P L D 1979 Karachi 121 (PLP)

2. The Business Profits Tax Act, 1947 (Act XXI of 1947) applied to the profits of the business of the respondent‑Company, Messrs Muhammad Ebrahim & Co. (1948) Ltd., Karachi. Under the charging section 4 of the said Act, a business profits tax at 16‑2/3 % was liable to be charged, levied and paid on the amount of the taxable profits during any chargeable accounting period. The chargeable accounting period of the respondent was the period of 9 months ending on 31st March 1958. The Business Profits Tax Officer issued a notice on 25‑3‑63 to the respondent under section 11 of the said Act requiring the respondent to file a return within 50 days, but before the expiry of the notice period, he framed an assessment on 30‑3‑63 and levied business profits tax of Rs. 28,757 on the proportionate taxable profits. On appeal by the respondent, the Income‑tax Appellate Tribunal (hereinafter referred to as the Appellate Tribunal) by its order dated 24‑9‑64 set aside the assessment as invalid on the ground that it was premature as it was made before the due date had expired for filing of the return. Thereafter, the Business Profits Tax Officer purporting to act under section 12(1) of the said Act read with section 34(2‑D) of the Income‑tax Act 1922, issued a fresh notice dated 23‑12‑64, this time under section 11(2) of the said Act and framed a fresh assessment on 28‑12‑64 levying the same amount of business profits tax.

3. The respondent appealed to the Appellate Tribunal contending that the second assessment made on 28‑12‑64 was beyond 4 years from the end of the chargeable accounting period, which expired on 31‑3‑

62. The Appellate Tribunal, however, assumed the period of limitation for making the second assessment as expiring on 30‑6‑64 by the application of section 34 of the Income‑tax Act as modified by the Central Board of Revenue. It is, however, not material to discuss the reasons which prevailed with the Appellate Tribunal for reaching that conclusion, because the Appellate Tribunal held that even on that assumption, the making of the second assess ment on 28‑12‑64 was barred by time. Incidentally, Mr. Ali Athar, learned counsel for the respondent, was able to show that the limitation period correctly expired on 30th June 1963 and not on 30th. June 1964 as inadvertently calculated by the Appellate Tribunal, because in view of the modifications made by the Central Board of Revenue to section 34 of the Income‑tax Act as authorised by section 19(1) of the Business Profits Tax Act, the 4 years' limitation period commenced from the end of the financial year commencing next after the end of the chargeable accounting period; that is, the 4 years' period was from 1‑7‑59 to 30‑6‑

63. The contention of the Department was that subsections (2‑B) and (2‑D) were added to section 34 of the Income‑tax Act, the former by the Finance Act, 1963 and the latter by the Finance Act 1964, which later Act also gave retrospective effect to subsection (2‑B) covering the period ending 31st December 1964. That while subsection (2‑B) did away with the restriction of time for making the reassessment in this case, subsection . (2‑B) enabled the competent authority to start the proceedings from the stage at which the original assessment was cancelled without restriction as to limitation. It was argued that both these subsections of section 34 were in force on the relevant date on which the fresh assessment was made on 28‑12‑64 and, as section 34 was squarely applicable, the provisions of subsections (2‑B) and (2‑D) of. section 34 had to be read into the Business Profits Tax Act for all purposes and shall always be deemed to be there in view of the retrospectively given to these provisions in the Income‑tax Act by the Finance Act, 1964. There was, therefore, no time limit contemplated in business profits tax assessment and that the fresh assessment made on 28‑12‑64 could not be barred by limitation.

4. The contention of the Department was rejected by the Appellate Tribunal for the reason that section 19(2) of the Business Profits Tax Act clearly laid down that reference in that Act to the Income‑tax Act, 1922 shall mean the Income‑tax Act as in force in the relevant period in relation to the profits of any chargeable accounting period and to the state of affairs and all the circumstances necessary to determine the charge to business profits tax. That both subsections (2‑B) and (2‑D) of section 34 were not in force during the relevant period and unless section 19 itself was amended to import the contents of subsections (2‑B) and (2‑D) of section 34 of the Income‑tax, the same could not help to validate the fresh assessment of business profits tax, which was barred by time, as it was made on 28‑12‑1964. That, therefore, the cancelled assessment could not be re‑opened under sec tion 34 (2‑D) of the Income‑tax Act.

5. The Commissioner of Income‑tax (East), Karachi, thereupon applied for a reference to the High Court under section 19(1) of the Business Profits Tax Act read with section 66(1) of the Income‑tax Act. The application was granted by the Appellate Tribunal and the following two questions have been referred to us:‑ "(1) Whether the Tribunal was justified in holding that the provisions of subsections (2‑B) and (2‑Di of section 34 of the Income‑tax Act are inapplicable to the assessment made under the Business Profits Tax Act? (2) Whether the assessment under the Business Profits Tax Act in this case for the chargeable accounting period ending on 31st March 1958, completed on 28th December, 1964 was barred by limi tation?"

6. The main contention of Mr. Mansoor Ahmad Khan, learned counsel for the applicant Commissioner, is that the provisions of section 34 of the Income‑tax Act relate to the machinery of assessment and recovery of tax, and subsections (2‑B) and (2‑D) of section 34 introduce amendment of a procedural nature relating thereto and as such, take effect retrospectively. He cited in support of this proposition, the decision of the Supreme Court in Kohinoor Textile Mills Ltd. v. C. I. T. (1974 P T D 239). He contended that the subsec tions (2‑B) and (2‑D) existed on 28‑12‑64, on which date the re‑assessment was made. According to him, subsection (2‑B) enabled re‑opening of the assessment which was otherwise barred by time and, subsection (2‑D) enabled the Business Profits Tax Officer to start proceedings from the stage next preceding the stage at which the cancellation of the original assessment took place and, therefore, there was no question of any limitation. Counsel submitted that if subsections (2‑B) and (2‑D) existed at the time of re‑opening of the assessment on 28‑12‑64, it was not necessary that these subsections 4 should be in force during the relevant period, for, according to him, the words "relevant period" in section 19(2) of the Business Profits Tax Act mean "relevant time". We have considered this submission of the counsel, but the same has not impressed us. Section 19(2) of the Act reads as follows;

19.

(1)

(2) Any reference in this Act, to the Income‑tax Act, 1922 shall, in relation to the profits of any chargeable accounting period and to the state of affairs and all the circumstances necessary to determine the charge to business profits tax, means the said Act as in force in the relevant period: Provided that whatever be the relevant period, reference to section 46 of the said Act shall be deemed to include reference to subsections (8), (9) and (10) of that section."

7. The "relevant period" is clearly the chargeable accounting period as defined in section 2(4) (a) of the Business Profits Tax Act as meaning any accounting period falling wholly within the term beginning 1‑4‑46 to 31‑3‑

58. It is in relation to the profits of any chargeable accounting period, that any reference in the Business Profits Tax Act to the Income‑tax Act, is to be taken to mean the Income‑tax Act as in force in that relevant period. As subsections (2‑B) and (2‑D) were clearly not in force during the relevant chargeable accounting period ending 31‑3‑58, they were not incorporated by reference in section 19(2) of the Business Profits Tax Act. Therefore, section 34 of the Income‑tax Act has to be taken as it stood in 1957 when section 34 as it then stood, was incorporated by reference, in section 19(1) of the Business Profits Act, by the Finance Act, 1957 with effect from 1‑4‑57 (subject to notification by the Central Board of Revenue). The present was not a case of a fresh assessment made on remand, nor a case of a pending proceedings. It was a case where the original assessment was cancelled and, therefore, it became necessary to make a fresh assessment. As rightly submitted by Mr. Ali Athar the Act ceased to operate on 31‑3‑58 and in all cases where business profits tax is leviable, an order of assessment cannot be made beyond 4 years from the end of the financial year commencing next after the end of the chargeable accounting period, which expired in this case, on 30‑6‑63 and on which date, subsections (2‑B) and (2‑D) were not on the statute book.

8. We would accordingly answer both the questions referred to us in the affirmative and hold that: (i) The Tribunal was justified in holding that the provisions of subsections (2‑B) and (2‑D) of section 34 of the Income‑tax Act are in applicable to the assessment made under the Business Profits Tax Act. (2) The assessment made under the Business Profits Tax Act in this case for the chargeable accounting period ending on 31st August March 1958(?) completed on 20th December 1974 was barred by B limitation. The Commissioner shall bear the costs of this Reference. S. Q. Questions answered in the affirmative.