By this order we would prefer to decide M.A. (Rect) Nos.368, 370, 371 and 372/KB/2005 pertaining to assessm ent years 1995-1996 to 1999-2000, preferred at the instance of the assessee requesting to recall the order under section 221 of the Income Tax Ordinance dated 28-5-2005 side I.T.As.
Nos.973/KB/2005 to 976/KB/2005.
2. The assessee challenged the order dated 28-5-2005 in terms of mistakes apparent from record that the Tribunal vide page-8 of the order, has assumed that the appellant's argument is that the information that the ground floor of the said building was already in possession of the department right form beginning and particularly at the time of original assessment for the assessment years 1995-1996 to 1999-2000 under section 62 of the repealed Ordinance. It is stated that this argument was never agitated by the appellant, what had actually been contended was that right from beginning and particularly during the assessment proceedings for assessment year 1996-1997. It was established that rent was not being declared for the ground floor and the applicant's contention was that this information was definite information for the purpose of assessing and re- opening of the case under section 65 of the Repealed Ordinance. The Tribunal has reached at an incorrect conclusion that the department may have presumed that the ground floor was occupied by the appellant. It is once again stated that the appellant had never made this assertion and the department's presumption if any, was not based on any substantial evidence. It is further submitted that it had been established beyond doubt that the rent of ground floor was not being declared in the ALV and the appellant's contention is that it may be possible to correct mistake of law under section 66A but no action under section 65 can be taken. The honourable Tribunal without any basis whatsoever has given finding that the property was not given rent free or without any consideration. This finding is contrary to the order passed by the Assessing Officer and it is on the basis of this particular finding that the Tribunal has upheld the action under section 65 which is not the case of the Assessing Officer. The Honorable Tribunal has failed to consider the case laws relied by the appellant in support of its contention that the occupation of a portion of a building by a sister concern tantamount to the same situation as if the company is occupied by the appellant and falls within the ambit of section 19(3) of the Repealed Ordinance. The Honorable Tribunal has failed to even mention these case-laws. It is submitted with great respect that it was incumbent upon the honourable Tribunal that it distinguishes the case-laws relied upon by the appellant before rejecting this ground of appeal. The failure to discuss these cases renders the order erroneous.
4. Facts further reveal that the assessee is a private limited company deriving rental income from its property located at 19 Timber Pond Keamari, Karachi. Originally assessments for the assessment years 1995-96, 1997-98, 1998-99 and 1999-2000 were finalized under section 62, on the basis of assessee's return of income in which the assessee had declared rental income from various tenants occupying building from 1st to 3rd floor, without mention of any rent or occupants of ground floor.
5. During the course of assessm ent proceedings for the assessment year 2000-2001, Inspector's inquiry reveals that ground floor of the building was given by the assessee to its sister concern Messrs General Shipping Agencies (Pvt.) Limited, Karachi since 1991-1992. However, this matter was never brought to the knowledge of the Department as according to the assessee it was given rent free being a sister concern.
6. During the assessm ent proceedings for the year 2000-2001 the assessee submitted that Messrs General Shipping Agencies (Pvt.) Limited. Karachi was their sister company having same directors and had been rent free tenant of the assessee company since the very beginning, in lieu of the loan extended to assessee to construct the entire building. The Assessing Officer confronted the assessee with a show cause notice under section 65 with the approval of the IAC and thereafter did not agree with the assessee's explanation that it was change of opinion and that it was not definite information for the purpose of section 65. The DCIT computed rental income for 5000 Sq. Ft. Of the ground floor occupied by General Shipping Agencies (Pvt.) Limited, Karachi @ Rs.12 per Sq. Ft. Under section 19(2)(b) of Income Tax Ordinance, 1979 and finalized the assessment under sections 62/65 for all the years. The learned CIT(A) dismissed the appeals observing that appeals being devoid of any substance. The Tribunal vide order dated 26-4-2004 also dismissed the appeals.
7. Being aggrieved and dissatisfied from the order dated 26-4-2004 the assessee moved Misc.
Application for rectification of the order. The Tribunal vide order dated 26-2-2005 recalled the order for fresh decision at the level of the Tribunal. Second order passed on 28-5-2005 dismissing the appeals on which the assessee preferred fresh Misc. Applications for Rectification of the Order dated 28-5-2005 (meanwhile the same were dismissed in default on 14-12-2005 and vide M.A.
(Recalling) Nos.13 to 16/KB/2006 the same appears to have been restored vide order dated 29-6- 2006.
8. We have heard the learned representatives of the two parties. It is vehemently argued that vide order of the Hon'bte Tribunal on page-8 it is assumed that the assessee's argument was that the information regarding "ground floor of the building" was already in possession of the Department right from the beginning particularly at the time of original assessment and that this argument was never agitated by the assessee. The counsel urged that it was contended that right from the beginning it was established that the rent was not being declared for the ground floor and the applicant's contention was that this information was definite information for the purpose of assessm ent. It is a matter of fact that neither assessee declared the rent for the ground floor nor the sister concern at any time in his return stated that rent has been paid to the assessee by the sister concern. In our view in case rent was not declared the Assessing Officer was under legal obligation to confirm from the sister concern as to whether rent has been paid. In case the rent is not paid for whatsoever reason, the taxation officer cannot and the proposed rent as income of the assessee. In the circumstances there were only two options left with the Assessing.Office (i) to prove that rent has been paid and received and (ii) to make out a case that the rent is being paid but collusion with the sister concern it has not been declared. For both the reasons the taxation officer has taken no pains at all to make out a case that it is collusive arrangement to avoid the fact that rent has been paid.. The Assessing Officer was further required to prove that rent has been paid as existence of the ground floor of the building cannot be denied, hence the ground floor related rent appears to have been ignored, instead there was complete knowledge and information in this regard.
9. It is worth mentioning that during the assessment proceedings of the assessment year 1995- 1996 a letter dated 16-1-1997 was submitted to the fact that the sister concern does not occupy any rent free area so at particular time the Assessing Officer was legally bound to ask for complete information that business premises was occupied by assessee itself or by some other person.
Having complete knowledge of the ground floor premises, mere presumption that the business premises was self occupied is of no consequence, besides it refers to a fact that the dispute regarding the ground floor area was completely within the knowledge of the Assessing Officer during the assessm ent year 1995-1996 and thereafter, therefore, no new information has come into the possession of the Assessing Officer whereas subsection (2) of section 65 provide that an assessm ent can be re-opened only when definite information, comes to possession of the Income Tax Officer. We are therefore, of the considered opinion that the information in the present case is not a definite information said to come into possession of the Income Tax Officer. In the circumstances supra, we hold that the definite information on the basis of which assessments have been reopened did not come into the possession of the Department during the assessment proceedings for 2000-2001 as it was available at the moment when original assessments were framed by the Department under section 62.
10. Before parting with the order it would not be unaccustomed to mention that when first time during the assessm ent proceedings under section 62 the Department collected information about the said portion of the building, the assessee at a particular time replied to a query that the sister concern company of the assessee does not occupy any rent free area. In fact it was a proper time for legal action for a false statement if any and to collect evidence so as to arrive at a proper conclusion regarding occupancy of the ground floor area as the Department had information about the actual occupants of the ground floor at the very moment. In this context we have found that if representatives of the assessee bluffed the Department through letter dated 16-1-1997, even then that was a proper time for action. After expiry of six years when taxation officer initially had complete knowledge of the situation but failed to take an appropriate action invoking section 65 should be beyond the sprit of section 65 of the Income Tax Ordinance, 2001, as the Department on the basis of Inspectors Report during the assessment year 2000-2001 cannot invoke section 65 of the Income Tax Ordinance. We in the circumstances supra, find that even if it was a false statement, no case is made out to invoke section 65 of the Income Tax Ordinance. It is nothing les then the second opinion different from the finding and conclusion recorded at the time of initial assessm ent.
11. For the above said reasons the M.A. (Rectification) Nos.368 to 371/KB/2005 are allowed and accordingly it is held that in the circumstances supra no case appears to have been made out to invoke section 65 of the Income Tax Ordinance. Consequently order under section 65 stands annulled.
(S. HASAN IMAM) JUDICIAL MEMBER DISSENTING NOTE 1. I, respectfully disagree with the findings of my learned brother. In this case, the department had relied upon the declaration of the taxpayer and took it for granted that whatever stated by him was correct. The assessments for all the years under appeal were completed by relying on the appellant Co's statement that their sister concerned did not occupy any rent free area. The Assessing Officer did not dispute the assessee's version. However, later on, when, on inquiry,.The actual facts (to the contrary) came to the notice of the department (that earlier statement filed on the appellant Co's behalf was incorrect) action under section 65 was taken. It is not correct to say that since assessee (on his on) had in the original returns, not disclosed the rent from the ground floor, no new information was brought on record to justify action under section 65 and that the right course of action was to invoke section 66-A instead of section 65. Perusal of the available record shows that the department did not know whether any rent free area was given to the sister concern. The declared version was accepted on the basis of statement given during the course of assessm ent proceedings. It was only when inquiry was conducted by the Income Tax Inspector [which has not been disputed by the taxpayer/appellant] that the department came to know that it was mislead by assessee's earlier statement. Thus, the Inspector's report constitutes a fresh information which justifies the departmental action. In view of these observations I would not like to endorse the conclusion drawn by my learned brother. It is therefore, proposed that the case be assigned to another member to give his independent,opinion on the basis of facts available on record.
2. The proposed question arising out of the dissenting view is as under :- Whether on'facts and in the circumstances,of the case, Income tax insepctor report constitutes a fresh information which justifies -the departmental action under section 65?
(CH. NAZIR AHMAD)
ACCOUNTANT MEMBER As per Jawaid Masood Tahir Bhatti, Judicial Member: This matter has been referred to the undersigned' by the honourable Chairman for resolving the question as referred in the above paras due to the difference of opinion among my two learned brothers Mr. S. Hasan Imam, Judicial Member and Mr. Ch. Nazir Ahmad, Accountant Member (as they then were).
2 I have heard the learned representatives from both the sides and have also perused the above referred views of both my learned brothers, the orders of this Tribunal in this case, the impugned order of the learned CIT(A), the order passed by the Taxation Office and other relevant available record of the case. I have found that tie four appeals filed by the taxpayer mentioned in the above title of this case were decided vide order dated 26-4-2004 by my learned brothers Mr.S. Hasan Imam, Judicial Member and Mr. S.A. Minam Jafri, Accountant Member (as they then were) wherein at Para 11 the matter was decided in the following manner:- "Since the tax is on the annual value of the property and not on the rental income derived, there would be no escape for the owner who will be assessed accordingly. We therefore, find that under this provision of law it is ownership and the rent, which will be assessed. Property is on rent or not or that no rent is paid to the assessee by the sister concern would not be save the assessee from the clutches of section 19 as other way except to assess the lesser owner even if the Property is free of rent."
The taxpayer filed miscellaneous applications bearing MA(Rect.) Nos. 250 to 253 which were dismissed in default,However, these miscellaneous applications were recalled vide order dated:23- 8-2004 and were subsequently fixed for hearing on 12-102004 and were decided on 16-2-2005 by my learned brothers Mr. S. Hasan Imama Judicial Member and Mr. Agha Kafil Barik, Accountant Membet (as they then were) and the order dated 26-4-2004 in I.T.As. Nos 973 to.976/KB/2002 was recalled for re-appreciation of the arguments and facts for fresh decision and adjudication. It is however, noted` The concluding Para, inadvertently, the date of order to be recalled hie been mentioned as 26-2-2005 which in fact is 26-4-2004 as in para to it has been specifically mentioned that the miscellaneous application filed by the taxpayer were regarding order dated 26-4-2004- =These"four main appeals were again decided vide cider dated 28-5-2005 by my learned brothers Mr.Agha Kafil Barik, Accountant Member and Mr. S. Hasan Imam, Judicial Member (as they then were and the order passed by the offices below were confirmed and dismissed. The relevant concluding paras in this regard are reproduced hereunder: "After hearing both the sides, our findings are as under:--
(i) The argument of the learned AR that the information regarding the ground floor of the said building being occupied by Messrs General Shipping Agencies (Pvt.) Limited was already in the possession of the department right from the beginning and particularly at the time of original assessm ents for assessm ent years 1995-1996 to 1999-2000 under section 62 is not correct. His argument, which is based on the presumption that the department, which had the knowledge of rent being collected from tenants occupying the building from 1st to 3rd floor, had also the knowledge of the ground floor being part of the building, and therefore, it amounts to the information to the ground floor being given to some other party; is not valid. Since the assessee company had also its office in the same building various portion of which were let out, it could be presumed that ground floor was occupied by it, unless otherwise proved or informed by the assessee himself.
(ii) On the other hand, when for the first time the department tried to obtain some information about the said portion of the building, the ground floor, the assessee through its authorized representative bluffed the department vide letter dated 16-1-1997 stating that 'the sister company of our client does not occupy any rent free area'. The department had no information by any source about the actual occupants of the ground floor during the proceedings before us, the learned counsel has not produced any evidence to support his argument that the department had any information right from the beginning about the ground floor being occupied by Messrs General Shipping Agencies (Pvt.) Limited, nor he has at any stage disowned the letter of the learned AR dated 16-1-1997 on this subject.
(i.e) On the other hand, when spot inquiry conducted through the Inspector of the department for the first time during assessm ent proceedings for 2000-2001, the DCIT came to know about the occupation of the ground floor by another company. Then the assessee took the plea that it was a sister company and the area was given because sister company had extended loan to construct the said building. Now, it was a u-turn in the instance of the assessee on this issue. In this case the consideration appears to be the loan extended by the tenant in return of which it was provided the facility of rent-free business premises.
Similar landlord and tenant arguments are quite prevalent in the old city where certain amount is paid as advance, which is adjustable/ refundable and nominal rent is paid by the tenant, therefore, it cannot be presumed that the property was given rent free without any consideration. Thus it is held that the definite information' on the basis of which assessment were reopened under section 65 came into the possession of the department during assessment proceedings for 2000-2001 and it was not available with the department when original assessments were framed under section 62.
(iv) It was also argued by the learned counsel that since there are common directors in both the companies, the assessee as landlord and Messrs General Shipping Agencies (Pvt.) Limited as tenant, it hardly matters if the rent was being received or not as both the companies are companies of the same group. In this way the property should be treated as self occupied, it was argued. However, this plea cannot be accepted as under the law a private limited company is a distinct entity and any transaction between the two is covered under all the prevalent statutes of the land. For example if one company makes payments to the other company for supply of goods it is bound to withhold tax under section 50(4), the default of which would entail all penal proceeding. Similarly one company can sue the other company for any breach of contract in the court of law.
(v) The learned counsel also took the plea that if the tenant Messrs General Shipping Agencies (Pvt.) Limited had paid rent, and claimed the same as business expense under section 23, the aggregate sum of tax paid to the assessee company, being the landlord, rental income and by the tenant company on its business income after deduction of expenses, would be much less than what they have actually paid by both of them at present. This argument could have been valid if the assessm ents were reopened under section 66A, for which one of the condition is 'being prejudicial to the interest of revenue' and not for reopening under section 65 which is invoked in the event of 'escapement of assessm ent of any income of the assessee chargeable to tax under this Ordinance'. The assessee would restrict by mean the assessee company and not any sister company for the purpose of section 65.
(vi) The learned counsel also took the plea that assessment for 1995-96 was finalized by the IAC and therefore it cannot be reopened under section 65 by the DCIT. In this context he has also cited various case-law in which the reopening of the case under section 66-A by an IAC was knocked of as the original assessm ent was framed by the DCIT with the approval of the IAC. However, the present case is distinguishable as in the cited case it was the issue of change of opinion by the same authority which was the IAC who had earlier granted approval for assessment and subsequently reopened the same under section 66-A. Here in this case the IAC had finalized assessm ent under section 62 in the capacity of an assessing office, as he was given' jurisdiction of certain cases under section 5(1)(c) of Income Tax Ordinance, 1979 by the commissioner/CBR and was performing the duties of an Assessing Officer, irrespective of his grade or rank. Subsequently, the DCIT reopened the assessm ent under section 65 within his jurisdiction assigned under the law.
The IAC who had framed original assessment under section 62 had not done so in the capacity of a supervisory officer but an Assessing Officer and therefore the DCIT who reopened the assessm ent subsequently under section 65 cannot be barred from doing so.
(10) Within the above findings, we hold that the DCIT was justified in reopening all the assessments on the basis of the information available with him. Accordingly, we confirm the orders of the officers below and dismiss these appeals."
The taxpayer again filed miscellaneous applications titled above which were also dismissed in default vide order dated 14-12-2005 under section 132(2) of the Income Tax Ordinance, 2001. The above order of this Tribunal was, however, recalled vide order dated 29-6-2006 in MA(Recalling)
Nos.13 to 16/KB/2006 by my learned brothers Mr. S. Hasan Imam, Judicial Member and Mr.Agha Kafil Barik, Accountant Member (as they then were). The above titled miscellaneous applications were again fixed for hearing on 23-6-2007 and during this round of litigation, my learned brother Mr.S. Hasan Imam, Judicial Member (as he then was) allowed the miscellaneous applications holding that no case appears to have been made out to invoke section 65 of the Repealed Income Tax Ordinance, 1979 and the order in this respect made by the Taxation Officer and subsequently upheld by the learned CIT(A) has been annulled but my learned brother Ch. Nazir Ahmad, Accountant Member (as he then was) did not agree to and treated the Inspector's report to be fresh information which, according to him, justified the departmental action and, according to him; the action under section 65 of the Repealed Ordinance by the assessing authority was in accordance with law and should have to be upheld and there is no justification for recalling the order already passed by this Tribunal vide order dated 26-4-2004.
3. On the other hand, my learned brother the Accountant Member has not agreed to the above view of my learned brother the Judicial Member as, according to him, Income Tax Inspector while conducting inquiry has come to know regarding rent-free area given to the sister concern by the present applicants and, according to him, the Inspector's report constitutes fresh information which justifies the departmental action. I could not agree with the view taken by my learned brother the Accountant Member as my learned brother the Judicial Member has discussed in detail all the facts and reasons for deviating from his previous view and accepting that there was a mistake in theprevious orders as the Assessing Officer in this case has failed to prove that rent has been paid and received and has failed to make out a case that the rent is being paid but collusion with the sister concern has not been declared. For both the reason the Taxation Officer no pains at all to make out a case that-it is a collusive arrangement to avoid the fact that rent has been paid In this regard, it has also been mentioned that during the assessment proceedings of assessment year 1995-1996, a letter dated 16-1-1997 was submitted to the effect that the sister concern does not occupy any rent-free area but during that time no information in this regard was sought by the Taxation Officer from the present applicant. I am, therefore, of the view that having complete knowledge of the ground floor premises, mere presumption that the business premises was self- occupied, is of no consequence, besides it refers to a fact that the dispute regarding the ground floor area was complete within the knowledge of the Assessing Officer during the assessment year 1995-1996 and thereafter establishing the fact that there was no new information in possession of the Assessing Officer to reopen the case under section 65 of the Repealed Income Tax Ordinance, 1979,
4. Considering all these facts and circumstances of the case, I concur with the view taken by my learned brother the Judicial Member (as he then was) and all the four miscellaneous applications are allowed. Consequently, the four appeals filed by the assessee are also allowed and the impugned orders of the both the officers below are annulled. .