1988 PLP (Trib (PTD)

ABRAR HUSSAIN NAQVI (JUDICIAL MEMBER).

These are two appeals filed by a private limited company deriving income from spinning and sale of yarn and relate to the assessment years 1976-77 and 1977-78. These appeals have been filed against the orders of the learned IAC dated 26-1-1981 passed under section 66(a) of the I.T. Ordinance 1979 (hereinafter referred to as the Ordinance).

2. Brief facts of the case may here be narrated. The assessee's original assessment for the assessment year 1976-77 was finalized on 30th March, 1978 while for the assessment year 1977-78 the assessment was originally framed on 28-4-1980. While making assessment the assessing officer discovered that the assessee had made advances to the tune of Rs.3,05,94,620 for the assessment years 1976-77 and Rs.3,25,99,589 for the assessment year 1977-78 and no interest had been charged. Consequently, the learned I.T.O by virtue of application of Explanation 8 of section 4 (1) of the Repealed Income-tax Act calculated the interest at the rate of 11% and charged the interest amounting to Rs.33,55,508 and Rs.39,11,950 respectively for the assessment years 1976-77 and 1977-78 which was treated as income of the assessee. For the assessment year 1976-77, the assessee feeling aggrieved against this order, filed an appeal before the learned A.A. C. on 18-4-1978. This date is immaterial as when the Ordinance came into force on 1st July, 1979 the appeal of the assessee was still pending which was ultimately decided on 9-4-1980. In his order the learned A. A. C. while holding the Explanation 8 as applicable to the assessee for the assessment year 1976-77 made the following direction: "The ITO was, therefore justified in making this addition, However, the calculations are contended to be based on the entire year. This should be worked out according to the product balance, as per bank rules." As a consequence of this order of the learned A.A.C. the I .T .O. re-calculated the interest vide his order dated 12-6-1980 and this time he calculated the interest on the basis of monthly balances and while doing so he also adjusted the amounts of interest payable by the assessee to other persons. Similarly for the assessment year 1977-78 after the assessment had been framed, the assessee made an application under section 35 of the Repealed Income-tax Act for the rectification of mistake of calculation of interest on 18-9-1980 perhaps on the basis of the Appellate Order which had in the meantime been passed by the learned A.A.C. on 9-4-1980 for the earlier year. As for the assessment year 1976-77, the ITO recalculated the interest for the assessment year 1977-78 as well by accepting the application for rectification of mistake under section 35 of the Ordinance vide his order dated 18-9-1980 and the interest was calculated on the basis of the monthly balances and after adjustment in regard to the interest payable by the assessee, net interest was worked out at Rs.8,57,828 for the assessment year 1977-78.

3. The learned IAC discovered these facts and he was of the view that the ITO's order passed on 12-6-1980 for the assessment year 1976-77 and his order, dated 18-9-1980 for the assessment year 1977-78 under which he had rectified the alleged mistake, was erroneously and against the interest of revenue and, therefore, in exercise of his power under section 66(A) of the Ordinance issued a notice to the assessee on 17-1-1981 and finally vide his order dated 26-1-1981 modified the ITO's order for both the assessment years. The learned IAC was of the view that the interest payable by the assessee could not be adjusted and the entire interest which was receivable by the assessee by fiction of law under Explanation 8 of Section 4 (2) (1) of the Repealed Income-tax Act had to be treated as income. These two orders of the learned IAC passed by him on 26-1-1981 under section 66(A) of the Ordinance are subject-matter pf these two appeals.

4. The contention raised by the learned counsel for the assessee was that the orders of the learned I.A.C. passed on 26-1-1981 are without jurisdiction for both the assessment years. In order to support this contention the learned counsel has raised number of pleas. The first ground of attack of the learned counsel was that the assessment years being 1976-77 and 1977-78. The Repealed Income-tax Act was applicable and the powers under section 66(A) of the I.T. Ordinance could not be invoked by the learned IAC to revise the order passed under the Repealed Income-tax Act. In support of his contention the learned counsel has relied upon Section 166 (2) (a) of the I.T. Ordinance. According to this clause where a return had been filed before the commencement of the Ordinance, proceedings for the assessment of that person had to be taken and continued as if the Income-tax Ordinance had not come into force. This plea is devoid of any force as the assessment proceedings had to be continued and powers exercised by way of revision by the IAC are not assessment proceedings. What is visualized in this clause is that a return which has been filed and is pending on the day when the I. T. Ordinance came into force on 1st July, 1979 that should be processed and the assessment finalized under the Repealed Income-tax Act and the provisions for the assessment under the Income-tax Ordinance should be ignored. As such this plea of the learned counsel is without any merit and is rejected.

5. The next contention of the learned counsel for the assessee was that section 66(A) was not part of the original Ordinance when it came into force on 1st July, 1979 as it was subsequently added by the Finance Ordinance, 1980. It was submitted that the amendments had not been made with retrospective effect and therefore the learned IAC had no jurisdiction to revise the order passed earlier than 30th June, 1980. We are again unable to appreciate the contention of the learned counsel for the assessee. Section 66 (A) being an empowering section is procedural in nature even otherwise from the nature of the powers conferred by this section, this is retrospective in operation. The argument could have been proper if the power had been exercised before the insertion of section 66 (A) and at that time the learned I AC had no power to revise the order passed by the I. T. O. Once a power is conferred by law it can be exercised in regard to the orders already passed before the conferment- of such power. For convenience section 66 (A) is reproduced below: "66-A. Powers of Inspecting Assistant Commissioner to revise Income-tax Officer's order.-- The Inspecting Assistant Commissioner may call for and examine the record of any proceedings under this Ordinance, and if he considers that any order passed therein by the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of revenue, he may, after giving the assessee an opportunity of being heard and after making, or causing to be made, such enquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment to be made." It is evident from the wordings used in this section that there is nowhere any bar on the powers of the I.A.C. that he could exercise this power only in regard to those orders which would be passed after the insertion of this section. All that this section provides is c that an IAC can call for and examine the record of any proceedings under the Ordinance and on the basis of certain reasons he could pass an order as circumstances of the case might justify. If the interpretation placed by the learned counsel is to be accepted, the section would be redundant at least for some period of time. We therefore are of the view that notwithstanding the fact that section 66-A was added on 1st July, 1980, since this was an empowering provision, the I. A. C. had the power to revise any order passed by an I.T.O. before 1st July. 1980. The learned counsel in support o his contention relied upon a Circular Letter of the C.B.R. bearing C. No. 1(48)/(IT)-1/79, dated 17th February, 1981. In reply to certain queries in regard to the retrospective of section 66-A the C. B. R. expressed the view that section 66-A was not retrospective in operation and assessment finalized before 1980 cannot be reopened under section 66-A of the Ordinance, 1979. Para. 3 of the aforesaid Circular is reproduced below for reference:-- "The undersigned is directed to say that the principle applicable in such cases is given in section 6 of the General Clauses Act, according to which the repeal does not affect the proceedings already commenced unless the repealing Act otherwise intends. The repeal does not revive anything not in force or existing at the time the repeal takes effect. Hence the proceedings which were pending under the repealed Act may continue under that Act. However, if proceedings under section 34-A had not been initiated when the old Act was repealed Act (sic). Similarly section 66-A does not have retrospective application. The assessments finalised before 1st July, 1980 cannot be reopened under section 66-A of the Income-tax Ordinance, 1979."

6. We, however, do not agree with the views expressed by the C. B. R. As stated above, section 66-A by its very nature is retrospective in operation as it is an empowering provision. Under the old law a similar power was available to the I. A. C. under section 34-A of the Repealed Income-tax Act. It appears that while re-enacting the law in the shape of I.T. Ordinance there was an omission and, this flaw was removed subsequently in the succeeding year and section 66-A provided the corresponding powers to the I.A.C. through the Finance Ordinance, 1980 Mere fact that the powers had been conferred with effect from 1st July, 1980 would not mean that this power could not be exercised in regard to the orders earlier passed. Strictly speaking when the orders are being revised after 1st of July, 1980 this cannot be said that this provision had become retrospective. Had this been the position that Legislature would specifically say so and in that case the powers already exercised by the I. A. C's. before 1st July, 1980 would be saved. The contention of the learned counsel for the assessee that interpretation placed by the C. B. R. at least debarred the department to contest the interpretation of the assessee is again incorrect, in that there can be no estopple against the law. No doubt the C.B.R's. directions are binding on its subordinate authorities. However, this was not a direction of the C.B.R. but only an interpretation of certain provision of law and therefore it was not even binding on its subordinate authorities. Secondly the interpretation made by the C. B. R. has no relevancy so far as the Tribunal is concerned. Mere fact that the C.B.R. has made certain' interpretation of a particular law, does not debar the Tribunal to come to a different conclusion. Since we are clearly of the view that section 66-A can be invoked in regard to the orders passed before 1st July, 1980, we respectfully disagreeing with the C. B. R's. view ignore, that circular letter. Section 66-A was a remedial provision and has to be read in that context.

7. The next contention of the learned counsel for the assessee was that section 34-A having not been saved by the I.T. Ordinance, the orders passed under the 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 of the Ordinance. Again the learned counsel relied upon section 167(2)(a) according to which a return filed before the commencement of the Ordinance proceedings for the assessment of that person had to be taken and continued as if this Ordinance had not come into force. This contention has already been dealt with above. This contention has partial validity so far as it relates to the assessment year 1976-77 in that the assessment order for that year had been passed before coming into force of the Ordinance and the appeal against that order was pending on .1st July, 1979 when the Ordinance came into force. Therefore, the appeal proceedings being in continuation to the assessment proceedings had to be continued under the Repealed Income-tax Act. The contention of the Legal Advisor appearing on behalf of the department that the revisional power empowered under section 66-A, should be considered as the power exercised under section 34-A of the Repealed Income-tax Act has no merit whatsoever. According to the learned Legal Advisor that was simply a misquotation of law and he- has relied upon certain case-law to establish this contention. However, in our view this is not a misquotation of law but this is clearly a power exercised under the new law while the power was exercisable as under the old law. Since the law under which the power could be exercised had been repealed and section 34-A was not saved by the Income-tax Ordinance 1979 such a power could not be exercised by the I.A.C. under the new law. For this reason for the assessment year 1976-77 the order of the I.A.C. is without jurisdiction. For the assessment year 1976-77 there is another reason as well for holding the order of the I.A.C. as without jurisdiction. For this assessment year the I.T.O. had only implemented the order of the learned A. A. C. passed on 9-4-1980. His directions have already been quoted above and the I.-T.O. had merely complied with this direction and made recalculation as directed by the learned A. A. C. It may be noted that the department did not file any appeal against the directions given by the learned A. A. C. and his order become final. Therefore, in fact what the learned I.A.C. has done is, he has revised the order of the learned A. A. C. and not that of the I.T.O. while under section 66-A (even if he had jurisdiction under section 66-A to revise it) he had the power to revise the order of the I.-T.O. The point decided by the learned A. A. C. in a particular case for particular assessment year becomes final and on that question and the learned I. A. C. had no jurisdiction to issue notice under section 66-A in his revisional capacity. We, therefore, hold that the order of the learned I. A. C. for the assessment year 1976-77 is without jurisdiction for two reasons given above. However, the same objection is not available to the assessee for the assessment year 1977-78. Firstly, the assessment order itself had been passed by the I.-T.O. subsequent to the coming into force of the I.-T. Ordinance as the order had been rectified by his order dated 18-9-1980. Therefore, this order was subject-matter of revision by the I.A.C. under section 66-A .

8. On merits, no exception can be taken to the order of the learned I.A.C. for the assessment year 1977-78, as under the relevant provision of law the interest receivable by the assessee is a deemed income and there is no corresponding provision to make an adjustment of interest payable. The assessing officer had wrongly adjusted the interest payable. The facts of the case on merits are that the assessee had receivable interest to the tune of Rs.17,91,707 and payable interest was to the tune of Rs.9,30,

879. Originally the assessing officer had, made an addition to Rs.17,91,707 as receivable interest under Explanation 8 of section 4(1) of the Repealed Act but in his rectified order he made adjustment of payable interest with the result that addition of Rs.8,57,826 was made. The assessing officer had wrongly adjusted the interest payable because in explanation 8 of section 4(1) of the Repealed Act, there is no such provision to make an adjustment of payable interest. As such no exception can be taken to the order of the learned I.A.C. for the assessment year 1977-78. 8-A. As a result, the appeal for the assessment year 1977-78 is dismissed but one for the assessment year 1976-77 is accepted. M. B. A./468/ T Order accordingly.