2008 PLP 1988 (PTD)

Income Tax Ordinance (XXXI of 1979)--‑

S. 156

Rectification of mistake

Scope

"Mistake apparent from the record" would not cover a "mistake" committed at time when the law was not clear

If two interpretations were possible when the original assessment was made and the Assessing Officer adopted one of those interpretations, it cannot be said that "mistake was apparent from the record"

Assessing Officer could not have invoked S.156(2), Income Tax Ordinance, 1979 in circumstances. 1992 SCMR 687 = 1992 PTD 570; Commissioner of Income Tax, Karachi v. Messrs Shadman Cotton Mills Ltd. Karachi through Director 2008 PTD 253 and 1998 PTD (Trib.) 1379 ref. JUDGMENT MUHAMMAD MUNIR PERACHA, J.

The respondent assessee, a Limited Company, derives income from manufacture and sale of polyester fibre. In the assessment year 1995-96, it filed a return of income with audited accounts. For the above mentioned period, the statement under section 143-B was also filed along with the return. In this statement, interest income has been declared at Rs.3,48,91,250 and tax deduction at Rs.34,89,

125. Assessment was finalized under section 62 of the Income Tax Ordinance 1979, whereby tax was not charged at the normal rate by the Assessing Officer on the interest income of the respondent company and the deducted tax Rs.34,89,125 was taken as final discharge of the tax liability. However, the Assessing Officer gave a notice under section 156(2) of the Ordinance to show cause as to why its case should not be rectified under section 156(2). After hearing representative of the assessee, the Assessing Officer came to the conclusion that the interest income of Rs. 3,48,91,250 is liable to income tax at the normal rate. The assessee challenged the order of the Deputy Commissioner Income Tax through an appeal filed before the Commissioner of Income Tax (Appeals). Learned Commissioner Income Tax (Appeals) vide order dated 16-10-2002 allowed the appeal filed by the assessee holding that section 156(2) of the Ordinance could not have been invoked in the case. The order of the Deputy Commissioner Income Tax was annulled and the original order passed under section 62 was resorted. The Commissioner of Income Tax challenged the above said order dated 16-10-2002 through an appeal filed before the Income Tax Appellate Tribunal. The Income Tax Appellate Tribunal vide order dated 16-9-2006 dismissed the appeal.

2. The Commissioner Income Tax has approached this Court through the present reference.

3. We have heard the learned counsel for the petitioner Ms. Shaheena Akbar, Advocate.

4. According to her, the following questions of law arise from the order of Income Tax Tribunal:--‑ "(1) Whether on the facts and in the circumstances of the case, the learned ITAT was justified to hold that incorrect application of rate of tax is not mistake apparent on the surface of the record, rectifiable under section 156 of the Repealed Ordinance? (2) Whether on the facts and in the circumstances of the case the learned Tribunal was justified in annulling order passed under section 156 of the Repealed Ordinance on the ground that being a debatable issue the provision of section 156 of the Repealed Ordinance was not attracted notwithstanding the fact that mistake regarding incorrect application of tax rate was a mistake of fact as well as mistake of law which falls within the purview of section 156 of the (Repealed) Income Tax Ordinance, 1979? (3) Without prejudice to questions Nos.1 and 2 whether annulling of order passed under section 156 of the Repealed Ordinance by the ITAT does not tantamount to restricting the scope of section 156 of the Repealed Ordinance in contravention of various judicial pronouncement of superior Courts?"

5. Section 156 of the Income Tax Ordinance 1979 reads as:-‑ "Rectification of mistakes.

(1) Any income tax authority or the Appellate Tribunal may amend any order passed by it to rectify any mistake apparent from the record on its own motion or on such mistake being brought to its notice by any other income tax authority or by the assessee. (2) No order under subsection (1), which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, shall be made unless the parties affected thereby have been given a reasonable opportunity of being heard. (3) Where any such mistake is brought to the notice of any income tax authority by the assessee and no order under subsection (1) is made by such authority before the expiration of the financial year next following the date in which it was so brought to its notice, the mistake shall be deemed to have been rectified and all the provisions of this Ordinance shall have effect accordingly. (4) No order under subsection (1) shall be made after the expiration of four years from the date of the order sought to be amended." Section 35 of the repealed Income Tax Act, 1922, hereinafter referred to as "The Act" confers a power to rectify any mistake in the order which is apparent from the record. Such power can be exercised Suo Motu or if it is brought to the notice by an assessee. Therefore, essential condition for exercise of such power is that the mistake which may be seen floating on the surface and does not require investigation or further evidence. The mistake should be so obvious that on mere reading the order it may immediately strike on the face of it. Where an officer exercising power under section 35 enters into the controversy, investigations into the matter, reassesses the evidence or takes into consideration additional evidence and on that basis interprets the provision of law and forms an opinion different from the order, then it will not amount to `rectification' of the order. Any mistake which is not patent and obvious on the record, cannot be termed to be an order which can be corrected by exercising power under section

35. In this regard reference can be made to Shaikh Muhammad Iftikharul Haq v. Income Tax Officer, Bahawalpur, (1966) 13 Tax 203(S.C. Pak) = PLD 1966 SC 524 and Pakistan River Steamer Limited v. Commissioner of Income Tax, (1971) 23 Tax 236 (H.C. Dacca) 1971 PTD

204. In the present case the mistake pointed out by the petitioner was not of a nature to attract section 35 and, therefore, the High Court has correctly answered the first question in the negative."

7. In a recent judgment of the Honourable Supreme Court in case reported as "Commissioner of Income Tax, Karachi v. Messrs Shadman Cotton Mills Ltd. Karachi through Director" (2008 PTD 253), it was held by the Honourable Supreme Court of Pakistan in Para-7 at page 259 of the report:--‑ "Having heard learned Member (Legal) and examined the above provisions, we have not been able to find out any substance in this petition. The perusal of the orders of the Assessing Authority, Commissioner Income Tax (Appeals) and the order of Income Tax Appellate Tribunal as well as the order passed by the High Court would make it clear that exercise undertaken by the Assessing Officer under section 156 of the Ordinance was not simply in respect of a mistake apparent on the face of the record within the contemplation of section 156(ibid), rather it was re-assessment of the tax liability of the assessee on the basis of existing record. The expression "mistake apparent on record" means the error or mistake so manifest and clear which, if is permitted to remain on record, may have material effect' on the case. But an error of fact or law, which having direct nexus with the question of determination of rights of parties affecting their substantial rights or causing prejudice to their interest, is not a mistake apparent on the record to be rectified under section 156(ibid). The mistake must be of the nature, which is floating on the surface of record and must not involve, elaborate discussion or detailed probe or process of determination."

8. Section 80B of the Income Tax Ordinance provides:-‑ "Tax on income of certain persons from dividends and bank profits, etc.

(1) Notwithstanding anything contained in this Ordinance or any other law for the time being in force, where any amount referred to in subsection (2) is received by or accrues or arises or is deemed to accrue or arise to an individual, unregistered firm, association of persons, Hindu undivided family or artificial juridical person referred to in clause (32) of section 2, the whole of such amount shall be deemed to be income of such person and tax thereon shall be charged at the rates specified in the First Schedule. (2) The amount referred to in subsection (1) shall be the following, namely: (a) dividend on which tax is deductible under subsection (6A) of section 50; (b) Interest or profit on which tax is deducible under sub-section (2A) of section 50; (bb) the amount received on encashment of bearer certificates on which tax is deductible under subsection (5B) of section 50; (c) Interest or profit on which tax is deductible under sub-section (7D) of section 50; and (d) Prizes and winning on which tax is deductible or collectable under subsection (7C) of section 50. (3) Nothing contained in this Ordinance shall be so construed as to authorise any allowance or deduction against the income as determined under subsection (1) or any refund of tax deducted or collection under section 50 or set off of any loss under any provision of this Ordinance. (4) Whether the assessee has no income other than the income referred to as subsection (1) in respect of which tax has been deducted or collected, the tax deducted or collected under section 50 shall be deemed to be the final discharge of the tax liability of the assessee under this Ordinance and he shall not be required to file the return of total income under section 55. (5) In a case to which subsection (4) applies, an order under section 59A shall be deemed to have been made in respect of income referred to in subsection (1)."

9. It appears that before the decision of a case by Income Tax Appellate Tribunal reported as 1998 PTD (Trib) 1379, a debate was going on whether a company is covered by the provisions contained in section 80B of the Income- Tax Ordinance. It was finally settled in this judgment that the company is not covered by the provisions contained in section 80B of the Income Tax Ordinance, 1979. Notice issued by the Deputy Commissioner Income Tax itself shows that it was issued on the basis of the judgment of Income tax Appellate Tribunal dated 19-10-1998. Before the judgment reported in 1998 PTD 1379, two different interpretations were being made by different Income Tax Authorities on section 80B of the Ordinance.

10. In our view, "mistake apparent from the record" would not cover a "mistake" committed at time when the law was not clear. If two interpretations of law were possible when the original assessment order was made and the Assessing Officer adopted one of those interpretations, it cannot be said that the mistakes is apparent from the record.

11. In view of what has been said above, we are of the considered view that the Assessing Officer could not have invoked section 156(2) of the Income Tax Ordinance, 1979, therefore, we answer questions Nos.1 and 2 in positive and question No.3 in negative. M.B.A./C-17/ISL Order accordingly.