P L D 1975 Karachi 267 (PLP)

The learned counsel also urged that the Income‑tax (Amendment) Act, 1974 cannot operate so as to authorise the Central Board of Revenue to alter the incidents of law which have already been settled. He has contended that indeed, in law, the Central Board of Revenue is a no existing body as no notification has been issued in terms of section 2 of the Central Board of Revenue Act, 1924. The learned counsel by pointing out that the impugned notification has been issued by M4, Maqbool Ilahi who has described himself as an Officer on Special Duty contended that in that capacity he has no authority to exercise the power of issuing a notification under section 3 of the Central Board of Revenue Act, 1924. The learned counsel then referred to the various provisions of the Income‑tax Act, 1922 and asserted that the scheme of taxation is to charge tax, where a Central Act so enacts, on the total income in the "previous year" of a person, and the expression "previous year" has been defined under subsection (il) of section 2 of the Act, which must correspond to a period of not more than 12 months, and since the impugned notification has created a special previous year which extends beyond 12 months, it is ultra vires of the main Statute. In order to appreciate these contentions and the several others, it would be useful at this stage to refer to the definition clause of "previous year" contained in section 2(11) of the Act. It reads: "2(11) In this Act, unless there is anything repugnant in the subject or context,‑ (11) "previous year" means‑ (i) in respect of any separate source and gains‑ (a) the twelve months ending on the thirtieth day of June next preceding the year for which the assessment is to be made, or, if the accounts of the assessee have been made up to a date within the said twelve months in respect of a year ending on any date other than the said thirtieth day of June, then at the option of the assessee, the year ending on the date to which his accounts have been so made up Provided that where in respect of a particular source of income, profits and gains an assessee has once been assessed, or where in respect of a business, profession or vocation newly set up an assessee has exercised the option under sub‑clause (c), he shall not in respect of that source or, as the case may be, business, profession or vocation exercise the option given by this sub‑clause so as to vary the meaning of the expression `previous year' as then applicable to him except with the consent of the Income‑tax Officer and upon such conditions as the Income‑tax Officer may think fit to impose ; or (b) in the case of any person, business or company or class of persons, business or company such period as may be determined by the Central Board of Revenue or by such authority as the Board may authorise in this behalf ; or (c) where a business, profession or vocation has been newly set up in the financial year preceding the year for which assessment is to be made the period from the date of the setting up of the business or profession or vocation to the thirtieth day of June next following or the last day of the period determined under sub‑clause (b), or, if the accounts of the assessee are made up in respect of a period n of exceeding twelve months from the date of the setting up of t he business, profession or vocation and the case is not one for which a period has been determined under sub‑clause (b), then, at the option of the assessee, the period from the date of the setting up of the business, profession or vocation to the date to which his accounts have been so made up Provided that when the date to which the accounts have been so made up does not fall between the setting up of the business, profession or vocation and the next following thirtieth day of June inclusive, it shall be deemed that there is no previous year for the said assess ment year and the previous year which would otherwise have been determined according to the option exercised by the assessee shall be deemed to be the previous year for the next succeeding assessment year ; (ii) in respect of the share of the income, profits and gains of a firm where the assessee is a partner in the firm and the firm has been assessed as such, the period as determined for the assessment of the income, profits and gains of the firm ; So far as the liability of the income‑tax is concerned, it would suffice if sections 3 and 4 are reproduced. These read "

3. Where any Central Act enacts that income‑tax shall be charged for any year at any rate or rates, tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, this Act in respect of the total income, of the previous year or the previous years, as the case may be, of every person. 4. (1) Subject to the provisions of this Act, the total income of any previous year of any person includes all income, profits and gains from whatever source derived, which‑ (a) are received or are deemed to be received in Pakistan in ouch year by or on behalf of such person ; or (b) if such person is resident in Pakistan during such year,‑ (i) accrue or arise or are deemed to accrue or arise to him in Pakistan during such year, or (ii) accrue or arise to him without Pakistan during such year, or (c) if such person is not resident in Pakistan during such year, accrue or arise or are deemed to accrue or arise to him in Pakistan during such year Provided that where any amount consisting of either the whole or a part of any income, profits and gains has been included in the total income of an assessee for any previous year under clause (b), it shall not be included in any other previous year under clause (a) . . . . . . . . . . . . The case set up by the respondents as argued by Mr. Nusrat, the learned counsel appearing for the Department is that it was open to the Central Board of Revenue by virtue of the provisions of section 2(11)(i)(b) to determine for any person, business or Company a previous year, other than what is provided for in section 2(11)(i)(a), and since by virtue of the Income‑tax (Amendment) Act, 1973, the power was granted to the Central Board of Revenue to determine "previous year" even with retrospective effect, the impugned notification is not open to challenge in regard to its legal validity. The learned counsel urged that the tax liabilities of the petitioners are to be assessed under section 3 on the total income of the "previous year" or "the previous years, as the case may be", and by virtue of these clear provisions of law, the petitioner‑company cannot escape liability to pay tax in respect of "special previous year" created under the impugned notification. As to the authority of Mr. Maqbool Ilahi who issued the Notification on behalf of Central Board of Revenue, Mr. S. A. Nusrat referred to an earlier Notification No. C‑58‑S(A)‑Con/66 dated 21st September 1967, by which all First Secretaries, Officers on Special Duty and Second Secretaries of the Central Board of Revenue were conferred with the power under rule 2(d) of the Central Board of Revenue, '1967 to perform all the functions of Secretary of the Board. This Notification reads as follows :‑ "Government of Pakistan. Central Board of Revenue. C. No. 58‑S(A)‑Con/66 Islamabad, the 21st September 1967. In exercise of the powers conferred by rule 2(d) of the Central Board of Revenue Rules, 1967, the Central Government is pleased to authorise all First Secretaries, Officers on Special Duty, and Second Secretaries of the Central Board of Revenue to perform all the functions of Secretary to the Board. (Sd.) (Abdul Hamid), Joint Secretary." So far as the validity of the constitution of the Central Board of Revenue is concerned, reliance was placed on section 9 of the Pakistan Adaptation of Existing Pakistan Laws Order, 1947 which is to the effect that any reference to an existing Pakistan law to a Tribunal, Authority, Officer or the Special Body whose jurisdiction or authority immediately before the day extends to the whole of India or British India shall be construed as reference to such Tribunal, Authority, Officer or Official Body. The appropriate Government may by notification in the official Gazette constitute or appoint in that behalf, and any such direction may be given with retrospective effect as from the appointed day. It was argued that the Central Board of Revenue as originally constituted for British India continued to exist even after Independence by virtue of the above provision, and its legal existence is not, therefore, open to challenge. There can be no doubt that by virtue of the provisions made in the clear language of section 2(I1)(f)(b) of the Act the Central Board of Revenue has ample power to declare a "previous year" in respect of any separate source of income, profit or gains in the case of any person., business or company and the previous year so declared may be different than what is provided for in section 2(11)(i)(a). This position appears to be clear from the judgment of the Supreme Court of Pakistan reported as P L D 1960 S C 187 upon which reliance was sought to be placed by the learned counsel for the petitioner. It, therefore, appears that the Central Board of Revenue could validly determine "previous year" in the case of persons who carried on the business of exporting rice. The question, however, is whether the impugned notification by the fact that it was given retrospective effect could validly vary the tax liabilities created by the Finance Act, 1973 so as to adversely affect an assessee. In this behalf there appears to be force in the argument that the entire concept of the Income‑tax Act is that the enforcement of tax liabilities come into motion only when the Finance Act determines the rates or rates of taxes on the total income of different classes of assessees for the "previous year", and once these liabilities have been specified, they cannot be altered to the disadvantage of an assessee except by direct retrospective legislation. This is the import of the judgment of the Supreme Court referred to above. There also appears to be force in the argument that the "special previous year" determined by the impugned notification for ‑the business of export of rice extended beyond a period of 12 months C .and it is ultra vires for that very reason alone for the concept of the entire tax . legislation is that the tax is payable for a period not extending 12 months. We wanted to dispose of this petition and the several other connected petitions which were directed to be heard together, but it was pointed out Io us by the learned Attorney. General that the Federation of Pakistan which has been joined as respondent No. 3 has not yet been served and, therefore, the Petition cannot be heard for final hearing. We also feel that although we have heard this ease yesterday and today, yet the controversy involved is such ai would require full dressed arguments on both the sides. In the circumstances that the contentions raised on behalf of the petitioner cannot be lightly brushed aside, and there also appears to be force in the argument advanced on behalf of the respondents that the stay of the action taken by the Department would virtually amount to granting the full relief to the petitioner at this interim stage which they may or may not be entitled to at the final stage. We feel that a balance must be kept as between the petitioner and the respondents in regard to the position of both the parties, pertaining to the dispute to be resolved by this Court. We, therefore, direct as follows :‑ (1) The petitioner shall file the Income‑tax Return according to the impugned notice issued by the Income‑tax Officer, Karachi, within one week from‑ today, but it will be open to it to deposit the tax payable under section 22(A) of the Act or not to do so. (2) It will be open to the respondents to process the Income‑tax Returns filed by the petitioner, but no tax recovery on the basis of these Returns shall be made provided the petitioner has already cleared its tax liabilities for the year 1973‑74 as if the impugned notification had not been issued. (3) It will be open to the petitioner‑Company to file the normal Return for the assessment year 1974‑75 as if the impugned Notifica tion had not been issued. If such a Return is not filed within the period prescribed by law and the tax liabilities paid accordingly, it will be open to the respondents to make the tax recovery in terms of the Return filed under (1) above. The learned counsel for the petitioner prayed for a note being made of the contention raised by him that if the petitioner were to file the Return as required by the Income‑tax Officer, Karachi under the impugned notice, the validity of the notice being questioned may not be open to the petitioner. We feel that the petitioner need not have any fears in this regard, for, in spite of the embargo placed in this behalf under section 63 of the Act, the petitioner's right to approach this Court under Article 199 of the Constitution in order to challenge the action on the basis of which the Return is filed on the ground that it is an action without lawful authority cannot be assailed. Both the Miscellaneous Applications Nos. 580 and 995 of 1974 are disposed of in the terms indicated above. S. A. H. Orders accordingly.