JUDGMENT IMAM ALI G. KAZI, J.-1. The applicants, a private imited company doing the business of automobiles and spare parts and running a workshop, have filed this application under section 66(2) of the Income Tax Act, 1922 after the Income Tax Appellate Tribunal at Karachi declined to accede to their request to refer certain questions under section 66(1) of the said Act.
2. 'The facts leading to the filing of this application briefly stated are as follows:-- The Income Tax Officer, Company Circle n, Karachi, passed an assessment order on the return filed by the applicants for assessm ent year 1971-72. He determined the undistributed profit of the applicants to be Rs.
10,64,690 and imposed a tax of Rs. 2,92,790 in terms of section 23-A of the said Act On appeal the amount of undistributed profits was worked out to be Rs. 8,18392 and consequently tax payable was fixed at Rs. 2,25,258. As the applicants failed to pay such amount additional tax under section 45-A of the Act was levied.
3. The applicants took their case before the Income Tax Appellate Tribunal without any success. Before the Tribunal it was contended by them that section 23-A as it then stood was for the first time substituted in the year 1971 and omitted through Finance Ordinance of 1972. It was mainly contended by them that section 23-A as substituted for the original section in the year 1971 merely provided a machinery for collection of tax on undistributed profits of a company and tax could be charged under it. This provision was then omitted in 1972 and it being of procedural nature its omission from statute operated retrospectively. Such contentions were not accepted by the Tribunal and their appeal was dismissed.
4. The applicants after their appeal was dismissed formulated following four questions and filed an application under section 66(1) of the said Act before the Tribunal praying that the said questions be referred to this Court:- "(1) Whether in the Scheme of Income Tax Act, 1922 and the treatment of section 23- A:-- (a) Section 23-A is a machinery section, (b) the amendment of 1972 is only of curative and remedial nature, (c) the amendment carried out in the statute by the Finance Act, 1972. Is retrospective in nature. (2) Whether in the facts and circumstances of the case the levy of additional tax under section 23rd of the Income Tax Act "Was justifiable and correct? (3) Whether in the facts and circumstances of the case the imposition of additional tax under section 18-A is justifiable and in the facts and circumstances of the case? (4) In the facts and circumstances of the case, whether the liability of 23-A and 45-A can be claimed as a deduction against profits under section 10(2)(xvi) of the Act?"
5. The Tribunal considered that reference of such questions to the High Court could not be made and dismissed the application. The applicants then filed the present application containing the following questions:-- "(1) Whether in the Scheme of Income Tax Act, 1922 and the treatment of section 23-A:-- (a) Section 23-A is a machinery section; (b) the amendment of 1972 is only of curative and remedial nature; (c) the amendment carried out in the statute by the Finance Act, 1972 is retrospective in nature. (2) Whether in the facts and circumstances of the case, the levy of additional tax under section 23-A of the Income Tax Act was justifiable and correct? (3) In the facts and circumstances of the case whether the liability of 23-A and 45-A, can be claimed as a deduction against profits under section 10(2)(xvi) of the Act."
6. Mr. Muhammad Nasim, Advocate for the applicants contended that the tax under consideration could not be charged under section 23-A of the Income Tax Act, 1922 as it stood in 1971 it being merely a "machinery section". He referred to the cases reported in (1947) 15 Taxation 303; (1926) A.C. 37, 10 Tax Cases 88 and (1936) I6 Tax Cases 1 in support of his such contention.
7. He then contended that as a matter of remedial and curative measure such provision was omitted in the year 1972 when the assessm ent in the case of applicants was not finalised as yet and omission of that provision will take effect retrospectively. Reliance was placed by him on cases reported in PLD 1974 SC 180 and (1987) PTD 739. As the last limb of his arguments he contended that the tax was charged in violation of principles of natural justice as no show cause was issued to the applicants.
8. In reply to the above contention Mr. Hyder Shaikh, Advocate for the respondents contended that section 23-A of the Act is a substantive provision of law authorising the charging of tax on undistributed dividend as provided under its sub-section (2). Its omission through Finance Act of 1972 was not done as a remedial or curative measure and such omission will not take effect retrospectively.
Finally he contended that no notice was required as charging of the tax in question forms part of the assessm ent order. He placed reliance on cases reported as 1940(8) ITR 442; 1985 PTD 465.
9. In order to appreciate the contentions advanced by the advocates of the parties it is necessary to reproduce section 23-A as substituted by the Finance Ordinance, 1971 as under:-- "23-A. Provisions in respect of undistributed income.-(1) Wherein respect of any previous year a company has not upto the period of six months immediately following the expiry of that previous year, distributed as dividend or paid as bonus to the shareholders at least sixty per cent, of the net income of such previous year, the amount calculated in the manner laid down in sub-section (2) shall be deemed to be the undistributed income of the company for such previous year. (2) ...............................................................
10. On plain reading of the above provision of law it is abundantly clear that no provision has been made for providing any machinery for assessment but it clearly imposes a charge on undistributed income and is therefore of substantive nature. Such a conclusion is also in conformity with the principles of interpretation of statutes laid down in the case decided by the Privy Council and reported in 1940 (8) ITR 442 and followed in the case reported in 1985 PTD 465. The first contention advanced by Mr. Muhammad Nasim,. Advocate for the applicant has no force.
11. Mr. Muhammad Nasim, Advocate for the applicant has not been able to show that omission of section 23-A from the Act through Finance Ordinance, 1972, was done as a remedial or curative measure.
12. We are also unable to subscribe to the view that original order of assessm ent by the Income Tax Officer required to be passed after issuing a show-cause notice on the subject. At any rate in absence of any provision of issuing a notice in the enactment the requirements of principles of natural justice stand satisfied as the applicants were heard on the subject by the Appellate Authorities.
13. As the result of above, the first question is answered in the negative while remaining two questions are answered in the affirmative.