2002 PLP (Trib (PTD)

(ii) The receipt of share deposit money ascertained on examination of the balance‑sheet as on 30‑6‑1999 during the wealth tax assessments of the directors. (iii) In view of the position mentioned in Serial No.(i) above and as specifically mentioned by the Assessing Officer as well the issues or for that matter information before him for action under section 65 and under section 12(18) comprised:‑‑‑ (a) share deposit money on 30‑6‑1999 contributed as under:‑‑‑ Mr. Ghulam Muhammad Alvi??????????????????????????????????????? Rs. 350,000 Mr. Ghias‑ud‑Din???????????????????????????????????????????????????????????????????? Rs. 248,000 Mr. Muhammad Sarwar?????????????????????????????????????????????????????????? Rs. 150,000 Total??????????????????????????????????????????????????????????????????????????????????????? Rs. 748,000 (b) Paid‑up capital Rs.500,000 on 30‑6‑1999 and authorized capital as per balance‑sheet as on 30‑6‑1999 Rs.10,00,000 (iv) As share deposit money was brought forward from the year ending 30‑6‑1998 the Assessing Officer on the basis of facts of balance‑sheet as on 30‑6‑1999 confronted the appellant on the amount exceeding authorized capital as under:‑‑‑ Paid‑up capital ??????????????????????????????????????????????????????????????????????? Rs.500,000 Share deposit money??????????????????????????????????????????????????????????????? Rs.748,000 Total??????????????????????????????????????????????????????????????????????????????????????? Rs. 1,248,000 Authorized capital???????????????????????????????????????????????????????????????????? Rs. 1,000,000 Excess amount????????????????????????????????????????????????????????????? Rs.248,000 (v) Issuance of notice under section 65 on 24‑2‑2001 special resolution to enhance the authorized capital, dated 23‑2‑2001 accepted by Deputy Registrar, Securities Exchange and' Commission, Faisalabad, and certificate dated 16‑3‑2001 issued permitting enhancement of authorized capital w.e.f. 30th June, 1998. On the basis of facts and information the issues framed are disposed of as under:

9. Since there is no dispute about the nature of the deposit which was paid and received as share deposit money reflected in the balance?sheet as at 30‑6‑1999 noticed by the Assessing Officer during the wealth tax assessment proceedings of the directors, the crucial aspect to be appraised is whether the information coining into possession of the Assessing Officer was definite information which had been concealed‑by the appellant. Going by the facts as narrated by the Assessing Officer on the basis of documents etc. share deposit money received for an amount of Rs.748,000 had been admitted declared as per the balance‑sheet as on 30‑6‑1999 on the basis of which Assessing Officer assumed that such amount having been brought forward must have found its place in the balance‑sheet as on 30‑6‑1998. However, there is no discussion of the facts of its declaration or mention in the show‑cause notice for conclusion drawn after considering reply by the appellant whether the amount representing share deposit money received in cash was not declared or concealed. The Assessing Officer has thus altogether ignored the aspect of assumption of jurisdiction under section 65 of the Income Tax Ordinance. Apparently in the process of proceedings he lost sight of the varies of the lawful exercise of his jurisdiction under section 65 of the Ordinance, 1979. On his turn CIT(A) summarily disposed of the issue of proceedings under section 65 inasmuch as that since Rs.248,000 exceeding the paid‑up capital was correctly deemed as loan within the ambit of section 12(18) and the explanation tendered by the assessee was rightly turned down, reopening was justified.

10. As is ascertained from the contents of the show‑cause notice jurisdiction under section 65 was assumed on the ground that since amount exceeding authorized capital was to be treated as loan being chargeable as deemed income under section 12(18) additional assessment under section 65 of the Income Tax Ordinance was thus warranted. Evidently both the Assessing Officer as well as the CIT(A) did not consider and adjudicate the objection of the appellant pointing out the bar for invoking provisions under section 12(18) in view of the provisions of section 80C(4). Both the authorities fell in error. The CIT(A) particularly after mentioning the ground No.3 in the opening para. of the impugned order dated 29‑5‑2000 has failed to dispose of the specific ground.

11. For argument sake even if it is presumed that Assessing Officer has made additional assessment under section 65 to tax the deemed income which had escaped assessment or the total income of the assessee and tax payable by him had been assessed or deemed to have been assessed or determined under section 59(A) every action is subject to the provisions of subsections (2), (3) and (4) of section 65 of the Ordinance. It is considered advantageous to reproduce the provisions contained in subsection (2) of section 65 as under:‑‑‑ (2) No proceedings under subsection (1) shall be initiated unless definite information has come into the possession of the (Deputy Commissioner) (and) he has obtained the previous approval of the Inspecting (Additional Commissioner) of Income‑tax in writing to do so. (Explanation.‑‑‑As subsection, "definite information" includes information in respect of the sale and purchases, made by the assessee, of any goods, and any information regarding acquisition, possession or transfer, by the assessee, of any money, asset or valuable article, or any investment made or expenditure incurred by him). A plain reading of the provision quoted above makes it abundantly clear that Assessing Authority has to satisfy the criteria laid therein. Notwithstanding the fact that action taken is within the framework of the provisions of section 65, or not there is no discussion whatsoever about the viries of the proceedings which have been duly challenged by the appellant. Similarly, in case, the objection of the appellant regarding immunity of proceedings under section 65 in view of subsection (4) of section 80C was not legally acceptable it should have been at least discarded after referring to the contentions and provisions of law. In the facts and circum?stances mentioned above we have no hesitation to hold that the orders of the authorities below are not speaking orders on vital legal issues.

12. As far as reliance by the Assessing Officer on reported case 2001 PTD (Trib.) 2880 is concerned the Assessing Officer has neither made an attempt to correlate the facts of the two cases nor appreciated the findings of the ITAT as a whole. A bare reading of the ITAT judgment shows that issues pertained to pronouncement regarding the vesting/taxing powers of tax authorities and jurisdiction to tax a 'particular transaction, discover real nature of transaction and apply correct law so that intention of legislation was fulfilled. In the case in hand the nature of transaction as share deposit money received in cash is not at all disputed. In that event the issue of share deposit money. received in advance for the period as on 30‑6‑1998 and that too exceeding the authorized capital which was enhanced w.e.f. 30‑6‑1998 irrespective of the certificate issued by Deputy Registrar, Securities Exchange Commission, Faisalabad on 16‑3‑2001 had to be appreciated as curative in nature. We have considered various aspects in light of our observations mentioned above and frame issues to be decided as under:‑‑‑ (i) Whether the Assessing Officer to begin with assumed jurisdiction in a rightful manner particularly when objections of the A.R. raised in response to show‑cause notice have not been legally discarded after discussing the same? (ii) Whether admitted facts of share deposit money, enhancement of authorized capital w.e.f. 30‑6‑1998 by which date the said amount had already been received still renders the excess amount worked out on the basis of authorized capital of Rs.10,00,000 justified? (iii) Whether the findings of the reported case (2001) 83 Tax 769 (Trib.) were still applicable? (iv) Whether findings of ITAT in earlier judgment that the directors had advanced loan in the garb of share deposit money particularly in excess of authorized capital were applicable or not? The findings as highlighted supra regarding the real nature and intention' of the legislation in the facts of the present case inasmuch as that whether the Assessing Authority was competent to invoke jurisdiction under section 65 have not been found relevant on the one hand. On the other hand we have consulted the reported case 2002 PTD (Trib.) 141 whereby it has been held that provision of section 12(18) existing at the relevant time and applicable to the income year pertaining to the assessment year before substitution of the section 12(18), were not attracted because two conditions had to be simultaneously satisfied, first that there was loan received by assessee and secondly that it was claimed and shown by him. It was further held that letter of law in existing provisions of the Ordinance had to be interpreted in the sense in which it was used and could not be ignored as to cause injustice to assessee.

13. As far as issues mentioned at No.(ii), (iii) and (iv) are concerned we find it pertinent to record that issues pertaining to share deposit money, deposited in excess to authorized capital and shares issues subsequently settled through a judgment of .Lahore High Court reported in 2001 PTD 1180 (H.C. Lahore ) from which ITAT benefited for their judgment reported in 2002 PTD (Trib.) 141, have been at rest by Honourable Supreme Court of Pakistan in Civil Petitions Nos.984/L to 988/L of 2001; we deem it proper to reproduce the extracts as under:‑‑‑ "We have considered the arguments addressed at the Bar and have also gone through the available material. The observations made by the High Court in the impugned judgment are to the effect that in all the cases not only authorized capital of the respondents was increased but in fact shares were also issued against the deposits made by the applicants. This situation has not been controverted by Mr. M. Ilyas Khan, learned Advocate Supreme Court appearing for the petitioners Department. So, is the position with regard to judgment of the High Court in CIT v. Crescent Textile Mills Ltd. (1974) 29 Tax 242). We are convinced that the amounts in question were `share deposit money' and not 'loan' for the simple reason that shortly after the termination of the assessment years share capital was increased through resolutions in that regard. As mentioned earlier, the expression `advance' was added to section 12(18) of the Ordinance by the Finance Act, 1998 which became effective for 1‑7‑1998, therefore, even if these amounts were deemed to be advances, the same cannot be treated as `income' on account of non=applicability of the aforesaid amendment. Before parting with these matters, it may be observed that all concerned are one on the point that when two interpretations are possible in relation, to any provisions in the discipline of taxation, the one favourable to the assessee is to prevail. The learned Members of the Division Bench of the High Court were quite right in reiterating the above principle of law in paragraph 12, already reproduced above, of the impugned judgment. "

14. After having considered various facts and factors particularly the case‑law relied upon by the Assessing Officer and the case relied upon by the learned A.R. of the appellant/assessee and our observations above the impugned orders are not sustainable for the following':‑‑‑ (a) The Assessing Officer failed to assume jurisdiction under section 65 in a lawful manner. (b) The Assessing Officer failed to reject/rebut the objections raised by the appellant in response to show‑cause notice. (c) The CIT(A) disposed of the grounds summarily inasmuch as Grounds Nos.2 and 4 have almost been ignored. (d) The case‑law has been heavily relied upon by the Assessing Officer without drawing a comparison or parallel of the two cases. (e) The case‑law relied upon by the learned A. R. reported in 2002 PTD (Trib.) 141 has been found applicable on all fours.

15. In view of reasons recorded supra both the orders have been found not sustainable on facts and law. Order accordingly. C.M.A./M.A.K./273/Tax(Trib.)?????????????????????? Appeal accepted.