Messrs MONNO O INDUSTRIES LTD. vs THE COMMISSIONER OF INCOME-TAX,

ORDER

NASIM SIKANDAR, J.---This is a case stated by the Lahore Bench of the Income Tax Appellate Tribunal. Following questions of law have been framed for our consideration and reply:-- "(1) Whether on the facts and in the circumstances of the case the learned Income Tax Appellate Tribunal was justified under law in holding that section 66-A brought into statute on 1-7-1980 is retrospective in its nature and is applicable to the assessment proceedings for the year 1977-78 and the C.B.R. Circular No.1(48)/11/1/79, dated 17-2-1981 is not applicable on .Ate case in question?

(2) Whether on the facts and in the circumstances of the case the learned Income Tax Appellate Tribunal was justified under law in holding that section 166(2)(a) was not applicable to the applicant case?

(3) Whether on the facts and the circumstances of the case the learned Income Tax Appellate Tribunal was justified in holding that applicant is not entitled for adjustment of interest payable on loans under Explanation 8 of section 4(1) of Repealed Act, 1922?

2. The petitioner/assessee is a private, limited company and at the relevant time was engaged in deriving income from manufacture of yarn. While framing assessment for the year, 1977-78 the.

Assessing Officer made an addition of deemed interest on monies advanced by resort to Explanation 8 of section 4(1) of the Repealed Income-tax Act, 1922. It appears that after the assessm ent was made the assessee in the meanwhile had partly succeeded before the first appellate authority. While deciding its appeal for the year, 1976-77 the learned first appellate authority directed calculation of interest on the monies advanced on the basis of monthly balance, instead of product balance as earlier done by the Assessing Officer. On the basis of appellate order in the previous year the application made by the assessee for rectification under section 35 of the late Act, 1922 succeeded. However, subsequently the I.A.C. Discovered that while correcting the earlier order the Assessing Officer wrongly allowed benefit of interest paid to various lenders while computing the aforesaid deemed interest under Explanation 8 of section 4(1) of the Repealed Act.

Therefore, he issued a notice on 17-1-1981 and by way of his order, dated 26-1-1981 modified and by way of the order of the Assessing Officer. The reason assigned being that interest payable by the assessee could not be adjusted and that entire interest which was receivable by the assessee under the aforesaid provisions of the repealed Act had to be treated as an income. Before the Tribunal it was claimed that the provisions of section 66-A were not a part of the statute book on the day the aforesaid original as well as revised assessment order was made by the Assessing Officer. Their contention based upon section 166(2)(a) of the Income Tax Ordinance, 1979, however, failed. According to the Tribunal section 66-A being an empowering section was procedural in nature and, therefore, could be invoked with regard to the orders passed before the conferment of such powers. The Tribunal also rejected the interpretation of the provisions as made by the C.B.R.

Through Circular 1(48)/11/1/79, dated 17-2-1981 wherein they had expressed the view that section 66-A was not retrospective in operation and that the assessments finalized before 1980 could not be re-opened under that provision. The learned Tribunal also rejected the contention made for the assessee that section 34-A having not been saved by the Ordinance the orders passed under repealed Income Tax Act could only be revised under the old law and no action could be taken against the assessee under section 66-A. The assessee had argued that return having been filed on 15-8-1970 much earlier to the enforcement of the Income Tax Ordinance, 1979, it had to be processed, treated and completed under section 166(1)(a) "as if the Ordinance has not come into force".

3. Learned counsel for the Revenue supports the reasons earlier assigned by the Tribunal while the learned counsel for the respondent forcefully contends that the view adopted by them is not supported by either the provisions of law in question or an authoritative pronouncement made by superior Courts. On the authority of a reported judgment of Karachi High Court in re: CIT v. Naseem Allahwala (1991 PTD 843) he claims that all proceedings in respect of which a return of income was filed before the 1st July, 1979 i.e. The date of commencement of the Ordinance must be treated under the Income-tax Act, 1922 as if the Ordinance had not been enforced. Also relies upon a judgment of this Court in re: Ms. Anjuman Shaheen v. I.A.C. Of Income-tax (1993 PTD 1232) wherein a learned Single Bench of this Court held that an amendment made is section 66-A by Finance, Act, 1991 had no retrospective application. He controverts the finding of the learned Tribunal that the provision was merely procedural in nature. It is forcefully claimed that the provision of section 66-A conferred a jurisdiction on an authority to touch a completed assessment, and therefore, it could neither be held to be procedural nor the exercise of such power to be a matter of insignificance. To support the proposition that substantive provision will not operate retrospectively, learned counsel relies upon re: Adnan Afzal v. Capt. Sher Afzal (PLD 1969 SC 187).

4. Having considered the submissions made at the bar we are persuaded to agree that section 66- A is not procedural in nature, and therefore, it could not have retrospective effect to touch the completed assessm ents before its introduction on the statute book. The interpretation made by the C.B.R. Through the aforesaid circular appears to be more in consonance with law. Particularly in view of the fact that revisional provisions were not saved by section 166 of the Income Tax Ordinance providing for repeal and savings of the late Income-tax Act, 1922. Learned counsel has a valid point to argue that the return being pending at the time of enforcement of the Income Tax Ordinance, 1979 had to be dealt with "as if the Income Tax Ordinance had not come into force." The submission with regard to prospectivity of section 66-A are fully supported by the view expressed by this Court in re: Mrs. Anjumen Shaheen (supra). The issue before the Karachi High Court in re: CIT v. Naseem Allahwala (Supra) does not directly cover the facts in hand yet the view of their Lordships with regard to returns of income filed before July, 1, 1979 supports the contentions made at the bar for the assessee. Therefore, mere fact that an assessment was framed after July 1979 will not by itself deny such an assessm ent the benefit of section 166(2)(a). The other claims of the learned counsel that provisions of section 34 of the Act having not been saved by the Income Tax Ordinance, 1979 such power could not be exercised by the I.A.C. Under the new law. It will be noted that under section 66(2)(a) an I.A.C. Can revise the order of the Deputy Commissioner after calling for and examining the record "of any proceedings under this Ordinance". The assessment in question was admittedly framed under section 23(3) of late Act, 1922. Therefore, it could not be said to have been a proceeding under the Ordinance when read with the provisions of section 166(2)

(a).

That being so we will answer the first two questions in the negative while the third one only being consequential shall be declined to be answered. .