SAEEDUZZAMAN SIDDIQUI, J.-1. In all the above 8 References the following common question of law has been referred to this Court by the Income-tax Tribunal under section 66(1) of the Income-tax Act, 1922, at the instance of the assessee:-- "Whether in the facts and circumstances of the case there is any material or evidence on the record to support the finding of the Tribunal that the transfer of the East Pakistan business in favour of Mrs. Captain had not taken place and is not this finding based on mere suspicions, surmises and conjectures?"
2. The admitted position in the case is that Messrs Farrukh Chemical Industries, which had assets both in the erstwhile West and East Pakistan, was the proprietary concern of one Mr. Captain and it was assessed as such by the Income-tax Authorities until year 1957-58. It appears that after imposition of Martial Law in the country in the year 1958, Mr. Captain and his wife Mrs. Captain both declared excess Income under M..L.R. 43 arising from the firm Messrs Farrukh Chemical Industries.
Mr. Captain declared a total excess income of Rs. 7,83,533 whereas Mrs. Captain declared a total excess income of Rs. 2,84,520 for the period 1952-53 to 1957-58. The processing authority which was appointed to scrutinize the declaration made under M.L.R. 43, treated the two declarations of excess income filed by Mr. And Mrs. Captain as one in view of the fact that Messrs Farrukh Chemical Industries was all along treated and assessed as a proprietary concern of Mr. Captain and .Tax was recovered accordingly. It is not disputed before us that against the finding of processing authority' under M.L.R. 43, the assessee had no remedy under the law and in any case the incident of tax would have remained the same even if the declarations of excess income filed by Mr. And Mrs. Captain were treated separately. The processing authority also did not allow benefit of M.L.R. 43 to-the assessee for the year 1958-59 as the return for that year was not filed by the assessee before 3-11-1959. It appears from the simple copy of the order of processing authority under M.L.R, 43 produced before us by the learned counsel for the assessee and which was taken on record by consent that copy thereof was endorsed to the Income-tax Officer and the Inspecting Assistant Commissioner of Income-tax concerned respectively on 16-3-1959, we may mention here that on 2-5-1973 a Bench of this Court has passed the following order when these matters were fixed before it for regular hearing:-- "2-5-1973. Mr. Ali Athar, Advocate.
Mr. S. A. Nusrat, Advocate.
To answer the question referred to this Court by the Income-tax Appellate Tribunal it is necessary to examine the assessm ent orders for 1958-59 and 1959-60. Further the documents mentioned in the application of the assessee for inclusion of all the paper book have not in fact been included in the paper book. It is, therefore, not possible to proceed with the case in the absence of these documents. Let Mr. Nusrat send for the record from the Tribunal, so that the case may be examined in the light of these documents. On the next date the record should be in Court. Adjourned to a date in office."
3. We accordingly while hearing these references on 13-9-1982, asked Mr. Hyder Ali Pirzada, the learned counsel for the Department to produce the documents mentioned in the above order but he expressed his inability to produce the same on the ground that the matter was very old and the Department had not sent him the entire record. We also asked Mr. Pirzada, if he could place before us a copy of the order of processing authority passed under M.L.R. 43 but he expressed his inability to produce the same as well. We accordingly asked Mr. Ali Athar, the learned counsel for the assessee if he could produce these documents, and accordingly adjourned these matters to 15-9- 1982 as part-heard. On 15-9-1982 Mr. Ali Athar, produced before us simple copies of the orders under M.L.R.-43 passed by the processing authority, and the assessment orders for the years 1958- 59 and 1959-60. Mr. Hyder Ali Pirzada, after seeing these copies confirmed them as correct and did not object to their production on record. We accordingly took these documents on record by consent. It appears from the copy of the assessment order for the year 1958-59 that it was represented before the I.T.O, concerned by the assessee, Mr. Captain, in that year that he and his wife Mrs. Captain both were the partners of Messrs Farrukh Chemical Industries. This contention was however not accepted by the Department in the absence of a deed of partnership and the application for registration but in spite of rejection of this contention the firm was assessed as an association of persons. In the following assessment year 1959-60 it was represented before the Department that the firm has been bifurcated and its assets and business in West Pakistan were taken over by Mr. Captain while its assets and business in East Pakistan were transferred to Mrs. Captain in lieu of her investment in the firm. The two separate returns of income filed for the year 1959-60 by Mr. And Mrs. Captain in their individual capacity on the basis of above bifurcation of business was duly accepted by the Department and two separate assessment orders were framed. The business in the then West Pakistan was assessed as the proprietary concern of Mr. Captain while the business in East Pakistan was assessed as belonging to Mrs, Captain only. The relevant portion of the order of I.T.O, dealing with the business in West Pakistan of Mr. Captain is as under:-- "In response to notice under section 23(2) Mr. Qureshi, the assessee's accountant and Mr. Saeed Ahmed, his Advocate attended and produced books of accounts comprising of cash book, ledger and other documents from time to time. Details called for have also been supplied. There is a change in the ownership of the concern in this year. Last year it had been assessed as A.O.P., because Mr. And Mrs. Captain had been and were taken as members or partners thereof, whereas in this year separation in business took place and Mrs. Captain got her share out of her capital in the firm in the shape of 2 branches in East Pakistan (i.e. Chittagong and Dacca). As such both have filed returns separately as individuals, it is reported that previously Mrs. Captain who is a Science Graduate, has been assisting Mr. Captain in the business of Chemical manufacturing actively, apart from her capital investments in the firm as per books of accounts. On 1st January, 1938 two branches in East Pakistan as mentioned above were taken over by Mrs. Captain and the factory at Chittagong was registered in her name with the Chief Inspector of Factories, Director of Industries and Chief Controller of Imports and Exports. She also obtained sales-tax manufacturing licence from the Sales-tax Officer, Survey Circle, Chittagong. The business in West Pakistan which is much more than that in East Pakistan fell to the share of Mr. Captain."
4. Similarly the order of assessm ent for the year 1959-60 passed by the Income-tax Officer in respect of transfer of East Pakistan business of the firm to Mrs. Captain is as under:-- "Mr. And Mrs. Captain were carrying on business jointly and were accordingly assessed as A.O.P. For the last year. On 1-1-1958, separation took place with the result that Mrs. F.K. Captain, in consideration of her share in capital of the joint business, got the branch business in East Pakistan at Chittagong and Dacca, which is comparatively much less than that in West Pakistan which fell to the share of Mr. Captain. At Chittagong Branch the silicate Glass acquired from Karachi is melted into sodium silicate. The latter is not manufactured from Soda Ash, and thus the complete process of manufacture of Sodium Silicate is not carried on there. At Dacca there is a sale depot only which sells the goods supplied mostly from Chittagong. There is no business in Head Office at Karachi where from the proprietress only exercises control and visits East Pakistan off and on.
Separate trading accounts for Chittagong and Dacca have been furnished."
5. It appears that in the assessm ent year 1959-60, the return filed by Mr. Captain as proprietor of West Pakistan business only was not accepted by the Income-tax Officer who took the view that the transfer of East Pakistan business to Mrs. Captain was only for name sake and artificial and in fact Mr. Captain was the proprietor of both the business in East and West Pakistan. He accordingly added the income arising from East Pakistan to the income of West Pakistan. The grounds for treating the two concerns as one were given by the Income-tax Officer concerned as follows:- "(1) There is no document in support of transfer of the entire business and there is no specification of the terms and conditions upon which this transfer has been effected, which thus appears to be a purely family faked up affair.
(2) The names of the co-concerns are almost identical.
(3) To some extent business is controlled by Mr. Captain proprietor of West Pakistan Factory.
(4) Bankers of both the concerns are the same.
(5) Three or four visits of Mrs. Captain to East Pakistan are not sufficient to control the big business of this nature. Obviously Mr. Captain appears to be controlling and managing business on behalf of wife.
(6) Mrs. Captain has employed the same staff which was previously working with Mr. Captain. This clearly suggests that the change of ownership is actually none, as no effect of it, in the shape of necessary re-orientation of staff, is visible.
(7) The source of the capital in the account of Mr. Captain has not been positively proved by evidence.
(8) The Head Office of the firm is at Karachi without any ostensible reason, whatsoever, as neither purchases are made at Karachi nor are sales effected at Karachi nor is there even a single member of the staff at Karachi."
6. The assessee Mr. Captain filed separate appeals against the assessment orders for the years 1959-60 and 1960-61. Both these appeals were heard and decided by the Tribunal together by one order. The appeal of the assessee against the assessment year 1959-60 was accepted by the Tribunal and various add backs made by the Income-tax Officer were allowed to be deleted and the book results shown by the assessee which was not accepted by the I.T.O, was accepted by the Tribunal. We may mention here that the Income-tax return for the year 1959-60 was filed by the assessee Mr. Captain as the proprietor of only West Pakistan business and in the appeal before the Tribunal against the assessm ent order for that year the Department did not agitate the point that the concern in West and East Pakistan were one and the same, owned by Mr. Captain. However, in the appeal against the order for the assessment year 1960-61, the Appellate Tribunal agreed with the Income-tax Officer that the business both in East and West Pakistan belonged to Mr. Captain and that Mrs. Captain's name as the proprietor of East Pakistan business was only a camouflaged arrangement. The reasoning of the Tribunal for arriving at this conclusion was almost the same as was given by the Income-tax Officer. On the same reasoning the assessment orders for subsequent years of 1962-63 to 1966-67 framed by the I.T.O, have been upheld by the Tribunal. In these circumstances the assessee moved the Income-tax Tribunal to refer the above question to this Court under section 66(1) of the Income-tax Act, 1922 for decision.
7. We have heard Mr. Ali Athar, the learned counsel for the assessee and Mr. Hyder Ali Pirzada, the learned counsel for the Department. Mr. Ali Athar, contended before us that the Department having accepted the transfer of business in the then East Pakistan in favour of Mrs. Captain, in the assessm ent order for the year 1959-60 after a conscious application of mind, could not change the basis of assessm ent in the subsequent years on the ground that the transfer of East Pakistan business to Mrs. Captain was fake as there was neither any new material nor any new fact before the I.T.O, to come to this conclusion, it is contended by the learned counsel that all the facts and circumstances referred by the I.T.O, and the Tribunal for taking the view that there was no transfer of business in the then East Pakistan in favour of Mrs. Captain were fully present and considered when the assessm ent orders for the year 1959-60 were framed by the Department treating the business in the then West and East Pakistan as separate entities. Mr. Hyder Ali Pirzada, the learned counsel for the Department, on the other hand contended before us that when the assessment orders for the year 1959-60 were finalized by the I.T.Os. Concerned, the Department was not aware of the order of processing authority under M.L.R. A3 treating the declaration of Mr. And Mrs. Captain in respect of their excess income as one. It is also contended that no document was produced by the assessee evidencing the transfer of East Pakistan business in favour of Mrs. Captain, either before the I.T.O, or before the Appellate Tribunal and in any case the consideration disclosed by the assessee for transfer of East Pakistan business to Mrs. Captain was highly inadequate. The further contention of the learned counsel for the Department is that the principles of res judicata and estoppel are not applicable to proceedings before I.T.O, and on the strength of any new information or material which may be available to the I.T.O, after passing of an order, he could re- open a decided case and change the earlier basis of assessment, if it was so required by the new facts and circumstances.
8. We have given our anxious consideration to the arguments of the learned counsel on either side and after careful examination of the same and the case-law cited at the bar in this behalf, we are of the view that although the principles of res judicata and estoppel may not in strict sense apply to proceedings before the Income-tax Authorities but in order to avoid uncertainty in the mind of an assessee and to give some degree of finality to the decisions of Income-tax Authorities it is necessary that these authorities should not be allowed to change their decision once taken by them after due consideration of all the material before them unless after taking the decision some new facts or information are laid before them which makes it necessary to change their earlier view. Such a view is not only desirable but is necessary for due administration of justice and any contrary course will result in uncertainties and anomalies. The scope of applicability of principle of res judicata in proceedings before the Income-tax Authorities came up for consideration before the Supreme Court of Pakistan in the case -of Commissioner of Income-tax vs. Wahiduzzaman (1965 PTD 283), and we can do no better than to reproduce here with respect the discussion on the point appearing at pages 289 and 290 which is as follows:- "Having examined the decision of the Appellate Assistant Commissioner we proceed to consider the principle applicable for determining the bar which may be created by a previous decision of an Income-tax Authority. Where there is no statutory provision barring re-opening of a matter the applicability of principle of res judicata depends on the necessity of giving finality to litigation and the in justice of vexing a person twice in respect of the same matter and these being only general considerations relating to administration of justice with no technical and defined limits the applicability of res judicata in such cases will be governed by considerations arising with respect to the particular statute under which a matter has been determined the dominant consideration always being that the cause of justice be advanced. The principle of res judicata can be applied with strictness to cases before Courts or before Judicial Tribunals where there are before the Court or Tribunal two contesting parties each trying to substantiate its own case. It cannot however be applied with the same strictness to decisions of Income-tax authorities. The Income-tax Officer is not a Tribunal that decides a question between the Income-tax Commissioner and the assessee.
The Income-tax Commissioner does not lead evidence before the Income-tax Officer and no appeal lies from the order of the Income-tax Officer at the instance of the Income-tax Commissioner, the right of appeal being vested in the assessee only. The position of the Income- tax Officer is that of an agent of the Income-tax Commissioner or an Officer authorised by the Income-tax Commissioner to determine the amount of tax payable. The assessee files a return as to his liability to pay tax and the Income-tax Officer on behalf of the Income-tax Commissioner, either accepts the return or rejects it wholly or partly. The acceptance of an explanation or plea or statement of accounts by the Income-tax Officer though in one sense a decision is more like an acceptance by the Income-tax Officer of the plea taken up by the assessee, or an admission that the plea is correct. It is true that so far as the order of the Appellate Assistant Commissioner is concerned there is a right of appeal in the Income-tax Commissioner but the foundation, of the proceedings is the order of the Income-tax Officer. The provision in section 34 which permits the Income-tax Officer himself to re-open an assessment when some income has escaped assessm ent, etc. Also supports the conclusion that the position of the Income-tax Officer is not that of Judicial Tribunal deciding a matter between two contending parties, but rather that of a person acting on behalf of the Department who is charged with the duty of seeing that persons pay the amount of income-tax to which they are in fact liable. Under the circumstances the ends of justice will be served by confining the bar of res judicata in relation to decision of Income-tax authorities to cases where the decision is not clearly open to some objection. It should be a decision which is reached after proper enquiry, which is sue' as could reasonably have been reached on the material before the authority, and which does not suffer from such a defect as would render it liable to be set aside under section 100, C.P.C, in second appeal if it was a decision of a Civil Court.
Also a matter can always be re-opened on the ground that fresh evidence having a material bearing on the point decided is available."
9. We will, therefore, now examine the present cases before us in the light of the above observations of Supreme Court to find out if the earlier decision of Income-tax authorities accepting the bifurcation of firm and transfer of its assets in West Pakistan to Mr. Captain and those in East Pakistan to Mrs. Captain was passed after proper enquiry and was such as could reasonably have been reached on the material before the authority and it did not suffer from such defect which could render it liable to be set aside under section 100, C.P.C, in a second appeal if it was a decision of a civil Court.
10. We have carefully examined the two assessment orders of Income-tax Officers passed by two different Officers of the Income-tax Department in respect of the assessment year 1959-60 accepting the transfer of East Pakistan business to Mrs. Captain. These orders can neither be said to have been passed without proper enquiry nor can they be described such, as could not have been reasonably reached by the I.T.O.'s. Concerned on the basis of material before them. We are also unable to discover in them any defect of such a nature which could make them amenable to correction under section 100, C.P.C, in a second appeal if they were decisions of the civil Court.
11. The learned counsel for the Department contends that the order of processing authority passed under M.L.R. 43 was not in the knowledge of I.T.Os. Concerned who passed the orders in respect of returns filed for the assessm ent year 1959-60. From the copy of the order of processing authority under M.L.R. 43, produced before us, we find that the processing authority consisted of Inspecting Assistant Commissioner of Income-tax "C" Range Karachi as Chairman and I.T.O's. "H" and "P" circles respectively as members. The order of processing authority is dated 16th March, 1959, and a copy thereof was endorsed to the concerned I.T.O, and the Inspecting Assistant Commissioner of Income-tax on the same date. The assessment orders for the year 1959-60 were framed in or about May, 1964, whereas the order of processing authority was passed on 16-3-1959 and a copy thereof was sent to the I.T.O, concerned on the same date. In the assessment order for the year 1959-60 relating to East Pakistan business the question relating to the declaration of excess income filed by Mrs. Captain under M.L.R. 43 also came up for consideration before the I.T.O, concerned as would appear from the following discussion in the order:- "the assessee's explanation cannot be accepted as wholly correct in view of the facts that no day- to-day production A/C. And no Stock Register has been kept and that 9 months of the account year fall in the Pre-Martial Law period in respect of which excess income had been declared up to the assessm ent year 1958-59. The latter fact coupled with the fact of absence of Production A/C, leads to the rejection of book version rather than its acceptance, particularly when it is even lower than that shown last year."
12. It is also not disputed by Mr. Pirzada that the assessee had mentioned about the filing of declaration under M.L.R. 43 in the return of Income-tax for the relevant year. In these circumstances we are not inclined to accept the contention of Mr. Pirzada that the I.T.O, who framed the assessm ent order for the year 1959-60 was not aware of the order of processing authority passed under M.L.R.
43. The next contention of the learned counsel for the department is that there was no document in support of the alleged transfer of East Pakistan business to Mrs. Captain and in any case the consideration for which the transfer had taken place in favour of Mrs. Captain was inadequate. Both these factors were fully present when the two assessment orders for the year 1959-60 were framed by the I.T.O's. Concerned but in spite of existence of these facts the bifurcation of business and its transfer was accepted by the Department. There is no allegation that these orders were obtained collusive or were the result of any fraud or misrepresentation on the part of the assessee. In fact in the appeal against the assessment order for the year 1959-60 relating to West Pakistan business the Tribunal gave relief to the assessee and the Department never raised any objection before the Tribunal that the basis of assessment for 1959-60 adopted by the I.T.O, was wrong and that in fact the business in East Pakistan also belonged to the assessee.
The non-existence of the document of transfer or the alleyed inadequacy of consideration could not be treated in these, circumstances as a new material which entitled the I.T.O, to change the earlier basis of assessm ent.
13. We are therefore, of the view that there was no new material or fact before the Tribunal which could justify the change in the basis of assessment of the income of assessee on the ground that transfer of East Pakistan business in favour of Mrs. Captain had not taken place and that the findings in this regard proceeded on mere suspicions, surmises and conjecture. The question referred to us is answered accordingly but we will make no order as to costs.