TALAAT QAYYUM QURESHI, J.---Through this consolidated judgment/order we shall dispose of Tax Reference No.33 of 1997 and F.A.Os. Nos.24 and 26 of 1997, 27 of 1997 and 192 of 1999.
2. In Tax Reference No.33 of 1997 (Utman Ghee Industries v. Commissioner of Income-tax), Messrs Utman Ghee Mills which is situated at Industrial Estate Gadoon Amazai, Swabi filed Income Tax Return for the assessm ent year 1993-94 declaring Nil income. The assessee held that an amount of Rs.29,66,248 had been obtained as loan from its sister concern namely Messrs Swabi Flour Mills through Banking channel cheque but this explanation of the assessee was not accepted and the said amount was considered as "deemed income" of the assessee under section 12(18) of the Income Tax Ordinance, 1979. The assessee filed appeal before the Commissioner of Income Tax Appeals, which was allowed but the Department being not satisfied with the order of the Commissioner of Appeals, approached Income Tax Appellate Tribunal, which was pleased to set aside the order of the Commissioner Income Tax Appeals and resultantly the decision/order of the Deputy Commissioner of Income Tax was upheld. The assessee filed Reference Application No.40
(PB) of 1996-97 but the same was rejected vide order, dated 31-3-1997, hence the present Tax Reference.
3. In Tax Reference No.24 of 1997 (Messrs Salim Cigarettes Private Limited v. Commissioner of Income-tax) Messrs Salim Cigarettes Factory a private limited company which derives income from manufactures and sale of cigarettes declared income of Rs.393,055 for the assessment year 1992-93, which was not accepted by the learned Income Tax Assessing Officer and a sum of Rs.12,679,787, including addition of Rs.2,100,000 was assessed under section 12(18) of the Income Tax Ordinance, 1979. The clarification given by the assessee that the amount was deposited by the Directors for the allotment of shares and such amount was realized/paid through Banking channels and encashment of foreign exchange bearers certificates regulated by State Bank of Pakistan was turned down by the Assessing Officer. The appellant filed appeal before the Commissioner of Income Tax Appeals and the additions made under section 12(18) were deleted.
The Department being aggrieved of the order of the Commissioner of Income Tax Appeals, approached the Tribunal, the appeal filed by the Department was accepted vide order, dated 21- 5-1996. The order passed by the Commissioner Income Tax Appeals was set aside and the order passed by the Deputy Commissioner Income Tax was upheld. The assessee filed Reference Application No.13 (PB) of 1996-97 but the same was rejected vide order, dated 18-1-1997. Hence the present Tax Reference.
4. In F.A.O. No.26 of 1997 (Messrs Muhsin Match Factory v. Commissioner of Income-tax) the appellant filed Income Tax Return for the assessment year 1993-94 declaring net Income of Rs.58,972 but the Assessing Officer did not accept the declared version of the appellant and assessed the income at Rs.5,377,050 which included addition of Rs.3,701,925 under section 12(18) of the Income Tax Ordinance, 1979. The plea taken by the Assessing Officer was that the appellant had received loan from one of the Directors namely Muhsin Aziz not through cross cheque and the peak credit entry appearing in the ledger was treated as "deemed income" of the appellant. Being aggrieved of the assessm ent order, the appellant filed appeal before the Commissioner Income- tax, which was accepted and it was held that the loan shown and declared by the assessee was not fictitious, hence the addition was deleted. The Department filed second appeal before the Income Tax Appellate Tribunal, Peshawar, which was accepted. Not only the order passed by Commissioner Income Tax Appeals was set aside but the order of the learned Assessing Officer was restored and Circulars Nos.3, 11 and 12 of 1992 issued by C.B.R. Were also declared ultra vires of section 12(18) of the Income Tax Ordinance. Being aggrieved of the order passed by the learned Income Tax Appellate Tribunal, dated 10-4-1997, the appellant has filed appeal under section 136 of the Income Tax Ordinance, 1979.
In F.A.O. No.27 of 1997 (Muhsin Match Factory v. Commissioner of Income-tax) the appellant filed Income Tax Return for the assessme nt year 1992-93 declaring net income of Rs.407,707. The Assessing Officer did not accept the declared version of the appellant and assessed the income at Rs.2,195,902 which included addition of Rs.7,00,000 under section 12(18) of the Income Tax Ordinance, 1979 with the plea that the appellant had received loan from one of the Directors namely Muhsin Aziz not through cross-cheque ignoring the reliability and verifiability of the loan.
The peak credit entry appearing in the ledger of the Company was treated its "deemed income".
The appellant filed appeal before the Commissioner of Income-tax, Peshawar, which was accepted. The Department being aggrieved of the order passed by the Commissioner Appeals filed second appeal before the Income Tax Appellate Tribunal, which was accepted vide order, dated 10-4-1997. Not only the order passed by Income-tax Commissioner Appeals was set aside but the order passed by the Assessing Officer was restored and Circulars Nus.3, 11 and 12 of 1992 issued by C.B.R. Were also declared ultra vires of section 12(18) of Income Tax Ordinance. The appellant being aggrieved of the said order passed by the comeTax Appellate Tribunal, dated 10- 4-1997 has preferred appeal in hand under section 136 of the Income Tax Ordinance.
6. In F.A.O. No.192 of 1999 (Messrs Toyota Motors Private 'Limited v: Deputy Commissioner Income Tax), the appellant declared net income of Rs.56,623 for the assessment year 1993-94 supplies were declared at Rs.33,689,500 with commission received Rs.4,573,529. The declared version was rejected by the Assessing Officer and net income of Rs.307,052 was assessed under section 62 of the Income Tax Ordinance, 1979. The Inspecting Additional Commissioner of Income Tax issued Notice No..463, dated 21-9-1995 under section 66-A of the Income Tax Ordinance for the cancellation of the assessm ent made by the Assessing Officer as in his view the assessment made under section 62 was prejudicial to the revenue and was also erroneous. The appellant contested the said notice but the submissions made by the appellants were not considered satisfactory and the assessm ent was cancelled under section 66-A. The appellant approached the Income Tax Appellate Tribunal but the learned members of the Tribunal had divergent opinion about the genuineness of the loan obtained by the Company from Haji Hanan of Bara, Khyber Agency received through telegraphic transfer. The learned Judicial Member rejected the appeal filed by the assessee being without merits, but the learned Accountant Member held that the learned IAC was not justified to take action under section 66-A. Since there was difference of opinion between the learned Members, therefore, after framing the questions, the matter was referred to third member of the Tribunal, who concurred with the findings recorded by the learned-Judicial Member. In view of majority opinion, the appeal was rejected. Hence the present appeal under section 136 of the Income Tax Ordinance.
7. Mr. Abdur Rauf Rohaila, the learned counsel representing the petitioners/appellants argued that in all the cases the order passed by the learned Assessing Officer as well as Income Tax Appellate Tribunal were illegal and in excess of jurisdiction. Whereas the orders passed by the Commissioner Income Tax Appeals were based on law, were legal and proper.
It was also argued that C.B.R. Had rightly issued Circulars Nos.3, 11 and 12 of 1992 in view of the powers conferred on it by section 165 of the Ordinance and all the authorities executing the provisions of the Ordinance, are bound to follow the instructions 9. It was also argued that the Assessing Officer could not invoke
8. Contained in the said Circulars and the Commissioner of the Zone or Assessing Officer could not challenge the validity of the Circulars issued by the C.B.R. the provisions of section 12(18) in respect of genuineness of loan/amount received through reliable/verifiable source.
10. It was further argued that strict interpretation of the Statute cannot be made in favour of the Revenue Collecting Department but the interpretation be made which is favourable to the assessee. The provisions of section 12(18) deal with the loan received otherwise through cross- cheque and the same was inserted in the year 1987. This was done for checking the bogus cash credit and controlling the non-genuine transactions and to avoid fictitious entries in the Books of the Accounts by the assessees. C.B.R. Issued Circulars Nos.3, 11 and 12 of 1992 and Circular No.1 of 1993 to facilitate the assessees and the same were not meant to interpret the laws but to relax the law for the assessee.
11. It was also argued that the cases of the petitioners/appellants would fall under section 12(18)-A of the Ordinance but neither the Assessing Officer nor the Income Tax Appellate Tribunal properly appreciated as to which section of law was applicable in the cases, hence fell in error.
12. On the other hand Mr. Eid Muhammad Khattak, the learned counsel representing the respondents argued that the assessment orders made by the Assessing Officer and the order/judgment of the learned Income Tax Appellate Tribunal were in accordance with law and the learned Tribunal had after taking into consideration all the relevant provisions of law, declared Circulars Nos.3, 11 and 12 of 1992 and Circular No.1 of 1993 ultra vires of section 12(18) of the Ordinance.
13. It was also argued that the provisions of section 12(18)-A were not applicable to the cases of the petitioners/appellants, in which the assessment was made prior to 30-6-1992 because the said sections were made effective from 1-7-1992.
14. We have heard the learned counsel for the parties at length and perused the record.
15. The common question of law which needs determination in all the Tax References and Appeals is:--- Whether any amount received through crossed cheques, cash or any other Banking channel is liable to tax under section 12 (18) of the Income Tax Ordinance, 1979? And Whether Income Tax Appellate Tribunal has rightly declared Circulars Nos.3, 11 and 12 of 1992 and Circular No.1 of 1993 ultra vires of section 12(18) of the Income Tax Ordinance, 1979?
16. Subsection (18) was inserted in section 12 of the Income Tax Ordinance, 1979, hearinafter referred to as the "Ordinance" by Finance "Section 12(18).---Where any sum, or the aggregate of sums, claimed, or shown, to have been received as loan by an assessee during any income year commencing on or after the first day of July, 1987, from any person, not being a banking company, or a financial institution notified by the Central Board of Revenue for this purpose, otherwise than by a crossed cheque drawn on a bank, exceeds one hundred thousand rupees, the said sum or the aggregate of sums shall be deemed to be the income of the assessee for the said income year chargeable to tax under this Ordinance."
17. The above-quoted subsection was however, held in abeyance. The Federal Government while exercising powers granted under subsection (2) of section 14 of the Ordinance issued Notification No. SRO 838(1)/87, dated October 26, 1987, added clause (7) in Part IV of the Second Schedule to the Ordinance. The said sub-section (18) of section 12 of the Ordinance was again brought into force with effect from 1-7-1990 by Finance Act, 1990. It is worth mentioning that through Finance Act, 1992 yet another subsection i.e. (18-A) was inserted in section 12 of the Ordinance, which was made effective from 1-7-1992. The newly inserted subsection is also reproduced hereunder for convenience and further reference:---- "(18-A) (a) Where an assessee has claimed, or shown to have received any private loan or advance which is found not to have been paid on or before the thirtieth day of June, 1994, or within five years of the expiration of the income year in which it was obtained, whichever is the later, the whole amount of the loan or advance or a portion thereof remaining unpaid after the expiration of such date or period, as the case may be, shall be deemed to be income of the assessee in the income year immediately next _ following or any subsequent year in which such finding is made.
(b) Where the whole amount of loan or advance or a portion thereof has been deemed to be the.
Income of the assessee under clause (a) and it is paid in a subsequent year, the amount so paid shall be deducted in computing the income in respect of that year."
The newly subsection (18-A) was however, omitted by Finance Act, 1996, which means that subsection (18-A) of section 12 remained on Statute Book from 1-7-1992 to 30-6-1996.
18. Due to insertion of subsection (18) in section 12 of the Ordinance, certain difficulties arose for the assessees, therefore, the Central Board of Revenue in order to facilitate the assesses made certain relaxations by issuing Circulars Nos.3, 11 and 12 of 1992 and Circular No.1 of 1993. The Circulars issued by C.B.R. Are also reproduced herein as the same are quite relevant for decision of the References/Appeals in hand: "Circular No.3 of 1992, dated January 27, 1992 It has been brought to the notice of the Board that genuine loans shown to have been received from identifiable persons through the Banking channels are being deemed to be the income of the assessee under subsection (18) of section 12 of the Income Tax Ordinance, 1979, merely on the ground that the amount of loans has not been received through crossed bank cheques.
(2) The matter has been considered in the Board. Since the basic purpose of the aforesaid provision of law is to check fictitious loans and to preclude back-dated introduction of creditors in the books of accounts, Assessing Officer should not invoke the provisions of section 12(18) in respect of genuine loans received by way of crossed cheques, pay orders, demand drafts or telegraphic transfers etc., through the Banking channels.
(3) In any case, where the nature and source of the amount of money is not satisfactorily explained, addition to the income of the assessee can still be made under section 13, notwithstanding the claim that any loan was received through crossed bank cheque, pay order, demand draft, telegraphic transfer of any other instrument."
Circular No.11 of 1992, dated May 4, 1992 It has been represented that genuine loans shown to have been received from identifiable persons through bearer cheques encashed by the borrowers from the banks on which these are drawn should not be deemed to be the income of the assessee under subsection (18) of section 12 of the Income Tax Ordinance, 1979.
(2) In view of the fact that encashment of the aforesaid bearer cheques clearly establish the date of the credit and the name of the borrower and genuineness of the loans can be verified, it has been decided that the provisions of section 12(18) shall not be invoked in respect of such loans received by way of bearer cheques for the current assessments which are pending for want of clarification on this issue.
(3) This issues in continuation of Board's Circular No.3 of 1992, dated 27th January, 1992.
Circular No.12 of 1992, dated May 19, 1992, It has been represented that cash deposits in the account books maintained in the name of directors of the company or partners of the firm, which are otherwise genuine and verifiable, should not be treated as deemed income of the assessee under subsection, (1) of section 12 of the Income Tax Ordinance, 1979. Similarly cash transaction/cash flow between sister companies and firms having common directors and partners should not fall within the ambit of section 12 (18) of the Ordinance because these amounts are for self-utilisation of funds already available in the poslession of sister concerns.
(2) The matter has been considered in the Board and it has been decided that although such amounts attract the provisions of section 12(18) yet in view of the general lack of awareness of this provision on the part of the tax-payers, the provisions of section 12(18) shall not be invoked for the assessm ent year 1991-92 in respect of cash deposits and transactions referred to in paragraph 1 above.
(3) It is also clarified that where any sum of loan is deemed to be the income of an assessee under section 12(18), it is only the peak credit of the lender which is to be taken as deemed income of the assessee and not the aggregate of all sums of loan received during .The relevant income year.
(4) This issues in continuation of Board's Circular No.11 of 1992, dated the 4th May, 1992.
Circular No.1 of 1993, dated January 11, 1993 Circulars Nos.11 and 12 of 1992 (Income Tax), dated 4th May and 19th May, 1992 exempted from the provisions of section 12{18) for the Assessment year 1991-92 the loan through bearer cheques, cash deposits by directors and partners in the books of the company and the firm respectively, and cash transactions between sister companies and firms.
(2) It has been pointed out to the Board that persons having calendar year as their income year would not be able to benefit from this concession in respect of such loans in their books which were repaid prior to 30th June, 1991 as these would fall in their case in Assessment year 1992-93.
(3) The matter has been considered in the Board. It is clarified that the contents of Circulars 11 and 12 of 1992 shall be applicable in respect of transactions referred to in these Circulars (Nos.11 and 12) undertaken during the financial year ending on 30th June, 1991 irrespective of the assessment year of the taxpayers."
19. The intention and purpose to insert subsection (18) in section 12 of the Ordinance was to prevent evasion of tax. It is a matter of common knowledge that most of the assessees would adopt device that whenever income or any other sum chargeable to tax was received, they used to introduce the same in their Books of Accounts as a loan to avoid taxability. A check was kept on fictitious loans and to stop such assessees from making back - dated entries of false creditors in their Books of Account. However, the Assessing Officers were directed not to invoke the provisions of section 12(18) of the Ordinance in respect of genuine loans received by way of cross-cheques only. Later on through the above-quoted Circular No.3 issued in January 1992, the Assessing Officers were directed not to invoke the provisions of section 12(18) in cases of genuine loans received by way of crossed cheques, pay orders, demand drafts or telegraphic transfers through the Banking channels. Thereafter through Circular Nos.11 issued on 4-5-1992 and Circular No.12, dated 19-5-1992, which were in continuation of Circular No.3 mentioned above, further relaxations were given and it was directed that loans received by way of bearer cheques, cash transactions/cash flow between the sister companies and firms having common directors and partners should not fall within the ambit of section 12(18) of the Ordinance. Likewise a clarification was made through Circular No.1 of 1993, dated 11-1-1993 whereby it was clarified that the contents of Circulars Nos.11 and 12 of 1992 would be applicable in respect of transactions referred to in the said Circular (Nos.11 and 12) undertaken during the final year ending on 30-6-1991 irrespective of the assessment year of the taxpayer.
20. Now we have to see as to whether the four Circulars mentioned above were ultra vires of section 12(18) of the Ordinance or through these Circulars certain benefits/relaxations were given to the taxpayers/assessees and if those Circulars were beneficial as to whether they could be struck down by the Income Tax Appellate Tribunal or not.
21. While interpreting a particular provision of law, the principle is that its construction should be rational. In this connection we reproduce herein page 199 of the Interpretation of Statutes by Maxwell: "In determining either the general object of the Legislature, or the meaning of its language in any particular passage, it is obvious that the intention which appears to be most in occur with convenience, reason, justice and legal principles should, in all cases of doubtful significance, be presumed to be true one. `An intention to produce an unreasonable result is not to be imputed to a statute if there is some other construction available '. Where to apply words literally would 'defeat the obvious intention of the legislation and produce a wholly unreasonable result' we must 'do solve violence to the words' and so achieve that obvious intention and produce a rational construction. The question of inconvenience or unreasonableness must be looked at in the light of the state of affairs as the date of the passing of the statute, not in the light of subsequent events."
22. We are also alive of the fact that based on the rule of beneficial construction the same author of abovementioned book on page 228 has laid down:--- "(1) Modification of the language to meet the intention.---"Where the language of a statute, in its ordinary meaning and grammatical construction leads to a manifest contradiction of the apparent purpose of the enactment, or to some inconvenience or absurdity which can hardly have been intended, a construction may be put upon it which modify the meaning of the words and even the structure of the sentence. This may be done by departing from the rules of grammar, by giving an unusual meaning to particular words, or by rejecting them altogether, on the ground that the Legislature could not possibly have intended what its words signify and that the modification made are mere corrections of careless language and really give the true Meaning."
Regarding interpretation, the august Supreme Court of Pakistan through a very illuminating judgment in Al-Jehad Trust through Raeesul Mujahideen Habib-ul-Wahabb-ul-Khairi v. Federation of Pakistan and others (PLD 1996 SC 324) has given guidelines in the shape of following observations:--- "In this connection it is pertinent to observe that it is well-settled principle of interpretation that the Court is empowered to harmonise conflicting provisions of the Constitution and the Statutes and if it is not possible to reconcile the inconsistent provisions, to declare which of the provision will be preferred and given effect. The Court in exercise of its inherent judicial power can even read 'words' in the Constitution or Statute in order to give effect to the manifest intention of the Legislature. In Muhammad Ismail v. The State PLD 1969 SC 24 this principle was duly recognized by this Court and it was observed that in order to give effect to the true intention of the lawmakers it is permissible for the Courts to read words in the Statute. It is true that generally a Court of law is not authorized to alter the language of the. Statute for the purpose of supplying a meaning, yet in certain circumstances it is permissible for the Courts to give effect to the true and patent intention of the lawmaker by supplying 'commission' in order to avoid manifest injustice. It is a misconception, therefore, to consider that the reading of the words in the Constitution or Statute to give effect to the free intention of the law-maker amounts to re-writing or amending the Constitution or the Statutes. On the other hand, its purpose is to give effect to its true intent."
23. In addition to the abovementioned principles of interpretation it is also by now established principle of law that if a Circular is of benevolent nature, the same would go to the assistance of assessee. If an authority in support of this proposition is required, reliance can be safely placed on a judgment of the august Supreme Court of Pakistan in The commissioner of Income-tax, East Pakistan, Dacca v. Noor Hussain PLD 1964 SC 657) it was held: "The learned counsel for the Income-tax Commissioner has brought to our notice the following Circular which was issued by the Central Board of Revenue, Karachi on 26th April 1957: "Section 26-A. Registration of firms.---The amendment made in subsection (1) clarifies that the instrument of partnership shall be in writing. Subsection (4) has also been amended and brought in line with subsection (3) which envisages a written partnership deed which should have been in existence in the relevant previous year. On a strict interpretation of the law, a firm can be registered only from the date on which the partnership deed has been executed. Since this would create hardship, the Board is disposed to agree to the benefit of registration being allowed for the full previous year in which the instrument of partnership is executed, provided of course the other conditions laid down for the registration of the firms under section 26-A are fulfilled. It should be noted that under rule 2 of the Income-tax Rules, in the case of a new firm an application for registration, which is to be accompanied by the instrument of partnership in original or a certified copy thereof, has to be filed before the end of the previous year or, where the firm is not registered under the Partnership Act, 1932 or the deed of partnership is not registered under the Registration Act, 1908, within six months of the constitution of firm, whichever is earlier. Thus, retrospective effect can be given to a deed for more than six months."
I would merely observe that the course pursued by the Board seems to be correct.
Supreme Court of India in K.P. Varghese v. Income-tax Officer, Ernakulam, and another, which was a famous case, while dealing with similar situation held: "It is well-settled principle of interpretation that Courts in construing a statute will give much weight to the interpretation put upon it, at the time of its enactment and since, by those whose duty it has been to construe, execute and apply it." and this statement of the rule was quoted with approval by this Court in Deshbandhu Gupta & Co. v. Delhi Stock Exchange Association Ltd. 0979) 4 SCC 565; AIR 1979 SC 1049. It is clear from these two Circulars that the CBDT, which is the highest authority entrusted with the execution of the provisions of the Act, understood subsection (2) as limited to cases where the consideration for the transfer has been understated by the assessee and this must be regarded as a strong circumstance supporting the construction which we are placing on that subsection.
But the construction which is commending itself to us does not rest merely on the principle of contemporanea expositio. The two Circulars of the CBDT to which we have just referred are legally binding on the revenue and this binding character attaches to the two circulars even if they be found not in accordance with the correct interpretation of subsection (2) and they depart or deviate from such construction. It is now well settled as a result of two decisions of this Court, one in Navnit Lal C. v. K.K. Sen, AAC (1965) 56 ITR 198 and the other in Ellerman Lines Ltd. v. CIT (1971) 82 ITR 913 that circulars issued by the CBDT under section 119 of the Act are binding on all officers and persons employed in the execution of the Act even if they deviate from the provisions of the Act."
24. Gujarat High Court (India) in Laxmichand Hirjibhai v. CIT, Gujarat-III (128 ITR), in which it was held: "The position regarding the effect of the circular of the CBDT has been considered by several decisions of the Supreme Court and of this High Court and in Shri Rajan Ramkrishna v. CWT (1981)
127 ITR 1 (Guj.), the decisions of the Supreme Court in Navnil Lal C. Zaveri v. K.K. Sen. AAC (1965) 56 ITR 198 at page 203 and in Ellerman Lines Ltd. v. CIT (1971) 82 ITR 913, alongwith decisions of other High Courts were considered and it was pointed out that according to the Supreme Court's decision in Ellerman Lines' case (1971) 82 ITR 913, even if there was deviation from the provisions of law in force and the circulars deviated from the legal position, the circulars were required to be followed by ITOs since the circulars were benevolent circulars which would go to the assistance of the assessee."
Similarly in Gurjargravures (Pvt.) Ltd. v. Income-tax Officer, Company Circle-VIII, Ahmedabad and another (154 ITR 786) it was held:--- "Benevolent circulars issued by the Central Board of Direct Taxes, even if they deviate from the legal position, are required to be followed by the ITO since the circulars would go to the assistance of the assessee."
25. Likewise in Rajan Ramkrishna v. Commissioner of Wealth Tax, Gujarat-I (127 ITR 1) it was held:-- "Now, coming to the question as to the effect of instructions issued under section 5(8) of the Act, this Court observed in Navnil Lal C. Zaveri v. K.K. Sen, Appellate Assistant Commissioner (1965) 56 ITR 198, 203: `It is clear that a circular of the kind which was issued by the Board would be binding on all officers and persons employed in the execution of the Act under section 5(8) of the Act. This circular pointed out to all the officers that it was likely that some of the companies might have advanced loans to their shareholders as a result of genuine transactions of loans, and the India was not to affect such transactions and not to bring them within the mischief of the new provision.
The directions given in that circular clearly-deviated from the provisions of the Act, yet this Court held that the circular was binding on the Income-tax Officer."
These two decisions of the Supreme Court in Navnil Lal C. Zaveri's case (1965) 56 ITR 198 and in Ellerman Lines Ltd.'s case (1971) 82 ITR 913 were considered by this Court in Bechardas Spg. & Wvg.
Mills Co. Ltd. v. CIT (Income-tax Reference No..153 of 1976, decided on 11th March 1977) by the Division Bench consisting of J.B. Mehta, Acting C.J. And D.A. Desai, J. There it was observed: "We need not reiterate that the position of such benevolent circulars issued under section 119 of the Act for meeting such cases of extreme hardship stands well settled after the decision of their Lordships in Navnil Lal C. Zaveri v. K.K. Sen (1965) 56 ITR 198 (SC), at page 203 in Ellerman Lines Ltd. v.
CIT (1971) 82 ITR 913 (SC), at page 923. There their Lordships pointed out that the directions in such benevolent Circulars, even though they may be deviating from the provisions of the Act, would be binding on the Income-tax Officer."
This position is well accepted and there are several decisions of the different High Courts in India, namely, the decisions of the Bombay High Court in Tata Iron & Steel Co. Ltd. v. N.C. U,padhyaya (1974) 96 ITR 1 and in Navnitlal Ambalal v. CIT (1976) 105 ITR 735, the decision of a Full Bench of the Kerala High Court in M.M. Annaiah v. CIT (1970) 76 ITR 382 (Mys.), and in Dr. T.P. Kapadia v. CIT (1973)
87 ITR 511 (Mys.). Thus, the legal position is that benevolent circulars are binding on all ITOs and WTOs, as the case may be, and on all the persons employed in the execution of the Wealth Tax Act."
26. Same view was taken in Dattatraya Gopal Shette v. Commissioner of Income-tax, Poona Range Poona Kania: "It is now well-settled that even if the contents of a circular may amount to a deviation on a point of law, a Circular of the Central Board of Revenue which confers some benefit on the assessee is binding on all officers concerned with the execution of the Income Tax Act; and they must carry out their duties in the light of the circular. In the present case, therefore, it was, in the first place, the duty of the ITO to have drawn the attention of the assessee-firm to the defect in the application for renewal of registration. The ITO, however, granted registration to the firm. In such a situation it was equally the duty of the CIT to have given an opportunity to the assessee-firm to remedy the defect in their application. The CIT, in view of this circular, clearly should not have cancelled the renewal of registration of the assessee-firm without giving an opportunity to the assesseefirm to remedy the defect in the application."
27. In addition to the above-quoted case-law reliance can also be placed upon:--
(i) Commissioner of Income-tax, Kerala-I v. B.M. Edward, India Sea Foods, Cochin (119 ITR 334),
(ii) Rajarajeswa ri Weaving Mills v. Income-tax Officer, "A' Ward, Cannanore and another (113 ITR 405),
(iii) Commissioner of Income-tax, Assam, Nagaland, Meghalaya, Manipur and Tripura (102 ITR 408),
(iv) Navanitlal v. KK. Sen (56 ITR 198),
(v) Ellerman Lines Ltd. v. CIT (82 ITR 913),
(vi) 150 ITR 460,
(vii) UCO Bank v. Commissioner of Income-tax (237 ITR 889), (1999 PTD 3752)
28. We feel it appropriate here to mention that Circulars are issued by Central Board of Revenue exercising the powers under section 165 of the Ordinance and the instructions contained in the Circulars and Notifications are under section 8 of the Ordinance binding upon the Officers and persons employed in execution of Income Tax Ordinance. Section 8 of the Ordinance is reproduced hereunder for convenience:--- "All Officers to follow the orders of the Central Boar'i of Revenue.---All Officers and persons, employed in the execution of this Ordinance, shall observe and follow the orders, instructions and directions of the Central Board of Revenue: Provided that no such orders, instructions or directions shall be given so as to interfere with the discretion of the Appellate Additional Commissioner in the exercise of his appellate functions or any value in the exercise of his functions under this Ordinance."
The plain reading of the abovementioned section of law would show that all the Officers and persons who have been employed in the execution of Income Tax Ordinance are bound to follow the orders and instructions issued from time to time by the C.B.R. In the shape of Circulars and Notifications. If any case-law in support of this contention is required, reliance can be placed on Messrs Julian Hoshang Dinshaw Trust and others v. Income-tax Officer, Circular XVIII, South Zone, Karachi and others (992 SCMR 250), wherein it was held:---- "After hearing the learned counsel for the parties we are unable to agree with the High Court. It is not disputed that Circular No.8 issued by the Central Board of Revenue was in force at the relevant time. Under section 5(8) of the Income Tax Act, 1922 and section 8 of the Income Tax Ordinance, 1979, the orders, instructions and directions of the Central Board of Revenue are binding on all the officers entrusted with the execution of the Statute."
29. Similarly is UCO Bank v. Commissioner of Income Tax (1999 PTD 3752) it was held:--- "The Central Board of Direct Taxes under section 119 of the Income Tax Aci, 1961, has power, inter alia, to tone down the rigour of the law and ensure a fair enforcement of its provisions, by issuing circulars in exercise of its statutory power under section 119 of the Act which are binding on the authorities in the administration of the Act. Under section 119(2)(a), however, the Circulars as contemplated therein cannot be adverse to the assessee. The power is given for the purpose of just, proper and efficient management of the work of assessment and in public interest. It is a beneficial power given to the Board for proper administration of fiscal law so that undue hardship may not be caused to the assessee and the fiscal laws may be correctly applied. Hard cases which can be properly categorized as belonging to a class, can thus, be given the benefit of relaxation of law by issuing Circulars binding on the taxing authorities."
30. In support of the above proposition reliance can also be placed on the following judgments:-
(i) 1996 PTD 100; (ii) 65 Tax 102 SC and (iii) 56 ITR 198.
31. The detailed scrutiny and discussion of the abovementioned case-law lead us to the irresistible conclusion that Circulars Nos.3, 11 and 12 of 1992 and 1 of 1993 issued by the C.B.R. On 27-1-1992, 4-5- 1992, 19-5-1992 and 11-1-1993 in exercise of powers conferred under section 165 of the Ordinance and were meant to tone down the rigours of law and ensure a fair enforcement of its provisions.
The Federal Government after inserting subsection (18) in section 12 of the Ordinance in the year 1987 realised that certain difficulties were created for the assessees and that was the reason that the said provisions of section 12(18) of the Ordinance were held in abeyance till 30-6-1990 through Notification No. SRO 838 (1)/87, dated 26-10-1987:Then in the year 1992 need was felt to insert subsection (18A) in section 12 whereby in private loan or advance which was found not to have been paid on or before 30th day of June, 1994 or within five years of the expiration of the income year in which the said amount was obtained, whichever was later, the whole amount of the loan or advance or a portion thereof remaining unpaid after the expiration of such date or paid, as the case would be, was deemed to be income of assessee in the income year immediately next following or any subsequent year in which such finding was made. On the one hand subsection (18A) was made effective from 1-7-1992, on the other hand the Circulars Nos.3, 11 and 12 of 1992 and 1 of 1993 were issued.
32. The said Circulars could not be declared as ultra vires of section 12(18) of the Ordinance for the following reasons:-- Firstly, through these Circulars, the genuine transactions of the assessees which were verifiable and identifiable were given protection.
Secondly, these Circulars were benevolent and beneficial to the assessees. The basic and first principle construing a beneficial legislation is to interpret its provision to advance purpose rather than thwart or subvert it by specious sophistry. (1992 SCM R 2166).
Thirdly, the abovementioned Circulars were issued to tone down the rigours of the law and to ensure a fair enforcement of the provisions of section 12(18) of the Ordinance. The said Circulars were issued for purpose of just, proper and efficient management of the work of assessment in the public interest and for proper administration of fiscal law so that no undue hardship could be caused to the assessee and the fiscal laws be correctly applied. (1949 PTD 3752).
Fourthly, certain relaxations were given to the assessees in order to promote justice and it is also a recognized principle of law that a Court has to take into consideration the object for which a particular Circular was made and the mischief intended to suppress and if two possible constructions of a provision of such an instrument are possible, one which favours the class of persons for whose benefit the Circular has been made would be preferred. (1998 SCM R 440).
Fifthly, the legislation itself had felt that insertion of subsection (18) in section 12 of the Ordinance had created hardships and difficulties, therefore, the said provisions were held in abeyance vide Notification SRO No. 838(1)/87, dated 26-10-1987 till 30-6-1990. Moreover, the pith and substance of the four Circulars was later on incorporated in law in the shape of subsection (18A) which remained on Statute book till 1996. The loans or advance taken by any means if not paid within five years were made taxable after the expiry of five years, which means that the Federal Government had itself accepted the validity of the four Circulars issued by the C.B.R.
Sixthly, the said Circulars had been validly issued in exercise of powers under section 165 of the Ordinance and were binding on all the Officers and persons employed in execution of the Ordinance under section 8 ibid. (1992 SCM R 250).
Seventhly, through the abovementioned Circulars, neither interpretation of any section of law was made by C.B.R. Nor the same could be made in view of the judgment of the august Supreme Court of Pakistan in Messrs Central Insurance Co. And others v. The Central Board of Revenue, Islamabad and others (1993 SCM R 1232).
Eighthly, the above-quoted four Circulars were neither against the spirit of section 12(18) of the Ordinance nor the C.B.R. Had deviated from the provisions of the Ordinance by issuing the said Circulars.
33. The learned Income Tax Appellate Tribunal while terming the said Circulars ultra vires of section 12(18) of the Ordinance did not consider the abovementioned reasons and also failed to appreciate the law applicable in the matter, therefore, for the reasons mentioned above, we answer the questions in Tax References Nos.24 and 33 of 1997 in the following terms:---
(i) The question whether any amount received through crossed Cheques, Cash or any other Banking Channel is liable to tax under section 12(18) of the Income Tax Ordinance, 1979 is answered in negative i.e. Any amount received through crossed Cheques, Cash or any other Banking Channel is not liable to Tax under section 12(18) of the Ordinance.
(ii) Sofaras second question i.e. Whether Income-tax Appellate Tribunal has rightly declared Circulars Nos.3, 11 and 12 of 1992 and Circular No.1 of 1993 ultra vires of section 12(18) of the Income Tax Ordinance, 1979 is concerned, we answer the same in negative.
Circulars No.3, 11 and 12 of 1992 and Circular No.1 of 1993 are not ultra vires of section 12(18) of the Ordinance.
34. Sofaras the F.A.Os. Nos.26 and 27 of 1997 and 192 of 1999 are concerned, the impugned judgments/orders passed by the learned Income Tax Appellate Tribunal are set aside and that of Commissioner Income Tax (Appeals) are restored. The References as well as appeals are sent to the Income Tax Appellate Tribunal in terms of section 136(5) of the Ordinance with the direction to pass necessary orders as required under the abovementioned section of law. The Registrar of this Court is directed to send certified copy of this judgment under the seal of the Court and under his signatures to the Appellate Tribunal enabling it to do the needful. There shall be no orders as to costs. .