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Constitutional Petition No. D-599 of 1987, decided on 18th August, 1987.
----S. 138--Revision by Commissioner of Income-tax--Commissioner can pass such order which should not be prejudicial to an assessee- Simpliciter cancellation of an assessment order, if it does not result in causing any prejudice to an assessee, will be within the competence of Commissioner in terms of S.138--Party impugning the order will have to show the prejudice caused to him in order to get same declared as without lawful authority.
Sheikh Mohammad Amin, Lyallpur v. Income-tax Officer, Jhang and another 1968 P T D 741 distinguished.
Commissioner of Income-tax, West Punjab, North-West Frontier and Delhi Provinces, Lahore v. Tribune Trust, Lahore A I R (35) 1948 PC 102 and Smt. Tara Devi Aggarwal v. Commissioner of Income-tax, West Bengal (I T R Vol. 88 (1973) 323 ref.
---S. 138--Cancellation of assessment by Commissioner--Show-cause notice--Such notice should contain particulars on the basis of which the Commissioner intends to cancel the assessment order so that assessee may have fair chance to meet the allegations.
Rampyari Devi Saragoi v. Commissioner of Income-tax, West Bengal and others (1968) 67 I T R 34 distinguished.
S. Tariq A. Hussain for Petitioners. Shaikh Haider for Respondent.
Date of hearing: 18th August, 1987.
.-- This petition is directed against Notice dated 1-6-1987 and the order passed in pursuance thereof by the respondent under section 138 of the Income Tax Ordinance 1979, hereinafter referred to as the Ordinance, cancelling the assessment of petitioner No.l firm for the assessment years 1984-85 and 1985-86.
2. The brief facts leading to the filing of the above petition are that petitioner No.l, which is a private registered partnership firm was formed on 1-3-1983 comprising petitioners 2 to 5 as its partners. It was registered with the Registrar of Firms on 1-8-1983. It is the case of the petitioner that they obtained certain premises in Saddar area from M/s. Homes (Private) Limited on lease with the permission to sublet the same it is the case of the petitioners that they converted the above premises into small shops and let out the same to various parties after obtaining refundable deposit amounting to Rs.3,45,000. It is also the case of the petitioners that they got the above 'renovation and conversion work executed by M/s. Homes (Private) Limited. It appears that petitioner No.l filed income tax returns for the years 1984-85 and 1985-86. The assessment orders were finalised of for detailed scrutiny by the Income Tax Officer Circle 'N' South Zone, Karachi by his order dated 12-5-1985 and dated Nil respectively. The petitioner No.l received a notice dated 7-6-1987 from the respondents which reads as follows:
OFFICE OF THE
COMMISSIONER OF INCOME TAX
CENTRAL ZONE 'A' KARACHI.
No. Jud-III/Conf. (H.L.)/ 1986-87/5001 Dated June 7, 1987.
To
M/s. Paras Commercial Co.,
236, Ghadially Building,
Karachi.
Sub CANCELLATION OF ASSESSMENT FOR THE ASSESSMENT YEARS 1984-85 & 1985-86.
I have reason to believe that assessment in your case for the assessment years 1984--85 and 1985-86 have not been correctly made. I intend to cancel these assessments.
You are however provided an opportunity to appear before the undersigned on 11-6-1987 at 10-00 a.m. or file any objection in this regard. In case of failure it will be presumed that you have no objection about the proposed action.
(Sd.)
(A.S.K. SHERANI),
COMMISSIONER OF INCOME TAX
CENTRAL ZONE 'A', KARACHI.
In response to the above notice, petitioner No.l submitted a detailed reply dated 9-6-1987. However, the respondent passed the impugned order which reads as follows: -
"ORDER UNDER SECTION 138 OF THE INCOME TAX ORD.1979
The assessee company got ground floor of Ghadially Building owned by Homes (Pvt.) Limited on annual rent. 'Thereafter, the assessee gave a contract for construction of 24 shops on the premises to the landlord company (Homes (Pvt.) Limited) attributing the cost of construction contract to deposits received from the tenant. The directors of Homes (Pvt.) Limited and Paras Commercial Company are mostly common and the whole arrangement of giving the premises on rent and the construction is a collusion between the landlord and the tenant. In fact the cost of construction has been borne by Homes (Pvt.) Limited. Therefore, the income should also be assessed in the hands of Homes (Pvt.) Ltd. and not in the hands of Paras Commercial Company.
The assessee was given an opportunity to explain the position. The explanation has been considered and in view of the position discussed above, the assessments of Paras Commercial Company for the assessment years 1984-85 and 1985-86 are hereby cancelled.
(Sd.)
(A.S.K. SNEERANI),
Commissioner of Income Tax
Central Zone 'A Karachi."
The petitioners being aggrieved by the above order have filed the present petition.
3. In support of the above petition Mr. Tariq, learned counsel for the petitioners has urged as follows:--
(i) That the notice and the impugned order are ultra vires of the power contained in section 138 of the Ordinance.
(ii) That the impugned show-cause notice was defective as it did not contain the particulars on the basis of which it was issued.
(iii) That the petitioner No.l firm falls within Zone 'N', whereas the impugned show-cause notice and the order have been issued passed by Commissioner Zone 'A'.
On the other hand Mr. Shaikh Haider, learned counsel for the respondent has submitted as under: -
(i) That since no prejudicial order to the petitioner has beer passed, the impugned show-cause notice and the order are intra vires of the powers of the respondent.
(ii) That in response to the show-cause notice the No.l had submitted a detailed reply and the mere fact that the facts were not mentioned in the show-cause notice would not render the same as illegal.
(iii) That there were proper notifications under section 5 ref the Ordinance in relation to the transfer of jurisdiction from Zone 'N' to Zone 'A'.
4. We may observe that the Homes (Pvt.) Limited is a private limited company comprising of altogether three Directors, two of whom petitioners Nos. 4 and 5 are also partners of petitioner No.l, the 3rd Director is the husband of petitioner No. 3 and the father of defendants Nos. 4 and 5. In other words it is a private limited company of a family.
Adverting to the above first submission of the learned counsel for the parties, it may be advantageous to reproduce subsection (1) of section 138 of the Ordinance which reads as follows:---
"138. Revision by Commissioner.--(1) The Commissioner either of his own motion or on an application made by assessee for revision, call for the record of any proceeding under this Ordinance in which an order has been passed by any authority subordinate to him and may make such inquiry or cause such inquiry to be made and, subject to the provisions of Ordinance, may pass such order thereon, not being an order prejudicial to the assessee, as he thinks fit."
A perusal of the above-quoted subsection (1) of section 138 indicates that the Commissioner either or his own or upon an application made by an assessee for revision may call for proceeding under this Ordinance in which an order has been passed by any authority subordinate to him and may make such inquiry or cause such inquiry be made and subject to the provisions of the Ordinance and pass such order thereon, but not being an order prejudicial to the assessee, as he may think fit. In other words, the order which is to be passed under subsection (1) of section 138 should be such which should not be prejudicial to an assessee. 'The question, therefore for consideration is as to whether-the, impugned order prejudicial as to warrant the interference by this Court. In the impugned order it has been held by the respondent that certain amount should not have been included as an income of petitioner No. 1-, but should have been included as an home'' of M/s. Home .(Pvt.).'Ltd. It has therefore,' been 'contended by Mr. Shaikh Haider that factually no. Prejudice will be caused to the petitioners but the would be benefited by. On the other hard -Mr.-"Tariq has urged that the impugned order, may cause some other prejudice than the finance; prejudice. However, he has not been able to point .put any other prejudice which has been caused to the petitioner or to its partners on account of the impugned, order.
We may record the Statement of ''Mr. Shaikh Haider learned counsel for the respondent that n account of the impugned order the liability of: .the petitioner' No: l as the firm and of the petitioners Nos.2 to 5 as the partners of, the said' firm will not be increased Furthermore, the respondent has not cancelled the registration of petitioner No .1 as the firm. We are therefore, inclined to hold that simpliciter cancellation of an assessment order if it does not, result in causing any prejudice to an assessee will be within the competence of a Commissioner in ,terms of section 138 of the .Ordinance.
5. In furtherance of his above submission Mr.' Tariq learned counsel for the petitioners has referred to the case of Sheikh Mohammad Amin, Lyallpur v. Income-Tax Officer; Jhang, and another 1968 PTD 741, in which erstwhile High Court of West Pakistan at Lahore held that the Income Tax Officer Jhang' had no power to pass the assessment order in respect of the appellant as the 'same had already been passed by the income Tax Officer Lyallpur and That nor the Commissioner had the power under, section 33-A of the Income tax Act 1922 corresponding to section 138 of the Ordinance to legalise the above Income Tax Officer's order. It was also held that since the liability of the assessee was to be increased the above section 33 could riot, have ,been invoked.
The above case is not applicable as the liability of the assesses has not been increased And the question of jurisdiction of the respondent, in the instant case is 'covered by the 3rd submission referred to herein below.
Whereas Mr. Shaikh Haider learned ocufisel'-f6t the responder has referred to, the following cases:
(i) Commissioner of income tax, West Punjab, North West Frontier and Delhi Provinces, Lahore v. Tribunal Trust, Lahore reported in A I R (35) 1948 P C 102, in which the Privy Council while construing section 33 of the Repealed Act held that an order under the above section is prejudicial to an assessee only when he is in worse position than before the order was made.
(ii) Smt. Tara Devi Aggarwal v. Commissioner of Income Tax, West Bengal (1973) 88 I T R 323. In the above case the Supreme Court of India while construing section 33-B of the late Income Tax -Act, 1922 held that "where an income has not been earned and is not assessable, merely because the assessee wants it to be assessed in his or her hands in order to assist someone else who would have been assessed to a larger amount, an assessment so made will be erroneous and prejudicial to the revenue and the Commissioner has jurisdiction under section 33-A of the Indian .Income-Tax Act, 1922, to cancel the assessment and proceedings for assessment may be initiated under the provisions of the Act, against some other assessee who according to the income-tax authorities would be liable for the income thereof."
The above cases cited by Mr. Shaikh Haider indicate that simpliciter cancellation of assessment order would not have attracted bar provided in section 33-A unless the cancellation would have resulted in some prejudice. We may again observe that under section 138 of the Ordinance the Commissioner has the power to cancel the assessment order so long as the cancellation order is riot prejudicial. The party impugning the order will have to show the prejudice caused to him in order to get it declared as without lawful authority.
6. As regards the lack of particulars in the show-cause notice, it may be observed that it is true that the show-cause notice does not contain the particulars which should have been mentioned, Mr. Shaikh Haider has referred to the case of Rampyari Devi Saragoi v. Commissioner of Income Tax, West Bengal and others reported in (1968) 67 I T R 84, in which it was held that the mere fact that certain additional facts were not mentioned in the order passed under section 33-B of the late Income Tax Act which were not mentioned in the show-cause notice, would not render the latter as invalid as the supplementary facts were in support of the main facts mentioned in the show-cause notice.
Strictly speaking the above case is not applicable to the present case as in the instant show-cause not we no facts were mentioned. We were inclined to remand the case on the above question but since the above statement has been made by Mr. Shaikh Haider namely, that there would be no increase in the tax liability of petitioner No.l firm and of its partners as a partner on account of the impugned order, we have not remanded the case. However, we may observe that a show-cause notice should contain particulars on the basis of which the Commissioner intends to cancel the assessment order so that the assessee may have a fair chance to meet the allegations.
7. As regards the jurisdiction of the respondent, it will suffice to refer to the two notifications namely Notification No. RCIT. Ju-108 (272)/85/2331 dated 21-5-1987 issued tinder clause (b) of subsection (1) of Section 5 of the Ordinance, transferring the jurisdiction respect of the petitioner No.l from C.I.T. South Zone, Karachi C.I.T. Central Zone 'A' Karachi and the other Notification No. .1ud 1 (II/ .1986-87 dated 4-6-1987 issued under clause (c) of subsection of section 5 of the Ordinance transferring the jurisdiction of petitioner No-1 firm to Income Tax Officer A-3.
8. For the foregoing reasons the petition is dismissed with the above observation with no order as to cost.
These are the reasons in pursuance of a short order of even date.
M.B.A. /31/ P -K Petition dismissed.
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