1993 PLP (Trib (PTD)

"It is an immediate fixed right of present or future enjoyment, and rights are vested in contradistinction to being expectant or contingent." It has further defined that: -- "It must be a title to the present or future enjoyment of property, or to the present or future enforcement of a demand, or a legal exemption from a demand made by another."

11. We have seen that the Central Board of Revenue does possess the powers to modify its earlier Circulars or Notifications under the authority of section 21 of the General Clauses Act. However, it cannot adversely affect the rights of a person, if any, in the meantime acquired by an assessee. Here we are not agreeing with the learned counsel for the assessee nor with the view of the Tribunal expressed in the case reported as 1990 P T D (Trib.) 988 that the principle of locus poenitentiae can be generalized. Thus, we do not contribute to the view that the Central Board of Revenue had no power to amend, modify or rescind the earlier Circulars Nos.10 and 11 in regard to the simplified procedure issued under section 59(b) of the Ordinance by Circular No.19 of 1988 dated 5-10-1988. However, this is with qualifications. If a person had acquired any right under the original Circulars but it has been taken away by the amendment made by Circular No.19 of 1988, that cannot be done. There will be two categories of cases: -- (i) where the Returns have been filed by an assessee before 5th October, 1988; (ii) where the Returns have been filed after 5th October, 1988. In a case where the Return has already been filed and after the filing of the Return the assessee is adversely affected because of the modifications and amendments made by Circular No.19, that cannot be done in the garb of power exercised under section 21 of the General Clauses Act. If an assessee was qualified under the simplified procedure promulgated by the C.B.R. under section 59(b) of the Ordinance and that assessee filed Return under the Scheme, subsequently, undo: the garb of clarification that right of an assessee could not be taken away. Now the assessee if he has filed the Return before 5th October, 1988 his Return was fully qualified under the earlier Circular to be accepted under section 59(b) of the Ordinance as an individual and he acquired a vested right and the C.B.R: s Circular No.19 shall have no effect on such an assessee. It may be noted that Circular No.19 claims to be a clarification of earlier Circulars but in the shape of para. 3 it makes a basic change in the earlier Circulars in that an individual who takes over a business of a registered firm, is regarded as successor of the firm and his Return is disqualified under this para. if the income of a registered firm in the earlier assessment year was more than Rs.1,00,000.

12. The second category of cases are those where the Returns have been filed after 5th October, 1988. Since the Returns have been filed after the issuance of Circular No.19 dated 6-10-1988 no right is acquired by such assessees and therefore, there is no question of adverse affect on their rights by making the amendment under Circular No.19 of 1988. In the present case neither in the assessment order nor in the first Appellate order the date of filing of the Return was mentioned. The learned counsel for the assessee has also not given us the date of filing of the Return. We had called the record of the department and it was discovered that the Return for the assessment year 1988-89 was filed on 14th October, 1988. This means that the assessee's case fell under the second category of cases. Since the amendment had already taken place before the filing of the Return for the assessment year 1988-89, the assessee did not acquire any right so as to apply the principle laid down above and therefore, there is no question of any adverse effect of any right whatsoever. The Tribunal's decision (Islamabad Bench) reported as 1990 PTD (Trib.) 988 relied upon by the learned counsel for the assessee, with respect, is not correct. The learned Tribunal generalised the principle and had held that the C.B.R. has no power to amend the earlier scheme issued by it under the authority of section 59-B of the Ordinance. The sole ground on which the learned Tribunal has held the Circular No. 19 as ultra virus is with the following observations: -- "Clarifications issued subsequently by the C.B.R. were incompatible with both the letter and spirit of the schemes inasmuch as they introduced an extraneous matter finding no place therein." With respect, the learned Tribunal has completely ignored section 21 of the General Clauses Act which has been discussed above in detail. Under that section the C.B.R. had ample power to amend, modify or even rescind the earlier scheme. No doubt, Circular No.19 had been issued by way of clarification but nevertheless that Circular amends, and modifies, in certain respect, the scheme earlier issued by it. As stated above unless an. assessee had acquired certain rights before the modification of the earlier scheme and those rights were adversely affected because of the modification, the assessee has no right to challenge the modifications. "The letter and spirit of the scheme" is not the criterion on which any modification or amendment lawfully made by the C.B.R. under the authority of section 59-B of the Ordinance read with section 21 of the General Clauses Act, could be nullified. The only exception to the rule of locus poenitentiae as given by section 21 of the General Clauses Act, is as to whether in between the period of the original scheme and the modification made subsequently, an assessee had acquired any vested right. Since, the Return had been filed subsequent to the modification made by Circular No.19 of 1988 dated 5-10-1988, the assessee did not acquire any right nor that alleged right had been adversely affected by the modification inasmuch as the Return had been filed by the assessee on 14-10-1988 i.e. after 5th October, 1988. The Division Bench decision of the Islamabad Bench (supra) is, therefore, distinguishable.

13. On merit the assessee has contested the estimate of sales. The sales declared by the assessee were at Rs.2,86,000 against which the I.T.O. had estimated the sales at Rs.4,50,000 which have been reduced by the learned C.I.T.(A) to Rs.3,50,

000. The sales as estimated by the learned C.I.T.(A) are reasonable and therefore, no interference is called for in his order.

14. Assessment year 1989-90.--Since the assessee's income for the assessment year 1988-89 has been assessed at more than Rs.1,00,000 the simplified procedure laid down for the assessment year 1989-90 had no application on the assessee for this reason that the assessee's case was taken out of that scheme. In order to qualify under the simplified procedure under Circular No.7 of 1989 there were two conditions laid down by the Scheme: -- In the case of existing assessee: (i) The total declared income is less than Rs.1,00,000. (ii) ,The last declared total income and the last assessed total income was less than Rs.1,00,

000. Since the last assessed income of the assessee by the I.T.O. was more than Rs.1,00,000 for the assessment year 1988-89, therefore, the assessee's case was also excluded from the simplified procedure for the assessment year 1989-90. Consequential effect of our decision for the assessment year 1988-89 is that the assessee is automatically disqualified under the simplified procedure for the assessment year 1989-90 as well as in the last assessed income of the assessee would be more than Rs.1,00,000.

15. The learned counsel for the assessee contended that Circular No.11 of 1989 has been held to be illegal by the Tribunal in the aforementioned case. In the first instance Circular 11 has no relevancy as in the assessment year 1989 90 even in Circular No.7 of 1989 the assessee does not qualify in view of our order for the assessment year 1988-89. Since for the assessment year 1988-89 we have already maintained the assessment order in which the assessee's assessed income was more than Rs.1,00,000, therefore, the assessee falls outside the scope of simplified procedure. As for the estimate of sales, the assessee had declared sales at Rs.3,20,000 against which the I.T.O. estimated the sales at Rs.5,00,000 and applied gross profit rate at 32.42% on the basis of the history of the case. The learned C.I.T.(A) has already reduced the sales to Rs.4,00,

000. We have already maintained the sales estimate-at Rs.3,50,000 for the earlier assessment year 1988-89 and keeping in view this history, the sales estimated at Rs.4,00,000 by the learned C.I.T. (Appeals) being reasonable are maintained.

16. As a result of the above discussion both the appeals of the assessee are dismissed. (Sd. (Sd.) (AA. Zuberi) (Abrar Hussain Naqvi) Accountant Member Judicial Member INAM ELLAHI SHEIKH, ACCOUNTANT MEMBER.

17. I have carefully perused the proposed order recorded by my learned brother, the Judicial Member who has thrashed the facts and circumstances of the case threadbare. My learned brother, the Judicial Member, has proposed to overrule a decision of the Division Bench dated 16-8-1990 in ITAs. Nos.218 and 219/IB/1989-90 (also recorded as 1990 P T D (Trib.) 988), to which I was a signatory. My learned brother, the Judicial Member, has re-examined the issue involved from various angles which had not been considered at the time of passing of that order of the Division Bench in ITAs. Nos.218 and 219/IB of 1989-90 wherein the following finding was given: -- "After a careful appraisal of the contentions of the learned representatives of the parties and the provisions of the relevant schemes of simplified procedure, we are constrained to hold that there is ample weight and substance in the points made by the appellant's learned counsel. The scheme for 1988-89 did not contain any provisions about the change of status and paragraph 3 of the scheme for 1989-90 did not cover the cases involving change in status from an R.F. to an individual. The clarifications issued subsequently by the C.B.R. were incompatible with both the letter and spirit of the schemes inasmuch as they introduced an extraneous matter finding no place therein."

18. My learned brother, the Judicial Member, has held that the provisions of section 21 of the General Clauses Act were applicable in the circumstances of this case and that under this section 21, the C.B.R. had ample power to amend, modify or even rescind the earlier scheme. My learned brother has also held that the scheme of simplified assessment stood modified by Circular No.19 in certain respects although the same had been issued by way of clarification. My learned brother has also classified such Returns, i.e. where the business of a registered firm has been taken over by one of its partners, into two categories viz. where the returns had been filed before the issuance of the said Circular No.19 of 1988 and those which have been filed after that date. My learned brother has held that where the returns had already been filed before the date of issuance of the Circular, i.e. 5th October, 1988 such returns fully qualified to be accepted under section 59-B of the Ordinance as such individual assessee had acquired a vested right and the C.B.R Circular No.19 has been held to have no effect on such an assessee. It has also been elaborated that the said Circular No.19 makes a basic change in the earlier Circular in that an individual who takes over a business of a registered firm is regarded as successor of such firm although the circular claims to be a clarification. The second category of such cases i.e. where succession of a business of a registered firm by a partner is involved, where Returns have been filed after 5th of October, 1988 has been held not to be covered by the Scheme of Simplified Assessment Procedure, by my learned brother.

19. Although I was a signatory to the earlier order of the Tribunal reported as 1990 P T D (Trib.) 988, I have no hesitation in admitting that case had not been examined in such a depth. Hence I have reconsidered the whole decision of the Division Bench to which I was a signatory, afresh. I have considered the reasonings given by my learned brother. Mr. Abrar Hussain Naqvi the Judicial Member, and also those adopted in the decision of the Division Bench.

20. In my view it would be useful to reproduce the relevant provisions of taw, i.e. section 59-B(1) of the Ordinance which empowers the C.B.R. to frame the Scheme of Simplified Procedure for Assessment which reads as follows:-- "59-13. Assessment under the simplified procedure for assessment.--(1) Where the return of total income of an assessee, being an individual, an unregistered firm, a registered firm, an association of persons or a Hindu undivided family, for the income year relevant to the assessment year commencing on or after the first day of July, 1988 (and ending on or before the thirtieth day of June, 1990) qualifies for acceptance in accordance with the provisions of a scheme of Simplified Procedure for Assessment made by the Central Board of Revenue for that year, or under any instructions or orders issued thereunder, the total income of the assessee shall be assessed on the basis of the said Return."

21. The scheme was laid down in Circular No.10 of 1988 dated 22-8-1988 and it would be useful to reproduce the following extracts of the scheme which are relevant to the fact of this case reported as (1988) 58 Tax 34 Statutes: GOVERNMENT OF PAKISTAN/CENTRAL BOARD OF REVENUE, ISLAMABAD, the 22nd August, 1988 CIRCULAR NO. 10 OF 1988 (INCOME-TAX) Subject: SIMPLIFIED PROCEDURE FOR THE ASSESSMENT YEAR 1988-89. In accordance with the provisions of section 59-B of the Income-tax Ordinance, 1979 the Simplified Procedure for Assessment for the assessment year 1988-89 will be as under:-- (1) Scope of the scheme.--A return filed by an individual, an unregistered firm, an association of persons or a Hindu Undivided Family, for the assessment year 1988-89 shall, subject to the provisions of paragraph 2, qualify for the Simplified Procedure for Assessment if it fulfils the following conditions; namely: (i) the income declared is less than Rs.1,00,000; and (ii) the income assessed for the latest assessment year preceding the assessment year 1988-89 was less than Rs.1,00,000. (2) The following Returns shall not qualify for assessment under the Simplified Procedure:-- (a) A return filed for an assessment year prior to the assessment year 1988-89. (b) A return wherein loss is declared for the assessment year 1988-89. (c) A return where there is loss (including unabsorbed depreciation carried forward from an earlier assessment year. (d) A return filed by a person who was not resident in Pakistan during the income year relevant to the assessment year 1988-89.

22. Subsequently certain other Circulars were issued by the C.B.R. to clarify or explain the provisions of the scheme, such as Circular No.14 of 1988 and Circular No.19 of 1988. Certain clarifications contained in Circular No.19 of 1988 give rise to the controversy under consideration. The department has relied on the following clarifications given in Circular No.19 while refusing the present assessee's claim for assessment under Simplified Procedure for Assessment: "Change of status.--Where a partner or a member takes over the business of an existing firm or A.O.P. it would be a case of succession and the successor shall be taken to be an existing assessee. If the last assessed income of the firm, or A.O.P. exceeds Rs.1,00,000 the case of successor shall fall outside the scope of Simplified Procedure."

23. There is no dispute over the fact that as per paragraph 6 of Circular No.10 of 1988 only such case involving a change in status from A.O.P. URF and HUF to RF or from a RF to AOP, URF and HUF were to be considered existing assessee under certain circumstances and that there is no mention of a case where a partner took over the business of a registered firm for treatment as an existing assessee. There is also no dispute over the fact that Circular No.10 of 1988 enhanced this provision of change of status by treating the take over of the business of existing firm by a partner as a succession and such partner is purported to be held as an existing assessee. The Division Bench of the Tribunal had earlier held that the C.B.R. had no authority to enhance the provision with regard to the change of status in the mark of clarification but my learned brother, the Judicial Member Mr. Abrar Hussain Naqvi has held that this was valid action in view of the provision of section 21 of the General Clauses Act. I do not dispute the findings of my learned brother, the Judicial Member with regard to the powers of the C.B.R. to amend or even rescind the scheme. However, I am still of the considered view that this amendment could not be made in the garb of an explanation. If the C.B.R. intended to modify the scheme, then it should have clearly said so rather than the issuance of clarification. I have already reproduced the relevant extracts of Circular No.10 of 1988 and it is clear from the opening paragraph of the said Circular that the CBR had laid down the scheme in accordance with the provisions of section 59-B of the Ordinance. If it had intended to modify this Scheme, the CBR should have exercised its powers clearly under the provisions of section 59-B of the Ordinance again rather than doing so by way of a clarification. Firstly the clarifications are merely procedures or explanations which may or may not have been considered as seriously as this scheme itself. Secondly a clarification cannot go beyond what is clearly written in the scheme itself.

24. My learned brother has classified the relevant individual assessees into two categories, i.e. those who had filed the Returns before 5th of October, 1988 and those who filed Returns subsequently. My learned brother has held that the first category of the assessment had acquired vested right and were thus qualified to be assessed under Simplified Procedure for assessment whereas the other class, i.e. those who filed the Returns after the issuance of the impugned clarification, have been held not to be so qualified as no vested right had accrued to them. My learned brother has referred to certain case-law in his order wherein it has been held that the authority that has the power to make an order has also the power to undo it but the same has been held to be subject to he condition that where the order has taken legal effect and certain rights have been created, such an order could not be withdrawn or rescinded to the determent of such right. However, in my view none of these cases is parallel to the circumstances of this case. I also find that in all these cases it has been held that an order cannot be modified or rescinded where a decisive act has been taken, and in those cases an affected party could take the protection if he had taken certain steps in compliance to a notice which was subsequently modified or rescinded. For instance in the case of Mardan Industry Limited v. Government of Pakistan reported as P L D 1965 Pesh. 47, the assessee petitioner had established a new industrial undertaking for manufacture of cigrettes in view of a notification granting certain exemptions. These exemptions were subsequently withdrawn and it was held in that case that it was too late for the Government to retrace its steps and rescind the exemption as the industrial undertaking had gone into operation. In my view the circumstances of this case are somewhat different. In the present case the assessee has to file a Return and to pay tax on his income under the law as, he was an existing assessee in the immediately preceding year when his income was said to have been assessed at Rs.19,

300. Thus, in the present case the appellant-assessee had no such choice as appears o be available in the cases relied upon by my learned brother, the Judicial Member. For instance in the case of Mardan Industries Limited (supra), the company had a choice whether to establish a factory or not in view of the notification. Thus, in those cases the subject acquired a vested right only if he took certain action in pursuance of a notification or Circular before it was modified or rescinded and he could refrain from taking such steps after the modification etc. of such notifications. In the present case, however, there is no such choice available and the assessee is required by law to file a return and to pay tax thereon. Hence in my view the assessee acquired a vested right immediately on the announcement of the scheme. I also do not agree with the findings of my learned brother, the Judicial Member, whereby he has classified the assessees into two categories i.e. those who filed the Returns before the issuance of the clarifications and those who filed the Returns after the issuance of clarifications. In my humble view this would be against the principle of natural justice, which is fully applicable to the income-tax law.

25. It may also be noted that the assessee-appellant is not claiming to be a new assessee as he has already been assessed to tax in the immediately preceding year on his share of income from the firm of which he has been held to be a successor under para. 3 of Circular No.19 of 1988. Since a comparison can be mace between the income returned by him in the year 1988-89 to that assessed in the year 1987-88, which would qualify him under paragraph 1 of Circular No.10 of 1988, there was no need to compare the income declared by him during the year 1988-89 with that assessed in the hands of the registered firm in the preceding year.

26. A perusal of the scheme originally contained in Circular No.10 of 1988 reveals that there was no intention to treat the succession of a partner to the business of a registered firm as a succession. The original provision in the said Circular No.10 with regard to the succession of business was laid down under the head Miscellaneous in para. 6(a) in the following words:-- "Cases involving a change in status from AOP, URF and HUF to a RF or from a RF to AOP, URF and HUP would be considered existing assessees unless the name, nature and place of business does not remain the same."

27. The provisions of paragraphs 1 and 2 of the same Circular laying down the qualifications or disqualifications for assessment under the scheme have already been reproduced above. Under the provisions of paragraph 3(c) new assessees were also allowed to file the returns, presumably for acceptance. The income of partner of a registered firm is normally assessed alongwith the income of the registered firm. In the present case the income was said to have been assessed at Rs.19,300 in the assessment year 1987-88 whereas in the year under consideration the assessee had filed Return to declare income at Rs.33,

000. Thus the assessee fully qualified for assessment under Simplified Procedure under the provisions of paragraph 1 of the scheme as none of disqualifications mentioned in paragraph 2 thereof hit the assessee. Reading the provisions of paragraphs 1, 2, 3(c) and paragraph 6(a) together, it would appear that the intention of the Board was to prevent such assessees who were already in business by taking the advantage of concession to the new assessees by changing the status from one artificial person to another i.e. from AOP, URF and HUF to RF or few others as such change in status would have resulted in the creation of a new assessee. Under the law the assessee in the present case is an existing assessee and he could not become a new assessee or successor to a previous assessee by fiction of law even if we were to accept that the Board could enhance the provision with regard to change of status by way of a clarification.

28. Thus, I am of the considered view that the judgment given in ITAs. Nos.218 and 219/LB of 1989-90 requires no interference. Hence I feel that the assessee's claim for assessment under Simplified Assessment Procedure for the assessment year 1988-89 should be accepted following which there should be no difficulty in the acceptance of the similar claim in year 1989-90 when the assessee had declared an income of Rs.34,

000. By majority both the appeals of the assessee are dismissed. M.BA./1745/T Appeals dismissed.