2002 PLP 441 (PTD)

PLD 1988 Lah. 725 (Kh. Sharif's case). PLD 1989 SC 1166 (Haji Saif Ullah's case). PLD 1967 SC 373 (Abdul Baqi's case). PLD 1964'SC 673 (Abul-Ala Maudooddi's case). He further submits that transaction of sale of shares does not fall in the definition of loan. In support of his contention he relied upon the following judgments: PLD 1966 SC 738 (Ocean Industries Ltd. v. Industrial Development Bank). PLD 1979 Lah. 252 (Mian Abdul Hameed Puri's case). He turttter submits the other ingredient mentioned in section 66A is erroneous and the word "erroneous" means according to dictionary meaning "mistaken" "incorrect" in the legal sense an order was considered erroneous if it is deviated from the law. In support of his contention he relied upon the following judgment: 1984 PTD 137 (United Builders v. Commissioner). He further submits that another conditioned precedent to invoke section 66A is prejudicial to the interest of Revenue which means as under:

"that the order of assessment challenged or such as are not in accordance with law," In support of his contention he relied upon Shahab-ud-Din's case PLD 1988 Kay. 587 = 1988 PTD

723. He further submits that show-cause notice is not issued by the respondent in accordance with law laid down by the superior Courts. He further submits that section 66A was interpreted by the Division Bench of the High Court in Shahab-ud -Din v. Inspecting Assistant Commissioner PLD 1988 Kay 587 and the notice issued by the respondent is not in accordance with the aforesaid law.

3. Learned counsel for the respondent submits that writ petition has become infructuous as the respondent has issued fresh show-cause notice to the petitioner on 27-4-2000 and the petitioner has not challenged the subsequent show-cause notice. He further submits that petitioner even did not file another application for amendment of the writ petition. He further submits that writ petition is liable to be dismissed on the ground of laches as the show-cause notice was issued to the petitioner on 30-5-1998 and the petitioner has filed reply of the show-cause notice on 10-10-1998 and writ petition was filed on 4-3-1999. He further submits that petitioner is estopped to file writ petition after filing reply of the show-cause notice on the well-known principle of estoppel and waiver. He further submits that writ petition is not maintainable as the petitioner has more than one alternative remedies under the provisions of the Income Tax Ordinance. 1979 and finally appeal before this Court. He further submits that show-cause notice itself reveals that the same was issued to the petitioner after forming opinion coupled with the fact that the original assessment order was erroneous and prejudice to the interest of Revenue as is evident from the contents of the notice. The point in issue was not decided by the Deputy Commissioner at the time of passing assessment order against the petitioner and the same was also not decided by the Appellate Authority. He further submits that word "erroneous" means erroneous on question of law and facts. He further submits that amount in question was not shown required to be taxed and the action of the respondent is in accordance with section 12(18) of the I.T.O., 1979. He further submits entries in the accounts of the Director credited to the company which was received by the company. Therefore, same is the liability of the company which is evident from the balance-sheet attached by the company at the time of filing Income-tax Return qua the year in question. The general meaning of the loan cannot be taken into consideration while interpreting provisions of Income Tax Ordinance, 1979. The word "cross cheque" is mentioned in the section to avoid fictitious transaction: He further submits that the principle of merger is not applicable in the present case as the impugned assessment order is passed after the addition of subsection (1-A) in section 66A of I.T.O., 1979.

4. I have given my anxious consideration to the contentions of the learned counsel for the parties and perused the record myself. It is admitted fact that the petitioner has challenged the vires of notice dated 30-5-1998 on the ground that the notice was issued by the respondent without fulfilling the pre-conditions prescribed in section 66A and section 12(18) of the Income Tax Ordinance, 1979. The matter has been finally adjudicated to the level of Appellate Authority. Therefore, the same is past and closed transaction whereas the respondent has taken different stand while submitting reply of paras.2 and 3 of writ petition. It is better and appropriate to reproduce operative part of the show-cause notice, para.2(ii;iii) grounds A.B.C, of the writ petition and reply of para.2 (ii,iii) and grounds A.B.C. to resolve the controversy between the parties: Operative part of the show-cause notice. "For the period relevant to the assessment year 1998 authorized capital of your company was Rs,2,00,00,000 and paid-up capital at Rs.500. Against that your company has shown so-called share capital at Rs.2,56,00,

000. Your company was not competent to call for share deposit money in excess of the authorized capital. The amount in excess of the authorized capital as a loan has been introduced in the garb of share deposit money. This loan had been received otherwise than through cross cheque account which required the application of section 12(18) of the Income Tax Ordinance, 1979. The D.C.I.T. failed to take note of it and passed an order which was erroneous as well as prejudicial to the interest of Revenue." "As the authorized capital of the Company was Rs.20,000,000 the petitioner duly resolved on 8-5-1996 to increase the same to Rs.40,000,

000. The Registrar of the Companies was moved accordingly in Form XXVI on 16-5-1996 and allotment of the shares under the increased authorized capital was made the same day. The petitioner filed its income-tax return for the assessment year 1993-94 and one of the questions decided by the Deputy Commissioner Income-tax while making his assessment order, dated 30-6-1996 was as to the circumstances under which share deposit money had been received. The Deputy Commissioner of Income-tax accepted the explanation of the petitioner Company and held as follows: "However, assessee's explanation regarding share deposit money and loan has been found convincing because while finalizing the cases of Directors/Shareholders of company, sources of investment have already been probed. Moreover, perusal of assessment record shows that shares have been issued to the shareholders against abovementioned share deposit money in the subsequent assessment years and assessee has produced documentary evidence in this regard. Regarding loan of Rs.26,50,000 .it has been pointed out by the assessee that Rs.26,00,000 had been received through banking channel and remaining amount of Rs.50,000 represents the interest accrued on capital amount." "(a) That there is no provision in the Companies Ordinance, 1984 forbidding a company to receive a share deposit money in excess of its authorized capital particularly when the company intends to increase its authorized capital and to issue additional shares. As has been submitted above, this is exactly what the petitioner had done. (b) That the fact being that the sum of Rs.25,600,000 was received for the purse of allotment of shares no inference could be drawn that the sum had been received as a loan because it had been received otherwise than through "crossed cheque drawn on a bank". There is no justification in law for the respondent to draw such inference. (c) That the question whether the sum had been received for the purpose of allotment of shares or as a loan was essential a question of fact to be determined on the documentary evidence. It was not a question of inference at all. The respondent was therefore, not entitled in law to invoke section 66A". Reply of para. 2(ii, iii) and grounds A B.C. "It is admitted to the extent of the authorized share capital of the company to the tune of Rs.2,00,00,000 and there is no such availability of approval by the Registrar of the Joint Stock Company regarding the increase of share capital." "It is admitted to the extent of the return filed by the petitioner, but the aspect of the amount received by the petitioner as share allotment money in the absence of the authorized capital was not considered by the Assessing Officer, hence there is no such conscious application of mind on the part of the Assessing Officer." (a) It is incorrect, as the petitioner-company can call for money against the allotment of the shares, when the authorized share capital is available with the said petitioner, otherwise the petitioner cannot call for any money from the shareholder, hence the action of the respondent is according to the law and petition is not maintainable. (b) It is incorrect, as the amount received by the petitioner for the year under consideration to avoid some of the expenses or other balances in the different accounts, same only can be done through the loan or increase of share capital. The petitioner has received the money to adjust all those expenses, hence the said amount has been shown as share allotment money, whereas it is in the nature of the liability of the petitioner until unless share, are allotted against the said money received from the other persons. Therefore, this transaction attracts the provision under section 18(12). (c) It is admitted to extent of factual controversy regarding the purpose of the allotment of shares, meantime it is also pointed out that the share allotment money depends upon the authorized on the future acts of the petitioner, hence the action of the respondent is according to the law." In case aforesaid paragraphs of parawise comments, writ petition and show-cause notice are put in juxtaposition, then it brings the case of petitioner in the area of disputed questions of fact. In arriving to this conclusion I am fortified by the principle laid down by the Bombay High Court 1994 (Vo1.208) Fort Properties (Pvt.) Ltd. v. Commissioner of Income-tax and observed as under: "We also do not find any infirmity in the observations of the Tribunal in regard to the effect of the above property in the books of account of the assessee-company as `stock-in-trade' in the determination of the nature of the asset. It is well-settled that the way in which entries are made by an assessee in his books of account is not determinative of 'the question whether the asset was held as a capital asset or stock-in-trade. The assessee may by making entries which are not in conformity with the facts of the case or proper accountancy principles, conceal the real nature of the asset or the transaction. Entries made by him, therefore, cannot be regarded as conclusive one way or the other. The true nature of the transaction in each case has to be determined on a consideration of the totality of the facts and circumstances of that case. It is, thus, clear that in the instant case the property in question was acquired by the assessee from its holding company as a capital asset and after its acquisition it was not converted by the assessee as its stock-in-trade. In other words, it was retained by the assessee as a capital asset." It is settled proposition of law that this Court has no jurisdiction to resolve the disputed questions of fact in Constitutional jurisdiction as the -principle laid down by the Hon'ble Supreme Court in Muhammad Yunus Khan's case 1993 SCMR

618. This Court has considered almost all the case-law on the subject and laid down a principle in Messrs Pak-Arab Fertilizer v. Deputy Commissioner of Income-tax 2000 PTD 263 that writ petition is not maintainable against the show-cause notice and also observed that a party cannot be allowed to bypass jurisdiction vested by the law in Special Tribunal. It is pertinent to mention here that the learned counsel for the petitioner has laid down much emphasis in Shahab-ud-Din's case PLD 1 988 Kar. 587) and in the aforesaid case the writ petitions were dismissed and laid down the following principle:

"The petitioner has not availed the statutory remedy available to him and he has rushed to the Court at the initial stage when only notice has been served. He will have the opportunity to examine the material if any produced before the Income-tax Authorities and rebut it, before any final order is passed. In the facts and circumstances of the case in our view the notice issued by the respondent No.2 is neither arbitrary, nor without jurisdiction. We, therefore, dismiss the petition with no order as to cost." Similar view was taken by this Court in Writ Petition No.1171-2000 on the basis of the law laid down by the Hon'ble Supreme Court in Mst. Shugufta Begum's case PLD 1989 SC

360. I am also fortified by the following judgments: (1967) 63, ITR 333: (1972) Tax LIZ 1104. (1982) 134 ITR

385. It is also settled proposition of law that previous decisions should have been accepted and binding on me as per principle laid down by the Hon'ble Supreme Court in Muhammad Mazhar Khan v. Muhammad Yousaf Khan PLD 1959 SC (Pak.)

9. It is settled proposition of law that principle of strict construction of fiscal statute is applicable only to taxing provisions such as charging provisions and not to those D parts of the statute which contain machinery provisions as per principle laid down in 1980 Tax LR

185. Power under section 66A can be exercised by the respondent only when the following factors co-exist: (i) There should be proceedings under the Act. (ii) In such proceedings the I.T.O. must have passed the order. (iii) The Commissioner should consider that the said order is erroneous and prejudicial to the interest of the Revenue. (iv) It is only when all the abovementioned factors co-exist then the respondent will have jurisdiction to take action under section.66A. (v) For the purpose whether the aforesaid factors are available to the respondent to take action needs factual inquiry, for which propriety demands that the respondent should allow to proceed in the matter in accordance with law. As mentioned above the petitioner has alternative remedies before the Department under the provisions of the income Tax Ordinance, 1979 and similar controversy was considered qua the maintainability of the writ petition in presence of alternative remedy in Writ Petition No.4174 of 1998 and laid down the following principle: "There is recent tendency to file Constitutional petitions without exhausting the remedies under the Statute. This recent trend is dangerous. Hon'ble Supreme Court clearly held in the case reported as Pir Sabir Shah v. Shad Muhammad Khan, N.-W.F.P. and another PLD 1995 SC 66, The Collector Customs, Karachi v. Messrs New Electronics (Pvt.) Ltd. and 59 others PLD 1994 SC 363 and Riffat Askari v. State PLD 1997 Lah. 285 that objection be raised in the proper forum but in spite of the petitioner without exhausting the remedies of appeal before the Collector of Customs (Appeals) and. the Tribunal has filed this petition. It is noteworthy that according to the amendment made through Finance Act, 1997 now third appeal is competent in this Court -also which is to be heard by at least a Bench of two Judges". The petitioner is well within his right to raise all legal and factual pleas before the respondent by filing fresh reply of the notice dated 27-4-2000 who is duty-bound to consider the same and pass speaking order including assumption of jurisdiction. Since the case was argued at length and various questions of law raised. Therefore, the same has to be resolved but it is clarified for all the concerned that the order rendered and the case is not to be considered as expressed of any opinion on the merits of the case which shall be decided in accordance with law by respondent without being influenced in any manner by the above observation of this judgment meaning thereby respondent has to decide the same without influenced by the aforesaid observation. In view of what has been discussed above, the writ petition is disposed of in the aforesaid terms. C.M.A./M.A.K./D-26/L Petition disposed of