1990 PLP (Trib (PTD)

22,808 under section 59(1) 1981‑82 Rs. 30,501 Accepted under section 59(1) 1982‑83 Rs. 38,960 43,554 under section 59(1) 1983‑84 Rs.44,149 68,330 1984‑85 Rs. 39,599 Accepted under section 59(1)

2. Subsequently, the assessing officer discovered that the assessee had been claiming allowances which are admissible to salaried persons while the assessee was receiving commission from the State Life Corporation. It was also noticed that conveyance allowance was not admissible to the assessee but had been allowed to him in the assessment years under consideration. Consequently, a notice under section 65 of the Income‑tax Ordinance was issued on 13‑7‑1985. Against this notice the assessee filed a Writ Petition before the High Court which was admitted for hearing on 14‑1‑1986 and the High Court stayed the assessment proceedings. The Writ Petition was ultimately dismissed for non- prosecution as none appeared on behalf of the assessee on 20‑6‑1987. After the dismissal of the High Court's order the assessments were framed on 24‑4‑1988. The assessee filed appeals before the learned CIT (A) which have been dismissed, hence, these appeals.

3. The learned counsel for the assessee, inter alia, argued that the assessment had become time‑barred under section 65 (3‑A) of the Income Tax Ordinance. The aforesaid subsection is reproduced below for reference:‑‑ Subsection (3‑A) "Where a notice under subsection (1) is issued on or after the first day of July, 1982, no order under the said subsection shall be made after the expiration of one year from the end of the financial year in which such notice was served."

4. From the plain reading of this subsection it is obvious that the assessments are apparently time‑barred as these have been framed after the period of limitation prescribed by subsection (3‑A) aforesaid. This plea was also taken before the learned CIT (A) who, however, rejected this plea on the ground that since the High Court had stayed the assessment proceedings and the Writ Petition had been dismissed finally on 20‑6‑1987, therefore, the period during which the High Court had granted stay had to be excluded from the operation of the limitation period.

5. The contention of the learned counsel for the assessee, however, was two fold. Firstly that under the Constitution a stay order of the High Court in regard to the assessment or collection of public revenues can possibly, be for a period of six months and was not operative for indefinite period. It was further submitted that the High Court's order for staying the assessment proceedings was passed on 14‑1‑1986 "in the meanwhile" meaning thereby that it was till the next date of hearing and the High Court had specifically directed that the case be fixed in the month of March, 1986. Therefore, he concluded. that the stay order could be said to be operative till the month of March, 1986. The second alternative argument of the learned counsel for the assessee was that notwithstanding the stay order of the High Court the period of limitation prescribed by section (3‑A) will be still operative. According to the learned counsel for the assessee the only provision which extends the period of limitation in such cases where the High Court or Supreme Court passed certain orders is contained in section 66 of the Ordinance. However, that section only takes exception to section 64 and subsection (3) of section 65 and not to subsection (3‑A) of section 65 of the Ordinance. Still another alternative argument of the learned counsel for the assessee was that in any case the High Court had dismissed the Writ Petition on 20‑6‑1987 while the limitation period was upto 30‑6‑1987 and the I.T.O., if he had been vigilant, could have passed the order before 30th June, 1987.

6. The learned D.R. or the other hand supported the orders of the officers below and adopted the same reasoning as has been done by the learned CIT(A). He contended that the I.T.O. could not be said to be at fault as the High Court had stayed .the proceedings and, therefore, the period during which the assessment proceedings were stayed by the High Court has to be excluded from the period while computing the period of limitation provided by subsection (3‑A) of section 65.

7. We have considered the arguments and have also seen the order of the High Court. Subsection (3‑A) of section 65 specifically provides the limitation period which in this case expired on 30‑6‑1987. 1t is true that the High Court had stayed the proceedings vide its order, dated 14‑1‑1986 but at the same time there is no corresponding provision in the law which provides that during the period in which the proceedings are stayed by the Superior Courts that period has to be excluded while computing the period of limitation provided by subsection (3‑A) of section 65 of the Ordinance. Subsection (1) of section 66 is reproduced below for reference: "Section

66. Limitation for assessment in certain cases.‑‑ (1) Notwithstanding anything contained in section 64 and subsection (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 Curt 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, or (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 reference made 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 Income‑tax Officer:" It is obvious that the Legislature had provided a provision .for computation of period in regard to the limitation period provided by section 64 and subsection (3) of section 65 but no mention has been made in regard to subsection (3‑A) of section

65. It seems that this is an omission because section (3‑A) had been subsequently added and was not part of the original Ordinance and, therefore, subsection (3‑A) has not been incorporated in section

66. Since, there is no provision in the Income‑tax Ordinance to exclude the period of stay given by the Superior Courts, therefore, the period of limitation provided by subsection (3‑A) of section 65 will not stop running automatically. We are conscious that the I.T.O. in such cases will be at the horns of a dilemma i.e. if he proceed with the case he would be subject to contempt of the Court and if he does not proceed then there is chance of expiry of limitation. However, the proper course for this problem is the amendment of law and it is for the department to get this lacuna removed and should suggest for the amendment of law so that subsection (3‑A) be added in section 66 of the Income‑tax Ordinance.

8. It may, however, be stated here that under the Constitution the stay order could be operative in the assessment or collection of public revenues as in the present case, for a period of six months only and it seems that the High Court while passing the order was conscious of this fact and it was for this reason that the High Court directed the case to be fixed in March, 1986. As a matter of fact the case was fixed on 17‑3‑1986 and then on 5‑4‑1986 but for one reason or the other the case could not be heard. The operative part of the High Court's order was as under:‑‑ "Therefore, proceedings are stayed in the meanwhile. "Since, it is financial matter, notice be sent to the respondent for an actual date in the month of March, 1986." It, therefore, follows firstly that the stay order could reasonably seem to have been issued upto March, 1986. In any case in view of the Constitutional bar the High Court's stay order could at best be regarded to be operative for a period of six months. The learned counsel for the assessee has provided us a photo copy of the Circular issued by the Regional Commissioner dated 24‑3‑1988 in which the guidance had been provided to the assessing officers in regard to the cases where the stay order has been granted by the High Court. It has been stressed in that Circular that the order of the High Court automatically ceases to be effective after the expiry of six months from the date of the grant of stay order. In order to avoid the situation where on account of lack of action by the assessing officer the assessment might become time‑barred, the learned RCIT has asked the I.T.Os. to maintain a register to keep a watch and to note the date of automatic vacation of stay order or the date of the vacation of the stay order and to restart the proceedings.

9. As stated above, if the I.T.O. had been vigilant he could note that at best stay order of the High Court automatically expired on 13th July, 1986. The I.T.O., however, remained inactive and perhaps on the mistaken belief that the High Court order was operative, he did not pass any order till 5‑3‑1988. From the order‑sheet entry it appears that after 13th July, 1985 when he issued a notice under section 65 of the Ordinance he took proceedings on 1‑9‑1985 and 16‑12 1985 only. It may be stated that the stay order was granted by the High Court on 14‑1‑1986. There is no entry on the order sheet indicating any proceedings have been taken by the I.T.O. between 16‑12‑1985 to 5‑3‑1988.

10. There is still another argument in favour of the assessee that in any case the High Court had dismissed the Writ Petition for non‑prosecution on 20‑6‑1987 and the department was not un-represented. The Legal Advisor of the department was present in the Court. The assessing officer had still time to decide the case till 30th June, 1987 had he been vigilant. Since the period of limitation is involved in this case the department is bound to explain each day's delay even if there was an application for condonation of delay. In this case there is no explanation for no action between the period from 16‑12‑1985 to 14‑1‑1980 when the stay was granted. Then again there is no explanation why the case could not be finalised after 20th June, 1987. Even after this 20th June, 1987 the case was re‑started on 5th March, 1988.

11. For the foregoing reasons, we are satisfied that by virtue of application of subsection (3‑A) of section 65 the assessments had become time‑barred. Since, we are accepting the appeals on this issue, we need not go into the other grounds taken by the learned counsel for the assessee. All the appeals are accepted. M.BA./891/T Appeals accepted.