9/3/25, 2:17 AM 1992 P T D 932

1992 P T D 932

[Supreme Court of Pakistan]

Present: Ajmal Mian, Sajjad Ali Shah and Saleem Akhtar, JJ

GLAXO LABORATORIES LIMITED

versus

INSPECTING ASSISTANT COMMISSIONER OF INCOME-TAX and others

Civil Appeal No.236-K of 1991, decided on 26th April, 1992.

(On appeal from the judgment and order of the High Court of Sindh dated 24-10-1991
passed in C.P. No.D-384 of 1991).

(a) Income Tax Ordinance (XXXI of 1979)---

----S. 66-A---Constitution of Pakistan (1973), Art.185(3)---Leave to appeal was

granted to consider the questions as to whether upon the appellate order being made on
the appeal from the original assessment order the IA.C. had jurisdiction under S.66-A
to revise the original assessment order and whether upon the appellate order being
made the original assessment order merged with the appellate order according to the
doctrine of merger with the consequence that there was then no -longer available an
order of the Income -tax Officer capable of revision under S.66-A'of the Ordinance.

(b) Income Tax Ordinance (XXXI of 1979)---

----S. 66-A(1) & (1-A)---Inspecting Assistant Commissioner is authorised under S.66-

A(1.) to issue a notice for reopening the case if he considers that any order passed by
the Income-tax Officer is erroneous causing prejudice to the interest of Revenue---
Mere --erroneous order of the Income-tax Officer without causing prejudice to the
interest of the Revenue will not authorised Inspecting Assistant Commissioner to
exercise power under S.66-A and these ingredients must be satisfied before invoking
S.66-A.

(c) Income Tax Ordinance (XXXI of 1979)---

----S. 66-A (before Amendment of 1991)---Inspecting Assistant Commissioner was

authorised under S.66-A to examine and initiate action if the order passed by the I.T.O.
was erroneous in so far as it was prejudicial to the Revenue-- Inspecting Assistant
Commissioner would not have the jurisdiction or power to initiate same action in
respect of the orders passed by the Appellate Authority or the Tribunal.

(d) Income-tax

----Appeal---Original order merges in the appellate order.

Corpus Juris Secundum, Vol. 57 at p.1067 and Commissioner of Income Tax v.

Farrokh Chemical Industries 1992 S C M R 523 ref.

(e) Words and phrases---

----"Merge" and "merger"---Meaning.

Corpus Juris Secundum, Volume 57, at page 1067 ref.

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(f) Income-tax---

----Firm, registration of---While making assessment in cases of registration of

partnership the Income-tax Officer passes two separate orders---First order is the
assessment order and the second order which is completely separate is for registration
of the firm, therefore, there exist two separate orders in the same proceedings and if the
assessee files an appeal against the assessment order the second order remains
unchallenged and does not become subject-matter of the appellate order and in such a
case question of merger does not arise.

(g) Income Tax Ordinance (XXXI of 1979)---

----S. 66-A---Order of assessment was one which was challenged in appeal by the
assessee which was partly allowed against which the department and the assessee both
had filed appeal---Department withdrew its appeal which was dismissed and then came
the proceedings under S.65 in which same question was considered---Order of Income-
tax Officer thus merged in the order of Tribunal.

Amritlal & Bhogilal & Company AIR 1958 SC 868 distinguished.

(h) Income Tax Ordinance (XXXI of 1979)---

----Ss. 66-A & 65 (before amendment of 1991)---Fact that no appeal had been provided
to the department against the assessment order would not mean that power under S.66-
A (as it stood before amendment in 1991) could be exercised even in respect of- orders
passed by the appellate authority---In the absence of right of appeal, S.66-A provided
an opportunity to the Inspecting Assistant Commissioner to reopen the case if the ITO
had committed error prejudicial to the revenue provided his order had not merged in
the appellate/revisional order.

(i) Income Tax Ordinance (XXXI of 1979)---

----S. 129---Appeal---Appeal provided under S.129 is not of a limited nature-- Nature

and scope of the provision of law as provided for challenging an order in appeal or
revision determines the effect and scope of such order---Where such an order has been
passed in exercise of such jurisdiction it becomes final and operative in respect of the
order against which appeal or revision has been filed---If two separate orders in respect
of two separate subjects/proceedings have been passed in a consolidated order which
are severable and one of them is appealable while the other is not, then the appeal filed
in such a case will only affect that part of the order which is appealable.

Amritlal & Bhogilal & Company AIR 1958 SC 868 distinguished.

(j) Income Tax Ordinance (XXXI of 1979)---

----S. 129---Appeal---Merger---Where there is only one order against which appeal has
been provided, filed and decided then there is no scope for argument that as some
objections or pleas which did exist but have not been taken, pressed or considered, that
part of the order which is covered by such pleas does not merge in the appellate order.

(k) Income Tax Ordinance (XXXI of 1979)---

----S. 66-A (before amendment of 1991)---Order of the Income Tax Officer had merged
into the order of the Tribunal---Inspecting Assistant Commissioner of Income Tax. had
no jurisdiction to initiate action under S.66-A for reopening the matter.
9/3/25, 2:17 AM 1992 P T D 932

Fateh Vellani, Advocate Supreme Court and Mrs. Majida Rizvi, Advocate-on-Record
for Appellant.

Shaikh Haider, Advocate Supreme Court and S.M. Abbas, Advocate on-Record for
Respondents.

Date of hearing: 31st March, 1992.

JUDGMENT

SALEEM AKHTAR, J.---The appellant with the leave of this Court has impugned the
judgment of the Division Bench of the High Court of Sindh dismissing the
Constitution petition filed by the appellant challenging the validity of notice under
section 66-A of the Income Tax Ordinance (hereinafter referred to as `the Ordinance')
dated 18-3-1991 issued by the Inspecting Assistant Commissioner of Income Tax,
Range-I, of Company Circle-5, Karachi.

2. The: assessment of the appellant for the assessment year 1987-88 was completed on
31st May, 1988, under section 62 of the Ordinance. The appellant filed an appeal
before the Commissioner of Income Tax (Appeals) who by order, dated 30th July,
1988, partly allowed it. The appellant. and the department both filed separate appeals
against the order of the Commissioner before the Income Tax Appellate Tribunal. The
department withdrew its appeal which was consequently dismissed but the appeal filed
by the appellant is still pending. After the dismissal of the appeal filed by the,
department Respondent No.1 served a notice under section 65 which reads as follows:-
-

"To

The Principal Officer,

M/s. Glaxo Laboratories Ltd.,
Karachi

Sub: Show cause notice to reopen the case under section 65 of the Income Tax
Ordinance. 1979. for assessment year 1987-88.

Please refer to the above. I am in possession of definite information that during the
assessment year 1987-88 you received an amount of Rs. 130 million in consideration
for having agreed to cease manufacturing infant milk food, weaning food and health
food in Pakistan and giving up these registered user and other rights in certain trade
marks. The receipt was not offered to tax. This item is liable to tax as receipt earned in
the course of business.

In view of the position explained above I have reason to believe that your income for
assessment year 1987-88 has been under assessed. You are, accordingly, requested to
explain as to why action under section 65 of the Income Tax Ordinance, 1979, for
above-mentioned assessment year should not be taken in your case.

The date of compliance is hereby fixed on 30-4-1989.

(Riaz Nasir Kazmi)

Inspecting Assistant Commissioner/
Chairman Panel-04, Companies II, Karachi'

3. The appellant submitted his explanation that Rs.130 million was received on the sale
of technical and marketing know how and sale of their rights in the trade mark and
related goodwill. It denied that it was an income liable to tax. However, by an
assessment order dated 24-6-1989 this receipt was brought to tax as capital gains. The
9/3/25, 2:17 AM 1992 P T D 932

appellant filed an appeal but it was dismissed. A further appeal before the Tribunal was
filed which was allowed and it was held that proceedings initiated under section 65 of
the Ordinance were illegal and without jurisdiction. Consequently the assessment made
by reopening the case under section 65 was cancelled and the original assessment order
passed by the ITO was restored. Thereafter, Respondent No.1 served or the appellant a
notice under section 66-A of the Income Tax Ordinance dated 18-3-1991 which reads
as follows:--

"To

M/s. Glaxo Laboratories (Pak) Ltd., Karachi.

Sub: Notice u/s 66-A--Assessment Year 1987-88.

Kindly refer to your assessment for the year 1987-88:--

Your assessment for the year 1987-88 (year ended 30-6-1987) was finalized under
section 62 (total audit of the Income Tax Ordinance, 79 on 31-5-1988 on total income
oaf Rs. 6,25,41;032 by the` ITO, Co. Circle B-1, Central Zone, Karachi.

This order was reopened under section 65 of the Income Tax Ordinance, 1979, on 23-
4-1989 as ITO had completely missed to- tax, the receipt of Rs. 130 million, shown as
extraordinary receipt in the audited accounts, on sale of technical know how, marketing
know how, Glaxo Rights in Trade Mark and related goodwill. This receipt was brought
to tax by Panel-04 Companies II, Karachi, as capital gains by the assessment order
dated 24-6-1989.

You preferred appeal against the said additional assessment framed by Panel. The
assessment was confirmed by CTT(A). On further appeal to Tribunal, the learned
Tribunal held that proceedings initiated under section 65 of the Income Tax Ordinance,
1979, were illegal and without proper jurisdiction as reopened proceedings tantamount
to change of opinion. As such the Tribunal cancelled the assessment of the Panel and
restored the assessment order passed by the I.T.O. The Tribunal did not go into the
merits of the case as far as the nature of receipt of Rs. 130 million was concerned,
whether it was revenue income or capital gains.

The assessment framed by the ITO is erroneous in law in so far it is prejudicial to the
interests of revenue as it had failed to tax receipts of Rs. 130 million which is the
income of the assessee company and is chargeable to tax.

I, therefore, intend to cancel the assessment under section 66-A of the Income Tax
Ordinance, 1979, and get an assessment passed which the circumstances of the case
justify. Please let me know what explanation you have to offer against the proposed
action. Your reply is awaited by 23-3-1991.

(Shahid Jamal)
Inpecting Assistant Commissioner of Income Tax,
Range-1, Companies-11, Karachi"

3. The appellant challenged the legality of the notice by filing a Constitution petition
which was dismissed by the impugned judgment. The learned Judges in the impugned
judgment observed that `although the receipt of Rs.130 million was disclosed to the
ITO in the tax returns filed by the appellants but he failed to subject the same to
income tax. The question of this being subjected to tax was neither raised nor
considered by the Commissioner of Income Tax in his appellate order.' In these
circumstances after discussing a large-number of the judgments cited at the Bar and
relying on Amritlal & Bhogilal & Company, AIR 1958 SC 808 and Madhurai Mills
Limited, AIR 1967 SC 681, it was held that the order of Income Tax Officer had not
9/3/25, 2:17 AM 1992 P T D 932

merged with the order of the Commissioner or the Tribunal and further observed as
follows:--

"We would further like to add that before the said doctrine of merger can be extended
to cases arising out of the decision given by the Income-tax Authorities, it must first be
considered, whether the decision was reached after holding of a proper inquiry and
after consideration of all the relevant aspects of the case. Otherwise any defect found
in the decision can be rectified by invoking the relevant provisions of the Income Tax
Ordinance. We are fortified in this view by the observations by our Supreme Court in
the case of Commissioner of Income Tax v. Wahiduzzaman, referred to earlier in this
judgment. No doubt, in this case the question was as to the application of the principle
of res judicata, but the proceedings in the instant case being of the same nature, the
legal principle enunciated by the Supreme Court would be equally applicable. We are,
accordingly, unable to agree with Mr. Vellani's contention that the doctrine of merger
applies to the present case."

Leave to appeal was granted to consider the following questions:--

(1) Whether upon the appellate order being made on the appeal from the original
assessment order the respondents have jurisdiction under section 66-A of the Income
Tax Ordinance, 1979 to revise the original assessment order. .

(2) Whether upon the appellate order being made the original assessment order merged
with the appellate order according to the doctrine of merger with the consequence that
there is then no longer available an order of the Income Tax Officer capable of revision
under section 66 A of the Income Tax Ordinance, 1979.

4. The main contention of the learned counsel for the appellant is that after the orders
passed by the Commissioner of Income Tax (Appeals) and the Tribunal the order of
assessment passed by the Income Tax Officer was merged in those orders and,
therefore, section 66-A could not be invoked. Section fib-A reads as follows:--

"66-A. Powers of Inspecting Assistant Commissioner to revise lncomc' Tax Officer's

order.

(1) The Inspecting Assistant Commissioner may call for and examine the record of any
proceedings under this Ordinance, and if he considers that any order passed therein by
the ITO is erroneous in so far as it is prejudicial to the interest of revenue, he may, after
giving the assessee an opportunity of being heard and after making or causing to be
made, such enquiry as he deems necessary pass such order thereon as the
circumstances of the case justify. including an order enhancing or modifying the
assessment or cancelling the assessment and directing a fresh assessment to be made.

(I-A) The provisions of subsection (1) shall in like manner, apply,--'

(a) Where an appeal has been tiled under sections 129, 134 and 137 or a reference has
been made under section 136, against an order passed by the ITO; and

(b) Where an appeal or reference referred to in clause (a) has been decided, in respect
of any point or issue which was not the subject matter of such appeal or reference.

(2) No order under subsection (1) shall be made after the expiry of four years from the
date of the order sought to be revised."

It may be clarified that subsection (1-A) was inserted by Finance Act, 1991, after the
impugned notice under section 66-A had been issued by the IAC. Subsection (1) of
section 66-A authorises Inspecting Assistant Commissioner to issue a notice for
reopening the case if he considers that any order passed by the Income Tax Officer is
9/3/25, 2:17 AM 1992 P T D 932

erroneous causing prejudice to the interest of the revenue. A mere erroneous order of
the Income Tax Officer without causing any prejudice to the interest of the revenue
will not authorise Inspecting Assistant Commissioner to exercise power under section
66-A. These two ingredients must be satisfied before invoking it.

5. The present controversy revolves round the question whether Inspecting Assistant
Commissioner (IAC) can invoke section 66-A in cases where before taking such action
the appellate/revisional authority has passed order confirming or setting aside the
assessment made by the ITO. Mr. Fateh Vellani, the learned ASC for the appellant, has
contended that after the appellate authority has passed the order, the order of the
Income Tax Officer merges into the appellate order and, therefore, the IAC could not
have initiated action under Section 66-A. According to Mr. Shaikh Haider, the learned
counsel for the respondent as none of the authorities have considered the question of
Rs.130 million for the purposes of taxation as the same was not disclosed in the return
the question of merger does not arise. The first question which attracts our attention is
whether the appellate authority at any stage had applied its mind to the question of
taxability of Rs.130 million. The appellant's contention is that it was not an ordinary
case in which assessment order was passed under the self-assessment scheme in a
routine manner but it was a case which was chosen for total audit. This term denotes
that the return filed by the appellant was taken out for consideration and assessment
order was to be passed after due consideration and deliberation. Mr. Shaikh Haider has
emphatically contended that in the return the columns relating to income not subjected
td tax or exemption claimed by the assessee' have been left blank. He further
contended that no other document was produced in which any reference was made to
Rs.130 million. This factual aspect was vehemently denied by Mr. Vellani. According
to him the entire balance sheet and profit and loss account was submitted alongwith the
income tax return and it mentioned the sum of Rs.130 million which was considered
by the Income Tax Officer. The allegation that the profit and loss account, balance-
sheet and report of the directors were not produced at any stage does not seem to be
correct. If the documents would not have been filed in the normal course, the
assessment could not have been completed and the appellant would have been required
to produce them. Mr. Shaikh Haider has filed a supplementary paper book containing
the return and orders. Strangely enough in this paper book the disputed documents
namely profit and loss account and the directors' report are available and the learned
counsel has not been able to explain how and from where the respondents obtained
them. From the order of the Tribunal it seems that these documents were available on
record while the case was heard and judgment was pronounced. While cancelling the
assessment framed in pursuance of notice under section 65 the Tribunal pointed out
that at four places the amount of Rs.130 million was mentioned. The Tribunal had
taken pains to quote all those entries and statement and observed as follows:--

"The above quotations leave no doubt in our mind that the extra ordinary receipt was
not only disclosed in the profit and loss account it was rather displayed very
prominently in the Reports of Directors and Managing Directors."

The Tribunal then noticed that it was a case of total audit because the return was not
accepted under self-assessment scheme and the name of the appellant was picked up
for detailed scrutiny through random ballot for total audit as contained in Circular No.9
of 1987 issued by the Central Board of Revenue, dated 26th October, 1987, which
provides a procedure for total audit. Finally the Tribunal observed as follows:--

"We have mentioned above that receipt of Rs.13,00,00,000 was disclosed to the ITO in
very, clear manner and at more than one places. In other words it has not hidden under
any cover or jumbled up with other pieces of information. As a matter of fact this
receipt has been highlighted in the review of annual operations made by the Managing
Directors which was printed on pages 4 and 5 of the accounts and also forms a
significant part of the one-page Report of the Directors which is printed on page 6.
Study and analysis of Profit and Loss Account and balance-sheet forms the foundation
9/3/25, 2:17 AM 1992 P T D 932

stone of any assessment proceedings. Without examining these financial statements

income from business cannot be determined. In the case under our consideration the
ITO who completed assessment under section 62, computed taxable income with the
help of Accounting Profit disclosed by the Profit & Loss Account, which lists this
receipt of Rs.13 crores. It may also be noticed that the cases selected for total audit are
subjected to scrutiny, which is more in depth as compared with other assessments. As a
matter of fact the words `Total Audit' which are used for such assessment, also indicate
that such assessments are to be made with special care and attention. When we keep
both these sets of facts in view (namely the clear manner of presenting the information
to the ITO and special nature of assessment proceedings) we cannot agree with Mr.
Shahid Jamal that this item was not considered0 by the ITO at the time of making
assessment under section 62. We have taken into consideration arguments of Mr.
Shahid Jamal. If the issue has not been discussed in the original order it does not
necessarily prove that was not considered becuse in this case there are innumerable
items of receipt and expenses, which have been accepted by the ITO but have not been
discussed in the assessment order. Similarly, if there was no inquiry, in writing, on the
subject this does not necessarily prove that the nature of this receipt was not examined
by the ITO. We are unable to agree with the contention of Mr. Shahid Jamal for the
following reasons:-

(a) The information about extraordinary receipt of Rs.13 crores was displayed very
prominently in the Accounts submitted before the ITO.

(b) The amount of receipt is so big that it could not possibly escape attention of the
1T0.

(c) The assessment was completed under the `total audit' manner which, as the name
suggests, is more intensive than a normal assessment:'

These observations of the Tribunal leave no doubt that the figure of Rs.130 million was
disclosed and that the case was scrutinised under total audit, the department did not
challenge this judgment of the Tribunal in the High Court and has, thus, accepted it. In
this background the respondent initiated action under section 66-A by issuing the
notice reproduced above. It was contended that the Tribunal did not go into the merits
of the case or the nature of receipt of Rs.130 million whether it was revenue income or
capital gains. It was also contended that the assessment framed by the ITO was
erroneous in law in so far it is prejudicial to the interest of revenue and the ITO had
failed to tax receipt of Rs.130 million which is the income of the assessee company
chargeable to tax. It is true that the Tribunal did not enter into the merits as to whether
Rs.130 million is taxable income, it, however, considered in detail that this amount was
disclosed and must have been considered by the Income Tax Officer in the normal
course of assessment.

6. Section 66-A authorises IAC to examine and initiate action if the order passed by the
ITO is erroneous in so far as it is prejudicial to the revenue. The IAC did not have the
jurisdiction or power to initiate same action in respect of the orders passed by the
appellate authorities or the Tribunal. However, as observed above such power has now
been vested in JAC from the year 1991. The controversy is whether after the appellate
authority has passed the order does the order of the 1T0 merge in it and IAC cannot
reopen it under section 66-A. In Corpus Juris Secundum, Volume 57, at page 1067
words `Merge' and `Merger' have been defined as follows:--

"The verb `to merge' has been defined as meaning to sink or disappear in something
else, to be lost to view or absorbed into something else, to become absorbed or
extinguished, to be combined or be swallowed up.
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`Merger' is defined generally as the absorption of a thing of lesser importance by a

greater, whereby the lesser ceases to exist, but the greater is not increased, an
absorption or swallowing up so as to invlove a loss of identity and individuality."

It is well-settled principle that on appeal the original order merges in the appellate
order. The Commissioner of Income-tax v. Farrokh Chemical Industries, 1992 SCMR
523 it was observed that `the order of the ITO upon appeal merged in the order of the
Income Tax Appellate Tribunal' Here the assessment order made by ITO was reopened
under section 65 and a revised assessment was framed which has been set aside by the
Tribunal. Thus, the order of the ITO has merged in the order of the Tribunal which
holds the field.

7. The respondent has referred to Amritlal Bhogilal & Company, (1958) 34 ITR 130-
(AIR 1958 SC 868) which has been relied upon by the learned Judges of the Division
Bench. In this judgment it was observed that the order of Registration made by the ITO
did not merge in the appellate order of the Appellate Commissioner because the
registration was not the subject-matter of appeal before the appellate authority. In this
case the Income Tax Officer had passed the order of assessment and also order for
registration of the firm. The assessee appealed against the order of the assessment
passed by the ITO. As the Department did not have the right to file an appeal against
the order granting registration of the firm no appeal was filed and this order was not
subject-matter of the consideration by the appellate Court in the appeal filed by the
assessee. In appeal filed by the assessee relief, was granted to it by the Appellate
Assistant Commissioner. Subsequently the Commissioner of Income-tax noted that as
one of the partners of the firm was minor registration under section 26-A of the Income
Tax Act should not have been granted. He initiated action under section 33-B(1) of the
Act and cancelled the order of granting registration. He directed the ITO to make fresh
assessment against the assessee as an unregistered firm. In pursuance with this
revisional order the ITO passed fresh orders. In appeal the assessee challenged that the
Commissioner was not competent to set aside the assessment order, which had been
confirmed or modified by the Appellate Assistant Commissioner. The Supreme Court
of India observed that the `original decision merges in the appellate decision and it is
the appellate decision which subsists and is operative and capable of enforcement'. It
proceeded to consider the nature of order passed under section 26-A of the Act and
observed:--

"It is important to bear in mind that the order granting registration to an assessee firm
is an independent and separate order and it merely affects or governs the procedure to
be adopted in collecting or recovering the tax found due."

Further it was held:--

"It is true, that in dealing with the assessee's appeal against the order of assessment, the
Appellate Assistant Commissioner may modify the assessment, reverse it or send it
back for further enquiry; but any order that the Appellate Assistant Commissioner may
make in respect of any of the matters brought before him in appeal will not and cannot
affect the order of registration made by the Income Tax Officer. If that be the true
position, the order of registration passed by the Income Tax Officer stands outside the
jurisdiction of the Appellate Assistant Commissioner and does not strictly form part of
the proceedings before the appellate authority. Even after the appeal is decided and in
consequence the appellate order is the only order which is valid and enforceable in law,
what merges in the appellate order, is the ITO's order under appeal and not his order of
registration which was not and could never become the subject-matter of an appeal
before the appellate authority. The theory that the order of the Tribunal merges in the
order of the appellate authority cannot, therefore, apply to the order of registration
passed by the ITO in the present case."
9/3/25, 2:17 AM 1992 P T D 932

7-A. It may be noticed that in cases of partnership firms which apply for registration,
while making assessment the Income Tax Officer passes two separate and independent
orders. The first order is the assessment order and the second order which is
completely separate is for registration of the firm. Therefore, there exist two separate
orders in the same proceeding and if the assessee files an appeal against the assessment
order the second order remains unchallenged and does not becomes subject-matter of
the appellate order. In such a case the question of merger does not arise. But in the
present case the situation is different. There is one order of assessment and the same
was challenged in appeal by the appellant which was partly allowed against which the
department and the appellant both had filed appeal. The department G withdrew its
appeal which was dismissed. Then came the proceeding under section 65 in which
same question was considered. The order of the ITO, thus, merged in the order of the
Tribunal. In these circumstances Amritlat Bhogilal is completely distinguishable. It
may be noticed that in the appeal filed by the appellant against the assessment order
framed in pursuance of notice under section 65 notice was issued to the ITO concerned
but he did not appear. The learned counsel for the respondent contended that against an
assessment order no appeal has been provided to the department and, therefore, powers
under sections 65 and 66-A are to be exercised to correct the errors and bring to tax
such income which may have escaped. The fact that no appeal has been provided to the
department against the assessment order does not lead to the conclusion that power
under section 00-A as it stood before amendment in H 1991 could be exercised even in
respect of orders passed by the appellate authority. In fact in the absence of right of
appeal, section fib-A provided an opportunity to the IAC to reopen the case if the ITO
has committed error prejudicial to the revenue provided his order has not merged in the
appellate/revisional order. In cases where appeals are filed the department could be
represented and in fact the department seems to have actively pursued the matter as it
filed an appeal against the order of the Appellate Assistant Commissioner before the
Tribunal but no ground was taken that receipt of Rs.130 million was taxable and has
escaped assessment. This appeal was withdrawn. It seems that the respondent reopened
the case under section 65 but with reference to receipt of Rs.130 million the Tribunal
made observations quoted above.

8. The learned Judges of the High Court have also referred to State of Madras v.
Madhurai Mills Limited Co. AIR 1967 SC 681 in which reference was made to
Amritlal Bhogilal & Co. (supra) and it was observed that the `doctrine concerned is not
a doctrine of rigid and universal application and it cannot be said that whenever there
are two orders, one by the inferior Tribunal and the other by the superior Tribunal
passed in appel or revision, there is fusion or merger of two orders irrespective of the
subject-matter of the appellate or revisional order and the scope of the appeal or
revision contemplated by the particular Statute! To support this observation reference
was made to Amritlal Bhogilal & Company and it was observed that:--

"the order of assessment made by the ITO in that case was a composite order namely
the order granting registration of the firm making the assessment on the basis of the
registration."

With respect this observation does not seem to correctly refer the observations of
Amritlal Bhogilal, which has been quoted above that both the orders of assessment and
granting registration were independent and separate orders. It was further observed
that:

"the order granting registration to an assessee firm is an independent seperate order and
it merely affects or governs the procedure to be adopted in calculating or recovering
the tax found due."

Therefore, the observation made in Madhurai Mills is not supported by Amritlal

Bhogilal. The observation, with respect, seems to have been misunderstood and not
correctly quoted. It is true that it is the nature and scope of the provision of law as
9/3/25, 2:17 AM 1992 P T D 932

provided for challenging an order in appeal or revision which determine the effect and
scope of such order. But where such an order has been passed in exercise of such
jurisdiction it becomes final and operative in respect of the order against which appeal
or revision has been filed. The appeal provided under the Income Tax Ordinance is not
of a limited nature. It is however, to be noted that if two separate orders in respect of
two separate subjects/proceedings have been passed in a consolidated order which are
severable and one of them is appealable while the other is not, then the appeal filed in
such case will only affect that pact of the order which. is appealable. In Amritlal
Bhogilal there were two separate orders and appeal was filed against the assessment
order only. It was not a case where there was only one order which was appealable. In
a case where there is only one order against which appeal has been provided, filed and
decided then there does not seem to be a scope for argument that as some objections or
pleas which did exist but have not been taken, pressed or considered, that part of the
order which is covered by such plea do not merge in the appellate order. Such a view
will create uncertainty and is bound to result in confusion and chaos. The law does not
favour uncertainties in decision and in revenue matters one has to be very specific and
certain. The Tribunal has considered the receipt of Rs.130 million at length and has
come to the conclusion that it must have been taken into consideration by the ITO
while making assessment under the total audit scheme. The result is that the order of
the Income Tax Officer merged into the order of the Tribunal and, therefore, the IAC
did not have the jurisdiction to initiate action under section 66-A of the Income Tax
Ordinance for reopening the matter. In this case principles of res judicata will not apply
as it is governed by the provisions of section 66-A which lays down the boundaries and
parameters for exercise of jurisdiction under it. The fact that in 1991 subsection (1-A)
was added authorising IAC to initiate action under section 66-A even if appellate and
revisional order has been passed, supports the contention that such a power did not
exist earlier. The question whether it is applicable to the present case is kept open and
we refrain from expressing any opinion at this stage. We, therefore, allow the appeal
and set aside the impugned judgment and consequently notice issued under section 66-
A of the Income Tax Ordinance is declared as without jurisdiction and of no legal
effect.

M.BA./G-361/S Appeal allowed.

9/3/25, 2:17 AM 1992 P T D 932

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