APPELLATE TRIBUNAL INLAND REVENUE OF PAKISTAN
KARACHI
BENCH KARACHI
Present: MR.
M.M.AKRAM, J.M.
MR.
HABIBULLAH KHAN, A.M.
ITA No. 336/KB/2018
(Assessment year 2002-2003)
******
M/s
ICI Pakistan Limited,
Karachi……………………………… Appellant
V e r s u s
The Commissioner Inland Revenue, LTO,
Karachi…………..…………………. Respondent
Appellant by : Mr. Asim Zulfiqar Ali, FCA, and
Ms. Asra Rauf,
FCA
Respondent by : Mr. Fouz Khalid, Addl. CIR /DR
Date of
hearing : 17.03.2021
Date of
Order : 07.06.2021
O R D E R
M. M.
AKRAM (Judicial Member): The Appellant/Assessee,
a public limited company and listed on stock exchanges, impugns appellate order
No.43/A-1 dated 19.01.2018 passed
by learned Commissioner Inland Revenue (Appeals-1), Karachi in connection with
assessment order dated 15.05.2017 issued by the learned Assessing Officer for the
assessment year 2002-2003 under section 62 of the repealed Income Tax
Ordinance, 1979 (hereinafter ‘repealed Ordinance’).
The principle controversy in appeal lies in a narrow compass. It is the
assessee’s contention that a particular transaction had attained finality in
proceedings relating to the assessment year 2001-2002 in all respects,
therefore, no further proceedings or action could be undertaken in relation to the
same transaction while concluding the assessment proceedings for the assessment
year 2002-2003.
2. Briefly, the
facts are that appellant/assessee filed a petition in the High Court of Sindh
for sanction of the scheme of the arrangement, under section 284 to 288 of the Erstwhile
Companies Ordinance, 1984, envisaging demerger of PTA business into a separate
company, namely M/s Pakistan PTA Limited. Prior to the filing of said petition,
PTA business was being undertaken as a business segment of appellant assessee
along with the soda ash business, polyester business, and chemical/pharma
business. The sanction order on the petition was issued by the Hon’ble High
Court on 23.07.2001. The scheme of the arrangement, submitted with the petition
and duly approved/sanctioned by the Hon’ble High Court stipulates “Effective
Date” as “0000 hours on the 1st day of
October 2000”. It is a fact that post sanctioning of the scheme by the Hon’ble
Court, the assessee prepared financial statements on the basis of the said
effective date. The business relating to PTA undertaking with effect from
01.10.2000 and onwards was recorded in books of Pakistan PTA Limited, a
separate entity. The operations of PTA business for the period 01.01.2000 to
30.09.2000 and business operations of all other segments of the appellant for
the entire calendar year 2000 were recorded in the books of accounts of the appellant
assessee for the period 01.01.2000 to 31.12.2000. Both the financial statements
were also filed with all the relevant regulators and authorities.
3. The assessee
filed an income tax return for the assessment year 2001-2002 along with
financial statements, as above, in which the full and complete effect of the demerger
was accounted for and reflected. The assessment proceedings for the assessment
year 2001-2002 were finalized vide order dated 29.05.2002 issued under section 62 of the repealed Ordinance
in which principally the position as to demerger was accepted by the assessing
officer, however, few disputes on certain ancillary matters were raised. The
order dated 29.05.2002 finalized the assessment proceedings as under: -
(i) PTA business stood demerged effective
01.10.2000 vide order of the honourable Sindh High Court as a result of which
this business was vested in Pakistan PTA Limited, a separate legal entity;
(ii) The transaction of demerger, undertaken through a scheme of arrangement under section 284 to 288 of the erstwhile Companies Ordinance, 1984 was tax neutral and did not entail any transfer of assets vis-à-vis the provisions of Rule 7 of the Third Schedule to the repealed Ordinance for tax consideration;
(iii) The depreciation allowance relating to PTA business remains admissible to the assessee for the period 01.01.2000 to 30.09.2000, i.e during the period PTA business was part of the appellant assessee;
(iv) Unabsorbed depreciation allowance, relating to assets of PTA business and accumulated prior to the assessment year 2001-2002, was held to be allowable and available to appellant for set-off purposes; and
(v) Brought forward business losses relating to PTA business in the combined entity were held to be inadmissible to the appellant assessee post de-merger;
4. Post
completion of the assessment proceedings for the assessment year 2001-2002, a
notice dated 30.12.2004 (first notice) was issued by learned Additional
Commissioner Inland Revenue (Addl. CIR)
under section 122(5A) of the Income Tax Ordinance, 2001 (hereinafter “Ordinance, 2001”) in which no dispute
as to the effective date of demerger as 01.10.2000 was raised, however, the
findings of the learned Deputy Commissioner IR recorded in assessment order
under section 62 of the repealed Ordinance as to the admissibility of
depreciation, unabsorbed depreciation and tax neutrality of the demerger
transaction were considered to be erroneous in so far as prejudicial to the
interest of revenue. No further proceedings were undertaken on the said show
cause notice until 07.05.2007 when a fresh notice under section 122(5A) of the Ordinance, 2001 (second notice) was
issued to the assessee in which the learned Addl. CIR stated that the finding
of the Deputy Commissioner in the order dated 29.05.2002, that demerger took
effect on 01.10.2000, was erroneous in so far as prejudicial to the interest of
revenue as in his view the effective date of demerger remained 06.08.2001 when
the scheme sanctioned by the High Court was submitted in the office of the
Registrar Companies, Security Exchange Commission of Pakistan (SECP). The earlier notice dated
30.12.2004 was categorically withdrawn vide same. The matter was challenged by
the appellant assessee and finally in terms of the judgment of the Apex Court
dated 29.10.2009, the assumption of jurisdiction by the learned Addl. CIR under
section 122(5A) of the Ordinance, 2001 was held to be illegal and void ab
initio. The Apex Court following the
earlier decision in CIR Vs Ely Lilly Pakistan Limited, (2009 PTD 1392)
reaffirmed the proposition that the provisions of Ordinance, 2001 do not apply
to tax periods covered by the repealed Ordinance. Upon meeting the fate as
above, learned the Addl. CIR reinitiated the proceedings through the issuance
of notice dated 20.06.2011, this time around, under section 66A of the repealed
Ordinance (third notice) on absolutely identical grounds and passed the order
as confronted in the show cause notice. The order was again challenged before
appropriate forums and finally, through judgment dated 13.03.2017, issued by
the Hon’ble Apex Court, the action was again held to be illegal and without
jurisdiction. Both the attempts,
therefore, to modify or amend the position determined in the assessment order
dated 29.05.2002 issued under section 62 of the repealed Ordinance for
2001-2002, thus failed and the matter attained finality and closure. The
position determined in the assessment order for the assessment year 2001-2002,
to date, is unaltered and unmodified, except the issue relating to brought
forward business losses, which was later on dealt with and resolved by this
Tribunal vide order in ITA. No. 691/KB/2004 dated 08.10.2015.
5. It was vide
notice dated 26.05.2005 issued under section 62 of the repealed Ordinance when the
first show-cause notice for the assessment year 2001-2002 was still pending
adjudication by learned Addl. CIR, that for the assessment year 2002-2003
proceedings were initiated and the appellant assessee was confronted on the redetermination
of the effective date of demerger as 06.08.2001. The assessee challenged the
show cause notice directly before the Hon’ble Sindh High Court on the grounds
that in the presence of a legally valid order in the assessment year 2001-2002
confirming the effective date of demerger as 01.10.2000, no lawful jurisdiction
existed for revenue to take a contrary position in the assessment year
2002-2003, particularly when the financial statements relevant to the assessment
year 2002-2003 did not contemplate any transaction or detail relating to
demerger which had been concluded and recorded completely in financial
statements relevant to the assessment year 2001-2002. The said petition was
dismissed by the Hon’ble Sindh High Court vide judgment dated 06.01.2006 on the
grounds that the petition challenging the notice was premature and, not
maintainable and that the assessee should join the proceedings and take legal
objection before the concerned assessing officer. The appellant assessee
further assailed the aforesaid order before the Apex Court wherein interim
injunction was allowed to the appellant and assessing officer was restrained
from proceeding any further on the show cause notice dated 26.05.2005. There
was no progress in the matter for a considerable period until when the matter
was finally taken up for decision by the Apex Court and vide judgment dated 14.03.2017,
the honourable Apex Court upheld the order of Sindh High Court and ruled that
assessee should join the proceedings and file response to the show cause notice
issued on 26.05.2005.
6. In the
assessment proceedings and also before the first appellate authority, the
appellant assessee maintained the position that no lawful mandate or authority
existed for revenue to re-determine the effective date in the presence of
already determined effective date as 01.10.2000 in the assessment order for the
assessment year 2001-2002, which position has already attained finality as a
result of orders of the Apex Court which is now a past and closed transaction
for all purposes. The defense of the appellant assessee did not find any favour
from the revenue and assessment order dated 15.05.2017 was passed under section
62 of the repealed Ordinance in which not only the effective date of demerger
was re-determined as 06.08.2001, but also the transaction encompassing transfer
of PTA business to Pakistan PTA Limited through demerger scheme duly approved
by the honourable Sindh High Court was held to be a taxable event under section
27 of the repealed Ordinance. The result of these proceedings emerged in the
shape that two contradictory and opposing positions on the same transactions
emerged simultaneously in separate assessment orders for two years i.e
2001-2002 & 2002-2003. In other words, the position of revenue on effective
date of demerger transaction, its taxability or otherwise, and treatment of
ancillary matters like depreciation, unabsorbed depreciation & brought
forward business losses is contradictory in the assessment year 2002-2003 while
the position on these issues as determined in the assessment year 2001-2002 is
also legally and lawfully valid & operative at the time when proceedings
for 2002-2003 were concluded. In proceeding as above, the assessing officer
derived strength from principles settled by Courts in regard to “estoppel”,
“res judicata” and “change of opinion” and observed that he was lawfully
authorized to act and proceed as aforesaid. The learned first appellate
authority, through the impugned order, also upheld the departmental action viz.
determination of the effective date of the merger as 06.08.2001. Further, while
according relief on some of the other actions proceeded within the assessment
order dated 15.05.2017, following disallowances has been upheld by the first
appellate authority
(a)
‘principal prepayment of loan’– Rs 283.333
million;
(b) ‘financial charges’ allegedly relatable to
PTA business – Rs 29.704 million; and
(c) ‘commission & discount’ given to distributors/ customers’ disallowed u/s 24(b) of the repealed Ordinance – Rs 431.812 million.
7. The learned
AR for the appellant, in his arguments, by referring to the aforesaid factual
background, vehemently argued that the revenue has acted unlawfully illegally
and without jurisdiction in reinitiating and determining the effective date of
demerger as the matter had already attained finality in consequence of the
order of the Apex Court. The learned AR further submitted that the action of
revenue has given rise to a farcical position where the position determined in the
assessment year 2001-2002 and that determined in 2002-2003 are
self-contradictory. It was further submitted that in accordance with legal
provisions, the opening written down value of assets for the assessment year
2002-2003 could only and only be those which had been determined in the assessment
year 2001-2002 as closing written down values. It was added that in the entire
set of books, records and other documents relevant to the assessment year
2002-2003, the transaction relating to demerger was ab initio not there, hence
it is not comprehendible as to on what basis the matter was raised and
proceeded in such assessment year. The AR finally drew our attention to
documents titled “protective assessment orders” issued for succeeding years by
the revenue. It was submitted that owing to time limitations stipulated in the
Ordinance, 2001 the revenue, during the pendency of the matter in Apex Court
for the assessment year 2001-2002, had been passing amended assessment orders
for tax years 2003 and onwards on the issue of depreciation allowance and
unabsorbed depreciation in anticipation that if the departmental position is
upheld by the Apex Court, the clutches of time limitation did not adversely
affect its case. The learned AR in order to support his contention drew
attention towards the appellate orders issued by this Tribunal for tax years
2003 to 2009 wherein, on this matter, it was held that position on depreciation
and unabsorbed depreciation as determined in the assessment order dated
29.05.2002 issued under section 62 of the repealed Ordinance for the assessment
year 2001-2002 reflects a crystallized position and there was no basis to
disallow the right of carrying forward of the same in the following years. It
was held that as and when the position determined in the said order is changed
as a result of the decision of higher appellate authorities for 2001-2002, the
consequential effect could only then be given in the ensuing years. The learned
AR pointed out that the said finding of the Tribunal attained finality, and in
this regard submitted before the Bench, the copy of reference application filed
before Sindh High Court in which order of this Tribunal on the issue of
deprecation/unabsorbed depreciation was not further assailed. The learned AR
concluded that since the department had itself conceded that no contrary view
on demerger and related aspects could be taken without altering the position in
the assessment year 2001-2002, it was highly unjustified and unlawful for them
to take a different view in succeeding assessment year which in any case is
unlawful and without jurisdiction.
8. On the merits
of the issues framed by the learned assessing officer (arising on account of redetermination
of the effective date of merger), it was submitted by the learned AR that: -
(i)
the position that the
effective date of the merger is the date on which the relevant order of High
Court is filed with Registrar (as against the effective date laid down in reorganization
scheme, approved by High Court) is unlawful. There are various judgments of
Indian as well as local jurisdiction holding that effective date of merger/demerger
etc. remains to be the one provided for in the relevant ‘scheme of arrangement’
and on which date the vesting/divesting of assets/liabilities takes place, and
any other date (e.g., date of sanction order of Court, ‘completion date’ laid
down in scheme, date of filing of a certified copy of Court decision with
relevant regulatory authorities) cannot be said to be the effective date.
Moreover, it has also been held by Courts that not only reorganization/rearrangement
could take place with a retrospective effect, an order sanctioning any scheme
of rearrangement is binding on all forums including the income tax authorities.
In this respect, reliance is inter-alia placed on the following judgments of
Pakistani & Indian origin:
(a) Swastic Rubber Products Ltd (India) [140 ITR
304];
(b) Marshall Sons & Co (India) [ 223 ITR 209];
(c) Ujala Cotton Mills Limited [51 TAX 237]; and.
(d) Elahi
Spinning Mills Limited [2007 PTD 1885]
(ii)
Transfer/vesting of assets as
a result of the scheme of arrangement sanctioned by the High Court is a tax neutral
event as there is no change in effective ownership of assets, and it is only in
the nature of a reorganization and restructuring, not involving any gain or
loss for considering any implication under the tax law. Reliance in this
respect is inter-alia placed on the following judgments of Indian &
Pakistani jurisdiction, affirming this position:
(a)
Bharat Development Bank
(India) [1982] 135 ITR 456;
(b)
Raseklal Maneklal (SC India)
177 ITR 198;
(c)
Mashreq Bank [ 2012 PTD
(Trib.) 1544]; and
(d)
Prosperity Weaving Mills
Limited [ITA No.1011/LB/2009 dated 20.10.2020].
(iii)
the issue of brought forward
business losses already stood decided in appellant assessee’s favour by this
Tribunal in the assessment year 2001-2002, and thus, notwithstanding any other
merits of the issue, departmental action of repeating this action in the assessment
year 2002-2003 is illegal and clear-cut violation of dictum earlier laid down;
(iv) issue
of disallowance of unabsorbed depreciation relating to PTA business is also
based on mis-appreciation of provisions of sections 23 & 38 of the repealed
Ordinance as well as the ratio settled by the honourable Courts including this
Tribunal. Strength in this regard is inter-alia drawn from the following
decisions of higher Courts:
(i)
(1982) 46 TAX 143 (LHC);
(ii)
1970 PTD 207 [Bombay High
Court]; and
(iii) 1996 PTD (Trib.) 292.
9. Regarding the remaining disallowances,
learned AR submitted as under: -
(i)
‘Principal prepayment of
loan’ made by the appellant assessee to Pakistan PTA Limited was disallowed on
the grounds that it related to PTA business. The nomenclature as well as note
7.7 to the financial statements of the appellant itself depict that it was a
capital transaction relating to repayment of the loan and no expense on this
account was claimed by the assessee. Thus the question of such disallowance/addition
does not arise; the action is illegal ab-initio;
(ii) ‘Financial charges’ were disallowed to the appellant assessee without even confronting the issue to it during assessment proceedings and hence action was prima facie unlawful. Even otherwise, the financial charges were related to long-term financing facilities & Term Finance Certificates obtained by the assessee for its business and, therefore, admissible to the appellant assessee under relevant provisions of the repealed Ordinance. These financial charges were wrongly considered by the assessing officer as being relatable to PTA business as all the related loans of such business stood transferred to Pakistan PTA, pursuant to the demerger. Note 7 to the financial statements and other documents available on record clearly support the appellant’s position. Thus, action on this score is also arbitrary/illegal; and
(iii) The nature of “Commission & discount” allowed to distributors/ customers has been totally mis-appreciated and the entire amount of such expenditure at 431.812 million has been disallowed on the premise that it is ‘commission’, whereas, out of the said sum, amount to the extent of Rs 389.147 million represented discounts/incentives allowed to distributors, etc. to whom the goods were sold with all the risks and rewards of ownership of goods passed on to them. The said amounts were purely in the nature of ‘discounts’ and, in no circumstances, these could be considered as ‘commission’, as also held by this Tribunal in another case, and thus no tax withholding was warranted thereon. The remaining amount of Rs 42.665 million constituted commission paid to agents (who only facilitated the sale of the company’s goods) on which tax was duly deducted. Such position is directly emanating from notes 2.1 & 25 to the audited financial statements of the appellant, the submissions made by appellant during the course of assessment proceedings, and other documents (including tax deduction evidence) furnished therein. Hence, the disallowance is arbitrary & unlawful.
10. The learned DR on the other hand, supported the orders of the authorities below and read out various parts of these orders. Later on, the department also filed the written arguments on 07.06.2021 in support of its arguments which are placed on record. However, on the matter of redetermination of effective date notwithstanding the position in the assessment year 2001-2002, the primary thrust of arguments of the learned DR remained on the following excerpts: -
“10.2.15.2) Estoppel, Res Judicata, and Change of
Opinion
The
assessee contends that change of opinion cannot form the basis of making an
assessment, particularly; when the assessment of the previous year had been
made by the previous assessing officer. It is again reiterated here that the
assessing officer while making the assessment for the year 2001-02 never
enquired about or adjudicated upon the effective date of the demerger. Had the
issue been taken up and a decision then made on the matter, the allegation of
the assessee would have been considered, but not being the case, the allegation
does not hold ground. When an opinion on the validity of the effective date
taken by the assessee in the return submitted by him for the assessment year
2001-02 was never made by the assessing officer, the charge of change in
opinion cannot be leveled at this office for the current assessment. Since in
the previous assessment year no opinion was issued on the matter of the
effective date, this office can adjudicate the matter in the current proceedings
without being barred by the charge of change in opinion.
The
contention of the assessee that change of opinion is applicable to the matter
of a decision of effective date in the subject proceedings is further not
tenable in light of the case reported as 2006 PTD 1617 (Service Industries
Limited), where the honorable High Court (Lahore) has held that difference of
opinion and change of opinion are two different things. As explained in the
paragraphs above, in the proceedings for the subject year, it is not change in
opinion, as an opinion was never formed on the issue of effective date in the
assessment of the previous year.
In this
case, during the course of normal assessment, the assessing officer required an
explanation of the assessee company regarding the increase in directors loans
in the contest of section 12(18) of the Income Tax Ordinance of 1979. The
assessment was finalized accepting the explanation that part of the amount has
been received through cross cheque whereas the balance amount was on the
account of transfer of price of Director's personal property. However,
subsequently, the assessment was cancelled u/s 66A of the Repealed Ordinance
with the direction to make further probe in the case keeping in view the
provisions of section 12(18) of the Ordinance. The cancellation was upheld by
the Appellate Tribunal, therefore, a reference application was filed before the
High Court which inter alia included the following question of law –
“(b) Whether in the facts and circumstances of the
case, the respondent could assume the jurisdiction u/s 66A of the Ordinance,
particularly when he could not give a clear cut finding that the order of the
Assessing Officer was, in fact, erroneous and prejudicial to the interest of
Revenue?”
This question
was answered in the affirmative with the following ratio:
RATIO
THE PHRASE
CHANGE OF OPINION AND DIFFERENCE OF OPINION ARE TWO DIFFERENT THINGS
* A change
of opinion purposes the making of an order by the same person or at best by the
same authority -- On the other hand, a difference of opinion presupposes
holding of two different opinions by different persons -- if the principle of
holding of change of opinion as envisaged at the bar is applied to the
assessment framed by an Assessing Authority by whatever nomenclature it called,
said provisions of section 66A providing revision of such orders and
proceedings by a higher authority, would be rendered redundant --
WHILE A
CHANGE OF OPINION ON THE PART OF AN OFFICER OR AN AUTHORITY MAY BE OBJECTIONABLE,
BUT THE DIFFERENCE OF OPINION BETWEEN THE TWO OFFICERS OR AUTHORITIES EVEN OF
EQUAL STATUS CANNOT BE OBJECTED TO
*While a
change of opinion on the part of an officer or an authority may be
objectionable, but the difference of opinion between the two officers or
authorities even of equal status cannot be objected to -- Much less to say of
the privilege of a Revising Authority to exercise the power wherever an order
recorded by a subordinate authority calls for interference on the grounds
available in the law -- it is rather the very basis of the exercise of
revisional jurisdiction -- The power to revise an assessment order on the
motion of the authority is factually the most significant part of the machinery
provisions -- The occasion to exercise this power will obviously arise only
after the Revising Authority comes to a different conclusion or reaches a
different opinion as against the one reached by the lower forum --
IT IS THE
DIFFERENCE OF OPINION, WHICH PROVIDES BLOOD AND SOUL TO THE REVISIONAL JURISDICTION
PROVIDED IN THE LAW
*It is the
difference of opinion, which provides blood and soul to the revisional
jurisdiction provided in the law -- To hold an opinion different from the one
earlier held by the lower forum in the privilege of the higher forum, which if
denied would render all provisions regarding revisions or appeals as redundant
and nugatory --
FAILURE TO
PROBE MAKES THE ORDER ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF
REVENUE
*The
failure on the part of the Assessing Officer to require and examine the
documents in support of the claimed increase in the Directors’ loan was
erroneous as well as prejudicial to the interest of the Revenue and therefore
was sufficient to invoke the provisions of section 66A of the late Ordinance by
the Revising Authority –
Therefore,
in view of the arguments stated above, and the decision of the higher courts in
the subject matter, the contention of the assessee in so far as it pertains to
change of opinion is not admissible factually and legally. In this case, the
issue was not taken up, and no opinion on it was issued by the assessing
officer. However, as evident from the case law quoted above, even if an opinion
had been formed in the previous assessment year by the previous assessing
officer, it would have note barred this office from forming a different opinion
on the matter in the current assessment year (being an independent assessment
year).
The
assessee further asserts that once a particular transaction is treated in a
particular manner in one assessment year the same create estoppel and Res Judicata so as to treat the said transaction in a
different manner in a subsequent
assessment year
However, it
is important to note here that the principle of Res Judicata does not apply to
Income Tax proceedings. The Honorable Supreme Court of Pakistan vides a five-member
bench gave a unanimous decision to this effect in a case C.I.T. v.
Waheed-uz-Zaman (1965) reported as (1964)11 Tax 296 (S.C. Pak) = P L D 1965 SC
171. In another decision of the Honorable Supreme Court of Pakistan in the case
reported as 1992 PTD 954 (CIT vs Pakistan Industrial Engineering) decided
on 09-12-1991 has decided this principle
as follows:
“4. Mr.
Shaikh Haider has appeared on behalf of the appellant while respondent has
remained absent. Mr. Shaikh Haider, the learned counsel for the appellant,
contended that principles of res judicata do not apply to the income tax
proceeding and any finding giving in the previous year cannot be relied upon to
debar the assessing officer from investigating the same facts in the subsequent
assessment years. It is now well-settled the principle of res judicata cannot
be applied to the cases on assessment under the Income Tax Act in the same
manner as it is applied in civil proceedings. Reference can be made to C.I.T.
v. Waheed-uz-Zaman (1965) 11 Tax 296 (S.C Pak) = P L D 1965 SC 171, which was
followed in a recent judgment namely Commissioner of Income Tax Central Zone
‘B’ v. Farrokh Chemical Industries, (1992) 65 Tax 239 ( SC Pak) C.As. Nos. 104
to 111-K of 1984. In both cases, the applicability of the principles of res
Judicata was restricted and in the latter case following Waheed-uz-Zaman’s case
it was observed as follows:
‘It may be
reiterated that a previous decision of an Income-tax Authority will not be a
bar in the following cases: -
(i) where the earlier decision is clearly
open to some objection;
(ii) if it is a decision which is not reached
after proper inquiry
(iii) if it is a decision as could not reasonably
have been reached on the material before the authority;
(iv) it is a decision which suffers from such a
defect which falls within the purview of the ground mentioned inspection 100,
C.P.C. and liable to correction thereunder in the second appeal if it were a
decision of the civil court; and
(v) if fresh evidence having a material bearing
on the point decided in the previous decision is available.”
We entirely
agree with the observation and need not further dilate upon this aspect of the
cases.”
Thus as
evident from the above judgment of the Apex Court, it is been held that the
decision of the past cannot bais the Income Tax Authority to raise the same
issue in the succeeding years. The assessment made for the previous assessment
year 2001-02, so far as it pertained to the issue of the effective date, was a
decision which was not reached after proper inquiry as previously discussed.
Therefore, keeping in view the above-narrated facts, the present proceedings
are not barred by the principle of res-judicata, as the same is not applicable
in the present case.
Furthermore,
the above discussion also makes it abundantly clear that the present
proceedings are not barred by the principle of estoppel either, as nothing
contrary to the decision on the matter of effective date is being stated in the
present proceedings.
A difference in opinion has resulted in an in-depth inquiry of the matter, and a decision has been arrived at in the present proceedings. Such a decision, based on inquiry and application of mind was never made in the assessment for the year 2001-02. Therefore, the present proceedings are not barred by the principle of estoppel.”
11. We have given
due consideration to the rival submissions, perused the detailed record of the
case, and keenly gone through the decisions relied upon and referred to by both
the learned representatives. There is no dispute or disagreement between the
parties that the position determined in the assessment order dated 29.05.2002
issued under section 62 of the repealed Ordinance for the assessment year
2001-2002 has attained finality and all the attempts made in the past to modify
the position had failed. The said assessment order categorically concludes that:
-
(i) demerger
took effect on 01.10.2000;
(ii) the demerger giving rise to the vesting of
PTA business to Pakistan PTA Limited did not entail any tax implications;
(iii) depreciation allowance relating to assets of
PTA business up to the date of demerger was admissible to the appellant
assessee; and
(iv) unabsorbed brought forward depreciation
allowance remained admissible to the appellant assessee for post demerger
period. It is also not disputed or controverted that the position on brought
forward business losses relating to PTA business as determined by this Tribunal
vide judgment dated 08.10.2015 in ITA 691//KB/2004 for the assessment year
2001-2002 is final and no further appeal has been filed by revenue on the
matter. In these admitted and undisputed facts, the basic question for
determination is whether any different position on these specific issues and
matters could be independently taken in any year subsequent to the assessment
year 2001-2002 without first modifying or altering the position in the assessment
year 2001-2002 itself. And, in this regard whether the settled principles
relating to the doctrine of estoppel, res judicata, or change of opinion, etc.
could be resorted to. In our considered opinion, the answer to the proposition
is obviously in the negative. In terms of an unambiguous scheme envisaged in the
statute, the deductions relating to depreciation, unabsorbed depreciation,
business losses, etc. move in a particular direction on a year-on-year basis.
The amounts admissible under these heads for the assessment year 2002-2003
originate from the order for the assessment year 2001-2002. Consequently, there
is no legal or practical mechanism to take any contrary position in the assessment
year 2002-2003 without first modifying the position in the assessment year
2001-2002. The overall analysis of the case record clearly demonstrates that
the revenue had all along been cognizant of this legal position. If this was
not the case or otherwise the doctrine of estoppel/res judicata etc. had
permitted such a recourse, then the department would have not taken pains to
modify the assessment order for the assessment year 2001-2002 up to the level
of Apex Court and that too on two occasions. It was only when these attempts
failed that revenue took the shelter of the doctrine of res judicata/estoppel
to practically undo the assessment order for the assessment year 2001-2002
through proceedings for the assessment year 2002-2003. There is no cavil to the
principles settled by the Apex Court in Waheed-Uz-Zaman case [(1965)
11 TAX 296 S.C] and Pakistan Industrial Engineering Case [1992 PTD 954],
referred to and relied upon by the learned DR, however, these are not
applicable in the instant case. The principles enunciated in these landmark
judgments do not permit or support re-examination or reopening of a transaction
initiated and completed in an earlier year in the garb of the principle of res
judicata. It is reiterated that firstly, the principle of res judicata/
estoppel is absolutely inapplicable in the present case and secondly, these
principles do not apply to one and the same transaction concluded in a prior year.
The doctrine that each year is an independent does not permit reopening and re-examination
of an identifiable transaction entered into and concluded in prior years in the
garb of res judicata/ estoppel. If this was permissible, it would follow that
no matter would ever attain finality or closure. In arriving at this
conclusion, we are fortified by the decision of this Tribunal in MCB Bank
Limited in ITA Nos. 2891 & 2892/LB/2018 dated 24.02.2020 wherein the
following findings were recorded: -
“21. We are mindful of the legal position that the principle of res judicata does not apply in income tax proceedings and each year is independent but this principle is ab initio inapplicable in this case. That is so because it is only one transaction that was completed on 31.12.2007 and consideration and values thereof attained finality. In all succeeding years, it is the same transaction, and no new transaction, whose effect is being given in terms of provisions of section 24 of the Ordinance. In such a situation, the value and consideration could only be questioned and challenged in the year of completion and not in any succeeding year under the garb of res judicata. If this was to be allowed it would give rise to startling results giving the mandate to tax authorities to challenge or dispute any past and closed the transaction on such grounds. This is neither permissible nor lawful. The consideration and values having not been disputed in the year of completion of the transaction, the contention of the learned LA cannot be acceded to under any circumstances and is thus rejected/repelled….”
12. Moreover, the
assertion of revenue that the bar vis-à-vis ‘change of opinion’ is not
applicable in the instant case as the assessing officer while completing
assessment proceedings for the assessment year 2001-2002 did not form any ‘opinion’
on the effective date of demerger, is also improper and self-contradictory. The
assertion is itself negated by the record in the present case. The second show
cause notice dated 07.05.2007, while referring to assessment order dated
29.05.2002, categorically states that assessment order “gives an incorrect
finding regarding the effective date of de-merger/transfer of PTA business from
ICI Pakistan…..”. The case record clearly shows that there had been an ‘opinion’
on the proposition, and therefore, in terms of well-settled principles of
jurisprudence, the revenue was estopped from changing an opinion on the matter.
Accordingly, we have no hesitation in our minds that by virtue of finality
attained by assessment order for the assessment year 2001-2002, the revenue
acted unlawfully, illegally, and without jurisdiction in reinitiating
proceedings on demerger transaction resulting in a redetermination of an effective
date and a contrary position on depreciation, unabsorbed depreciation and
brought forward losses vis-à-vis the position determined in the assessment year
2001-2002, that had attained finality for all purposes. The effective date of
demerger shall remain to be 01.10.2000 as determined in finality attained
assessment order for the year 2001-2002. Since this date falls in the assessment
year 2001-2002, the tax neutrality of the demerger transaction could only be
considered in that year and not in the assessment year 2002-2003, as impugned
before us. 28. It is a settled proposition of law that what cannot be done
directly, is not permissible to be done obliquely, meaning thereby, whatever is
prohibited by law to be done, cannot legally be effected by an indirect and
circuitous contrivance on the principle of "quando aliquid prohibetur, prohibetur
at omne per quod devenitur ad illud." An authority cannot be
permitted to evade a law by "shift or contrivance". Reliance may be
placed on Jagir Singh Vs. Ranbir Singh, (AIR 1979 SC 381), M.C. Mehta Vs. Kamal Nath & Ors., (AIR 2000 SC 1997) and Sant Lal
Gupta & Ors. Vs. Modern Co-operative Group Housing Society Ltd. & Ors.,
(2010 (11) SC 273). It is also well settled that the issues once settled and accepted by the Department shall not
be allowed to be deviated, because it will create uncertainty which has always
been deprecated and disapproved by the superior Courts, Legislature as well as
the Board itself. Further, a vested right has been created in favour of the appellant
with the order of the Assessing Officer passed in respect of the assessment
year 2001-2002 dated 29.05.2002 which admittedly has attained finality and therefore,
vested right cannot be taken away by initiating fresh proceedings on the same
point. Reliance is placed on the case titled M/s. Glaxo Smith
Kline Pakistan Limited, Karachi Vs Collector of Customs, Sales Tax and Central Excise (Adjudication),
Karachi-III, Karachi, (2004 PTD 3020) wherein it observed that: -
“12……….. It is admitted fact that the order dated 4-2-2000 (issued on 8-2-2000) competently passed by the Additional Collector-II, deciding the same issue as agitated in the second show-cause notice and after a full-fledged hearing and deliberation it was decided that the Eno Fruit Salt enjoyed exemption from the payment of sales tax. The order was open to appeal under section 45 “(as it stood before substitution by Finance Act, 2000) and was subject to suo motu revision by the Board. Neither any appeal was preferred by the Sales Tax Department assailing the findings nor any revisional proceedings were initiated. The effect was that the order passed by the Additional Collector Adjudication, attained finality having a binding effect on the Sales Tax Department. Re-agitating of the same issue by the Sales Tax Department is against all the principles of administration of justice and fair play. This course of action cannot be allowed because, firstly, it is against the principles of the administration of justice; secondly, it is discriminatory in nature, as any order passed in adjudication not assailed in appeal by an assessee, is always treated to be final and the same principle should be applicable to the Department; thirdly, it militates against the principles applicable to the tax matters, that the issues once settled and accepted by the Department shall not be allowed to be deviated, because it will create uncertainty which has always been deprecated and disapproved by the superior Courts, Legislature as well as the Board itself. Fourthly, in the present case, the issue stands decided by an adjudicating order. The Legislature has gone by enacting section 65 in the Sales Tax Act, 1990 to the extent of recognizing practice which is the result of inadvertence. The learned Tribunal is also aware of this provision, which has been referred in the concluding part' of the impugned order; fifthly, a vested right has been created in favour of appellant with the order of the Adjudicating Authority, which cannot be taken away by the executive branch of the Sales Tax Department by initiating fresh proceedings on the same point.
13. Similarly, the allowances for depreciation, unabsorbed depreciation, and brought forward business losses, available in the assessment year 2002-2003 shall have to be those that are flowing from the assessment year 2001-2002. We order accordingly. Resultantly, the appeal on the matter is allowed and the orders of the authorities below with regard to all issues dealing with and revolving around demerger transactions are annulled, being without jurisdiction. In the circumstances that appeal has been accepted on legal and jurisdictional grounds, therefore, there is no need to separately dilate on arguments raised with regard to the lawfulness of action taken by the assessing officer and upheld by the first appellate authority.
14. As regards the disallowance of ‘prepayment of principal loan’ of Rs 283.333 million, having gone through the relevant notes of financial statements and assessment order, we find ourselves fully in agreement with the learned AR that the subject amount only represented a payment of loan before the due date and was in the nature of a balance sheet/capital transaction, and thus was not charged/claimed in the profit & loss account. The said amount was, therefore, clearly not claimed as an admissible deduction by the assessee against taxable income. We are therefore completely at a loss to understand as to how any amount which was not even claimed by the assessee in the first place, could be disallowed. Thus, we consider that such action was totally unwarranted. Likewise, we consider that action vis-à-vis disallowance of ‘financial charges’ of Rs 29.704 million, allegedly relating to PTA business, was proceeded with by the learned assessing officer summarily. While such action was undertaken without even confronting the same to the appellant assessee during the course of assessment proceedings, the relevant notes to financial statements and supporting documents depict that these financial charges, are related to loans obtained by the appellant assessee for its various business financing facilities and did not have any nexus with the PTA business, whose loans and liabilities stood vested in M/s Pak PTA Limited, consequent to the demerger. Thus, departmental on this account also suffers from serious legal & factual infirmities Accordingly, we have no qualms in holding that both these additions/ disallowances are arbitrary/illegal and thus actions of the authorities below on this account are vacated and the said additions/disallowances are directed to be annulled.
15. On the issue of disallowance of ‘commission and discount’ allowed to distributors/customers at Rs 431.812 million under section 24(b) of the repealed Ordinance, having gone through assessment records, the appellate order, and submissions of rival parties, we find force in the submissions of learned AR that the action was not lawful. While in the financial statements, both ‘commission and discounts’ expenditures have been aggregated and reported under the same head, responses and documents submitted by the appellant, clearly demonstrate that out of the aggregate sum of Rs 431.812 million, amount to the extent of 42.665 million represented commission only, on which due tax was deducted under section 50(4A) of the repealed Ordinance, the remaining amount of Rs.389.147 million being in the nature of ‘discounts’ allowed to distributors/ customers on which obviously no tax deduction was warranted. Learned assessing officer, on the other hand, has held that the entire amount represents ‘commission’ allowed to distributors, subject to tax withholding under the law. We, however, consider that not only learned the assessing officer’s assertion lacks any plausible basis, but no evidence to the contrary was also brought on record to substantiate that the entire amount under consideration represented ‘commission’. Learned assessing officer has only tried to build his case on the basis of nomenclature of ‘commission and discount’ used in the financial statements and has simply failed to appreciate the position that while the commission was paid by the appellant assessee to agents for facilitating the sale of its products, discounts/incentives were allowed by it to distributors, etc. to whom goods were sold under a sale/purchase arrangement, and thus, such amounts could not be treated as ‘commission’. The position that discount allowed to distributors is different from ‘commission’ (and is in the nature of ‘trade discount’ not attracting withholding of the tax under section 50(4A) of the repealed Ordinance) has already been settled by this Tribunal in the judgment reported as (1999) 70 TAX 23 (Trib.) Thus, we are of the firm view that assessee was under no obligation to withhold any tax on such amount of discount and therefore mischief of section 24(b) of the repealed Ordinance was not invited. We, therefore, feel no hesitation in holding that the action of the authorities below was devoid of any merit/substance. Hence the said action is vacated and disallowance made on this account is directed to be deleted.
16. The appeal stands decided in the manner and to the extent indicated above.
17. This order consists of (22)
pages and each page bears my signature.
Sd/-
(M.
M. AKRAM)
Sd/- Judicial
Member
(HABIBULLAH
KHAN)
Accountant Member
CERTIFICATE U/S 5 OF THE LAW REPORT ACT
This case is fit for reporting
as it settles the principles highlighted above.
Sd/-
(M. M. AKRAM)
JUDICIAL
MEMBER
No comments:
Post a Comment