' SH. IJAZ NISAR, J.---This appeal by leave of the Court is directed against the judgment, dated 26- 6-1998 passed by the Lahore High Court, Lahore in ITA No.11 of 1998 upholding the order, dated 13-1- 1998 of the Income Tax Appellate Tribunal, Lahore Bench, Lahore.
2. The relevant facts are that Messrs Iram Ghee Mills (hereinafter referred to as appellant) was incorporated on 27-5-1993, for manufacturing and processing edible oil and cooking oil etc. Raw material was imported by it after obtaining a certificate under section 50(5) of the Income Tax Ordinance, 1979, on 1-11-1993, from the Commissioner of Income-tax (Companies) Lahore, allowing exemption from tax. The said certificate was reportedly issued with reference to the installed production capacity of the appellant. The appellant-company went into operation in 1993 and submitted the first return for the year 1994-95 claiming exemption under Clause 118-E of the Second Schedule to the Income Tax Ordinance, but the respondents declined to accept the same by disputing the manufacturing capacity of the appellant's concern. The Deputy Commissioner, Income-tax (Companies), Zone-I, Lahore passed an ex parte assessment order, dated 30-6-1997, which was unsuccessfully challenged by the appellant before the Commissioner of Income Tax (Appeals), Zone-I and then before the Income Tax Appellate Tribunal, Lahore Bench. Lastly, it was challenged in Income Tax Appeal No.11 of 1998 before the Lahore High Court.
3. The ex parte order, dated 30-6-1997 passed by the Deputy Commissioner, Income Tax (Companies) Zone-I, Lahore, was upheld by the Commissioner of Income Tax (Appeals), Zone-I, vide order, dated 12-9-1997 and the assessment framed by D.C., Income Tax, Circle 9, Companies Zone-I, Lahore was confirmed in all respects under all the heads alongwith modalities under different provisions of the law.
4. The appellant was held not entitled to the exemption under clause 118-E of the Schedule to the Income Tax Ordinance because it was not considered to be a manufacturing concern, and in consequence was held liable to the provisions of section 80(c) of the Income Tax Ordinance, 1979, and was taxed accordingly.
5. A serious objection was raised before the Appellate Authorities with regard to the bifurcation of sales between commercial sales and sales of own manufactured products and the application of G.P. Rate and quantum of P & G expenses. An objection was also raised against the ex parte proceedings carried out by the Deputy Commissioner of Income Tax, but the Income Tax Appellate Tribunal did not find it sustainable, as in its opinion the appellant-company had already been granted a lenient treatment. It, however, admitted that no notice had been issued for 30-6-1997 when the assessm ent was finalized. The learned High Court upheld the order of the Income Tax Appellate Tribunal and dismissed the appeal holding that no question of law was involved. Hence, this appeal.
6. Leave to appeal was granted to consider whether, in the facts and circumstances of the case, assessm ent for the year 1994-95 was correctly made and whether the appellant-company was denied the benefit of exemption granted under para. 118-E of the Second Schedule to Income Tax Ordinance on solid and good grounds.
7. We have heard learned counsel for the parties at some length. It is contended on behalf of the appellant that--
(a) the ex parte order passed by the Assessing Officer on 30-6-1997 was illegal and that the absence of the appellant-company was not deliberate but was on account of inability of the Technical Advisor to provide the requisite information sought by the Assessing Officer and had been earlier attending his office on several occasions;
(b) that section 63 does not cover the default of section 62, hence the ex parte order, dated 30-6- 1997 was illegal and unjustified;
(c) that the Assessing Officer accepted the total sales as declared by the assessee but unjustifiably bifurcated the same into commercial sales and sales of manufactured products without any material on the record to establish that the appellant-company was ever engaged in any commercial activity;
(d) that the Assessing Authorities calculated the total production of the appellant's concern on absolutely irrelevant considerations. It is further maintained that the criteria applied to an altogether different concern, namely, Nadia Ghee Mills (Pvt.) Ltd., was made the basis` of assessm ent of tax on the appellant's concern and calculation was made on the assumed manufacturing income and commercial sales of the appellant;
(e) that the respondents did not take into account the production capacity of the appellant's concern as carried out by the surveyors on behalf of Askari Commercial Bank Limited and M/s. Faisal Islamic Bank and by the Technical Advisor of Ghee Corporation of Pakistan;
(1) that the reports of the surveyors mentioned above were rejected on the ground that the same did not pertain to the period under consideration without there being any allegation that the appellant had increased its production capacity subsequent to the filing of return for the assessm ent year 1994-95 by adding more machinery and plants etc; and
(g) that neither the certificates issued by the Commissioner of Income-tax, Lahore, exempting the appellant from the operation of the provisions of sub-clause (5) of section 50 were given any consideration, nor was any weight attached to the conclusion arrived at by the Lahore High Court in Writ Petition No.14771 of 1997, declaring the appellant-company's entitlement to the grant of exemption certificate to the tune of 54000 M.T. Per year on the basis of production capacity of the appellant's concerns as 150 M.T. Per day approximately.
'It is next submitted that the orders of the Income-tax Authorities are based on conjecture and surmises without any sound basis or foundation.
' As regards the observations of the learned High Court that the questions raised before it regarding exemption under clause 118-E of the Second Schedule to the Income Tax Ordinance, 1979, and the legal justification for ex parte assessment and the application of section 80(c) to the appellant-company was within the domain of facts, therefore, it had no jurisdiction to consider the same, it is stated to be incorrect as it has been held by the Court that when a finding of fact is based partly on evidence and partly on conjectures the question of law does arise. In support of this proposition, reliance has been placed on Oriental Investment Co. Ltd. v. Commissioner of income-tax, Bombay (PLD 1958 Supreme Court (Ind.) 151), wherein the following test was provided to determine whether the question is one of fact or law: "(1) When the point for the determination is a pure question of law such as construction of a statute or document of title, the decision of the Tribunal is open to reference to the Court under section 66(1).
(2) When the point for determination is a mixed question of law and fact, while the finding of the Tribunai on the facts found is final, its decision as to the legal effect of those findings is a question of law which can be reviewed by the Court.
(3) A finding on a question of fact is open to attack under section 66(1) as erroneous in law if there is no evidence to support it or if it is perverse.
(4) When the finding is one of fact, the fact that it is itself an inference from other basic facts will not alter its character as one of fact. What are the characteristics of the business of dealing in shares or that of an investor is a mixed question of fact and law. What is the legal effect of the facts found by the Tribunal and whether as a result the assessee can be termed a dealer or an investor is itself _a question of law."
' Reliance has also been placed on Commissioner of Income-tax, Karachi v. Edulji F.E. Dinshaw and others (Income Tax Cases Nos.81, 82 and 83 of 1963, published in Taxation Vol. 15, 1967 at page 164).
The validity of explanation of assessee was held to be a mixed question of law and fact in Commissioner of Income-tax Patiala-II v. Aatar Singh and Sons (Income-tax Reports, Vol.129 of 1981 page 671), Commissioner of Income-tax Patiala-I v. Hindustan Wire Products Ltd. (Income Tax Reports, Vol.113 of 1978, at page 727) has also been referred to in this behalf. Messrs Abbot Laboratories Ltd. v. Commissioner of Income-tax, Central Zone, Karachi (1989 PTD 602) has also been cited where it was observed that when any party challenges the conclusion drawn from a set of facts and circumstances it is a question, of law. Premier Machinery Works, Karachi v.
Commissioner of Income-tax 1993 PTD 223 = PLD 1993 SC 233 is another precedent on the question of law.
8. To determine the entitlement or otherwise of the benefit of clause (118-E) of the Second Schedule to the Income Tax Ordinance, it may be reproduced for facilitate of reference. It reads as under:-- "(118E) (1) Profits gains derived by an assessee from an industrial undertaking set up anywhere in Pakistan not covered by clause (118C) or clause (118D) between the first day of December, 1990, and the thirtieth day of June, 1995, both days inclusive, for a period of three years beginning with the months in which the undertaking is set up or commercial production is commenced, whichever is the later.
(2) The exemption under the clause shall apply to an industrial undertaking which fulfils the following conditions, namely:--
(a) that it is owned and managed by a company formed exclusively for operating the said industrial undertaking and registered under the Companies Ordinance, 1984 (XLVII of 1984), and having its registered office in Pakistan;
(b) that it is not formed by the splitting up or the reconstruction or reconstitution of business already in existence or by transfer to a new business of any machinery or plant used in a business which was being carried on in Pakistan at anytime before the commencement of the new business; and
(c) that it is an undertaking engaged in the manufacture of goods or materials, or the subjection of goods or materials to a manufacturing process, or mining (excluding petroleum and gas) or extraction of timber."
9. From the perusal of the order of the Income Tax Appellate Tribunal it appears that the benefit of the above clause has been mainly denied to the appellant for its having failed to fulfil the requirements of condition (c) which requires that an undertaking should be engaged in the manufacture of goods or materials, or the subjection of goods or materials to a manufacturing process. It does not at all spell out that the quantum of production was a necessary condition for availing of the benefits granted by it. The Assessing Officer had to satisfy himself that it was an industrial -undertaking engaged in the manufacturing of goods or materials. When the manufacturing had been admitted by the Assessing Officer, the quantum of production could not deprive the appellant of the benefit of exemption granted under clause 118-E. The Assessing Authorities were, therefore, clearly in error in deciding the question of eligibility to the exemption on the basis of quantum of production. The conclusion drawn by the Assessing Authorities that the appellant had indulged into commercial sales is absolutely without any basis and no material exists on the record to support it. The assessment order was passed on totally irrelevant considerations. The production capacity of the appellant's concern was also not determined on any legal basis. There was no legal justification for taking ex parte proceedings against the appellant because of its participation in the earlier proceedings. The Income Tax Appellate Tribunal also ignored this fact on flimsy grounds. Although it accepted that it was without notice, yet it ignored the same on the ground that it did not make any material difference, for, the appellant had been leniently dealt with.
10. The objection raised by the learned Deputy Attorney-General, as to the maintainability of the appeal for want of certificate under section 137 of Income Tax Ordinance, 1979, is untenable as the appeal is by leave of the Court by virtue of Article 185(3) of the Constitution of Islamic Republic of Pakistan.
11 For the reasons discussed above, the appeal is allowed, the ex parte order, dated 30-6-1997, the subsequent appellate orders and judgment of the High Court, dated 26-6-1998 are set aside, and the appellant is declared entitled to the exemption granted by clause 118-E of the Second Schedule to Income Tax Ordinance, 1979. Since the principal object of the clause was to encourage setting up of industrial undertakings by offering tax incentives to boost up industrial growth a beneficial view was to be taken rather than to defeat its object on technical grounds.
12. The Assessing authority is directed to make a fresh assessment for the year 1994-95 by granting the appellant the benefit of Clause 118-E of the Second Schedule without any penal consequences after giving full opportunity of hearing to the appellant. Necessary adjustments shall be made in the amount of tax already paid by the appellant. The corrective measures taken against the appellant on the basis of the impugned order shall be withdrawn. Parties shall bear their own costs.