1. ORDER Being aggrieved by the consolidated order dated 13-3-1980 passed by the learned Appellate Assistant Commissioner, B-Range, Karachi, on appeals filed by the assessee-respondent, pertaining to charge years 1973-74, 1974-75, 1976-77, 1977-78 and 1978-79, the Income Tax Officer, Companies circle B-4, Karachi, has brought these five appeals on the following common ground: "That the learned Appellate Assistant Commissioner was not justified in directing to calculate the Workers' Welfare Fund on net profit derived at after deducting this amount as the Workers' Welfare Fund was calculated @2% on total income determined as per Board's Circular." The Income Tax Officer through an order under Section 35 of the repealed Income Tax Act, 1922, pertaining to charge years 1973-74 and 1978- 79 rectified the original assessments to work out and charge to tax, inter alia the Workers' Welfare Fund at Rs. 85,040/- and Rs. 75,450/- respectively. While giving effect to the first appellate order under Section 31 of the repealed Income Tax Act. In respect of the remaining charge years under appeal i.E. 1976-77 and 1977-78 he charged to tax the Workers'
2. Welfare Fund at Rs. 45,45,816/- and Rs. 1,97,996/- respectively. The assessee felt aggrieved with this action of the Income Tax Officer in respect of all the five years in question. He, therefore, carried appeals to the learned Appellate Assistant Commissioner assailing only the method of calculation of Workers' Welfare Fund. It was contended on his behalf before the first appellate authority that the Workers' Welfare Fund should have been calculated on NP arrived at after deducting the amount of Workers' Welfare Fund, whereas the Income Tax Officer had worked it out without deducting it from the total income. The learned Appellate Assistant Commissioner by a short order accepted the assessee's contention and allowed the appeals with a direction to the Income Tax Officer "to calculate the Workers' Welfare Fund accordingly". Hence these second appeals. The Workers' Welfare Fund was established by the President of Pakistan through an ordinance, called the Workers' Welfare Fund, Ordinance 1971 (Ordinance XXXVI of 1971, published in the gazette of Pakistan extraordinary dated 11-12-1971). Section 4 of the said Ordinance which it is relevant for our purpose is reproduced hereunder: N '4. Mode of payment by, and recovery from, industrial establishments. (1) Every industrial establishment the total income of which in any year of account commencing on or after the date specified by the Central Government in the official Gazette in this behalf is not less than one lakh of rupees shall pay to the Fund in respect of that year a sum equal to two per cent of so much of its total income as is assessable under the Act or would have been so assessable but for the exemption made by Section 15-BB thereof.
(2) Every industrial establishment which is liable under sub-section (1) shall pay the amount due from it to the Income Tax Officer having jurisdiction over the Industrial establishment for purpose of the Act.
(3) The industrial establishment shall, on or before the date on which it is required to furnish a return of income under sub-section (1) of Section 22 of the Act, pay the amount due from it under subsection (1) calculated with reference to the total income reporing in the said return.
(4) At the time of making an assessment under Section 23 of the Act, or as soon thereafter as may be, the Income-tax Officer, shall by order in writting, determine the amount due from the industrial establishment under sub-section (1), if any, on the basis of the income so assessed after taking into account the amount paid by the industrial establishment under sub-section (3) in respect of the year and the industrial establishment shall pay the amount so determined on or before the date specified in the order.
(5) Any change by way of enhancement or reduction in the assessed income subsequent to the assessm ent made under Section 23 of the Act shall be given effect to by adjustment of the amount due under sub-section (1).
(6) Any amount paid by an industrial establishment under sub-section (3) which is found, on the basis of an order in appeal or revision under the Act, to have been paid in excess shall be refunded to it by the Income Tax Officer.
(7) The payment made by an industrial establishment to the Fund under sub-section (1) shall be treated as an expenditure for purposes of assessment of the income-tax.
(8) Where any industrial establishment fails to pay the amount due from it as required under this section it shall, without prejudice to any other liability to which it may be subject under this ordinance or any other law, be liable to pay an additional amount equal to eight per cent, per annum of the amount due from it from the date on which it was original payable to the date on which it is paid.
3. (91 The provision of Section 46 and 46A of the Act relating to the mode and time of recovery of the Income tax, leviable under the Act shall, so far as may be apply to the recovery of the amount due under sub-section (1).
4. Mr. Yousuf Sharih the learned Department Representative, who appeared to press the appeal before us, drew our attention to the Central Board of Revenue's Circular No. C-l(7)-IT/i/72 dated 5- 3-1973 and submitted that the order of the learned Appellate Assistant Commissioner does not seem to be contrary to what has been laid down in the Central Board of Revenue's aforesaid Circular. In his opinion, therefore, there was no justification for the department to have filed these appeals. The learned Authorised Representative for the assessee-respondent also supported the order of the learned Appellate Assistant Commissioner. He Contended that unless the amount to be paid to the fund is deducted from the total income the assessable income will not be available.
5. The counsel therefore submitted that the purposes of the Ordinance will be achieved only if the following formula is adopted to work out the amount of Workers' Welfare Fund at the rate of 2% of the total income: Total income X-2 102 We have given our earnest consideration to the submissions made at the bar and we are of the opinion that the department's griveance is well-founded. Under sub-section (1) of Section 4 of the Ordinance a sum equal to 2% of the Total Income of an assessee as assessable under the Act is to be paid. The amount of the workers Welfare Fund is thus to be calulated with reference to the total income set forth in the return of income to be furnished under Section 22(1) of the Act. The amount of welfare Fund thus worked out shall then be treated as an expenditure 'for the purpose of assessm ent of Income-tax' not under the provisions of the Income-Tax Act, but by virtue of sub-section (7) of Section 4, of the Workers' Welfare Fund Ordinance, 1971. Hence the intention of the legislature is that an allowance or rebate is to be given to an assessee for the amount he pays to the workers' Welfare Fund. Hence on the one hand workers' Welafre Fund isj to be paid @2% of so much of the total income of an industrial concern! As is assessable under the Act, i.E. Before the amount of welfare fund isi taken into account. The legislature wanted to give the benefit of the pay-! Ment so made to the assessee as well and that is why it has specially provided that the payment made by an industrial establishment to the fund under subsection (1) shall be treated as an expense for purpose of assessment of Income Tax. The intention of the legislature is manifestly clear that the income-tax shall be charged on the amount of total income arrived at after deducting the amount of the Workers' Welfare Fund from the total income, as was assessable under the act, without taking into account the provision of the Workers' Welfare Fund Ordinance in regard to its being treated as an expense for the purpose of assessment of Income-tax. Here the expression 'for the purposes of assessment of Income-tax'is to be understood in the sense of computation of Income Tax on the total Income as arrived at after deducting the amount of the Workers' Welfare Fund. Under the Income Tax Act an assessee is liable to be charged to Income Tax, subject to the provision of the Act, in respect of his total Income of the previous year or the years as the case may be, and the word "total Income" is defined by Section 2(15) of the Act as under: - "(15) "total Income" means total amount of income, profits and gains referred to in sub-section (1) of Section 4 computed in the manner laid down in this Act and "total world income" includes all income, profits and gains wherever accruing or arising except income to which, under the provisions of sub-section (3) of Section 4, this Act does not apply and except and capital gain which is not includible in the total income of an assessee".
6. Now the respondent's total income is assessable under Section 10 of Act. Once the total income is arrived at in terms of the said section or under any other section of the Act which is applicable in this case, it is assessable to tax under the Act. By virtue of Section 4(1) of the Workers Welfare Fund Ordinance, 1971 it was obliged to pay to the Fund (as defined by Section 2(c) of this Ordinance), a sum equal to 2% of its total income as arrived at and was assessable under the Act. Once total income is arrived at by the assessing officer, no further deduction therefrom on account of the payment to the Fund under the workers's welfare Fund Ordinance, 1971 could be allowed because the payment to the said Fund would have been treated as an application of the income assessed under the Act. It was for this obvious reason that the legislature in the workers' Welfare Fund Ordinance, 1971, made a specific provision to the effect that, "the payment made by an industrial establishment to the fund under subsection (1) shall be treated as an expenditure for the purpose of assessm ent of income Tax" (see Section 4(7) of the Ordinance).
7. Having reached the above conclusion there is no course open to us but to hold that the learned Appellate Assistant Commissioner Committed an eror in allowing the assessee's appeal for all these years by accepting contention of the counsel for the appellant before him, that workers's welfare Fund should have been calculated on net profit derived at after deducting the amount paid to the fund. The grievance of the department, is therefore, well-founded inasmuch as the Income Tax Officer had rightly determined the amount due from the assessee respondent under sub-section (1) of Section 4 of the W.W.F. Ordinance, 1971 on the basis of its total income as it was assessable under the Act. In this view of the matter, the Order of the learned Appellate Assistant Commissioner, notwithstanding the concession made by the learned Departmental Representative cannot be sustai- ned. We would vacate it accordingly and restore the respective Order of the Income Tax Officer as made in this behalf.
8. Before parting with the case we would like to put on record our firm disapproval of the slipshod manner in which the Appellate Assistant Commissioner has decided the appeals which involved an important question of law and that too of the first impression.
9. In the result, all the five appeals succeed and are alhwed as indicated above.
10. Appeals allowed.
11. [(19821 46 TAX 26 (Trib.)] [Income Tax Appellate Tribunal, (Pakistan) Lahore Bench] Present: Abrar Hussain Naqvi, Judicial Member and Ghulam Murtaza Khan, Accountant Member I.T.A. No. 438 and 439 of 1980-81 (Assessm ent years 1973-74 and 1974-75, decided on 23-6-1982 Assessee Versus Department Income Tax Act, 1922 (XI of 1922)-Section 23(3)-Assessment - Agreed assessment- Assessm ent made by I.T.O, with agreement of assessee's counsel-Counsel not empowered by assessee to make any such agreement- Assessment so made, whether legaly sustainable-Held no The assessee's appeal for 1974-75 was dismissed on the sole ground that the assessment was made on agreed basis. The appeal for 1974-75 was also dismissed as the I.T O. had informed his A.
12. A.C. that the assessee had given consent to withdraw the appeals whereas the assessee declined to have agreed to be assessed on a particular income. The Tribunal remitted the case back to the A.A.C. who again dismissed the said appeals on the same ground that assessments were made on agreed basis. The appeals were agitated on the grounds that; (i) no agreement had been entered into by the counsel of the assessee; (ii) there was no occasion for entering into the agreement and
(iii) that in any case the counsel was not authorised by the assessee to make an agreement with the Department.
13. The counsel in his affidavit categorically denied to have made any agreement with the assessing officer. In the Counter affidavit made by the I.T.O, before the A.A.C. it was deposed that the agreement was made by the counsel. Certain discrepancies in the entries made in the order sheet were also pointed out by the assessee. The Departmental representative, on the other hand, asserted that signature of the counsel appeared on the order sheet and denial of the agreement was an after thought. Placing reliance on certain reported cases it was pleaded that the power of attorney given by the assessee no where made any specific reference with respect to entering into agreement.
14. Held, that no legal compromise or agreement had been entered into which could bind down the assessee and thus debar him from filing the appeal. The order of the A.A.C. was set-aside and the case remitted back to him for deciding the appeal on merits.
15. Cases referred to:- Rijahram Badaldas & others v. Vithaldas Jethanand and others A.R. 1947 Sind-4,; Din Mohammad and another v. Farooq Mirza PLD (1955) Sind page 62; (1970) 22 Taxation page 25.
16. Zia H. Razvi, Advocate, for the Appellant.
17. Mr. Khalid Mahmood, AC, DR. for the Respondent.
18. Date of hearing: 13-4-1982.
19. ORDER [The order was passed by Abrar Hussain Naqvi, Judicial Member].- These are two appeals of a private limited company deriving income from ginning of cotton. Original assessment for the year 1973-74 was made on 1-6-1976. On appeal the Appellate Assistant Commissioner vide his order dated 23-10-1977 set aside the order of the Income Tax Officer and remitted the case back to him for assessm ent. For the year 1974-75 the assessment order was passed on 30-6-1977.
20. Reassessm ent for the assessm ent year 1973-74 was finalised by the Income Tax Officer on 30-11- 1977 against which appeal was filed before the Appellate Assistant Commissioner, who, vide his order dated 16-1-1979, dismissed the appeal for the assessment year 1973-74 on the sole ground that assessm ent had been made on agreed basis. The appeal for the assessment year 1974-75 was also dismissed on the ground that the Income Tax Officer had informed the Appellate Assistant Commissioner that the assessee had agreed to withdraw the appeal. The assessee filed further appeals and the Tribunal vide its order dated 4-12-1979 remitted the case back to the Appellate Assistant Commissioner. The learned Appellate Assistant Commissioner again dismissed the appeals of the assessee vide her order dated 9-4-1980 on the same ground that assessments had been made on agreed basis. The assessee had come up in appeal against that order of the Appellate Assistant Commissioner.
2. The learned counsel appearing for the assessee had raised three contentions, (1) that no agreement has been entered into by the counsel of the assessee (2) that there was no occasion for the Agreement and (3) that in any case the counsel was not authorised by the assessee to make agreement with the department. In regard to the first contention the learned Counsel argued at length and submitted that the order sheet entry dated 26-11-1977 for the year 1973-74 was not made with the consent of the Counsel of the assessee who appeared before the assessing. Officer.
21. In this regard he relied upon the affidavit filed by Mr. S.A. MaMk, Advocate before the learned Appellate Assistant Commissioner. The Departmental Representative has shown the order sheet entry dated 26-11-1977 which reads as under: "Present-Mr. S.A. Malik. The case discussed and examined in detail. He agrees to adoption of lint yield at 13-00 seers only and allowing of manufacturing cost at Rs. 35/- per bale. He also states that appeal for the year 1974-75 shall be withdrawn''.
22. Sd/- 1TO" In his affidavit Mr. S.A. Malik, Advocate has categorically denied to have made any agreement with the assessing Officer. On the other hand, in the assessing Officer's counter affidavit, obtained by the Appellate Assistant Commissioner, she had reiterated that agreement was made by Mr, S.A. Malik. The learned Counsel has high lighted certain circumstantial evidence in order to conclude that no such agreement was made. He submitted that order sheet entry was continued on the other page backward and that too after another entry of latter dated. Another discrepancy pointed out by him was that the order of the Income Tax Officer was passed on 30-11- 1977 and thus there was no occasion for making the entry by the Income Tax Officer on 26-11-1977.
23. The third point raised by the Counsel was that the assessing officer in her order has discussed the case at length and then adopted certain figures in regard to the yield of lint as well as for the operating cost. As such, it was contended, there was no occasion for making agreement while the assessing officer was deciding the case on merits. It may be appropriate to note the following paragraph in the assessm ent order in regard to adoption of yield: "Before the learned Appellate Assistant Commissioner the assessee vehemently contested this addition to be excessive. Even before me it has been contended that short yield of lint was on account of poor quality of cotton purchased and ginned in the assessment year under consideration. The contention of the assessee carry some weight hence the yield is adopted at 13 seers per maund, which means that the assessee gets a relief of Rs. 82,478/- worked out as under".
24. Similarly in regard to operating cost it was observed by the Income Tax Officer: "the contention of the assessee carries weight. Comparative statement showing increase in prices of iron hoops, gunny bags, wages and commission etc. In the year under consideration as compared with the assessm ent year 1971-72 (there being no ginning in the assessment year 1972- 73 has been submitted). The contention of the assessee is correct to the certain extent. However, claim of expenses at Rs. 41 /- per bale is excessive. The same is allowed at Rs. 35/- per bale. Relief is worked out as under:- Number of bales ginner: 6,959 Mds.
25. Relief allowed @ Rs. 6/- per Md x 6859 Mds. 41,154 Total relief Rs. 1,23,632/- In these circumstances, the learned counsel continued, the assessing officer having discussed in detail and decided the case on merits, there was hardly any occasion for the assessee's counsel to make any agreement whatsoever. It was further submitted that the alleged agreement was made on 26-11-1977 and the assessm ent order is dated 30 11-1977. But while passing the order on 30-11- 1977, the Income Tax Officer did not make any reference to the agreement which, according to him, had taken place four days earlier. On the other hand she is recording and discussing the contentions of the assessee in her order passed subsequent to the agreement. If any such agreement in fact had taken place there was no reason why the Income Tax Officer should have recorded and discussed the counsel's contentions. Lastly it was submitted that in any case the assessee has authorised his counsel to appear before the Income Tax Officer and to represent his case, and not to make any agreement or compromise. It was submitted that for making an agreement or compromise specific authority is required which is wanting in this case. As such even if it is assumed that any agreement was entered into by the counsel of the assessee, he being not authorised to do so, the agreement is illegal and inoperative and therefore, the assessee had a right to file the appeal. It was further submitted that had any agreement been made with the assessee, it would have been mentioned in the order of the Income Tax Officer and in any case it did not require any lengthy and elaborate discussion of the case on merits.
3. The learned Departmental Representative on the other hand relied that signatures of the counsel appear on the order sheet dated 26-11-1977. It is only an after-thought that the assessee denied the agreement. In regard to the order sheet entry continued on the other page after the entry of latter date, it was submitted that the entry of the later date is unsigned and since there was space available on that page, the assessing officer continued to write on the page, ln regard to the detailed discussion of the case on merits in the body of the order passed by the Income Tax Officer it was submitted that the assessing officer's orders are subject to scrutiny by the higher authorities and therefore notwithstanding the agreement the assessing officer had to justify her order on merits as well. In regard to the argument that no mention of the agreement had been made in the order of the Income Tax Officer, it was pointed out that below the assessment order, the assessing officer has recorded a note that the order was passed on agreed basis. However, the learned Departmental Representative was not in a position to explain the discrepancy as to why the order sheet entry in regard to the agreement was made on 26-11-1977, while order in fact was passed on 30-1 1-1977. Similarly he was not able to explain in order sheet entry dated 27-11-1977 in regard to the assessm ent year 1974-75 which is as under:- "In view of re-assessm ent for the year 1973-74 the learned counsel Mr. S.A. Malik agrees withdrawal of appeal for the assessm ent year 1974-75 and demand shall be paid by 10th December".
26. Firer on the basis of such letter. We accordingly hold that the order of the Appellate Assistant Commissioner in regard to assessm ent year 1974-75 on the basis of alleged agreement is illegal and the appeal should be regarded as still pending and it is directed that the appeal should be decided by the Appellate Assistant Commissioner on merits.
6. In regard to assessm ent year 1973-74, last point urged by the learned Counsel has considerable'force. A power of attorney authorises a person to act wholly within the four corners of the power of attorney. In the Income-tax case when the assessee authorises his representatives to plead and act on his behalf it is presumed that the Attorney or the Representative is being required to represent the case of the assessee as made up by him in his return. Therefore, the Attorney or Authorised Representative has authority to do all acts specifically mentioned in the power of attorney and allied and incidential acts, which are in line with the case of the assessee as envisaged in his return. If any other action is to be taken by the Authorised Representative which is contrary to what was disclosed in his return, he has to obtain specific authority of the assessee to do so. In the file cover for the assessment year 1973-74 no power of attorney of the assessee is on record. However, there is printed power of attorney in favour of M/s. Tax Services on the file cover relating to the assessm ent year 1974-75.
27. Since this has never the case of the assessee that he had Dever authorised M/s. Tax Services to represent his case, therefore, notwithstanding the absence of power of attorney, we presume that such authority was given for assessment year 1973-74 as well. Since a printed power of attorney in the file cover of 1974-75 is available we further presume that the wording of the Vakalat Nama would be the same as in the assessment year 1973-74. In that Vakalat Nama, M/s. Tax services has been authorised to represent the assessee in tax proceedings. However, there is no power given in that Vakalat Nama to make a compromise or to enter into an agreement by the aforesaid Authorised Representative on behalf of the assessee. The Departmental Representative has laid considerable stress on the wordings of the Vakalat Nama, "their explanation, statement and affidavit tendered shall be binding on us". We however cannot presuade ourselves to agree with this interpretation. These words have to be read in context of the earlier wording of Vakalat Nama which is in regard to representing the case of the assessee, to produce the account, documents, evidence, and to do other things necessary or incidental thereto. From the text of these wordings, it cannot be spelled out that the assessee had also authorised his Authorised Representative to make an agreement with the Income Tax Officer. In Tax cases an Authorised Representative had to represent the case of the assessee as has been made out by him in his return. If an Authorised Representative makes any statements which is contrary to the case of the assessee he can not be said to represent the assessee and would travell beyond the power given to him. It may be noted that a Vakalat Nama given to a Counsel or an Authorised Representative, is a special power of attorney in nature which expowers him to act within the limited sphere mentioned in the power of attorney. The power to enter into an agreement with the assessing officer cannot be implied. Such a power should be specific and categorical. In the absence of such a power, if any Authorised Representative enters into any agreement it would be without lawful authority and therefore, cannot bind the assessee. In a case Rijah- ram Badaldas & others v. Vithaldas Jethanand and others reported as A.R. 1947-Sind 4, the following paragraph of an earlier decided case of the Privy Council cited on 84 I.C. 721 was approved which is reproduced below: - "It is quite clear that before so important a matter as a compromise of a suit can be recorded by the Court when the parties do not themselves notify it to the court or give their written consent, then if the pleaders are to act as agents for the parties to compromise, it is clear that their authority must be clear and unequivocal.
28. The Vakalat Nama authorises them to compromise................ All we have upon the record is their written statement that they have this special power. We do not think under the circumstances that this is sufficient, and we think that we should act wrongly and against the interest of justice if we did any thing either by word or act to encourage so casual a procedure as has been followed in this case".
7. In a subsequent case Din Mohammad and another v. Farooq Mirza reported as PLD (1955) Sind Page 62, the Sind High Court relying upon the aforesaid case held as under: "It would therefore appear clear that in case of Vakalat Nama the power of the Advocate depends on its terms. He can enter into compromise only when the Vakalatnama empowers him to do so.
29. In the present case the Vakalatname expowered Mr. Abdul Kadir Mirza merely to appear, act and pleade. It gives him no authority to compromise." Consequently the compromise was held by the High Court to be illegal and their Lordships set aside the case and remanded it back to the trial court for re-decision.
8. Farooq Mirza'a case was followed by the Tribunal in a subsequent case reported as (1970) 22 Taxation page 25. It was Held in that case: "In the absence of any specific authority to agree, the AR. cannot agree to an assessment of the assessee to any particular determined figure. In the absence of any authority any such agreement would be illegal and without effect." This decision of the Tribunal is on all fours in the present cases.
30. In that case too the power of attorney authorised the AR. to give explanation and statement. The exact words in the prower of attorney in the case were "his explanation and statement is binding on me/us". Referring to these words the Tribunal observed as under: "An A.R. appearing before the Income Tax'Authorities on behalf of the assessee is merely an agent acting on behalf of the assessee. His authority to represent the assessee only extends to do only those acts which he ^might have been authorised to do by the principal and also those incidental acts which he may be required to do in order to do the acts authorised to be done".
9. Respectfully following the aforesaid decisions and in view of the peculiar circumstances of the case discussed above, we feel that no legal compromise or agreement have been entered into which could bind down the assessee and thus debar him from filing the appeal. We, therefore, set aside the order of the Appellate Assistant Commissioner and remit the case back to him for deciding the appeal on merits..
31. [Vol. 46