I.T.AS. NOS. 3534, 1536 AND 1537/LB OF 1986-87, HEARD ON 8TH DECEMBER, 1986. Versus I.T.AS. NOS. 3534, 1536 AND 1537/LB OF 1986-87, HEARD ON 8TH DECEMBER, 1986.
ABRAR HUSSAIN NAQVI (JUDICIAL MEMBER). -- These are three appeals filed by an individual deriving income from business of speculation of stocks and shares etc. Two appeals relate to the assessment year 1977-78 and 3rd Appeal is for the assessment year 1983-84. All the three appeals are being disposed of together, The first appeal hearing I.T.A. 3534/LB/1985-86 for the assessment year 1977-78 is against the order of the learned A.A.C., dated 1-1-1986 while the second appeal for the same year bears I.T.A. No. 1536/ L B / 86-87 which is against the order of the learned C. I. T. (A), dated 31st July, 1986. An appeal for the assessment year 1983-84 has also been filed against the order of the learned C.I.T.(A), dated 31st July, 1986.
2. I .T. A . No. 3534/ I.B/ 1985-86 - For the assessment year 1977-78.
Brief facts of the case are that the assessee for this assessment year declared an income of Rs.6,000 which was assessed at Rs.5,00,000 but was reduced in appeal to Rs.1,00,000. Subsequently, on an information received that the assessee had acquired an amount of Rs.51,72,000 in the assessment year .977-78, the assessee's case was re-opened by issuing a notice under section 65 of the I. T. Ordinance on 27-5-1984 and the income was re-assessed by adding an amount of Rs.51,72,000 as income from undisclosed source. What happened in this case was that between the night of 21-9-1976 and 22-9-1976 the Federal Investigation Agency raided the house of one Nasim -Hassan Shah, North Nazimabad, Karachi and amount in question was recovered from the house. Since this amount was not claimed by any person the Magistrate concerned confiscated this amount by his order, dated 16th July, 1977 under section 523 of the Criminal Procedure Code. The Additional and District Sessions Judge modified the order of the Magistrate and instead of confiscation, placed the amount at the disposal of the Provincial Government vide its order, dated 30th May, 1978. It appears that the appellant, Mr. Abid Hussain moved in the Sind High Court and claimed that the amount in question belonged to him. The Sind High Court, accepting the assessee's claim, held that the amount in question belonged to the assessee and it was ordered by their Lordship that the amount in question should be released to the assessee. This order was passed by the High Court on 27th March, 1984. It was on the basis of this order that the I. T.O. issued a notice to the assessee under section 65 of the Ordinance after obtaining prior approval of the I.A.C. concerned. The assessee, in reply to this notice, filed return on 3-6-1984 showing the income 'same as before'. It may be noted that the assessee filed his wealth-statement as on 30th June1976 and as on 30th June, 1977 but this amount was not shown in his wealth-statement. As a consequence, the assessing officer required the assessee to explain as to how the amount in question was acquired by the assessee. After issuing various notices, the amount in question was treated as income from undisclosed sources and was added under section 13(1)(aa) of the I.T. Ordinance as deemed income of the assessee. An appeal was filed before the learned AAC where two pleas were taken before him. Firstly that the assessee had not been provided a reasonable opportunity of being heard. The second plea of the assessee was that section 13 (1) (aa) had no application on the facts of the present case. It was pleaded before him that since amount in question had been seized and confiscated in favour of the State in 1977, the assessee could not be held to be the owner of the amount in the assessment year 1977-78 as the amount in question had not reached the assessee in that year and therefore was not taxable at his hands in the assessment year 1977-78. According to the learned counsel the assessee became the owner of the amount on 27-3-1984 when High court passed the order in his favour.
3. On the first issue of proper opportunity,' the learned AAC accepted the plea of the assessee and set aside the assessment so as to provide him a reasonable opportunity of being heard before re-framing the assessment. On the second issue the learned AAC did not agree with the assessee's contention. The learned AAC while rejecting the plea of the assessee observed as under:
"Regarding the contentions of the learned counsel to the in application of section 13 (1) (aa) to the facts of the present case, I find there is no merit in them. The appellant did not cease to be the owner of the amount only because it was seized from the premises if a friend where he had kept this amount for safe custody. There is also no merit in the contention of the appellant that the amount was confiscated and as such went out of the ownership of the appellant. In fact, the amount was confiscated only for a shortwhile and the amount was later on again placed at the disposal of the Provincial Government as a Custodian vide order of the Additional Sessions Judge dated 20-5-1978. I also do not find any merit in the contention of the appellant's Counsel that the appellant was not owner of the amount in the income year relevant to the charge year 1976-77. On going through the petition of the appellant made to the High Court in C.P. t55 before the Hon'ble Sind High Court, Karachi one can reach inescapable conclusion that the appellant himself has admitted the ownership of this amount and the purpose of filing this very petition was only restoration on the amount of which he was the rightful owner. The Hon'ble High Court, Karachi also made a reference in clear and unequivocal terms regarding the ownership of the appellant about this amount. The relevant portion of the judgment is reproduced hereunder:-
"There is no claim by any other person other than the petitioner. It is not even raised as a point that the petitioner could not have been the owner of this property. In these circumstances, we direct that the amount in question shall be paid by the Federal Investigation Agency, or the Federal Government, to the Petitioner".
From the foregoing, it is quite clear that the appellant was the undisputed owner of the amount ever since it was seized. Since the appellant owned the amount even when it was first seized i.e. on the night intervening 21st and 22nd of September, 1976 i.e. the income year relevant to the charge year 1977-78. I therefore, held that the income was chargeable in the year 1977-78 under section 13(1)(aa) of the Income-tax Ordinance, but the impugned order is infirm and untenable because of lack of opportunity, therefore, the order is set aside to be made de novo in accordance with law".
4. It is against the order that the assessee has come up in appeal before the Tribunal.
5. The learned counsel for the assessee reiterated the same arguments as before the learned AAC. According to him the amount in question could not be treated as income of the assessee in the assessment year 1977-78 as there was a diversion of the income when the amount had been confiscated by the State. The assessee became the owner of the amount by virtue of the order of the Sind High Court and, therefore, if at all, the amount could be treated as income of the assessee in the assessment year 1984-85. He has placed reliance on number of cases in support of his contention. The first case relied upon by the learned counsel for the assessee was Commissioner of Income-tax v. Manzur Qadir, Barrister-at-Law reported as P L D 1966 Lah. 495. This case however has no relevancy to the present case. What happened in that case was that the assessee who was a practising advocate, entered into arrangement with his client that instead of receiving his fee in cash he would accept annuity bonds through an Assurance Company under which annual payments were to be made to the assessee in twenty years. The question in that case was as to whether the amount covered by the annuity bond and part thereof constituted receipts of the assessee assessable at his hands on the ground that the Assurance Company received the amount of Annuity bond as agent of the assessee? The following question was referred to the High Court by the Income-tax Appellate Tribunal for opinion:
"Whether, in the facts and circumstances of the case, the amounts covered by the annuity bonds, or any part thereof, were assessable to tax in the hands of the assessee in the assessment year 1958-59?"
The High Court came to the conclusion that the entire amount had not been paid to the assessee in the relevant assessment year but was turned over to the Assurance Company for the purchase of annuity bonds and as such it could not be said that the assessee had received money directly. It was further held that the Annuity bonds would not hing capable of being turned into money as the assessee was only entitled to the amount of annuity for a particular year and, therefore, it could not be said that money worth of the bonds in any particular year is equivalent to the amount payable as annuity in that year.
5-A. It is evident that facts of the case of Manzur Qadir are entirely different and have no relevancy whatsoever for the issue in the present case. In the present case it has been the assessee's case that he was the owner of the amount at the time of confiscation, which was lying in safe custody in friend's house from where it was recovered. What the Income Tax Department had required from the assessee was to explain as to the source of acquisition of this amount as on 21st September, 1979 when the amount had been recovered. Whether the amount was confiscated or not is the subsequent affair. The assessee was to explain as to how he had acquired the amount before September 1976.
6. Another case relied upon by the learned counsel for the assessee was Commissioner of Income-Tax Punjab v. Jagan Nath Maheshwary reported as 1957 3? ITR-418. This case has been cited by the assessee to support his contention that the order of the High Court was not definite information within the meaning of section 65 of the Ordinance and therefore the case of the assessee: could not be re-opened on that information. This case does not help him in any way. On the contrary this case goes against the assessee. In that case it was held that the definite information did not mean that the assessing officer may start proceedings against an assessee on the basis of a gossip or vague apprehension. It was further held that the Income
Tax officer was not called upon to discover the exact quality or quantity of the omission but it is sufficient if the assessing officer found that there has been some omission and it is immaterial if it is greater or smaller than he had supposed it to be. In the present case the definite information was in the shape of the High Court order, according to which it was held that the assessee was owner of the amount in question which was ordered to be restored to him. Therefore, the order of the High Court constituted definite information. In any case this question is absolutely irrelevant as under section 65 of the Ordinance an assessing officer could reopen the case either on receiving definite information or with the prior approval of the IAC. In the present case prior approval of the IAC had also been obtained. Therefore, even if there was any substance in the objection of lack of definite information that loose all force because of the prior approval of the IAC.
7 It will be pertinent to reproduce some of the narration of facts from the order of the High Court in Constitutional Petition No.555 of 1981 filed by the assessee. On page 1 of the order of the High Court while narrating the facts stated:-
"It is then the case of the petitioner that before leaving Pakistan he had placed a sum of Rs.51,72,000 in trust with Naseem Hassan Shah, respondent No.2, who was a close friend of the petitioner. The said Naseem Hassan Shah was residing in House No.228/A Block 'D' North Nazimabad, Karachi. It is then alleged that on the night intervening 21st and 22nd September, 1976, some officers of the Federal Investigation Agency at Karachi, raided the house of respondent Naseem Hassan Shah with any view to arrest the petitioner. The petitioner was not there, but the house of Naseem Hassan Shah was searched in presence of Mushirs Muhammad Anwar and Riaz Moinuddin. It is stated by the petitioner that the amount of Rs.51,72,000 entrusted by him to respondent Naseem Hassan Shah was seized by the raiding party from the said house."
8. Then at page 29 of the order, the High Court made following observations: -
"It would thus mean that the mere fact of the Court having passed an order, placing the property at the disposal of the Government, does not seek to destroy the title of the owner, or, create a title in the Government, but such order only finds a custodian for the property. In the instant case, the F.I.A, or Government it holding the property only as a trustee and cannot be termed as owner, nor can it claim any title to the property. On the other hands, none other than the petitioner has laid a claim to the property and such claim is also not disputed. In these circumstances even if it is believed which we do not believe, that the property was found lying on the road, the right and title of the petitioner is not affected."
From this observation of the High Court it is clear that before the High Court .the assessee's case all along had been that money belonged to him and was entrusted to Naseem Hassan Shah whirl, was recovered by the F.I.A. and was confiscated. The High Court restored the amount to the assessee and between the intervening period of confiscation and restoration, the High Court held that F. I. A. people were the custodian 8`f the money belonging to the assessee as a trustee. The High Court has conclusively held that the assessee's title had never been destroyed nor title of .the Government had been created in regard to this money. Therefore, the assessee cannot now take a summer sault and contend that there has been break in the ownership of the assessee although even if there was any much break even then the fact remains that the assessee had been the owner of the money before the night of 21st and 22nd September, 1976 and he owned an explanation as to how this money was acquired. it the assessee failed to explain the source of the acquisition of this money in September 1976 the assessing officer was justified in treating this money as income from undisclosed sources in the income year corresponding to the assessment year 1977-78.
9. The learned counsel has relied upon another case reported as ILR 40 Madras page 200 to support the contention that on seizure and confiscation of an amount, the assessee s title as well as the possession is destroyed till restored by a Civil Court. This case does not help the assessee either. As has been held above, firstly, what the law required from the assessee is an explanation as to the source of the acquisition of this amount. Secondly the High Court in the assessee's own case has not accepted this position. The High Court has held that the assessee was owner of this money all along and the title was not destroyed because-of confiscation. The learned counsel has also relied upon the following cases:-
(1) State Bank of Travancore 158 ITR 102 (SC).
(2) Morvi Industries Limited 82 ITR 102.
(3) Bejoy Singh Dadhuric 1 ITR 135 (PC).
(4) Manzoor Qadar P L D 1966 LHR 495.
(5) Suraj Pattan Damani 106 ITR 576.
(6) Feroze Pur Finance 124 ITR 619.
(7) Devi Films 143 ITR 388.
10. All these cases have been cited to show that only that kind of income is taxable which really accrues or arised to the assessee and income, which has been diverted at source, cannot be taxed. However, all these cases are irrelevant. In those cases there has been diversion of income at source. In the present case the income had accrued and has been received by the assessee and was entrusted to his friend and then it was confiscated. Therefore, all these cases relied upon by the learned counsel for the assessee do not advance the assessee's case.
10. In view of the above discussion it is evident, that an amount of Rs.51,72,000 which has been acquired by the assessee before the, night of 21st and 22nd September, 1976 and could be assessable in the assessment year 1977-78 if the assessee had no satisfactory explanation as to how this money was acquired. For the foregoing reasons the assessee's appeal for the assessment year 1977-78 against the order of the learned AAC dated 1-1-1986 has no merit and is dismissed.
11. ITA No.1536/LB/1986-87 against the order of the learned C. I. T. (A), dated 31st July, 1986 or the assessment ear 1977-78.- The acts o the case have already been narrated above. For lack of proper opportunity of being heard the learned AAC vide his order dated 1-1-1986 had set aside the assessment so that the assessee could be provided a reasonable opportunity of being heard before re-framing the assessment. On re-assessment the assessee was provided a reasonable opportunity of being heard and notice was given to the assessee to give explanation as to the source of acquisition of this amount but no explanation whatsoever was given by the assessee. As such the income was again re-assessed as before and the amount of Rs.51,72,,000 was added under section 13(1)(aa) of the I.T. Ordinance to the already assessed income of Rs,1,00,000 and the assessee's appeal was dismissed vide impugned order of the learned C .I . T. (Appeals).
12. The learned counsel reiterated the same arguments in this second appeal in regard to the assessability of the income.
So far the assessability of the assessee's income in the assessment year 1977-78 is concerned that question has already been decided in the earlier appeal and need not be discussed in this appeal. The learned AAC had set aside the assessment only on the ground that the assessee had not been provided reasonable opportunity of being heard. However, when an opportunity was provided to the assessee he did not offer any explanation whatsoever in regard to the source of acquisition of this money. Therefore, this amount had rightly been added as unexplained income from undisclosed sources.
12. In the alternative the learned counsel for the assessee raised another plea. He submitted that in any case the confiscation of amount amounted to a loss to the assessee and therefore was an admissible deduction as an expense. In support of his contention he has cited the case of C.I.T. v. Piara Singh reported as 83 ITR 678. That case has however, no relevancy on the facts of the present case. In that case what happened was that the assessee was engaged in illegal business of smuggling and the assessee was caught red-handed by the Custom Authorities and cash amounted to Rs.65,500 recovered from him and was confiscated. In those circumstances the Haryana High Court held that smuggling was a business, though illegal, and the confiscation of money in such illegal business was inherent in the activity of such a business and the confiscation of the amount was a loss and allowable under section 10(1) of the Repealed Income-tax Act. In the present case the amount, which has been added and treated as income from undisclosed sources under section 13(1) of the I.T. Ordinance. This income has not been treated as business income nor it has been claimed as business income. This income falls under the head income from other sources and under that head a loss, if any, of this nature is not an allowable deduction. Under section 31 of the Ordinance, the allowable deductions are enumerated under clauses, (a) (b) and (c). Clauses (a) and (c) are not applicable and clause (b) only that expenditure is allowable which had been laid out or has been expended wholly and exclusively for the, purpose of earning such income. Therefore, if any expenditure had been incurred by the assessee in acquiring this amount that could be allowed but any expenditure or loss subsequent to the acquisition could not be allowed as an admissible expense. Therefore, this contention of the assessee is also misconceived and rejected.
13. The next contention of the learned counsel for the assessee was clause (aa) of subsection (1) of section 13 of the Income-tax Ordinance was added by the Finance Ordinance, 1980 and as such no addition could be made under this clause for the assessment year 1977-78. This contention- is again devoid of any force for the simple reason that the assessment proceedings had been started against the assessee in 1984 and finally assessment was made on 18-6-1984 and again re-assessment was made on 2-2-1986. When the assessment was, made clause (aa) was already part of the Statute Book and therefore addition could be made under that clause.
14. The last argument advanced by the learned counsel for the assessee was that Special National Fund Bond Scheme was introduced in the year 1985 and clause 172 was added to the Second Schedule of the I.T. Ordinance on 29-7-1985 vide Notification No.SRO-721(a)/85, dated 29th July, 1985 issued by the Federal Government. Under this clause an income derived from any source which had not been assessed in report of any year, including and up to the assessment year 1984-85, would not be included in the income of the assessee to the extent of National Fund Bonds purchased by the assessee. The contention of the learned counsel was that the assessee had purchased Special National Fund Bonds to the tune of Rs.53,00,000 on 31st August, 1985. A photo copy of the Special National Fund Bond No.017456 has been produced by the assessee for perusal. The relevant clause 172 added to the Second Schedule is reproduced below:-
"Set off against income for investment in the purchase of Special National Fund Bonds (172) Any income, from whatever source derived, which has not been assessed in respect of any year including and upto the assessment year 1984-85 not exceeding such amount as is invested by a tax-payer in the purchase of the Social National Fund Bonds issued under the Special National Fund Bonds Rules. 1985."
15. From the perusal of the above clause relied upon by the learned counsel for the assessee, it is clear that set off can be claimed by' an assessee in a case which has not been assessed in respect of any year including upto the assessment year 1984-85. In the present case though original assessment had been made on 18-6-1984 but that was set aside by the learned A. A. C. vide his order, dated 1-1-1986. if While the fresh assessment was made by the I.T.O. on 2-2-1986, but the assessee had already purchased National Funds Bonds on 31st August, 1985. In support of his contention the learned counsel has also relied upon circular 10.9 of 1985 issued by the C.B.R. The learned counsel contended that in para 3 of the Circular it has been provided that the policy of the Government was to liberally allow the tax-payers to come forward for whitening their black money through these Bonds. The learned D.R. on the other hand, relying on the same Circular, contended that under clause 'd' of para. 3 it has been provided that assessment, which had already been finalized would remain unaffected and the assessee would not be entitled to claim any of benefit or credit.
17. We have considered the contentions raised by the parties. The contention of the learned D.R. that the assessment had already been finalized is misconceived inasmuch as the assessment order, which had been passed earlier was subsequently set aside. The re-assessment order was passed by the I.T.O. on 2-2-1986 and before that date the assessee had already purchased National Fund Bonds on 31 st August, 1985. Obviously the assessment, which is set aside by the Appellate Authority cannot be said to have been 'finalized'. Even otherwise under section 2(7) the word 'assessment' has been defined according to which it includes 're-assessment. Since the assessee has filed a photo copy of the National Fund Bond No. 017456, it is directed that the assessee should be allowed a set off and benefit of the purchase of National Fund Bonds and allowed exemption under, clause 172 of the Second Schedule subject to verification.
1 8. Assessment year 1983-84. --In this assessment year the assessee contested the addition o Rs.4,08,875 which was added by the I.T.O. under section 13(1)(e) of the I.T. Ordinance on account unexplained household expenses. The assessee had claimed household expenses at Rs.11,125. The I.T.O. however, was of the view that the assessee is a personality of Pakistan and keeping in view his standard of life and fact that the assessee runs two houses at Karachi and Lahore and frequent visits abroad estimated the annual expenses of the assessee from foreign trips at Rs.2,40,000 and Rs.15,000 per month as household expenses. Thus an amount of Rs.4,20,000 (Rs. 1,80,000 on account of household expenses + Rs.2,40,000 on account of foreign trips), was estimated by the I.T.O. as reasonable expenses incurred by the assessee. Out of this estimated expenditure the amount of Rs.11,125 declared by the assessee was deducted and Rs.4,08,875 was added. The learned counsel for the assessee contended that the assessing officer had estimated this amount on presumption and conjecture. The assessing officer had no material whatsoever with him to make such an addition. The learned D.R. on the other hand contended that the assessee was specifically asked to produce the passport, which he did not. Therefore, the assessing officer had rightly drawn adverse inference against the assessee and estimated the expenses on account of foreign trips at Rs.2,40,000. In regard to the household expenses the learned counsel for the assessee has produced a chart showing statement of assets of Mr. Abid Hussain and his family as on 30th June, 1983. According to this chart the domestic expenses have been claimed by the assessee and his family to the tune of Rs.78,125. According to the learned counsel for the assessee this amount was sufficient to meet the expenses of the assessee as all the family members are living with the assessee.
19. We have considered the contentions of the parties. In order to verify the contention of the learned A. A. C. we would have set aside the order of the I. T.O. so that an inquiry could be conducted, by the I.T.O. to verify the points raised by the learned counsel for'', the assessee. However, we are not setting aside the order on this issue because of the alternative argument raised by the learned counsel in regard to the claim of exemption on account of set off against the purchases of National Fund Bonds by the assessee. The I.T.O. finalized the assessment on 15-6-1984 while the assessee had already stated to have purchased National Fund Bonds on 31st August, 1985 to the tune of Rs.24,00,000. In order to prove the purchase of National Fund Bonds the learned counsel has produced a photo copy of the certificate from Habib Bank Limited, Royal Bank Branch, Montgomery Road, Lahore. In this certificate it has been certified that Special National Fund Bond No. 017444 at the face value of Rs.24,00,000 was purchased by the assessee which is in the custody of the aforesaid Bank for collatery security. In these circumstances, we direct that this set off under clause 172 of the Second Schedule should be allowed to the assessee subject to the verification to be made by the I. T.O.
20. All the three appeals are disposed of as above.
MANZURUL HAQ, ACCOUNTANT MEMBER. --I have carefully gone through the order proposed by my learned brother. However, it is with profound respect for him that I have not been able to reconcile myself with his point of view. Before recording my reasons, I think it proper to reproduce clause 172 added to 22nd Schedule of the Income-tax Ordinance on 29-7-1.985. It reads:--
"172. Any income from whatever source derived, which has not been assessed in respect of any year including and upto the assessment year 1984-85 not exceeding such amount as is invested by a tax-payer in the purchase of the Special National Fund Bond issued under the Special National Fund Bond Rules 1985."
When one reads the above clause carefully, it becomes evident that the legislature has indicated its intention very clearly when it used the words 'which has not been assessed'. Nowhere the word "assessed" would, of course, include words "re-assessed" or "assessed afresh". However, if this expression "assessed", "re-assessed" or "assessed afresh" are read with the preceding words "which has not been" the intention of the legislature appears to be that any income which requires to be assessed, re-assessed or assessed afresh which was not assessed upto the date of the insertion of aforesaid clause 172, was hit by it. In other words, any income, which is to be reassessed or assessed afresh after the date of insertion of aforesaid clause it did not apply to it. Now if we turn to the facts of this case it appears that the income of the assessee stood assessed on 29th July, 1985 when the aforesaid clause 172 was inserted in 2nd Schedule of the Income-tax Ordinance. Now if the assessment order has been set aside and his income is to be re-assessed it would not be covered by this clause. Had his case been set aside by learned A.A.C./C.I.T.(A) and might have been pending before the I.T.O. before 29th July, 1985, it could have been argued that his income had not been assessed or reassessed or assessed afresh before aforesaid clause 172 was introduced in 2nd Schedule of the Income-tax Ordinance. I humbly feel that all those assessments or reassessments or fresh assessments which stood completed before 29th July, 1985 when clause 172 was brought on Statute Book it did not apply to them because such incomes in such cases could not be deemed to have not been assessed, reassessed or assessed afresh but on the other hand they stood assessed, reassessed or assessed afresh.
I am, therefore, humbly of the view that since the income of the assessee stood assessed before 29th July, 1985 it cannot be said that it has not been assessed on 29th July, 1985. If on appeal the learned A.A.C. or learned C.I.T.(A) has set aside the assessment order and the income stood reassessed or assessed afresh it would not bring such reassessment or the fresh assessment within the fold of clause 172. My this conclusion is very much fortified by various circulars and S.R.Os. issued by C.B.R. from time to time.
Since a difference of opinion has arisen, let the following question be placed before the learned Chairman so that he can order the third Member to hear and dispose it of.
Question
Whether under the facts and circumstances of this appeal, clause 172 of 2nd Schedule of the Income-tax Ordinance was applicable in this case."
On Difference of opinion
FARHAT ALI KHAN, CHAIRMAN .--This appeal has come up before me on difference of opinion having been arisen between my learned brothers the J.M. II of Lahore and A.M. (HQ) of Karachi.
The relevant facts which have given rise to this appeal are that the appellant, an individual, on 31-8-1985 purchased the Special National Fund Bonds worth Rs.53,00,000. On this date his appeal for assessment year 1983-84 was pending before A.A.C. It was filed against original assessment order framed on 18th June, 1984. On 1st January, 1986, the learned A. A. C. was pleased to set aside the assessment order and directed the I.T.O. to frame de-novo assessment. Pursuant to this order the I.T.-O. framed de-novo assessment on 2nd February, 1986. Under these facts and circumstances it was contended before the Division Bench of this Tribunal that under clause 172 of the Second Schedule of the Income-tax Ordinance (hereinafter referred to as the "Ordinance"), the appellant was entitled to the benefits attached to the purchasing of the Special National Fund Bonds. The learned Judicial Member accepted this contention and observed:
"We have considered the contentions raised by the parties. The contention of the learned D.R. that the assessment had already been finalized is misconceived inasmuch as the assessment order, which had been passed earlier was subsequently set aside. The reassessment order was passed by the I.T.O. on 2nd February, 1986, and before that date the assessee had already purchased National Fund Bonds on 31st August, 1985. Obviously the assessment, which is set aside by the appellate authority could not be said to have been "finalised". Even otherwise under section 2(7) the word 'assessment' has been defined according to which it includes: 'reassessment'."
The learned J. M., therefore, directed the I.T.O. to allow the benefits available to the appellant under clause 172 of the Second Schedule subject to verification.
The learned A.M. however, came to just the opposite conclusion. Interpreting clause 172 of the Second Schedule of the Ordinance the learned A.M. observed:
"Nowhere the word 'assessed' would, of course, include words re-assessed' or 'assessed afresh'. However, if this expression 'assessed', re-assessed or 'assessed afresh' are read with the preceding words 'which has not been', the intention of the legislature appears to be that any income which required to be assessed, re-assessed, or 'assessed afresh' which were not assessed upto the date of insertion of the sub-clause (172) was hit by it."
On this reasoning the learned A.M., therefore, concluded as under:
"I am, therefore, humbly of the view that since the income of the assessee stood assessed before 29th July, 1985, it cannot be said that it has not been assessed on 29th July, 1985. If on appeal the learned A.A.C. or learned C.I.T. (Appeals) has set aside the assessment order and the income stood re-assessed or assessed afresh, it would not bring such re-assessment or fresh assessment within the fold of clause 172. My this conclusion is very much fortified by various Circulars and S.R.Os. issued by C'B.R. from time to time."
In view of this difference of opinion both the learned Members have stated the question to be answered by third Member as follows:--
"Whether under facts and circumstances of this appeal clause 172 of Second Schedule of Income-tax Ordinance was applicable in this case?"
Thus, I am called upon to resolve this controversy.
Now, before entering into the merits I think it worthwhile to recapitulate the history of the clause 172 of Second Schedule and various Circulars, -Notification or Press Releases issued thereunder.
On 23rd May, 1985, the Federal Finance Minister Dr. Mahboob-ul-Haque while presenting his Budget announced the proposal regarding issuance of Special National Fund Bonds "for mopping up Black Money" and "for productive investment". Pursuant to this policy of the Government the Special National Fund Bond Rules were introduced on 6th June, 1985 vide SRO. 574(1)/1985 which were subsequently amended on 22nd October, 1985 by another SRO bearing No.1027 (1)/85. In these Rules the Government laid down the various provisions regarding issuance of the Bond, the form of application for purchasing them, the form of the declaration and other provisions concerning these Bonds. However, before framing of these Rules and after the announcement of the policy, the Government firstly introduced clause 172 in the Second Schedule of the Ordinance vide SRO 721(1)/85, dated 29th July, 1985, to which subsequently a proviso was added by SRO 237(1)/86, dated 11th March, 1986. Secondly, Circular No-9 of 1985 was issued on 30th July, 1985. Explaining the effect of this policy on pending assessment, para. (a) of this Circular laid down:
"(a) Pending Assessment .--In all pending assessments for and including the period up to the assessment year 1984-85 tax-payers would be entitled to claim set-off against income proposed to be assessed up to the amounts invested in the purchase of these Bonds. However such credit would only be admissible in the case of assessments of the person (as defined in the Income Tax Ordinance, 1979) in whose name the Bonds are purchased."
Dealing with the assessments, which stood finalised its clause (d) Provided as follows:
(d) Assessments already finalised .--Assessments already finalized would however, remain unaffected and the tax-payer would not be entitled to claim any benefit or credit therein. Cases pending in appeal will likewise remain unaffected."
It further appears that on 31st July, 1985, the CBR also issued a Press Release dealing with the same topic. For our purposes its clauses (a) and (d) are relevant. The former deals with the pending assessments and reads as under:
"(a) In pending assessments tax-payers would be entitled to claim set-off against income proposed to be assessed up to the amounts invested in the purchase of these Bonds.
The latter is concerning those assessments, which stood already finalised and it is as reproduced hereinbelow:
"(d) Assessments already finalised and cases pending in appeal would remain unaffected."
Let me mention here that the Circulars, Press Releases and SROs were issued from time to time explaining various aspects of the Special National Fund Bonds. Since they are not relevant for our purposes,? let me, therefore, proceed further. I should also mention here that since the text of clause 172 of Second Schedule of the Ordinance has been reproduced by both learned Members, I am, therefore, skipping over it. However, I would like to point out that the Government allowed the purchases of the Bonds up to 30th November, 1985, under aforesaid Rules.
With this background let me now revert to the merits of the point in issue. Dr. Ilyas Zafar, the learned counsel for the appellant firstly argued, though feebly, that since on the date when the appellant submitted his form to State Bank of Pakistan regarding set-off on the strength of Bonds purchased on 31st August, 1985, the assessment for assessment year 1983-84 was pending and the appellant was entitled to claim the benefit under the Special National Fund Bonds Rules. The learned counsel pointed out that clause 172 did not prescribed any outer limit. With due respect to the learned counsel for the appellant, I do not see any force in his submission. First of all as pointed out earlier the outer limit, though not given in clause 172, was provided bay the Government by Press Release and it was 30th November, 1985. Please see Complete Income-tax Law by S.A. Salam (1987 Edition, page 393-394). Moreover, the learned counsel did not refer to any evidence before me to show as to on which date the appellant submitted his claim regarding set-off. Since the original assessment order framed on 18th June, 1984 was set aside by the learned AAC on 1st January, 1986, it was the duty of the appellant to show as to on which date the claim was submitted, if at this argument was intended to be effectively canvassed before this Tribunal. The first submission, therefore, is found to be devoid of any merit and stands rejected.
Relying upon (1987) ITD 426 (Trib.) and (1986) PTD 279 (Trib.) the learned counsel further argued that on the date when the appellant claimed exemption the assessment order stood set aside. This argument actually is another aspect of the first submission and is also rejected for the same reason.
Dr. Ilyas Zafar thirdly submitted that since under section, 2(7) of the Ordinance, the assessment means reassessment also, it could not be held to be complete till re-assessment was made. Building his argument on this premises the learned counsel submitted that since the assessment order originally framed was set aside and sine re-assessment had not yet been made, the appellant was entitled to claim, the benefit. With due respect to the learned counsel, I do not see any force in this submission either. The assessment order originally framed on 18th June, 1984, was set aside on 1st January, 1986, and re-assessment was framed on 2nd February, 1986. However, the Bonds were purchased on 31st August, 1985. It means that on the date when the Bonds were purchased, the appeal was pending before learned AAC. As such, the argument regarding the definition of assessment does not appear to be relevant at all. This argument also stands rejected, Dr. Ilyas Zafar then vehemently argued that on the date when the Bonds were purchased, the assessment was pending. In this connection the learned counsel invited my attention to an Indian Supreme Court's case reported as AIR (1957) (SC) 503, Asghar Ali Nazar Ali v. State of Bombay, and another case from Gujrat High Court reported as (1977) 108 I T R 771, Rambhal Jethabhai Patel v. CIT, Gujrat.
From perusal of Asghar Ali's case (supra) it appears that the prosecution had closed its case on 28th July, 1982 and the accused had not yet been called upon to enter upon his defence. The examination of the accused, under section 342 of the Code of Criminal Procedure, took place after that date. The accused filed his written statement on 14th August, 1982 and the addresses by the prosecution as well as the defence continued right up to 26th September, 1982. Under these circumstances the question arose: whether for the purpose of sections 10 and 7 of the Criminal Law amendment tact, 1962, the case should be treated as pending? Finally their Lordships of the Supreme Court answered the question in the affirmative. Their Lordships adopting the definition of word "pending", given in Stroud's Judicial Dictionary, held that a legal proceeding was pending as soon as it was commenced and until it stood concluded i.e. so long as the Court having original cognizance could make an order on the matters in issue, or to be dealt with therein. Their Lordships also referred to the observation of Jessel M.R. made in a Chancery Division case reported as (1882) 20 Ch. D. 637, Clagett's Estate, Fordham v. Clagett, which are as under:
"What is the meaning of the word 'peending'? In my opinion, it included every insolvency in which any proceedings can by any possibility be taken. That I think is the meaning of the word 'pending'....A cause is said to be pending in a Court of Justice when any proceedings car, be taken in it. That is the test."
Similarly, in Rambhai's case (supra) the assessee filed his return for assessment year 1962-63 describing his status as "Resident but not ordinarily resident" and the ITO determined the same status. However, in the order, which was served on the assessee his status was shown as "Resident and Ordinarily Resident" and tax calculated in that basis. The assessment order was framed on 16th December, 1965 but the assessee moved rectification application on 23rd March, 1968. It is important to note that on November 11, 1966, he had made a declaration, under section 113 of the Indian Income-tax Act, 961, that the .tax payable by him on his total income should be determined with reference to his total world income. He was supposed to move this application on or before 30th June, 1962, but he submitted that he was prevented by sufficient cause from making it within the prescribed time. Section 113 (5) of the Indian Income-tax Act provided for condonation of delay caused by sufficient cause. His application was, however, rejected for the reason that the assessment for that year stood already completed on the date when declaration was sought to be made by the assessee. It was argued on behalf of the assessee that since the assessment order was suffering from mistake and since he moved a rectification application, therefore, the assessment proceeding should be deemed pending on 11th November, 1966, when he made the declaration. Ultimately, his submission found favour with a Division Bench of Gujrat High Court and their Lordships accepting the submission of the assessee held that the assessment proceedings were pending, as an application for rectification could be made on 11th November, 1966. Their Lordships were of the view that the order of rectification passed on 17th June, 1968 corrected the assessment and the corrected assessment was the final assessment in this case for the assessment year 1962-63.
However, with profound respect for Dr. Ilyas Zafar, I do not see any force in his submission. In my humble opinion, both the cases cited at Bar are not applicable under the facts and circumstances of these appeals though I respectfully agree with the principles of law enunciated in and propounded by both the Rulings. In my humble opinion, the fate of this case hinges on the interpretation of clause " 72 of the Second Schedule of the Ordinance and, with respect, if I may say so. I think the learned Accountant Member has made correct approach in resolving the point in dispute. It is true that in clause (a) and (d) of Circular 9 of 1985 and in clauses (a) and (d) of the Press Release the expressions "pending assessments" and "assessments already finalised" have been used. But it is pertinent to note that according to the settled principles of interpretation of Statutes neither Circular 9, nor aforesaid Press Release can over rule the provisions of clause 172 of the Ordinance for the obvious reason that the latter is the part of statute whereas the former cannot even be designated' as subordinate legislation. Moreover, the expressions "pending assessment" and "assessments already finalised" have not been used to carry some special meaning. In my humble opinion the expression "pending assessments" means and implies only those assessment proceedings in which the I.T.O. still had the power to frame them the way he likes. Let me point out that the argument of Dr. Ilyas Zafar cannot be upheld because the expression "pending" has been used for appear also. In clause (d) of Circular 9, and again in clause (d) of Press Release of 31st July, 1985 the expression used is ''cases pending in appeal". If the expression "pending assessments" means and implies even those assessment orders, which are subject matter of appeal, then what connotation is to be given to expression gases pending in appeal". Thus, it is clear that the word "pending" been used to denote those cases or appeals only in which the I T O or the appellate authorities had "powers to pass some order.
Similarly, the word "finalised" signifies the end of such of the I. T.O or appellate authorities. I am, therefore, of the view that if reliance is put on these expressions, it would amount to misdirection not sustainable in law. In any case, this submission of Dr. Ilyas Zafar is also turned down.
Lastly, Dr. Ilyas Zafar submitted that even clause 172 was applicable and the word "assessed" used in it should get colour from the context in which it has been used. In support of his contention the learned counsel cited following rulings;
(1938) 6 I T R 414, (1942) 10 I T R 322, (1961) 41 I T R 425, (1961) 42 I T R 123 and (1975) 100 I T R 698.
The learned counsel, therefore, concluded that the clause 172 should be construed liberally so as to extend its benefit to the appellant. Mr. Javed Tahir Butt, the learned D.R., on the other hand, vehemently opposed the submissions of the learned counsel of the appellant. The learned D.R. submitted that clause 172 applied only to those cases where assessment had not yet been made in respect of any year including and upto assessment year 1984-85.
I have heard both the learned counsel for the appellant as well as learned D.R. and have also given my due attention and consideration to the submissions made at the Bar. When I read clause 172, I find that the legislature has used the "passive voice" in framing the opening sentence of this clause. Thus, the "subject" of the sentence is hidden. The sentence used by the legislature is as follows:
"Any income, which has not been assessed."
If we ask the question by whom, the answer obviously would be "by the I.T.O Thus, the full sentence in "passive voice" would be as under:--
"Any income, which has not been assessed by the I.T.O."
Let me point out that the income is not assessed by anyone else except the I.T.O. Even the appellate authorities do not assess the income. Sections 59, 62 and 63 have given the powers to I.T.O. for 0 this purpose. On the other hand, clause (a) of subsection (1) of section 132 vests the following powers in the first appellate forum:
(1) Setting aside the assessment order with the direction that the assessment be made afresh after making some enquiry.
(2) Confirming an assessment order.
(3) Reducing the assessment,
(4) Enhancing the assessment.
(5) Annulling the assessment.
Similarly, section 135 mentions powers, which this Tribunal can exercise and they are same, which the First Appellate Authority exercises. Thus, it is clear that it is the I.T.O. only who makes an assessment and he is the hidden "subject" of the opening sentence of clause 172.
Now, if we have to interpret the expression "which has not been assessed" as has been done by the learned A.M., we have not only to keep into consideration the definition of word "assessment" given in section 2(7) of the Ordinance, referred to by the learned J.M. in his order, but also the context in which the word "assessed" has been used in this clause. I have given in detail-the background of clause 172 which provides a sufficient context for interpreting this word and I fail to see any other interpretation possible except that which ascribes the ordinary dictionary meaning to this sentence.
Now turning to the interpretation of the opening sentence of clause 172, I have once again to consider as to whether under the facts and circumstances of these appeals it can be said that on the date when the appellant purchased the Bonds, his income for assessment year 1983-84 was not assessed. Dr. Ilyas Zafar has answered this question in emphatic "yes". He submits that since the income of the appellant was not assessed by the I.T.O. according to law, therefore, it could not be deemed to have been assessed at all. In support of his submission he contended that the fact that the assessment order was set aside by the learned Appellate Assistant commissioner, fully proved that the assessment order was not according to law. I have given my very serious consideration to this aspect. In my view every Judicial or Quasi-judicial Officer always has jurisdiction to err within his jurisdiction. Such type of errors do not make an order or decision "not according to law". Such type of errors are always taken as "errors in jurisdiction". Thus, it was held by Indian Supreme Court, in A I R (1966) S C 1061, State of West Bengal v. Himmat Kumar Bhatta Charjee, that a wrong assessment order or decision by an Income-tax Officer having jurisdiction isasmuch assessment order and as much binding as a right one and may be superseded only by order in appeals to higher authorities or Tribunals or other procedure which the law provides. A Division Bench of Gujarat High Court has also stated the same principle of law in (1972) 86-ITR-481, Commissioner of Income-Tax v. Himmatlal Bhagibhai, in the following words:
"Now it is well-settled that once an assessment is made it is final and conclusive unless there is some provision of law which permits its finality to be disturbed: See Commissioner of Income-Tax v. Khemchand Ramdas (1938) 6 ITR 414 (PC). There are in the new act several provisions, which permit interference with the finality of an assessment. They are to be found in sections 146, 147, 154 and 155 of the new Act."
Thus, in view of all these authorities I think that the expression' "which has not been assessed" as used in clause 172 of the Second Schedule of Income-tax Ordinance, means and implied any income which has not been assessed by the I.T.O. in respect of any year R including and up to the assessment year 1884-85. In my view if such assessment order is set aside in appeal or an appeal is pending against it remains valid and binding for all practical purposes. It is' true that where an I. T .O. commits an error of jurisdiction his order is void and a nullity. For more discussion on this principle of law reference may be made to (1975) 100 I T R 698 (SC), Raja Jagdambika Pratap Narain Singh v. C.B.D.T. in which their Lordships of Indian Supreme Court have dealt with this issue in some details. However, it is nobody's case that in these appeals the I.T.O. acted without jurisdiction. It is important to keep in mind that the order of the I.T.O. is alleged to have been set aside by AAC. Had it been without jurisdiction, it should have been annulled.
In view of this discussion, I have come to the conclusion, with due respect to both the learned Members, that the learned A.M. approached the' point in dispute correctly and reached correct conclusion. I, therefore, answer the question, referred to me, in the negative.
The appeals, therefore, stand disposed of in conformity with the majority decision.
M.B.A/471/T Order accordingly.