1969 PLP 611 (PTD)

ABDUS SATTAR, J.‑These two appeals by special leave are directed against the judgment and order of a Division Bench of the High Court of West Pakistan at Karachi, quashing two orders of assessment made by the appellant No. 1 pursuant to notices issued under section 34(1) of the Income‑tax. Act. The facts leading to the present appeals are :‑ The respondent is a Company incorporated under the Indian Companies Act having its head office at Bombay and is, there fore, non‑resident in Pakistan. The Associated Cement Company Limited (hereinafter called the Managed Company) a Company which also was incorporated under the Indian Companies Act, 1913 and has two cement factories in Pakistan, appointed the respondent‑Company as its Managing Agent. The respondent Company being non‑resident in Pakistan did not file any return of income in Pakistan after its creation but continued to file returns in Bombay and was assessed to income‑tax by the Income‑tax Officer there. On the 30th January 1956, the Income‑tax Officer issued two notices under section 34(1) of the Income‑tax Act to the respondent for the assessment years 1953‑54 and 1954-55. On the same day a notice under section 22(2) of the Act also was issued to the respondent for the assessment year 1955‑

56. On the 8th March 1956, the respondent filed returns for the years 1951‑52, 1952‑53, 1953‑54, 1954‑5 and 1955‑

56. The Income‑tax Officer, by his order dated the 24th March 1956, assessed the respondent‑company for the year 1951‑

52. The respondent filed an appeal against this order and the order of assessment was set aside by the Appellate Assistant Commissioner mainly on the ground that the respondent‑company being non‑resident was not liable to income‑tax in Pakistan. This order was upheld by the Income tax Appellate Tribunal by its order dated the 25th of October 1957. The assessment for the year 1952‑53 was also set aside and the Appellate Tribunal upheld the decision of the Appellate Assistant Commissioner by its order dated the 11th of October 1959. In view of these orders of the Appellate Tribunal the proceedings in respect of the other years for which returns had been filed on the 8th March 1956, were dropped on the 25th of June 1958 and the Income‑tax Officer issued a certificate that the respondent‑company was not liable for income‑tax in Pakistan. It appears that after the decision of this Court in the case of Octavius Steel & Company Limited v. The Commissioner of Income‑tax, Dacca (P L D 1960 S C 371), the Department thought that the decisions made by the Income‑tax Appellate Tribunal were not sustainable and the respondent‑company though non‑resident in Pakistan was liable for income‑tax. The Income‑tax Officer, therefore, on the 11th December 1962, issued notices to the respondent under section 34(1) of the Act on the ground of "escapement of assessment" for the assessment years 1951‑52, 1952‑53, 1953‑54, 1954‑55 and 1955‑

56. The respondent submitted returns of income under protest for the said years on the 28th January 1963. The claim of the respondent, inter alia, was that the said notices were barred by limitation as they had been issued after four years. The Income‑tax Officer over ruled this objection and made assessment by his order dated the 30th November 1963. The respondent filed an appeal against this order to the Income‑tax Appellate Tribunal as well as two writ petitions in the High Court challenging the assessment orders. The High Court found that the notices issued under section 34(1) of the Act on the 11th of December 1962, were issued beyond time and therefore the assessment orders were made without jurisdiction. Leave to appeal was granted to consider whether the view taken by the High Court that the returns filed by the respondent Company pursuant to notices under section 34(1) "would be deemed to have been filed under‑ section 22(2) of the Act" and therefore the assessments made after four years after the end of the years in which the income, .profits or gains were first assessable were without jurisdiction, was correct. Subsections (1) and (2) of section 34 of the Act are in the following terms :‑ "34(1).‑If for any reason income, profits or gains chargeable to income‑tax have escaped assessment in any year, or have been under assessed, or have been assessed at too low a rate, or have been the subject of excessive relief under this Act, the Income‑tax Officer, may in any case in which he has reason to believe that the assessee or another person on his behalf has not filed any return under subsection (1) or sub section (2) of section 22 or concealed the particulars of his income or deliberately furnished inaccurate particulars thereof or omitted or failed to disclose all material facts necessary for the assessment for that year at any time and in any other case at any time within four years of the end of that year, serve on the person liable to pay tax on such income profits or gains or, m the case of a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under subsection (2) of section 22, and may proceed to assess or re‑assess such income, profits or gains, and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that subsection: Provided that the tax shall be charged at the rate of which it would have been charged had the income, profits or gains not escaped assessment or full assessment, as the case may be: Provided further that where the assessment made or to be made is an assessment made or to be made on a person deemed to be the agent of a non‑resident person under section 43, no notice under this subsection shall be issued after the expiry of one year of the end of that year: Provided further that unless definite information has come into his possession the Income‑tax Officer shall not initiate proceedings under this subsection without obtaining the previous approval of the Inspecting Assistant Commissioner of Income‑tax in writing. (2) No order of assessment under section 23 or of assessment or re‑assessment under subsection (1) of this section shall be made after the expiry, in any case in which the assessee has not filed any return under subsection (1) or subsection (2) of section 22 or concealed the particulars of his income or deliberately furnished incorrect particulars of such income or omitted or failed to disclose all material facts necessary for the assessment for that year, of four years from the end of the year in which the income, profits or gains were first assessable: Provided that where a notice under subsection (1) was issued within one year before the expiration of the time‑limit specified in that subsection, the assessment or re‑assessment, as the case may be, may be made in pursuance of such notice within one year from the date of service of such notice: Provided further that nothing contained in this section limiting the time within which any action may be taken or any order, assessment or re‑assessment may be made, shall apply to an assessment or re‑assessment, as the case may be, made on the assessee or any person in consequence of, or to give effect to, any finding or direction contained in an order under section 31, section 33, section 33‑A, section 34‑A, section 12 or section 66‑A or in the case of a firm, to an assessment made on a partner of the firm in consequence of an assessment made on the firm under this section. Explanation I‑Whereby an order under section 31, 33, 33‑A, 34‑A, 66 or 66‑A, any income is excluded from the total income of the assessee for an assessment year, an assessment of such income for another assessment year shall, for purposes of this section, be deemed to be one made in consequence of, or to give effect to, any finding or direction contained in the said order. Explanation II‑Whereby an order under section 31, 33, 33‑A, 34‑A, 66 or 66‑A, any income is excluded from the total income of one person and held to be the income of another person, an assessment of such income on such other person, shall, for purposes of this section, be deemed to be one made in consequence of, or to give effect to, any finding or direction contained in the said order." The learned Judges of the High Court took the view that as the only provision under which the assessee submits return is section 22(1) of the Act, the returns filed by the respondent were, under section 22 of the Act. They have further observed that even if the returns in question were filed in response to notices issued under section 34 of the Act they would be deemed to have been filed under section 22(2) of the Act. In arriving at this conclusion reliance has been placed on the words "may proceed to assess or re assess such income, profits and gains and the provision of this Act shall so far as may be apply accordingly as if the notices were a notice issued under that subsection" occurring in subsection (1) of section 34 of the Act. They have further found that the word "any" before return in subsection (1) of section 34 of the Act is wide enough to include the return filed in response to a notice under section 34(1) which will be deemed to be a notice under subsection (2) of section 22 of the Act. Subsection (1) of section 34 prescribes two periods of limitation. The Income‑tax Officer can serve notice under section 34(1) of the Act "at any time":‑ (a) the assessee has not filed any return under subsection (1) or subsection (2) of section 22 ; or (b) the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars thereof ; or (c) the assessee has omitted or fails to disclose all material facts necessary for assessment for the year. In any other case the period prescribed is "at any time within four years of the end of the year". The question that falls for determination is whether the returns filed by the respondent pursuant to the notice under section 34(1) of the Act issued on the 11th of December 1962, are returns under section 22 of the Act as contemplated by section 34(1). The learned Judges in holding that the assessments were made beyond the period of limitation have observed as follows : ‑ "In the second place even if the petitioner filed his return in respect of assessment years in question in response to notice issued on 30th January 1956, under section 34(1) of the Act, the returns would be deemed to have been filed under section 22(2) of the Act. That this is so, is clear from sub -section (1) of section 34 of the Act already reproduced. Reference may be made again to the words "may proceed to assess or re‑assess such income, profits or gains, and the provisions of this Act, shall so far as may be apply accordingly as if the notice were a notice issued under that subsection". If the notice is to be deemed to be a notice under subsection (2) of section 22, it follows that the return would be in response to the same. In this connection we would like to note the word "any" before "return" under subsection (1) of section 34 of the Act. The word "any" is wide enough to include the return filed in response to a notice under section 34(1) which is deemed to be a notice under subsection (2) of section 22 of the Act. The departure in the language from `a' to `any' occurring under section 34(1) of the. Act is significant. The object as would appear from sub section (1) of section 34 is to give protection to the assessee who files a return in response to a notice under section 34(1) which is to be deemed to be a notice under section 22(2) of the Act. It follows from the concluding portion of sub section (1) of section 34 of the Act that where an assessment starts with a notice under the said section the provisions of the Act apply effectively including the notice under sec tion 22(2) of the Act. Section 3 is the charging section. Then the next important section is section 22 which starts the machinery by which the assessable income by an individual or a company has to be determined. Subsection (2) of section 22 provides that the Income‑tax Officer shall serve a notice upon a person whose total income is in his opinion of such an amount as to render hire liable to income‑tax, to furnish a return in the prescribed form of his total income. Section 34 merely provides a machinery for taking step under certain period of time where any income has escaped assess ment. Once the Income‑tax Officer comes to the conclusion that income chargeable to income‑tax has escaped assessment in any year he will take recourse to a notice containing all or any of the requirement which may be included in the notice under subsection (2) of section

22. In other words, the notice would be under subsection (2) of section 22 of the Act. After the notice had been complied with the Income‑tax Officer will proceed to assess the total income of the individual under section 23 of the Act and determine the amount of tax payable by him." On a careful reading of the section, we are unable to accept the view taken in the above‑quoted passage. It is true that subsection (1) of section 34 of the Act authorises the Income. tax Officer in circumstances mentioned in the said section to serve a notice on the person liable to pay tax on the ground of "escaped assessment" requiring him to furnish all or any of the particulars which may be included in a notice under sub section (2) of section 22 but that, however, does not mean that any return which is filed in reply to such a notice is a return under subsection (2) of section

22. This appears clear from the words "not filed any return under subsection (1) or subsection (2) of section 22". If a return filed on receipt of a notice under subsection (1) of section 34 is to be deemed to be a return under subsection (2) of section 22 then the words quoted above would become meaningless. The relevant portion of section 22 is in the following terms :‑ "22(1).‑The Income‑tax Officer shall, on or before the 1st day of May in each year, give notice, by publication in the press and by publication in the prescribed manner, requiring every person whose total income during the previous year exceeded the maximum amount which is not chargeable to income‑tax to furnish, within such period not being less than sixty days as may be specified in the notice, a return, in the prescribed form and verified in the prescribed manner, setting forth (along with such other particulars as may be required by the notice) his total income and total world income during that year: Provided that the Income‑tax Officer may in his discretion extend the date for the delivery of the return in the case of any person or class of persons. (2) In the case of any person whose total income is, in the Income‑tax Officer's opinion, of such an amount as to render such person liable to income‑tax, the Income‑tax Officer may serve a notice upon him requiring him to furnish, within such period, not being less than thirty days, as may be specified m the prescribed manner setting forth (along with such other particulars as may be provided for in the notice) his total income and .total world income during the previous year: Provided that the Income‑tax Officer may in his discretion extend the date for the delivery of‑the return. (3) If any person has not furnished a return within the time allowed by or under subsection (1) or subsection (2), or having furnished a return under either of those subsections, discovers any omission or wrong statement therein, he may furnish a return or a revised return, as the case may be, at any time before the assessment is made. (4) The Income‑tax Officer may serve on any person who has made a return under subsection (1) or upon whom a notice has been served under subsection (2) a notice requiring him, on a date to be therein specified, to produce, or cause to be produced, such accounts or documents as the Income‑tax Officer may require: Provided that the Income‑tax Officer shall not require the production of any accounts relating to a period more than three years prior to the previous year. (4‑A) The Income‑tax Officer may serve on any person who has made a return under subsection (1) or upon whom a notice has been served under subsection (2), a notice requiring him, on a date to be therein specified, to furnish a statement in the prescribed form and verified in the prescribed manner giving particulars of his total assets and liabilities and of any assets transferred to a wife or minor child or for the benefit of the wife or minor child. (5) The prescribed form of the return referred to in sub sections (1) and (2) shall, in the case of an assessee engaged in any business, profession or vocation, require him to furnish particulars of the location and style of the principal place wherein he carries on the business, profession or vocation and of any branches thereof, the names and addresses of his partners, if any, in such business, profession or vocation and the extent of the share of the assessee and the shares of all such partners in the profits of the business, profession or vocation and any branches thereof. The wording of the section clearly indioates that the return contemplated either by subsection (1) or subsection (2) is a return which is filed within the year of assessment. Any return filed after the expiry of the year of assessment cannot be a return within the meaning of section 22 though the same might have been filed in the form prescribed under section

22. I cannot be disputed that a notice under subsection (2) of section 22 cannot be issued after the expiry of the year of assessment. If no notice under the said subsection has been issued during the assessment year nor has the assessee filed a return under subsection (1) of section 22 proceedings for assessment can only be initiated by the issue of a notice under section

34. A return filed pursuant to such a notice cannot be deemed to be a return under subsection (2) of section 22 of the Act and therefore the period of four years mentioned in sub section (1) of section 34 will not be attracted. In the present case, therefore, the view taken by the High Court that the period of four years was attracted cannot be sustained. The argument of the learned counsel for the respondent that a return under the Act is contemplated by section 22 only and therefore any return that is filed must be deemed to be a return under that section cannot be accepted. The use of the word `any' before return under subsection (1) of section 34 of the Act as distinguished from the Article "A" before return in subsections (1) and (2) of section 22 of the Act does not, in our view, make any difference. The return under subsection (1) or (2) of section 22 as contemplated by subsection (1) of section 34 is a return which is filed within the assessment year and before a notice under section 34(1) is issued. The returns in question were undoubtedly returns under the Act but they were not returns under either subsection (1) or' subsection (2) of section

22. We are, therefore, unable to sustain the finding of the High Court in this regard. It appears from the grounds taken in the writ petitions filed by the respondent that the jurisdiction of the Income‑tax Officer to issue notices under section 34 (1) on the 11th of December 1962, for the second time, was challenged in view of the decisions in the proceedings pursuant to the first notices under section 34(1) dated the 30th January 1956. We have already noticed that after the decisions of the appellate Income‑tax Tribunal holding the respondent not liable for income‑tax in Pakistan in respect of the years 1951‑1952 and 1952‑53 the Department dropped the proceedings for the subsequent years in question and issued a certificate to the respondent that it was not liable to pay income‑tax in Pakistan. The effect of this has not been consi dered by the High Court. Appeal No. K‑28 of 1966 relates to assessment years 1951‑52 and 1952‑

53. Appeal No. K‑29 of 1966 relates to the subsequent three assessment years. It has already been noticed that the assess ment orders in regard to the years 1951‑52 and 1952‑53 were set aside by the Appellate Assistant Commissioner. The appeals preferred against these orders were dismissed by the Income tax Appellate Tribunal. The Department did not take any further steps to challenge those orders which become final. In regard to the assessment years 1953‑54, 1954‑55 and 1955‑56, the assessee filed returns on the 8th March 1956 and it is admitted that after the decisions of the Income‑tax Appellate Tribunal in regard to the previous two years the proceedings in respect of these years were dropped on the 25th of June 1958, and a certificate was issued to the respondent to that effect. The question that falls for determination in these circumstances is whether after this the Income‑tax Officer was entitled to reopen the question of assessment in regard to these years under section 34 of the Act. The Appellate Assistant Commissioner and the Income‑tax Appellate Tribunal took the view that since the Managing Agent and the Managed Company were both residents outside Pakistan, the commission earned by the Managing Agent in regard to the two Cement Factories of the mangaged company in Pakistan was not taxable in Pakistan. This Court in the case of Octavius Steel & Company Ltd. v. The Commissioner of Income‑tax, Dacca, however, took a different view. After the decision of this Court in the above case the second set of notices were issued to the respondent. The question that arises is whether this was permissible. In my view such a course is not sanctioned by law. I do not see how on the basis of the judgment of this Court in Octavius Steel & Company Ltd.'s case past and closed transactions could be reopened. The proceedings in respect of the disputed years were finally disposed of in favour of the respondent and until they are set aside in accordance with law, no fresh proceedings could be initiated in respect of these years. The view that I have taken receives support from the decision of this Court in Civil Miscl. Petition No. K‑21 of 1968 (Works Co‑operative Housing Society and another v. The Karachi Develop ment Authority) decided on the 20th January 1969. In this case my Lord the Chief Justice, in his judgment, referred to the decision of the Privy Council in the case of Lemn v. Mitchel (L R 1912 A C 400). The Privy Council observed that even a legislative measure like an Ordinance expressly given retroactive effective could not operate so as to annul a valid and existing judgment as between parties whose rights had been duly determined and according to the law which existed before the new Ordinance was passed. To the same effect is the decision in the case of Eyre v. Wynn Mackenzie ((1896) 1 Ch. D 135). The decision of the Privy Council in the case of Commissioner of Income‑tax v. Tribune Trust (A I R 1948 P C 102) clearly supports the contention of the respondent. The following quotation from the head note will make the point clear:‑ "An assessee, which was a trust, which had paid tax up to the year 1931‑32, raised an objection in respect of assessment for the year 1932‑33 on the ground that its income for that year was exempt by virtue of section 4(3)(i). In a reference to High Court under section 66 it held that the income was not exempt. The assessee appealed to the Privy Council and the Board reversed the decision of the High Court. Meanwhile after the decision of the High Court and prior to the decision of the Privy Council the assessments for the year subsequent to the year 1932‑33 were made and completed in accordance with the decision of the High Court. The assessee after the decision of the Privy Council made an application under section 33 praying that the assessments for the years subsequent to 1932‑33 might be quashed. The Commissioner refused to cancel the assessments on the ground that the assessee had not availed itself of the procedure which the law provided including if necessary an appeal to the Privy Council in respect of assessments subsequent to the year 1932‑33: Held that the assessments were not a nullity." Mr. Nusrat has not been able to refer to any authority which lends support to the course followed by the Income‑tax Officer. A decision given by a higher Court in another case cannot be a ground for re‑opening an issue which stood finally determined by a decision of a subordinate Court or authority. The learned counsel for the applicants has, however, attempt ed to show that Appeal No. K‑29 of 1966, stands on a different footing. His contention is that as no assessment order was passed by the Income‑tax Officer in respect of these years and there was no decision in favour of the respondent, the notices in respect of these years had been validly issued on the 11th of December 1962. I am unable to accept this contention. It has already been shown that in respect of these years also the proceedings were dropped and a certificate showing that the respondent was not liable to pay income‑tax was issued. After this, in my view, the question in respect of the liability for these years could not be reopened. Regard being had to these facts I would dismiss both the appeals. As, however, the appeals have been dismissed on a ground which was not considered by the High Court I would leave the parties to bear their own costs. HAMOODUR RAHMAN, C. J.‑I agree. SAJJAD AHMAD, J.‑I agree. Appeal dismissed.