I. P. AS. NOS. 1360 TO 1364(KB) OF 1984-85, DECIDED ON 11TH APRIL, 1988. Versus I. P. AS. NOS. 1360 TO 1364(KB) OF 1984-85, DECIDED ON 11TH APRIL, 1988.
ORDER
FARHAT ALI KHAN (CHAIRMAN). --Brief facts giving rise to these appeals are that the assessee, a cooperative housing society, having not filed returns suo motu under section 55 of the Income-tax Ordinance, 1979 (hereinafter called the Ordinance) was directed to file returns of income on the basis of a notice served on it under section 56 of the Ordinance. In this connection, it is relevant to put on record that notice under section 56 of the Ordinance for the charge years 1979-80, 1980-81, and 1981-82, was served on the assessee on 9-10-1983. for the charge year 1982-83 on 10-10-1983 and for the charge year 1983-84 on 12-10-1983. In consequence thereof, the assessee filed a letter before the Income-tax Officer to state as under:--
"We are a cooperative society registered under the Cooperative Societies Act, 1925, having no income of our own and carrying on no business. Our society does not receive donation either. The society acquires land on behalf of the members and allots them to its members. We feel we are not liable to tax hence we should be excused from filing the returns. For the sake of complying with the notice we are sending this reply."
2. On receipt of the assessee's letter, the Income-tax Officer informed it vide letter No. CZD/248 that definite information was available with the department that it was earning income, which was liable to tax. Therefore, the assessee was directed in its own interest to comply with the terms of notice served on it under section 56 of the Ordinance with the object of avoiding exposure of ex parte assessments. In consequence thereof, returns were filed for the charge years 1979-80, 1980-81, 1981-82, 1982-83 and 1983-84, to declare nil income in part I of return. In part II of the return, interest income on fixed deposits and transfer fees, etc. was claimed to be exempt. The Income-tax Officer while making assessments accepted plea of the assessee in regard to the fact that income derived by it from dealing with the members was not liable to tax. However, interest income earned by the assessee after allowing expenditure was subjected to tax. In this manner, income of the assessee was determined at Rs.1,62,428, Rs.3,61,770, Rs.3,38,722, Rs.5,81,950 and Rs.1,31,407, in respect of the charge years 1979-80, 1980-81, 1981-82, 1982-83 and 1983-84, respectively. Incomes as assessed heretobefore, were contested in appeal before learned C.I.T. (Appeals), who by virtue of Appeals Nos. 568, 569, 575, 574 and 570/2-IV, dated 6-12-1984 confirmed assessments relating to the charge yeas 1979-80, 1980-8! 1981-82, 1982-83 and 1983-84, thereby resulting in the filing of second appeals before the Tribunal. These appeals after hearing have been disposed of by us and our finding on them follows in the paras hereafter.
3. Before taking up assessee's objection in regard to completion of assessments in pursuance to a notice served on it under section 56 of the Ordinance, we deem it necessary to state at the outset the learned counsel of the assessee has conceded at the Bar that income received by the assessee by way of interest and transfer fees, etc, was liable to tax. Therefore, the question of taxability of interest income having not been pressed before us, we hereby hold that interest income is liable to tax but not for the charge years 1983-84 as discussion will establish hereunder.
4. Learned counsel of the assessee, to begin with, has challenged the legality of assessments having been framed in pursuance to a notice under section 56 of the Ordinance served on the assessee for the charge years 1979-80. 1980-81, 1981-82 and 1982-83. However, legality of assessment for the charge year 1983-84, as a result of notice having been served on the assessee under section 56 of the Ordinance has not been contested before us as notice for the said year related to the current assessment which in this case was 1983-84 Reverting to his objection in regard to completion of assessments a consequence of notice served on the assessee under section 56 for the charge year 1979-80, 1980-81, 1981-82 and 1982-83, we have seen that the said assessments were made without the service of a notice under section 65. On account of this omission, learned counsel of the assessee has stated that these assessments were liable to be annulled as notice under section 56 is meant for a current assessment only while section 65 is meant for past assessment years. In support of this contention, he has relied on the following decisions of the Tribunal: --
(i) ???????? 1987 P T D (Trib.)
(ii) ??????? 1987 P T D (Trib.) 325,
(iii) ????? 1987 P T D (Trib.) 314 and ?????
(iv) ????? 1988 P T D (Trib.) 88.
5. Next objection relates to the fact that adequate expenditure was not allowed to the assessee while computing income on account of interest on fixed deposits and transfer fees, etc., in accordance with the provisions of section 31 of the Ordinance. Therefore, a strong plea has been made for allowing reasonable expenditure to the assessee.
6. Learned D.R. who is present on behalf of the department, has contested all pleas raised by learned counsel of the assessee with equal emphasis. He has stated that while interpreting a tax: statute/ statutes notions should not be entertained by the appellate authorities. In support of this contention, he has invited our attention to a case reported as 1986 P T D (Trib.) 805. Having gone through this case rather carefully, we have noted that the Supreme Court of India in a case cited as C.I T v. Shahzada Nanda & Sons, held that the underlying principle of interpretation is that "meanings and intentions of a statute must be collected from a plain and unambiguous impression used therein rather than from any notions that may be entertained by the Court as to what is just and expedient" . While we respectfully agree with the principle laid down by the Supreme Court of India in a case just mentioned, we cannot help stating that it revolved round its own facts. On the other hand, since in respect of the case before us, jurisdiction could only be lawfully assumed for the purpose of making assessments under section 65 of the Ordinance, the case relied upon by Mr. Muhammad Farid, has been ??????????? rendered irrelevant. We have concluded so because while examining which between the sections, namely, 56 or 65 was relevant, we have not assumed any notion as to what is just and expedient. On the other hand, by making a careful analysis of the two sections as the discussion will show hereunder, it is our considered view that: in this case, jurisdiction could only be assumed under section 65 of the Ordinance in respect of the charge years 1979-80, 1980-81, 1981-82 and 1982-83.
7. ? Learned D.R has next relied on 1986 PTD 316 to prove that a machinery section should be so interpreted as to facilitate making of assessments. Here again while we agree with the principle laid down, we cannot overlook the Fact that assumption of jurisdiction has to be in accordance with law. Since in this case jurisdiction was not lawfully assumed by the Income-tax Officer the very basis of assessment proceedings is exposed to interference by the appellate authorities and rightly so since in respect of the case before us, jurisdiction was note assumed by the Income Tax Officer on the basis of a notice under section 65 of the Ordinance, the entire superstructure of the assessments for the charge years 1979-80, 1980-81, 1981-821 and 1982-83, necessitates annulment. In support of this contention, we have with advantage relied on para 10 of a case reported as 1987 P T D (Trib.) 314 which is set out below for ready reference.
?Reading the two sections together it is abundantly clear that while under section 56 only a return for the current assessment can be called from under section 65 of the Ordinance, assessee can be asked to file returns of income 'if for any reason any income chargeable to tax under this Ordinance .has escaped assessment; or total income of the assessee has been under assessed or assessed at too low a rate or has been subject of excessive relief, or refund under this Ordinance; or the total income of the assessee or the tax payable by him has been, assessed or determined under subsection (1) of section 59 and no order of assessment has subsequently been made under this section or any other provision of this Ordinance. At this stage, it is relevant to put on record that as stated earlier through a notice under section 56 of the Ordinance a return for the current year can be demanded from the assessee. This conclusion is basal primarily on the interpretation of section 65, subsection (1) clause (a). To elaborate this point, it may be mentioned here that once an assessment has been made under section 56 fore certain income year then any income having escaped assesses could only be charged to tax by issuing' a notice under section 65 of the Ordinance. Similarly, where for any reason, notice has not been issued under section 56 for charging to tax income of a current year it could only be charged to tax under section 65 as income that had escaped assessment. In arriving at this conclusion, I have sought further support from the fact that a certain section of the statute should be so interpreted as not to render the other section on a similar point redundant. In the present case if I were to interpret that under section 56 income of the previous years could also be assessed then it will certainly render section 65 of the Ordinance redundant. This however, could not be intention of the National Assembly. Therefore, in my opinion, section 65 excludes section 56 of the Ordinance."
8. The conclusion reached in 1987 PT D (Trib.) 314 was again reiterated by Lahore Bench of the Tribunal in a case reported as 1988 PT D (Trib)
88. In, this connection para 15 of the said order reads as under:-
"We, therefore, are of the view that section 56 applies only to the current income year corresponding to that assessment year and in regard to escapement of income for the past year section 56 has no application for which section 65 of the Ordinance is the relevant section. If an assessing officer finds any escapement of income of any person he has to issue a notice under section 65 of the Ordinance within the limitations and qualifications prescribed by that section and only then he can issue a notice "containing all or any requirements of a notice under section 56" and in that case all the provisions of the Ordinance have been made applicable."
9. Before proceeding further, we like to reiterate that while examining whether in respect of this case, jurisdiction could be assumed under section 56 or 65 of the Ordinance, we have relied on the scheme of machinery sections as a result of which section 56 of the Ordinance has been held to be inapplicable. In arriving at this conclusion, we have relied on plain and unambiguous words used in both the sections ignoring the notion in regard to facilitating making of assessments. We have concluded so as jurisdiction must be assumed in accordance with law as otherwise confusion shall hold good. Therefore, case relied upon by learned DR reported as 1986 P T D (Trib.) 805 is not relevant here.
10. Learned D.R. has next argued that a machinery section should be liberally construed so as to make realization of proper tax possible. In other words, according to learned D.R., a machinery section should not be interpreted in a manner so as to defeat the intention of legislature and prevent realisation of tax that may in fact be due. Arguing further, he has emphasised that as the Tribunal in respect of cases relied upon by learned counsel of the assessee appears to accept them, it may result in placing a rather rigid interpretation on a machinery section/ sections, thereby preventing realization of tax that was due to the department. In support of this contention, learned DR has placed reliance on a case reported as P L D 1961 SC 119. We respectfully agree with the principle laid down by the Supreme Court of Pakistan that a machinery section should be so interpreted as t1' make realization of proper tax possible and consequently not to defeat the intention of legislature to prevent realization of tax that may fact be due. However, since in respect of the case before us, two machinery sections were available, the Tribunal is required to adjudicate which between the two could have been lawfully roped in by the department for the purpose of making assessments. Since on a careful reading of sections 56 and 65 of the Ordinance, it is our considered opinion, that both are mutually exclusive of each other and as jurisdiction could only be assumed under section 65 of the Ordinance for the charge years 1979-80, 1980-81, 1981-82 and 1982-83, assumption of jurisdiction on the basis of former section was fatal to the superstructure of assessments. Therefore, jurisdiction having not been assumed on the basis of relevant section, can only result in annulment of assessments as was held in 1987 P T D (Trib.) 314 and 1988 PTD (Trib.)
11. Our attention has also been drawn to a case reported as 1986 PTD (Trib.) 793 to support the view that a mistake, which did not cause substantial prejudice to the assessee should be overlooked with the object of saving the assessments. In support of this contention, reliance has been placed on section 155 of the Ordinance which is set out below:- .
Section 15 5
Certain mistakes not to vitiate assessment, etc.-
No assessment order, notice, warrant or other document made, issued or executed or purporting to be made,? issued or executed under this Ordinance shall be void or otherwise inoperative merely for want of form, or for a mistake, defect or omission therein, if such want of form or mistake defect or omission, is not of a substantial nature prejudicially affecting an assessee"
12. On a careful examination of the Tribunal's finding in 1986 PTD (Trib.) 793, we have noted that curtailment of period of limitation was held not to be mistake serious enough so as to vitiate the assessments. This was rightly so. Therefore, section 155 of the Ordinance was rightly roped in by the Tribunal for allowing relief to the assessee However, in respect of the case before us, the circumstances are a great deal different as the Income-tax officer instead of making assessments under section 65 of the Ordinance for the charge years 1979-80, 1980-81, 1981-82 and 1982-83, made assessments under section 56 of the Ordinance. This mistake being of a substantial nature, caused prejudice to the interest of the assessee, which was not curable. Since jurisdiction lawfully assumed protects the very basis of assessments, jurisdiction has to be assumed in accordance with law. Therefore, where jurisdiction is not assumed in accordance with law, it does cause prejudice of a substantial nature to the assessee. In this view of the matter, case reported as 1986 PT D (Trib.) 793 has not been considered relevant by us for the purpose of accepting plea of learned D.R.
13. Learned D.R. has next stated that under certain circumstances, assessment proceedings could be initiated either by taking recourse to section 56 or 65 of .the Ordinance as both these sections are not mutually exclusive of each other. In saying so, reliance has been placed on a case reported as (1976) 103 I T R 736, wherein it was held that where reassessment under section 147 or rectification of an error under section 154 are equally competent, the Income-tax officer could take action under either section since the two sections are not mutually Exclusive. Even this plea has not found favour with us as in our opinion sections 56 and 65 are mutually exclusive of each other. In arriving at this conclusion, we have placed reliance on 1987 P 'T J (Trib.) 314. This thing apart, assumption of jurisdiction even in respect of a machinery section has got to be in accordance with law) and, therefore, the case relied upon by learned D.R. is a great deal different from the facts of the case before us. Since the basic objection of the assessee all along related to illegal assumption of jurisdiction on the part of the Income-tax Officer, and as this objection has not been demolished by learned D.R., we have to perforce rely on decisions of the Tribunal which support assessee's view.
14. Learned D.R. has raised an alternative plea that if section 56 of the Ordinance is not relevant in respect of past assessments, it was at least attracted on the facts of this case w.e.f the assessment year 1979-80 and onwards. Even this plea has not been found acceptable the ratio of decision in the following cases:-- .
(1) ??????? 1987 P T D (Trib.) 314.
(2) ?????? 1987 P T D (Trib.) 1
15. Arguing further, learned D.R. has stated that after having filed returns in response to a notice under section 56 of the Ordinance, its validity could not be called in question by the assessee. In support of this plea, reliance has been placed on section 154(6) of the Ordinance, which is quoted below:- ?????????
"The validity of any notice issued under this Ordinance or the validity of service of any such notice shall not be called in question after the return in response to such notice has been filed or compliance thereto has been made."
16 Having heard both the parties at some length, we have noted that a similar question was earlier examined by a Full Bench of the Tribunal in a case reported as 1987 P T D (Trib.)
1. In the said order vide para.10 the Tribunal concluded as under:-
Various subsections of section 154 lay down the mode and manner of service of notice. It is in that context that it has been provided that such a notice once served would not be challenged on technical ground meaning thereby methodology and manner of service would not be contested and this is so, for obvious reasons. Once a notice is served on the assessee and return is filed the manner of service is immaterial and the assessee cannot seek protection behind mere technicalities. Subsection (6) cannot be a bar against challenging the very Jurisdiction of the Income-tax Officer to issue notice. The assessee has challenged the very jurisdiction of the Income-tax Officer to issue notice under section 56. This objection has been taken on good ground. Section 56 has no retrospective operation and therefore, on its own force not applicable for the assessment years 1977-78 and 1978-79 as it related to the period when the Income-tax Ordinance, had not come into force. The only provision which makes all the provisions of the Income-tax, Ordinance applicable in such a situation is section 166(2) (c)(ii): That section, however, lays down a condition precedent to issue notice under section 65 in the given ?circumstances. It is after the issuing of notice under section 65 that all the provisions of income-tax Ordinance have been made applicable. Therefore, even otherwise without issuing notice under section 65 none of the provisions of the Income-tax Ordinance including 154(6) could be made applicable."
17. Since we agree with the above view, it is hereby held that ~; validity of the notice under section 56 of the Ordinance could be called in question where assumption of jurisdiction was not rightly exercised by the Income-tax Officer. In this view of the matter, H objection raised by learned D.R. that assessments may be saved 'as' returns were filed in pursuance to a valid notice, is hereby turned down.
18. Learned D.R. has next raised the question of jurisdiction and has stated that since it was correctly assumed under section 5(1)(c) of the Ordinance, the question of jurisdiction could not be examined by the Tribunal. This plea however, is far-fetched as clause (c) of subsection (1) of section 5 of the Ordinance relates to the concept of Jurisdiction in a broad sense for administrative convenience. We say so as even in a particular Circle, there may be a person who may not be under the jurisdiction of the Income-tax Officer even though he may be carrying on business in his jurisdiction. For instance, a company carrying on business in the jurisdiction of the area Income-tax Officer, is not assessable by him but is assessable by the Income-tax Officer, Company Circle. Similarly, a salaried person living in the jurisdiction of the area Income-tax Officer, is not assessable by him but is to be assessed by the Income-tax Officer, Salary Circle. Therefore, scheme of clause (c) speaks of jurisdiction in a general` sense for administrative convenience and is distinct from assumption of jurisdiction in accordance with law. Hence the mere fact that the Income-tax Officer enjoyed jurisdiction over the assessee did not render assessments made by him lawful as assumption of jurisdiction was in exercised in accordance with law. Therefore, in making assessments in accordance with law, jurisdiction has to be assumed in a lawful manner notwithstanding the fact that the Income-tax Officer may otherwise hold jurisdiction over the assessee. On account of the foregoing discussion, we are unable to accept plea of learned D.R. that assumption of jurisdiction was exercised in accordance with law:
19. Finally, learned D.R. has also made a reference to sections 6 and 26 of the General Clauses Act (Act X of 1987) to support the contention that assessments made in pursuance to' a notice under section 56 of the Ordinance were made in accordance with law. However, this point has neither been well taken nor was pressed seriously. In any case, both the sections are irrelevant in regard to the issue before us, that is to say, whether or not section 65 was meant for the past assessments whereas section 56 was meant for making a current assessment only.
20. On account of the discussion made above, we have through a process of elimination, held that none of the cases quoted by learned D.R. is attracted to the facts of the case before us. Therefore, as a necessary corollary to it, we hereby conclude that service of notice under section 65 was a condition precedent for the assumption of jurisdiction for the charge years 1979-80, 1980-81, 1981-82 and 1982-83. Since notice under section 65 of the Ordinance was not issued in respect of the said years, assessments made in pursuance to section 56 of the Ordinance for the charge years 1979-80, 1980-81, 1981-82 and 1982-83, are hereby annulled. However, notice under section 56 of the Ordinance for the charge year 1983-84, having related to the current assessment, is held to be valid in the eyes of law. This position having not been contested by learned counsel of the assessee we hereby hold that for the charge year 1983-84, assessment was rightly made by the Income-tax Officer.
21. Since relief has been allowed to the assessee on the preliminary objection for the charge years 1979-80, 1981-82, and 1982-83, it is not necessary fir us at this stage to hand out a verdict in regard to inadequacy of expenditure allowed by the income tax Officer. For the charge year 1983-84, the income tax Officer allowed the following expenditure to the assessee against gross income computed at Rs. 1, 76,036.
(i) Bank Charges
Rs. 76.40
(ii) Zakat
Rs. 44,553.00
Expenditure allowed by the Income Tax Officer
Rs. 44,629.00
22. Since no evidence has been made available by learned counsel of the assessee for claiming more expenditure and as a prayer in this regard was made in a casual manner, it has not been possible for us to allow more expenditure to the assessee. We have concluded so as learned counsel of the assessee has not furnished a breakdown of expenditure relatable to interest income except a general plea that staff engaged in connection with assessee's business activities had also devoted sometime for maintaining interest income account. That may be so but then it was the duty of learned counsel of the assessee to have furnished some acceptable evidence on the basis of which we could have made an interference with the expenditure allowed by the income-tax Officer. Since this kind of information has not been placed before us, we consider that under the circumstances of this case, expenditure allowed at Rs.44,629 does not require any modification.
23. In consequence of the above order while appeals of the assessee succeed for the charge years 1979-80, 1980-81, 1981-82 and 1982-83, its appeal fails in regard to the assessment year 1983-84.
M.B.A. /510/T ???????????????????????????????????????????????????????????????????????? Order accordingly