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I.T.As. Nos. 2863(LB) and 2864(LB) of 1983-84, heard on 12th May, 1985.
---Title of a section not a part of provision of law and cannot control words used in statute--Heading or marginal notes at best be regarded as preamble to section and cannot be a guide to interpret plain words of statute.
Zabair Siddiqui v. M.N. Sufi P L D 1964 Lah. 453 and Balraj Kunwar v. Jagat Pal Singh 31 IA 132 ref.
---Ss. 65(1)(a)(b) & 2(21)(44)--Words "any income", "total income"- Interpretation. While interpreting clauses (a) and (b) of subsection (1) of section 65, Income-tax Ordinance, 1979 the concept of income and the total income has to be kept in mind.
Income is a wider concept, which includes total income. The word 'income' has been defined by section 2(21) though not exhaustively. According to the definition it includes any income, profits or gains, from whatever source derived, chargeable to tax under any provision of this Ordinance under any head specified in section 15. It even includes any loss of such income and profits or gains. On the other hand total income has been defined by section 2(44).
Total income is that kind of income, the total amount of which is computed in the manner laid down in Ordinance XXXI of 1979. Thus, the total income has relevance to the computation of income for purposes of tax. Section 9, which is the charging section, also talks about the total income. Thus, while reading clauses (a) and (b) of section 65 this distinction between income and total income has to be kept in mind. Since clause (a) is talking about that income which is yet to be computed therefore, the word 'total income' could not be used. The word 'total income' is relatable to the computation of the income and chargeability of tax thereon. In clause (b), therefore, the word 'total income' has been used because total income has already been computed. Since the total income has been under assessed or assessed at too low a rate etc., therefore, the word 'total income' has been used in clause (b). The word 'total income' could not be used in clause (a) as it is relatable to the complete escapement of income. Unless income is computed, it cannot become a total income. The total income is that part of the income which is assessable under the Ordinance.
---Ss. 56, 65, 166 & 1(3)--Notice--Income-tax Officer has power to issue notice under S. 56 at any time to any person for any income year after 1st of July 1979 (date of coming into force of Ordinance).
None of provisions of section 56 of Income-tax Ordinance, 1979 could be made applicable beyond 1st of July, 1979 unless specifically made applicable to the prior period. Therefore, while reading section 56 it has to be kept in mind that this provision is only applicable to a period with effect from 1st of July, 1979 and onwards. Thus, an I.T.O. has power to issue notice under this section at any time to any person for any income year after 1st of July, 1979. If any other meaning is given that would make at least a part of section 166(2)(c)(ii), as redundant because in that case if any income has escaped assessment for which a notice under section 56 could be issued, then there was no need under that clause to make applicable all the provisions of the Ordinance after issuing notice under section 65 because section 56 already covers such a situation.
Section 1(3) of the Ordinance specifically says that the Ordinance would come into force on 1st of July, 1979. Therefore, all the provisions of the Ordinance have come into operation from that date. Mere fact that section 56 provides that a notice under that section could be issued for any income year does not mean that it would travel even beyond the period when the Ordinance itself was not in force.
Section 56 of the Ordinance is applicable only in regard to the cases which are chargeable to income-tax under the Ordinance. Section 9 lays down that income-tax is to be charged in respect of the total income for each assessment year commencing on or after the first day of July, 1979. Section 56 of the Ordinance also provides that a notice can be issued to any person, which is chargeable to tax for any income year. Therefore, chargeable to tax means charge under section 9 which makes it clear that such a charge of tax can be made for the assessment years commencing on or after the first day of July, 1979. Section 9 being a charging section has to be read into section 56. Combined effect of both these sections reading together would be that an Income-tax Officer is empowered to issue a notice for furnishing a return of total income requiring any person who, in his opinion, is chargeable to tax for any assessment year commencing on or after the first day of July, 1979.
J. P. Jani, Income-tax Officer v. Induprasad Devsanker Bhatt 72 I T R 595; 1984 P T D 137; I . T . A . No. 254 (IB) of 1983-84; I.T.A. No. 267(IB) of 1983-84; I.T.A. Nos. 2004 to 2009 of 1983-84; I.T.A. Nos. 2487 to 2493 of 1983-84; I.T.A. No. 687/LB/1984-85 to 695/LB/1984-85; I.T.A. Nos. 3760 to 3762/LB/1983-84; I.T.A. Nos. 65, 66 and 67/LB/1984-85; I.T.A. Nos. 836 to 841/LB/1984-85; I.T.A. Nos. 1518 to 1522/LB/1984-85; I.T.A. Nos. 2681 to 2687 of 1983-84 ref.
Before making any of the provisions of the Ordinance applicable, a notice under section 65 of the Ordinance read with section 166(2)(c)(ii) was sine qua non. Section 56 of the income-tax Ordinance has no application for any of the assessment years prior to 1st July, 1979 and, therefore, notice issued by the I.T.O. was wholly without jurisdiction. No notice having been issued under section 65 of the Ordinance the assessments made for the assessment years 1977-78 and 1978-79 were without jurisdiction and were, therefore, annulled.
--- Provisions of a statute cannot be interpreted in such a manner, which would make some of provisions of law as redundant.
---Ss. 56, 154 & 65--Section 56 has no retrospective operation--Notice for furnishing return of total income--Service of notice--Application of provisions of S. 154(6) when required.
Subsection (6) of section 154 of the Income-tax Ordinance, 1979 has to be read in its context and principle of ejusdem generis applies. Various subsections of section 154 lay down the mode and manner of service of notice. It is in that context that it has been provided that such a notice once served would not be challenged on technical ground meaning thereby methodology and manner of service would not be contested and this is so, for obvious reasons. Once a notice is served on the assessee and return is filed the manner of service is immaterial and the assessee cannot seek protection behind mere technicalities. Subsection (6) cannot be a bar against challenging the very jurisdiction of I.T.O. to issue notice under section 56. Section 56 has no retrospective operation and therefore, on its own force not applicable for the assessment years 1977-78 and 1978-79 as it related to the period when the Income-tax Ordinance had not come into force. The only provision which makes all the provisions of the Income-tax Ordinance applicable in such a situation is section 166(2)(c)(ii). . That section however, lays down a condition precedent to issue notice under section 65 in the given circumstances. It is after the issuing of notice under section 65 that all the provisions of the Income-tax Ordinance have been made applicable. Therefore, even otherwise without issuing the notice under section 65 none of the provisions of the Income-tax Ordinance including section 154(6) could be made applicable. An objection to very assumption of jurisdiction by an authority is to be distinguished from objection taken in the proceedings before the authority. Section 154(6) contemplates the situation where the objection is taken by an assessee 'in the proceeding' taken by the I.T.O. While the objection taken by the assessee is not 'in the proceeding' but 'to the proceeding' before the I.T.O.
The I.T.O. under the law has the power to issue notice under section 65 which has its prerequisites. No notice under that section was issued at all. Notice had been issued under section 56 of the Ordinance which section has no application on the assessment year under consideration nor has it been made applicable. Since section 56 was not applicable, the I.T.O. had no jurisdiction to issue notice under the section for the assessment years 1977-78 and 1978-79.
I.T. A. Nos2681 to 2687 of 1983-84 ref.
---Authority having no jurisdiction to issue notice under law--Power of such Authority can be challenged and there can be no bar for such a plea.
P L D 1962 Lah. 326 and P L D 1965 Lah. 439 ref.
[Minority View]--Per Zafar Hussain, Member--
---Ss. 56, 65 & 166--Income-tax Officer is permitted to issue a notice under S. 56 at any time for framing an assessment on any person for any income year--Both current assessment as well as assessments for periods prior to the current assessment i.e. retrospective assessments could be made by issuing notice under S. 56--No limitation was laid down in S. 56 which could debar I.T.O. from issuing a notice under S. 56 in respect of assessment for any year prior to assessment year 1979-80.
---No words are to be taken as redundant in any enactment.
---Ss. 56 & 65--Assessment years 1977-78 & 1978-79--No assessment having been made or had just been omitted to be assessed and no returns having been filed; Income-tax Officer, held, could issue a notice under S. 56 and need not issue a notice under S. 65 as no additional assessments were required to be made.
---Ss. 56, 65 & 166--Assessee found to have been carrying on business and earning taxable income during 1977-78 & 1978-79 assessment years after 1-7-1979 and there was no information prior to that--No assessment was made for these years earlier and no additional assessment was required to be framed on the basis of information collected by the Department for which a notice under S. 65 was necessitated--Provisions of S. 166(2)(c)(ii), held, were not applicable to the case in circumstances.
---Ss. 56 & 65--Scope and application.
Section 56 read with section 65, Income-tax Ordinance, 1979 shows that it covers period of 10 years prior to 1-7-1979 but certain limitations have been placed on the Department under which the assessments for these years can be framed, to save the tax-payer from uncalled for embarrassment of being required to produce books for a period prior to 10 years, from 1-7-1979.
Crescent Bros. Ltd., Lahore v. The I.T.O., Central Circle-VIII, Lahore (1984) 49 Tax 122ref.
--- Taxation statute can have retrospective effect--Such retrospective effect can be even partial and may apply to an assessment made before commencement of statute.
Regina v. General Commission of Income-tax, 40 T.C. 225/228 ref.
---S. 56--Return filed in response to notice under S. 56--Validity of notice issued under S. 56 cannot be challenged.
--- Title or heading of a section of statute--Significance.
The headings are not to be treated as if they were marginal notes or introduced into the Act merely for the purposes of classifying enactments. They constitute an important part of the Act itself. They may be read as offering a better key to the construction of the section than might be afforded by a mere preamble.
When there is a doubt as to the interpretation, that interpretation should be adopted, which would give effect to the object stated in the heading.
Eastern Counties & The London Block Well Railways Company v. Marriage 1860 9 H.L.C. 32; Tripura Model Bank Ltd. 1950 C 240 and Emperor v. Bastiso 1934 B. 213 ref.
---Ss. 56 & 65--Where no assessment was made for years prior to 1-7-1979, notice, held, could be issued under S. 56 to initiate the proceedings to frame assessments subject to limitation laid down in S.65.
---Ss. 56, 65 & 166--Income-tax Act (XI of 1922), S. 34--Escaped income for assessment year prior to 1-7-1979--Assessment proceedings cannot be initiated by merely issuing a notice under S. 56 without first issuing a notice under S. 65 in case where no additional assessment was being made.
Section 166(2), Income-tax Ordinance, 1979 specifically makes it obligatory on the I.T.O. to issue a notice under section 65 in every case, which falls within its purview. The issuance of a notice under section 65 is thus, a condition sine qua non for the vesting of jurisdiction of assessment and re-assessment etc. in a case of an escaped assessment or under-assessment etc. under the Act. It further makes the application of all the other provisions of the Ordinance dependent upon the issuance of a notice under section 65. Hence it would be an exertion in futility to examine the scope and extent of section 56 in a case where notice under section 65 as contemplated by section 166(2)(e)(ii) was not given. It is, therefore, none of the business of any Income-tax Authority or Tribunal to ignore undermine the specific directions contained in section 166(2)(c)(ii) for any reason whatsoever. Since, where no notice under section 65 was issued in such a case, proceedings adopted by the I.T.O. and consequent impugned orders of assessments passed by him would be void and inoperative. A bare perusal of section 65 further reveals that it is couched in similar terms as that of section 34 of the Income-tax Act, 1922 save that it further empowers the I.T.O. "to determine, by an order in writing, the total income of the assessee or the tax payable by him, as the case may be", and hence the decisions of the Courts recorded on the effect of non-service or invalid service of notice under section 34 of the Act would, with full force, apply to all cases arising under section 65 of the Ordinance. In this view of the matter the failure on the part of the I.T.O. to issue notice under section 65 as required by section 166(2)(c)(ii) of the Ordinance resulted in usurpation of the jurisdiction, and, consequently, in framing illegal and void assessments. It is not at all relevant to see the effect of the heading "Additional assessment" to section 65. The said heading is, ex facie, inapt inasmuch as, in cases covered by clause (a) of subsection (1) of section 65, which deals with the complete escapement there would be no question of framing of additional assessment. By adding the heading to various sections the legislature desired to call those assessments by those names, such as an assessment made under section 59 was to be known as "self-assessment", under section 60 as "Provisional assessment", under section 65 as the "Best judgment assessment" and under section 65 as "Additional assessment". However, it is cardinal rule of construction of statutes that the heading of a section cannot control the meaning of the clear language of the section.
Unless a notice under section 65 of the Ordinance as contemplated by section 166(2)(c)(ii) was issued, the I.T.O. could not claim to have acquired the jurisdiction to proceed in the matter. The I.T.O. could not have a recourse to section 56 straightaway in a case where any income chargeable to tax had escaped assessment on or before the date of commencement of the Ordinance and no proceedings under section 34 of the Income-tax Act in respect of such income were pending at the commencement of the Ordinance. The legislature has in specific terms made it a condition precedent for the assumption of the jurisdiction by the I.T.O. in such cases, to issue a notice under section 65 with respect to that assessment year and all the provisions of the Ordinance would then come into play.
--- Heading of a section cannot control meaning of clear language of the section.
[Majority view]-Per Muhammad Mazhar Ali Khan, Chairman agreeing with Abrar Hussain Naqvi Member--
---Ss. 56, 65 6 156--Assessee can challenge notice issued under S. 56 after filing return on ground that notice issued was without jurisdiction.
There can be no waiver of the condition precedent upon the fulfilment of which alone the jurisdiction can vest in the I.T.O. No consent can confer jurisdiction upon a Court if it has no jurisdiction. The I.T.O. acquires jurisdiction to assess under section 65 only after he has given notice as required by that section to the assessee. One has to keep in mind the fundamental distinction between a notice issued under section 56 and a notice issued under section 65. A notice under section 56 is not obligatory and it is not a condition precedent to the assumption of the jurisdiction by the I.T.O. If the assessee fails to object to the validity of the notice or the validity of the service of any notice under section 56, before filing the return then he is debarred to do so under section 156 of the Ordinance. But jurisdictional objection or a basic lacuna in the assumption of jurisdiction can be objected to at any stage of the proceedings inasmuch as it goes to the very root of the case. In the instant case since the I.T.O. acted without jurisdiction in not issuing a notice under section 65 and hence it was open to the assessee to have raised an objection of lack of jurisdiction at any stage and the mere fact that the assessee had filed the returns in compliance with the notices under section 56, it would not debar him from raising the fundamental objection of the lack of jurisdiction.
---No consent can confer jurisdiction upon a Court if it has no jurisdiction.
---Jurisdictional objection or a basic lacuna in assumption of jurisdiction can be objected to at any stage of proceedings inasmuch as it goes to the very root of the matter.
Ilyas Zafar for Appellant.
M. Arshad Pervaiz, A.C./D.R. for Respondent.
Date of hearing: 12th May, 1985.
--These are two appeals filed by an individual deriving income from dealing in watches on wholesale basis and relate to the assessment years 1977-78 and 1978-79.
2. Brief facts, which are common and relevant in both the assessment years are that the Income-tax Officer received information that the assessee had acquired certain assets in the assessment years 1977-78 and 1978-79. He issued notice to the assessee under section 56 of the Income-tax Ordinance, 1979 (hereinafter referred to as the Ordinance). The return was filed by the assessee declaring net income at Rs.12,000 and Rs.13,000 respectively in reply to the notice under section 56 of the Ordinance. The Income-tax Officer assessed the income from business and also made certain additions on account of unexplained investment. No notice under section 65 of the Income-tax Ordinance was issued to the assessee. The assessee's appeal for the assessment year 1977-78 was partly accepted but for the assessment year 1978-79 was dismissed by the C.I.-T. (Appeals).
3. The learned counsel for the assessee has raised a legal objection against very jurisdiction of the assessing officer to make an assessment for both these assessment years on the ground that proceedings could not be initiated against the assessee, merely by issuing a notice under section 56 of the Ordinance. It was contended that the provisions of the Ordinance could only be applied after issuing a notice under section 65 of the Ordinance. The reliance has been placed on section 166(2)(c)(ii) of the Ordinance. It was pleaded that issuance of notice under section 65 of the Ordinance was sine qua non to assume jurisdiction to issue notice for filing of the return relevant to the assessment years prior to the period ending on or before 30th June, 1979. Elaborating his arguments, the learned Authorised Representative submitted that since the Income-tax Act, 1922 (hereinafter to be referred as the Act) having been repealed by the Ordinance none of its provisions were applicable after 1st July, 1979 unless saved by the saving provision of the Ordinance. 5hmilarly none of the provisions of the Ordinance are applicable on the assessment years under consideration unless specifically made applicable by giving retrospective operation to the Ordinance. It was submitted that it was a case of escapement of income and no proceedings had been taken under section 34 of the Repealed Act. In such a situation the only provision applicable was section 166(2)(c)(ii) according to which notice under section 65 can be issued and only then "all the provisions of this Ordinance shall apply". Section 166(2)(c) (ii) of the Ordinance is reproduced below:
"(2) Notwithstanding the repeal of the Income-tax Act,1922 (XI of 1922) and without prejudice to the provisions of section 6 or section 24 of General Clauses Act, 1897 (X of 1897),
(a) ............................................................
(b) ............................................................
(c) wherein respect of any assessment year:-
(f) ............................................................
(ii) any income chargeable to tax had escaped assessment, or had been under assessed or assessed at too low a rate, or had been the subject of excessive relief or refund of the total income or the total world income and the tax payable had been determined under subsection (1) of section 23 of the repealed Act and no proceedings under section 34 of the said Act in respect of any such income are pending at the commencement of this Ordinance a notice under section 65 may be issued with respect to that assessment year and all the provisions of this Ordinance shall apply accordingly."
4. It was submitted that in case an assessing officer feels that any income had escaped assessment or had been under assessed for any assessment year prior to 1st of July,1979, under this provision a notice under section 65 could be issued and in that case all the provisions of the Ordinance would be applicable. Therefore, it was contended, that for the application of the provisions of the Ordinance condition precedent is a notice under section 65 which in this case had not been issued. It was further submitted that section 56 of the Ordinance has not been made applicable and as such section 56 is not applicable to any of the assessment years prior to 1st of July, 1979.
5. The contention of the learned D.R. on the other hand was that section 56 of the Ordinance is all comprehensive and speaks of no limitation as has been contended by the assessee. It was submitted that under section 56 of the Income-tax Ordinance, the I.T.O. has been empowered to issue notice even for the assessment years ending on or before 30th June, 1979. To elaborate his arguments, the learned D.R has advanced a number of reasons. His first contention was that section 65 only applies to cases where some kind of assessment had already been made. In other words the concept of total escapement of income is alien to section 65 which is covered by section 56 of the Ordinance. The learned D.R, gathered support to his argument by referring to the marginal note of section 65 which is, "Additional Assessment". The learned D.R. contended that section 65, therefore, visualizes an additional assessment or re-assessment and is not applicable on the cases of total escapement of income and where fresh assessment has to be made. According to him that situation is taken care of by section 56 of the Ordinance.
6. This contention of the learned D.R. is misconceived for more than one reasons. Firstly a title of the section is never a part of a provisions of law. A heading of a section' cannot control the words used in a statute. The heading or marginal notes can at best be regarded as preambles to the section and cannot be a guide to interpret the plain words of the statute. It is too obvious a principle of interpretation, which needs any argument. In any case if any authority is needed Zabair Siddiqui v. M.N Sufi P L D 1964 Lah. 453 anti Balraj Kunwar v Jagat Pal Singh 31 I .A. 132 may be referred.
7. Section 65 of the Ordinance is reproduced below:
"Additional Assessment: (1) if, in any year for any reason--
(a) any income chargeable to tax under this Ordinance has escaped assessment; or (b) the total income of an assessee has been under assessed, or assessed at too low a rate, or has been the subject of excessive relief or refund under this Ordinance; or (c) the total income of an assessee or the tax payable by him has been [assessed or] determined under subsection (1) of section 59 and no order of assessment has subsequently been made under this section or any other provision of this Ordinance.
The Income-tax Officer may, at any time, subject to the provisions of subsections (2), (3) and (4), issue a notice to the assessee containing all or any of the requirements of a notice under section 56 *** [ . . . . . . ] and may proceed to assess or determine, by an order in writing, the total income of the assessee or the tax payable by him, as the case may be, and all the provisions of this Ordinance shall, so far as may be apply accordingly. The learned D.R. has drawn a distinction between the words used in clause 'a' and clause 'b'. In clause 'a' the word 'any income' has been used while in clause (b) the word 'total income' has been employed. According to the learned D.R. clause (a) contemplates the situation where a part of total income might have escaped assessment, as according to him 'any income' is included in the total income. Again this contention is without any basis. While interpreting these clauses the concept of income and the total income has to be kept in mind. According to the learned D.R. the total income includes 'any income'. We, however, think otherwise, income is a wider concept, which includes total income. The word 'income' has been defined by section 2(21) though not exhaustively. According to the definition it includes any income, profits or gains, from whatever source derived, chargeable to tax under any provision of this Ordinance under any head specified in section 15. It even includes any loss of such Income and profits or gains. On the other hand total income has been defined by section 2(44) as under:
"total income" means the total amount of income referred to in section 11 computed in the manner laid down in this Ordinance; and includes any income which, under any provision of this Ordinance is to be included in the total income of an assesses."
It is clear that total income is that kind of income, the total amount of which is computed in the manner laid down in this Ordinance. Thus, the total income has relevance to the computation of income for purposes of tax. Section 9, which is the charging section, also talks about the total income thus while reading clauses (a) and (b) of section 65 this distinction between income and total income has to be kept in mind. Since clause (a) is talking about that income which is yet to be computed, therefore, the word 'total income' could not be used. As stated above, the word 'total income' is relatable to the computation of the income and chargeability of tax thereon. In clause (b), therefore, the word total income has been used because total income has already computed. Since the total income has been under assessed or assessed at too low a rate etc., therefore, the word 'total income' has been used in clause (b). The word 'total income' could not be used in clause (a) as it is relatable to the complete escapement of income. Unless income is computed, it cannot become a total income. The total income is that part of the income which is assessable under the Ordinance.
8. The learned D.R. also seems to be oblivious of the legal position that the Income-tax Ordinance came into force on 1st July, 1979. None of its provisions could be made applicable beyond 1st' of July, 1979 unless specifically made applicable to the prior period. Therefore, when we read section 56 it has to be kept in mind that this provision is only applicable to a period with effect from 1st of July, 1979 and onwards. Thus, an I.T.O. has power to issue notice under this section at any time to any person for any income year after 1st of July, 1979. If any other meaning is given that would make at least a part of section 166(2)(c)(ii), as redundant because in that case if any income has escaped assessment for which a notice under section 56 could be issued, then there was no need under that clause to make applicable all the provisions of the Ordinance after issuing notice under section 65 because section 56 already covers such a situation. There is no dearth of case-law on the point that none of the provisions can be interpreted in such a manner, which would make some of the provisions of the law as redundant. Even otherwise what the learned D.R. wants us to accept is that all the provisions of the Ordinance including section 56, have retrospective effect while there is no such intention appearing from these provisions. Section 3 of the Ordinance specifically says that the Ordinance would come into force on 1st of July, 1979. Therefore, all the provisions of the Ordinance have come into operation from that date. Mere fact that section 56 provides that a notice under that section could be issued for any income year does not mean that it would travel even beyond the period when the Ordinance itself was not in force. The learned D.R. has even argued that there being no restriction in section 56 notice can be issued for any income year even in regard to those cases where the re-opening of the cases was barred by time before coming into force of the Ordinance. Thus, logically, according to him, the notice to file return under section 56 can be issued, for instance, even for assessment year 1940-41 and assessment can be made under the Ordinance in 1985. A similar situation arose in India when the Income-tax Act, 1961 was passed and was made applicable with effect from April 1, 1962. By that Act, the Income-tax Act, 1922 was repealed. The Supreme Court of India held that Income-tax Act, 1961 was not applicable to cases where assessment had already become barred by time before the new Income-tax Act came into force. This question was considered by the Supreme Court of India in J.P. Jani, Income-tax Officer v. Induprasad Devsanker Bhatt reported as 72 ITR 595. The relevant portion from that judgment is reproduced below:----
"in our opinion, the argument put forward by Mr. Narasaraju is not warranted. It is admitted in this case that the right of the income-tax Officer to reopen the assessment for the year 1947-48 was barred under the old Act before the new Act came into force. In our opinion it is not permissible to construe section 297 (2)(d)(ii) of the new Act as reviving the right of the Income-tax Officer to reopen the assessment, which was already barred under the old Act. The reason is that such a construction of section 297(2)(d)(ii) would be tantamount to giving of retrospective operation to that section which is not warranted either by the express language of the section or by necessary implication. The principle is based on the well-known rule of interpretation that, unless the terms of the statute expressly so provide or unless there is a necessary implication, retrospective operation should not be given to the statute so as to affect, alter or destroy any right already acquired or to revive any remedy lost by eflux of time."
It was further observed by the Supreme Court in the same case:
"We consider that the language of the new section must be read as applicable only to those cases where the right of the Income-tax Officer to reopen the assessment was not barred under the repealed section."
To our mind section 56 of the Ordinance is applicable only in regard to the cases, which are chargeable to Income-tax under the Ordinance. It may be emphasized that section 9 lays down that Income-tax is to be charged in respect of the total income for each assessment year commencing on or after the first day of July, 1979. Section 56 of the Ordinance also provides that a notice can be issued to any person, which is chargeable to tax for any income year. Therefore, chargeable to tax means charge under section 9 which makes it clear that such a charge of tax can be made for the assessment years commencing on or after the 1st day of July, 1979. Section 9 being a charging section has to be read into section 56. Combined effect of both these sections reading together would be that an Income-tax Officer is empowered to issue a notice for furnishing a return of total income requiring any person who, in his opinion, is chargeable to tax for any assessment year commencing on or after the 1st day of July, 1979.
9. The learned A.R. has cited a number of decisions, which are favourable to him. One such case was 1984 P T D 137. In that case all these points have been discussed at length. It was held in that case:-
"The legislature having not made any provision of savings clause for section 56 of the Ordinance it cannot be applied to any period prior to enforcement of the Ordinance. The D.R's. plea that scope of section 65 of the Ordinance is restricted to the assessments already made as heading of the section is 'additional assessment' is devoid of any force. Mere wrong description of heading of a section cannot change the ingredients and impact of the section. The established principle of interpretation of statutes is that impact of legal provision is to be taken as a whole and not by separating the heading from language of the main section."
It was further held by the Tribunal:-
"The I.T.O. had thus the jurisdiction to assess the appellant's income for the years prior to assessment year 1979-80 only by issuing of notice under section 65."
Consequently, the Tribunal annulled the assessment for the assessment years 1976-77 where a notice under section 56 of the Ordinance was issued. This was a Single Bench decision but subsequently in another case bearing I.-T.A. No.254(IB) of 1983-84 and I.-T.A. No.267(IB) of 1983-84 relating to the assessment year 1976-77 heard on 4-9-1984 and decided on 30-9-1984, a Division Bench of the Tribunal, following the Single Bench decision referred to above, held the same view and consequently the assessment for assessment year 1976-77 was annulled in a similar situation. In that case as well a notice under section 56 was issued and no notice under section 65 was issued. Similar view was taken by the Tribunal in I.-T.A. Nos. 2004 to 2009 of 1983-84 heard on 19-5-1984 and decided on 20-5-1984, I.-T.A. Nos. 2487 to 2493 of 1983-84 heard and decided on 20-5-1984, I.-T.A. Nos.687/LB/ 1984-85 to 695/LB/1984-85 heard and decided on 2-1-1985, I.-T.A. Nos. 3760 to 3762/LB/1983-84 heard on 23-2-1985 and decided on 1-4-1985 I;T.A. Nos. 65, 66 and 67/LB/1984-85, heard on 23-2-1985 and decided on 1-4-1985, I.-T.A., No. 836 to 841/LB/1984-85, heard and decided on 14-11-1984, I.-T.A. No.1518 to 1522/LB/1984-85 heard on 2-1-1985 and decided on 6-2-1985 and I.T.A. Nos.2681 to 2687 of 1983-84 heard on 17-7-1984 and decided on 29-7-1984.
10. The last contention of the learned D.R. was that section 154(6) of the Ordinance is a complete bar against taking such an objection against the issuance of the notice where the assessee fill the return. Subsection (6) of section 154 of the Ordinance reads as under:-
"The validity of any notice issued under this Ordinance or the validity of service of any such notice shall not be called in question after the return in response to such notice has been filed or compliance thereto has been made."
This contention of the learned D.R. is also devoid of any force. This subsection has to be read in its context and principle of ejusdem generis applies. Various subsections of section 154 lay down the mode and manner of service of notice. It is in that context that it has been provided that such a notice once served would not be challenged on technical ground meaning thereby methodology and manner of service would not be contested and this is so; for obvious reasons. Once notice is served on the, assessee and return is filed the manner of service is immaterial and the assessee cannot seek protection behind mere technicalities. Subsection (6) cannot be a bar against challenging the very jurisdiction of I.T.O. to issue, notice. The assessee ha challenged the very jurisdiction of the I.T.O. to issue notice under section 56. This objection has been taken on good ground. Section 5 has no retrospective operation and, therefore, on its own force no applicable for the assessment years 1977-78 and 1978-79 as it related to the period when the Income-tax Ordinance had not come into force. The only provision which makes all the provisions of the 14-come-tax Ordinance applicable in such a situation is section 166(2)(c.)(ii). That section however, lays down a condition precedent to issue notice under section 65 in the given circumstances. It is after the issuing of notice under section 65 that all the provisions of the Income-tax Ordinance have been made applicable. Therefore, even otherwise without issuing the notice under section 65 none of the provisions of the Income-tax Ordinance including section 154(6) could be made applicable. It may further be stated that an objection to very assumption of jurisdiction by an authority is to the distinguished from objection taken in the proceedings before the authority. Section 154(6) contemplates the situation where the objection is taken by an assessee 'in the proceeding' taken by the I.T.O. while the objection taken by the assessee is not 'in the proceeding' but 'to the proceeding' before the I.T.O. This distinction was highlighted by the Chief Justice late Manzoor Qadir in the famous case of Akhtar Ali v. Altaf-ur-Rehman P L D 1963 Lah. 390. In that judgment the Late Chief Justice observed:--
"A distinction exists between an income as to the very existence of the authority to adjudicate, and those other issues which arise as between the parties and which are to be determined by the authority that has power to resolve them. An 'issue concerning very existence of the power to decide, is not an issue between the parties, though the existence of that power may be asserted by one party and denied by the other. This point may be put in another way. Objections raised 'to' the proceedings must be distinguished from objections raised 'in the proceedings."
The I.T.O., under the law had the power to issue notice under section 65 which has its prerequisites. No notice under that section was issued at all. Notice had been issued under section 56 of the Ordinance which section has no application on the assessment year under consideration nor has it been made applicable. Since section 56 was not applicable, the I.T.O. had no jurisdiction to issue notice under that section for the assessment year 1977-78 and 1978-79. Incidentally this legal objection was also raised in. I.T.A. Nos. 2681 to 2687 of 1983-84 referred to above. The Tribunal did not accept this plea and it was held that consent of the parties cannot confer jurisdiction on an I.T.O. which he did not possess. Even otherwise interpretation on section 154 (6) as has been pleaded by the learned D.R. cannot be accepted. The contention is that once a return is filed by an assessee, he cannot challenge the validity of the notice. If such an interpretation is accepted then an assessee, is placed in an impossible situation. He is placed between devil and the deep sea. If he files the return in compliance with notice, he is debarred from challenging the validity of the notice. If he does not file the return then a penalty for non-filing of return is imposed on him. Obviously this interpretation leads to absurdity. If an authority has no jurisdiction to issue a notice under the law his power to issue a notice can always be challenged and there can be no bar for such a plea. An order without jurisdiction is a nullity in law and does not exist nor it is binding P L D 1962 Lah. 326 and P L D 1965 Lah. 439 may be referred.
11. For the foregoing reasons we are of the view that before making any of the provisions of the Ordinance applicable a notice under section 65 of the Ordinance read with section 166 (2)(c)(ii) was sine qua non. Section 56 of the Income-tax Ordinance has no application for any of the assessment year prior to 1st July, 1979 and, therefore, notice issued by the I.T.O. was wholly without jurisdiction. No notice having been issued under section 65 of the Ordinance the assessments made for the assessment years 1977-78 and 3.9'9-79 were without jurisdiction and are, therefore, annulled.
--In these appeals relating to the assessment years 1977-78 and 1978-79 the decision has been arrived at in the above order by my learned brother annulling both the assessments on that plea that these assessments were completed as a result of issue of notice under section 56 of the Income-tax Ordinance, 1979 whereas notices under section 65 should have been issued. He has accordingly annulled the assessments. Since I do not subscribe to this view, for the reasons to be stated hereunder, and as in my view these assessments were validly made, I proceed to record my reasons for the same.
12. In this case the notices under section 56 were issued for the assessment years 1977-78 and 1978-79 and returns were filed on 14-6-1980. The facts relating to the returns declared, the estimates made and the decision of the learned C.I.T. (Appeals) thereon are as follows:
| |
| ||
| 1977-78 | Rs.12,000 | (i) Business income | Rs. 40,000 |
| (ii) Unexplained investment | Rs.1,50,000 | ||
| Total: | Rs.1, 90, 000 | ||
| 1978-79 | Rs.13,200 | (i) Business income | Rs. 30,000 |
| (ii) Unexplained deposits in bank (peak deposit) | Rs.1,08,800 | ||
| (iii) Unexplained investment in shop | Rs.1,00,000 | ||
| Total | Rs.2,38,800 | ||
These assessments were framed by the I.T.O. on the basis of information collected by the department to the following effect.
(1) Business was being conducted under the name and style of China Watch Co. Khanum Bazar, Anarkali, Lahore, which had not been declared to the department.
(2) Ownership of 5 houses from which the assessee was deriving rental income.
(3) Purchase of shop at Panorama Centre, Shahrah-e-Quaid-e-Azam, Lahore.
(4) Maintenance of bank accounts in various banks.
(5) Maintenance of Car and Scooter.
3. While disposing of the appeal the learned C.I.-T.(A) fixed the turnover at Rs.8,00,000 for the assessment year 1977-78 as against Rs.12,00,000 estimated by the I.T.O. and Rs.3,00,000 declared by the assessee and confirmed the estimate of sales of Rs.8,00,000 for the year 1978-79 against declared sales of Rs.4,00,000. The addition to income of Rs.1,50,000 made was confirmed for the assessment year 1977-78. Likewise for the assessment year 1978-79 the addition to income of Rs.1,08,000 as peak deposit in the bank was confirmed as well as the addition to income of Rs.1,00,000 as unexplained amount invested in the shop.
4. No plea was apparently taken before the learned C.I.T. (A) regarding the legality or otherwise of the assessments, in so far as the question of issuance of notice under section 56 or 65 of the Income-tax Ordinance, 1979 was not raised before the I.T.O. when the assessments were being framed, not before the C.I.T. (A) when the appeals were disposed of. In the memo of appeals filed before the Tribunal in respect of both the assessment years the assessee has challenged only the estimate of turnover being excessive, the addition to income of various amounts and asked for relief in the various accounts. No plea has been taken before us either in the memo. of appeal regarding the issue of notices under section 56, as being illegal. It was only during the course of hearing of the case that the learned counsel for the assessee has challenged the legality of the assessments framed as a consequence of the issue of notice under section 56 of the Income-tax Act. Apparently no additional ground was taken, but my learned brother had proceeded assuming the arguments as additional ground and passed the above order. It would have been better if the issue had been dealt with by the learned C. I.T.(A). We proceed to examine the issue in the absence of such examination by the first appellate authority.
5. Relying on the provisions of section 166(2)(c)(ii) of the Income-tax Ordinance, 1979, the A.R. of the assessee took the plea that the I.T.O. has framed these two assessments after 1-7-1979 and since the assessments related to the period prior to 30-6-1979 these could be completed only after issuing notices under section 65 of the Income-tax Ordinance, since the Income-tax Act, 1922 has been repealed, and none of the provisions of the Act were applicable after 1-7-1979, unless they are saved by the saving provision of the Ordinance in section 166 or unless retrospective effect is given to the Ordinance. Since it was a case of escapement and as no proceedings have been taken under section 34 of the Income-tax Act,1922, the provisions of section 166(2)(c)(ii) were applicable and this required that notices under section 65 should have been issued for framing such assessments. Since the condition precedent for framing the assessments for 1977-78 and 1978-79 was the issuance of notice under section 65 these assessments were illegal. For various reasons stated in the order of my learned brother, he arrived at the conclusion that the assessments were made without jurisdiction and have annulled the same. On the other hand the D.R. has taken the plea that the assessments were validly made by the issue of notice under section 56 of the Ordinance and, these, therefore, could not be annulled. The provisions of sections 22(2) and 34 of the Income-tax Act, 1922, and the corresponding provisions of section 56, section 65 and section 166(2)(c)(ii) of the Income-tax Ordinance,1979,being relevant, for the disposal of this appeal, the same are reproduced for facility of reference:
| Section 22(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, as may be specified in the notice, a return in the prescribed form and verified in the prescribed manner setting forth alongwith other particulars statement of accounts as may be prescribed total income and total world income during the previous year: | Section 56 Notice furnishing return of total income.- The Income-tax Officer may, at any time by notice in writing, require any person who, in his opinion, is chargeable to tax for any income year to furnish a return of total income for such year within thirty days from the date of service of such notice or such longer or shorter period as may be specified in such notice or as the Income-tax officer may allow : |
| Section 34--If for any reason income, profits or gains chargeable to income-tax have escaped relief or refund or the total income and the total world income and the tax payable has assessment in any year, or have been low determined under subsection (1) of section 23 the Income-tax Officer may serve been under-assessed, or have been on the person liable to pay tax on such income, profits or gain, or, in the case of a assessed at too low a rate or have company, on the principal officer thereof, a notice containing all or any of the been the subject of excessive 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 revisions of this Act, shall, so far as may be, apply accordingly as If the notice were a notice issued under that subsection: | Section 65--Additional assessment (1) If, in any year, for any reason,-- (a) any income chargeable to tax under this Ordinance has escaped assessment; or (b) the total income of an assessee has been under assessed or assessed at too a rate, or has been the subject of excessive relief or refund under this Ordinance; or (c) the total income of an assessee or the tax payable by him has been assessed or determined under subsection (1) of section 59 and no order of assessment has subsequently been made under this section or any other provision of this Ordinance, the Income-tax Officer may, at any time, subject to the provisions of subsections (2), (3) and (4), issue a notice to the assessee containing all or any of the requirements of a notice under section 56 and may proceed to assess or determine, by an order in writing, the total income of the assessee or the tax payable by him, as the case may be, apply accordingly. Provided that the tax shall be charged at the rate applicable to the assessment year for which the assessment is made. (2) No proceedings under subsection (1) shall be initiated unless definite information has come into the possession of the Income-tax Officer or he has obtained the previous approval of the Inspecting Assistant Commissioner of Income-tax in writing to do so. (3) Notice under subsection (1), in respect of any income year, may be issued within ten years from the end of the assessment year in which the total income of said income year was first assessable. (3-A) Where a notice under subsection (1) is issued on or after the first day of July, 1982, no order under the said subsection shall be made after the expiration of one year from the end of the financial year in which such notice was served. (4) Nothing contained in subsection (2) shall apply to any such case or class of cases to which clause (c) of subsection (1) applies as may be specified by the Central Board of Revenue. |
| Section 34 (1-A)--Notice under subsection (1) may be served by the Income-tax Officer (a) in any case in which he has reason to believe that assessee or any other person on his behalf has not filed any return under subsection (1) or subsection (2) section 22, at any time; (b) in any case in which he has reason to believe that the assessee has for any year concealed the particulars of his income or deliberately furnished inaccurate thereof or omitted or railed to disclose all material facts necessary for assessment for such years, within six years from the end of the year in which the assessment for such year was first made and where no assessment has been made, within six years from the end of the last year In which assessment for such year could be made, had clause (c) been applicable to such case: Provided: x x x (c) in any other case, within four years from the end of the years for which assessment is to be made. | Section 166(1)--The Income-tax Act, 1922 (XI of 1922) is hereby the repealed. (2) Notwithstanding the repeal of the Income-tax Act, 1922 (XI of 1922) and without prejudice to the provisions of section 6 or section 24 of the General Clauses Act, 1897 (X of 1897),-- (c) where in respect of any assessment year,- (ii) any income chargeable to tax had escaped assessment, or had been particulars under assessed or assessed at too low a rate, or had been the subject of excessive relief or refund or the total income or the total world income and the tax payable had been determined under subsection (1) of section 23 of the repealed Act and no proceeding under section 34 of the said Act in respect of any such income are pending at the commencement of this Ordinance a notice under section 65 may be issued with respect to that assessment year and all the provisions of this Ordinance shall apply accordingly." |
The arguments raised by the learned A.R. of the assesses and the view taken by my learned brother thereon are as follows:
(i) The first plea was that the assessments had been framed under the Income-tax Ordinance, 1979. But these provisions could be applied for framing the assessments for 1977-78 and 1978-79 which had not been framed till 1-7-1979, only by issuing notice under section 65 whereas the I.T.O. had completed these assessments after issuing the notice under section 56 only. It has been held in the order that as the assessments had escaped, therefore, the proceedings could be initiated only after issuing the notice under section 65.
(ii) The Income-tax Ordinance,1979 came into force on 1-7-1979. None of its provisions could be made applicable beyond 1st July, 1979 I.e. prior to 1st of July, 1979, unless specifically made applicable only to the prior period. Section 56 could be applicable only to a period with effect from 1st of July,1979 onward and not prior to that.
(iii) The D.R. had taken the plea that the provisions of section 56 of the Income-tax Ordinance have retrospective effect whereas no such intention is apparent from these provisions or any other provision of the income-tax Ordinance. Since the Ordinance specifically says that it would come into force on 1st July, 1979, therefore, all the provisions of the Ordinance came into operation from that date onward. The view of the D.R., that the provisions of section 56 in respect of a case where no assessments had been made can, for example, even apply to the assessments for the year 1940-41, cannot be accepted. Reliance was placed on the judgment of the Supreme Court of India in J.P. Jani I.T.O. v. Induparasad Devsanker Bhatt reported as 1972 I.T.R. 595.
(iv) Section 56 is applicable only in regard to cases, which are chargeable to the Income-tax under the Income-tax Ordinance, 1979.
(v) Reliance was also placed on the single Bench case of the Tribunal reported as 1984 P T D 137, alongwith other cases where identical decisions are taken and cited in the above order.
(vi) The plea of the D.R. that once the return had been filed in compliance to a notice, could not be challenged under section 154(6) of the Income-tax Ordinance, is not tenable in so far as it has to be interpreted keeping in view the language used in the section itself and in view of the fact that the question of the ab initio illegality of the assessment having been framed cannot be brushed aside merely because the assesses had acquiesced to be assessed after having filed the return in response to the notices under section 56.
(vii) In regard to D.R's contention that section 65 of the Ordinance relates to the additional assessment only, the view taken by my learned brother is that the title of a section is never a part of provision of law and that the heading cannot control the words used in a statute and the heading cannot be a guide to interpret the plain words of the statute.
6. The issue being of considerable importance it would be advisable to examine the relevant provisions under the Income-tax Act, 1922, and the Income-tax Ordinance, 1979, at some length, in order to ascertain the scheme of the Ordinance employed by the legislature to deal with the cases which have been omitted to be assessed prior to the date of enforcement of an enactment or where income has escaped assessment and which requires additional assessment. As reproduced above section 22(2) of the Act has prescribed that the notice may be issued in respect of only one year I.e. the previous year. On the other hand the notices under sections 34 and 34(1-A) can relate to the assessments which have escaped both where no assessments have been made as well as where assessments have been made but certain income has escaped or under-assessment has been made, or assessment is made at too low a rate etc. The position under the Income-tax Act,1922, was that the legislature prescribed the notice under section 22(2) only for the current assessment year relating to the income of the previous year. In other words notice under section 22(2) could be issued, say for the assessment year 1977-78, in that financial year that is, 1977-78 for framing the assessment of the income of only the previous year. If this notice had not been issued in the financial year, viz., 1977-78, the notice could be issued under section 34 during 1978-79 or subsequent years subject to limitation prescribed under section 34. Therefore, notice under section 22(2) could be issued only for one year that is to say for current assessment and for all other assessments prior to the current assessment for the current year notice could be issued under section 34. On these basis when the Income-tax Act, 1922 was introduced in 1922 in place of the previous income-tax Act, 1860, notices under section 22(2) were to be issued for the assessment year 1922-23 and for any assessment prior to the assessment for the year 1922-23 the notice could be issued subject to the limitations laid down in section 34. It was only the language of section 34 which enabled the department to take care of the assessments prior to 1922-23 assessment and no specific provision was inserted in the Income-tax Act, 1922, to give it retrospective effect.
7. Now coming to sections 56 and 65 of the Ordinance, we notice that the scheme of law for framing the assessments has been modified, in so far as against the provisions of section 22(2) of Income-tax Act, which only refers to the income of the previous year, section 56 of the Income-tax Ordinance permits the I.T.O. to issue a notice at any time for framing an assessment on any person for any income ear. Likewise the provision of section 65 has been treated' differently. To begin with the section 65 has been given the heading of Additional Assessment whereas no such heading characterised the corresponding proven of section 34 of the Income-tax Act. This obviously refers to the situation where an additional assessment is required to be made for the reason where any income has escaped assessment, has been under assessed or assessed at too low a rate or has been the subject of successive relief. The additional assessment can be made in respect of the assessment years prior to 1st July, 1982, within 10 years from the end of the assessment year in which the total income of the said income year was first assessable. However, after 1st July1982, this period was curtailed in so far as where notice under section 65(1) of the Income-tax Ordinance, had been issued after 1st July, 1982 then the additional assessment could be framed within one year from the end of the financial year in which such notice was served. Comparing the provisions of the Act and the Ordinance the position boils down to this that under the Income-tax Act, current assessment could be made by issuing a notice in that financial year under section 22(2) of the Income-tax Act but under the Income-tax Ordinance both the current assessment as well as the assessments for the period prior to the current assessment i.e. retrospective assessments could be made by issuing notice under section 56. There is no limitation laid down in section 56 which could debar the I.T.O. from issuing a notice under section 56 in respect of the assessment for any year prior to assessment year 1979-80. Whereas the provisions of section 34 under the Income-tax Act 1922 afforded a retrospective action in respect of the assessment year prior to the assessment year 1922-23, but in the Ordinance, section 56 affords a retrospective effect for the assessment year prior to the assessment year 1979-80. But both under the Act as well as under the Ordinance, the limitation within which these assessments can be made has been provided under section 34 of the Act and under section 65 of the Ordinance. It is settled law that no words are redundant in any enactment and, therefore, to say that the words "any income year" used in section 56 would have no meaning or that it would have meaning only for the assessment year 1979-80 onward would not be tenable. As to whether no limitation has been imposed on the department within, which it can operate and that he cannot go more than 10 years behind 1979-80 would be dealt with hereunder. One has to bear in mind the two different modes of operations provided for framing the current and the retrospective assessments under the Income-tax Act, 1922 and under the Income-tax Ordinance, 1979 to appreciate the question whether in respect of assessment years 1977-78 and 1978-79, where no assessments have been made hitherto or have just been omitted to be assessed and no returns have been filed, the I.T.O. can issue a notice under section 56 of the Income-tax Ordinance and he need not issue a notice under section 65 as no additional assessments are required to be made. The above clarification would take care of the first point raised in para. 5(1) of this order.
8. I now proceed to take up other points on the basis of which my learned brother has given the decision. The first point relates to the uestio-1 of saving clause in the Ordinance. It has been argued that the provision of section 166(2)(c)(ii) provides a mechanism to deal with the assessment which has escaped on 1-7-1979 when the Income-tax ordinance, became operative. It is argued that in the present case the assessments for 1977-78 and 1978-79 had escaped assessment and, therefore, could be framed only under section 166(2)(c)(ii). But this provides a condition precedent for initiating the assessment proceedings viz. the issuance of a notice under section 65 of the Ordinance. The basic issue here is that income for the years 1977-78 and 1978-79 had not escaped assessment on 1-7-1979 but this was a case where the two assessments have not just been made, where no returns have been filed by the assessee and there was no information prior to 1-7-1979 with the department that the assessee was carrying on business. It was only after 1-7-1979 that the assessee was found to have been carrying on business and earning taxable income during 1977-78 and 1978-79 assessment years also. To say that the income for these years has escaped assessment would be a misnomer. No assessments have been made for these years earlier and no additional assessments were required to be framed on the basis of the information collected by the Department for which a notice under section 65 could be necessitated in my, view the provisions of section 166(2)(c)(ii) are not applicable to the circumstances of the case under consideration.
9. The next plea taken was, as stated in para. 5(ii) of this order that the provisions of Income-tax Ordinance, 1979 came into force on 1-7-1979 and none of its provisions could be applicable to any assessment year prior to 1-7-1979 unless specifically made applicable to that period. Section 56 could be applicable only to a period with effect from 1st of July, 1979 onward. If we subscribe to this view then the words that the I.T.O. can issue notice at any time in respect of income for any income ear would become redundant as indicated above. Section 56 read with 65 shows that it covers period of 10 years prior to 1-7-1979 but certain limitations have been placed on the department under which the assessments for these years can be framed, as clarified above to save that tax-payer from uncalled for embarrassment of being required to produce books for a period of 10 years from 1-7-1979. In para. 5(iii) of this order the D.R's pleas that notice under section 56 for the assessments could be issued even for the assessment year 1940-41 to my mind is not valid. Though under the provisions of section 56 notice could be issued for any year but the limitation to frame the assessment "for that any year" is laid down in section 65(3) i.e. 10 years and in section 65(3-A) i.e. within one year from the end of the financial year in which such notice was served in respect of cases where notice has been issued on or after 1-7-1982. In support of this view reliance is placed on the decision of the Lahore High Court in the case of Crescent Bros. Ltd. Lahore v. The I.T.O. Central Circle-VIII, Lahore, reported as (1984) 49 Tax 122. Therefore, the plea of the learned D.R. that under section 56 the assessment 0ould be framed even for the year 1940-41, where such an assessment has not been made, is not tenable. Such an argument cannot be relied upon to point out any irrationality in the provisions of section 56 in respect of retroactivity of the provision. That the taxation statutes can have retrospective effect is not doubted. The retrospective effect of the statutes can be even partial, and therefore, it may apply to an assessment made before the commencement of the Act, as was laid down by Mac Kenna Judge in the case of Regina v. General Commissioner of Income, 40 T.C. 225/228.
10. The next ground, which was made the basis for annulling the assessments for 1977-78 and 1978-79, as referred to in para. 5(iv) of this order, that section 56 is applicable only in regard to cases which are chargeable to Income-tax under the Income-tax Ordinance, 1979, and for that matter for the assessment year 1979-80 onward, in my view is not a valid argument. If we subscribe to this view it would mean that all cases where no assessments have been made, and where additional assessments are not required to be made, prior to 1-7-1979, cannot be touched. To say that the provision of section 166(2)(c)(ii) takes care of such a situation would be repelled by a tax-payer by merely taking a stand that since no additional assessment is being made the Income-tax Department cannot touch his income for any year prior to 1-7-1979, The reliance placed on the single Bench case of the Tribunal reported as (1984) 49 Tax 34 would be besides the issue, in so far as new questions which have been raised and made the basis of decision in this case, were not raised in that order.
11. My learned brother has also relied on the judgment of the Supreme Court of India mentioned in para. 5(iii) of this order to show that the Income-tax Act, 1961 would not be applicable to cases where assessment had already become barred by time before the new Indian Income-tax Act came into force. I am afraid the ratio of this case would not apply to the case under consideration before us since the scheme of the operation of the corresponding provisions under the Indian Income-tax Act, 1961 are different from those of the Pakistan Ordinance,1979. In India, under section 139(2) of the Income-tax Act, the I.T.O. can issue a notice for filing the return of income of the previous year only as was the case under section 22(2) of the Indian Income-tax Act, 1922 and not for an ear. Further the assessments for 1977-78 and 1978-79 under our consideration, which were completed on 30-4-1981 were not barred by limitation under the old Act on 30-4-1981.
12. In regard to the ground by the D.R. that once the assesses has filed a return, even though it may be under section 56 of the Income-tax Ordinance, it could not be challenged as laid down in section 154(6) of the Ordinance, my learned brother has taken the plea that the language used in the entire section has to be taken care of in so far as the ab initio illegality of assessment cannot be protected under section 154(6) of the Income-tax Ordinance. One may refer to the language used in section 154(8) of the Ordinance, which points out that "the validity of any notice shall not be called in question after the return in response to such notice has been filed or compliance thereto has been made". In the presence of these words one can appreciate the provision and since in this case the returns had already been filed in response to notices under section 56 it stands to reason to argue that the validity of the notice under section 56 cannot be challenged.
13. As mentioned in para. 5(vii) of this order it has been stated that the title or the heading of a section do not control the words used in a statute. In the case of Eastern Countries and The London Black Well Railways Company v. Marriage reported as (1860) 9 H.L.C. 32(41) as well as in Tripura Model Bank Ltd. In re: 1950 C 240 it was held that the headings are not to be treated as if they were marginal notes or introduced into the Act merely for the purposes of classifying enactments, They constitute an important part of the Act itself. They may be read as offering a better key to the construction of the section than might be afforded by a mere preamble. In the case of Emperor v. Bastiao 1934 B 213 (215), it was held that when there is a doubt as to the interpretation, that interpretation should be adopted which would give effect to the object stated in the heading.
14. For the reasons stated above I am of the view that, apart for the reason that the issue of notice under section 56 could not be challenged by the assesses in this case after he had filed the returns for the assessment years 1977-78 and 1978-79, and in fact he has not challenged them even before the learned Commissioner of Income-tax (Appeals), I would hold that in cases where no assessments have been made for the years prior to 1-7-1979 notices could be issued under section 56 to initiate the proceedings to frame the assessments subject to limitation laid down in section 65 of the Income-tax Ordinance, 1979. I am, therefore, of the view that these assessments were validly made and the Tribunal should dispose of the appeals on merits of the case, instead of annulling the same.
The difference of opinion has arisen on the following questions:-
(1) Whether in regard to the escaped income for the assessment year prior to 1-7-1979 assessment proceedings could be initiated by merely issuing a notice under section 56 without first issuing a notice under section 65 of the Income-tax Ordinance in a case where to additional assessment is being made.
(2) Whether an assesses can challenge the notice issued under section 56 after filing the return on the ground that notice issued was without jurisdiction
Since a difference of opinion has arisen, the matter may be placed before the Chairman for nomination of a Third Member for resolving the issue involved.
Muhammad Mashar Ali Khan, (Chairman)--Since the learned Members, who heard these appeals, could not see eye to eye on certain issues involved in these appeals, they have stated the following points under section 133(7) of the Income-tax Ordinance, 1979 (hereinafter for brevity's sake referred to as "the Ordinance").
"(1) Whether in regard to the escaped income for the assessment year prior to 1-7-1979 assessment proceedings could be initiated by merely issuing a notice under section 56 without first issuing a notice under section 65 of the Income-tax Ordinance in a case where no additional assessment is being made.
(2) Whether an assesses can challenge the notice issued under section 56 after filing the return on the ground that notice issued was without jurisdiction "
2. The relevant facts leading upto these appeals are elaborately recorded in both the orders proposed to be passed separately by my learned brothers. I would, therefore, refrain to state them at length. However, with a view to make this order self-sufficient, I would recapitulate the facts as are necessary for decision of the issues at hand,
3. The assessment years involved are 1977-78 and 1978-79. No assessment proceedings in respect of any of these years were adopted until the Income-tax Act, 1922 (for short, the "Act") was repealed by the Ordinance, which came into force on 1-7-1979. On the basis of certain information that came into his possession, the Income-tax Officer being of the opinion that during the previous years relevant to the assessment years 1977-78 and 1978-79 the assessee had earned but failed to declare income which was chargeable to tax, issued notices under section 56 of the Ordinance. In response to the said notices, the assessee filed returns on 14-6-1980 disclosing his total income for 1977-78 at Rs.12,000 and for 1978-79 at Rs.13,000. The Income-tax Officer, however, assessed the total income as under:
| (i) Business income | Rs. 40000 |
| (ii) Unexplained investment | Rs. 1,50,000 |
|
| |
| (i) Business income | Rs. 30,000 |
| (iii) Unexplained deposits in bank (Peak deposit) | Rs.1,08,800 |
| (iii) Unexplained investment in Shop | Rs. 1,00,000 |
| | |
4. On appeal, the learned Commissioner of Income-tax allowed some relief in the charge year 1977-78 but dismissed the appeal for 1978-79. The assessee, therefore, brought further appeals before the Appellate Tribunal assailing only the excessiveness of the estimated turnover and the confirmation of the additions made on account of the unexplained investment in shop in both the years and the additions of income from undisclosed source in 1978-79. At the hearing of the appeals, the counsel for the assessee, for the first time, sought to challenge the impugned assessments as having been made without jurisdiction for want of notice under section 65 of the Ordinance. While deciding the said additional ground on merits the learned Judicial Member has, agreeing with the appellant's counsel held that failure to issue notices under section 65 of the Income-tax Ordinance ire terms of section 166(2) (cc)(ii) ibid has rendered the assessments wholly without jurisdiction and that an order without jurisdiction is a nullity in law. The learned J.M. has, therefore, annulled both the assessments, whereas the learned Accountant Member has taken a contrary view. The operative part of his order reads as under:
"For the reasons stated above I am of the view that apart for the reason that the issue of notice under section 56 could not be challenged by the assessee in this case after he had filed the returns for the assessment years 1977-78 and 1978-79, and in fact he has not challenged them even before the learned Commissioner of Income-tax (Appeals), I would hold that in cases where no assessments have been made for the years prior to 1-7-1979 notices could be issued under section 56 to initiate the proceedings to frame the assessments subject to limitation laid down in section 65 of the Income-tax Ordinance,1979. I am, therefore, of the view that these assessments were validly made and the Tribunal should dispose of the appeals on merits of the case, instead of annulling the same."
5 I have heard the representatives of both the parties who reiterated the same contentions before me, which were made before the learned Members of the Division Bench and are summarised in para. 5 of the order of the learned Accountant Member. The D.R. seeking succour from the order of the learned A.M. further pleaded that the income of the appellant had not escaped assessment but it was a case where the assessments had not been made because no returns had been filed by the assessee and there was no information available with the department of his being engaged in business.
6. I would first proceed to examine and to whether it was a case of income escaping assessment of the two years in question under the provisions of the Act, as if the Ordinance had not come into force. Or to put it differently, what I propose to do is to ascertain, firstly, whether the assessment proceedings for the years in question could be initiated without issuing notices under section 34 of the Act. The undisputed facts are that the assessee failed to furnish returns of its total income voluntarily as required by section 22(1) ibid by the relevant due dates. The I.T.O. issued no notice under section 22(2) by the end of the relevant assessment year. The notices under section 22(2) of the Act for the assessment years 1977-78 and 1978-79 could be issued by or before the 30th June, 1978 and 30th June, 1979 respectively. Under these circumstances the assessment proceedings for both the years could be commenced on or after 1st day of July, 1979 only by issuing a notice under section 34 of the Act, had it not been repealed. And if the I.T.O. had proceeded to assess the income of these years only by issuing notices under section 22(2) of the Act and, ultimately, made the assessments, they could not but be annulled for having been made without jurisdiction inasmuch as it is a well-established proposition by authorities that the issuance of a valid notice under section 34 was the foundation of the jurisdiction of the I.T.O.
7. In Narayana Chetty and another v. I.T.O., Nellore and others (1959) 35 I.T.R. 388 the Supreme Court of India 392, held as under:
"The notice prescribed by section 34 cannot be regarded as a mere procedural requirement; it is only if the said notice is served on the assessee as required that the Income-tax Officer would be justified in taking proceedings against him. If no notice is issued or if the notice issued is shown to be invalid then the validity of the proceedings taken by the Income-tax Officer without a notice or in pursuance of an invalid notice would be illegal and void. That is the view taken by the Bombay and Calcutta High Courts in Commissioner of Income-tax v. Ramasukh Motilal (1955) 27 ITR 54 and R.K. Das & Co. v. Commissioner of Income-tax (1956) 30 ITR 439 and we think that the view is right."
8. Having held that it was a case of escaped assessment under the Act, I would now advert to the Ordinance, which repealed the Act w.e.f. 1st July 1979 to see whether there is any provision in it, which brings within its network such escaped assessments as the one in hand. And I find that it is available in section 166(2)(ii), which reads as under:
S.166: "(2) Notwithstanding the repeal of the Income-tax Act, 1922 (XI of 1922) and without prejudice to the provisions of section 6 or section 24 of General Clauses Act, 1897 (X of 1897),
(a)
(b).................................................
(c) where in respect of any assessment year:-
(i) ..................................................
(ii) any income chargeable to tax had escaped assessment, or had been under assessed or assessed at too low a rate, or had been the subject of excessive relief or refund of the total income or the total world income and the tax payable had been determined under subsection (1) of section 23 of the repealed Act and no proceedings under section 34 of the said Act in respect of any such income are pending at the commencement of this Ordinance a notice under section 65 may be issued with respect to that assessment year and all the provisions of this Ordinance shall apply accordingly."
There is no ambiguity in the above-noted provision of law. It specifically makes it obligatory on the I.T.O. to issue a notice under section 65 in every case, which falls within its purview. The issuance of a notice under section 65 is thus a condition sine qua non for the vesting of jurisdiction of assessment and re-assessment etc. in a case of an escaped assessment or under-assessment etc. under the Act. It further makes the application of all the other provisions of the Ordinance dependent upon the issuance of a notice under section 65. Hence it would, in my humble opinion be an exertion in futility to examine the scope and extent of section 56 in a case where notice under section 65 as contemplated by section 166(2)(c)(ii) was not given. It is, therefore, none of the business of any Income-tax authority or Tribunal to ignore or undermine the specific directions contained in section 166(2)(c)(ii) for any reason whatsoever. Since, as stated above no notice under section 65 was admittedly issued in this case, proceedings adopted by the I.T.O. and consequent impugned orders of assessments passed by him would be void and inoperative. A bare perusal of section 65 further reveals that it is couched in similar terms as that of section 34 of the Act, save that it further empowers the I.T.O. "to determine, by an order in writing, the total income of the assessee or the tax payable by him, as the case may be", and hence the decisions of the Courts recorded on the effect non-service or invalid service of notice under section 34 of the Act would with full force apply to all cases arising under section 65 of the Ordinance. In this view of the matter I do not feel hesitant to agree with my learned brother, the J.M. that the failure on the part of the I.T.O. to issue notice under section 65 as required by section 166(2)(c)(ii) of the Ordinance resulted in usurpation of the jurisdiction, and, consequently, in framing illegal and void assessments.
In my humble opinion it is not at all relevant to see the effect of the heading "Additional Assessment" to section 65. I may however, in the passing, observe that the said heading is, ex facie, inapt inasmuch as, in cases covered by clause (a) of subsection (1) o' section 65, which deals with the complete escapement here would be no question of framing of Additional Assessment. I have a feeling that by adding the heading to various sections the legislature desired to call those assessments by those names, such as an assessment made under section 59 was to be known as "Self-assessment", under section 60 as "Provisional assessment", under section 65 as the "Best judgment assessment" and under section 65 as "Additional Assessment". However, it is cardinal rule of construction of statutes that the heading of a section cannot control the meaning of the clear language of this section.
Now I turn to question No. 2. Here also, I find myself in complete agreement with the reasonings and the conclusions drawn by me learned brother, the Judicial Member. I have already dealt with the issue that unless a notice under section 65 of the Ordinance as contemplated by section 166(2)(c)(ii) was issued, the I.T.O. could not claim to have acquired the jurisdiction to proceed in the matter. The I.T.O. could not have a recourse to section 56 straightaway in a case where any income chargeable to tax had escaped assessment on or before the date of commencement of the Ordinance and no proceedings under section 34 of the said Act in respect of such income were pending at the commencement of the Ordinance. The Legislature, as already pointed out, has in specific term made it a condition precedent for the assumption of the jurisdiction by the I.T.O. in such cases, to issue a notice under section 65 with respect to that assessment year and all the provisions of the Ordinance would then come into pray. The contention of the learned D.R. is tantamount to saying that by filing a return pursuant to the notice under section 56 and not objecting to the assessment being made till the hearing of the further appeal by the Tribunal, the assessee had waived the irregularity committed in issuing the notice under section 56. Here too it is important to note that there can be no waiver of the condition precedent upon the fulfilment of which alone the jurisdiction can vest in the I.T.O. It is well-settled that no consent can confer jurisdiction upon a Court if it has no jurisdiction. In other words, the I.T.O. acquires jurisdiction to assess under section 65 only after he has given notice as required by that section to the assessee. One has to keep in mind the fundamental distinction between a notice issued under section 56 and a notice issued under section 65. A notice under section 56 is not obligatory and it is not a condition precedent to the assumption of the jurisdiction by the I.T.O. If the assessee fails to object to the validity of the notice or the validity of the service of any notice under section 56, before filing the return then he is debarred to do so under section 156 of the Ordinance. But jurisdictional objection or a basic lacuna in the assumption of jurisdiction can be objected to at any stage of the proceedings inasmuch as it goes to the very root of the case. In the instant case since the I.T.O. acted without jurisdiction in not issuing a notice under section 65 and hence it yeas open to the assessee to have raised an objection of lack of jurisdiction at any stage and the mere fact that the assessee had filed the returns in compliance with the notices under section 56, it would not debar him from raising the fundamental objection of lack of jurisdiction.
In the result, both the appeals succeed and are allowed by majority decision and, consequently, the impugned assessments for the charge years 1957-78 and 1978-79 are annulled.
M.B.A. Order accordingly.
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