MIAN ABDUL BASIT , JUDICIAL MEMBER .---The instant appeal has been filed by the taxpayer against the Order No.42/2013 dated 18.08.2014 passed under sections 221/129 of the Income Tax Ordinance, 2001 by learned Commissioner IR (Appeals-I), Peshawar . The grounds of appeal for deliberation of this tribunal are set forth in the appeal memo. which are as follow:- a) That the order passed by the Commissioner (Appeals) under sections 221/129 is illegal arbitrary and against the facts of the case. b) That there was no mistake apparent from the record which can be rectified unde r section 221 of the Income Tax Ordinance, 2001. c) That the original order of the L/CIR (A) had not been contested by the departme nt meaning thereby they accept the finding narrated on page 3 of the appellate order . d) That the mistake pointed out by the Commissioner is a difference of opinion which can't be rectified under section 221 of the Income T ax Ordinance, 2001. e) That the finding of L/CIR (A) on page 2 of the order passed under section 221 of the Income Tax Ordinance, 2001 regarding section 37(c) that immovable properly not included in the definition of Capital assets is correct, but at the time of amended assessment order dated 29.04.2013 immovable property was included in the definition of capital assets. f) That in similar situation this Hon'ble Court in the case of Messrs Deans Trade Centre has hold that the amendment brought in clause (6F) of the 2nd Schedule can be given retrospective. g) That the provision of amended 37 of the Income Tax Ordinance, 2001 should also be extended retrospective in appellant case. h) That it been held by the apex court that beneficial provision if any can be applied retrospectively .
2. Briefly stated 'facts leading to the insta nt case are that appellant / taxpayer is an individual, derives income from sale of cloth and business of property dealing. Taxation officer passed amended assessment order under section 122(1) of the Income Tax Ordinance, 2001 for the tax year 2007 whereby income of taxpayer has been determined by making additions in the following manner:- Share purchase on 02.12.2012 Covered area 5802x 500 (rate)Rs.320,000/- Share in house situated at Chowk Nasir Khan (Inherited)NVD 1/2 share in shop at Meena Bazar Peshawar NVD 1/2 share in shop' at Jahangir Pura Peshawar NVD 4 Marla Share Purchase situated at Old Kakshal dated 21.04.2004Rs.310,000/- Open plot No 184/E-6, 14 Marla purchased on 21.05.2007Rs.4,000,000/- Open plot No.189/E-5, 10 Marla purchas ed on 15.01.2007Rs.2,000,000/- Open plot No. 215/E-6, 20 Marla purchased on 02.10.2004 at Hayatabad.
Open plot No.884/E-6, 14 Marla purchas ed on 21.05.2007Rs.1,500,000/- Rs,2,000,000/- Total Assets Rs.10,130,000/- MOVEABLE ASSETS Gold belongs to wife (Dowry) Rs.NVD Furniture and Fixture Rs. 200,000/- Cash in hands / Prize bonds Rs.11,724,000/- Grand T otal Rs.22,054,000/- Reconciliation Statement Assets as on 30.06.2007 Rs.22,054,000/- Assets as on 30.06.2006 Accretion Rs.17626,000/- 4,428 000/- Add. HHE for tax year 2007 Rs. 72,000/- Total Rs.4,500,000/- EXPLANA TION Sold plot No.486/E-6 Pesh Rs.4,500,000/- Being dissatisfied from the order passed by the taxation officer, taxpayer referred appeal before the learned Commissioner Inland Revenue (A), CIR(A)] Peshawar who vide Order-in-Appeal No.413 dated 27.08.2013 decided appeal by holding the gain on sale at Rs.30,00,000/- of the said plot taxable under section 37(3) of the Income Tax Ordinance, 2001 treating the same as 'Capital Gains' on disposal of immovable assets. Subsequently , the Commissioner Inland Revenue Zone-1, Peshawar filed Misc. application dated 11.04.2014 under section 221 of the Ordinance, 2001 for rectification of the said appellate order contesting that the profit accrued to the taxpayer on account of sale of plots during the tax year, 2007 were taxed by the taxation officer as income from business under section 18 of the Ordinance, 2001 which incorrectly treated by the learned CIR(A) as 'Capital Gains' against the disposal of immovable assets and taxed the same under section 37 of the Ordinance ibid. Whereas in fact the appellant was dealing in property i.e. purchase and sale of plots which constitute stock in trade and are not included in 'Capital Assets' as per section 37(5)(c) of the Ordinance, 2001. The CIR has referred to the order of the ATIR on the same issue for tax year 2008 in ITAs Nos.256 and 257 (PB) of 2013 [under sections 182/122(1)] dated 18.04.2014 wherein it is held that: "from the above it is very much clear that under section 37(c) immovable property has not been included in the definition of capital assets, hence its disposal / sale may not be taxed under section 37 of the Ordinance, rather it is taxable under section 18 of the Ordinance."
The learned Commissioner 'IR (A) on the said application issued a- notice to the taxpayer (present appellant) as per the provision of section 221(2) of the Ordinance, 2001 for inviting the reply / defense on the application of department. The taxpayer / appellant joined the proceedings and submitted the reply to the application of the department. The learned CIR(A) after having defense plea of the appellant / taxpayer decided the application filed under section 221 in the following manner: "Through this office letter No.20 dated 08.08.2014 the appellant was confronted on the miscellaneous application under section 221 of the ITO, 2001 of the learned CIR, who in response filed written arguments along with copies of case laws referred to therein, In these arguments the appellant has raised objection to the proposed rectification contendi -- that the CIR(A) order was not suffering from any mistake apparent and floating on the surface of the record. The appellant has relied on findings of the case laws reported as 65 Tax 257; 1992 PTD 570; 95 Tax 353 and 2007 PTD 967. In the first cited judgment the Hon'ble Supreme Court of Pakistan has held that "Essential conditions-7 When an Officer exercising power under section 35 enters into controversy , investigates, into the matter , reassess the evidence or takes into consideration additional evidence 'and on that basis interprets the provisions of law and forms an opinion different, from the order , then it will not amount to "rectification" of the order .
Any mistake which was not patent and obvious on the rec could not be termed to be an order which could be corrected by exercising powers under section 35 ---". On the basis of these findings the appellant claims that no rectification under section 221 of the Ordinance ibid of his case was warranted under the law .
The arguments of the learned AR were considered and the case laws referred to perused and it has been observed that the mistake of law made by this office is apparent as the clauses (a) and (c) of subsection (5) of Section 37 of the Ordinance ibid has been escaped the attention of this office while passing the said appellate order and the learned Commissioner Inland Revenue Zone-1 has rightly brought the said mistake to this office notice and the case warrants rectification and is accordingly rectified under section 221 of the Ordinance ibid by holding the gain on sale of plots as 'business income' and assessable to tax under section 18 of the Ordinance ibid."
The taxpayer has challenged the said decision/rectification order passed under section 221 of CIR (A) before this tribunal in terms of section 131 of the Ordinance, 2001, hence this appeal.
3. In response to the notice and on the due date of hearing of appeal i.e. 18.06.2020 Mr. Rahim Khan, Advocate/AR has attended the court proceedings on behalf of the appellant taxpayer . On the other hand Ms. Fouzia Iqbal, DR represented the department.
4. The learned counsel appearing on behalf of the appellant submits that the Order passed under section 221 of the Ordinance, 2001 by the learned CIR (A) is out of the domain of section 221 of the Ordinance, 2001 hence illegal. It is also contended that the questi on involved in the present case is about difference of opinion between the parties which is absolutely outside the scope of rectification under section 221 of the Ordinance, 2001. It is also maintained that the learned Commissioner Inland Revenue (Appeals) while passing the order under section 129 has given retrospectively affect to the amended provisions of section 37 of the Ordinance, 2001 which is a debatable issue hence rectification is not called for in such like circumstances. The amendment brought about in section 37 of the Finance Act, 2012 is beneficial and remedial in nature so, the same may be applied respectively as is held by the Hon'ble higher judicial forum of the country , he argues. on the other hand the learned departmental reprehensive (DR) appearing on behalf of the respondent department submits that it is a clear and obvious mistake on the surface of record because while framing the order under section 129 the learned Commissioner Inland Revenue (Appeals) mistakenly considered that the provisions of section 37 was applicable in the case of the appellant/taxpayer for the tax year 2007. He contends that for the tax year in question i.e. 2007 immoveable property was specifically outside the definition of "Capital asset" as per clause (c) of subsection (5) of section 37 and subsection (c) was subsequently omitted through the Finance Act, 2012. She contends, it was, therefore, the learned Commissioner IR, inadvertently considering the immovable property as capital asset in purview of section 37 of the Ordinance, directed vide earlier order dated 27-08-2013; passed under section 129 of the Ordinance, to calculate the tax on disposal of immovable property as per section 37 of the Ordinance, 2001. In view of learned DR this is what that, subsequently , urged the CIR(A) to rectify the mistake by exercising the power conferred upon him as per provisions of section 221 of the Ordinance, 2001. The learned DR closes her argument with the prayer toi dismiss the appeal of the appellant by upholding the impugned order .
5. We have gone through the record available at appeal file and carefully considered the argument made by the learned representatives of both the parties. The key issue involves in the case is that "Whether application of wrong provision of law is a mistake apparent from record and if so such a mistake of law can be rectified by exercising the power of rectificatidn available in section 221 of the Ordinance, 2001." In order to completely and comprehensively address the issue it is appropriate to read through provision of section 221 of the Ordinance, 2001 which says;
221. Rectification of mistakes,--
(1) The Commissioner , the Commissioner (Appeals) or the Appellate Tribunal may, by an order in writing, amend any order passed by him to rectify any mistake apparent from the record on his or its own motion or any mistake brought to his or its notice by a taxpayer or, in the case of the Commissioner (Appeals) or the Appellate Tribunal, the Commissioner .
(1A) The Commissioner may, by an order in writing, amend any order passed under the repealed Ordinance by the Deputy Commissioner , or an Income Tax Panel, as defined in section 2 of the repealed Ordinance to rectify any mistake apparent from the record on his own motion or any mistake brought to his notice by a taxpayer and the provisions of subsection (2), subsection (3) and subsection (4) shall apply in like manner as these apply to an order under subsection (1).
(2) No order under subsection (1) which has the effect of increasing an assessmen t, reducing a refund or otherwise applying adversely to the taxpayer shall be made unless the taxpayer has been given a reasonable opportunity of being heard.
(3) Where a mistake apparent on the record is brought to the notice of the Commissioner 1 [or] Commissioner (Appeals) 2 as the case may be, and no order has been made under subsection (1) before the expiration of the financial year next following the date on which the mistake was brought to their notice, the mistake shall be treated as rectified and all the provisions of this Ordinance shall have effect accordingly .
(4) No order under subsection (1) may be made after five years from the date of the order sought to be rectified.
From the bare reading of the section 221 it is manifestly clear that any mistake which is apparent on the face of record can be rectified. In our view this language of the section does not restri ct in any way to the extent for rectification of factual, arithmetical and clerical error but it also empowers the authority , who passes the order , to rectify the mistake of law, obviously , if it is apparent on the face of record i.e. strikes immediately on reading the order without any inquiry and further investigation / deliberation. There are followi ng four types of mistake, to our mind; crept into the order , which may be corrected under section 221 of the Ordin ance, 2001; (a) Observations of the adjudicating authority based on totally and absolutely wrong fact and record, (b) any arithmetically or clerically error, (c) Misreading of any provision of law and (c) Application of wrong provision of law. It is a settled law evolved through series of judgments that any error in the order for which no argument and further investigation is required to discover the same will Iv treated as mistake apparent on record. If there is no need to debate and no two opinions can be framed in respect of factual controversy or as the case may be legal dispute existed in an order then such type of mistake --ill be termed as mistake apparent from record. We have observed ,hat in the instant case no debate or argument is required to the extent that the learned CIR(A) had applied a wrong provisions of law while passing the order under section 129 of the Ordinance, 2001 because immovable property was not qualified as "Capital asset" under section 37(5) of the Ordinance, 2001 in tax year 2007. The Relevant portion of section 37 of the Ordinance as stood on statute Book in the year 2007 (the tax year subject matter of the instant case) is reproduced hereunder for ease of reference; "37. Capital gains.---(1) Subject to this Ordinance, a gain arising on the disposal of a capital asset by a person in a tax year, other than a gain that is exempt from tax under this Ordinance, shall be chargeable to tax in that year under the head "Capital Gains. "
(2) ----------
(3) ----------
(4) ---------- (4A) ----------
(5) In this section "capital asset" means property of any kind held by a person, whether or not connected with a business, but does not include
(a) any stock-in-trade, consumable stores or raw materials held for the purpose of business;
(b) any property with respect to which the person is entitled to a depreciation deduction under section 22 or amortization deduction under section 24;
(c) any immovable property; or
(d) any movable property excluding capital assets specified in subsection (5) of section 38 held for personal use by the person or any member . of the person's family dependent on the person."
It is clear from section 37 of the Ordinance, 2001 that the gain arising on disposal of capital asset shall be taxed under the head capital gain and the immo vable property was not included in capital asset as per subsection (5) of section 37 the Ordinance, 2001 for period up to tax year 2012 and after tax year 2012 by virtue of Finance Act, 2012 the clause (c) of subsection (5) of section 37 was not remained on the ordinance, 2001 for coming years. The learned CIR(A) while deciding the appea l under section 129 of the Ordinance, 2001 on 27.08.2013 inadvertently and mistakenly took the amended provision of section 37 [after omission of clause (c) of subsection (5) by Finance Act, 2012] and ordered to treat disposal of capital asset of the appellant for the purpose of tax as envisages under section 37(3) of the Ordinance, 2001. This glaring and obvious mistake when brought into the knowledge of learned CIR(A), the same was rectified in terms of section 221 of the Ordinance through order dated 11.04.2014 impugned herein this appeal.
6. We have gone through the order passed under section 129 by the learned Commissioner IR (A) and the order passed under section 221 of the Ordinance and we find that while passing the order under section 129 the learned CIR (A) has observed that the immoveable property was held by the appellant/taxpayer for more than one year and the 75% of the gain to the sale of such plot was to be assessed as per provision of section 37(3) of the Ordinance, 2001. The learned CIR (A) while passing the order under section 129 has obviously missed that the immovable property did not fall within the definition of capital asset as provided in section 37 for tax year 2007. The learned CIR (A) has taken the mistake as applica tion of wrong provision of law and rectified the same vide impugned order dated 18.08.2014 in the words that "it has been observed that the mistake of law made by this office is apparent as the clauses (a) and (c) of subsection (5) of section 37 of the Ordinance ibid has escaped the attention of this office while passing the said appellate order and the learned Commissioner Inland Revenue Zone-I has rightly brought the said mistake to this office notice and the case warrants rectification and accordingly rectified under section 221 of the Ordinance ibid by holding the gain on sale of plots as 'business income ' and assessable to take under section 18 of the Ordinance ibid." This aspect that section 37 was not applicable for tax year 2007 is admitted by the appellant in his ground of appeal hence if there is an admitted position with respect to application of the provision of law and no two opinion can be framed then such like mistake by all means is a mistake apparent from record. We are also of the considered opinion that the mistake which was rectified by the learned CIR (A) is so obvious and patent that to establish the same no long drawn process of reasoning is required and the mistake immediately strike the mind of the reader of the record i.e. the order of CIR (A) hence the CIR (A) is justified in his opinion to treat such mistake as a mistake apparent from record.
7. Now adverting to the argument of the learned counsel, appearing on behalf of the appellant, regarding the retrospective application of omission of clause (c) of subsection (5) of section 37 of the Ordinance, 2001, it is suffice to say that neither any such inten tion of the learned CIR (A) has reflecte d from the order passed under section 129 of the Ordinance, 2001 (order which was rectified) nor such plea was ever taken by the appellant during the appellate proceedings effected under section 129 of the Ordinance, 2001 before the learned CIR (A).
The appellant; in contrary to that, had pleaded his case during appeal proceedings of section 129 of the Ordinance, 2001 that his case was not fallen under the provision of section 37 of the Ordinance, 2001, the corollary of, which establishes the conclusion that there is no dispute between the parties that applicability of section 37 for the purpose of determination of tax liability in respect of disposal of immovable property was not available during the period in question i.e. tax year 2007. Even otherwise this argument has been raised for the first time during the proceedings of rectification and it is an admitted and settled position of law that no new ground or as the case may be new evidence can be discussed in rectification pleadings which is restricted to the error / mistake apparent on the face of record i.e. the order to be rectified.
8. We have also carefully gone through the judgment relied upon by the learned AR reported as Commissioner Income Tax Company Karachi v. National Food Laboratory (1992 PTD 570). In our view, even in the light of the judgment referred above, the mistake corrected by learned CIR (A) is exactly fallen within the ambit of rectification as observed by their lordships in the following words:- "Therefore, essential condition for exercise of such power is that the mistake should be apparent on the face of record; mistake which may be seen floating on the surface and does not require investigation or further evidence.
The mistake should be so obvious that on mere reading the order it may immediately strike on the face of it. Where an officer exercising power under section 35 enters into the controversy , investiga tes into the matter , reassesses the evidence or takes into consideration additional evidence and on that basis interprets the provision of law and forms an opinion different from the order , then it will not amount to 'rectification' of the order . Any mistake which is not patent and obvious on the record, cannot be termed to be an order which can be corrected by exercising power under section 35"
The rectification made through the impugned order by learned CIR(A) is not based on any type of investigation, further inquiry and reassessment or reappraisal of the evidence rather it emerges out on a very simple proposition that a particular provision of the Ordinance, 2001 (section 37) was, admittedly , not applicable in the case of taxpayer for tax year 2007 and the case of the appellant is covered under section 18 of the Ordinance, 2001.
Hence the judgment relied upon is of no help for the appellant / taxpayer .
9. It is also observed that if the mistake of affecting a wrong application of section 37 of the Ordinance, 2001 for the purpose of determination of tax liability on disposal of immovable property for tax year 2007 has not been corrected by the learned CIR(A) and let that remain on record it would have material effect on the case and such like clear , glaring and manifest mistake, in the light of judgments of the honorable courts, can be 'rectified under the provision of section 221 of the Ordinance, 2001. This view is fortified from the judgments reported as Commissioner Inland Revenue v. Rashid and Saqib Trading Company (2020 PTD 782), Commissioner Inland Revenue, Zone-I v.
Messrs Siemens Pakistan Enftg. Company Limited (2017 PTD 903), Commissioner Income Tax / Wealth Tax v. Muhammad Naseem Khan (2013 PTD 2005 ), Commissioner of Income Tax Karac hi v. Messrs Shadman Cotton Mills Limited, Karachi (2008 PTD 204) and Commissioner of Income Tax Company's II, Karachi v.
Messrs National Food Laboratories ( 1992 SCMR 687 ).
10. It is an admitted position of law in the instant matter that disposal of immovable property for the purpose of determination of tax liability did not fall within the scope of section 37 of the Ordinance, 2001 during the year 2007 but order under section 129 was, mistakenly , passed by assessing the tax in terms of section 37 of the Ordinance, 2001. However , later on, on the application of tax department the learned CIR(A) corrected the mistake by exercising the power of rectification conferred upon him under section 221 of the Ordinance, 2001 because neither any controversies and investigation was involved into the matter nor there was made any reassessment of evidence in order to rectify the mistake. The matter before the learned CIR(A) was very simple i.e. whether or not the business of taxpayer i.e. sales and purchase of immovable property could be taxed as per section 37 of the Ordinance, 2001 for tax..year 2007 and this, in our opinion, does not involve any exercise. The august Supreme Court of Pakistan in a case of Commissioner of Income Tax and othe rs v. Messrs Pakistan Petroleum Limited and 2 others ( 2012 SCMR 371 ) has settled a somewhat similar and identical issue in following words; "In our opinion it cannot be said that seeking an exemption for a payment made by mistake is not apparent on the face of the record. In this connection it would be seen that the wording of section 156 of the Ordinance, 1979 contemplates that where such mistakes have the effect of enhancing an assessment or reducing a revision or otherwise increasing the liability of the assessee, notice is to be given under subsection (2) of the said section.
Hence this provision does give the Department the right to correct any mistakes in tax calculation in cases of short levy etc. which is then termed to be apparent on the face of the record. Therefore, where a mistake resulting in a short levy can be termed as one apparent on the face of the record and hence is rectifiable, there is no reason why such a mistake resulting in excess payment on the part of the tax payer cannot be similarly treated."
We have also obtained the light and guidance from a case from Indian Supreme Court reported as M.K.
Venkatachalaivi, I.T.O v. Bombay Dyeing and Mfg. Co. Ltd. (1958 AIR 875(sic)) wherein it has been resolved that the mistake of law apparent on the face of record duly falls within the ambit of rectification of mistake with the following observation; "At the time when the Income-tax Officer applied his mind to the question of rectifying the alleged mistake, there can be no doubt that he had to read the principal Act as containing the inserted proviso as from April 1, 1952. If that be the true position then the order which he made giving credit to the respondent for Rs.50,603-15 is plainly and obviously inconsistent with a specific and clear provision of the statute and that must inevitably be treated as a mistake of law apparent from the record. If a mistake of fact apparent from the record of the assessment order can be rectified under section 35, we see no reason why a mistake of law which is glaring and obvious cannot be similarly rectified. Prima facie it may appear somewhat strange that an order which was good and valid when it was made should be treated as patently invalid and 'wrong by virtue of the retrospective operation of the Amendment Act. But such a result is necessarily involv ed in the legal fiction about the retrospec tive operation of the Amendment Act. If, as a result of the said fiction we must read the subsequently inserted proviso as forming part of S. 18A(5) of the principal Act as from April 1, 1952, the conclusion is inescapable that the order in question is inconsistent with the provisions of the said proviso and must be deemed to suffer from a mistake apparent from the record."
This view is also fortified from the judgments reported as Khalid Adamjee v. Commissioner of Income Tax
(West) Karachi (1983 PTD 246), Vithaldas v. Income Tax Officer District II, Kanpur (1971 PTD 411), 1998 PTD (Trib.) 3866 and 1998 PTD(T rib) 3488.
11. From what has been discussed above, it is candidly concluded that the answer to the framed issue i.e. whether application of wrong provision of law is a mistake apparent from record and if so such a mistake of law can be rectified by exercising the power of rectification available in section 221 of the Ordinance, 2001? is yes. It is therefore, in the light of above made discussion and case laws we have no doubt in our mind that the mistake in the order dated 27.08.2013 passed under section 129 of the Income Tax Ordinance, 2001, due to wrong application of the provision of law, is a mistake apparent from record and was rightly rectified by CIR(A) in terms of section 221 of the Ordinance, 2001. The appeal of the taxpayer / Appellant is hereby dismissed being merit less and devoid of legal force.
12. This order consists of eight (12) pages and each page bears my signature.