JUDGMENT: S.A. NUSRAT, J.-1. This judgment will dispose of the above appeals which involve common questions of fact and law and the judgment of the High Court, though placed in the individual cases of the appellants, is also the same.
2. The appellants are members of Saigol family and are assessee under the Income Tax Act. In respect of assessment year 1963-64 relevant to accounting year ending 31st December, 1962 (hereinafter referred to as the relevant assessment year) the Income Tax Officer, Companies Circle-Ill, Lahore, passed, orders of assessment on 10th June, 1968 which included dividend income of Rs. 312 shown to have been received from Messrs Azam Agencies Limited, Lahore by each of the appellants in their returns of income. Before the passing of the said orders, an order dated 23rd June, 1967 was passed by the Income Tax Officer, Investigation Circle-I, Lahore under section 23-A(1) of the Income Tax Act, 1922 in the case of Messrs Azam Agencies Limited, Lahore that accumulated profits of the said company to the extent of Rs.
15,01,443 be deemed to have been distributed amongst the shareholders of the company as on 8th November, 1962. Such deemed dividend income falling to the share of each appellant came to be Rs. 1,87,680. In the orders of assessm ent passed in the cases of the appellants for the relevant assessm ent year the amount of Rs. 1,87,368 (less Rs. 312 actually disclosed by the appellants in their return for the said year) was not shown and hence was not subjected to tax. This fact came to the notice of the Inspecting Assistant Commissioner, Companies Range, Lahore in the course of scrutiny of the records of the appellants. In his opinion, the assessments thus completed by the Income Tax Officer against the appellants for the relevant assessment year were 'erroneous and prejudicial to the interest of the revenue'. He, therefore, served notices under section 34-A of the Income Tax Act calling upon the appellants as to why the original assessment orders should not be modified suitably. The appellants raised objection during the hearing before the Inspecting Assistant Commissioner that since the appellants, who were members of Saigol family, had filed their declarations of excess income under Martial Law Regulation No. 32, the amount sought to be included in the assessm ents for the relevant year was covered by such declarations and could not be taxed. This objection was repelled by the Inspecting Assistant Commissioner who after setting aside the original orders of assessm ent dated 10th June, 1968 directed the Income Tax Officer vide his order dated 5th June, 1972 to make fresh assessments by adding Rs. 1,87,368 to the total income of each of the appellants.
3. The appellants feeling dissatisfied with the aforesaid orders, dated 5th June, 1972 went up in appeal before the Income Tax Appellate Tribunal, Lahore. The learned Tribunal concurred with the finding of the Inspecting Assistant Commissioner that the amount in dispute was not covered by the declarations made under Martial Law Regulation No. 32 by the appellants. However, the objection of the appellants, which was raised for the first time during the course of hearing of the appeals, that the Inspecting Assistant Commissioner of Income Tax had no jurisdiction and lawful authority under section 34-A of the Act to reopen the already completed assessm ents which had become final, was accepted, and all the appeals were allowed and orders passed by the Inspecting Assistant Commissioner of Income Tax were set aside. The Commissioner of Income Tax feeling aggrieved of the said decision filed applications under section 66(1) of the Income Tax Act, 1922 in the Lahore High Court referring the following two questions of law said to arise out of the appellate order of the Tribunal, dated 13th June, 1973; "(1) Whether orvthe facts and in the circumstances of the case the Tribunal was justified in holding that the order under section 34-A of the Income Tax Act passed by the Inspecting Assistant Commissioner of Income Tax Companies Range, Lahore was bad in law and without jurisdiction? (2) Whether on the facts and in the circumstances of the case the Tribunal was justified to decide the appeal - on an issue neither raised before the Inspecting Assis- tant Commissioner of Income Tax Companies Range, Lahore who passed the order under section 34-A nor taken in the grounds of appeal before the Tribunal?"
4. The reference applications were heard by a learned Division Bench of the Lahore Ugh Court and disposed of as per impugned judgment dated 22nd July, 1973. The learned High Court answered the first question in the negative while the second question was answered in the affirmative.
3. In the course of hearing of the reference applications the appellants sought to argue that the Tribunal had acted illegally in holding that the disputed dividend income in question was not included in and covered by the declarations of excess income filed by the appellants under Martial Law Regulation No. 32. The learned High Court, however, was of the opinion that in a reference under section 66(1) of the Income Tax Act the proceedings before it were restricted to the precise questions raised in the application by the Commissioner of Income Tax, particularly when the reference was not made by the assessee/appellants. Nonetheless the learned High Court examined the contention on merits and came to hold that the Tribunal was justified in holding that the disputed dividend income was not covered by the declarations of excess income filed by the appellants.
6. Leave to appeal was granted to examine the contention raised on behalf of the appellants that the scope of the reference was wide enough to embrace the question of immunity claimed by the appellants by virtue of the excess income declarations filed by them under the provisions of Martial Law Regulation No. 32, particularly when this question was raised before the Inspecting Assistant Commissioner of Income Tax as well as Income Tax Appellate Tribunal. It was asserted that the appellants were entitled to support the order of the Tribunal passed in their favour on the grounds and reasons other than those on which the order was passed, such grounds and reasons having been discernible from the said order and documents and material already on the record.
7. The controversy with regard to the scope of section 66(1) of the Income Tax Act, 1922 has by now become of academic nature only in view of the fact that the question whether the dividend income was covered by the declarations of excess income filed by the appellants was duly examined, discussed at length and decided by the learned High Court as per impugned judgment against the appellants. The appellants had raised this question before the Inspecting Assistant Commissioner of Income Tax challenging his jurisdiction and thereafter the said ground was also urged before the Income Tax Appellate Tribunal. The precise contention raised by the appellants, as noticed in the order of the learned Tribunal, reads as under; "That the action of the learned Inspecting Assistant Commissioner of Income Tax in reopening the case under section 34- A of the Income Tax Act is unjustified and illegal as the matter has already been covered by the declaration made by the appellant under Martial Law Regulation No. 32 and, therefore, no action whatsoever was called for as laid down in paragraph 5(a) of the Central Board of Revenue's Circular No. M.L.R. 1/69 as amended by Circular No. M.L.R. 3/69." The above contention was, however, rejected by the learned Tribunal whereupon the alternative plea was raised on behalf of the appellants as mentioned hereinabove. The question No. 1, as framed, basically required resolution of the controversy whether the order of the Inspecting Assistant Commissioner of Income,Tax passed under section 34-A of the Income Tax Act was "bad in law and without jurisdiction". All relevant facts and circumstances forming the background in which the order was passed were available on the record of the case and no further statement of facts was necessary for the determination of the question. In this view of the matter the issue raised with regard to the immunity claimed by the appellants under the provisions of Martial Law Regulation No. 32 was in our view, well within the purview of the question as framed in the case.
8. The learned High Court after having referred to the various provisions of the Martial Law Regulation No. 32 anc circulars issued by the Central Board of Revenue found tha instead of filing separate revised Income Tax returns for each assessm ent year the appellants had filed consolidated statements of excess income in accordance with the provisions of the Regulation. The said declarations were disposed of by the Committee constituted under Martial Law Regulation No. 32 by its order dated 31st October, 1969 by adopting the declared excess income for the latest five assessment years from 1964-65 to 1968-69. In this view of the matter it was held that the dividend income in dispute relating to the assessm ent year 1963-64 was not covered and included in the excess income declarations filed by the appellants.
9. It was contended by the learned counsel for the appellants that the appellants had filed consolidated statements showing their true income for the entire period for assessm ent years 1960-61 to 1968-69 and that the excess income thus disclosed was inclusive of their share of dividend income in dispute from Messrs Azam Agencies Limited for the assessm ent year 1963-64 as well. The learned counsel for the respondent was unable to controvert the fact that such consolidated statements were filed for assessment years 1960-61 to 1968-69, and rightly so. A reference to the order dated 31st October, 1969 passed by the Committee constituted under Martial Law Regulation No. 32, Lahore read with the Schedules annexed thereto goes to confirm this fact because in Schedule No. 1 reference has been made to assessment year for the year 1963-64 and if the assessment for the said year fell beyond the purview of the declarations, the question of its consideration would not have arisen because admittedly no separate statements were filed by the appellants for each year.
10. It is, therefore, necessary to examine the correctness of the judgment of the learned High Court on this issue. The Martial Law Regulation No. 32 which was issued on 15th April, 1969, is reproduced hereunder:- "(1) This Regulation shall come into force at one and shall take effect notwithstanding any provision to the contrary contained in any other law. (2) (i) Any person, who has filed the return of his income under the Income Tax Act, 1922, for the assessment year 1960-61 or any assessment year thereafter upto and including the assessm ent year 1968-69 and who has reason to believe that the return so filed is not correct, may file a revised return of his true income by June I6, 1969. No action of any kind whatsoever shall be taken, for having submitted an incorrect return originally, or in respect of nature of the transaction from which the income represented by the difference between the revised return and the original return hereinafter called the 'excess income' was derived, nor will the effect of his having filed a revised return be taken as a ground for the reopening of any assessment under sub-section (2) of section 34 of the Income Tax Act. (ii) In case it is not possible for him to compile the revised return separately for each year, a consolidated statement showing his true income for the entire period commencing with the assessment year 1960-61 and ending with the assessm ent year 1968-69 may be filed hy June 16, 1969. (iii) Any person who has npver filed his return of income or has never been assessed to tax so far may also file a return of income or a consolidated statement by June 16, 1969 showing his true income for any assessment year or years mentioned above, as the case may be, and no action of any kind whatsoever shall be taken against him for not having filed the return before. (3) The 'excess income' shall be charged to tax as under:- (i) Where the returns or revised returns of income have been filed for each assessment year separately the assessm ent for the relevant year shall be made on the basis of such returns.
(ii) Where a consolidated statement of income has been filed, such consolidated income shall be divided by the number of years to which it pertains subject to a maximum of nine years. The assessm ent or reassessm ent, as the case may be, shall be made for the relevant assessment years on the average annual income so determined, in accordance with sub-paragraph (1) above.
No allowance shall, however, be made for any rebate, deduction or exemption admissible under the In- come Tax Act, 1922, in respect of such income which shall be treated as 'taxable income'. (4)
The amount of tax due on the 'excess income' shall be payable by such date as the Central Board of Revenue may prescribe. In case of default additional tax shall be payable at the rate of 3 per cent per annum or so much of the tax as has not been paid. (3) any person who has filed a revised return or returns or a consolidated statement in accordance with this Regulation shall also furnish a statement of his total assets and liabilities in such manners as the Board may, in exercise of its powers under paragraph 6 of this Regulation, prescribe. No action of any idnd will be taken against him for having submitted ori any earlier occasion an inaccurate or incorrect statement in respect to a notice under section 22(4-A) of the Income Tax Act, 1922. (6) (i) The Central Board of Revenue may, with the prior approval of the Chief Martial Law Administrator or any person authorised by him in this behalf, make such rules or issue such orders, instructions or directions consistent with this Regulation as it may consider necessary to give effect to the provisions of this Regulation or concerning matters connected therewith, being matters for which no provisions or no sufficient provision exists in this Regulation, and all such rules, orders, instructions and directions shall be deemed to form a part of this Regulation and shall have effect accordingly. (ii) Without prejudice to the generality of the provisions of sub-paragraph (i) above, such rules, orders, instructions or directions may provide for the determination of 'excess income' for the purpose of this Regulation, or the computation of the tax payable in pursuance of this Regulation. (7) Without prejudice to the foregoing provisions of this Regulation, whoever: (a) being assessable to tax under the provisions of the Income Tax Act, 1922, makes any return or statement in writing, required to be made by him under the provisions of the said Act, which is false, shall be punished with rigorous imprisonment which may extend to 14 years and with fine, unless he can show that at the time of making it, he believed it to be true; (b) being lawfully required by an authority under the Income Tax Act, 1922 to supply within a specified period, any information in writing or to produce any books, bank books, account books or other documents, fails to do so, shall be punished with rigorous imprisonment which may extend to 14 years and with fine, unless he can show that such failure was due to circumstances beyond his control; (c) being lawfully required by an authority under the Income Tax Act, 1922 to pay, within a specified period tax thereunder fails, to do so, shall be punished with rigorous imprisonment which may extend to 14 years and with fine, unless, he can show that such failure was due to circumstances beyond his control; and (d) being unable to pay any tax demanded from him under the provisions of Income Tax Act, 1922, is found to have divested himself of any of the assets in circumstances suggesting that he did so in order to avoid the payment of the tax in question, shall be punished with rigorous imprisonment which may extend to 14 years and with fine, unless he can show that he did not divest the assets in order to avoid such payment.
(8) No Court shall take cognizance of any offence under this Regulation unless a complaint in writing is made of the facts constituting it by Central Board of Revenue or some other authority authorised by the Central Board of Revenue in this behalf. (9) All instructions, orders and regulations issued, if any, by any Martial Law Authority inconsistent with the provisions of this Regulation shall have no effect."
11. Sub-paragraph (i) of paragraph 2 of the above Regulation required filing of declarations of excess income for the assessment years from 1960-61 to 1968-69 and on filing of such declarations the Regulation promised that no action of any kind whatsoever shall be taken for having submitted an incorrect return originally or in respect of the nature of the transaction from which the income represented by the difference between the revised return and the original return was derived. Sub-paragraph (ii) of paragraph 2 of the Regulation further permitted filing of a consolidated statement showing true income for the entire period commencing with the assessm ent year 1960-61 and ending with the assessment year 1968-69.
According to sub-paragraph (ii) of paragraph 3 of the Regulation where a consolidated statement of income was filed, such consolidated income was to be divided by the number of years to which it pertained subject to a maximum of nine years. The Central Board of Revenue later issued instruction vide Circular No. M_R-1/1969 as amended by Circular No. MLR-3/1969. Paragraph 3(i)(b) of the amended Circular read as under:-- "(b) If it is not possible for an assessee to file a separate return for each year, a consolidated statement may be filed for the years for which the income is sought to be revised, stating the period to which it relates, but in no case would the 'excess income' be treated as relating to any year prior to the assessment year 1960-61. The assessee would be required to provide some reasonable basis for the computation of the income so declared and that the consolidated income pertains to the period claimed by him. Where, however, the assessee has claimed that the consolidated statement pertains to a period of more than five years and he is not in a position to supply any reasonable basis for such claim, the consolidated statement will be taken as for the latest five assessment years and assessed accordingly."
12. The provision contained in the above paragraph of thel Circular regarding filing of consolidated statements was in a accord with the sanction given in sub-paragraph (ii) of para 2| of the Regulation itself. This Circular was issued by the Central Board of Revenue under the authority of sub-paragraph (ii) of paragraph 6 of the Regulation which empowered the Board to issue instructions or directions providing for the determination of excess income for the purpose of Regulation or the computation of the tax payable in pursuance of the Regulation. Such power of issuing directions by no means conferred any power on the Board to deprive the assessee of the benefit of the Regulation with regard to the immunity from action of any kind whatsoever for having submitted an incorrect return originally. In terms of para 3(i)(b) of the Circular of the Board the assessee were required to provide some reasonable basis for the computation of income declared by them for the assessm ent years in respect of which statements were filed. Where, however, an assessee had claimed that the consolidated statement pertained to a period of more than five years and he was not in a position to supply any reasonable basis for such claim, the consolidated statement was to be taken as for the latest five assessments years and assessed accordingly. The consolidated statements filed by the appellants for the assessment years 1960-61 to 1968-69 were processed for the latest five assessm ent years in accordance with these instructions. The processing of consolidated statements for the latest five years was only for the purpose of determination of excess income and computation of the tax only and did not affect the declarations covering all the nine years. The provision regarding the processing of consolidated statements of excess income for the latest five years only operated to the disadvantage and detriment of the assessee because by doing so the incidence of tax became higher and was not subject to division by the number of years to which it pertained. In other words this was a kind of penalty to be suffered by an assessee for having failed to provide any reasonable basis for the computation of the declared income for all the years. The learned High Court was, therefore, not justified in holding that the consolidated statements filed by the appellants having been processed for the latest five years only, the same were restricted to the said years alone and did not cover the assessment year 1963-64.
13. In view of the above discussion we would, therefore, hold that the disputed dividend income was covered by the declarations of excess income filed by the appellants and the Inspecting Assistant Commissioner of Income Tax had, there- fore, no jurisdiction to tax the said income under section 34-A of the Income Tax Act. The finding of the learned High Court is, therefore, set aside and the first question is an- swered in the affirmative and in favour of the appellants.
14. In view of our above finding, it is not necessary to examine the scope of section 34-A of the Income Tax Act because any discussion on the said issue will be of mere academic interest. Moreover, the consideration of the said question, though we had allowed the learned counsel for the parties to argue the same, is otherwise beyond the scope of the leave granting order.
15. For the reasons mentioned above, the appeals are allowed as indicated above with no order as to costs. Space for noting: