1984 PTD 147

I. T. AS. NOS. 1062 TO 1067 OF 1983-84, DECIDED ON 4TH JANUARY, 1984. Versus I. T. AS. NOS. 1062 TO 1067 OF 1983-84, DECIDED ON 4TH JANUARY, 1984.

Citation1984 PTD 147

CourtIncome Tax Appellate Tribunal

ORDER

These six further appeals filed at the instance of an assesses, call in question the orders passed by the learned Act of Income-tax, R. F ..L. The years involved are assessment years 1976-77 through 1981-82.

2. The relevant facts of the case are as these. On 11-7-1982 the I. T. O. made a spot visit to the appellant's business premises. Therein it transpired that the appellant was deriving fairly lucrative income from sale of soft drinks, cigarettes, pan etc. The appellant's business premises was found to be situated in L. M. L., which is the most posh locality of the town attracting younger generation and rich gentry. The I. T. O. recorded a spot inspection note and on I1-7-198 issued notice under section 56 of the Income-tax Ordinance (hereinafter referred to as `Ordinance'). In response thereto, the appellant filed returns declaring nil income for the first year ; net income of Rs. 6,000 for the second year and net income of Rs. 9,000 for each of the succeeding four years under review. While processing assessments, the I. T. O. recorded the appellant's statement and confronted him with the spot inspection report. It was held that the appellant was deriving fairly lucrative income from sale of soft drinks and he was supplying Coca-Cola in glasses as well as he had installed machine for that purpose. The I. T. O. was of the view that the appellant's daily average sales were of Rs. 5,000. The appellant's business premises was found functioning till late in the night. Sales of imported cigarettes was also admitted. On the basis of this material, the I. T. O. estimated the appellant's net income at Rs. 15,000, Rs. 20,000, Rs. 22,000 Rs. 24,000, Rs. 26,000 and Rs. 28,000 for the respective years under review. All these assessments successfully stood the test of appeal before the learned A. A. C.

3. The appellant's Authorized Representative has filed the following additional ground :- "that the assessment proceedings on the basis of notice under section 56, dated 11-7-1982 are ab initio illegal as the same has been initiated and concluded violating provision of clause (c) (ii) of subsection (2) o~ section 166."

The additional ground filed on behalf of the assessee being purely legal involving no adjudication of facts is allowed. Consistent view of the superior Courts is that legal ground can be agitated at any stage.

The appellant's Authorized Representative contended that for the charge years 1976-77, 1977-78 and 1978-79 assessments processed by the I. T. U. are ab initio void. It was stated that the assessee being not an existing assessee comes in the definition of a person as defined under section 2(32) of the Ordinance. Assessments for the first three years under review could have been made by issuance of notice under section 65 of the Ordinance, the same being of a period prior to coming into force of the Ordinance. Reliance in this behalf was placed on savings clause of section 166 (2) (c) (it) of the Ordinance.

The D. R. contended that assessments were rightly made as notice under section 56 of the Ordinance can be issued to any person who, in the I. T. O.'s opinion, is chargeable to tax for any income year. Under this provision the I. T. O. s stated in have rightly issued notice asking the assessee to file returns for all the years under consideration. The D. R. vas also of the view that notice under section 65 could be issued only if an additional assessment has to be made. In support of this plea, reliance was placed on the heading of section which is "Additional Assessment".

4. After carefully considering the contention of the parties, I find that submission of the assessee's Authorized Representative is legally well-founded. Admittedly the assessee's business came into light on the I. T. O's. spot visit made .3n 11-7-1 982, and prior to that the assessee was not even conscious of the fact that be was required to pay any income-tax. The department also failed to locate the assessee. The 1. T. O. fell in error in processing assessments for the period prior to commencement of the Ordinance by issuance of notice under section 56. The extent and scope of section 56 of the Ordinance is restricted only upto the date of commencement of the Ordinance. The well settled principle of law is that subject to any provision of savings clause, scope and extent of any section of any Act/Ordinance cannot cover any period prior to coming into force of the Act/Ordinance. In case, the I. T. O. is of the opinion that income of any person is chargeable to tax for any income year be is at liberty to issue notice to that person. There is no doubt that the assessee comes in the definition of any person, but scope and extent of the word any income year as stated in section 56 of the Ordinance cannot be 117 stretched to any assessment year prior to 1979-80. For that purpose the law makers have provided section 65 wherein vide sub-clause (1) (a) the 1. T. O. has been given jurisdiction in these words :-

"If, in any year, for any person, any income chargeable to tax under this Ordinance has escaped assessment; the 1. T. O. may, at any time, subject to provisions of subsections (2), (3) and (4), issue a notice to the assessee containing all or any of the requirements of a notice under section 56 .. . .

If after the I. T. O's. visit made on 11-7-1982 it was found that the appellant was earning taxable income prior to the period of commencement of the Ordinance, the I. T. O. should have issued a notice under section 65 containing all or any requirements of a notice under section 56 directing the assessee to file return. The reason for my conclusion is obvious as under section 166 of the Ordinance following savings clause has been provided :-

"166 (2)(c) (ii): Notwithstanding the repeal of the Income-tax Act, 1922, and without prejudice to the provisions of section 6 or section 24 of the General Clauses Act, 1897.

(iii) any income chargeable to tax had escaped assessment or had been under assessed or assessed at too low a rate, or bad been the subject of excessive relief or refund or the total income or the total world income and the tax payable had been determined under subsection (1) of section 23 of the repealed Act and no proceedings under section 34 of the said Act in respect of any such income are pending at the commencement of this Ordinance, a notice under section 65 may be issued with respect to that assessment year and all the provisions of this Ordinance shall apply accordingly."

The Legislature having not made any provision of savings clause for section 56 of the Ordinance, it cannot be applied to any period prior to enforcement of the Ordinance. The D. R's. plea that scope of section 65 of the Ordinance is restricted to the assessments already made as heading of the section is "additional assessment" is devoid of any force. Mere wrong of a section cannot change the ingredients and impact of the! section. The established principle of interpretation of statutes is that impact of legal provision is to be taken as a whole and not by separating from language of the main section. The next contention of the D. R. regarding non-application of section 65 of the Ordinance was that therein notice can be issued only "to an assessee" whereas the appellant in the instant case was not an assessee ; rather he was a "person" as defined section 2(32) of the Ordinance. This submission of the D. R. is misconceived. Person bas been defined as to include an individual, a firm, an A. C. P., a Hindu individual family, a company, a local authority and every other artificial jurisdicial person, whereas the definition of an assessee includes a person. Sub- clause (6) of section 2 of the Ordinance defines the assessee as under :.- "assessee" means a person by whom any tax or any outer sum of money is payable under this Ordinance, and includes -

(a) every person in respect of whom any proceeding under this Ordinance has been taken for the assessment of his income or the income of any other person in respect of which he is assessable or of the amount of refund due to him or to such other persona ; (b) every person who is required to file a return of total income under section 55, section 72 or section 81 ; and

This definition nowhere provides that an assessee will be a person who is an existing assessee; rather it includes any person who is liable to payment of tax under the Ordinance. The I. T. O. had thus the jurisdiction to asses the appellant's income for the years prior to assessment year 1979-80 only by issuance of notice under section 65. By using the word 'assessee' in section 65, the Law Makers have not committed any illegality.

As a result of the above discussion, I have no hesitation in holding that without issuing any notice under section 65, the I. T. O. erred in framing assessments for the charge years 1976-77, 1977-78 and 1978-79 merely by issuance of notice under section 56 of the Ordinance. All the three assess ments being ab initio void are annulled.

5. Taking up the appeals for the charge years 1979-80, 1980-81 and 1981-82, I do not find any justification for interference therein. Assessments have been processed by invoking correct legal provision of the Ordinance. Estimated income is based on the spot inspection of the I. T. O. Details of the appellant's business as discussed by the officers below fully justify the adopted estimates of income. On the basis of material available on record regarding extent and location of the appellant's business the adopted estimates of income being reasonable and proportionate are maintained.

6. As a result, appeals for the first three years under review succeed as indicated above and those of the subsequent three years being devoid of any merits are dismissed

M. B. A. Appeal dismissed.