2004 PLP (Trib (PTD)

6 18 - 2.519 2.890 1836 3 14 - 2.519 2.890 1993 4 5 - 2.519 2.890 2002 - 15 - 2.519 2.890 1994 - 9 - Sub total 24 19 - A.2 1,448 1,571 2001/1 1 13 28 1,448 1,571 2001/2 1 13 28 1,448 1,571/1 2004 1 9 161 1,448 1,571/1 1991 1 11 478 1,448 1,572 1995 3 6 55 1,448 1,573 1990 3 6 52 Sub total 12 19 99 A.3 1,448 1,571 1985 - 25 217 Sub total 1 11 23 A.4 1,448 1,571/1 2004 - 11 23 Sub total 1 11 23 A.5 1,448 1,571/1 1985 - 3 136 Sub total - 3 136 2088 2455 9850/1994 - 10 - 2197 5566 9853/2002 7 3 - 2197 5566 2003 7 7 - Sub total 15 - - Similarly he brought our attention to attachment to Schedule 2.1.1. of the assets purchase agreement that describes details of bottles and shells which start from page 1 of 2 of the agreement and has been detailed on almost seven different pages. For brevity we are not detailing all of them but it indicates that it separately describes quantity of bottles with colour, number and size lying with dealers, factory and other customers. Similarly, it also details the number of wooden pallets, plastics pallets separately lying with various stockists and the factory customers etc. All this quantity and price thereon has been signed after audit by A.F. Ferguson and Company and has dully been detailed after due payment of the revenue to the Revenue Department. Conveyance deed of immovable properties for Rs.118,422,857 has also been written. This conveyance deed comprises of 51 pages and indicates all and every item. This is where the point of view of the Department requires more discussion. The author of the judgment Mr. Muhammad Aslam who himself was present argued that the assessee was provided 10 different opportunities. He was sent two notices and 8 personal appearances were allowed. In this opinion the report of A.F. Ferguson Karachi was at the instance of the buyer. The report comprises of 22 pages with 20 annexures. The Assessing Officer says that this report indicates that the assessee had another set of books, which he had concealed. This alone is enough to hold that the order was erroneous. Furthermore the assessee company had sold out its entire project in lump sump and no bifurcation in respect of initial contract was made. It is on the initiation of the assessee himself and was not a regular part of the transaction. He referred page-59 of the Sale-Deed and said that the Annexure of the same were never produced to the Department. Further that the assessee has not explained the circumstances in which value of the assets was inflated. He said that the relinquishment of rights in terms of goodwill etc. is a capital receipt and is not taxable as capital gain under section

27. He added that the empty bottles, deep freezers and wooden pallets were in fact supplied to the other parties. The assessee should have offered this as a supply for assessment under section 80-C. This supply was liable to deduction under section 50(4) and was assessable under presumptive tax regime. This alone, he remarked was an error which caused prejudice to the interest of Revenue. On the other hand the AR has referred various judgments explaining the circumstances in which jurisdiction under section 66-A can be invoked. He also argued that the land having been sold after due registration as required by the Stamp Act on the basis of the value have sanctity. The higher Courts have never permitted disrespect to a registered sale-deed and even have gone to hold that a contract between the two Muslims should not be disregarded unless some specific evidence is available ref. Messrs Siemen A.G. 1991 PTD 488 SC. The sale-deed has further been supported by the Supreme Court of Pakistan in 1981 SCMR 701/703 by the words that an endorsement of the Sub-Registrar on the back 'of the deed mentioning amount paid or received before him raises a legal presumption. The actuality of consideration if not reported by any evidence has to be given effect. Referring a judgment of the ITAT reported as 1998 PTD (Trib.) 3395 he said that now Rule 207-A has also come into operation for all practical purposes. In the aforementioned judgment the Tribunal has held that the sanctity of registered sale should not be disturbed without having some contrary evidence. He also referred 1999 PTD 4028 (H.C. Lah.) .in which Mr. Justice. Nasim Sikandar while deciding an issue in respect of application of section 52 found that the transaction of sale of factory land, building and machinery was simply a sale transaction. This was not to be treated as a supply chargeable to, tax under section 50(4). It has been held that land, machinery and building are not goods and consequently their sale is not a supply. This he referred by remarking that the pallets and bottles in addition to plant and building does not form the shape of a supply. Further the issue was challenged from another angle. The imposition of tax on capital gain arising out of the transfer of the immovable property was said to be beyond the taxing power of the Federation. The Constitution of Pakistan, 1973 Fourth Schedule, Part-I of the Federal Legislature list, Item No.50 excludes it from the charge by the Federation. Therefore, the levy of tax on such gain through impugned order was argued to be as liable to cancellation. Reference has been made to the judgment reported as 1992 SCMR 250 in Julian Hoshang Dinshaw Trust v. ITO. The action of the JAC of calling this as goodwill was also further challenged by saying that the money earned at Rs.5,26,27,731 by the appellant out of the sale of land constitutes "Capital, Gain" from the sale of immovable property and therefore, the same cannot be termed as "Goodwill". The A.R. remarked that the learned I.A.C. has erred in law in holding that the difference of Rs.4,03,02,281 (in excess of value of property determined in terms of Rule 207-A of the Income Tax Rules, 1982 as per rate notified by the D.C.) is "Goodwill" that existed in the hands of the appellant-company and therefore, taxable under section 27 of the Ordinance 1979 on the relinquishment/surrender of right of business of manufacturing and sale of Coca Cola Brand of Beverage. Relying upon CIT v. Forb & Campbell and Co. PLD 1.978 Kar. 1047 = 1978 PTD

328. It was said that even the compensation paid under said circumstances is not a goodwill. It is a capital gain which amount is not taxable under law. Talking about the nature of the contract A.R. said that the appellant had neither purchased Coca Cola Brands nor the same was sold by him In any case self-generated goodwill is a capital receipt which is not taxable. Reliance is on CIT v. R.K. Parasuram 2001 PTD 3410. Talking about the method of computation of goodwill the A.R. said that even if the point of view of the Department is accepted there is no method for calculation of the cost of goodwill, hence no one can calculate gain. He relied upon 2002 PTD 1379 and said that in this case cost having not been determined, goodwill or gain cannot be computed. The learned I.A.C. has even failed to "Compute" the alleged capital gain on the sale of alleged goodwill/assets in ,terms' of sections 27, 28 and 29 ~ of the Ordinance, hence the levy of tax on such assets is not maintainable ref. CIT v. B.C. Srinivasa Setty 128 ITR

294. Still further in terms or section 29 of the Ordinance the learned I.A.C. has failed to determine the "Fair Market Value" of the alleged "Goodwill" as on the date on which it become the property of the appellant. Challenging the procedure A.R. said that the learned JAC has also failed to obtain approval' from the Commissioner in terms of clause (b) of subsection (3) of section 29 of the Ordinance to determine the price of the alleged goodwill/asset acquired, hence the levy of tax on such asset is not maintainable. He repeated that, without prejudice to the above, the learned JAC has failed to allow of acquisition of the alleged capital asset and expenditure incurred wholly and exclusively in connection with the transfer thereof in terms of section 28, hence the levy of tax on such assets is not maintainable. It was added that any transfer encompassed by section 27 of the Ordinance has to fall under the governance to its computation provisions of sections 28 and

29. A transaction to which provisions of sections 28 and 29 could not be applied is "never intended" by section 27 of- the Ordinance, to be the subject. Reference CIT v. B.C. Srinivasa Setty 128 ITR

294. Talking again about the new inserted rule 207-A it was that, for the purpose of section 13 of the Income Tax Ordinance, 1979 the Income Tax Department may invoke the provisions of Rule 207-A framed in terms of subsection (1) of section 27-A of the Stamp Act, 1899. On the same anology the IAC was bound to accept the sale price said property stated in an instrument of which subsection (3) of 27-A of the said Act applied. The above discussion with respect to various aspects of the case in hand makes the things quite clear. Even if give some weight to the averment of the IAC with regard to the value following the lowest rates fixed by .C. as well as parallel cases we are obliged to note that the discussion is a compact unit and that the value has been r the two parties after a long exercise through a leading Chartered Accountants Company of the country. The value of each and every item has been determined only no location and the price has been agreed mutually between the seller and the buyer, which is a multinational. The Department's main objection and doubt is that the minimum rate prescribed by the D.C. is much lower than the deal and that the assessee has purchased land at an average per Marla price of Rs.1,260 only. This has been rebutted by saying that the said plot was purchased in actuality many years ago and year for which the price of Rs.1,260 per Marla is calculated, only balance of the contract was paid. In any case even if it is accepted that there was some manipulation, it stands accepted and it cannot be held to be as erroneous by simply disagreeing with the Assessing Officer. It was obviously duty of the Assessing Officer to see the validity of the contract and to find faults therein. The IAC cannot just disagree by presuming that assessee has manipulated the contract. In earlier part of this order we have detailed the property by reproducing the relevant part of the contract in which the number of various "Khatas and Khatoonis" with size of the plot has been separately mentioned. The price has been determined by separately highlighting price of each parcel of land and the matter has been properly checked by Collector of land revenue who charged due stamps. The provision of section 66-A is a very stringent provision as it cancels a finalized order. It is correct that now the error of fact is also considered as relevant for cancellation, however, the earlier judgments on the subject had only considered an order as "erroneous" if it had an error of law. The word `erroneous' in almost all the legal dictionaries have been defined to mean an error of law. It 'is correct that an "error" may include in its meanings all kinds of mistakes but the word "erroneous" means basically "an error of law". In this regard one can refer Blacks Law Dictionary 5th Edition Published by West Publishing Company in 1979. Defining the word erroneous it speaks as follows:-- Erroneous: Involving error; deviating from the law. This term is not generally used as designating a corrupt or evil act. Similarly erroneous assessment and erroneous judgment have been defined as follows:-- Erroneous assessment. Refers to an assessment that deviates from the law and is therefore, invalid, and is a defect that is jurisdictional in its nature, and does not refer to the judgment of the Assessing Officer in fixing the amount of valuation of the property. In Blatt, 41 N.M. 269,67 P.2d 293,

301. Erroneous judgment. One rendered according to course and practice of Court, but contrary to law, upon mistaken view of law, or upon erroneous application of legal principles. Above definitions have been followed in many earlier and recent judgments. In this regard we can refer 1984 PTD 137 (II.C. AJK); 1991 PTD (Trib.) 321 and (1969) Tax 51 (Trib.). going through the ratio decided of-the above judgments one can come to the obvious conclusion that the word "erroneous" even if is expanded to the `error of fact' it still cannot be considered as wide enough. to consider an estimate, a gossip, a feeling which gives reason to suspect, an apprehension 'or possibility of a better judgment by way of superior wisdom and experience. It is a different word than error and mistake. The income tax law is very specific in charging various situations. For a mistake, which is synonymous to the word error, a separate section has been provided. Even for this wider connotation the opinion of the Court is that the "mistake" that floats from the order is the one, which can be rectified. In the present situation where the legislature is very particular in mentioning the word "erroneous" we cannot allow extension of arms by exercising jurisdiction which is not provided by section 66rA. The IAC is not empowered with the jurisdiction to review the assessment. The power of revision is available with the Commissioner who may exercise it either suo motu or at the request of the assessee Similarly, the situation where some information comes to the knowledge of the Department with regard to non-disclosure of income by the assessee the law has protected such escapement of income by way of section 65 of the Income Tax Ordinance, 1979. The discussion, therefore, makes it clear that the word "erroneous" has been used purposely by the legislature and it is not synonymous to error or mistake or such other connotations of wider implication. Even the judgments referred for this purpose by the two sides make above situation very clear with. regard to usage of this word. In this regard the definition mentioned by us above of the erroneous assessment also very clearly says that this applies on the assessments which deviate from law and on defects, which are of jurisdictional in its nature. The definition' further categorically says that it does not refer to the judgment of the Assessing Officer in fixing the amount of valuation of property. Keeping above discussion in view we will have to revert back to the facts of this case once again. The Assessing Officer made an assessment in which he discussed the issue of sale of property specifically which was subsequently rectified through an order under section

156. The items sold by this assessee were treated as turnover through rectification order and tax @ 5 % under section 80-D was charged thereon. This rectification was carried out on 15-3-2000 while the original order under section 62. is dated 21-2-2000. This fact among others indicate that the Assessing Officer had dealt with this issue with cautious mind and after going through the related facts on record. Thus even if some wider connotation is to be attached to the word "erroneous" as against the settled interpretations still the Department cannot claim to have ignored the related aspects as above. In the assessment order on page 3 the fact of the sale of the assets have been discussed in the following manner:-- "The assessee Messrs Durrani Bottling Co. (Pvt.) Ltd. had sold out its entire assets to Messrs Coca Cola Beverages International (Pvt.) Ltd., on 8-1-1998 and as per copy of final accounts, profit of Rs.2,41,84,688 has been shown on the disposal of assets excluding land. The said profit has been included as per Note No. 14 under the head "Other Income" in the P&L A/c. For the assessment year 1996-97 and 1997-98, G.P. rate on the sales of Beverages has been shown by the assessee at 30.72 % and 30.68% respectively, G.P. shown for the year under review on the saits of Beverages as indicated above i.e. 34.93 % is as such considered fair and reasonable. The downfall in G. P. on account of empty and Shells has attributed to discontinuation of business and sale of entire assets as mentioned earlier. Therefore, no adverse inference is drawn to this regard for low declared G.P. rates for Empties and Wooden Shells A/Cs. A careful scrutiny of books of accounts of the assessee reveals that for sales declared maximum ascertainable addresses of the parties have been recorded in the books of accounts. Assessee has furnished packages-wise details of sales for the year ending, 30-6-1998 the comparison of which with the books of accounts of the assessee has revealed that the figures shown do tally with the figures recorded in the books of accounts. History of the case is also acceptance of declared version in respect of sale account, hence, the declared version of sales is being accepted as per history of the case. The description given above gives two impressions, one that the issue with regard to sale of assets to Coca Cola Beverage International was well within the knowledge of the ITO and while going through the other aspects with regard to sales, G.P. etc. he considered himself legally bound to accept the accounts. Secondly; that all aspects of the assessee account were found to be as verifiable and the profit as per final accounts at Rs.2,41,84,688 was considered as regular including income from other income. The ITO having applied full mind the IAC on the basis of the apprehension that the assessee has managed its affairs so as to take the benefit of exemption available to a class of immovable assets F is not justified. Furthermore, some of the purchases of the assessee were considered as liable to deduction and he was held to be an assessee in default in the assessment order. For his default he was charged under section

52. Now at a subsequent stage saying that the assets of this assessee sold to the third party were liable to deduction and section 80-C comes into operation is far-fetched idea which under the circumstances cannot be supported. We need not repeat again that the Assessing Officer was very particular in mentioning in the order that the "downfall in G.P. on account of empties and shells is attributable to discontinuation of business". It is. after this narration that the Assessing Officer says "therefore, no adverse inference is drawn in this regard for low declared G.P. rates for empties and wooden shells accounts". In the presence of these unequivocal findings the opinion of the IAC that it was a case of supply and the ITO has erroneously not seen the same from the said F angle is obviously a difference of opinion which requires a longstanding arguments for both the sides. The observations that require support of the arguments by the IAC is obviously not covered within the definition of word "erroneous". The two opinions that whether this sale was supply and coverable under section 50(4) or not by no stretch of imagination can be covered within the connotation "erroneous". The other situation whether the same is prejudicial to the interest of Revenue or not though is in conjunction with above yet comes after determination of the error. As already mentioned above word "erroneous" is an adjective which is parallel to blundering, counterfeit, devoid of truth, fallacious, false, faulty groundless, spurious, unfounded, unsustainable, untrue and wrong etc. while the word "error" is synonymous to false conception, false impression, incorrect mistake, misprint, mis under-standing etc. etc. Coming to the order of the learned IAC the language which he has used at different pages does not give a particular instance of the order being "erroneous-. For example at page 2 in a separate para the learned IAC says:-- "Now the Assessing Officer was required to examine this fact in the true prospective of its faithful/bona fide working arrived at by the company. The Assessing Officer has given wrong observation with regard to' treatment of this issue in the, office note. He has erroneously and conversely observed that "sale price does not involve under-statement" which in fact was not appropriate inference according to the existing situation. He in fact, should have seen the inter head allocation made by the company for taxable portion and non-taxable portion arisen out of the same sale-deed. He in fact, had failed to appreciate of this aspect and erred in completing assessment. This omission on the part of the DCIT was erroneous insofar as prejudicial to the interest of Revenue. Therefore, the assessee was confronted through detailed notice under section 66-A bearing No.985/R-I dated 1-4-2002. A detailed discussion in this regard is made in the next part of this order. Above paragraph and others in the order all speak of the doubts, apprehensions, indefiniteness and lack of confidence in the observations. The learned IAC proposes that the Assessing, Officer was required to H examine this fact in true perspective. In his opinion he had erroneously and conversely observed that sale price does not involve understatement in the office note. He, therefore, has opined that he should have seen the inter head allocation made by the company for taxable portion and non-taxable, portion. The entire language speaks about his opinion. The learned IAC himself is not very sure about the proposal he is making. As already mentioned above such unsure situations cannot be made the base I of invocation of the order under section 66-A. In the observations the learned IAC has totally ignored that before agreeing with the other party on inter head allocation the matter was referred to a renowned firm of Chartered Accountants who had submitted their report after due audit of the entire project. Subsequently, the contract was duly registered with the concerned authorities and required stamps/duties were paid by the buyers. None of the concerned agency challenged the validity of the contract and more particularly the Collector of Land Revenue did not J object to the value proposed for registration. Even the buyer who was required to pay the charges of the adhesive tax did -not object to the value of the land and paid Government charges which normally come to approximately 20% of the cost of immovable property in totality. All the circumstances, therefore, bring us to the obvious conclusion that in this case the situation of cancellation of the order under section 66-A did not exist. There was neither an error of law or of fact in this case. The powers of the learned IAC are supervisory to avoid arbitrary exercise of g powers by ITO and to ensure safeguard of the revenue. This is a check introduced by the legislature with a very properly and strongly worded language. As dilated upon above the language suggests that the impugned order should be erroneous by reference to definite violation or deviation L from law. The language is clear and is to be read in conjunction with the earlier part: It is the record of the assess which is, to be inspected and the erroneousness should float from the surface of the order at the' time of inspection. . The subsequent part that says about the enquiry etc. is after establishment of the erroneousness. Any hypothetical, vague or uncertain situation, interpretation liable to two different decisions etc. h obviously cannot extend the power of the IAC. Furthermore, a disagreement between the two officers i.e. ITO and the IAC also cannot grant jurisdiction to the IAC. The IAC' in this case has totally ignored these aspects and the other facts. The cancellation of the order by him, therefore, is without any, jurisdiction hence is disapproved. The learned A.R. has argued the case from the angle of calculation of capital gain etc. and has submitted certain case-law which we ignore for the reason that we have factually and legally considered the order of the IAC to be of no legal effect. This appeal, therefore, obviously results in cancellation of the order of the IAC and restoration of the order of the Assessing Officer. C.M.A./968/Tax(Trib.) Order cancelled.