IN THE HIGH COURT OF SINDH, KARACHI
ITC No.200 of 2003.
Mr. Justice Gulzar Ahmed, and
Mr. Justice Irfan Saadat Khan
Date of hearing: 16.02.2010.
Applicant: The Commissioner of Income Tax, through Mr. Javed Farooqui, advocate.
Respondent: M/s Dewan Khalid Textile Mills. Ltd., through Mr. Iqbal Salman Pasha, advocate.
IRFAN SAADAT KHAN, J:- This Income Tax Case has been filed against the order passed by the learned Income Tax Appellate Tribunal (ITAT) in ITA No. 1248 KB/2001 dated 6.3.2002 and the Reference Application preferred by the Department bearing R.A. No. 490 KB/2002 dated 2.12.2002, whereby the following question has been raised by the department under the provision of Sub-Section (2) of Section 136 of the Income Tax Ordinance, 1979 (The repealed Ordinance).
"Whether on the facts and in circumstances of the case the Honorable Income Tax Appellate Tribunal was justified to hold that there was no definite information with the assessing officer, for action u/s 65 whereas it is a case in which tax was levied at too low a rate within the meaning of Section 65 (1)(b) of the repealed I.T. Ordinance 1979 which is sufficient reason for action under the said section".
2. Mr. Javed Farooqui learned counsel appearing on behalf of the department submitted that ITAT was not justified in holding that the department does not have sufficient reason to initiate the action under the provision of Section 65 of the repealed Ordinance on the premise that there was no definite information with the department to reopen an already completed assessment. The learned counsel further submitted that the case was rightly reopened by the Assessing Officer (A.O.) as he was in the possession of definite information as envisaged in Section 65 of the repealed Ordinance. According to the learned counsel the tax on the interest earned by the Company is taxable at normal rate, whereas the respondent has incorrectly declared the same under the provision of Section 143B of the Ordinance showing that the same is covered under the provision of Section 80B of the Ordinance. According to the learned counsel the issue whether provision of Section 80B of the Ordinance is applicable in the case of the company or not and the issue that whether the interest income earned by a company in a given circumstances is assessable as its business income or as its income from other sources has already been laid at rest by the Hon’ble Supreme Court of Pakistan in the decision Genertech Pakistan Ltd. and others Vs. Income Tax Appellate Tribunal of Pakistan Lahore and others reported as 2004 SCMR 1319. He further submitted that the present Income Tax case may kindly be decided keeping in view of the above decision given by the Apex Court. He submitted that this treatment of the respondent was incorrectly accepted by the Department, which subsequently was rightly reopened under the provision of Section 65 of the Ordinance as the previous action of the department amounts to grant of excessive relief or that of making an assessment at too law a rate which calls for an action as specifically provided under Section 65 (1) (b) of the Ordinance thereof. He thereafter submitted that the Department therefore was fully justified in reopening the assessment and the learned ITAT was not legally justified in allowing the appeal of the respondent on the ground that there was no definite information available with the department.
3. Mr. Iqbal Salman Pasha Advocate, appeared on behalf of the respondent and supported the order passed by the ITAT and submitted that the question raised by the Department, is a question of fact and hence may not be entertained. The learned counsel further submitted that there was no definite information available with the Department as once after making a conscious order the Department is debarred from reopening the same as this action amounts to change of opinion and is not permissible under the law. In support of his argument he has relied upon the decisions in the case of Civil Petition No.436-K of 2006, dated 04.01.2007 in Commissioner of Income Tax Vs. Citibank; 1997 SCMR 1256 = also 1997 PTD 1485 (Supreme Court of Pakistan) in Inspecting Assistant Commissioner and Chairman Panel 20, Companies and another Vs. Pakistan Herald Limited through Director; 1990 PTD 155 (Supreme Court of Pakistan) in Edulji Dinshaw Limited Vs. Income Tax Officer; 1990 PTD 338 (Supreme Court of Pakistan) in Arafat Woolen Mills Limited Vs. the Income Tax Officer, Companies Circle C-1, Karachi; 1993 SCMR 493 in Pakistan Tobacco Co. Ltd. Vs. Government of Pakistan through Secretary Ministry of Finance and 3 others; (1992) 66 Tax 156 (Supreme Court of Pakistan) in Commissioner of Income Tax, Zone-D, Karachi Vs. Jenning Private School; 1990 PTD 389 in Phlips Electrical Company of Pakistan (Pvt.) Limited Vs. Income Tax Officer, Karachi; 1990 PTD 889 in Republic Motors Limited Vs. Income Tax Officer and others, Karachi; (1992) 65 Tax 271 in M.R. Sons Vs. Income Tax Officer; (2004) 90 Tax 231 in Muslim Commercial Bank Limited Vs. Deputy Commissioner of Income Tax and others; (2005) 92 Tax 84 in Muhammad Shafi and 3 others Vs. Income Tax Officer and 2007 PTD 1560 in Citibank N.A. through resident Vice President Vs. Commissioner of Income Tax.
4. The learned counsel further submitted that the provision of Section 80B of the Ordinance is applicable in the case of the company also and in support thereof has relied upon a decision given by the Income Tax Appellate Tribunal Lahore in the case reported as 1999 P.C.T.L.R 496.
5. It was further submitted by the learned counsel that in any case the A.O. was not justified in reopening the assessment which has already merged in the order of the superior appellate authority. Learned counsel submitted that the original order was made by the A.O. under the provision of Section 62 of the Ordinance, against which an appeal was preferred before the Commissioner of Income (Appeals) [CIT(A)], who passed an order in respect of the said appeal and the original order passed by the A.O. thereafter merged in that appellate order. Hence according to the learned counsel the present reopening of the assessment is illegal as the assessment which has sought to be reopened by the Department had already been merged in the order of the CIT (A). In support of his contention he has relied upon 2001 PTD 1467 in Sandal Engineering (Pvt.) Limited, Faisalabad Vs. the Inspecting Additional Commissioner of Income Tax/Wealth Tax, Faisalabad; 1986 PTD 874 in Commissioner of Income Tax, East Zone, Karachi Vs. Ata Muhammad Faiz; 1992 PTD 932 (Supreme Court of Pakistan) in Glaxo Laboratories Limited Vs. Inspecting Assistant Commissioner of Income Tax and others and (1976) 33 Tax 288 in Commissioner of Income Tax, Rawalpindi Vs. Begum Mumtaz Jamal.
6. We have heard both the learned counsel and have also perused the record and the written synopsis and the decisions referred by the learned counsel for the parties.
7. Briefly stated the respondent is a Public Limited Company, return of income was filed by declaring the income of Rs.27,384,931/=, which was subsequently revised under Section 57 of the Ordinance by declaring an income of Rs.22,925,094/=. The reason for revising the return being that in the original return the interest income on which tax was deducted under Section 50 (2A) of the Ordinance was inadvertently declared in the head business income whereas according to the respondent the same falls under Section 80B of the Ordinance. Subsequently, the Department issued notice under the provision of Section 65 of the Ordinance on the premise that firstly the provision of Section 80B is not available in the case of a Company hence the respondent Company erred in declaring the interest income in the said provision of the Ordinance by stating that the interest income is to be assessed as a separate block of income. The other reason for reopening the assessment being that by virtue of revising the return and declaring the said interest income to be assessable under the provision of Section 80B of the Ordinance, the company has paid the tax on the said interest income at 10% only, whereas this interest income, being the income of the Company from other sources, is to be taxed at normal rates, applicable in the case of a company. Therefore as per the department by making a mis-declaration and filing incorrect return of income the company has been assessed at too low a rate and has obtained an excessive relief which legally was not available to the said Company and therefore the case of the Company squarely falls under the provision of Section 65 of the Ordinance. Thereafter the Department reopened the assessment and initiated the proceedings under Section 65 of the Ordinance by fulfilling all the legal formalities in this regard. An appeal against the order passed under Section 65 of the Ordinance was filed before the CIT(A), who vide his order dated 14.3.2001 dismissed the appeal filed by the respondent. The respondent thereafter filed an appeal before the learned ITAT which allowed the same by holding that no definite information was available with the A.O. to reopen the said assessment. It was further observed by the learned ITAT that as the original order passed by the A.O. has merged with that of appellate authority hence the department was not justified in reopening the assessment and passing a fresh order thereof. The Department thereafter filed a Reference Application before the ITAT requesting it to refer the impugned question of law to the Hon’ble High Court for adjudication under Section 136 of the Ordinance, however the learned ITAT vide its order 2.12.2002 refused to refer the same on the pretext that the question raised is a question of fact and not that of law hence the same could not be referred to this Court.
8. In our opinion the main controversy in the present case is that whether there was any definite information available with the A.O. to reopen an already completed assessment or not. There is no denying of the fact that the Honorable Supreme Court of Pakistan in the case of Genertech Pakistan Ltd. and others Vs. Income Tax Appellate Tribunal of Pakistan Lahore and others (2004 SCMR 1319) has already held that the provision of Section 80B is not available to a company and it has further been held by the Honorable Apex Court in the said decision that the interest income earned by a company would be taxed as an income of the company falling under other sources. The Hon’ble Apex Court observed as under:
“The share capital deposits in the Banks by the assessee provide a separate income to them after post production stage of the Power Generating activity, therefore, on the income of interest no exemption can be claimed under Item 176 Second Schedule of the Ordinance as it is a different income from the profits/gains being earned from post production activity of power generation.
Under section 80-B of the Ordinance such concession is not available to Public Limited Companies as its subsection (1) in categorical terms has extended its benefits to an individual, unregistered firm, association of person, Hindu undivided family or artificial juridical person.”
9. The learned counsel appearing for the respondent also could not controvert this fact that hardly any room is left for the respondent now to agitate the issue after the authoritative pronouncement made by the Honorable Supreme Court of Pakistan in this regard that the provision of Section 80B are firstly not applicable in the case of Company and secondly the interest income earned by the company under the given circumstances is to be taxed as its income from other sources. Therefore there could be no two opinions so far as this point is concerned that the original order passed by the A.O. suffers with this illegal infirmity and was a case of an excessive relief or that of an assessment made at too low a rate which was rightly reopened under the provision of Section 65 (1) (b) of the Ordinance by the department.
10. Now coming to the second limb of the argument of the respondent that as the original assessment order merged in the appellate order hence the Department has incorrectly reopened the same. However while giving reply to the question raised by the Bench that "whether the issues agitated before CIT (A) were the same on which the matter was subsequently reopened by the Department", the learned counsel for the respondent candidly conceded that the issues which were agitated originally before the learned CIT(A) were different from the issues at present in hand.
11. We, therefore, are of the opinion that in such circumstances the merger theory, as claimed by the respondent, is not available to them as the issues on which the company filed the appeal in the original proceedings before CIT (A) were totally different from the issues at present in hand. Hence no merger in fact took place so far as the issue in hand is concerned. Reference in this regard may be made to the decision given in the case of Hong Kong Chinese Restaurant Vs. Additional Commissioner of Income Tax (2002 PTD 1878) wherein the Hon’ble Lahore High Court held as under:
“Even as a general proposition the order amended by Income Tax Authorities or the Tribunal cannot be said to have merged with the previous order for the simple reason that doctrine of “merger” only forestalls an interference by a lower forum after that order had gone through the mill of a higher or appellate forum.”
In an another decision given by the Hon’ble Supreme Court of India in the case of Commissioner of Income Tax Vs. Jay Kumar B. Patil (236 ITR 469) it was held as under:
“Revision – Doctrine of merger – Issues not dealt with by the CIT(A) in the appellate order – CIT has power to initiate revision proceedings in respect of such issues.”
Similar view has been taken in the decisions 224 ITR 658, 227 ITR 216, 231 ITR 215 and 245 ITR 838.
12. We, therefore, keeping in view our above observations allow this I.T.C. by answering the question in negative i.e. in favour of the Department and against the assessee/respondent.
Dated: February, 2010.