1990 PLP (Trib (PTD)

In these appeals, Mr. Sirajul Haque, the learned counsel for the appellants, has argued that the words "without prejudice to the provisions contained in subsection (1)" used in subsection (2) of section 25 of the Wealth Tax Act have been used by the Legislature to include the period of limitation of one year laid down in clause (d) of subsection (1) of the same section. In support of his arguments, the learned counsel has relied on the following authorities:‑‑ (1) PLD 1961 SC 375 C.I.T. v. Hossan Kasam. (2) (1974) 95 ITR 537(A.P.) C.I.T. v. Mohan Lal. (3) (1974) 90 ITR 562 (Cal.) Shreeniwas v. 1.T.0. (4) (1975) 101 ITR 457 (Ind. SC) I.T.O. v. Gwalior Ryon. (5) (1978) 114 ITR 231 (Ind. SC) Superintendent, Central Excise v. PartabRai. (6) 1985 PTD (Trib.) 25.

2. Mr. KA. Nomani, the learned D.R. on the other hand, has argued that the expression "without prejudice" means "with exclusion of'. The learned D.R. has relied upon Vol. V of "WORDS & PHRASES" by Roland Burrows and "WARTON'S LAW LEXICON".

3. Before entering into the merits of the respective contentions let me briefly state that in all these appeals, the appellants being Directors of a private limited company claimed deduction of certain liability as debt owed under section 2(1)(m) of the Wealth Tax Act in their respective wealth tax returns on account of bank loans. The W.T.O. while framing the original assessment order ignored this plea but subsequently on an application moved under section 35 of the Wealth Tax Act, another W.T.O. rectified the assessment orders by allowing the deduction of the claimed liability of each appellant but to the prejudice of the appellants, the learned C.W.T., by his separate orders recorded on 29th March, 1990 under section 25(2) of the Wealth Tax Act restored the original assessment orders by adding the alleged liability to the respective declared wealth of each appellant and thus, Mr. Sirajul Haque has advanced his aforesaid arguments.

4. Now, in order to better appreciate the submissions of Mr. Sirajul Haque, the learned counsel for the. appellants, let me reproduce here in below section 25of the Wealth Tax Act and it reads:‑‑ S.

25. Powers of Commissioner to revise orders of subordinate authorities. (1) The Commissioner may, either of his own motion or on application made by an assessee in this behalf, call for the record of any proceeding under this Act in which an order has been passed by any authority subordinate to him, and may make such inquiry, or cause such inquiry to be made and, subject to the provisions of this Act, pass such order thereon, not being an order prejudicial to the assessee, as the Commissioner thinks fit: Provided that the Commissioner shall not revise any order under this subsection in any case‑‑ (a) where an appeal against the order lies to the Appellate Assistant Commissioner, the time within which such appeal can be made has not expired or, where the appeal lies to the Appellate Tribunal, the assessee has not waived his right of appeal; (b) where the order is the subject of an appeal before (the Appellate Assistant Commissioner or) the Appellate Tribunal; where the application is made by the assessee for such revision, unless (i) the application is accompanied by a fee of twenty‑five rupees; and (ii) the application is made within one year from the date of the order sought to be revised or within such further period as the Commissioner may think fit to allow on being satisfied that the assessee was prevented by sufficient cause from making the application within that period; and (d) where the order is sought to be revised by the Commissioner of his own motion, if such order is made more than one year previously. Explanation.‑‑For the purposes of this subsection‑‑ (a) the Appellate Assistant Commissioner shall be deemed to be an authority subordinate to the Commissioner; and (b) an order by the Commissioner declining to interfere shall be deemed not to be an order prejudicial to the assessee. (2) Without prejudice to the provisions contained in subsection (1), the Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by a Wealth 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 inquiry 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 it and directing a fresh assessment."

5. From perusal of subsection (1) of section 25 it appears that the C.W.T. can revise the order of subordinate authorities suo motu or on motion of an assessee within one year of the date of such order. On the contrary, no period of limitation has been laid down for exercising the powers of the Commissioner under subsection (2). Mr. Sirajul Haque wants to fill‑in this gap by incorporating the period of limitation laid down in clause (d) because according to 'him the expression "WITHOUT PREJUDICE" has been used for this purpose. Since the learned counsel has relied upon the rulings mentioned above, let me, therefore, explore them to find out as to whether they lend any support to the submission of Mr. Sirajul Haque.

6. Starting with the case of Hossen Kasam (supra) it appears from its perusal that it was argued before their Lordships of Supreme Court of Pakistan that the period of limitation prescribed in section 14 of the Business, Profits, Tax Act of 1947 applied to assessment proceedings `started under section 11 thereof. It was canvassed before their Lordships that section 14 dealt with those cases where recovery of tax had escaped assessment and not with those cases where assessment had not yet been initiated. It was the case of the Department that the tax escaped assessment only in a case where no assessment had been made after initiation of proceedings and not in that case where no assessment had at all been initiated. However, their Lordships have repelled this submission with the following observation:‑‑ "Such a reading of the provisions of the Business, Profit Tax Act appears to us not only to be reasonable but also the one which provides a consistency with the provisions thereof. To hold otherwise, provides the anamolous result that whilst a dishonest assessee would be protected from harassment after the lapse of four years and honest assessee would remain exposed to the harassment for even ten or fifty years. It is difficult to impute such an iniquitous intention to the Legislature."

7. Mr. Sirajul Haque has perhaps cited this case to show that if we do not invoke the period of limitation of clause (d) of subsection (1), the provisions of subsection (2) of section 25 would make the intention of Legislature iniquitous However, I would deal with this aspect later on.

8. The next case is that of Mohan Lal (supra). In this case an application was moved under section 220(6) of the Indian Income Tax Act for stay till disposal of appeal pending before A.A.C. The I.T.O. granted the stay "till appeals are finally disposed of on certain conditions. The assessee, however, had to go in second appeal to the Tribunal. The I.T.O. for the period for which the appeal remained pending before the Tribunal claimed interest on the amount of unpaid tax. It was argued before their Lordships of Andhra Pradesh High Court that the words "till the appeals filed by the firm are finally disposed of meant and included even those appeals which were fled before the Tribunal but their Lordships rejected this contention. I am unable to understand how this case is relevant to the point in dispute before me.

9. In the case of Shreeniwas (supra) the assessee has made voluntary disclosure under section 24(3) of the Finance Act of 1965. However, he applied for the payment of tax in instalment which was granted by the I.T.O. But after full payment, he demanded interest also. It was held, by their Lordships of Calcutta High Court that since the I.T.O. permitted the payment of instalment under section 220(3) of the Indian Income Tax Act which were "WITHOUT PREJUDICE" to the provisions of section 220(3) which in turn provided the legislative authority for levying interest on unpaid tax. licence the I.T.O. was justified in charging interest. In this case, the expression "WITHOUT PREJUDICE" as used in subsection (3) of section 220 has been discussed and I shall revert to it subsequently.

10. In case of Gwalior Ryon (supra) their Lordships of Indian Supreme Court were called upon to examine the correct and true meaning of the expression "WITHOUT PREJUDICE" as used in subsection (3) of section

220. It appears from its perusal that an I.T.O. entered into an agreement with an assessee for charging interest at the rate of 5% on the unpaid amount of tax while granting instalments though subsection (2) of section 220 prescribed rate of interest at 4% on amount of unpaid tax. As luck could have it, the rate of interest ;is laid down in subsection (2) of section 220 was enhanced to 6%. The I.T.O. entered it at the enhanced rate but the assessee resisted it on the basis of the agreement and the dispute was finally resolved by their Lordships of Indian Supreme Court in the following words:‑‑ "The words "WITHOUT PREJUDICE TO THE PROVISION CONTAINED IN SUBSECTION (2)" clearly show that any order passed by the Income Tax Officer under subsection (3) must neither be inconsistent with nor prejudicial to the provisions contained in subsection (2). In other words, the position is that although subsection (3) is an independent provision, the power in this subsection has to be exercised subject to the terms and conditions mentioned in subsection (2) so far as they apply to the facts mentioned in subsection (3) Thus, if subsection (2) of section 220 provided that the rate of interest chargeable would be 4% per annum, any order passed under subsection (3) could not vary that rate and if it did, then the order to that extent would be superseded."

11. Since the rate of interest laid down in subsection (2) of section of the Income Tax Act has been applied in a case where instalments were granted under subsection (3) of section 220 of the Income Tax Act, the argument of Mr. Sirajul Haque seems to be that we should also apply the period of limitation as provided in subsection (1) of section 25 to subsection (2) thereof. However, I would discuss this aspect subsequently.

12. Next case relied upon by Mr. Sirajul Haque is that of the case of Partap Rat (supra). In this case the Appellate Collector set aside the order of Assistant Collector without prejudice as the latter had not followed the principle of natural justice of giving adequate opportunity. While interpretating the expression "WITHOUT PREJUDICE" their Lordships of Indian Supreme Court held, that the Appellate Collector by using it meant and implied that the matter before him was not decided by him on merits and fresh proceedings could be taken according to law.

13. The last case referred to by Mr. Sirajul Haque is a Single Bench decision of this Tribunal reported as 1985 P T D (Trib.)

255. In this case, the learned Member of this Tribunal has held that various clauses in section 1(6 of the Income Tax Ordinance have been enacted without prejudice to the provisions of sections 6 and 24 of the General Clauses Act and it "does not mean that other provisions of the General Clauses Act have been excluded from the application".

14. Mr. Nomani, the learned D.R. on the other hand has relied upon Judicial Dictionary and Law Lexicon as mentioned above and after going through the case‑law cited at bar and the legal Dictionaries and Lexicon it appears to me that the expression "WITHOUT PREJUDICE" gets colour with reference to its context. If it is used in exchange of letters by the parties to a dispute. It means and implies that whatever is contained in those letters would not bind the parties as their admission of a particular fact and it such case such letters are inadmissible in evidence. It may also be used in a Charter party and here it means that whatever be the conditions of Bill of Lading the provisions of Charter party would remain unaltered. Similarly, if a Court or Tribunal records an order to "WITHOUT PREJUDICE" it means that he was not touching the merits and that he was leaving all issues in status. quo. Likewise; if it is used in the Statutes, it means "not effecting", "saving" or "excepting".

15. With this background, now I turn to and analyse subsections (1) and (2) of section 25 of the Wealth Tax Act. From perusal of its subsection (1) it appears that it vests in the Commissioner the power of revising an order of his subordinate authorities either on his own motion or on application made by an assessee. However, he cannot record an order which is prejudicial to an assessee. In 1968 P T D 741 (Shaikh Muhammad Ameen v. I.T.O.) it has been held that an order is prejudicial to an assessee if it is detrimental to his interest. Thus, it is clear that subsection (1) is dealing with those illegalities or irregularities which could be rectified by Commissioner but which do not adversely affect the interest of an assessee. On the contrary, from perusal of subsection (2) of section 25, it appears that it has vested in the Commissioner the power of revising an order of his subordinate authority if he finds it erroneous and prejudicial to the interest of revenue. Thus, subsection (1) has ensured to safeguard the interest of an assessee whereas subsection (2) is protecting the interest of the Revenue. In other words, the Commissioner while exercising his powers under subsection (1) of section 25, cannot record an order which is prejudicial to the interest of an assessee whereas an order which is recorded under subsection (2) would definitely be against the interest of an assessee for the simple reason that the order which is prejudicial to the interest of revenue is necessarily favourable to the interest of an assessee. It is, therefore, clear that the legislature used words "WITHOUT PREJUDICE TO THE PROVISIONS CONTAINED IN SUBSECTION (1)" in subsection (2) to keep the powers of the Commissioner under subsection (1) intact.

16. In the case of Gwalior Ryon (supra) subsection (2) of section 220 laid down the rate of interest to be applied to amount of unpaid tax whereas subsection (3) of aforesaid section empowered an L.T .O. to grant instalments. Subsection (3) of section 220 also started with the same expression as has been used in subsection (2) of section 25 of the. Wealth Tax Act and it was held that the powers of levying interest were altogether different from the power of granting instalments. Similarly, in the case of Shreeniwas (supra) also the inter‑relationship of subsections (2) and (3) of section 220 came under consideration vis‑a‑vis the use of expression "WITHOUT PREJUDICE" in subsection (3) and it was held that the power of levying interest was quite independent of power of granting instalments. It is thus, clear that the use of this non obstante clause by the legislature means and implies that in addition to the powers of the Commissioner given to him under subsection (1) which he cannot exercise to the prejudice of an assessee, he has also the powers of revising the order of his subordinate authority, to the prejudice of an assessee. It is pertinent to note that the proviso appended to subsection (1) of section 25 also mentions that its clauses (a) and (d) were meant for this subsection. In other words, the legislature has clearly indicated that the period of limitation prescribed in clause (d) was meant for purposes of subsection (1) of section 25 only and thus no room is left for the argument that the period of limitation as laid down under clause (d) of subsection (1) of section 25 is meant for subsection (2) thereof also. With due respect to the learned counsel for the appellants. I am, therefore, not prepared to accept his contention that this non obstante clause means and implies that the period of limitation which has been prescribed under subsection (1) would also apply in case the powers are exercised under subsection (2) of section 25, I am, therefore, of the view that none of subsection of section 25 reflects iniquitous intention of the Legislature. The case of Hossen Kasam (supra) also appears to be wide off the mark. Thus, in my humble opinion, none of the rulings cited at Bar support the contention of Mr. Sirajul Haque.

17. It is true that the legislature has provided period of limitation under subsection (1) of section 25 whereas it is conspicuous by its absence regarding exercise of his powers under subsection (2) thereof. In my humble opinion, since the Legislature provides a right to an assessee to move an application to the Commissioner for rectification of some illegality or irregularity, it also thought it better to put some limitation on such powers on the assumption that no assessee would like to sleep over his right. The Legislature appears to have imposed this limitation on the suo motu exercise of the power of the Commissioner also. An assessee is a better watch‑dog of his own interest than the Commissioner and if he has a period of limitation of one year, why the Commissioner should have more time to act in favour of an assessee presumably for the reason that the knowledge of the order is to be imputed to him the moment it is made. However, under subsection (2) the position is just the reverse. Here the Commissioner has himself to detect an illegal or unlawful order which is prejudicial to the interest of revenue as there is no right of appeal to the Department against such order. The Legislature, therefore, appears not to have prescribed a definite period of limitation in subsection (2) of section 25 presumably because of the trite law that if no period of limitation has been provided, an authority has to exercise the power within a reasonable period. This reasonable period however, may vary according to circumstances of each Statute. But, in any case, it should be there to allow an order attain finality after some time whatever be its span.

18. It is true that under subsection (1) of section 25 a period of one year has been provided as limitation on exercise of the powers of the Commissioner but in section 66‑A of the Income Tax Ordinance, which vests in I.A.C. exactly the same powers which have been vested in the Commissioner by subsection (2) of section 25 of the Wealth Tax Act, the period of limitation prescribed is four years. In India, however, the Legislative has given two years to the CW.T. in 1964 to exercise. his powers under section 25(2) of the Wealth Tax Act by introducing subsection (3) to section 25 of the Wealth Tax Act. But before Legislative intervention C.B.R. had issued a Circular on 3‑8‑1959 to restrict the exercise such power to two years. Mr. Nomani, the learned D.R. has not been able to out any such circular which might have beer. issued in Pakistan. However, keeping into consideration the quantum of work before Commissioner of Income‑tax and Commissioner of Wealth Tax, I think that a period of two years would be quite reasonable for exercising powers under section 25(2) of the Wealth Tax Act. Let me mention here that Finance Act of 1990 has prescribed period of two years for imposition of penalty order under section 116 of the income Tax Ordinance and thus the gap created by the absence of period of limitation regarding passing imposition of penalty order has been filled to after a long time though the judicial intervention had already restricted it to a reasonable period. Here again, the Legislature has kept into consideration the reasonableness of the period of limitation vis- -vis the quantum of work. however. it is suggested that the Legislature itself, like India, should fill in this gap in order to allow an assessment order attain finality which is, on judicial consensus an unavoidable necessity of all tax laws. Let me mention here that even in case of escaped wealth the period of limitation has been prescribed at years and four years for the cases falling under clauses (a) and (b) of section 17 of the Wealth Tax Act.

19. Alternatively, Mr. Sirajul Haque has also argued that the learned C.W.T. has erred in holding that the amount of liability as claimed by each appellant was not a debt owed and his order was not in accordance with law. The learned counsel, however, has not elaborated his submission. From perusal of impugned order, it appears that the C.W.T. has added the alleged liability to the declared wealth of the appellants with the following observation:‑‑ "Since S.N.F. Bonds are exempt from the levy of wealth tax by virtue of S.R.O. 649(1) of 1985 dated 1‑7‑1985, the loan obtained on the security of S.N.F. Bonds, being an asset on which wealth tax is not payable under the Wealth Tax Act cannot be treated as debt owed in view of sub‑clause (ii) of clause (m) of section 2 of Wealth Tax Act, and as such, is not deductible as debt‑owed for determination of net‑wealth of the assessee."

20. If we read paragraph II of clause (m) of subsection (1) of section 2 of the Wealth Tax Act, it appears that those debts which arc incurred in relevance to an assessee in respect of which wealth tax is not payable under this Act, do not fall within the "ambit of debt owed" so as to be excluded from the aggregate value of the assessees in order to arrive at net wealth tax for the purpose of levy of wealth tax. The conclusion of learned C.W.T., therefore, appears to be correct.

21. Thus, in view of discussion made above, I find no force in all these appeals and confirming the order of learned C.W.T. dismiss all of them. M.B.A./920/T Appeals dismissed.