2005 PLP (Trib (PTD)

AAC, Islamabad/member (Judicial‑Direct Taxes) Rs.168,000 Salary income as calculated above. Rs.224,925 Income from other sources i.e. rental received from ADBP (Employer of the assessee): Rs. 96,900 Total income Rs.489,825

9. Income for the assessment year 1997‑98 was assessed by the Assessing Officer vide order, dated 31‑10‑2000 passed under sections 62/132/138 of the repealed Income Tax Ordinance, 1979 as per details given below:‑ Income from sale of House No.35, Chak Shahzad, Islamabad Rs.11,120,000 Income from other sources i.e. rental received from ADBP (Employer of the assessee): Rs.141,116 Income from property House No.7, Kaghan Road, F‑8/3, Islamabad Rs.192,000 Income from other sources i.e. rental of fittings & fixtures. Rs.315,660 Additions under section 130(1)(aa) of, the Income Tax Ordinance, 1979: (i) Cash gifted to Mrs. Kaneez Zohra (wife) on 28‑4‑1997 Rs.1,600,753 (ii) Cash gifted to Mr. Bilal Ahmad Bajwa (son) on 19‑6‑1997 Rs.1,000,000 (iii) Payment made to clear the Bank loan Rs.4,459,441 Total addition under section 13(1)(aa) Rs.7,060,194 Total Income Rs.19,248,970

10. The assessee being aggrieved filed appeal before the learned CIT(A), Zone‑I, Islamabad. The grounds of appeal taken for the assessment years under consideration reproduced in the order of the learned CIT(A) are as under: Assessment years 1992‑93 and 1993‑

94. Orders under sections 62/ 132/138: That the impugned assessment order is void ab initio for want of jurisdiction. That the impugned assessment order is void ab initio as the same has become barred by time on the expiry of 30‑6‑2000. That the learned Assessing Officer has erred in law assessing the rental income of the appellant separately received from ADBP against the House No.7, School Road, F‑8/3, Islamabad under section 30 of the Income Tax Ordinance. Assessment years 1997‑

98. Order under sections 62/132/138 That the impugned assessment order is bad both in law and upon the facts of the case. That the impugned assessment order is void ab initio as the same had become barred by time on the expiry of 30‑6‑2000. That the entire impugned assessment order is absolutely misconceived, capricious, against the facts of the case and based purely on hypothesis and guess work. That without prejudice to above, the gain accruing to the appellant out of the solitary transaction of sale is simply a casual and non‑recurring receipt, not covered by item 11 of section 2 of the Income Tax Ordinance, 1979. That the special provision to tax "capital gain", contained in section 27 excludes the general provision enacted in the form of item 11 of section 2 of the Ordinance on the principle that the special excludes the general that immovable property does not fall within the definition of "capital assets" appearing in section 27(2)(a)(ii) of the Ordinance and for this reason the difference of Rs.11,120,000 in the sale price and the amount invested in the property, although a capital gain on immovable property is not taxable as such, that capital gain on immovable property stands excluded from the purview of subsection (1) of section 27 providing for the levy of tax on the capital gain inter alia for the reason that Federal Legislature has no power to tax the capital gains on immovable property, as envisaged by item 50 of the Federal Legislative list in the Fourth Schedule to the 1973 Constitution of Islamic Republic of Pakistan. Therefore, the levy of tax on the gain of the property by the Assessing Officer is ultra vires to the Constitution. That the Assessing Officer has not been able to comprehend and thrash out the matter properly and has proceeded on a misconceived notice that the sale of the property amounted to an adventure in the nature of trade. It is an admitted position that the appellant has a sole purchase and sale of land, who has never before or after indulged in real estate business, therefore, it is an established proposition of law that the sole purchase and sale of land cannot be branded as an adventure in the nature of trade. That without prejudice to all above, the Assessing Officer has erred in law in taxing the total gain on sale of property of Rs.11,220,000 in the assessment .year 1997‑98 whereas admittedly the amount of Rs.5,000,000, 60,00,

000. Rs.50,00,000 was received on 15‑11‑1990, 14‑5‑1991 and 25‑5‑1991 respectively, therefore under the law same should have been assessed under the relevant assessment years. That the Assessing Officer has erred in law in not allowing the interest of Rs.30,936 while computing the income from Flat 8/3, Islamabad. That the income assessed at Rs.141,116 under the head rent received from ADBP is untenable being arbitrary, capricious, unfounded and far against the facts of the case. That the income assessed at Rs.420,000 under the head furniture and fixture is untenable being arbitrary, capricious, unfounded and far against the facts of the case. That the Assessing Officer has erred in law in re‑assessing the salary in‑come as the matter regarding salary was not the subject matter in appeal before the AAC therefore, the same attained finality, could not be re‑assessed. That the additions under section 13(1)(aa) of the Income Tax Ordinance, 1979 amounting to Rs.1,600,753 Rs.1,000,000 under the head cash gift and payment of Rs.4,459,441 under the head bank loan is unsustainable being without jurisdiction, illegal and far against the facts of the case. That without prejudice above, the Assessing Officer has erred in law in making the additions under section 13(I)(aa) separately as the same are covered against the gain on sale of property of Rs.11,120,

000. That even otherwise the Assessing Officer has erred in law in making the addition under the head bank loan amounting to Rs.4,459,441 in the hand of the appellant as the same should have been assessed under the law in the hand of the company namely Messrs Pak Agro (Pvt.) Ltd. That the net income assessed at Rs.19,248,970 is untenable being arbitrary, capricious, unfounded, far excessive very harsh, hypothetical and far against the facts of the case."

11. The learned CIT(A) cancelled the assessments for the assessment years 1992‑93, 1993‑94 and 1997‑98 on the legal ground that the assessments framed under sections 62/132/138 were hit by the period of limitation. He did not give any finding with regard to the merits of the case. The learned CIT(A) held as under:‑‑ "The primary issue is regarding orders passed being beyond limitation. As per facts stated above AAC order was received on 31‑12‑1998 by DCIT for which limitation is provided under section 66(1)(c); that the revision order of the Member (Judicial) under section 138 upholding AAC's order was received in the office of WIT concerned on 10‑6‑1999; that limitation for compliances of AAC order would be taken from the date of Member (Judicial)'s order received on 10‑6‑1999 in view of section 66(I)(c); that the limitation for re‑assessment per AAC's directions in view of order under section 138 received on 10‑6‑1999 expired on 30‑6-2000 under section 66(1)(c) whereas the orders have been passed on 30‑11‑2000 for the years, 1992‑93 and 1993‑94 and on 31‑10‑2000 for the year, 1997‑

98. The contentions of the AR regarding date of receipt of order under section 138 were verified from record by the Assessing Officer and admitted as correct. In view of the above position and facts and circumstances of the case the orders passed for the years, 1992‑93 and 1993‑94 on 30‑11‑2000 and 1997‑98 on 31‑10‑2000 are hit by limitation. Accordingly the impugned orders for the years 1992‑93, 1993‑94 and 1997‑98 merit cancellation. And I accordingly order so."

12. The, department has filed appeals on identical grounds for the three years under consideration which are reproduced hereunder:‑‑ "(1) That the order passed by the learned CIT(A) is bad in law and contrary to the facts of the case. (2) That the learned CIT(A) was not justified to cancel the assessment order under sections 62/132/138 on the grounds that the same was hit by time limitation. (3) That section 66(i)(c) of the Income Tax Ordinance, 1979 which has been relied upon by the learned CIT(A) regarding time limitation does not cover consequential proceeding under section 138 of the Income Tax Ordinance, 1979. "

13. The learned DR submitted that the limitation for assessment had been given in section 66 of the repealed Income Tax Ordinance, 1979. He stated that a perusal of this section would show that there are three situations which have been covered in this section. He argued that the learned CIT(A) had held that the order of the Member (Judicial) C.B.R passed under section 138 upholding AAC's order was received in the office of the Assessing Officer on 10‑6‑1999 and therefore the limitation under clause (c) of subsection (1) of section 66 expired on 30‑6‑2000 and therefore, the assessments framed on 30‑11‑2000 for the assessment years 1992‑93 and 1993‑94 and on 31‑10‑2000 for the assessment year 1997‑98 were hit by the period of limitation. The learned DR submitted that the provisions applicable in this case were given in clause (b) of subsection (1) of section 66 of the repealed Income Tax Ordinance, 1979 and not clause (c) of subsection (1) of section 66 as observed by the learned CIT(A). He stated that clause (c) of supra deals with assessments which had been set aside by the AAC under section 132 or by the Tribunal under section 135 of the repealed Income Tax Ordinance, 1979. He stated that the clause (c) supra deals only with such assessments which have been set aside by these two authorities. The assessments which have to be framed on the basis of orders of any other authority or by the High Court or the Supreme Court are covered in clauses (a) and (b) of subsection (1) of section

66. He submitted that order of the learned AAC got merged in the order of the Member (Judicial), C.B.R. He stated that clause (b) supra applies in this case and under this clause assessment may be made at any time within two years from the end of the financial year in which such order is received by the DCIT. He submitted that order of the Member (Judicial), C.B.R. was received by the DCIT on 10‑6‑1999 and therefore, the limitation in this case expired on 30‑6‑2001. He argued that assessments having been framed much before this date were not hit by period of limitation. The learned DR further stated that we may look at this issue from another angle. He submitted that the assessee had filed returns of income for the assessment years 1992‑93 and 1993‑94 on 12‑9‑2000 during assessment proceedings under sections 62/1321138. He stated that in this view of the matter the provisions of subsection (2) of section 64 would apply which states that where a return of total income has been filed after the end of the financial year in which the last date of filing of such return specified in section 55 falls no assessment under section 62 shall be made after the expiration of two years from the end of the financial year in which the said return was filed. He submitted that in view of subsection (2) of section 64, the assessment could be framed for the assessment years 1992‑93 and 1993‑94 till 30‑6‑2003. He argued that in either case assessments were framed within time.

14. The learned AR supported the order of the First Appellate Authority stating that the provisions of law contained in clause (c) of subsection (1) of section 66 will apply. He submitted that the Member Judicial), C.B.R. had confirmed the order of the AAC and therefore, limitation would start from the AAC'.s order which was passed on 20‑10‑1998 and was served upon DCIT on 30‑12‑1998.‑He averred that the orders passed under sections 62/132/138 on 30‑11‑2000 for the assessment years 1992‑93 and on 31‑10‑2000 were time‑barred. The learned AR referred to the decision of the Supreme Court of Pakistan reported as 1969 SCMR 708 and stated that the Supreme Court had held that the original order merges in the appellate order but this was not so in the case of an‑ order of revision. He submitted that the learned DR's argument that period of limitation could also be counted under section 64 because returns of income for the assessment years 1992‑93 and 1993‑94 were filed on 12‑9‑2000 was not correct because these returns were filed in pursuance of the directions of the learned AAC given in his order.

15. We have perused the orders of the authorities below and have given consideration to the arguments of both the parties. The issue involved is of limitation; whether limitation period would be counted from the order passed by the AAC or the order passed subsequently by the learned Member (Judicial) C.B.R. We are inclined to agree with the arguments of the learned DR. It would be worthwhile to reproduce here the test of subsection (1) of section 66 of the repealed Income Tax Ordinance, 1979 which is as under:‑‑ (66). Limitation for assessment in certain cases:‑‑ (1) Notwithstanding anything contained in section 64 and sub section (3) of section 65 where in consequence of or to give effect to, any finding or direction contained in any order made under this Chapter or Chapter VIII, XIII, or XIV or any order made by any High Court or the Supreme Court of Pakistan in exercise of its original or appellate jurisdiction,‑‑ (a) an assessment is to be made on any firm or a partner of any firm; or (b) an assessment is to be made on the assessee or any other person; (c) an assessment has been set aside, in full or in part, by an order under section 132 or section 135 and no appeal filed under section 134 against such order or no appeal filed under section 136 in respect thereof, as the case may be, such assessment may be made at any time within two years in any case to which clause (a) or clause (b) applies, and within one year in any case to which clause (c) applies, from the end of the‑financial year in which such order is received by the Deputy Commissioner."

16. The provisions contained in Clause (c) supra specifically refer to! assessments having been set aside in full or in part by an order of the AAC passed under section 132 or an order of the Tribunal passed under section

135. No other section dealing with appeals or revision has been mentioned in clause (c) supra. So clause (c) exclusively covers the assessments which have been set aside by the First Appellate Authority or the Tribunal. An order set aside by any other authority having appellate or revisional jurisdiction has not been specifically mentioned in this clause. The wording of clause (c) is clear and unambiguous. It is a basic principle of interpretation of statutes that "plain words and patent meanings of law are to be applied and interpreted as they are and no latent meanings are to be attached to the patent words which convey the plain and obvious meaning" (2002 PTD 388 Karachi High Court). Clause (c) supra clearly refers to the assessments set aside by an order passed under section 132 or under section 135 and to no other situation. So it would be incorrect to say that the period of limitation in case‑of an order of Member (Judicial) will be worked out with reference to clause (c) of subsection (1) of section 66 simply because this clause does not refer to an order passed by Member (Judicial). C.B.R.

17. The earlier part of subsection (1) of section 66 provides that in order to give effect to any finding or direction contained in any order made under this chapter (i.e. Chapter VI), Chapters VIII, XIII or XIV or any order made by the High Court or the Supreme Court. (a) an assessment is to be made on any firm or a partner of any firm or (b) an assessment is to be made on the assessee or any other person; such assessment may be made at any time within two years from the end of the financial year in which such order is received by the DCIT. Clause (a) supra is not relevant for the purposes of issue‑before us. Section 138 under which the learned Member (Judicial), C.B.R. passed the order falls in Chapter XIII. Therefore, the provisions contained in clause (b) supra would apply here.

18. We may also refer here to the relevant provisions of section

138. Clauses (a) and (b) of subsection (5) of section 138 are reproduced hereunder:‑‑

138. Revision by Commissioner

(5). For the purpose of this section,‑ (a) An order by the Commissioner declining to interfere shall be deemed not to be an order prejudicial to the assessee; (b) the Appellate Additional Commissioner shall be deemed to be an authority subordinate to the Central Board of Revenue.

19. Clause (b) of subsection (5) of section 138 as reproduced above shows that for the purposes of the revisional jurisdiction under section 138 AAC/CIT(A) is an authority subordinate to C.B.R.. Therefore, for purposes of section 138 the order of revision passed by the learned Member (Judicial) is an order passed by an authority higher than the learned AAC. In this view of the matter the order of the learned AAC got merged in the order of the Member (Judicial) C.B.R. The Supreme Court of Pakistan in Glaxo Laboratories Ltd. v. IAC and others reported as 1992 SCC 910 reproduced the following definitions of the words "Merge" and "Merger" from Corpus Juris Secundum Volume 57 page 1067:‑‑ "The verb `to merge' has been defined as meaning to sink or disappear in something else, to be lost to 'view or absorbed into something else, to become absorbed or extinguished to be combined or be swallowed up. `Merger' is defined generally as the absorption of a thing of lesser importance by a greater, whereby the lesser ceases to exist, but the greater is not increased, an absorption or swallowing up so as to involve a loss of identity and individuality." In view of the above definition a thing of a lesser importance merges into a thing of a greater importance. The order of the higher authority absorbs or swallows up the order of a subordinate authority. It is therefore, a well‑settled principle that on appeal the original order merges in the appellate order. In Commissioner of Income Tax v. Farrokh Chemical Industries 1992 SCMR 523, it was observed that "the order of the ITO upon appeal merged in the order of the Income Tax Appellate Tribunal."

20. We have observed above that under section 138 the AAC is deemed to be an authority subordinate to C.B.R. Therefore, in view of the case‑law cited the order of the subordinate authority got merged in the order of the Member (Judicial) C.B.R. We are therefore, of the considered view that the period of limitation will be counted from the date of service of the order of the learned Member (Judicial), C.B.R. and not from the date of service of the AAC's order because this order got merged in the order of the higher authority.

21. The reference, by the learned AR to the Supreme Court's decision in 1969 SCMR 708 in our view is misplaced. It will be appropriate to reproduce the relevant extract from the order of the apex Court. "This argument is based upon the assumption that the order of the Deputy Collector, Land Customs and Central Excise, Rangpur which initially imposed the penalty and ordered the confiscation as also the appellate order of the Collector, Chittagong, merged in the order of the Central Board of Revenue. This is, however, an incorrect assumption, for it overlooks the fact that the proceedings taken before the Central Board of Revenue was by way of a revision only and not by way of an appeal. It is no doubt true that in the case of an appellate order modifying the original order the original order merges in the appellate order, but this is not always in .the case of a revision. The revisional jurisdiction under the Sea Customs Act is not as extensive as the appellate jurisdiction and the doctrine of merger is not, in our view, attracted to the case of such a revision. The order, even if revised or modified in such a proceeding still remains the order of the Appellate Authority, namely the Collector, who confirmed the order of the Deputy Collector. Both these officers acted within the Province and therefore, the High Court had every jurisdiction to interfere with their acts or omissions under Article 98 of the Constitution if such acts or omissions were without lawful authority." (under lining for emphasis). The above extract would show that facts of the case are distinguishable. The Supreme Court has held that the appellate order does not always merge into an order of a revision. This would mean that though it is not always the case but in certain circumstances the appellate order does get merged into an order of revision. The Supreme Court while making the above observation was discussing the revisional jurisdiction of the Central Board of Revenue as contained in the Sea Customs Act, 1878. The provisions of section 138 of the repealed Income Tax Ordinance, 1979 dealing with the revisional jurisdiction of the C.B.R. are different in context and nature from the powers of revision vested in the Central Government under the repealed Sea Customs Act, 1878. Subsection (5) of section 138 of the repealed Income Tax Ordinance, 1979 provides that for the purposes of section 138 of AAC will be deemed to be an authority subordinate to the C.B.R. No such provision existed in the now repealed Sea Customs Act, 1878. The provisions relating to revision were contained in section 191 of the repealed Sea Customs Act, 1878 which is reproduced hereunder:‑

"Revision by the Central Government. (191) The Central Government may, on the application of any person aggrieved by a decision or order passed under this Act by any officer of Customs or Chief Customs Authority, and from which no appeal lies, reverse or modify such decision or order." One of the important differences in the revisional jurisdiction under the two laws is that under the repealed Sea Customs Act revision lies against an order or decision of any officer of the Customs or Chief Customs authority against which no appeal lies. But under section 138 of the repealed Income Tax Ordinance, 1979 appeal lies before the income Tax Appellate Tribunal against an order of the AXC or CIT(A). The assessee had the option to file second appeal before the Tribunal or to file a revision application before the Member (Judicial), C.B.R. against an order or decision of the First Appellate Authority. In the latter situation in pursuance of clause (a) of subsection (2) of section 138 the assessee had to forego his right of appeal before the ITAT. In the case before us, the assessee exercised option to file application for 'revision and not to go in for the second appeal before this Tribunal. The ratio of the decision of the honourable Supreme Court would also not apply because the honourable Supreme Court did not make the above observations in the context of application of the provisions of limitation. In these circumstances the ratio of decision of the Supreme Court referred to by the learned AR is not applicable to the facts of the case before us.

22. The Assessing Officer was otherwise also not required to pass any order in consequence of setting aside of the order by AAC because the case was pending before the Member (Judicial) C.B.R. The Courts have held that when an order of assessment is set aside in appeal by an authority and a further appeal is filed against such setting aside of the order before a higher authority then the Assessing Officer should not frame re‑assessment and he should wait for the decision of the higher forum. The Lahore High Court held in the decision reported as 2002 PTD 1195 (Lahore High Court) as under:‑‑ "It was contended on behalf of the assessee with reference to a judgment of the Privy Council in the case of "Commissioner of Income Tax, Bombay Presidency and others v. Khaim Chand Ram Das (1938) (V.I.6) ITR 414) that assessment once made does not come to an end until proceedings with regard to assessment have finally been concluded and since the matter of first assessment is still pending, the second assessment order is illegal. The contention found favour with the Court and it was held that till such time that the reference is pending the Income Tax Authority have to wait for the result. To my mind, the said judgment in the said case does support the present petitioner inasmuch as the matter of first. assessment is still pending before the Appellate Tribunal and the respondent having been duly intimated of the said fact ought to have waited for the decision of the appeal the writ petition is accordingly allowed with the observations that the respondent shall wait for the decision of the Income Tax Appellate Tribunal in the appeal of the petitioner and proceed further, in the matter, in accordance with the decision of the said Tribunal." 23. 1n view of the above discussion we are of the view that the limitation period will be considered from the date when the order of the Member (Judicial) is received by the DCIT and the provisions of clause (b) of subsection (1) of section 66 as discussed above will accordingly apply in this case. The period provided to make assessment under this clause is two years. Therefore the orders of the Assessing Officer passed under sections 62/132/138 of the repealed Income Tax Ordinance, 1979 were within time and were not hit by the period of limitation. In these circumstances the learned CIT(A) was not justified to cancel the assessments for the years under appeal. The learned CIT(A) has decided the appeals in the impugned order on the point of limitation only and has not given any finding on the facts and merits of the case. Accordingly we remand the appeals back to the First Appellate Authority and direct him to give his findings on the merits of the case.

24. The appeals are disposed of in the manner indicated above. C.M.A/320/Tax (Trio.) Order accordingly.