MUHAMMAD JAWED ZAKARIA, JUDICIAL MEMBER. --- By this single order, we intend to dispose of above titled cross appeal filed by the both parties against the combined impugned order No,06 dated 01-10-2014 delivered by the learned CIR(Appeals-II), Karachi pertaining to the tax years 2012 on the separate grounds of appeal as set-forth in the memo of appeal.
2. Brief fats as reported in the impugned order are that the taxpayer is a private limited company, is a subsidiary of Malaysian Company. Return of income filed and treated as deemed assessment u/s. 120 stood revised on 12-08-2013, which resulted in deemed amended order u/s. 122(3). The said deemed amended order was considered as erroneous in so far as prejudicial to the interest of revenue by the ADCIR, Range-A, Zone-Ill, LTU, Karachi. Accordingly, a show cause notice u/s.122(9)/(5A) was issued. The taxpayer responded and filed explanation. After obtaining necessary reply, proceedings were culminated by passing amended order under section 122(5A) of the Income Tax Ordinance, 2001. Being aggrieved and dissatisfied by the order of the Addl.CIR the taxpayer filed appeal before the learned CIR (A) who vide order mentioned supra, maintained the addition u/s. 21(c) ibid and directed to allow adjustment of carry forward amount as envisaged u/s. 113(2)(c) of the Income Tax Ordinance, 2001. Hence, both the taxpayer as well as department has come up in appeal before this Tribunal on the grounds set-forth in the memo of appeal.
3. This Court issued notices to the both parties. In response thereto Mr. S.M. Rehan (FCA) appeared on behalf of the taxpayer while Mr. Abdul Salam appeared on behalf of the department as D.R.
4. Firstly, we take-up, taxpayer appeal. Initially, learned counsel for the taxpayer has argued that the disallowance u/s. 21(c) is a factual controversy and cannot be decided unless factual inquiry is done. Learned counsel for the taxpayer further contended that twin conditions should come from admitted facts and not from disputed facts gathered through fishing inquiries. Twin conditions are to be proved at the time of issuance of notice u/s. 122(5A) and not on the basis of record submitted and subsequent inquiry. He has further pleaded that in the repealed Act, 1922 and Repealed Ordinance, 1979 powers of assessm ents were with the ITO/DCIT and therefore powers of IAC u/s. 34A and 66A were of supervisory authority as quality controller and the scope was large. In the 2001 Ordinance powers are with Commissioner through delegation and therefore, scope of (5A) is narrow. He further explains that in 2001 Ordinance there are two schemes 177-122(1)(5) for inquiries and factual controversies and 122(5A) for legal controversies on admitted facts with twin conditions. He placed reliance on the judgment reported as 113 Tax 53. Learned counsel for the taxpayer further asserted that the words -after making or causing to be made, such enquires as he deems necessary" are from tax year 2013 and are not retrospective, reliance is placed on 109 Tax
85. Even after amendment inquiry does not mean inquiry from the taxpayer. The inquiry should be independent and not from tax payer. After insertion of words "if he considers that the assessment order is erroneous in so far as it is prejudicial to the interest of revenue. The question arises as to which of the two expression is of a controlling nature to arrive at the correct construction of error of law and its prejudicial effect in terms of revenue. Question also arise as to the scope of the key words "such inquiries" can it be read within the confines of the amendment provision or can it be so enlarged as to equate with and entail all types of factual inquires. If this be the case the whole scheme of audit under section 177 becomes redundant. Such a conclusion which renders redundant another provision of law is against the principle of harmonious construction of a tax statute. Thus, even after the amendment in section 122(5A), inquiry cannot be conducted from the taxpayer. It only empowers the Additional Commissioner to make independent inquiry at his own end and not from the taxpayer, reliance is placed on the judgment reported as 109 Tax 85. In support of his argument he has also relied upon the following reported and unreported case law: (1). 2013 PTD (Trib) 900.
(2). 2013 PTD (Trib) 788.
(3). 2012 PTD (Trib) 1739 (4). 2010 PTD (Trib) 111.
(5). 2012 PTD (Trib) 1593.
(6). 2013 PTD (Trib) 1557 (7). 2014 PTD (Trib) 2085 (8). ITA No,799/K B/201 4 (9). ITA No,1236/KB/2016.
He has further submitted that the assessments for the year under review had been passed after detailed scrutiny as such the same cannot be said to be erroneous being prejudicial to the interest of revenue and recourse cannot be had to section 122(5A) of the Income Tax Ordinance, 2001 thus, learned ADDL.CIR is debarred and precluded from indulgence in such like position as held by the Hon'ble Superiors' Courts. The learned counsel , therefore, vociferously, further went on to stress that in view of the submissions made hereinabove and case laws decided by the Learned ATIR on the subject and principles of interpretation settled by Hon'ble Apex Court, the order under section 122 (5A) is not sustainable in law and may be annulled. He further went on to urge that the order passed U/s. 122(5A) is an illegal order and without jurisdiction as the queries raised and the additions made are in excess of powers vested U/s. 122(5A). He contended that the Additional Commissioner was not conducting audit proceedings hence, the queries raised are in excess of jurisdiction. The powers U/s. 122(5A) is restricted and limited to issues resulting in the assessment being erroneous and prejudice to the interest of revenue, hence can neither disallow nor make addition on disputed issues by applying subjective standard of reasonableness or on the basis of his opinion. As the order passed U/s. 122(5A) is beyond the scope and jurisdiction, the additions made are liable to be deleted. Reliance is placed on the decisions reported as (2004) 89 Tax 452 (Trib.) and (2001) 84 Tax 45 (Trib.). As this issue has been settled by the Tribunal, the order passed U/s. 122(5A) may kindly be cancelled and annulled. He further objected that prior to initiating proceedings U/s. 122(5A), the Additional Commissioner has to prove that the deemed or amended order passed was erroneous and as well as prejudicial to the interest of revenue which has caused loss of revenue. Thus, both the conditions are to be fulfilled simultaneously. But if either of the conditions are not fulfilled, the order passed. U/s. 122(5A) is not sustainable in law. This issue has already been decided by various forum while adjudicating on proceedings initiated U/s. 66A of Repealed Ordinance, 1979 which is in pari materia to Section U/s.. 122(5A) of Ordinance, 2001.
Further reliance is placed on the following reported decision.
(a) 1992 PTD 932 (SC Pak) in the case of Glaxo Laboratories Limited.
(b) 2004 PTD 330= (2004) 89 Tax 252 (KHC) in S.N.H. Industries (Pvt.) Limited V/s. Income Tax Department & Others
(c) 1984 PTD 137 (HC A.J. & K) in M/s. United &Alders Corporation, Mirpur V/s. Commissioner of Income Tax, A.J. & K143
(d) (1999) 79 Tax 29 (Trib.)
(e) (2004) 89 Tax 452 (Trib.)
(f) (2001) 84 Tax 45 (Trib.)
(g) (1969) 20 Tax 51 (Trib.)
In the above decisions it has been held that if both the conditions are not fulfilled simultaneously and there is no loss of revenue or if only one of the conditions are fulfilled, the order passed U/s. 34A of Repealed Act 1922, Section 66A of Repealed Ordinance, 1979 and Section U/s. 122(5A) of Ordinance, 2001 which are in pari materia" to each other provisions of law, the order passed has been cancelled and annulled.
3. The learned counsel lastly, submitted that in the case of the taxpayer, as neither of the conditions have not been fulfilled simultaneously and the queries raised and additions made are beyond the jurisdiction and power vested U/s. 122(5A), the order passed by the Additional Commissioner of Inland Revenue is without and in excess of jurisdiction, nor the deemed orders was either erroneous, nor prejudicial to the interest of revenue, the order passed U/s. 122(5A) is not sustainable in law. He also invited the attention of this court on the order of the Tribunal in taxpayer own case bearing ITA No, 526 to 531/2014 dated 21.12.2017 whereby under similar facts and circumstances of the case, the orders of the officers below were annulled by the Division Bench of this Tribunal.
6. The learned counsel for the Taxpayer further, relied upon the judgments of the Tribunal bearing ITA No, 1236/KB/2016 dated 03.4.2017 in the case of Quality Dyeing & Finishing (Pvt) Ltd. Vs. the CIR and another case bearing ITA No, 799/KB/2014 the CIR vs. Ace Travels (Pvt) Ltd dated 5.6.2017 wherein after exhaustive and elaborate discussion knocked down orders passed under section 122 (5A) of the Income Tax Ordinance, 2001. The learned counsel, therefore, prayed that in view of ratio decidendi of above reported decisions, the orders passed may kindly be cancelled and annulled.
7. The learned DR, on the other hand, strongly defended the impugned order and contended that the assessm ent proceedings have been made strictly in accordance with law. The learned D.R. continued to argue that main additions have been made by invoking section 21(c) of the Income Tax Ordinance 2001 as withholding tax has not been withheld by the taxpayer at the time of making payments. He particularly referred to Inter Connected Cost and Inter Operator Lease Line Expenses after properly confronting the appellant through notice u/s.122(9) in the proceedings initiated u/s.122(5A). He relied on the case laws of ATIR in ITA No,726/IB of 2009 for tax year 2007 decided on 15-02-2011 and order of Honourable Islamabad High Court in Writ Petition No,2518 of 2015 dated 15- 10-2015. He further vehemently argued that while amending the order the department needs relevant data to give correct legal effect on factual points, therefore, seeking such information which is necessary for working of correct amount is not a Ishying enquiry. Continuing his arguments he stated in both these case law issue that application of section 21(c), on non deduction of withholding tax has been held to be valid. In the instant cases, appellant has not deducted the tax while making payments. He therefore prayed that orders of the below officers be upheld.
8. We have given our earnest consideration to the rival arguments addressed by the contending parties and have also been perused all the relevant facts/record/impugned order and statutory law and case laws submitted by the learned representatives of both the parties.
First we take up the legal pleas taken by the learned counsel for the appellant / taxpayer.
9. Perusal of the reasons assigned for making the additions shows that the same have been made by the Additional CIR by requiring the taxpayer to file explanations, ledgers supported with bank statements which means that the Additional CIR was seeking details, documents and explanations to justify his action u/s I 22(5A) which in our view is against the spirit of section 122(5A). This further shows that the impugned order u/s 122(5A) was passed on whims, guess work and assumptions, hence, in our view there was nothing erroneous and prejudicial to the interest of revenue in the order u/s 120 that has been amended by the Additional CIR. This Tribunal has already disapproved such practices on part of the Additional CIRs in the proceedings u/s 122(5A). Reliance could favourably be made on the following decisions of this Tribunal: ITA No, 1034-1037 "We hold that right from the beginning that is from the date of initiation of proceedings and issuing show cause notice the action of the Additional Commissioner IR is ab initio void, illegal and corm non judice. The case laws quoted by the learned DR in fact support the case of the appellant. The learned AR is also correct in stating that in proceedings u/s 122(5A) the Additional Commissioner cannot enter into enquiry and call for the record, the books of accounts, the list of machinery, the production reports etc. case law on the point reported as 109TAX-85 (Trib) wherein after following a number of cases the Learned ATIR has held that the calling for the explanation and details, information is outside the ambit of the proceedings u/s 122(54)."
ITA No, 648/KB/2014 M/s. Bani Apparels "In the instant case, the Additional Commissioner (IR) misdirected himself in initiating proceedings u/s 122(5A) by seeking clarifications/explanations from the taxpayer instead of pointing out any error and prejudice to the interest of revenue.. Further, through his subsequent notices he admittedly. engaged in seeking details, documents, evidences and explanation which too is against the spirit of section 122(5A), as discussed above. Accordingly, we find force in the arguments of learned A.R. that there was nothing erroneous and prejudicial to the interest of revenue in the deemed order under: section 120 of the Income Tax Ordinance, 2001 sought to be amended by the Additional Commissioner (1R). He clearly engaged in making fishing and revoking inquiries by seeking details, documents, evidences and explanations on whims, assumption, apprehensions and surmise which is against the spirit of section 122(5A) therefore impugned order of the Additional Commissioner (IR) is not sustainable in the eyes of law and is hereby annulled.
The Additional. Commissioner has made an addition of Rs. 12,111,000/- under section 21(c) if the Income Tax Ordinance, 2001 which has been arrived at by working back the amount of tax deduction under section 231A shown at Rs. 24,222/- on cash withdrawals from bank. Apart from the explanation offered by the taxpayer, that "cash withdrawals from bank represents withdrawal of investment by the partners hence, it is not hit by the mischief of section 21(c), the addition of Rs.
14,111,000/- under section 21(c) was made which is not sustainable jiff the reason that the same has been based on hypothetical working and has nothing to do with the actual 'claim or payment of expenses. Perusal of return of income, produced by the learned A.R. during the course of hearing shows that the taxpayer has not claimed or paid any expenses to the tune of Rs.12,111,000/- in his return of income whereas provisions of section 21(c) clearly envisage that payment on account of any salary, rent, brokerage or commission, profit on debt, payment to non-president, payment for services or fee paid by the person shall not be allowed as deduction, if the tax so required under the. Ordinance has not been deducted or paid by the taxpayer.
10. In view of the above facts, we are of the considered opinion that the action of the Additional Commissioner to treat a hypothetical figure of Rs. 12,111,000/- as inadmissible expenditure/deduction in terms of section 21(c) in his order under section 122(5A) is totally misconceived and in complete disregard of the provisions of section 21(c) read with section 122(5A) of the Income Tax Ordinance, 2001. The taxpayer has not claimed or paid any expenditure to the tune of Rs. 12, 111.000/- therefore question of its disallowance under section 21(c) of the Income Tax Ordinance, 2001 does not arise."
10. From cumulative reading of provision of section 122(5A) as well as above referred judgments explicitly provide that the queries raised by the ACIR under Section 122(5A) constitute fishing and roving inquiries which are not permitted in the proceedings u/s 122(5A). From perusal of record and impugned notice suggests that the department/ACIR were engaged in seeking details, documents and explanations as fishing enquiries which is not permissible in the proceedings u/s 122(5A).
Similarly, perusal of notice further shows that queries raised by department are based on guesswo rk, assumptions, apprehensions, estimates, conjectures which is against the express provision of law as well as decision of superior appellate fora on the subject. Seeking of details documents and explanations through a notice u/s 122(9)/122(5A) means that there is nothing erroneous and prejudicial to the interest of revenue in the order u/s 120 and the Assessing Officer/ACIR had proceeded under Section 122(5A) on whims, guesswork, assumptions, surmises and conjectures which is not permissible in the proceedings u/s 122(5A).
11. As the core issue involved in this appeal pertains to exercise of jurisdiction u/s. 122 (5A) of the Income Tax Ordinance, 2001, under which the proceedings have been initiated, we deem it proper to reproduce the same for better perception: "Section 122(5A)- subject to sub-section (9), the Commissioner may after making, or causing to be made, such enquires as he deems necessary, amend, or further amend, an assessment order, if he considers that the assessment order is erroneous in so far it is prejudicial to the interest of revenue."
12. From perusal of the sub-section(5A) question also arise as to the scope of the key words "such inquiries" can it be read within the confines of the amendment provision or can it be so enlarged as to equate with and entail all types of factual inquires. In the instant case before making addition u/s. 21(c), the department has started calling for information from appellants which had nothing with regard to two mandatory conditions to invoke Section 122(5A). Calling of information's and thereafter finalizing order u/s 122(5A) without presence of twin mandatory conditions is not permissible. If this be the case the whole scheme of audit under section 177 becomes redundant.
Such a conclusion which renders redundant another provision of law is against the principle of harmonious construction of a tax statute. The addition u/s. 21(c) had been made after making fishing inquiries from the taxpayer. Twin conditions i,e, erroneous and prejudicial should come from the admitted fact and not from the disputed fact and at the time of issuance of notice u/s. 122 (5A) and not on the basis of record submitted and subsequent inquiry. Seeking details, documents records etc are outside the scope of section 122(5A). Thus, even after the amendment in section 122(5A), inquiry cannot be conducted from the taxpayer. It only empowers the Additional Commissioner to make independent inquiry at his own end and not from the taxpayer, reliance is placed on the judgment reported as 109 Tax 85 13.Further perusal of above section shows that presence of prerequisite twin conditions of "erroneous and prejudicial to the interest of revenue there are two limbs of "erroneous and Prejudicial" is a must as envisaged in section 122(5A). These are simultaneously co-exist, if one limb is missing then proceedings initiated under this Clause (5A) would become null and void. This view has already been upheld in so many cases while delivering the judgments under section 66-A of the repealed Income Tax Ordinance, 1979. Reliance is placed on the full bench of this Tribunal, the relevant extract is reproduced hereunder: Full Bench decision of Appellate Tribunal Inland Revenue in ITA No, 181-185, 893, 1051, 1096 Meezan Bank Limited "We therefore agree with the views expressed by learned authorized representatives that this is not the spirit of enquiries as mentioned in the relevant provision. Calling of information and thereafter finalizing the order u/s 122(5A) without the presence of twin mandatory conditions is not permissible. This act of the departmental authorities is nothing but fishing and roving enquiries which is not legal and in accordance with the provision of law.
We hold that section 21(c) of the Income Tax Ordinance, 2001 is not applicable in the situation where there is no proper evidence of tax deduction available before the officer.
We also agree with the views of the learned authorized representatives that these are mere calling for information and conduct of such enquiries is not permissible and comes within the ambit of fishing and roving enquiries. The intent of provision is mainly related to the two mandatory conditions and enquiries have direct nexus to the mandatory conditions of the provision. The use of word of enquiries cannot be read in isolation and it does not mean calling for information from the taxpayers and thereafter proceeding to finalize the order u/s 122(5A).
To our mind enquiries conducted without the presence of twin mandatory conditions as provided in the Provision are not permissible and come within the ambit of fishing and roving enquiries which we dispel and do not approve."
14. We may take further advantage of the Appellate Tribunal's decision in MA (AG) No 45- 46/KB/2013 ITA No 768/KB of 2010 and ITA No 163/KB of 2013 dated 30-04-2013 (M/s HBL Vs Additional Commissioner Audit --B, Zone-I, LTU, Karachi) reported as [(2014) 109 Tax 85, (Trib)]. In the identical circumstances this Tribunal has been pleased to hold as under: "8. We have considered the submissions of learned representatives and have perused the relevant record. From the perusal of the notices issued by the Additional Commissioner, order u/s 122(5A) and marathon details, documents and replies filed during the proceedings under section 122(SA) by the appellant for both the years under review there is no doubt that in the instant case the Additional Commissioner was indulged in seeking details, documents, information and evidences on whims, surmises, assumptions, suspicion, guesswork and apprehensions which supports the contention of the appellant that the order sought to be amended was not erroneous in so far it is prejudicial to the interest of revenue. In our view the Additional Commissioner miserably failed to establish erroneousness or prejudice to the revenue through his initial notice. Similarly the Additional Commissioner not only issued/made multiple notices/requests but required the taxpayer to file supporting evidences and justify the allowability of claim which suggests that he had not been able to identify any erroneousness or prejudice to the interest of revenue in the order u/s 120 sought to be amended The additional data, information, documents or records were required by him to establish erroneousness and prejudice to the interest of revenue which falls clearly out of the scope of section 122(5A). We have found arguments of the learned ARs convincing as the same are based on the 'ratio decidendi' of the following reported judgments of this Tribunal relied upon while delivering and the judgment in ITA No 1696, 1697, 1698, 1825, 1826, 1827/LB/2012 dated 09-01-2013. i. 1999 PTD (Trib) 2851 ii. 2009 PTD (Trib) 121 iii. 2010 PTD(Trib) 111 iv. 2012 PTD (Trib) 1593 v. (2009) 100 Tax 390 (Trib)
In all these judgments the issuance of notices under section. 122(5A) seeking information from the taxpayer for evolving the basis for amending the assessment order under the said section has been disapproved. It would suffice to quote, verbatim the relevant portion at Para 13 on page 404 of the case law cited as (2009) 100 Tax 390 (Trib) which reads as under: The notice on the basis whereof the action under section 122(5A) has been upheld by the CIT (A) merely Pointed out certain deficiencies in the return while seeking information, explanations and evidence raising apprehensions. Therefore, we are of the view that initial notice was void, ll subsequent proceedings orders of the superstructures built thereon have become void and the order passed by the Taxation Officer is not sustainable in the eyes of law, accordingly, the impugned order of the learned CIT(t) is vacated and the order passed by the Taxation Officer under section 122(A) is annulled and the deemed amended assessment under section 122(3) of the Income Tax Ordinance, 2001 is restored."
15. The judgments quoted hereinabove are squarely applicable to the facts and circumstances of the instant case. In the present case too the Additional CIR has made additions / disallowances on hypothetical workings which is not permissible in the proceedings u/s 122(5A). The learned Additional CIR has thus made disallowances/add backs/ additions on whims, guesswork presumption and on assumptions which is not permissible in the proceedings u/s 122(5A). There could be no two opinions about the fact that in making imaginary disallowance which far exceeds the actual expenses claimed by the taxpayer the Additional CIR was proceeding on whims, guesswo rk and assumptions which is clearly out of the mandate and elongate extent and jurisdiction scope, of section 122(5A) of the Ordinance.
16. The next main legal ground taken by the learned counsel is with regard to the order u/s. 122 (5A) ibid is without jurisdiction under which the proceedings have been initiated, the provision of section 122(5A) quoted supra.
17. From a bare reading of Section 122 (5A), it is very clear that limited and restricted powers of modifying or enhancing or revising powers have been vested on the Addl.CIR/ CIR. Under these provisions Additional Commissioners, have been authorized to amend the deemed order if the same is 'erroneous in so far it is prejudicial to the interest of revenue'. A bare perusal of the language of the section leaves us no doubt that power is independent as it is apparent from the use of words "if he considers".
18. We are of the view that if such eventuality goes on befalling then no order of the subordinate officer / deemed order u/s. 120 would attain finality. It would not only aggravate the miseries of the taxpayer but also lead to multiple series of assessments and would multiply protracted litigation which is not the intention of the legislature and there will be no end of litigation. This could have been opened flood gate of corruption. The Addl. CIR has not been given free hand to invoke the provision of Section 122(5A) of the Income Tax Ordinance, 2001, in each and every assessm ent/order. The very purport and tenor of the said section is to safeguard the interest of revenue and for that purpose the Commissioner is vested with the power to amend the order where same has acted with flagrant violation of law and fact occurred causing revenue loss. The provisions of section [122 (5A) empower the Commissioner if he considers that the order passed is erroneous and prejudicial to the interests of the Revenue. The power under section 122 (5A) could be exercised only if the deemed order was erroneous and prejudicial to the interests of the Revenue. The amending power under this section is a quasi-judicial power hedged in with limitation and has to be exercised subject to the same and within its scope and ambit. As far as the word 'to consider' or in other words, to form an opinion that the particular order is erroneous in so far as it is prejudicial to the interests of the Revenue, is a quasi-judicial act because it is an important decision and the same cannot be based upon the whims or caprice of the revising authority. There must be materials available from the records called for by the Commissioner. This is so because it is well-settled that when exercise of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such power must have materials on record to satisfy it in that regard. If the action of the authority is challenged before the court it would be open to the courts to examine whether the relevant objective factors were available from the records called for an examined by such authority. The power under this section to amend an order is quasi-judicial in character. It, therefore, follows that in making all orders under this section, the Commissioner must pass a speaking order giving reasons, otherwise the order may be vitiated.
It is necessary for the Commissioner to state in what manner he considered that the deemed order u/s. 120 was erroneous and prejudicial to the interests of the revenue and what the basis or material was for such conclusion. This being so, the Commissioner must give his own reasons for being satisfied that the order u/s. 120 is erroneous and is prejudicial to the interests of the revenue.
This conclusion is further strengthened by the use of the words "if he considers" used in section 122(5A) which postulates a scrutiny by the Commissioner of all the relevant facts for holding that the order is erroneous and is also prejudicial to the interests of the revenue. If the amended order does not disclose such reasons, it suffers from an infirmity and is clearly vitiated. The very fact that the Addl. Commissioner is required to make an order after affording an opportunity of hearing to the taxpayer ingrains in the process the requirement of recording reasons for his conclusion, as is necessary for an quasi-judicial order required to be made by a quasi-judicial authority. It cannot be doubted nor it has been questioned that orders under section 122(5A) bear the stamp of quasi- judicial nature and require to be supported by reasons for their conclusion. The necessary consequence is that while passing the order the Addl. Commissioner must record reasons in support of his conclusion that the order is amended being erroneous and that it would be prejudicial to the interests of the Revenue due to such erroneousness. In passing an order under section 122 (5A) the Commissioner is not empowered to ignore the binding decisions rendered by the Supreme Court or by the Hon'ble. High Court or even by the learned Tribunal. The power reposed on the Commissioner, no doubt, is a power of judicial nature and, therefore, such power is to be exercised lawfully and with due application of mind The power cannot be exercised mechanically or at the behest of some other authority other than on his own discretion of the authority himself. Under the provisions of section 122 (5A), it is noted that mere prejudice to the Revenue, or a mere erroneous view which can be amended but there should be the added element of `unsustainability' in the deemed order u/s. 120 which clothes the Commissioner with jurisdiction to issue notice, and proceed to make appropriate orders. The power of revision under section 122 (5A) can be exercised by the Commissioner when the following factors co-exist: the Commissioner should consider that the said order is erroneous and prejudicial to the interests of the revenue. It is our view that the provisions of section 122 (5A) can't be invoked when two views are possible. The error envisaged by section is not one which depends on possibility or guesswork, but it should be actually an error either of fact or of law which caused prejudice to the interest of revenue.
19. Exercise of revisional power by the Commissioner should not become a fiat, but should be within the bounds of law and satisfy the need of fairness in administrative action and fair play and full compliance with the requirements of the principles of natural justice as in quasi-judicial proceedings and in making a quasi-judicial order. The scope of interference under this section is not to set aside merely unfavourable orders and bring to tax some more money to the treasury nor is the section meant to get at sheer escapement of revenue which is taken care of by other provisions in the Ordinance. Section 122 (5A) is to be invoked not as a jurisdictional corrective or as a review of a Assessm ent order / deemed order in exercise of the supervisory power but it is to be invoked and employed only for the purpose of setting right distortions and prejudices to the Revenue which is a unique conception which has to be understood in the context of and in the interest of revenue administration. Such a power cannot in any manner be equated to or regarded as approaching in any way of appellate jurisdiction or even the ordinary revisional jurisdiction conferred on the Commissioner which caters other provisions. Section 122 (5A) provides for amendmentof the order by the Commissioner. However, the Commissioner does not have unfettered discretion to amend the order and the condition necessary for invoking the power must exist. From a leading of section, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, (C1R) he considers that any order is 'erroneous in so far as it is prejudicial to the interests of the revenue', It is not an arbitrary or unchartered power. It can be exercised only on fulfillment of the requirements laid down in this section. The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the case and not to be based on fishing or roving enquiries.
If there are no materials on record on the basis of which it can be said that Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. A definite finding of error and prejudice to the interest of revenue essential for making a valid order under this section, it is essential that the Commissioner has to record and express finding to the effect that the order sought to be amended is erroneous as well as prejudicial to the interests of the revenue. The factual matrix stares in the face of the record in the light of the legal requirement of a satisfaction that invoking of the power under this section necessarily presupposes the statutory satisfaction that although there is some error with regard to the completed assessm ent, the deemed order passed by the Officer has to be erroneous in so far as it is prejudicial to the interest of the Revenue. In other words, the plain language of section is more than abundantly clear that it is not every error or mistake that should induce the Commissioner to resort to exercise of the powers under section 122 (5A).
20. Therefore, we are of the considered opinion that in the given circumstances, invoking of provisions of section is not held to be maintainable. It is now well settled principle that provisions of taxing statute are strictly interpreted and the charges are imposed on the taxpayer with a clear and unambiguous language, it is also trite law that court / Tribunal should apply correct law, Whether, litigants point out or not. If there is two reasonable views / interpretations are possible, views favours the subject citizens to be adopted. The same view as that of ours has been endorsed by the Hon'ble Supreme Court of Pakistan and the various other High Courts in catena of decisions, some of them illustrated below:
1. Mehran Associates Ltd v/s CIT reported as (1992) 66 Tax 246 (SC Pak)
"Held, The cardinal principles of interpretation of fiscal statutes seem to be that all charges upon the subject are to be imposed by clear and unambiguous words. There is no room for intendment nor there is any equity or presumption as to tax. A fiscal provision of a statute is to be construed liberally in favor of the taxpayer and in case of any substantial doubt the same is to be resolved in favor of the citizen.
2. Collector of Customs, Karachi V/s M/s. Abdul Majeed Khan reported as 1977 SCMR 371 "Held, Moreover, in interpreting a penal or a taxing statute the court must look to the words of the statute and interpret them in the light of what is clearly expressed. It cannot imply anything which is not expressed, it cannot import provisions in the statute so as to support assumed deficiency, as held in Messrs Hirjina & Co. (Pakistan) Ltd. v. Commissioner of Sales Tax, Central, Karachi (2). Last but not the least it is also well established that penal provisions of a stature should be strictly construed and in case of any ambiguity or doubt arising from the construction, the benefit must go to the accused person Muhammad Ali vs State Bank of Pakistan Karachi(3)"
3. M/s. Harjina Co. V/s Commissioner of Sales Tax reported as 1971 SCMR 128 "Held, In interpreting the taxing statue the Courts must look to the words of the statute and interpret it in the light of what is clearly expressed. It cannot imply any thing which is not expressed; it cannot import provisions in the statute so as to support the assumed deficiency".
4. Amin Spinning Mills and another v. Deputy Collector Central Excise and others [(2004) 90 TAX 191 (S.C. AJ&K)= 2004 PTD 2479 (S.C.A.I7K)] "Held, It is by now well settled that a Court of law and Tribunal should apply correct and relevant law of the land on the proposition before it irrespective of the fact that a party has referred the law or not. If two views are possible from reading a provision of law, then the view which favours the citizens may be given preference over the second view. The aforesaid solitary principle of law is supported by the authorities title_ The State v. Syed Qaim All Shah ( 1992 SCMR. 2192), and B.P Biscuit Factory Ltd. Karachi v. Wealth Tax Officer and another (1996) 74 Tax 81 (S.C. Pak)= (1996 SCMR 1470)."
5. Mst. Zarina Yousaf v. Inspecting Additional Commissioner of Income Tax/ Wealth Tax; Sailkot Range, Sialkot and another 2005 PTR 102 PLC. Lah..1= 2005 PTD 108 (H. C Lah.)].
"Held, If two reasonably acceptable interpretations of a provision of law are possible then the one that goes to the benefit of the subject should be adopted.
6. Micropak (Pvt.) Ltd, Lahore v. Income Tax Appellate Tribunal, Lahore and 2 others [(2001) 83 TAX 451 (H.C. Lah.)= 2001 PTD 11081 "Held, Where two interpretations of a taxing statute are equally possible then the one favorable to the subject was to be adopted." When two interpretations are possible in relation to any provision in the discipline of taxation, the one favorable to the assessee would prevail.
7. IAC of Income Tax and others v. Messrs Micro Pak (Pvt.) Limited and others 2002 PTD 877 (S.C. Pak)
"Held, Before parting with these matters, it may be observed that all concerned are one on the point that when two interpretations are one on the point that when two interpretations are possible in relation of any provisions in the discipline of taxation, the one favourable to the assessee is to prevail. The learned Members of the Division Bench of the High Court were quite right in reiterating the above principle of law in paragraph 12, already reproduced above, of the impugned judgment."
8. Allied Bank of Pakistan Ltd, Azad Kashmir Branches,Mirpur through Mom Elahi Azhar, EVP and Provincial Chief; PHQ (Punjab) v. Income Tax Appellate Tribunal, A.IK Council, Muzaffarabad and other [2001] 83 TAX 404 (H.C.A J&K)=2000 PTD 2872 "Held, Where a provision was open to two reasonably possible interpretations, then, the interpretation which favours the taxpayer has to be adopted."
9. JA Textile Mills Ltd.v. CBR [(2000) 81 TAX 88 (H.C. Lah.)=1999 PTD 4138] "Held....: in case of other laws are statute which infringe upon the rights of citizen or a party the apex court in re: Abdul Rehman vs. Inspector General of police, Lahore and 2 others(PLD 1995 SC 546) favoured a beneficial interpretation. The rule settled in re; CIT, East Pakistan vs. M/s. Hossen Kasam Dada. Karachi- (PLD 1961 SC 375) states- that when two equally reasonable constructions are possible one strict and other beneficial then the latter should be preferred. The situation, thus, calls for employing a least two general principles. First that where an article or income can equally placed' he placed under two heads of income or tariff then the one favourable to the tax payer should be _adopted. Second when an item or' income etc. expressly falls into one clause then its placing into another clause would be unjustified. All the moreso, when the other clause is subject to a higher rate of tax.
10. Rijaz (Pvt.) Ltd. v. Wealth Tax Officer Circle III Lahore [(1996) 74 Tax 9 (H.C Lah)] "Held, It was observed that according to the well-accepted principles of interpretation the doubt has to be resolved in favour of the citizen. In these circumstances, the law-marker could clarify its intention by adding an explanation which cannot be legitimately objected to.
11. Commissioner Sales Tax v. Rizki Ink Company Ltd. [1991) 64 Tax 34 (H.C. Kar)] Held.... according to us. it two interpretations are possible then any interpretation which favours the assessee has to be preferred."
12. CIT. Central Zone B. Karachi v. Zakia Siddiqui ([1989) 59 Tax 79 (H.C. Kar)] Held. It is well recognzied principle of interpreation that if a fiscal statute is capable of two reasonable interpretations then the once which favourable to the subject be adopted."
13. Highland Manufactures (Pak) Ltd, v. CIT, (West). Karachi. [(1985) 51 Tax 66 (H.C. Kar] "Held, We would observed that the Income Tax provisions have to be strictly construed and should be interpreted in a manner which is more favourable to the subject.
14. CIT v. Muhammad Kassim [(2000) 81 TAX 229(H.C. Kar.)= 2000 PTD 280] "Held, If there was any doubt or ambiguity in the language used in the statue which rendered same capable to several interpretations then the interpretation favourable to the assessee or the citizen was to be adopted."
15.Searle Pakistan (Pvt.) Lid, v. Government of Pakistan through Secretary Ministry of Finance & Another [(1994) 69 Tax 79 (H. C. Kar)] "Held, There is no cavil about the settled principle of interpretation that taxing provisions should be strictly interpreted and the benefit of ambiguity, if any, must go the subject.
16. Dreamland Cinema, Multan v. CIT Lahore [(1977) 35 Tax 169 (H C. Lah)] "Held., Where two equally reasonable constructions are_ possible. one strict and the other beneficial to the assessee, the latter should be preferred in a taxing statute.-
17. Hari Kirshana Das v. CIT, UP [5 ITC 275 (Allahabad)] "Held. The Income Tax Act is a fiscal enactment and in the case of an ambiguity, it is to be construed by the well known principle in favour of the subject and not against the subject."
18. Rower & Co. v. The Secretary of State of India [1 ITC 161 (Burma)] "Held, In Finance Act, 1894 and Studdert, in re(1990) 2 Ir. R. 400 at p. 410] Fitzgibbon L.J said: "The benefit of the doubt is the right to the subject".
19. Crown Bus Service Ltd, Lahore v. CBR and others [(1976) 34 Tax 54 (H. C. Lah.)] "Held, It is well settled that courts should follow that construction of law which does not lead to startling results or destructive ends."
20.Sundar Das v. Collector of Gujrat [1 ITC 189 (Lahore.) readwith Secy. to Commr. Salt v.
Ramanathan Chetti, minor by guardian [1 ITC 37 (Mardras)] " In Partington vs. Attorney-General [(1869) 4 E.G.I App. H.L. 100], Lord Cairns stated the rule thus "Held, No tax can be imposed except by words which are clear and the benefit of the doubt is the right of the subject [per Lord Justice FitzGibbon in re Finance Act, 1894 and studdert [(1900) 2 Ir. R.
400], and the Court is not entitled to substitute for express words or an irresistible inference a process of guess-work, however subtle the reasoning or ingenious the marshalling of facts by which such a process is supported. If the person sought to be taxed comes within the latter of the law he must be taxed however reat the hardshi ma appear to the judicial mind to be. On the other hand, if Crown, seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of the law the case might otherwise appear to be. In other words, if there be admissible, in any statute, what is called an equitable construction, certainly such a construction is not admissible in a taxing statue, where you can simply adhere to the words of the. statute."
21. In Coltness Iron Company vs. Black [(1881) 6 App. Cas. 315] Lord Blackburn stated the same rule somewhat differently. The noble Lord said: "Held, No tax can be imposed on the subject without words in an Act of Parliament clearly showing an intention to lay a burden on him. But when that intention is sufficiently shown it is not open to speculate on what would be the fairest and most equitable mode of leying that tax."
22. Secretary of State v. Seth Khemchand Thaoomal [1 ITC 26 (sind)] "Held, As, observed in Maxwell on the Interpretation of Statutes, 4th Ed., page 429: Statutes, which impose pecuniary burden, are subject to the rule of strict construction. It is a well-settled rule of law that the charges upon the subject must be imposed by clear and unambiguous languages, because in some degree they operate as penalties."
21. Another legal aspect of the case is that the careful examination of the amended order passed u/s. 122(1)(5A) of the Income Tax Ordinance, 2001 reveals that the ADD.CIR while passing the order had not adhered to the requirements of law. Section 122 (5A) has limited and qualified scope than section 177. In section 177 gives much powers to call for requisite information and make inquiries while section 122 (5A) does not give such powers to ask for details, information which is beyond the scope of section 122(5A). In this regard we may refer to subsection (6) of section 177 of the Income Tax Ordinance, 2001 which is reproduced hereunder:- "177. Audit .............................................
(6) After completion of the audit, the Commissioner may, if considered necessary, after obtaining taxpayer's explanationon all the issues raised in the audit, amend the assessment under sub-section (1) or sub--section
(4) of section 122, as the case may be."
(underling for emphasis)
While comparison of section 177 read with section 122 (5) vis--vis section 122 (5A) discussed supra, and now in furtherance we rely judgment of this Bench which is also reported and known as CIR vs. Dr. Azeem Almani bearing ITA No, 538, 539/KB/2016 dated 31-10-2013 (judgment was authored by one us) wherein exhaustive deliberation has been made on section 177 and sub- section (6) of section 177, thus, we do not deem it appropriate to reiterate the same and suffice to reproduce the relevant excerpts from the judgment supra: 22 "A bare reading of the above sub-section (6) quoted supra, clearly lays down firstly, that it is obligatory upon the CIR/DCIR/OIR that after formulation of the audit report audit observation/objections/charge sheet he ought to first confront the same to the taxpayers the contents of the Report on all the issues. Secondly, after considering the explanation of the taxpayer, if he considers that the same is required to be amended on the basis of definite information then he may invoke sub-section (1) of Section 122 for acquiring jurisdiction to amend the order under sub-section(4) read with sub-section (5) as ,the case maybe. However, the DCIR has not followed the requirement of law in letter and spirit and passed the order u/s. 122(1) of the Income Tax Ordinance, 2001 without confronting the Taxpayer the contents of the audit report/charge sheet before invoking the amending assessment order u/s. 122(1) read with sub- section (4),(5) and clause (I), (ii) & (iii) of Section 122(5) of Income Tax Ordinance, 2001 or before issuance of notice u/s. 122(9) of the Income Tax Ordinance, 2001. Therefore, assessment in this case has been framed in total ignorance of the law and in violation of the mandatory legal requirement. The assessing officer in total oblivion of the procedure has made the assessment under the provisions of section 122(5A) in continuation to the proceedings of audit without acquiring proper jurisdiction as prescribed in section 122(5). In our opinion the fact that the order has been amended under section 122 should be the point of favour of selecting a case for audit instead of being treated as an obstacle in the path of selection of case for audit because on the basis of amendment of an order it can be safely assumed that the return which has been converted into assessment order cannot be relied upon.
23.The audit proceeding under section 177 is only procedure to find out some defects in the accounts/tax affairs and to obtain, information to further enter into the jurisdiction of making an assessment after acquiring authority under section 122(5) on the basis of "definite information", We may further observe that lb,- all practical purposes S.177 of the income Tax Ordinance. 2001 was a just process to reach to conclusion as to from where the CIRDIR/assessing officer could further modify anan already assessed income for which law had very clearly provided the provision in terms of Section 122(5) of the Income Tax Ordinance, 2001."
24.We are of the considered opinion that Section 177 does not in itself provide any power to modify assessm ent one-determine the income of taxpayer. In this regard the key point which is to be kept in mind is that it is not a return of income which is being processed by the officer doing audit. He is dealing with a 'deemed assessment' which by process of law has acquired a sanctity.
The finalized assessm ent, therefore, cannot just be modified or disturbed in continuation of the proceedings of audit under section 177.
As already mentioned supra for all practical purposes section 177 is just a process to reach to a conclusion from where the assessing officer can further modify an already assessed income_for which law has very clearly provided the provision in terms of section 122(5) which may be summarized as under:- If "deemed assessment" selected for and conducted audit u/s. 177. It can be amended by invoking jurisdiction u/s. 122(1) and fulfillment of conditions as envisaged and pre-requisite under sub-section 5 of Section 122.
25.The selection of audit or even conducting of audit does not mean or include an assessment or amended assessm ent/alteration or modification of assessment. The selection of audit and thereafter conducting of audit proceeding is just process and audit authority before invoking provision of section 122 for amendment have to frame charge sheet/ audit observation/audit qualification/audit report and the same ought to be communicated to the taxpayer for rebuttal and the explanation /reply /assertion/contention/objections of taxpayer Must be considered before proceeding for invoking Section 122. Then after acquiring jurisdiction, and fulfilling all the requirements of sub-section (5A) of Section 122. Only thereafter assessment may be amended u/s.
122. I he mere issuance of notice u/s.122(9) read with u/s.122(1) after selection and conducting audit of the taxpayer is not complete requirement of law. Department first has to reject the objection/rebuttal of taxpayer on audit report then require to acquire jurisdiction u/s. 122(5).
26. Here, it would not be out of place to mention that where a law requires a thing should be done in a particular manner unless the same is done in the prescribed manner the same shall be illegal.
In case of Khalid Saeed vs ShaminRizvi reported as 2003 SCMR 1505 the lion Supreme Court of Pakistan while considering the impact of violation or non-observance of method prescribed by law for doing any act in particular manner or mode observed that if the law had prescribed method of doing a thing in a particular manner, such provision of law is to be followed in letter and spirit and achieving or attaining the objective of performing or doing of a thing in a manner other than provided by law would not permitted and would be illegal. In addition thereof the amended assessm ent is not in strict compliance of the provision and the procedure provided in statute and lacks jurisdiction.
26.It is noted that the department has not followed the binding judgment of the Tribunal in taxpayer's own case. The orders / judgments passed by the higher appellate fora are binding on subordinate appellate fora. The provisions of the Government of India Act, 1935, section 212, which then contained the doctrine of precedent. What remains to be noticed is that there is no more striking an example of the doctrine of precedent in operation than the famous case of Moulvi Tamizuddin Khan. The only law in question there, and the only law which was declared void and invalid on the ground that it had not received the assent of the Governor-General, was section 223A of the Government of India Act, 1935. The people of Pakistan well cognizant with the magnitude of the constitutional crisis that it created. For the present purpose, it is sufficient to say that its enunciatory part, or ratio decidendi, had the effect of rendering all such laws, which had till then been treated and acted upon as valid laws, invalid and ineffective. The crisis as we know culminated in the birth of the doctrine of state necessity, enunciated in the Reference case.
Now, we would quote the following Articles: - ARTICLE 189 "Any decision of the Supreme Court shall, to the extent that it decides a question of law or is based upon or enunciates a principle of law, be binding on all other courts in Pakistan."
ARTICLE 201 "Subject to Article 189, any decision of a High Court shall, to the extent that it decides a question of law or is based upon or enunciates a principle of law, be binding on all courts subordinate to it.
ARTICLE 203 "Each High Court shall supervise and control courts subordinate to it."
27.The effect of Articles 189 and 201 is to accord constitutional recognition to the doctrine of precedent; by them, the decisions of the Supreme Court and the High Courts to the extent that they decide a question of law or are based upon or enunciate a principle of law are also laws; the courts' interpretation of the Constitution or a law becomes integral part of the Constitution, or as the case may be, of the law so interpreted; similarly, a principle of law enunciated by the courts becomes, under Articles 189 and 203, the law of the land. Per Article 203 The Hon'ble Jurisdictional High Court in exercise of supervisory jurisdiction is competent to take all measures for preventing flagrant mal-administration of justice in sub-ordinate court/tribunal.
28.It appears that in considering the ambit of the expression `law' as used in Article 199 of the Constitution, it is necessary to keep in mind the provisions of Articles 189, 190 and 201 of the Constitution. Article 189 of the Constitution provides: "Any decision of the Supreme Court shall to the extent that it decides a question of law or is based upon or enunciates a principle of law, be binding on all other courts in Pakistan". Article 199 directs all executive and judicial authorities throughout Pakistan to act in aid of the Supreme Court. Article 201 reads: "Subject to Article 189, any decision of a High Court shall to the extent that it decides a question of law or is based upon or enunciates a principle of law, be binding on all courts subordinate to it". Articles 189 and 201 appear to recognize the doctrine of precedent; the application of that doctrine has the consequence of enabling the benefit of a decision to accrue to all persons, other than parties, who are similarly affected.
29.It is well settled that when the Constitution speaks of law, it is speaking of the law as interpreted or declared by the Judges in the exercise of the judicial power of the State. In the words of the Supreme Court of America the interpretation of a constitutional provision "enunciated by the Courtis the supreme law of the land" like the Constitution itself. Or, as was put in Al-Jehad Trust v.
Federation of Pakistan, [PLD 1997 SC 84, 193] the interpretation of a provision of the Constitution by the Supreme Court "becomes part of the Constitution". The same is true of the interpretation of a statute. When the question before the court is as to the interpretation of a provision of the Constitution or any enactment or statutory instrument and the court decides that question, it decides a question of law within the meaning of Articles 189 and 201 of the Constitution. As was held in Al-Jehad Trust case (supra) since the interpretation of the Constitution or any enactment becomes law, it is incumbent on all executive and judicial authorities to act in aid of the Supreme Court as they are required to do by Article 190 by treating that interpretation as law. Thus, though the advice of the Prime Minister is under the Constitution binding upon the President, yet the Supreme Court held in Al-Jehad Trust Case that the advice would be binding only if it is in accordance with the law as declared by the Supreme Court. There can therefore, be no doubt that where the Supreme Court or a High Court has interpreted a provision of the Constitution or any enactment or statutory instrument, the interpretation is as much binding upon the judicial and executive authorities as the Constitution, the enactment or the statutory instrument, as the case may be. This was brought into sharp focus in Duport Steels Limited v. Sirs [(1980) All ER 5291. The provisions of the Trade Union and Labour Relations Act 1974 had been interpreted by the House of Lords in Express Newspapers Limited v. MacShane [(1980) 1 All ER 65] but that interpretation was not followed by the Court of Appeal. This evoked strong observations from the House of Lords. Lord Edmund Davies referred to Viscount Simonds LC's observations in Scruttons v. Midland Silicones Limited [(1962) 1 All ER 1, 7] namely.
"For to me heterodoxy or as some might say, heresy, is not the more attractive because it is dignified by the name of reforms. Nor will I easily be led by an undiscerning zeal for some abstract kind of justice to ignore our first duty which is to administer justice according to law, the law which is established for us by Act of Parliament or the binding authority of precedent".
Lord Scarman observed that the case raised "some profound questions as to the proper relationship in our society between the courts, the government and Parliament". His basic criticism of the judgments in the Court of Appeal was that "in their desire to do justice the court failed to do justice according law. When one is considering law in the hands of the Judges the law means the body of rules and guidelines within which society requires its administer justice".
30. Under Articles 189 and 201, apart from decision on a question of law, a decision that is based upon or enunciates a principle of law is also binding upon the subordinate courts and on the principle laid down in Al-Jehad Trust case (supra) also on the executive authorities. For example, if the question is as to the share of a person in a property and the Supreme Court, in the absence of an express provision in the relevant statute, decide it on the maxim "equality is equity", that enunciation will be binding upon the subordinate courts. Now suppose that a subordinate judicial, quasi-judicial or executive authority, in deciding a case, acts contrary to the principle so enunciated. The decision will have to be treated against 'law', within the meaning of Article 189.
31. It is already discussed that by Article 189 "any decision of the Supreme Court shall, to the extent that it decides a question of law or is based upon or enunciates a principle of law, be binding on all other courts in Pakistan;: and by Article 201, "Subject to Article 189, any decision of a High Court shall, to the extent that it decides a question of law or is based upon or enunciates a principle of law, be binding on all courts subordinate to it." As has been seen, a High Court's decision is binding upon courts subordinate to it; its decisions are not, under Article 201, binding upon itself. It seems however that in over-ruling a decision, it will be guided by the same principles as have been evolved by the Supreme Court. These view of the Court of Appeal as to its jurisdiction to follow its previous decisions were approved by the House of Lords in the same case reported as Young v.
Bristol Aeroplane Company [(1946) 1 All ER 98] said Lord Simon L.C: "One of the conclusions reached in the judgment of the Master of the Rolls, with which I agree, is that if the Court of Appeal, when sitting in one of its Divisions, has in a previous case pronounced on a point of law which necessarily covers a later case coming before the court, the previous decision must be followed (unless, of course, it was given per incuriam or unless the House of Lords has in the meantime decided that the law is otherwise), and that this application of the rules governing the use of precedents binds the full Court of Appeal no less than a Division of the court as usually constituted."
32. In the view of Cornelius CJ, it would be conducive very greatly towards the same result as was reached in Young v. Bristol Aeroplane Company viz. to secure-
(1) that the High Court functioned as one Court,
(2) that no appearance was given of an appeal being always available within the High Court, by constitution of a larger Bench to re-consider the law laid down by an earlier Full Bench,
(3) that due respect was paid to a decision by a full Bench of three Judges, and (4)that being charged with the high function of interpreting and pronouncing upon the validity of laws, and being thus itself a source of law, the High Court should avoid giving a decision directly inconsistent with that given by itself earlier, and thus speaking with two voices on a point of law, where no question arose of resolving inconsistency between two or more earlier decisions.
33. As regards Articles 189 and 201 only that decision is binding which (a) decides a question of law or (b) is based upon a principle of law, or (c) enunciates a principle of law. In other words, what in legal jargon is the ratio decidendi of a decision is when the decision --
(a) decides a question of law;
(b) is based upon a principle of law, or
(c) enunciates a principle of law.
When a court interprets the Constitution or an enactment, it decides a question of law. For example, in Brutus v. Cozens [(1972) 2 All ER 1297] Lord Reid said that the meaning to be attributed to enacted words is a question of law, being a matter of statutory interpretation; and under Article 185, clause (2)(f), an appeal lies to the Supreme Court if, "the High Court certifies that the case involves a substantial question of law as to the interpretation of the Constitution." Where the court has construed a statute, so said Lord Greene speaking for the full court in Young v. Bristol Aeroplane Co. [(1944) 2 All ER 293, 298J, "or a rule having the force of a statute, its decision stands on the same footing as any other decision on a question of law."
In Al-Jehad Trust v. Federation of Pakistan (supra), it was held that the interpretation of a provision of the Constitution by the Supreme Court "becomes part of the Constitution." Interpretation may also amount to enunciation. In Cooper v. Aaron [358 US 1; 3 L Ed 2d 5J it was held that "interpretation of the 14th Amendment enunciated by this Court in the Brown case is the supreme law of the land When a decision is based upon a principle of law already settled, then it falls under (b) and will also acquire the binding force, and to be within (c) above, it is necessary not only that the decision enunciates a principle, but it must also relate to law. Enunciation can only be when a point is finally adjudicated upon by the Supreme Court.
For example, the maxim audi alteram partem contains a well known principle of natural justice and as the decisions of the Supreme Court e.g. Chief Commissioner v. Mrs. Dina Sohrab [PLD 1959 SC 45], Mls. Faridsons Ltd. Government of Pakistan [PLD 1961 Sc .5371 and Province of East Pakistan v.
Noor Ahmed [PLD 1964 SC 451/are based upon this principle of natural justice. the principle has become the law of Pakistan and is binding within the meaning of Articles 189 and 201.
But, generalizations made by judges which are based on their worldly experience or understanding of human nature are neither law nor enunciation of a principle of law however, we may observe, with profound respect, there could be possible grounds under specific law/facts and circumstances for over-ruling precedents. However, these principles were re-iterated in Multiline Associates v. Ardeshir Cowajee [PLD 1995 SC 423], Muhammad Saleem v. Fazal Ahmad [1997 SCMR 314J, Babar Shehzad v. Said Akbar [1999 SCMR 2518] and Ardeshir Cowasjee v. Karachi Building Control Authority [1999 SCMR 2883]. In the last mentioned case, the position was summed up as follows: "It may be pointed out that a Bench of the same number of Judges of the same High Court, or of the Supreme Court, cannot deviate from the view of an earlier Bench as rightly has been held in the case of Multilane Associates v. Ardeshir Cowasjee and others in relation to the High Court." in the following words: "In such circumstances, legal position which emerges is that the Second Division Bench of the High Court should not have given finding contrary to the findings of the 1" Division Bench of the same court on the same point and should have adopted the correct method by making a request for constitution of a larger Bench, if a contrary view had to be taken. In support reference can be made to the cases of the Province of East Pakistan v. Azizul Islam PLD 1963 SC 296 and Sindheswar Ganguly v. State of West Bengal PLD 1958 SC (Ind.) 337, which is the case of Indian Jurisdiction. We, therefore, hold that the earlier judgment of equal Bench in the High Court on the same point is binding upon the Second Bench and if a contrary view had to be taken, then request for constitution of a larger Bench should have been made."
All these cases were noticed in All Pakistan Newspapers Society v. Federation of Pakistan [PLD 2004 SC 600, 617] and the above-noticed view was re-affirmed.
34.The above judgments of the superior courts are binding on this Tribunal being sub-ordinate to the High Court. The recent judgment of the Hon'ble High Court cited supra, is squarely applicable in the case of the Respondent and in favour of the Respondent and binding on this Tribunal. The said Article 201 read with Article 189 of the Constitution of Pakistan quoted supra.
35.The above Articles make it abundantly clear that subject to the decision of Supreme Court of Pakistan, the decision of High Court of a province is binding on its own sub-ordinate Courts.
However, only that decision is binding which involves a question of Law, or is based upon, or enunciates a principle of Law. Principles of law laid down superior Courts provide guidelines for decisions by sub-ordinate Courts in cases , where those principles are attracted. These principles are in nature of dicta to be rigidly followed by sub-ordinate Courts. The reliance may also be placed in the case reported as PLD 1982 Lah. 214 Re: Noor Ahmed v. State, wherein it was held that principles of Law laid down by superior Courts were not only guidelines for decisions by subordinate Courts but also in nature of dicta to be rigidly followed by said Courts. In the case reported as 1983 CLC 2382 Ghulam Nabi v. Addl. District Judge, it was held that where there is contrary view of two High Courts on one point the High Court's decision is binding on its sub- ordinate Courts, which should give preference to same on the decision of other High Court.
However such decision can only yield to decision of Supreme Court. In Rehmat Ali v. Jan Muhammad, reported as 1983 SCMR 1109 it was held that judgment of High Court in constitutional jurisdiction is a decision of High Court on point of law and is binding on sub-ordinate Courts. Civil Court cannot hold same order to be illegal and ultra vires which the High Court has already found.
In the case reported as Province of East Pakistan v. DR. Azizul Islam PLD 1963 SC 296 it was held that "If there is decision which constitutes direct authority on a question by High Court another Bench of same strength of the High Court if inclined to take to a different view they should have referred the matter to a larger Bench. Alternatively, they could have expressed their doubts regarding the view taken in the precedent case in a court of equal strength, while following the view and left the matter to be raised in appeal before Supreme Court." In the case. Murad Ali v. Collector of Central Excise & Land Custom reported as PLD 1963 W.P Karachi 280 it was held "The decorum and dignity requires that a Division bench should have respect for the decision given by the other Division Benches and in case it intends to take a different view it should made a reference to a Full Bench."In the case Nishat Talkies vs. CIT reported as [(1989) 60 Tax 45 (H.C.Kar) = PTCL 1989 CL. 660] it was held that "We disapprove the practice of not considering and relying upon the judgments of our Superior Courts. It is the duty of every court and Tribunal in Pakistan to follow the judgments of Supreme Court. Under Article 189 of the Constitution any judgment of the Supreme Court which decides a question of law or enunciates a principle of law is binding on all Courts Pakistan. Likewise and in the same terms, Article 201 provides that subject to Article 189, 201 and 203 all judgments of the High Court are binding on all the Courts subordinate to it. We hope in future learned Tribunal will be careful in this regard."In the case Abdul Razzak v. The Collector of Customs in the case reported as j1995 CLC 1453 (Karachi High Court)tit was held "A per incuriam decision, even of the highest court, does not bind any other court and it matters little that such court itself be at the lowest rung of the hierarchy of courts." In the case reported as [(1999) 79 Tax 1 (Trib.)] wherein it was held "....Therefore, its conclusion which was otherwise based upon the alleged commercial expediency, a term borrowed from the aforesaid judgment from Indian jurisdiction, resulted in a decision which can only be described as per incuriam...........We accordingly, overrule the decision on this issue, of the Division Bench...." In the case reported as (1999) 79 Tax 153 (Trib.)1 it was held "We are, therefore, not persuaded to agree with the contentions of the learned representatives for the Department that the issue already stands decided by the judgments of earlier Division Benches and Full Bench of this Tribunal, which is binding on us. It has been held by the erstwhile West Pakistan High Court, Karachi Bench in the judgment reported as PLD 1963 (W.P) Karachi, 280 that the law of precedent is not applicable to per incuriam judgments, which carry no binding force."
In the case [(1996) 73 Tax (132)1......it was held" a judgment of the Income Tax Appellate Tribunal has the force of precedent which can be inferred from the fact that the judgments of those Courts and Tribunal which are reported in the law journals under the Law Reports Act, 1875 which have the force of precedent. Explanation to Section 5 of the Law Reports, 1875 reads as follows: - "Explanation -- For the purpose of this Act the expression, 'Court or Tribunal' includes the Federal Shariat Court, A service - Tribunal, the Income Tax Appellate Tribunal and the National Industrial Relations Commission."
36.This doctrine means 'to abide by former precedents." Blackstone elucidated the doctrine thus: "For it is an established rule to abide by former precedents, where the same points come again in litigation: as well as to keep the scale of justice even and steady and not liable to waver with every new judge's opinion as also because the law in that case being solemnly declared and determined, what before was uncertain, and perhaps indifferent, is now become a permanent rule, which .is not the breast of any permanent judge to alter or vary from, according to his private sentiment, therefore, the ratio decidendi of a judgment is a binding precedent.
36. The ratio decidendum of a decision is the judicial reason on which that decision is founded. It is what that case decides generally, or rule of law for which it is an authority. It is of universal application. It binds the subject, the executive and the subordinate courts alike. The principle decided will be applied whenever a new case comes up for decision. Where the judgment acts against the whole world, that is, in rem, the findings in that case may be conclusive even against third parties. It is of paramount importance that law declared by courts should be certain, clear and consistent. But like all principles evolved by man for the regulation of the social order, the doctrine of binding precedent is circumscribed in its governance by perceptible limitations, limitations arising by reference to the need for readjustment in a changing society, a readjustment of legal norms demanded by a changed social context.
37. The effect of binding precedents in Pakistan is that the decisions of the Supreme Court are binding on all the courts. Indeed Articles 189 of the Constitution embodies the rule of precedent. All the subordinate courts are bound by the judgments of the High Court. A single judge of a High Courts, is bound by the judgment of another single judge and a fortiori judgments of Benches consisting of more judges than one. So also, a Division Bench of High Court is bound by judgments of another Division Bench and Full Bench. A single judge or Benches of High Courts cannot differ from the earlier judgments of co-ordinate jurisdiction merely because they hold a different view on the question of law for the reason that certainty and uniformity in the administration of justice are of paramount importance. But, if the earlier judgment is erroneous or adherence to the rule of precedents results in manifest injustice, differing from the earlier judgment will be permissible.
When a Division Bench differs from the judgment of another Division Bench, it has to refer the case to a full Bench. A Single judge cannot differ from a division of a Division Bench except when that decision or a judgment relied upon in that decision is overruled by a Full Bench or the Supreme Court, or when the law laid down by a Full Bench or the Supreme Court is inconsistent with the decision.It may be noticed that precedent ceases to be a binding precedent-
(i) if it reversed or over-ruled by a higher;
(ii) when it is armed or reversed on a different ground;
(iii) When it is inconsistent with the earlier decisions of the same rank;
(iv) When it is sub silentio; and
(v) When it is rendered per incuriam
38. The binding nature of a decision is of two types: one is in relation to the facts and the other is in relation to the principles of law. A principle of law declared would be treated as precedent and binding on all. The finding of facts would bind only the parties to the decision itself and it is the ultimate decision that binds. The case in hand the issues of law as well as question of fact have already been stand decided and settled by the earlier division bench of this Tribunal vide judgment bearing STA No, 145 /KB of 2011.
39. From research and survey of long chain judicial rulings the following principles emerge:- o In a country like ours which is governed by rule of law, law has to be certain and uniform which is fundamental-to the rule of law. o Certainty of the law, consistency of rulings and comity of courts. All flowering from the same principle converge to the conclusion that a decision once rendered must later bind like cases. o Uniformity and consistency are the core of judicial discipline. o That is why the doctrine of stare decisis is part of our judicial system. o As per the doctrine of precedents, precedents not only have great authority, but must where applicable be followed. The practice of treating precedents as absolutely binding is necessary to secure the certainty of the law, predictability of decisions being more important than approximation to an ideal. Authoritative decisions must be followed, whether they are approved of or not, they being legal sources of law. o In Income-tax matters, which are governed by Federal Statute, when there is a decision of another High Court on the interpretation of a statutory provision, it would be a wise judicial policy and practice not to take a different view (whatever one's own view may be) barring, of course, certain exceptions, like:- o where the decision is sub silentio, o per incuriam, o Purely, wholly and exclusively obiter dicta or o Based on a concession or takes a view which it is impossible to arrive at or o There is another view in the field or there is a subsequent amendment of the statute or reversal or implied overruling of the decision by a Higher Court or some such or similar infirmity is manifestly perceivable in the decision. o The Income-tax Ordinance is an all Pakistan statute and it is desirable in the interest of uniformity that one bench of Tribunal should follow the decision of another bench of Tribunal of the same strength. o The established practice and policy is that one High Court should ordinarily accept the view taken by another High Court on the interpretation of a provision in an all Pakistan statute. o Decision in an earlier case is binding on a subsequent Bench-Law of precedent. The law of precedent is that a decision of a Division Bench given in an earlier case is binding on a subsequent Bench. o The law declared by the High Court of a state is binding on the authorities or tribunals under its superintendence and they cannot ignore it either in initiating a proceeding or deciding the rights involved in such proceeding. The launching of a proceeding in contravention of the law laid down by the High Court would be invalid and the proceeding themselves would be without jurisdiction. o Law on the binding effect of an order passed by a Court of law is well settled. Nor there can be any conflict of opinion that if an order had been passed by a Court which had jurisdiction to pass it then the error or mistake in the order can be got corrected by a higher Court or by an application for clarification, modification or recall of the order and not by ignoring the order by any authority actively or passively or disobeying it expressly or impliedly. Even if the order has been improperly obtained the authorities cannot assume on themselves the role of substituting it or clarifying or modifying it as they consider proper Any order passed by a Court of law, more so by the high Court and especially the Supreme Court whose decisions are declaration of law are not only entitled to respect but are binding and have to be enforced and obeyed strictly. No Court much less an authority howsoever high can ignore it. Any doubt or ambiguity can be removed by the Court which passed the order and not by an authority according to its own understanding. o High Court decision may be ignored only if the operation of the judgment is suspended by the Supreme Court.--The authorities and the Tribunals functioning within the jurisdiction of a particular High Court in respect of whom the High Court in respect of whom the High Court has the power of superintendence under the constitution are bound to follow the decision of the High Court unless, on an appeal to the Supreme Court, the operation the judgment is suspended. It is not permissible for the authorities and the tribunal to ignore the decisions of the High Court or to refuse to follow the decisions of the High Court on the pretext that an appeal has been filed in the Supreme Court which is pending or that steps are being taken to file an appeal. If any authority or the Tribunal refuses to follow any decision of the High Court on the above grounds, it would be clearly guilty of committing contempt of the High Court and is liable to be proceeded against. o The doctrine of binding precedent has the merit of promoting a certainty and consistency in judicial decisions, and enables an organic development of the law, besides providing assurance to the individual as to the consequence of transactions forming part of his daily affairs. And, therefore, the need for a clear and consistent enunciation of legal principles in the decisions of a court. o Where any High Court renders a decision against the department on a substantial question of law of general importance which is not acceptable to the department, it is highly desirable that the department should take up the matter in appeal before the Supreme Court, at the earliest available opportunity, in order to obtain Supreme Court's decision so that the law is settled by the highest Court of the land and no uncertainty is left in the administration of the tax law. o A judgment delivered by the Tribunal is binding on the on the sub-ordinate court including tax authorities and CIR(A). They are bound to follow the judgment of the Tribunal in its true letter and spirit. The Assessing Officer/OIR being an inferior officer vis--vis the Tribunal, was bound by the judgment of the Tribunal and therefore, They should not have tried to distinguish the same on untenable grounds. It is well established tents of precedents that Tribunal decision to be followed by lower authorities. o Principles of consistency and certainty occupy a very prominent position in the law of precedent which as to be adhered to in order to maintain discipline in the administration of justice. Conflict of view by different Benches of the same forum is bound to create confusion and ultimately chaos o Tribunals and Courts must give consistent judgments qua similarly placed persons. 2006 SCMR 496 =2006 PLC (C.S) 355 o Division Bench differing from earlier Division Bench, should refer case to Larger Bench or while following earlier cases express their doubt and leave matter to be raised by appeal before Supreme Court. PLD 1963 SC 296 o Earlier judgment of equal bench in the High Court on the same point is binding upon Second Bench. If however, a contrary view has to be taken then request for constitution of a Larger Bench should be made. PLD 1995 SC 423 o Decision of a Division bench binding on Division Bench with same or lesser number of Judges.
178 ITR 548 o Difference of opinion between two Division Benches Bench disagreeing with the earlier view has to make reference to a Larger bench for resolution of such difference -- If the Income Tax Appellate Tribunal while passing its order was in disagreement with the earlier view of another Bench of the Tribunal, the proper course available to it was to refer the matter to its Chairman for constitution of a Larger Bench to resolve such difference of opinion between the two Benches.
2007 PTD 1533 o Orders of the Tribunal deviating from the earlier decision given by a Division Bench of same strength set aside and remanded back to the Tribunal with the directions to place the file before the learned Chairman to form a Larger Bench and direct it to hear and dispose of the appeals within a period of 90 days from the receipt of order by the Registrar of the Tribunal. 176 ITR 2007 o When a Bench adopts a view different or contrary to the view earlier expressed by a Bench of equal jurisdiction, then legal propriety demands reference of case for constitution of a larger Bench or leave it to be settled in appeal by higher Court. 2004 PTD 62 o Whether Second Bench of Tribunal in judicial courtesy should not have proceeded to decide matter in presence and availability of judgment of Bench of equal strength in favour of assessee on same legal and factual issues -- Held yes. Whether, such matter ought to have been referred to Chairman for constitution of larger Bench-Held, yes- High Court set aside both impugned orders and remanded case to Chairman for constitution of Full Bench or Larger Bench not comprising any member of two Division Benches which had earlier decided appeals. 93 Tax 72 o Division bench differing from earlier Division Bench. Should refer case to Larger Bench or while following earlier case express their doubt and leave matter to be raised by appeal before Supreme Court. The object of this principle is to maintain uniformity and consistency of views/decisions in difference Benches of the same Court and is aimed at two foster, develop and channelize the system of justice to an extent sufficient enough for the general public to repose its firm confidence in the same. PLD 2004 Pesh. 47 o Decision of a Division Bench is binding on other Division Benches of the same judicial institution and it is absolutely necessary to observe the principle in order to avoid conflicting decisions by the Benches of equal strength which is bound to create complication, confusion and chaos which will result in uncertainty and would be ultimately disastrous to the administration of justice. 1997 PTD 879 o Ratio settled by the Appellate Tribunal is binding upon a Bench of equal strength. 1998 PTD 3319 o Principles of consistency and certainty occupy a very prominent position in the law of precedent which has to be adhered to in order to maintain discipline in the administration of justice. 2003 PTD 2321 o Principal object behind all legal formalities is to safeguard the paramount interest of justice-- Legal precepts were devised in order to view to import certainty, consistency and uniformity to the administration of justice and to secure same against arbitrariness, errors of individual judgment and mala fides. PLD 2008 Lah.685 o The settled law that a decision of a Division Bench is binding on another Division Bench and that a Single Bench has no authority not to follow a decision of a Division Bench. In this connection, I would like to refer to the decision reported as 1997 PTD 879 wherein Mr. Mujibullah Siddiqui who was Chairman of this Tribunal at that time and had been retired as a Judge of the Sindh High Court recorded the following findings.-- "We have been observing during the last few years with anxiety that due to lack of assistance and several other reasons the law of precedent has not been followed strictly in the administration of Justice. In addition to various other principles, the principles of consistency and certainty occupied from prominent position and these principles should always be adhered to in order to maintain discipline in the administration of justice and maintain discipline in this behalf. Thus, we proposed to consider the principles in this behalf as enunciated and affirmed by the Superior Courts, in the interest of better administration of Justice and to bring certainty in this behalf. It needs no emphasis that the conflict of view by different benches of the same forum is bound to create confusion and ultimately chaos which is not desirable on the fact of it." o In this regard another case has been referred reported as 2003 PTD (Trib.) 835 wherein in a difference of opinion has arisen between the learned members and the matter was referred to third referee member who while placing reliance on the above decision of the Tribunal has recorded the following findings: -- "The above discussion leaves no scintilla of doubt that in view of the law as laid down by the superior Courts the decision of a Division Bench is binding on the other Division Benches of the same judicial institution. As already held by the Honourable high Court and honourable Supreme Court it is absolutely necessary to observe this principle in order to avoid the conflicting decisions by the Benches of equal strength which is bound to create complications, confusion and chaos which will result in uncertainty and would be ultimately disastrous to the administration of justice. o If there is difference of opinion between the High Courts, all the subordinate Courts including Benches of the Income Tax Appellate Tribunal are required to follow the view taken by the High Court within whose jurisdiction they are working. 2005 PTD 2586 [Karachi High Court] Before Muhammad Mujeebullah Siddiqui and Khilji Arif Hussain, JJ Messrs ATLAS INVESTMENT BANK LTD. V. COMMISSIONER OF INCOME TAX
41. In view of the above discussions we vacate the orders of the officers below and taxpayer's appeal is hereby allowed.
42. Before parting with this appeal, we may observe cardinal principle of interpretation of taxing statutes that if there are two consistent rational/interpretation, the court should not adopt such construction which would lead to an absurdity. The fiscal provision of a statute is to be construed liberally in favour of taxpayer and in case of any substantial doubt the same is to be resolved in favour of the taxpayer. If the language used in a statute is capable of two constructions, one which is consistent with good sense and fairness and the other which would make its operation unduly oppressive, unjust or unreasonable, or which would lead or strange, inconsistent results or otherwise introduce and element of bewildering, uncertainty and practical inconvenience in the working of the statute, the court is to choose the former. When the state is inclined to give some benefit to a taxpayer the terms of provisions of the policy should be interpreted in a liberal manner and with an intention to see that the purpose for which the policy is framed is fulfilled and the beneficiary is helped. The interpretation must not be such which would frustrate the object of the policy.
41. Consequently, both the orders passed by the authorities below are not maintainable both on legal as well as factual planes and are hereby vacated and the appeal of the tax payer stands allowed.
42. As we have knocked down invocation of section 122 (5A) and annulled / cancelled the orders, therefore, there is no need to discuss the departmental appeal which has become misconceived and meaningless which is hereby dismissed.
43. Appeals are disposed of as indicated above.