COMMISSIONER OF INCOME TAX, RAWALPINDI ZONE, RAWALPINDI Versus SH. EHSAN ELAHI
1. KARIMULLAH DURRANI, J . -Civil Reference No. 24 of 1972, as well as Civil Reference No. 25 of 1972, arise out of the common order of the learned Income-tax Appellate Tribunal, Peshawar Bench, Peshawar, in Income-tax Appeal No. 295 of 1971-72, pertaining to the assessment year 1959-50, and Income-tax Appeal No, 296 of 1971-72 pertaining to the assess ment year 1960-61 moved before the said Tribunal by the respondent, Sheikh Ehsan Elahi against the two separate assessment orders dated 28-6-1971 of the Income-tax Officer relating to the said assessment years. We will dispose of both these references by this common order as one and the same question is involved therein.
2. The briefly stated facts of the case are:
3. That the respondent was assessed as an individual for the purpose of the Income-tax. He filed his Income-tax returns for the assessment years 1959-60 and 1960-61. The Income-tax Officer, while examining the case of the assessee respondent, had noticed that the assessee had maintained a current account bearing No. 2190 in the Habib Bank Ltd. Peshawar, in the name of the Tariq Traders. This account had a number of cash deposits during both the accounting years. It was explained by the assessee that these cash deposits were the parts of the loan of Rs. One Lac advanced to him by one Muhammad Jan of Mingora, Swat State. An affidavit on behalf of said Muhammad Jan verifying the statement of the assessee was also filed before the Income-tax Officer. The Income-tax Officer was of the view that the story of loan was fictitious and the affidavit by a person from the State of Swat as a creditor, wherein the Income-tax Act, 1922, was not by then enforced, was a mere attempt to conceal the actual income of the assessee. The Income-tax Officer, therefore, held the total amount of cash deposits during the years under assessment, as forming the concealed income of the assessee and made it subject to the Income-tax for thaw relevant years. As cash deposits in both the accounting years were held to be the income, the assessee took into separate appeals, mentioned, above, to the Income-tax Appellate Tribunal, who vide their order, mentioned above, held these cash deposits as sales receipts and levied tax on 15 per cent of the same as income from the profits of those sale proceeds. The Income-tax Commissioner, being aggrieved of the said assessment, has filed these two reference application under section 66 of the Income-tax Act. 1922, and have formulated the following question for the determination of this Court: --
4. "Whether on the facts and in the circumstances of the case, the Tribunal was justified to treat the cash credits as sale proceeds for the purpose of computing profit instead of treating the entire unexplained cash credits as income of the year?"
5. We have heard Mr. Amirzada Khan, Assistant Advocate-General, on behalf of the referring authority and Mr. Ghulam Asghar Jally, Advocate, Peshawar, on behalf of the assessee-respondent, at great length.
6. The learned counsel for the respondent has raised a preliminary objection to the competency of the reference, in that the question whether the cash deposits were sale proceeds or a hidden income was purely a question of fact and therefore not amenable to the jurisdiction of the High Court under section 66 of the said Act.
7. The preliminary objection of the learned counsel for the respondent has no substance, in that although the question whether a specific amount formed the income or the sale proceeds would be concerning the facts of the case, the inference drawn by the Tribunal concerned from the said facts and applying the relevant law on the same would not leave it only a question of fact but it would become a question of law.
8. The Supreme Court of Pakistan in N. M. Khan and another v, The Chief Settlement and Rehabilitation Commissioner, Pakistan, Lahore and another 1970 S C M R 158, has held that the question whether an inference follows from certain facts or not, is a question of law. A Division Bench of the Lahore High Court in Messrs Mian Abdul Rahim & Sons v. Commissioner of Income-tax Rawalpindi P L D 1973 Lah. 416, dealt with the same question and relying on the above-quoted Supreme Court's decision had laid the following rule of law:-
9. "In our respectful opinion the true test is that an inference of fact would be a question of fact or law according ac to the point for determina tion is one of pure fact not dependent on the application of any principle of law or a mixed question of law and fact based on its application. Each case must lie judged in the light of the tests."
10. In the instant case to arrive at a correct answer to the question referred to us and in order to determine the liability of the respondent to the Income-tax on the sums of money in question, would certainly be of their examination in view of law and the applicability of the certain provision of the Income-tax Act on the facts of the case. For the `ultimate resolution of the controversy, the facts and the circumstances attending the case have to be kept in view and in case it is found that the inference has to be made out of a case, where the facts are to be judged by law or in other words from a mixed question of law and facts, and final determination would become a decision on question of law. Even if for the sake of argument it is held that the determination of the question is of fact the High Court while dealing with the case under section 66 of the Income-tax Act would not be held divested of the jurisdiction to enter into it if it comes to the conclusion that the question of fact was decided by the Tribunal recklessly or by applying a wrong principle. Messrs United Bank of India Ltd. v. Commissioner of Income-tax Dacca P L D 1960 Dacca 621, dealt with the same question and the learned Judges of the D. B. held that:-
11. "It is well settled that when a case involves a question of fact the jurisdic tion of the High Court to interfere with the finding of the Tribunal is of a very limited character. If the Tribunal decides a question of fact recklessly and without any material at all and if the Tribunal decides a question of fact by applying a wrong principle, the High Court has jurisdiction to interfere."
12. In this view of the matter we find no force in the preliminary objection of the learned counsel for the respondent and have to overrule the same.
13. The learned Assistant Advocate-General has relied on section 4(2-A) of the Income-tax Act, 1922, in justifying the order of the Income-tax Officer assessing the total sum of cash deposits in the year under assessment as income of the assessee in that year and contends that in view of this very clear provision of law, the learned Appellate Tribunal has erred in law in holding it as a sale proceeds and assessing 15 percent of the total sum of the cash deposits as profits or income of the assessee. Section 4(2-A) of the Income-tax Act, reads as under:-
14. "Where any sum is found credited in the books of an assessee maintained for any previous year and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not; in the opinion of the Income-tax Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year."
15. This subsection was inserted in Income-tax Act, 1922, by Act V of 1965, with effect from the 1st of July, 1965. The learned counsel for the respondent in rebuttal has contended that the insertion of section 4(2-A) has been made in 1965, therefore, it would not be applicable to the case of the respondent, which pertains to the assessment years 1959-60 and 1960-61 and the sub section in question, being a part of the fiscal statute, could not be given a retrospective effect.
16. Although subsection (2-A) was inserted in section 4 of the Income-tax Act in 1965, it would be by necessary intendment retrospective in effect because of the words "any previous year" used therein. Its application would be extended retrospectively whenever the accounts of any previous A year are assessed after the introduction of this amendment in the Income-tax Act, that is to say, after Ist July, 1965. The Income-tax Officer would be competent to charge the sum so credited to the Income-tax as the income of the assessee of that previous year. It is not only that the words, "any previous year" have been used in the context of the accounts book of an assessee but in the later operative part of this subsection the use of "that previous year" empowers the Income-tax Officer to charge all such sums to the Income-tax as the income of the assessee derived in that particular year.
17. Thus it is clear that the amendment in question although not given retros pective effect by the amending act itself, has as stated earlier, by the use of the very words quoted above by expression imparted a necessary intendment to empower the Income-tax Officer to apply the said clause wherever applicable after the enforcement of the clause on 1-7-1965 while assessing accounts of any previous year and charge the concealed sums to the Income-tax as income of the assessee during the relevant year-
18. As argument has been advanced on behalf of the respondent that the clause in question being a fiscal statute and forming part of the charging clauses of the Income-tax Act, 1922, it could not be given retrospective effect to the detriment of the assessee so as to operate on the accounts for the years 1959-60 and 1960-61. The argument has no substance in view of the decision of the Supreme Court of Pakistan in a number of Civil Appeals, namely I. T. O. v. Sulaimam Bahi Jiwa and others P L D 1970 S C 80. In these cases the rule with regard to retrospective operation of the fiscal statutes came under consideration of their Lordships. These were income-tax case and sec tion 34(2-D) of the Income-tax Act, 1922, as amended by Finance Act, 1964, which contained the words "has been" was held a must be constructed as referring to assessment or re-assessment annulled prior to the coming into force of the Finance Act, 1964. In this case:
19. "It was argued on behalf of the respondent that subsection (2-D), though it permits re-assessment after the annulment of assessment in any case, is of no assistance here inasmuch as the Finance Act of 1964, introducing that subsection has not given any retrospective effect to it. In other words, the argument was that the same cannot be invoked to create tax liability retrospectively."
20. Their Lordships held that:
21. "No rule is more firmly established than the rule with regard to retrospec tive operation of a statute law. It is a fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication (see Maxwell on the Inter pretation of Statutes, 9th Edition, page 221 and Treatise on Statute Law by Craies, 4th Edition, page 329). It follows from this rule that retrospective effect to a statute may be given either by express words or that the same may be inferred from the language employed. It is true that the Finance Act of 1964, has not expressly stated that subsec tion (2-D) of section 34 shall be deemed to have taken effect from a date earlier than the date of enactment of that Act. But the language employed in that subsection necessarily implies that the provision thereof, though prospective, has retrospective operations as well. The use by the Legislature of words, such as "shall" or "hereafter", is taken to indicate an intent that the statute is to be construed as prospective only; on the other band the use of words denoting past time such as "has been" or "hereto before" constitute an explicit declaration that the Act is to be construed retrospectively. Subsec tion (2-D) empowers the Assessing Authority to start proceedings for re-assessment after "an assessment or re-assessment or any order has been annulled, set aside, cancelled or modified". The words "has been" used in subsection (2-D) clearly denote past time. On the date of commencement of the Finance Act of 1964, the words "has been" occurring in subsection (2-D) could not be construed except retrospectively and these words, on the said date, must be construed as referring to assessment or re-assessment annulled prior to the coming into force of the Finance Act of 1964, on the Ist July, 1964. When retrospective effect to a statute is not given by express words, one must, apart from the language employed, "look to the general scope and purview of the statute, and at the remedy; sought to be applied, and consider that was the former state of the law, and that it was that the Legislature contemplated". See Treatise on Statute Law by Craies, 4th Edition, page 334). As already said, subsection (2-B) of section 34 was first introduced by the Finance Act of 1963, in order to get rid of the difficulty presented by the decision of this Court in Nagina Silk Mill's case with regard to limitation for assessment or reassess ment. Next, the Finance Act of 1964, not only extended the period of limitation with retrospective effect from the Ist April, 1955, but also ousted the jurisdiction of Courts and other authorities to call in question any assessment or re-assessment on the ground that the time within which assessment or re-assessment should have been made, had expired. This legal cover was provided obviously with a view to salvage the cases from the bar of limitation which were earlier affected by the decision of this Court in the Nagina Silk Mill's case. In this background of the legislation, subsection (2-D) of section 34, the very language of which points to its retrospective operation, cannot but be held to be applicable also to cases where assessment or re-assessments had been annulled before the Finance Act of 1964 was enacted".
22. Taking guidance with due deference from the above dictum of law, clause (2-A) of section 4 of the Income-tax Act, although being a fiscal statute and forming part of the charging section of the Income-tax Act, B would have that much retrospective effect, which is intended by the Legislature to be given to it by the use of the words "any previous year" and "the previous year" and by their necessary implication.
23. Having come to the conclusion that clause (2-A) of section 4 of the Income-tax Act was available for application to the Income-tax Officer, the questions remain:-
(i) Whether the accounts maintained by Habib Bank Ltd. could be considered to be the accounts maintained by the assessee for the purposes of the said provision of law?
(ii) In case of the non-maintenance of the accounts falling under sec tion 13, whether section 4 (2-A) of the Act would be applicable and if the answer to this is in the affirmative, the further question would arise as to whether such cash deposits, as in case in hand, could be termed as income and whether the discretion of the Income-tax Officer under section 13 to make a computation in cases of no accounts upon such basis and in such manner as he may determine would allow the interference by the Appellate Tribunal in the exercise of the said discretion to hold these cash deposits as not income but sale proceeds?
24. Learned counsel for respondent-assessee has urged that it was a case of no accounts, which was being treated by the Income-tax Officer under section 13 of the Income-tax Act and because section 4(2-A) relates to any sum which is found credited in the books of the assessee maintained for any previous year it would not be applicable as the amounts in question were not found in the books of the assessee but were credited in his accounts in the Habib Bank. This argument is fallacious, in that the amounts in question was admittedly found in the account of the assessee maintained in the books of the bank. These entries although found in the bank books pertained to the account of the assessee maintained by the bank. Such being the position the bank becomes an agent of the assessee as far as the maintenance of that particular account is concerned and the books of the bank to that extent become the accounts books of the assessee. The applicability of section 4(2-A) can, therefore, not be taken away on the pretext that the sums in question were found credited into the books maintained by the bank and not in the books of the assessee.
25. Now as regards the determination of the nature of the said deposits as being of secreted income or of concealed sale proceeds reference can be made with profit to Messrs Elahi & Co. v. Commissioner of Income-tax, Karachi P L D 1963 Kar. 490, wherein there was an entry of cash credited in the name of the assessee's wife, which was not satisfactorily explained and evidence to prove that the amount belonged to wife in the shape of affidavits by father, brother and maternal uncle of the lady and of a cousin of her first husband was placed before the Assessing Authority in support of the contention. The Assessing Officer discarded the evidence on the ground that they were unilateral statements by relatives of the lady who were interested in the assessee as well. In this state of the matter the amount in question was held as secreted profits. The High Court upheld the finding.
26. In the instant case an affidavit was placed before the Assessing Officer by the respondent of a person who was not subject to the applicability of the Income-tax Act to show that the deposits were parts of the loan which was rightly disbelieved by the Assessing Authority. It was, therefore, the finding of fact which was arrived at by the Assessing Officer in exercise of the discre tion vested in him under section 13 of the Act. Under this section in case wherein a method of accounting has not been regularly employed, or of the method employed is such that, in the opinion of the Income-tax Officer, the income, profits and gains cannot properly be deducted therefrom, then the Income-tax Officer has been empowered to make the computation upon such basis and in such manner as he may determine. In the instant case the assessing Officer deemed it fit to determine the deposits in question as the secreted profits by application of the principles of section 4(2-A) of the Act. Such a determination would be of a question of fact, as was held by the Supreme Court of India in Lakhmichand Baijnath v. Commissioner of Income tax, West Bengal 1959 P T D 583. In this case an amount of Rs. 2,30,346 was claimed to be the sale proceeds of family Jewels sold on the partition of the joint came divided into five groups. The accounts books of the family contained the assets of the gold but the learned Appellate Tribunal did not accept 'he explanation and held the same in question not the sale proceeds of the Jewels but concealed business profits. The Supreme Court of India held that it was a finding of fact which could not be interfered with in a reference under section 66 unless it was shown that there was no evidence to support it or that it was perverse. We would, therefore, respectfully agreeing with the above proposition held that the determination of the nature of the deposits was absolutely a question of fact which the Assessing Officer was fully competent to decide in any manner or by any method available to him within the framework of the Income-tax Act.
27. Now the question would be whether a finding of fact arrived at by the Assessing Officer by exercising discretion vested in him would be amenable to interference by the Income-tax Appellate Tribunal during the course of an appeal. The Tribunal being an Appellate Authority would by all cannons of law and procedure be a Court of facts as well as a Court of law. It would, therefore, be within the competence of the Tribunal to examine the finding of fact by the lower authority to test its reasonableness and justification in the context of surrounding circumstances. The Tribunal came to the conclusion that the finding of fact arrived at by the assessing Officer was not maintainable in view of the following reasons:--
28. "The Income-tax Officer in both the orders has based the assessments on the ground the assessee was carrying the business under the name and style of Tariq Traders. Hardware Merchant Charsadda Road Peshawar. The Bank account was also in the same name. In such circumstances although the assessee had not disclosed the source of income, the business has come to the knowledge of the Income-tax Officer. There was, therefore, no justification in adding the entire credit in the Bank as income of the assessee. This view is further strengthened from the fact that the accounts also show sufficient withdrawals on the debit side. Since the assessee was carrying business under the name and style of Tariq Traders and according to the finding of the Income-tax Officer himself he had made certain supplies of goods on which profit was earned the proper course was to assess the income on that assumption. The debit side of the Bank account shows that the assessee was either spending on purchase or withdrawing the money for his personal use. The credit side on the other hand shows the receipts in respect of supplies. The deposits arc not in the nature of cash credits and even if the assessee had claimed them to be so the duty of the Income-tax Officer was to find out the truth after having rejected his plea. In our opinion the sum of Rs. 72,370, for the year 59-60 represents the total receipts of Tariq Traders. Likewise the sum of Rs. 22,647 represents his total receipts for the year 1960-61. These amounts entirely are not the profits inasmuch as the Department generally computed 15% net as the profits of such business."
29. And therefore the Tribunal directed that the 15 percent of the deposits should be assessed as profits and were to be added to the income of the assessee.
30. As it is established law that the exercise of discretion should be so as it should not be capricious, arbitrary or perverse. Such a discretion should be able to meet the test of reasonableness and justification. The determination of the question of fact by the Tribunal by interfering with the discretion of the Assessing Officer, being on sound reason was therefore not beyond its jurisdiction:
31. Before putting on record our conclusion, a reference has to be made to an objection to the competency of the present applications raised by the learned counsel for the respondent after the conclusion of the arguments. It was after we had heard the learned counsel for the parties on 10-3-1980 and reserved the Judgment that the learned counsel brought the said objection to our notice by a written note. Ordinarily we would have not taken that objection into consideration, as it had not been raised at the proper time but because of its importance we deemed it fit to mention the same to the learned Assistant Advocate-General and to solicit his reply to the question which the learned counsel submitted in writing on 12-3-1980. The objection of the learned counsel for the respondent to the references in hand is that according to section 66(1) a reference cannot be filed by the Commissioner of Income-tax directly to the High Court. Instead tic is required t request the Appellate Tribunal to refer to the High Court any question of law arising out of its order and that it is the Appellate Tribunal who shall within ninety days of the receipt of such application draw up a statement of the case and refer it to the High Court. The learned counsel contended that in the instant case no such procedure was adopted and the Commissioner took upon himself to make a reference directly to the High Court.
32. The objection of the learned counsel might have been of some avail to him if there had not been brought an amendment in section 66 of the Act by the Finance Ordinance, 1971, enforced with effect from 26-6-1971. The original subsection (1) of section 66 before the amendment read as under: -
33. "(1) Within sixty days of the date upon which he is served with notice of an order under subsection (4) of section 33 the assessee or the Commissioner may, by application in the prescribed form, accompanied where application is made by the assessee by a fee of one hundred rupees, require the Appellate Tribunal to refer to the High Court any question of law arising out of such order, and the Appellate Tribunal shall within ninety days of the receipt of such application draw up a statement of the case and refer it to the High Court."
34. This subsection was amended, as earlier stated, by subsection (37)(a) of section 4 of the Finance Ordinance, 1961, in theft the words and the commas and the colon "require the Appellate Tribunal to refer to the High Court any question of law arising out of such order, and the Appellate Tribunal shall within ninety days of the receipt of such application draw up a statement" were substituted by the words and the full-stop "refer to the High Court any question of law arising out of such order". The replacement of the words relevant to the Appellate Tribunal by those mentioned in the later part of the above quotation took away the necessity to require the Appellate Tribunal to frame the question of law and to refer it to the High Court and the Income tax Commissioner was, instead, authorised to directly make a reference to the High Court of any question of law arising out of the order of the Appellate Tribunal, This amendment, as stated above, came into force on 26-6-1971 and remained as such till the promulgation of the Finance Act, 1974, whereby section 66(1) as it existed before cite amendment was again restored. Thus it is clear that during the period between 26-6-1971 and 30-6-1974 when by subsection (25) of section 2 of the Finance Act, 1974 (Act XL of 1974), the subsections (1), (2), (3) (4) and (4-A) were reconstructed, out of which subsection (1) was almost identical with that which formed part of the Income-tax Act prior to the 1971, amendment. These Reference Applications were filed in the High Court on 9-2-1972, when subsection (1) of section 66, as amended by the Finance Ordinance of 1971, was in the field. The Income-tax Commissioner was, therefore, competent to male a direct reference to the nigh Court although after 30-6-1974 he was once again divested of the same power. The applications are, therefore, competent and the objection of the learned counsel for the respondent in this regard his to be overruled.
35. In view of the above discussion we are clear in our mind that on the facts and in the circumstances of the case the Tribunal was fully justified to treat the cash deposits as sale proceeds for the purpose of computing profits instead of treating the entire unexplained cash credits as income of the relevant years.
36. Our answer to the question under reference is, therefore, in the affirmative.
37. Appeal dismissed.