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I.T.As. Nos. 5794/LB and 6196/LB of 1986-87, decided on 20th August, 1987.
--- Penal provisions cannot be applied retrospectively unless legislature has made them so either expressly or by necessary implications.
---S. 9, Sched. I--Charge of income-tax--Fiscal liability of an assessee is determined regarding his income year which is prior in time to the assessment year according to the rates provided by Finance Ordinance--Finance Ordinance, therefore, is retrospective because legislature has made it so.
---Ss. 111(2)(c), 13(1) & 119--Deemed income--Concealed income- Penalty--Provisions of S.111(2)(c) being penal provisions, cannot be applied retrospectively.
The legislative intent is manifested by the Finance Ordinance itself regarding applicability of various provisions either retrospectively or prospectively. This, however, does not appear to be generally applicable to those provisions of law which are penal in nature. Since the principle of law that the penal provisions cannot be generally made retrospective is so well-entrenched in the legal system that one can safely presume that whenever legislature enacts laws it keeps this principle in consideration. The provisions of clause (c) of subsection (2) of section 111 do not lay down any retrospective law. Deemed income under provisions of section 4(A) to 4(F) of the repealed Income-tax Act and under various clauses of subsection (1) of section 13 of the Ordinance was not treated as concealed income earlier to the Finance Ordinance, 1984. Thus, it was for the first time that by introduction of clause (c) to subsection (2) of section 111 the deemed income has been included within the fold of the definition of concealed income. Since cases of concealed income are also open to prosecution under section 119 of the Ordinance and since penalty can also be imposed under section 111 of the Ordinance, therefore, the provisions of clause (c) of subsection (2) of section 111 are to be treated necessarily as penal provisions.
---S. 134--Income-tax Appellate Tribunal does not possess declaratory jurisdiction.
--Ss. 62, 63, 64 & 65--Assessment--Agreed assessment--While framing such assessment it is incumbent on Commissioner of Income-tax and Inspecting Assistant Commissioner to ensure that credibility of the department is preserved in any case and department, at any cost would never take advantage of its superior knowledge of tax laws in such matters. ]
Masud A. Kazi, I.T.P. for Appellant (in I.T.As. Nos. 5799 and for Respondent in I.T.A. No. 6196).
Nazir Ahmed Saleemi, A.C./D.R. for Respondent (in I.T.A No. 5794 and for Appellant in I.T.A. No. 6196).
Date of hearing: 7th July, 1987.
--These cross-appeals are arising out of the order of the, learned CIT (A) recorded by him on 28-4-1987 relating to assessment year 1984-85.
2. The brief facts giving rise to these appeals are that during the pendency of assessment proceedings regarding assessment years 1981-82 to 1984-85, the ITO issued notice to appellant on 9th January, 1986 under section 62 of the Income-tax Ordinance, 1979 (hereinafter referred to as the Ordinance) and called for his explanation as to why various additions be not made to his declared total income of Rs.59,340. From perusal of this notice it appears that the ITO had made out a case for addition of more than one crore rupees. The appellant, on one hand, submitted his reply to aforesaid notice and on the other hand also addressed a letter to the ITO whereby he offered payment of Rs.35,00,000 as tax in discharge of all of his tar liabilities regarding the assessment years involved. It appears that on same date the appellant alongwith his A.R. attended the Chambers of CIT of Zone-A and in the presence of IAC Range-I, the appellant made aforesaid offer after discussing all the aspects of the case. The order sheet, however, does not show as to whether the aforesaid offer was accepted by the Department. But from its perusal it appears that the matter came up before the ITO for as many as 19 times for various reasons and finally the assessment was framed on 27-1-1986. It further appears that on the same date the ITO also issued not only demand notice but also notice under section 116 of the Ordinance regarding imposition of penalty. Between 9th January and 27th February of 1986 the entries on the order sheet indicate that the file was moving to and from the desk of the ITO to the office of IAC and from the office of IAC to the Chambers of CIT.
3. The appellant after receipt of the notice under section 116 of the Ordinance filed his objection whereby it was alleged that since the assessment was framed on the basis of agreed assessment, the ITO was not competent to impose any penalty. The ITO, however, repelled the objection and imposed a penalty amounting to Rs.39,15, 245. Having been aggrieved and dissatisfied the appellant came up in appeal but the learned CIT(A) upheld the imposition of penalty. Nevertheless, he reduced the quantum to Rs.23,49,147. This time both the appellant as well as the Department have felt aggrieved and have come up in appeal before us. The appellant has challenged the position of penalty itself whereas the Department has prayed for restoration of the original amount of penalty imposed.
4. Mr. Masud s A. Kazi appearing for the appellant firstly contended that since clause (c) to subsection (2) of section 111 of the Ordinance was inserted in the Income-tax Ordinance, 1979 by Finance Ordinance of 1984, therefore, it did apply to the income year relating to assessment year 1984-85. In other words, he contended that the deemed income, under clauses (aa), (b), (c), (d) and (e) of subsection (1) of section 13 of the Ordinance could be treated as concealed income only after 1st July, 1984. He fortified his submissions by putting reliance on cases reported as
(a) P L D 1970 S C 80;
(b) P L D 1960 Kar. 20
(c) P L D 1959 Lah. 883 and
(d) Maxwell Interpretation of Statutes 12th Edition page 216.
5. The argument of Mr. Kazi in nutshell is that since these provisions are penal in nature, therefore, they could not be applied retrospectively. Mr. Nazir Ahmad Saleemi, the learned D.R. on the other hand, vehemently argued that the nature of Income-tax proceedings was altogether different. According to him, the ITO gains jurisdiction in the assessment year regarding income year relating to such assessment year, which is always prior in time. The learned D.R. vehemently argued that all the Finance Ordinances are applicable to income years relating to assessment years. The learned D.R. argued that if the Finance Ordinance can fix fiscal liability of an assessee regarding Income year, which is prior in time to the assessment year why penal provisions could not be made applicable to such income year. The learned D.R. vociferously contended that the ITO can take action regarding concealment only while he frames assessment, but it is always regarding concealment made in income year.
6. We have heard both the learned counsel for the appellant as well as learned D.R, at length. It is true that the penal provisions cannot be applied retrospectively unless the legislature has made them so either expressly or by necessary implications. This proposition of law is very well settled and no authority need be cited in support of it, Similarly, it is also true that the Income-tax Officer gains jurisdiction when he starts the assessment proceedings regarding the imposition of penalty in concealment cases. It is equally true that the assessment is made regarding income year relating to assessment year. Surely the Finance Ordinance deals with income year. However, it so happens under legislative authority provided by firstly section 9 of the Ordinance and secondly by various provisions of Finance Ordinance themselves. Section 9 lays down that the tax would be levied in respect of income year and at the rate specified in 1st Schedule. The 1st Schedule lays down the rates, which may be amended by the Finance Ordinance of every year. Thus, the fiscal liability of an assessee is determined regarding his income year, which is prior in time to the assessment year according to the rates provided by the Finance Ordinance. In other words, it is retrospective because the legislature has made it retrospective. However, there are several instances in which various Finance Ordinances have made various provisions applicable in future or from earlier assessment years. The legislative intent is manifested by the Finance Ordinance itself regarding applicability of various provisions either retrospectively or prospectively. This, however, does not appear to be generally applicable to those provisions of law which are penal in nature. Since the principle of law that the penal provisions cannot be generally made retrospective is so well-entrenched in our legal system that we can safely presume that whenever legislature enacts laws it keeps this principle in consideration. We are, therefore, of the view that the provisions of clause (c) of subsection (2) of section 111 do not lay down any retrospective law. Let us point out that deemed income under provisions of sections 4(A) to 4(F) of the repealed Income Tax pct and under various clauses of subsection (1) of section l3 of the Ordinance was not treated as concealed income earlier to the Finance Ordinance; 1984. Thus, it was for the first time that by introduction of clause (c) to subsection (2) of section 111 the deemed income has beer. included within the fold of the definition of concealed income. Since cases of concealed income are also open to prosecution under section 119 of the Ordinance and since penalty can also be imposed under section 111 of the Ordinance, therefore, the provisions of clause (c.) of subsection (2) of section 111 are to be treated necessarily 4as penal provisions. We, therefore, uphold the submission of Mr. Masud A. Kazi on this point.
7. Mr. Masud A. Kazi also vehemently argued that the tax was assessed on basis of the Agreement. Mr. Nazir Ahmad Saleemi, the learned D.R. has, however, vociferously argued that the assessment was framed under section 62 of the Ordinance and not on the basis of alleged agreement. He conceded that the appellant did made an offer but- argued that it was not accepted by the department. We have heard both the learned counsel to the, appellant as well as the D.R. at length. But with due respect we feel that we have neither Declaratory jurisdiction nor can legally dwell upon this issue in this appeal. To be precise let us point oat that appeal which is before us is against the order, which dealt with imposition of penalty and not main assessment order. Nevertheless, we feel very much constrained to observe that while framing such sort of assessments it is incumbent on CIT concerned and his I.A.C. to ensure that credibility of the Department is preserved in any case. Similarly we also tempted to observe that at any cost the department would never, take Advantage of its superior knowledge of tax laws in such matters. However, in view of discussion made above we order' the deletion of the penalty as we have already held that it could not have been imposed in view of section 111(2)(c) of the Ordinance as discussed above. Both the appeals stand disposed of accordingly.
M.B.A./419/T Order accordingly.
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