1965 PLP 321 (PTD)

Held, considering that section 33-A of the Act, itself empowers the Commissioner to make an inquiry, on his own, or to get an inquiry made, to ascertain the facts, if necessary, it does not seem that a condition precedent to the exercise of the revisional power is that the relevant claim should have been, in the first instance, made before the subordinate authority. (d) Income-tax Act (XI of 1922), S. 33-A (2) Provision for benefit of assessee-Assessee has right to have matter adjudicated in revision by Commissioner if proper case is made ,out in petition-Power of revision to be exercised according to judicial principles - Section 33-A (2) envisages a remedy alternative to regular appeal-Duty of Commissioner to grant relief if entitlement clear. M. F. Rahman Senior Advocate Supreme Court (K. M. Shamim and Ali Athar Advocates Supreme Court with him) instructed by R. F. Spickernell Attorney for Appellant. Noor-ul-Arifin Advocate Supreme Court instructed by K. A. Ghani Attorney for Respondents. Date of hearing: 25th February 1965. S. A. RAHMAN, J.-This appeal, by special leave, seeks to call in question a judgment of the High Court of West Pakistan, Karachi Bench, passed on a petition under Article 98 of the Constitution. The appellant is a company incorporated in the United States of America, carrying on business in Karachi. It was assessed to income-tax in this country as a non-resident. Initially, this company was importing Singer Sewing Machines and selling them in this country. In 1956, it began importing parts of these machines and assembling them here. In spite of this change, however, the company continued to be assessed to sales tax as an importer. For the first time in 1961, the Assessing Authority treated the company as a manufacturer and assessed it as such to sales tax. Feeling aggrieved by this action the appellant preferred an appeal to the Appellate Assistant Commissioner who dismissed it. A further appal was then presented to the Appellate Tribunal and that appeal was still pending when the company approached the High Court for redress under Article 98 of the Constitution. The subject-matter of the petition in the High Court was not the sales tax assessment but the assessment to income-tax. For the years 1957-58 to 196-9-61, the company was continuously assessed, as an importer, to income-tax. It was explained that both the appellant and the Income-tax Officer who also functioned as the Sales Tax Officer, were under the misapprehension that the assembly business operated by the appellant did not amount to a "manufacturing" process and therefore did not constitute an "industrial undertaking", within the meaning of section 15-B of the Income-tax Act (hereinafter referred to as the Act). If the position had been correctly appreciated, the company would have been entitled to obtain exemption from income-tax, under that section, as a newly-established industrial undertaking. By the time the realization dawned on the appellant that the assembly plant was an industrial undertaking, the time for appeal from the assessment orders for the years above-mentioned, had run out. The company, therefore, preferred four revision petitions concerning the assessment years 1957-58, 1958-59, 1959-60 and 1960-61, to the Commissioner of Income-tax under section 33-A(2) of the Act. This was the only remedy available to the appellant in these circumstances. It was explained that appeals from the assessments, could not be lodged in time, as the company was treated as a "manufacturer", long after the assessments had been made. In the returns made of the income, therefore, there was no occasion for the company to have claimed relief under section 15-B of the Act. Two reliefs were prayed for, in these revision petitions. Firstly, the company, without prejudice to the representation and appeal on the sales tax side, claimed that if it was classified as a "manufacturer", for sales tax assessment purposes, the relief envisaged under section 15-B of the Act, should also be available to it, as it satisfied all the conditions mentioned therein. The assembly work was started in December 1955, the company was employing more than 20 persons and had used electrical energy for the assembly process. The second relief asked for was that if the company was held to be a manufacturer, a deduction on account of sales tax levy on it, should be allowed in the corresponding income-tax assessments. The learned Commissioner of Income-tax held that the petitions against income-tax assessments for 1957-58, 1958-59 and 1959-60 were time-barred inasmuch as the relevant assessment orders were passed on 5-6-59, 5-6-59 and 30-12-59, respectively, while the petitions had been lodged in his office on 10-8-61. He, however, accepted the explanation for the delay that it was not taxed as a manufacturer till 1961 and had therefore not made any provision in accounts for sales tax liability as a manufacturer. The delay in the petitions was consequently condoned. The learned Commissioner allowed as deduction, the sales tax liability of the manufacturer, computed in respect of the four income-tax assessment years mentioned above. He, however, declined to grant relief under section 15-B of the Act on the grounds that no claim for such relief had been made in the returns of income and the Income-tax Officer had not passed any order refusing such a relief. The Commissioner thought that in these circumstances the company's request was outside the scope of section 33-A(2) and therefore the relief could not be allowed. In the High Court, contention was raised on behalf of the company that the view adopted by the Commissioner as to the scope of his revisional powers was legally untenable and therefore the order passed by him should be quashed and he should be directed to grant the relief asked for, under section 15-B of the Act. The High Court pointed out that in the returns of income made to the Income-tax Officer, full information such as would have entitled the company to exemption under section 15-B of the Act, was not given and therefore the contention could not be acceded to, that a duty lay on the authority concerned to grant exemption under that section. It was observed by the High Court that the burden of establishing the existence of 'adequate circumstances attracting the relief, lay on the assessee and the foundation for such relief, not having been laid in the returns, there was no obligation on the Income-tax Officer to grant the relief in question. The Court itself declared its inability to grant the relief prayed for, in the exercise of its extraordinary jurisdiction, because that would amount to assuming the functions and jurisdiction of the Income-tax Authority. As regards the legal question raised, of the scope of section 33-A(2) of the Act, the High Court expressed the opinion that the jurisdiction of the Commissioner was discretionary, though not arbitrary. It was found, in the circumstances of the case, that the Commissioner had not exercised his discretion in rejecting the revision petitions, illegally or improperly. Reliance was, in this connection, placed on a judgment of the Privy Council in Commissioner of Incometax v. The Tribune Trust, Lahore (PLD1947 PC 247). The High Court justified the action of the Commissioner on the ground that as the record of the assessments stood, the necessary information attracting the exemption claimed, did not exist therein and, consequently, it was correct to say that the relief claimed was outside the scope of the revisional powers under section 33-A of the Act. Special leave to appeal was granted as the true interpretation of sections 15-B and 33-A(2) of the Act was canvassed in the petition to this Court. The leave was granted subject to the condition that the company would withdraw its appeal pending before the Sales Tax Tribunal in which it had, inter alia, contested the finding that it was a manufacturer. The company has now, placed before us a letter which it has addressed to the Appellate Assistant Commissioner of Sales Tax, in which it has clearly indicated that it will not press the contention that it is not a manufacturer, at the hearing of the appeal, but that it will rely on other contentions in support of its appeal. This appears to us to be a sufficient compliance with the condition on which the leave to appeal was granted. The main question that falls for determination in this appeal is whether the Commissioner had power to grant the relief asked for, under section 33-A of the Act, in the circumstances of the case. The Commissioner answered that question in the negative and his view was upheld by the High Court. The High Court were influenced in their judgment mainly by the observations of the Privy Council in the Commissioner of Income-tax v. The Tribune Trust. In that case, the Commissioner of income-tax had declined to reopen, in exercise of his suo motu revisional powers under section 33 of the Act, as it then stood, the assessments made for certain years, which had become final in the sense that they had not been appealed against within the time allowed by the Act. The Commissioner had been invited to exercise his revisional powers on the ground that the Privy Council had decided, in the meantime, that the income of the Tribune Trust was exempt from taxation, under section 4(3) (i) of the Act, in respect of an earlier year. The Privy Council upheld the action of the Commissioner on the grounds that the orders of assessment were not a nullity in law and that though section 33 of the Act conferred a revisional power on the Commissioner to be exercised suo motu, yet it created no right in the assessee to have this relief. Their Lordships observed that the word "may" occurring in section 33, did not in the context, impose a duty on him which he was bound to perform upon the application of an assessee. The revision by the Commissioner suo motu, in their Lordships' view, may merely amount to a purely departmental matter. The legal position has, however, changed with the enactment of section 33-A of the Act. Subsection (1) of this new section makes, in substance, the same provision as the old section 33 did, but subsection (2) of this new section, gives a right to the assessee to make an application for revision to the Commissioner, from an order passed by any authority subordinate to him, within one year from the date of the order. The Commissioner may then call for the record of the proceeding in which such order was passed and on receipt of the record, make such inquiry or cause such inquiry to be made and, subject to the provisions of the Act, may pass such order thereon- not being an order prejudicial to the assessee, as he thinks fit. A proviso to this subsection lays down that the Commissioner shall not revise any order under this subsection, where an appeal against the order lies to the Appellate Assistant Commissioner or to the Appellate Tribunal but has not been made, and the time within which such appeal may be made, has not expired, or, in the case of an appeal to the Appellate Tribunal, the assessee has not waived his right of appeal or where an appeal has been made to the, Appellate Assistant Commissioner, the appeal is pending before that officer or the order has been made the subject of an appeal to the Tribunal. Every such application for revision by an assessee, it is provided, shall be accompanied by a fee of Rs.

25. That such, a proceeding in revision would be a judicial proceeding and not a merely departmental affair, is placed beyond doubt by the provision of section 37 of the Act, which was inserted in the Act by an amendment in 1953. Reference may also be made to a decision of this Court, published as Commissioner of Income-tax v. Fazlur Rahman (P L D 1964 S C 410), in which it was clearly laid down that proceedings under section 33-A of the Act must be regarded as judicial in character. It is plain that subject to the conditions mentioned therein, subsection (2) of section 33-A now confers a right on the assessee to move the Commissioner in revision. The words used in this subsection undoubtedly are "the Commissioner may, on application by an assessee for revision . . . .". These words ordinarily are permissive in character and import a discretion. They confer a power on the authority concerned but in the words of Lord Cairns in Julius v. Bishop of Oxford ((1880) 5 A C 214), "there may be something in the nature of the thing empowered to be done, something in the object for which it is to be done, something in the conditions under which it is to be done, something in the title of the persons for whose benefit the power is to be exercised, which may couple the power with a duty and make it the duty of the person in whom the power is reposed, to exercise that power, when called upon to do so. . " Lord Blackburn said in the same case "the enabling words are construed as compulsory, whenever the object of the power is to effectuate a legal right". Now section 15-B of the Act does confer a right on the assessee to claim the exemption that it did, if it satisfied the conditions laid down in that section. It is true that the assessee had not mentioned that it fulfilled those conditions in its returns made to the Income-tax Officer. At that time, both the Department and the assessee were labouring under the mistaken notion that the assessee was not a "manufacturer". But when the Commissioner was approached in revision, the necessary facts entitling the assessee to the exemption claimed, were mentioned in the petition and there is an un-contradicted affidavit on the record on the assessee's behalf, showing that the Commissioner had got an inquiry made, to satisfy himself on those points. There was then material before the Income-tax Commissioner, enabling him to come to the conclusion that ' the assessee was entitled to the benefit of section 15-B of the Act. Indeed, his order showed that this was the case but he took the view that he was powerless to give relief, as no such claim had been made before the Income-tax Officer and that Officer had no occasion to refuse this relief. Considering that section 33-A itself empowers the Commissioner to make an inquiry, on his own, or to get an inquiry made, to ascertain the facts, if necessary, it does not seem that a condition precedent, to the exercise of the revisional power is that the relevant claim should have been, in the first instance, made before the subordinate authority. Indeed, it would appear that the action of the Commissioner in this case was hardly consistent. He allowed the assessee, deduction of the sales tax liability as manufacturer, in respect of the four assessment years, although this relief too had not been demanded from the income tax Officer. If he could grant the relief in exercise of his revisional powers, it does not seem that there was any impediment in the way of his granting the other relief claimed, provided all the necessary conditions were found to exist. Subsection (2) of section 33-A, was obviously' inserted in the Act, for the benefit of the assessee. The application for revision is subject to a fee of Rs. 25 and if a proper case is made out on such a petition, the assessee would have the right to have the matter adjudicated in revision, by the Commissioner. The power of revision has to be exercised, according to judicial principles. The provisions of section 33-A(2) apparently envisage a remedy alternative to a regular appeal from the assessment. In the circumstances, it became the duty of the Commissioner to grant relief if the entitlement was clear. The learned Commissioner apparently misdirected himself in holding that he had no power to interfere in the matter. Mr. Noor-ul-Arifin on behalf of the Commissioner, attempted to suggest that the conduct of the assessee in this case was not bona fide and that the company had deliberately misrepresented itself as an importer, whereas it knew that it was a manufacturer. In the circumstances, he argued, the appellant's claim was rightly turned down by the Commissioner. The facts, however, do not lend themselves to any inference of mala fides on the part of the assessee. It may be pointed out that the Sales Tax Act, 1951, contains no definition of "manufacturer". That Act merely defines a manufacturer or producer as one who engages, whether exclusively or not, in the production or manufacture of goods. No guidance being available from this Act, as to what amounts to "manufacture", the assessee may well have been under a mistaken impression that the assembly of Singer sewing machines, with parts imported from abroad, did not amount to "manufacture". Indeed, the Department also shared this misconception, till 1961. It is also conceded at the Bar, that no licence had been taken out by the assessee-firm, for the alleged manufacture, for a number of years, till it was realized that such a licence was necessary. The failure to lake out a licence was an offence under the Sales Tax Act and later the offence was compounded and a licence was granted to the assessee at its request, after its position had been clarified. The company made no arrangements to pass on the sales tax imposed on it as manufacturer, to its purchasers, which, it could have done under the relevant Act. All these factors go to establish the bona fides of the assessee-company, in claiming that the assessments in question were not appealed against, owing to misapprehension of the correct position. The High Court has observed, in this connection, that ignorance of law was no excuse. That may be conceded, but section 33-A, subsection (2), provided an alternative judicial remedy to the assessee, of which it availed itself and the relief was denied to it, on an erroneous view of the law, by the Commissioner. It must be found as a result of the above discussion, that the Commissioner declined to exercise his undoubted jurisdiction in the, case, on a ground which was legally not supportable. This fact calls for correction of his order. We allow the appeal and quash the order passed by the Commissioner of income-tax in this case. The case now will be remitted to him, for disposal in the light of the observations made above. In the circumstances, we make no order as to costs. S. Q Appeal allowed.