Messrs PAK1STAN TOBACCO CO. LTD. vs GOVERNMENT OF PAK1STAN through Secretary, Min1stry of Finance and 3 others

' SAJJAD ALI SHAH, J.---Abovementioned two appeals with leave of the Court, call in question judgment dated 31-1-1991 of the Division Bench of High Court of Sindh at Karachi, whereby two Constitutional Petitions Nos.D-1044 and 1045 of 1989 have been dismissed on the ground that they are not maintainable and it is open to the petitioners therein to pursue departmental remedies provided under the provisions of Income Tax Ordinance, 1979. Briefly stated the relevant facts giving rise to these appeals are as under.

2. Appellants herein are public limited company manufacturing international brands of cigarettes with factories at Karachi, Jhelum and Akora Khattak. They submitted returns of income for assessm ent years 1986-87 and 1987-88 under section 55 of Income Tax Ordinance, 1979 (to be referred hereafter as the said Ordinance), which were subjected to total audit and assessment was framed under section 65 of the said Ordinance. Appellants also challenged reopening of assessm ent of years 1983-84, 1984-85 and 1985-86 by separate Constitutional petitions, which were allowed on the question of interpretation of clause 122 of Second Schedule to the Ordinance and provisions relating to depreciation. In the cases from which present appeals have arisen, appellants had filed full sets of statements of accounts including statements of salaries, perquisites and benefits for the purposes of clause (1) of section 24 of the said Ordinance. After assessm ent was made under section 62 of the said Ordinance, notice was served under section 65 in respect of perquisites and export rebate claim allowed under those assessment orders and appellants were called upon to file full particulars, which was done and later order dated 19-10- 1989 was passed and demand notice was issued, which were challenged before the High Court on the ground, inter alia, that notice under section 65 is based on change of opinion in respect of material and documents, which were available on the record.

3. On the other hand Department took the stand in the High Court that claim of appellants in respect of perquisites and rebate was accepted without any investigation and without application of mind, hence question of change of mind did not arise. After considering contentions raised on behalf of both parties and case-law cited in support thereof, High Court came to the conclusion that interpretation put by the department is correct and dismissed Constitution petitions in the terms mentioned above. In the Supreme Court leave is granted to consider whether High Court was justified in holding that section 65 of the said Ordinance could have been pressed into service on the ground that assessing officer had not adverted to the above two items namely, perquisites and export rebate in the assessm ent orders though all the relevant documents and information were before him.

4. Mr. Sirajul Haq, learned Advocate Supreme Court submitted before us that appellants had done every thing required under the law and rules and supplied complete information with regard to perquisites which was available on the record and with regard to legal requirements he referred us to the following provisions. In section 24 of the Income Tax Ordinance, 1979, clause (i) provides that any expenditure incurred by an assessee on the provision of perquisites or other benefits to any employee, in excess of fifty per cent. Of his salary excluding perquisites its deduction not admissible and there is proviso also. Section 139 of the said Act relates to statement regarding salary to be filed by every person responsible for paying any income chargeable under that head in the form prescribed under Rule 197 of Income Tax Rules, 1982, pro forma of which shows that it contains as many as 43 columns. Mr. Memon then referred to Income Tax Return 1986-87 (at page 51 of paper book in C.A. No,120-K of 1991) and details of perquisites (at page 64) which are part of return filed under section 24 of the said Ordinance. He pointed out in the order of assessment (page 70) amount of Rs,896,011 mentioned against column of expenses in excess of fifty per cent.

Under section 24(1) of the said Ordinance and urged forcefully that I.T.O. Did not doubt that statement. He also submitted that appellants are well aware of section 108 of the said Ordinance which is a penal provision providing for penalty of Rs,100 per day in case assessee fails to furnish return of total income and certain statements, without reasonable cause within stipulated time.

Statements so covered under that provision include statement under section 139 of the said Ordinance. Mr. Memon argued with maximum emphasis on the point that complete information was available submitted by the assessee and that statement was accepted without any doubt, hence reopening of the case was made only on the basis of change of opinion on the same material and, therefore, principles enunciated in the case of Edulji Dinshaw Limited v. Income Tax Officer (PLD 1990 SC 399), would apply to the facts of this case.

5. On the other hand Mr. Shaikh Haider, learned Advocate Supreme Court for respondents submitted that the present case was case of underassessment, hence it was rightly reopened as contemplated under section 65(2) on the ground that procedure under Income Tax Ordinance is peculiar in nature and Income Tax Officer is watch-dog of revenue. Previous finding in favour of assessee would not come in the way of reopening as principles of res judicata are not applicable. It was further submitted that initially assessee had assailed service of notice under section 65 of the said Ordinance and made such prayer in the Constitutional petition filed in the High Court. He made reference to page 41 of paper book of C. A. No,120 of 1991. According to the learned counsel, assessee in pursuance of the said notice participated in the said proceedings and produced documents on the basis of which subsequently assessment order was passed in respect of which departmental proceedings were pending when Constitutional petition was filed on 8-11-1989.

According to the learned counsel, in such circumstances notice got merged into assessment order, which was open to challenge in the departmental proceedings, hence that forum is to be allowed to perform its duty and in such circumstances dismissal of Constitutional petition by the High Court was justified.

6. The question as to when reopening of the case under section 65 of Income Tax Ordinance, 1979 is allowed and justified in spite of the fact that all material facts were already on the record when previous finding was given, came up for detailed examination before this Court in the case of Edulji Dinshaw Limited (supra) in which nearly the whole case-law on the subject has been noticed. It is held in the reported judgment of that case that once all the facts have been fully disclosed by the assessee and considered by the Income Tax Authorities and assessments have been consciously completed and no new fact has been discovered there can be no scope for interference with these concluded transactions under the provisions of section 65 on the ground that the income chargeable to tax under the Ordinance has escaped assessment or has been under-assessed in the meaning of section 65(1)(a)(b) of the Ordinance. Maximum emphasis in this ruling is on use of words to the effect "assessm ents have been unconsciously completed". Requirement spotlighted is that I.T.O. Has applied his mind consciously to the facts of the case and perusal of the record. If there is conscious application of mind, then rule laid down in this case will apply with full force. If there is no conscious application of mind by I.T.O., then rule laid down in this case will not be attracted.

7. There was discussion before us on the meaning of perquisites in the light of sections 23 and 24 of Income Tax Ordinance, 1979, which relates to deductions and deductions not admissible respectively. This question came up for consideration before the High Court and has been dealt with appropriately in the impugned judgment, relevant paragraph from which is reproduced as under:-- "Section 24(i) puts a limit on deduction on any expenditure incurred on perquisites to employees or any expenditure or allowance. For the purposes of this clause salary has been defined as remuneration or compensation for services rendered and includes dearness and cost of living allowance or benefits or amount paid to any employee in terms of his employment and the word perquisites means the same as provided by section 16, subsection (2)(b) which includes the value of rent-free accommodation to the value of any concession in the matter of rent for any accommodation any sum payable by employer towards employee's insurance on life or annuity for the benefit of employee's spouse or child, the value of any benefits provided free of cost or at a concessional rate or any sum paid by an employer in respect of any obligation to an employee.

The definition is inclusive and not exhaustive and may include such payments and expenditure though not defined in section 16(2) as are covered by the word perquisites. Therefore, whatever expenditure falls within the term "perquisites" and "other benefits" which is a wide term, the employer is entitled to claim deduction to the extent of 50% of the salary. Respondent No,4 has included cost of living allowance and dearness allowance within the salary and not in the perquisites."

8. We find ourselves to be in agreement with the finding of the High Court as stated above and endorse the view that enquiry into the claim of perquisites and rebate requires consideration of facts and checking of accounts for which proper forum is departmental authorities as is provided under the said Ordinance. It is open to the appellants before-us to pursue departmental appeal against the order of assessm ent which was impugned in the High Court in the Constitutional petitions.

9. For facts and reasons mentioned above, we find no merits in these appeals which are hereby dismissed with no order as to costs.