P L D 1965 (W (PLP)

WAHIDUDDIN AHMED, J.‑

Messrs Cement Agencies (Private) Ltd., Bombay the petitioners are the Managing Agent of Associated Cement Companies Limited, Bombay, who owns two cement factories in Pakistan; one at Rohri and the other at Wah. By agreement dated 14th January 1937, the petitioners were appointed as the Managing Agent of the Associated Cement Companies Limited for a period of fifteen years from the date of the registration of the Managed Company. The Income‑tag Officer, Central Circle II, Karachi, issued a notice on 11th December 1962, to them under section 34(2‑A) of the Income‑tax Act on the ground that their income assessable to income‑tax for the year ending 31st March 1949, has escaped assessment. In response to this notice a return showing an income of Rs. 88,194 was filed by the petitioners in the status of non‑resident company on 28th January 1963. The Income‑tax Officer concerned by order dated 31st October 1963, has demanded from the petitioners‑company to pay income‑tax in the sum of Rs. 77,

169. He further demanded a sum of Rs. 59,081 as penal interest under section 18‑A sub clause (8) of the Income‑tax Act. The petitioners have challenged this assessment in an appeal before the Appellate Assistant Commissioner of Income‑tax, which is still pending. They have further challenged the said assessment in this writ petition.

2. The petitioners' case is that they employ the mercantile system of accounting and have adopted the English Calendar year as their accounting year and thus close their annual accounts on 31st December each year. They further alleged that by the Managing Agency Agreement dated 14th January 1937, the managing agency commission was to become due to them on 31st March every year; but it has been the practice of the managed company to finalize its accounts on 31st July since its incorporation. Accordingly, for the accounting year 1946‑47 the accounts of the Managed Company were finalized on 31st July 1947, and a sum of Rs. 10,44,404 was shown in the balance‑sheet of the Managed Company as commission due to the petitioners company on 31st July 1947. They further alleged that the petitioners have throughout been filing returns of income to the Income‑tax Officer, Bombay, and has all along been assessed to income‑tax at Bombay as resident and ordinarily resident in India and taxes have been paid there. They alleged that after the creation of the dominions of India and Pakistan they did not file any return of income in Pakistan for the Calendar year 1947 (assessment year 1948‑49) as there was no duty cast upon them to file a return under section 22(1) nor was any notice issued by any Income‑tax Officer under section 22(2) of the Income‑tax Act. They further pleaded that they were never assessed for income‑tax in Pakistan and it was only on 30th January 1956, that notices under section 34 of the Income‑tax Act were issued to them for the years 1951‑52 and 1952‑53 by the Income‑tax Officer on the ground of "escapement of assessment" and assessment was made on 24th March 1956, and 6th March 1957, respectively. But these assessments were set aside by the Appellate Assistant Commissioner of Income‑tax in appeal filed by them, on the ground that no part of the income of the petitioners was chargeable to tax in Pakistan, which was upheld by the Income tax Appellate Tribunal in the appeals filed by the Department. Similarly, for the subsequent years 1953‑54 to 1957‑58, the Income‑tax Officer following the decision in the above appeals dropped the proceedings. It is further submitted that a clear no‑tax liability certificate was also issued by the Income‑tax Officer concerned on 20th May 1961, in favour of the Company.

3. The petitioners grievance is that in spite of this the Income‑tax Officer on 11‑12‑1962 for the first time issued a notice under section 34(1) of the Income‑tax Act for the assessment year 1948‑49 and has illegally assessed them and demanded on 31st October 1963 income‑tax and penal interest as stated above. They consider the appeal filed by them as inadequate remedy because the procedure under the Income‑tax Act for setting aside the demand for income‑tax and penal interest is lengthy and cumbersome and is bound to take many years before the question is finally settled. In these circumstances the petitioners have moved this Court under Article 98 of the Constitution of Pakistan 1962 for challenging the assessment in question on the following grounds:‑-- (1) That there was no jurisdiction in the Income‑tax Officer to issue notice under section 34(1) of the Income‑tax Act for the assessment year 1948‑49, on 11th December 1962, because; (a) the appellant has employed mercantile system of accounting and the income had actually accrued due on 31st July 1947, regarding which an entry existed in the balance‑sheet of the Associated Cement Companies Ltd.; (b) that proviso to section 34(2‑A) of Income‑tax Act is a specific bar to income accrued before 14th August 1947; (2) That there was no jurisdiction to levy penal interest under section 18‑A(3) because the petitioner is not a person "not hitherto" assessed in Pakistan; (3) That no penal interest could be imposed under section 18‑A(8) of the Income‑tax Act because the assessment was made under section 34 of the said Act. (4) That amendments of section 34(1) are prospective and not retrospective in their operation.

4. The petition is opposed on behalf of the Department on the ground that before the petitioners could be entitled to invoke the writ jurisdiction of the High Court they ought to have exhausted the remedy by way of appeal filed by them before the Appellate Assistant Commissioner of Income‑tax and if necessary, to the Income‑tax Appellate Tribunal. It is contended on behalf of the Department that the appeal filed by the petitioners is an adequate remedy in the circumstances of the present case. The Department's contention is that the impugned order is not without jurisdiction or in excess of jurisdiction. It is strenuously contended that this is a fit case in which this Court should decline to exercise the discretion vested in it under Article 98 of the Constitution.

5. The first question, therefore, for consideration is whether this is a fit case in which this Court should at this stage exercise its discretion under Article 98 of the Constitution. In support of his contention Mr. Fazlur Rehman, the learned counsel for the petitioners has relied on the case of Nagina Silk Mill, Lyallpur v. The Income‑tax Officer, Lyallpur (P L D 1963 S C 322). In that case it was held by their Lordships of the Supreme Court that in cases where the inferior Tribunal has acted without or in excess of jurisdiction or there is an error patent on the face of the record, it is open to this Court to issue a writ of certiorari even if an appeal has been preferred under the machinery provided by a special statute applicable to the case. In this connection the learned counsel relied on the following observation of the Supreme Court at page 326 of the report: "Notwithstanding section 67, Income‑tax Act, 1922, which bars Civil Suit to set aside or modify an assessment made under the Act, the extraordinary writ jurisdiction of the High Court can be invoked in challenging an income‑tax assessment on the basis that the officer concerned lacked jurisdiction to pass the impugned order. The writ jurisdiction was conferred on the High Court by a constitutional provision and even if there be a conflict between such a provision and another statute, the constitutional provision must prevail." Their Lordships further observed at page 327 of the report: "At the same time, it was held that in cases of absence or excess of jurisdiction or where the impugned order suffers from illegality on the face of the record, a certiorari may be granted even though the right of statutory appeal had not been availed of. A certain amount of flexibility is allowed by the law in the case of a prayer for a writ of certiorari as compared with a case for a mandamus. It was further observed that if the application for certiorari is made by a party aggrieved, then it ought to be granted ex debito justitiae and the High Court has not the general discretion which it would have, when the application is made by a member of the public, who is not personally concerned. This would specially be the case where the alternative remedy provided by the relevant statutes is not efficacious, speedy or convenient as the one available under the writ jurisdiction of the High Court. This principle would be found discussed in Ferris on Extraordinary Legal Remedies at pp. 185‑187, 1926 Edn. That relief in these cases could not have been obtained as quickly or with as such facility and convenience under the Act which provides for a series of appeals, revision and reference to the High Court on law points, on condition that the tax assessed is first paid, as by recourse to the writ jurisdiction of the High Court, can hardly be contested. It is at the same time conceded that the Income tax Officer was required to act judicially in applying the provisions of the Act. Even where a particular statute takes away certiorari (and that result can only be achieved by express negative words) the English Courts have decided that certiorari may be granted where the inferior Tribunal has acted without or in excess of jurisdiction, for in such a case the Tribunal has not brought itself within the terms of the statute taking away certiorari, vide Halsbury's Laws of England, Vol. 11, Third Edn. p. 138, para. 260."

6. Mr. Noorul Arfin, the learned counsel for the defendant, contended that under Article 98(2) of the present Constitution, this Court is bound to satisfy itself that no other adequate remedy is available to an aggrieved party. He further contended that in the circumstances of the present case the appeal filed by the petitioners and other remedies available under the income‑tax Act are quite adequate and for this reason we should decline to exercise the discretion vested in this Court. But this contention cannot be accepted because on the view taken by their Lordships A in the above‑mentioned case we are bound to hold that the relief in income‑tax cases cannot be invoked with as much facility anti convenience as by recourse to the writ jurisdiction of the High Court.

7. The question, however, remains for consideration whether this is a fit case in which this Court should invoke the discretion vested in it in writ jurisdiction in favour of the petitioners. It is strongly urged by Mr. Fazlur Rehman that the Department has acted without any authority and jurisdiction in assessing the petitioners for the assessment year in question. The petitioners case is that the income which was subjected to income‑tax accrued to them before 14th August 1947, and was exempted from taxation under the proviso to section 34(2‑A) of the Income‑tax Act, Which is in the following terms:‑-- "Provided that no notice under subsection (1) shall be issued in respect of income, profits and gains which were received or are deemed to have been received, or which accrued or arose or are deemed to have accrued or arisen to an assessee before the fourteenth day of August 1947." In support of the contention they have relied on certain circumstances and facts. In the first place, it is alleged that although under the Managing Agency Agreement dated 14th January 1937, the managing agency commission becomes due to then from the Managed Company on 31st March, every year, but according to the practice of the Managed Company the accounts are finalized on 31st of each year since its incorporation and as such for the accounting year 1946‑47 the accounts of the Managed Company were finalized on 31st July 1947, and the Managing Agency commission of Rs. 10,44,404 was shown in the balance‑sheet of the Managed Company as Commission due to the petitioners on 31st July 1947. On this basis it was contended that the commission in question accrued to them on the said date. It, however, appears to us that in the absence of any specific allegation that the terms of clause 3 of the agreement has been modified or amended no importance can be attached to it. But even if this allegation is taken in that sense, there is no reliable material on the record to support this fact. The balance‑sheet of the managed company throws no light on this point. There is not even an assertion on oath to this effect. Merely because the Managing Company's accounting year ends on 31st July, it would not result in the modification of such an important clause of the agreement. It is, therefore, not possible to hold that clause 3 of the agreement was modified on the basis of the alleged practice.

8. Secondly, it is contended that in law, even otherwise, the commission in question accrued to the petitioners as income on 31st July 1947. In this connection the petitioners have relied on two important circumstances namely (i) that the Managed Company maintains mercantile system of accounting and (ii) that a debt had come into existence after the balance sheet had been signed by the Managing Agents and Managed Company Directors. None of the two circumstances finds place in the agreement. In fact the terms of the agreement are in the din, opposite direction. In the agreement the condition about the commission is incorporated in clauses 2(a) and 3, which are in the following terms:‑ "2(a) From and after the registration of the Company a commission upon the annual net profits of the Company at the rate of 7 % but subject to the proviso hereinafter contained and calculated in the manner hereinafter appearing.

3. The said commission shall be due to the Managing Agents on the 31st day of March in each and every year during the continuance of this Agreement and shall be payable and be paid immediately after the annual accounts of the Company shall have been passed by the shareholders." The above‑mentioned clauses are in unambiguous terms and it cannot be disputed that on these terms the petitioners were entitled to receive commission yearly, which was to fall due on 31st March in each and every year and could be claimed by them only after the shareholders had passed the annual accounts. Before examining the contention of the petitioners further in this respect it will be proper at this stage to note the view of the Department on this aspect of the case. In this connection the Income‑tax Officer concerned at page 97 of the record observed as under:‑-- "The Assessee's other contention is that under the terms of Managing Agency Commission Agreement the remuneration payable by the managed company accrued due to this company on 31st July in each year when the managed company prepares its accounts and therefore, it is urged that the remuneration for the assessment year 1948‑49 accrued due to the company on 31st July 1947 the date of closing account, i.e., before 14th August 1947, and it is, therefore, agitated by them that the company is not liable to tax in terms of the proviso to section 34(2‑A) of the Income‑tax Act. The contention of the assessee is not correct. Under the terms of agreement with the managed company the managing agency commission shall be payable and be paid immediately after the annual accounts of the company shall have been passed by the shareholders. Even in the subsequent agreement the remuneration payable to the managing agents is payable after the accounts of the company for such year have been audited and laid before the company in general meeting. The accounts of the managed company no doubt, were closed on 31st July 1947, but the remuneration of the managing agents could not be calculated on the day of closing of the accounts as the remuneration payable to them depends upon the arriving at of the net annual profits of the managed company which was again not possible on the day of closing of the accounting year. Besides, for such purpose the accounts had to be audited and all this happened much later. The accounts of the managed company were audited on 5‑12‑1947 and the net profit of the managed company was arrived at much later after the 14th of August 1947, and naturally the remuneration became payable only after such audit, i.e. after 5‑12‑1947. The accounting year of the assessee also ends on 31‑12‑1947. Hence the income from managing agency of the assessee is liable to tax for assessment year 1948‑49." Mr. Fazlur Rehman has challenged this view. He contended that in law the commission was earned from day to day and accrued as income the amount a debt came into existence. But in the case of E. D. Sassoon & Co. Ltd. v. Commissioner of Income tax, Bombay (AIR 1954 SC 470), a decision relied upon by the petitioners counsel, the Indian Supreme Court repelled the first link of his contention that the Managing Agents had earned commission from day to day. Before the Indian Supreme Court a similar agreement was under consideration. While construing its terms the learned Judges observed as under:‑-- "If this be the true construction of the Managing Agency Agreements it follows the contract of service between the companies and the Managing Agents was entire and indivisible, that the remuneration or commission became due by the Companies to the Managing Agents only on completion of a definite period of service and at stated periods, that it was a condition precedent to the recovery of any wages or salary in respect thereof, that the service or duty should be completely performed, that such remuneration constituted a debt only at the end of each such period of service and that no remuneration or commission was payable to the Managing Agents for broken period." On the question when the income is said to be accrued they observed as under:‑-- "The concept however cannot be divorced from that of income accruing to the assessee. If income has accrued to the assessee it is certainly earned by him. In the sense that he has contributed to its production or the parenthood of the income can be traced to him. But in order that the income can be said to have accrued to or earned by the assessee it is not only necessary that the assessee must have contributed to its accruing or arising by rendering services or otherwise but he must have created a debt in his favour. A debt must have come into existence and he must have acquired a right to receive the payment. Unless and until his contribution or parenthood is effective in bringing into existence a debt or a right to receive the payment or in other words a `debitum in presenti, solvendum in futuro' it cannot be said that any income has accrued to him. The mere expression `earned' in the sense of rendering the services etc., by itself is of no avail." It will thus be noticed that according to the Indian view income can accrue to a Managing Agent after a debt comes into existence in his favour. But their concept of bringing into existence a debt is a right to receive the payment or in other words "debitum in presenti solvendum in futuro". Unless that happens it cannot be said that an income had accrued to him. The contention of the learned counsel that in law a debt for the commission in question had been created in favour of the petitioners after the signing of the balance‑sheet does not fit in with the clear terms of clause 3 of the agreement under consideration and is open to serious doubt.

9. In support of his contention the learned counsel further referred us to the case of Octavius Steel & Co. Ltd. v. The Commissioner of Income‑tax, Dacca (P L D1960 S C 371). In that case their Lordships besides holding that "it has long been settled that aspect of accrual or arising is to be understood in contradiction to the act of receiving", observed at page 376 as under:‑-- "but if the matter were to be based on the balance‑sheet alone, we do not think there need be any hesitation in holding that by stating an ascertained amount as the sum to which the Managing Agents are entitled, in the accounts and signing those accounts, the Managing Agents raise a debt against the managed company in that sum, and the Directors of the managed company by singing the same balance‑sheet must be deemed to acknowledge that such a debt was due." In our opinion this case is not helpful to the petitioners and is distinguishable. Firstly, it will be noticed that their Lordships were considering a case in which the agreement under consideration did not contain any such term as clause 3 of the agreement in question. Secondly, even if the petitioners' case is examined from this angles, the debt, if at all, was created on 5‑12‑1947, the date on which the Auditors' submitted their report in the shape of balance‑sheet counter‑signed by the Directors of both the companies concerned. In this regard the petitioners' balance‑sheet dated 3rd February 1948, is also not helpful. It cannot be disputed that both these events happened much after 14th August 1947, and can have no material bearing on the decision of the point under consideration particularly when there is not a shred of evidence on the record to show on what date these amounts were entered in the account books of' the petitioners or managed company. In these circumstances the view of the Department that "the remuneration of the Managing Agents could not be calculated on the day of the closing of the accounts as the remuneration payable to them depends upon the arriving at of the net annual profits of the Managed Company" cannot be lightly ignored. It, therefore, seems to us that the conclusion reached by the Department that the income in question accrued to the petitioners after the target date cannot be said to be erroneous or based on irrelevant considerations.

10. In this context the contention of the petitioners that they or Managed Company employed mercantile system of accounting has no bearing whatever on the facts of the present case. At best if an assessee regularly adopts the mercantile system of accounting he would be liable to pay tax on the profits shown by him in his books of accounts irrespective of the fact whether he has received it or not. In the present case the petitioners in the balance‑sheet showed the agency commission on the profits of the Associated Cement Co. Ltd., for the year ended on 31st July 1947 in the profit and loss account for the year ending 31st December 1947, and it must be deemed to have accrued to them as income for that year. We would, therefore, hold that the Department has not exceeded its jurisdiction in assessing the petitioners for the assessment year in question.

11. The question whether the petitioners were liable to any penal interest cannot be divorced from the main question involved in this matter. The point raised before us was not raised before the Income‑tax Authorities. The petitioners contention is that no penal interest could be levelled against them under section 18‑A(3) of the Income‑tax Act because they were not "a person who has not hitherto been assessed". Mr. Fazlur Rehman contended that as Pakistan was part of British India before 14th August 1947, and the petitioner, were assessed in c British India, they should be considered to have been hitherto assessed in Pakistan. The learned counsel referred us to the definition of the British India as it stood at the material time in the Income‑tax Act, section 2(3‑A) which read as under: "British India means, as respect any period before the 15th day of August 1947, the territories then referred to British India but including Berar and as respect any period after 14th day of August 1947, the territories for the time being comprised in the Provinces of Pakistan." This definition has no material bearing on the point tinder consideration because section 18‑A(3) does not refer about such person in the context of British India. Admittedly, the petitioners were never assessed before 14th August 1947, in the territories now compromised in Pakistan. It is for this reason that they submitted their returns and have been assessed as non‑resident. In view of this the contention of the petitioners that they should be considered to have been assessed in Pakistan before 14th August 1947, has no force and is repelled. In our opinion the Department is perfectly justified in treating the petitioners for the assessment year 1948‑49 as a "person not hitherto assessed"' within the meaning of section 18‑A(3).

12. It was next urged that no penal interest can be imposed in proceeding under section 18‑A(8) because an assessment under section 34(2‑A) cannot be considered to be a regular assessment. On the other hand it is contended on behalf of the Department that the assessment under section 34 of the Income‑tax Act is also a regular assessment. This point need not detain us because the petitioners were bound to file a return under section 22(1) and its non‑compliance resulted in invoking the provision of section 34(1). It cannot be disputed that any return filed in response to notice under the said provision would be under section 22(1) of the Act. In fact section 34(1) specifically provides that any such return would be deemed to have been filed under section 22(2) of the Act and the Income‑tax Officer "may proceed to assess or re assess such income, profits or gains" and for this purpose "the provision of this Act, shall so far as may be, apply accordingly as if the notice were a notice issued under that subsection". It seems to us that if a notice is deemed to be a notice under section 22(2), any return filed in response to it would be nothing else but a return under it. In such circumstances on the terms of the said provision of law all the other provisions of the Act, so far as may be, would become applicable. Section 18‑A is also a provision of the Act and was rightly applied to the petitioners case.

13. The last contention of the petitioners that amendment of section 34(1) of the Income‑tax Act is prospective and not retrospective cannot be accepted on the language of section 34(2‑A), which is very wide in its import. It is not disputed that the petitioners case is also covered by its terms. Mr. Fazlur Rehman only contended that unless a provision of law is given retrospective effect in clear terms it cannot affect a vested right. He contended that under the law as it stood before the amended provision of law, the appellant had already acquired right of escaped assessment by lapse of time and the leaning of the Court must be against giving a statute retrospective operation on the assumption that the Legislature does not intend what is unjust. There is no quarrel with this well established principle of interpretation of statute. Unfortunately for the petitioners the language of section 34(2‑A) is in such wide and unambiguous terms that it is not possible to hold that it has no retrospective effect. This is quite clear from its contents which is reproduced below:‑-- "34(2‑A).‑A notice under subsection (1) may, where the Income‑tax Officer has reason to believe that the assessee, or any other person on his behalf, has not filed any return under subsection (1) or subsection (2) of section 22 or concealed the particulars of his income or deliberately furnished inaccurate particulars thereof be issued at any time notwithstanding that at the time of the issue of such notice the period of eight years specified in the said subsection before its amendment had expired and no assessment or re‑assessment made or any other proceeding taken in consequence of such notice or any assessment or re‑assessment made under subsection (2‑B) or any other proceeding taken in consequence of any notice issued for that purpose shall be called in question in any Court, tribunal or other authority merely on the ground that at the time the notice was issued or at the time the assessment or re‑assessment was made, the time, within which such notice should have been issued or the assessment or the re‑assessment should have been made under this section as in force before its amendment had expired." It will be noticed that now in certain circumstance no restriction of time is imposed on the power of the Department to take action under it. Not only this, it is further provided that notwith standing that at the time of the issue of such notice the period of eight years specified in that subsection before its amendment had expired, it is open to the Department to take action under its provision. Significantly it further provides that any assessment made under it shall not be called in question merely on the ground that at the time when the notice or assessment was made, the time within which such notice should have been issued or assessment should have been made under it as in force before its amendment had expired. It will thus noticed that the Legislature has in express terms wiped out all E vested rights including those acquired by lapse of time and it is no longer open to a party to challenge any assessment on that ground alone. We are clearly of the view that the impugned provision of law is in such wide terms that it cannot be helped but to hold that it has retrospective operation.

15. In these circumstances we find no force in this petition, which is dismissed with costs. M. N./S.Q. Petition dismissed.