Dhaka Vegetable Oil Ind. Ltd. Vs. Commissioner of Taxes, Dhk. (North) Zone, Dhaka,

Dhaka Vegetable Oil Ind. Ltd.

 Vs.

Commissioner of Taxes, Dhk. (North) Zone, Dhaka, 1997,

Supreme Court

Appellate Division

(Civil)

Present:

ATM Afzal CJ

Mustafa Kamal J

Latifur Rahman J

Md. Abdur Rouf J

BB Roy Choudhury J

Dhaka Vegetable Oil Industries Ltd ……………….Appellant

Vs.

Commissioner of Taxes, Dhaka (North) Zone, Dhaka ………..Respondent

Judgment

January 6th, 1997.

Lawyers Involved:

Rafiqul Huq, Senior Advocate (Shorful Islam Khan and Ajmalul Hossain, Advocates with him) instructed by Shamsul Haque Siddique, Advocate-on-Record-For the Appellant in both the appeals.

Zakir Ahmed, Senior Advocate, instructed Md. Sajjadul Huq, Advocate-on-Record -For the Respondent in both the appeals.

Civil Appeal Nos. 48 and 49 of 1993

(From the Judgment and order dated 2-3-93 passed by the High Court Division in Income Tax Reference Application Nos. 30 & 31 of 1985).

Judgment:

                   Mustafa Kamal J: These two appeals arise Out of a Certificate granted under section 66A (2) of the Income Tax Act, 1922 by a Division Bench of the High Court Division in Application Nos. 30 and 31 of 1989 in which the appellant formulated 5 questions of law for decision of the High Court Division under section 66(1) of the Income Tax Act, 1922, hereinafter referred to as the said Act.

2. The short facts for disposal of these appeals tie that, the appellant company, incorporated under the Companies Act, 1913, owns a factory for manufacturing soyabean oil and vegetable ghee. It was declared as an abandoned property and by order dated 17-5-72 it was placed under Bangladesh Food and Allied Products Cooperation, now Bangladesh Sugar Mills Corporation as a Nationalized Enterprise under President’s Order No 27 of 1972. It has since been disinvested. The appellant company submitted return for the assessment years 1975-76 and 1976-77 showing an income of Taka 1,13,70,323.00 and a loss of Taka 1,02,349.00 respectively, with unaudited Trading and Profit and Loss Accounts but subsequently submitted a revised return for 1976-77 with audited statement of accounts showing a loss of Taka 42,48,262.00. The Deputy Commissioner of Taxes, Company Circle 11, Dhaka issued notices under sections 23(2) and 22 (4) of the said Act on the appellant for both the assessment years but none appeared before him on 20.4-76, the date fixed for hearing. On his own the said Commissioner adjourned the matter to 18-5-76 and also thereafter to 21-6-76. Then in the absence of the appellant the Deputy Commissioner made the assessment on 2 1-6-76 under section 23(4) of the said Act which is known as best judgment assessment and in so doing he rejected the trading accounts of the appellant for both the assessment years and for 1975-76 determined the total income at Taka 4, 86, 84,105.00 and for 1976-77 determined the total income at Taka 5, 71, 87,381.00.

3. The appellant preferred Income Tax Appeal Nos. 11/C-U/76-77 and 87/C-H/79-80 for 1975-76 and 1976-77 respectively before the Appellate Joint Commissioner of Taxes, “A” Range, Dhaka (North) Zone, Dhaka.

4. During the pendency of the said two appeals the National Board of Revenue issued Circular No. 1 (3)-M (T&A)/NBR/80 dated 2-8-80 instructing, the assessing officers to finalise the pending assessment of all nationalised concerns by 31-10-90” on the basis of audited reports and statements, without being too meticulous about the examination of their accounts, for such meticulousness really serves no useful purpose.” The appellant’s Audited Accounts which were not available for production before the Deputy Commissioner of Taxes were then submitted before the Appellate Joint Commissioner of Taxes for both the assessment years.

5. The Appellate Joint Commissioner of Taxes by order dated 20-3-8 1 dismissed both the appeals with minor modifications.

6. The appellant thereafter filed ITA Nos. 3172 of 1980-81 and 3173 of 1980-81 before the Income Tax Appellate Tribunal in respect of assessment years 1975-76 and 1976-77 respectively. The Tribunal by order dated 4-4-84 rejected all the contentions of the appellant in respect of assessment year 1975-76 and dismissed the appeal and allowed the appeal in part in respect of assessment year 1976-77.

7. Thereafter the appellant moved the High Court Division under section 66(1) of the said Act formulating five questions of law arising Out of the order of the Appellate Tribunal, but since question Nos. (i), (iv) and (v) were not pressed by the learned Advocate for the appellant before the High Court Division, only the following two questions in the order those were framed by the appellant need to be noticed in these appeals:

ii) Where the Tribunal was justified in law in holding that Circular No. 1(3)-M (T&A)/NBR/80 dated the 2nd August, 1980 of the National Board of Revenue did not entitle the petitioner to the benefit of the protection of its trading account under the instruction contained therein;

iii) Whether the Tribunal was justified in law in upholding the determination of the trading profit by the Deputy Commissioner of Taxes as affirmed by the Appellate Joint Commissioner of Taxes in the face of the Circular dated the 2nd August, 1980 of the National Board of Revenue.

8. The High Court Division held that the Circular had nothing to do with the procedural law laid down in the said Act and therefore it had no retrospective effect. The Deputy Commissioner of Taxes did not have the Circular for his consideration at the stage of assessment and at the appellate stage there was no scope for admitting fresh materials in the disposal of the appeals, because there is no provision in the said Act for taking fresh evidence or materials at the appellate stage. Finally, the High Court Division held that as the Appellate Tribunal did not decide question Nos. (ii) and (iii) the said questions have not arisen out of the order of the Tribunal and, as such, the High Court Division is not obliged to answer those questions.

9. We have no hesitation to give a finding at once that the last conclusion of the High Court Division is factually incorrect, inherently contradictory and theoretically untenable. It is not correct to say that the Tribunal did not consider the Circular and its legal effect. The High Court Division did not notice the following observations of the Tribunal:

“The reason for acceptance of accounts of the subsequent years was intimated to the DCT. The DCT informed me (the Appellate Joint Commissioner of Taxes) that the assessment for subsequent years were completed after the NBR instruction under No. 1(3)-M (T&N)/NBR/88 dated 2-8-80 had been issued while the assessment of the instant year was completed earlier. Naturally the said instruction would not be acted upon while the assessment was framed.”

10. In other words, the Tribunal upheld the action of the Appellate Joint Commissioner of Taxes in not taking into account the Circular in question and in not accepting the audit reports filed before him without questioning them. Factually therefore the High Court Division is not correct to say that the Tribunal did not decide question Nos. (ii) and (iii) at all and therefore the said questions did not arise out of the order of the Tribunal.

11. We hold this finding to be inherently contradictory because after having answered question Nos. (ii) and (iii) in no uncertain terms the High Court Division took up a contradictory posture and held that the two questions would not be answered.

12. In any view of the matter it is well-settled that whether a question of law is answered by the Tribunal or not if the question is raised before the Tribunal then it will be taken to have arisen from its order. Mr. Rafiqul Huq, learned Counsel for the appellant, cites several cases in support of this proposition. In the case of Harilal Harijivan vs. Commissioner of Income Tax, (1962) 46 ITR 1129 (Bom) it has been held as follows:

“The contention which has been raised before the Tribunal, even if the Tribunal has refused to entertain it, is a contention which arises on the order of the Tribunal—In our opinion, therefore, the circumstance that the Tribunal had not permitted the question to be noised before it would not be sufficient to take the view that the question either need not be answered or must be answered – against the assessee.”

13. It has again been held in the case of SMN Thangaswamy Chettiar and another vs. Commissioner of income Tax, Madras, (1965) ii ITR 546 (Madras) that a question of law raised before the Tribunal but which the Tribunal has failed to deal with, must be deemed to have been dealt with by it, and will be one arising from its order. The High Court Division can, therefore, consider such a question in a reference.

14. The Supreme Court of India has supported the above views in the case of Estate of the late AMKM Karuppan Chettiar vs. Commissioner of Income-Tax, (1969) 72 ITR 403 (SC) (407), “Before the Tribunal also that contention was raised. The question was raised before the Tribunal. Even if it was not expressly dealt with by the Tribunal, it s arose Out of the order of the Tribunal.” The Supreme Court of India relied upon its earlier decision in the case of Commissioner of Income-tax vs. Scindia Steam Navigation Co. Ltd. (1961) 42 ITR 589 (SC).

15. What arises Out of the order of the Tribunal is apparently well-settled and we have no hesitation in holding that the High Court Division was obviously in the wrong in coming to a finding that question Nos. (ii) and (iii) did not arise out o( the order of the Tribunal.

16. In answering the two questions above the High Court Division held that there is no provision in the said Act for taking fresh evidence or materials at the appellate stage. The High Court Division was obviously unmindful of sub-sections (2) and (2B) of section 31 of the said Act which are as follows:

“(2) The Appellate Joint Commissioner before disposing of any appeal, call for such particulars as he may require respecting the matters arising in the appeal or cause further inquiry to made by the Deputy Commissioner of Taxes.

……………………………………………………………….

(2B) When hearing an appeal the Appellate Joint Commissioner shall not admit any documentary material or evidence which was not produced before the Deputy Commissioner unless the assessee can show that he was prevented by sufficient cause from producing such material or evidence.”

17. The audit reports of assessment years 1975-1976 and 1976-77 were not ready when the assessments were completed by the Deputy Commissioner of Taxes on 2 1-6-76. The audit reports were made available to the appellant when the appeals were pending before the Appellate Joint Commissioner of Taxes. The appellant filed the audit reports. The Appellate Joint Commissioner of Taxes inquired from the Deputy Commissioner of Taxes as to how the assessment for the assessment years 1977-78, 1978-79 and 1979-80 were made. The Deputy Commissioner of Taxes replied that assessments for those years were made after receipt of the Circular dated 2-8-80 and on the basis of the audit reports as instructed in the Circular. The Appellate Joint Commissioner of Taxes noted in the appellate order that he personally looked into the audit reports. In other words, he was satisfied that the appellant was prevented by sufficient cause from producing the audit report before the Deputy Commissioner of Taxes when the assessments were made in 1976. But after having perused the audit reports the Appellate Joint Commissioner of Taxes merely agreed with the criticism of the method of account keeping of the appellant-company as made in the audit reports and taking the view that the Circular dated 2-8-80 “does not appear to have retrospective effect” upheld the assessments made by the Deputy Commissioner of Taxes. In other words, he refused to follow the Circular and the audit reports, although both the materials were before him and he perused the same.

18. As such, the High Court Division really failed to notice that the Appellate Joint Commissioner of Taxes had, in fact, looked into fresh evidence but did not accept it. So the view taken by the High Court Division that there is no provision in the said Act for taking fresh evidence or materials at the appellate stage is not correct. Mr. Rafiqul Huq has cited a number of decisions from the Indian Jurisdiction on the power of the (Indian) Appellate Assistant Commissioner, even in cases of best judgment assessment under section 23(4), to look into the books which the assessee failed to produce when asked to do so under section 22(4), in order to ensure that the judgment of the assessing officer is not capricious or arbitrary and, if it is defective, to rectify it on a valid and proper basis. It has been held in those decisions that the appellate authority has plenary powers in disposing of an appeal. The scope of his powers is conterminous with that of the Income-tax Officer. He can do what the Income-tax Officer do and can can also direct him to do what he has failed to do. (vide the cases of Sundermul & Co. vs. Commissioner of Income-tax, (1967) 66 ITR 277 (Andhra), Commissioner of Income-tax vs. Kanpur Coal Syndicate, (1964) 53 ITR 225 (SC), Keshar Mills Co. Ltd. vs. Commissioner of Income-tax, (1965) 56 ITR 365 (SC), Commissioner of Income-tax vs. Scindia Steam Navigation Co. Ltd., (1971) 80 ITR 589 (Bom), Commissioner of Income-tax vs. Ganga Jamuna, (1986)157 ITR 225 (Cal) and Jwaladutt Jiwankumar vs. Commissioner of Wealth-Tax, (1974) 95 ITR 183 (Cal).

19. In view of the express provisions of section 31(2) and (2B) of the said Act we find that the appellate powers of the Appellate Joint Commissioner of Taxes are no different and no less than those of the Deputy Commissioner of Taxes.

20. Now comes the question as to whether the Circular dated 2-8-80 was retrospective in operation and whether the Appellate Joint Commissioner of Taxes was required to abide by the same.

21. We have earlier noticed the Circular in question in its essentials and we find from the wordings thereof that the Circular in question was plainly meant to be retrospective. Under section 5(8) of the said Act it is provided as follows:

“5(8) All Officers and persons employed in the execution of this Act shall observe and follow the orders, instructions and directions of the National Board of Revenue:

Provided that no such orders, instructions or directions shall be given so as to interfere with the discretion of the Appellate Joint Commissioner of Taxes in the exercise of his appellate functions.”

22. We are satisfied that the Circular in question does not in any manner interfere with the discretion of the Appellate Joint Commissioner of Taxes in the exercise of his appellate functions.

23. The Circular in question would have had no effect upon the assessments in question if the assessment had reached finality and had already fossilized into a closed transaction. But because of the pendency of the appeals the assessments were quite open. What the Deputy Commissioner of Taxes could do with regard to the assessments the Appellate Joint Commissioner of Taxes could do the same. He had all the authority to finalise the assessments on the basis of audit reports, made available to him at the time of hearing of the appeals, without being too meticulous about the examination of the accounts of the appellant for it was the considered view of the National Board of Revenue that “such meticulousness really serves no useful purpose.”

24. Mr. Rafiqul Huq has cited several d namely, the cases of Lachmeshwar Prasad Shukul and ors. Vs. Kesh war Lal Chaudhuri and ors. AIR 1941 (FC) 5, Sayeedur Rahman vs. The Chief Election Commissioner, Dacca, (1965) 17 DLR 23 (SC) and Pasupuleti Venkateswarlu vs. The Motor & General Traders, AIR 1975 (SC) 1409 in support of his submission that in civil Courts an appeal is by way of re-hearing of suit and the appellate Court can consider even facts and events coming into existence after the decree appealed against and that if there is a change of law while the case is pending in the appellate Court the appellate Court can give effect to the change. Mr. Rafiqul Huq has also cited the case of L’Office Cherifien Des Phosphates and another vs. Yamashita Steamship Co Lid, (1994) IAC 486 (Hol) (524) submitting that the basis of the rule regarding retrospectivity is fairness. if assessments of 1977-78 to 1979-80 could be made on the basis of the Circular, without questioning the audit reports, is it fair to exclude assessment years 1975-76 and 1976-77 from the purview of the Circular?

25. We are not concerned here with the power of an appellate Court established under the Civil Courts Act nor are we concerned with the change law during the pendency of an appeal nor is t; a case of retrospective operation of a statue. In this case the National Board of Revenue has only issued a Circular in exercise of its powers under section 5(8) of the said Act. The Circular is in the nature of a direction upon Assessing Officers to appreciate evidence of certain materials produced before them in a particular manner, instructions which are binding on them. The only argument which was available with the Appellate Joint Commissioner of Taxes in avoiding the Circular is that the assessments were already made when the Circular had not yet been issued and therefore the assessments were a closed transaction. But obviously the assessments were not a closed transaction and the Appellate Joint Commissioner of Taxes had the whole question of assessment open before him. If there was a subsequent Circular of the National Board of Revenue requiring the assessing officer to treat the evidentiary value of an audit report in a particular manner then that Circular was as much binding the Appellate Joint Commissioner of Taxes as upon the original assessing officer because the assessment had still not attained a finality.

26. Mr Zakir Ahmed, learned Counsel appearing for the respondent, found it difficult resist the argument advanced by Mr. Rafiqul Huq.

In the result both the appeals are allowed without any order as to costs.

 

Ed.

Source: 49 DLR (AD) (1997) 136

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