1. SAIYED SAEED ASHHAD, C.J.--- In this Constitutional Petition the petitioner which is a Public Limited Company carrying on the business of banking has sought the following reliefs:--
(i) Declare that the impugned notice dated 9.4.1994 under Section 65 is without jurisdiction, illegal, arbitrary, null and void and without lawful authority.
(ii) Quash the impugned notice under Section 65.
(iii) Restrain the respondents from reopening the assessment validly made under Section 62 of the Income Tax Ordinance.
(iv) Give any other relief this Hon'ble Court may deem fit and proper.
(v) Award costs of this petition to the petitioner.
2. The brief facts of the cases are that the petitioners filed their return of income for the year ending on 31.12.1987, assessm ent year 1988-89. The assessment was framed under Section 62 of the repealed Income Tax Ordinance (hereinafter referred to as "the repealed Ordinance") consciously, judicially and with application of mind after examining the books of accounts, evidence and all the relevant facts produced in pursuance of notices issued under Sections 61 and 62 of the repealed Ordinance. Subsequently, respondent No. 1 issued a notice under Section 65 of the repealed Ordinance for reassessing the income on the ground that assessment for the year 1988-89 had been under assessed. The petitioners further submitted that there was no occasion of they having been under assessed as the petitioners had disclosed all their income. The petitioners further submitted that respondent No. 1 in issuing the notice under Section 65 of the repealed Ordinance did not comply with the requirements of Section 65, according to which it was incumbent for him to have disclosed the .Definite information which had come into his possession on the basis of which it cloud be said that the petitioners had been under assessed. The petitioners further submitted that the notice issued under Section 65 of the repealed Ordinance was without jurisdiction or in excess of jurisdiction, perverse, arbitrary and without lawful authority as the same was not based on disclosure of any definite information but was solely on the ground of change of opinion, which did not permit respondent No. 1 to reopen the appellant under Section 65 of the repealed Ordinance.
3. Counter Affidavit was filed by respondent No. 1, wherein the issuance of notice under Section 65 of the repealed Ordinance was justified on the ground that definite information had come to the knowledge of respondent No. 1 on the basis of which it was held that the petitioners were under assessed. It was submitted that the petitioners were maintaining their accounts on mercantile basis and a such were required to disclose the interest income on Government Securities on accrual basis, whereas in the return of income for the above assessment year they did not disclose the interest from Government Securities on accrual basis but had disclosed the same on actual receipt/realisation, which was an illegality and contrary to the pronouncements made by the Income Tax Appellate Tribunal, Lahore Bench vide order dated 18.9.1993. In Income Tax Appeals Nos.
4. 484/LBI/DB to 487/LBI/D/B and several other Income Tax Appeals as a result of which the petitioners were found to have been under assessed, thus warranting issuance of notice under Section 65 of the repealed Ordinance for reassessment. The maintainability of the petition was also vehemently challenged on the ground that appropriate remedies were available to the petitioners under the repealed Ordinance to which it was required to have recourse before invoking the Constitutional jurisdiction of this Court under Article 199 of the Constitution of the Islamic Republic of Pakistan. It was further submitted that the petition was neither maintainable nor merited consideration and was liable to be dismissed with costs.
5. We have heard the arguments of Mr. Iqbal Salman Pasha, Advocate on behalf of the petitioners, Mr. Nasrullah Awan, Advocate on behalf of the respondents and have also perused the material on record as well as relevant provisions of law.
6. Relating to the vires and legality of the notice under Section 65 of the repealed Ordinance, it is to be observed that the same was in excess of jurisdiction, 'Pala fide, illegal and void ab initio as the question whether the income/interest from Government Securities was to be disclosed in the return of income on accrual basis or receipt basis was before the Assessing Authority at the time of framing the assessm ent and the Assessing Authority had accepted the version of the petitioners that it was to be disclosed or shown as an income on receipt basis. If the Assessing Authority was not satisfied with the action of the petitioners in and disclosing the interest income from Government Securities on receipt' basis as it was following mercantile method of accounting then an objection to this effect would have been raised at the time of framing the assessm ent and the petitioners could have been asked to show as to why income/interest from Government Securities be not included on accrual basis. In the circumstances it could not be said that this fact was not in the knowledge of Assessing Authority at the time of framing the assessm ent and had come to his knowledge after the assessment had been framed so as to come within the definition of definite information. Even admitting that the petitioners were required to disclose the income/interest from Government Securities on accrual basis and not on receipt basis in view of the observations of the Income Tax Appellate Tribunal, Lahore in its above referred order dated 18.9.1993 and the principle of accountancy. Respondent No. 1 was not legally entitled to issue a notice under Section 65 of the repealed Ordinance on the ground that there was mis- application of law or that the assessment was framed in ignorance of a provision of law or pronouncements made by the superior Courts in view of the pronouncements made in the case of Inspecting Assistant Commissioner and Chairman, PANEL 20 Companies and another v. Pakistan Herald Ltd. Through Director, Finance and Corporate Affairs, reported in 1997 SCMR 1256 that where an assessm ent had been framed consciously by applying mind and there was no concealment of facts by the assessee, information or discovery subsequently that a provision of law had been ignored, not applied or mis-applied could not be called a definite information and further that definite information would include factual information as well as information about the existence of a binding judgment of a competent Court of law/forum for the purpose of Section 65. Of the repealed Ordinance. It will be useful to reproduce the relevant portion from the aforecited judgment, which is as under:- "Mr. Sheikh Haider has referred to Central Insurance Company, but the observations made therein do not support his contention. In this case the assessee had disclosed all the material facts without any concealment on the basis of which assessment was consciously completed by the Assessing Officer, but such assessm ent was sought to be reopened under Section 65 relying on a circular issued by the Income Tax Department and the same was not treated to be a definite information.
7. In the present case, there is no concealment of facts. Everything had .Been declared right from the very beginning and even after 1980 the legal position did not change as Section 34-A was not applicable to the respondent. In these circumstances, the opinion of the petitioners that a definite information has been received as it was discovered that Section 34-A was ignored was completely misconceived and based on misapplication of law. Where an assessment has. Been framed consciously by applying mind and there being no concealment of facts by the assessee, discovery of the fact that a provision of law had been ignored or not applied , cannot be called a definite information. In Central Insurance Co. It was observed that "the expression definite information will include factual information as well as information about the existence of a binding judgment of a competent Court of law /forum for the purposes of Section 65 of the Ordinance". This dictum will not cover a case where after framing assessment consciously, the Assessing Officer realise that any provision of law has been ignored, not applied or misapplied. Such discovery does not fall within the ambit of term 'definite information' as used in Section 65 of the Ordinance."
8. The pronouncements made in the aforecited case establish beyond any reasonable doubt the principle that mis-application of law or ignorance of law or a principle/pronouncement made by the superior Courts would not furnish a ground for reopening of assessment under Section 65 of the repealed Ordinance as the said mis-application or ignorance could not come within the scope of definite information. The Assessing Authority had framed the assessment consciously, with application of mind, after taking into consideration all the material facts and there was no concealment of facts. Such facts would not empower or permit respondent No. 1 to reopen the assessm ent under Section 65 of the repealed Ordinance as it would amount to a change of opinion which did not warrant action under Section 65 of the repealed Ordinance. In support of the above contention reliance is placed on the case of Messrs Pakistan Tobacco Co. Ltd. v. Government of Pakistan through Secretary, Ministry of Finance and 3 others, reported in 1993 SCMR 493 and it will be useful to reproduce relevant passage from the said judgment, which is as under:- "The question as to when reopening of the case under. Section 65 of the Income Tax Ordinance, 1979 is allowed and justified in spite of the fact that all material facts were already on the record when previous finding was given, came up for detailed examination before this Court in the case of Edulji Dinshaw Limited (supra) in which nearly the whole case-law on the subject has been noticed.
9. It is held in the reported judgment that once all the facts have been fully disclosed by the assessee and considered by the Income Tax Authorities and assessments have been consciously completed and no new fact has been discovered there can be no scope for interference with these concluded transactions under the provisions of Section 65 on the ground that the income chargeable to tax under the Ordinance has escaped assessment or has been under assessed in the meaning of Section 65(1)(a)(b) of the Ordinance. Maximum emphasis in this ruling is on use of words to the effect "assessm ents have been unconsciously completed". Requirement spot-lighted is that I.T.O.
10. Has applied his mind consciously to the facts of the case and perusal of the record. If there is conscious application of mind, then rule laid down in this case will apply with full force. If there is no conscious application of mind by I.T.0, then rule laid down in this case will not be attracted."
11. From what has been discussed above, it is to be observed that none of the requirements mentioned in clauses (a), (b) and (c) of Section 65(1) of the repealed Ordinance was made out for reopening the assessm ent. The impugned notice under Section 65 of the repealed Ordinance was issued merely by way of change of opinion of respondent No 1, which could not be made the basis for reopening the assessm ent under Section 65 o the repealed Ordinance, which was completed under Section 62 of the repealed Ordinance. Thus, the impugned notice under Section 65 of the repealed Ordinance was not legal, valid and proper as no case was made out, for, respondent No 1 to exercise the jurisdiction or powers contained in Section 65 of the repealed Ordinance.
12. The case of the Department as made out in the Counter Affidavit by respondent No. 1 is that the petitioners were following mercantile method of accounting which required that the accrued income/interest on Government Securities would be disclosed or included in the return of income on accrual basis and not on actual receipt or cash basis. It was further submitted that the petitioners in claiming or disclosing the income/interest from Government Securities on cash/receipt basis violated the principles of mercantile method of accounting which amounted to an illegality or violation of principles of accountancy and respondent No. 1 on coming to know of such fact was legally entitled to reopen the framed assessment under Section 65 of the repealed Ordinance as the income/interest from Government Securities which had become payable in the relevant assessm ent year ought to have been disclosed in the return of income filed for the relevant assessm ent year which would have resulted in increase/enhancement of the income of the petitioners correspondingly leading to increase in the tax liability. Mr. Nasrullah Awan in support of his above contention placed reliance on the cases of: (i) Commissioner of Income Tax v. GEO Tech Construction Corporation, reported in 1998 PTD 479; (ii) Commissioner of Income Tax v.
13. Mangat Ram Hazari Lal, reported in 1998 PTD 2188; and (iii) Tamil Nadu Small Industries Development Corporation Ltd. v. Commissioner of Income Tax, reported in 2002 PTD 1421.
14. "17. Interest on securities. -- (1) The following income shall be chargeable under the head "interest on securities", namely:
(a) Interest on any securities of the Federal Government or a Provincial Government receivable by an assessee in any income year; and
(b) There is no dispute with regard to the provisions contained in Section 17(1)(a) of the repealed Ordinance but the above provisions are subject to Section 32 of the repealed Ordinance, which provided that incomes, profits and gains except income from dividends would be computed for the purposes of Sections 17, 19, 22, 27 and 30 in accordance with the method of accounting regularly employed by the assessee. It will also be useful to reproduce Section 32(1) of the repealed Ordinance as under:-- "32. Method of accounting. -- (1) Income profits and gains except income from dividends, shall be computed for purposes of Sections 17, 19, 22, 27 and 30 in accordance with the method of accounting regularly employed by the assessee."
15. From a bare perusal of Section 32 of the repealed Ordinance it is absolutely clear that the provisions of Section 17 were subservient to or were regulated by the above Section 32(1) of the repealed Ordinance and income from interest on Government Securities would be computed for Section 17(1)(a) of the repealed Ordinance in accordance with the method of accounting regularly employed by the assessee. It was asserted by respondent No. 1 in his Counter Affidavit that the petitioners were employing the mercantile method of accounting , according to which interest/income accruing on Government Securities was to be disclosed on accrual basis and not on cash/receipt basis. The petitioners did not controvert the above assertion by affidavit in rejoinder or objections to the Counter Affidavit of respondent No. 1. However, Mr. Iqbal Salman Pasha during the course of arguments submitted that the petitioners were following the hybrid method of accounting which permitted them to treat or disclose the interest/income from Government Securities on receipt/cash basis as they were entitled to follow either the mercantile method or cash method, according to their choice or discretion. In these circumstances it will not be possible to give a definite finding relating to the method of accounting followed or applied by the petitioners as it will require a factual inquiry. The pronouncements made in the cases of (i)
16. Commissioner of Income Tax v. GEO Tech Construction Corporation; (ii) Commissioner of Income Tax v. Mangat Ram Hazari Lal; and (iii) Tamil Nadu Small Industries Development Corporation Ltd. v.
17. Commissioner of Income Tax, supra would be applicable only after establishment of the fact that the petitioners follow the mercantile method of accounting, therefore, the above case-law is of no use to the respondents. It was for the Assessing Authority to have considered the issue for ascertaining the method of accounting followed by the petitioners. This should have been done while examining and scrutinising the evidence, material and record of the petitioners during the course of framing the issue and calling upon the petitioners to explain the alleged violation of principles of accountancy. It is also to be noted that the petitioners in the past also had declared or included the income/interest from Government Securities on accrual basis including the relevant assessm ent year and such practice of the petitioners was not objected to and assessments were framed according to the disclosures of the interest /income from Government Securities on accrual basis. In presence of such facts the assessment could not be reopened under Section 65 of the repealed Ordinance as in framing the assessment and accepting the contention of the petitioners that the income/interest from Government Securities was liable to be taxed on receipt basis had been accepted by the Assessing Authority after consideration of all the material facts on record, with application of mind and the assessment was consciously framed. Notice under Section 65 was issued on a mere change of opinion which was legally not permissible, thus rendering it as in excess of jurisdiction, without lawful authority and void.
18. We now take up the question of maintainability of the Constitutional Petition. Mr. Nasrullah Awan vehemently assailed the maintainability of the Constitutional Petition, on the ground that appropriate and elaborate remedies by way of appeal, revision and reference before the Commissioner, Income Tax Appellate Tribunal and this Court respectively were available to the petitioners under the repealed Ordinance and without resorting to those remedies they were not justified and competent to invoke the Constitutional jurisdiction of this Court. He specifically submitted that a Constitutional Petition against a notice was not maintainable as the same was necessarily required to be assailed before the forums/authorities provided under the repealed Ordinance. It was also submitted that the question whether a definite information had come to the knowledge of respondent No. 1 on the basis of which he issued notice under Section 65 of the repealed Ordinance for reassessme nt was a factual question which could not be decided in a Constitutional Petition. In support of his above contentions he placed reliance on the following authorities:--
(I) Messrs Pakistan Tobacco Co. Ltd. v. Government of Pakistan through Secretary, Ministry of Finance and 3 others (1993 SCMR 193).
(II) M/s. Al-Akram Builders (Pvt.) Ltd. v. Income Tax Appellate Tribunal (1993 SCMR 29 = 1992 SCC 950).
(III) M/s. National Beverages (Pvt.) Ltd. v. Federation of Pakistan and others (2001 PCTLR (Kar) 1138).
(IV) M/s. Macpac Films Ltd. v. Federation of Pakistan and others (2001 PTD 1574).
(V) M/s. Shagufta Begum v. The Income Tax Officer, Rawalpindi (PLD 1989 SC 360).
(VI) M/s. H.M. Abdullah v. The Income Tax Officer and 2 others [(1993) 68 Tax 29 SC].
(VII) M/s. Khalid Mehmood v. Collector of Customs, Karachi (1999 SCMR 1881).
19. (VIII)M/s. Roche Pakistan Ltd. v. The Deputy Commissioner of Income Tax and others (2001 PTD 3090).
(IX) M/s. Sitara Chemicals Industries Ltd. v. The Deputy Commissioner of Income Tax (2003 PTD 128).
(X) M/s. Punjab Beverages Co. (Pvt.) Ltd. v. Central Board of Revenue and others (2002 PCTLR (SC)
20. 37).
21. Mr. Iqbal Salman Pasha in reply to the arguments advanced by Mr. Nasrullah Awan submitted that there was no dispute with regard to the principle that, a party was required to have recourse to the legal forums provided under a particular statutes and was in respectful agreement with the pronouncements and observations made by the Supreme Court as well as this Court and other High Courts in Pakistan relating to invocation of the Constitutional jurisdiction in the presence of alternative legal remedies. He, however, submitted that such pronouncements and observations would not be applicable if the impugned order or the show-cause notice was palpably in exercise of illegal jurisdiction or in excess of jurisdiction or was illegal and void ab initio and the affected party was not required to exhaust the legal remedies available to it under the statute and could directly invoke the Constitutional jurisdiction of this Court. In support of his above contention he placed reliance on the case of CNR Industries (Pvt.) Ltd. v. Income Tax Department and another, reported in SBLR 2004 Sindh 1, wherein this Court relying on a large number of cases of the Supreme Court pronounced that relief in Constitutional jurisdiction would be available to a party where impugned order was without lawful authority, unjust and ma/a fide. While discussing the legality and vires of the notice under Section 65 of the repealed Ordinance we have come to the conclusion that the same was illegal, without jurisdiction and void ab initio as non of the requirements contain in clauses (a), (b) and (c) of Section 65 of the repealed Ordinance was in existence so as to confer jurisdiction on respondent No. 1 to issue a notice Supreme Court of Pakistan 65 of the repealed Ordinance. There are a large number of pronouncements made by the Supreme Court to the effect that if the order or action complained of was so patently illegal, void or wanting in jurisdiction that any further recourse to alternative remedy might only be counter productive and by invoking Article 199 the mischief could forthwith be nipped in the bud then in such matters existence of alternative remedy would not bar the exercise of Constitutional jurisdiction by this Court. Such pronouncements were made by the Supreme Court in the cases of:
(i) Khalid Mahmood v. Collector of Customs, reported in 1999 SCMR 1881; (ii)
22. Gatron Industries Ltd. v. Government of Pakistan and others, reported in 1999 SCMR 1072; (iii)
23. Adamjee Insurance Company Ltd. v. Pakistan through The Secretary to Government of Pakistan in the Ministry of Finance, Islamabad and 5 others, reported in 1993 SCMR 1778; (iv) Edulji Dinshaw Ltd. v. Income Tax Officer, reported in (1990) 61 Tax 105; (v) The Murree Brewery Co. Ltd. v. Pakistan through The Secretary to Government of Pakistan, Works Division and 2 others, reported in PLD 1972 SC 279; and (vi) Usmania Glass Sheet Factory v. Sales Tax Officer, reported in (1970) 22 Taxation
229. The observations arrived at and the pronouncements made in all the aforecited authorities are to the effect that relief in writ/Constitutional jurisdiction would be available to a party where impugned order was without lawful authority, prejudicial, unjust and mala fide. It has already been held that the impugned notice under Section 65 of the repealed Ordinance was in excess of jurisdiction, without lawful authority and void. In the presence of the above facts and circumstances, the objection raised by Mr. Nasrullah Awan, Advocate relative to the maintainability of this Constitutional Petition without having recourse to the remedies available under the repealed Ordinance is without any substance and is overruled.
24. For the foregoing reasons and discussion it was found that this Constitutional Petition merited consideration. Accordingly, by a short order dated 27.2.2004 it was allowed in terms of the reliefs sought by the petitioners and the impugned notice under Section 65 of the repealed Ordinance was declared to be in excess of jurisdiction, without lawful authority, void and was quashed for reasons to be recorded later. These are the reasons for the said short order. .