such order is not passed by such date, order under subsection (1) shall be deemed to have been passed on such date."

(emphasis supplied)

Perusal of above quoted provisions shows that a procedure was given for dealing with a return, qualified in terms of SAS, after being filed under Section 55. Without doubt, Deputy Commissioner was required to assess income and determine payable tax through an order in writing under subsection (1) of the Section 59. However, he was restrained from passing such order, after the time specified in subsection (4). Necessary effect of not passing the order in writing was that payable tax worked out as per declarations in the return stood accepted under the Scheme. However, in 1995, a proviso was added to subsection (4), where under an order, to this effect, was deemed to have been passed.

8.Subsection (1) of Section 66A of the Repealed Ordinance also needs to be examined to answer the proposed question. It is reproduced for ease of reference:--

"66A. Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order.---(1) The Inspecting Additional Commissioner may call for and examine the record of any proceedings under this Ordinance, and if he considers that any order passed therein by the Deputy Commissioner is erroneous in so far as it is prejudicial to the interests of revenue, he may, after giving the assessee an opportunity of being heard and after making, or causing to be made, such enquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment to be made."

(emphasis supplied)

The emphasized part of the subsection shows that 'an order by Deputy Commissioner' was a precondition for invoking the provisions of Section 66A.

9.We are benefited by referred judgment by learned Division Bench of this Court in Messrs Haroon Medical Store's Case, (supra), relevant part of which is reproduced hereunder:--

"6. After hearing the learned counsel for the parties we are in agreement with the learned Members that in absence of an assessment order mere issuance of Form IT-30 does not amount to an assessment order which could have possibly been re-opened under section 65 (additional assessment) of that Ordinance. The parties agree that the provisions of subsection (c) were added to section 65 by Finance Act, 1992 and were deemed to have always been so substituted. The amended provision provided that the provisions of section 65 could also be invoked where the total income and the tax payable by an assessee had been assessed or determined under subsection (1) of section 59 (self assessment) or under section 59-A (assessment on the basis of return) or was deemed to have been so assessed or determined. The parties further agree that the deeming provisions in section 59(1) comprising in a proviso to sub-section (4) were added only by Finance Act No.1 of 1995, dated 2-7-1995. This however, implies that although the deeming provisions found their way in the form of sub-clause (c) in section 65 of the Ordinance as early as the year, 1992 the corresponding deeming provisions to which a reference was made therein were made part of the statute in the form of proviso to subsection (4) of section 59 only w.e.f. 2-7-1995. Therefore, the legal position that emerges indicates that at the time of introduction of sub- clause (c) in section 65 by Finance Act, 1992 till the addition of the proviso to subsection (4) of section 59 w.e.f. 2-7-1995 there was no authority in law under which an assessment could be deemed to have been framed in absence of an assessment order in writing recorded under section 59(1) of the Ordinance. Therefore, irrespective of the retrospective effect given to sub-clause (c) added in section 65 in the year 1992 in absence of any change in the provisions of section 59 and section 59-A till the said addition of proviso by Finance Act No.1 of 1995 w.e.f. 2-7-1995, there was no question of deeming the existence of an assessment order under section 59 or 59-A to enable invocation of provisions of section 65 of the Ordinance to make an additional assessment. It needs to be noted that sub-clause (c) of section 65 in fact is an enabling clause authorizing an Assessing Officer to proceed to make an additional assessment even in those cases where either assessments had actually been framed under section 59 or section 59-A or the total income or tax payable was deemed to have been so assessed or determined. The addition of this clause i.e. sub-clause (c) to section 65 did not by itself made any addition to section 59(1) or even section 59-A. A deeming clause being necessarily a fiction of law cannot be taken to be a part of another provision unless it is expressly so provided. The Legislature by employing legal fiction can deem a thing to be in existence although it does not actually so exist. That fiction of law however, cannot be transposed or read into another provision unless such transposition is expressly so provided in the main provision."

(emphasis supplied)

We subscribe to the ratio given by learned Division Bench. Though enabling provisions, like clause (c) in Section 65, were not inserted in Section 66A, albeit words "order passed therein by Deputy Commissioner" used in subsection (1) of Section 66A, supra, instead of words 'written order' are noticeable. In our opinion, an order passed by operation of law (fiction) could also be subjected to powers under Section 66A. Nevertheless, the fact that proviso to subsection (4) of Section 59 was not available till 02.07.1995, cannot be ignored. In this backdrop, factual and legal position till insertion of the proviso was that in absence of an assessment order in writing, provisions of Section 66A could not be invoked over an IT-30 Form.

10.IT-30 Form is not a substitute for an assessment order in writing. Scope, purpose and nature of the form has already been examined, eloquently, by a learned Division of this Court in Messrs Haroon Medical Store's Case (supra), relevant excerpt from the judgment is reproduced for facility:--

"9. ....An IT-30 Form on the other hand simply comprises of different blocks and columns meant to be filled in containing all information with regard to nature, volume and extent of business or occupation of an assessee as also other relevant information, which the department will normally require of an assessee. This printed form which owes its legitimacy to ingenious arrangement of a host of information needed by the department, rather than any provisions of law or the rules framed thereunder. In law we have a concept of an assessment order in writing, which not only betrays an application of mind, but also the fact that the concerned human mind was adequately possessed with the faculty to demonstrate its application. An IT-30 Form filled in by the subordinate officials in the Department and though signed by an officer will not answer the legal requirement of an order in writing, which goes to "determine" the tax payable on the basis of an assessment made prior thereto."

11.Since this case relates to the period prior to insertion of the proviso, therefore, our answer to the proposed question is in affirmative, i.e., against the appellant department.

Instant appeal along with the connected appeals, are decided against the appellant department.

12.Office shall send a copy of this judgment under seal of the Court to the Appellate Tribunal Inland Revenue as per section 136(6) of the Repealed Income Tax Ordinance, 1979.

KMZ/C-30/LOrder accordingly.