IN THE SUPREME COURT OF PAKISTAN 
(APPELLATE JURISDICTION) 
 
 
PRESENT: MR. JUSTICE MIAN SAQIB NISAR, HCJ 
 
 
MR. JUSTICE UMAR ATA BANDIAL 
 
 
MR. JUSTICE FAISAL ARAB 
 
 
CIVIL APPEALS NO.622 & 623/2008 AND 1403 & 1404/2009 
(Against the judgment dated 24.10.2007/8.5.2009 of the High Court of Sindh, 
Karachi passed in ITA Nos.1114 & 1115/1999, 485 & 486/2000) 
 
 
1. 
M/s Squibb Pakistan Pvt. Ltd. 
Vs. Commissioner of Income Tax 
 
In C.As.622 & 623/2008 
2. 
Commissioner Income Tax (Legal 
Division) Large Tax Payer Unit 
Karachi 
Vs. 
M/s 
Syngenta 
Pakistan Ltd. 
In C.As.1403 & 1404/2009 
 
For the appellant(s): 
Dr. Muhammad Farough Naseem, ASC 
(In CAs No.622 & 623/2008) 
 
Dr. Farhat Zafar, ASC 
(In CAs No.1403 & 1404/2009) 
 
 
For the respondent(s): 
Mr. Muhammad Siddique Mirza, ASC 
(In CAs No.622 & 623/2008) 
 
Mr. Makhdoom Ali Khan, Sr. ASC 
(In CAs No.1403 & 1404/2009) 
 
 
Date of hearing: 
08.02.2017 
… 
JUDGMENT 
 
 
MIAN SAQIB NISAR, CJ.- The key issue before us is the 
scope of Section 79 of the Income Tax Ordinance, 1979 (as it stood prior to the 
Finance Act, 1992, hereinafter referred to as the Ordinance, 1979) and whether it was 
applicable to the taxpayers in the instant matters. 
2. 
 
The factual background is that Squibb Pakistan (Pvt.) Ltd. 
(appellant in Civil Appeals No.622 and 623 of 2008, hereinafter referred to as “Squibb Pakistan”) 
and Syngenta Pakistan Ltd. (respondent in Civil Appeals No.1403 and 1404 of 2009, 
hereinafter referred to as “Syngenta Pakistan”) were resident companies (registered in 
Pakistan) engaged in the import, manufacture and sale of pharmaceutical 
products. They imported pharmaceutical raw material from their parent 
companies 
(foreign 
companies), 
namely 
M/s 
Bristol-Myers 
Squibb 
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
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International, USA (“Squibb International”) and M/s Ciba Geigy, Basel, 
Switzerland (“Ciba Geigy”) respectively. Their assessments (assessment years of 
1989-90 and 1990-91 for Squibb Pakistan and 1990-91 and 1991-92 for Syngenta Pakistan) were 
finalized by making additions under Section 79 of the Ordinance, 1979 on 
account of the difference between the price of raw material imported by 
the companies from their parent companies and that imported by some 
other companies from other sources.  
In Civil Appeal Nos.622 and 623 of 2008, the Commissioner of 
Income Tax (Appeals) [CIT(A)] upheld the addition followed by the deletion 
thereof by the learned Income Tax Appellate Tribunal (Tribunal). The 
respondent’s income tax appeal was allowed by the learned High Court 
vide impugned judgment and the addition was upheld by relying upon 
Messrs Cynamid (Pakistan) Ltd., Karachi Vs. Commissioner of Income 
Tax, Companies-II, Karachi (2007 PTD 1946). Leave was granted on 
10.7.2008 to consider the “applicability of Section 79 of the Ordinance”. 
As regards Civil Appeal Nos.1403 and 1404 of 2009, upon the 
respondent’s appeal before the CIT(A), the additions were deleted for 
decision afresh, and the learned Tribunal upheld the deletion. In the 
department’s appeal before the learned High Court, the deletion of the 
addition was upheld, but the Court incorrectly relied upon its earlier order 
passed in ITA Nos.1114 and 1115 of 1999 (ITAs in Civil Appeals No.622 and 623 of 
2008) which were decided in favour of the department. Leave was granted 
on 3.12.2009 on the basis of the aforementioned leave granting order 
dated 10.7.2008. 
3. 
 
The submissions of the learned counsel for the appellant (in 
Civil Appeals No.622 and 623 of 2008) were to the effect that as per the assessment 
order, Squibb Pakistan imported two pharmaceutical raw materials, i.e. 
cephradine and amoxicillin trihydrate, for use in its final pharmaceutical 
product(s) from its parent company at a higher value than that paid for 
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
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the same products by other companies, warranting addition under Section 
79 of the Ordinance, 1979; however, in order for the Assessing Officer to 
rely on these comparisons such cases had to be proved to be parallel in 
nature and complete details thereof should have been provided. 
Comparison between two persons/entities in dissimilar situations would 
be violative of Article 25 of the Constitution of the Islamic Republic of 
Pakistan, 1973 (the Constitution). The disparity in the prices of the raw 
material was due to the superior nature and quality of the raw material of 
the parent company as it incurred huge expenditure on account of 
research and development to ensure the efficacy and safety of the 
products; there was no manipulation and arranged dealing between the 
resident and non-resident companies as required by Section 79 of the 
Ordinance, 1979, and nor was there a reduction, depletion or extinction of 
profits in the business as the pharmaceutical products were eventually 
sold at a price higher than similar products of other companies; and that 
the learned High Court had erred in relying upon the Cynamid case (supra) 
which was not the correct law. In support of his arguments, learned 
counsel relied upon the cases reported as Commissioner of Income-Tax 
Vs. Pfizer Laboratories Ltd. (1989 PTD 612), Commissioner of Income-
Tax, Central Zone ‘A’, Karachi Vs. Glaxo Laboratories (Pakistan) 
Limited, Karachi (1991 PTD 393) and the judgment dated 21.4.1992 
passed in Civil Appeal No.237-K of 1991 titled Glaxo Laboratories 
(Pakistan) Limited Vs. Commissioner of Income-Tax. 
Learned counsel for the respondent (in Civil Appeals No.1403 and 1404 of 
2009) adopted the aforesaid arguments stating that undoubtedly the fate of 
his cases depended upon that of Civil Appeal Nos.622 and 623 of 2008. 
4. 
 
The collective arguments of the learned counsel for the 
department (in all the cases) were that by purchasing raw material from their 
non-resident parent companies at a price higher than charged by other 
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sources for similar products, the resident companies were liable to have 
profits added to their assessment order(s) in terms of Section 79 of the 
Ordinance, 1979.  
5. 
 
Heard. A perusal of Cynamid’s case (supra) relied upon by the 
learned High Court in the impugned judgments reveals that in paragraph 
No.5 of the aforementioned judgment, the learned High Court extracted 
eight principles while relying upon five judgments, three of the Appellate 
Tribunal {[1988 PTD (Trib) 447], Smith Kline and French of Pakistan Ltd. Vs. IAC Range-I, 
Companies-II, Karachi [ITA No.2202/KB of 1987-88] and Messrs Bayer Pharma (Pvt.) Ltd [ITA 
No.1796/KB of 1993-94, dated 14-9-1994]} and the judgments of the learned High 
Court of Sindh and this Court in the case of Glaxo Laboratories (supra). 
Suffice it to say that first, the judgments of the Tribunal are not binding 
on the learned High Court, which should have provided reasons for its 
findings based on proper application of mind. Furthermore, both Glaxo 
Laboratories cases (supra) by the learned High Court and this Court do not 
in any manner lay down the eight principles extracted by the learned High 
Court in Cynamid’s case (supra) which to our mind is not good law. 
Besides, this Court’s order in Glaxo Laboratories case (supra) is a leave 
refusing order which is not the law enunciated by this Court. 
6. 
 
 In consequence of the weaknesses noted in the case of 
Cynamid (supra), the impugned judgments are devoid of an analytical 
discussion of the questions that arose for determination by the learned 
High Court in the references of these cases before it. We have already 
noted that questions of law arising in these cases involve, inter alia, the 
interpretation of statutes and ascertaining the evidentiary requisites for a 
finding recorded under Section 79 of the Ordinance, 1979. The different 
aspects of these matters are not clearly identified in the judgments of the 
lower fora. In the circumstances a further preliminary question arises for 
our consideration, i.e. whether new questions not urged or examined by 
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the lower fora can be raised in a reference filed under Section 136 ibid? In 
other words what is the scope of a tax reference? 
7. 
 
The learned counsel for the parties made oral submissions in 
this context and provided case law to the Court. The judgments cited by 
the learned counsel are as follows, some of which are also quoted in our 
opinion. The judgments cited by Dr. Farogh Naseem include:- Iram Ghee 
Mills Ltd. Vs. Income Tax Appellate Tribunal (1998 PTD 3835), The 
Lungla (Sylhet) Tea Co. Ltd., Sylhetah Vs. Commissioner of Income-
Tax, Dacca Circle, Dacca (1970 SCMR 872), Commissioner of Income-
Tax Vs. Pakistan Beverage Company, Karachi (1967 PTD 265), 
Mathuraprasad Motilal and Co. Vs. Commissioner of Income Tax, 
Madhya Pradesh [(1956) 30 ITR 695 (Nag)], Commissioner of Income-
Tax, Punjab, Himachal Pradesh and Jammu & Kashmir Vs. Chander 
Bhan Harbhajan Lal [(1966) 60 ITR 188 (SC)], Mountain States Mineral 
Enterprises Inc. Vs. Commissioner of Income Tax (Appeals) Zone-3, 
Karachi (2008 PTD 1087), Liquidator of Mahmoodabad Properties (P.) 
Ltd. Vs. Commissioner of Income Tax, West Bengal-II [(1980) 124 ITR 
31 (SC), Commissioner of Income Tax, West Bengal Vs. Calcutta 
Agency Limited [(1951) 19 ITR 191 (SC)], Commissioner of Income-
Tax, Bombay Vs. Scindia Steam Navigation Co. Ltd. [AIR 1961 SC 
1633 = (1961) 42 ITR 589 (SC)], Messrs Pak Saudi Fertilizers Limited 
Vs. Commissioner of Income-Tax and others (2005 PTD 1607), 
Commissioner (Legal Division) Large Taxpayers Unit, Karachi Vs. 
Bawany Metals Ltd. Karachi (2006 PTD 2256), K. S. Venkataraman 
and Co. (P.) Ltd. Vs. State of Madras [(1966) 60 ITR 112 (SC)], C. T. 
Senthilnathan Chettiar Vs. State of Madras [(1968) 67 ITR 102 (SC)], 
Bhanji Bahwandas Vs. Commissioner of Income-Tax, Madras [(1968) 
67 ITR 18 (SC)], Jamunadas Mannalal Vs Commissioner of Income 
Tax, Bihar [(1985) 152 ITR 261 (Pat)], Mohatta Brothers Vs. 
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
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Commissioner of Income Tax, Gujarat, Ahmedabad  [(1985) 153 ITR 
247 (Guj)], Estate of Late H. H. Rajkuerba, Dowager Maharani Saheb of 
Gondal Vs. Commissioner of Income-Tax, Karnataka [(1982) 135 ITR 
393 (Kar.)], Mahamaya Dassi Vs. Commissioner of Income-Tax, West 
Bengal-III [(1980) 126 ITR 748 (Cal)], Addl Commissioner of Income 
Tax, M.P., Bhopal Vs. MP Rungta [(1979) 116 ITR 245 (MP)], 
Amarchand Jalan Vs. Commissioner of Income-Tax, Central, Bombay 
[(1964) 54 ITR 18 (Bom)], Commissioner of Wealth Tax Vs. Mahadeo 
Jalan & Mahabir Prasad Jalan [(1972) 86 ITR 621 (SC)], Jetha Bhai 
Harji Vs. Commissioner of Income Tax, Gujarat, Bombay City [(1949) 
17 ITR 533 (Bom)], Commissioner of Income-Tax, Central Zone “A”, 
Karachi Vs. Messrs Karachi Electric Supply Corporation Ltd. (1991 
PTD 869), The Commissioner of Income-Tax, Karachi (Central Zone) 
Vs. Messrs Pakistan Refinery Ltd., Karachi (1984 PTD 337), Messrs 
Coronet Paints & Chemicals Ltd. Vs. The Commissioner of Income-
Tax (Central), Karachi (1984 PTD 355), Commissioner of Income Tax 
Companies No. 1, Karachi Vs. M/s. Hassan Associates (Pvt.) Ltd., 
Karachi (1994 SCMR 1321), Mrs. Yasmeen Lari Vs. Registrar, Income 
Tax Appellate Tribunal (1990 PTD 967), Commissioner of Income-Tax 
Vs. National Refinery Ltd. (2003 PTD 2020), Messrs Urooj (Pvt.) Ltd., 
Karachi through Chief Executive Vs. Deputy Commissioner of 
Income-Tax, Circle-6, Companies IV, Karachi and 2 others (2004 PTD 
295), Karachi Properties Investment Company (Pvt.) Limited, Karachi 
Vs. Income-Tax Appellate Tribunal, Karachi and another (2004 PTD 
948)¸ Messrs G. I. M. Gregory & Co. In re. [(1937) 5 ITR 12 (Cal)], 
Commissioner of Income-Tax, Bombay City II Vs. Jadavji Narsidas & 
Co. [(1963) 48 ITR 41 (SC)], Praise & Co. (Private) Ltd. Vs. 
Commissioner of Income-Tax, West Bengal [(1966) 60 ITR 566 (Cal)], 
Humayun Properties Ltd. Vs. Commissioner of Income-Tax, Calcutta 
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
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[(1962) 44 ITR 73 (Cal)], Valivetti Sriramulu Vs. Commissioner of 
Income-Tax, A.P. [(1970) 76 ITR 551 (AP)], Patny & Co. Vs. 
Commissioner of Income Tax, Bihar and Orissa, Patna [(1955) 28 ITR 
414 (Oris)], Commissioner of Income-Tax, Bombay South, Bombay Vs. 
Messrs Ogale Glass Works Limited, Ogale Wadi [AIR 1954 SC 429 = 
(1954) 25 ITR 529 (SC)] and Jesrajah Jiwanram Vs. Commissioner of 
Income-Tax, Assam [(1953) 24 ITR 245 (Assam)].  
The judgments referred to by Mr. Makhdoom Ali Khan are:- The 
Commissioner of Income-Tax, Lahore Zone, Lahore Vs. Messrs Shaikh 
Muhammad Ismail & Co. Ltd. (1986 SCMR 968), Commissioner of 
Income Tax, Central Zone, Lahore Vs. Capt. (Retd.) Gohar Ayub Khan 
(1995 PTD 1074), The Commissioner of Income-Tax, Lahore Vs. 
Messrs Immion International, Lahore (2001 PTD 900), Messrs Nafees 
Cotton Mills Ltd., Lahore Vs. Income-Tax Appellate Tribunal, Lahore 
and 2 others (2001 PTD 1380), Ghulam Mustafa Jatoi, Karachi Vs. 
Commissioner of Income Tax, Central Zone-B, Karachi (2006 PTD 
1647), Messrs. Superior Steel, Karachi Vs. Commissioner of Income-
Tax, Zone-D, Karachi and another (2007 PTD 1577), Mountain States 
Mineral Enterprises (supra), Commissioner Inland Revenue, Legal 
Division, Bahawalpur Vs. Zulfiqar Ali (2012 PTD 964), Commissioner 
of Income-Tax/Wealth Tax, Multan Vs. Messrs Move (Pvt.) Ltd., 
Multan (2013 PTD 2040), Commissioner Inland Revenue Vs. Messrs 
Pak Arab Pipe Line Company Ltd. (2014 PTD 982), Commissioner of 
Income-Tax/Wealth Tax Companies Zone Vs. Ms. Fahmida Hamid 
(2015 YLR 1167), Commissioner (Legal) Inland Revenue, Large 
Taxpayer Unit Vs. Messrs Shield Corporation Ltd. (2015 PTD 2275), 
Commissioner Inland Revenue, Zone-II, Regional Tax Office-II Vs. 
Messrs Sony Traders Wine Shop (2015 PTD 2287), Commissioner 
Inland Revenue, Multan Vs. Messrs Bank Al-Habib Ltd. (2016 PTD 
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
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2548), Central Exchange Bank Ltd., Lahore Vs. The Commissioner of 
Income Tax, Lahore (PLD 1954 Lah 439), Messrs Muhammad Idrees 
Barry & Co. Vs. The Commissioner of Income-Tax, Punjab and NWFP 
(PLD 1959 SC 202), Abdul Ghani & Co. Vs. Commissioner of Income-
Tax (PLD 1962 Kar 635), Messrs Odeon Cinema, Lahore Vs. The 
Commissioner of Income-Tax, Lahore Zone, Lahore (1971 PTD 212), 
Ahmad Karachi Halva Merchants & Ahmad Food Products Vs. CIT, 
Karachi (1982 SCMR 489), The Commissioner of Income-Tax 
(Central), Karachi Vs. Messrs Haji Moulabux & Sons (1987 PTD 492), 
The Commissioner of Income-Tax, Rawalpindi Vs. Sh. Ghulam 
Hussain (2001 PTD 1419), Commissioner of Income-Tax, Rawalpindi 
Vs. Haji Mukhtar & Company (1980 PTD 415), Haji Ibrahim Ishaq 
Johri Vs. The Commissioner of Income Tax (West), Karachi (1993 PTD 
114), Messrs Irum Ghee Mills Limited Vs. Income-Tax Appellate 
Tribunal and others (2000 SCMR 1871), Commissioner Inland 
Revenue Vs. Messrs Macca CNG Gas Enterprises and others (2015 
PTD 515), Hassan Associates (supra), Commissioner of Income-Tax, 
Rawalpindi Vs. Messrs Rural Food Products, Rawalpindi (2001 PTD 
2306), Commissioner of Income-Tax Companies, Lahore Vs. Crescent 
Art Fabric Limited, Lahore (2001 PTD 2553), Dr. Mukhtar Hassan 
Randhawa Vs. Commissioner of Income-Tax, Coys Zone-I, Lahore 
(2001 PTD 2593), Commissioner of Income-Tax, Companies-I, Karachi 
Vs. Messrs National Investment Trust Ltd., Karachi (2003 PTD 589), 
Commissioner of Income-Tax, Rawalpindi Vs. Mst. Shakeela Bano 
(2002 PTD 1209), Messrs Hong Kong Chinese Restaurant, Main 
Boulevard Gulberg, Lahore Vs. Assistant Commission of Income Tax, 
Circle 6, Lahore and another (2002 PTD 1878), Commissioner of 
Income-Tax, 
Companies 
Zone-II, 
Karachi 
Vs. 
Messrs 
Sindh 
Engineering (Pvt.) Limited, Karachi (2002 SCMR 527), National 
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
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Refinery Ltd. (supra), Messrs Qadri Cloth House, Lahore Vs. Income Tax 
Appellate Tribunal, Lahore and 2 others (2005 PTD 2430), Messrs F. 
M. Y. Industries Limited Vs. Deputy Commissioner Income Tax and 
another (2014 SCMR 907) and 
Punjab Mineral Development 
Corporation Ltd. Vs. Commissioner of Income Tax (2015 PTD 2522). 
The issue of whether new questions can be raised before the High 
Court in a reference has been the subject of substantial debate ever since 
a provision for reference to the High Court on questions of law was 
introduced in the sub-continent in the early 20th century. Over the years, 
judicial opinions have been inconsistent and there has been considerable 
divergence, both, in the Pakistani as well as Indian jurisdictions. In India, 
the issue was strongly contested and numerous conflicting judgments 
were delivered from time to time. The Indian Supreme Court came down in 
the Scindia Steam case (supra) in favour of a restrictive view but the 
legislature intervened and the law was amended in 1998 to provide for 
direct ‘appeals’ to the High Court in place of ‘references’ on questions of 
law, the scope of the former being much wider. In Pakistan, however, as 
explained infra, the issue can still be said to be open as there is no 
authoritative pronouncement of the Supreme Court in relation to the 
scope of Section 133 of the Income Tax Ordinance, 2001 (the Ordinance, 2001) 
as it stands today. 
8. 
 
In order to appreciate the scope of a reference under Section 
133 of the Ordinance, 2001, it is necessary to firstly examine the history 
and background of the provision and how it, and its predecessor 
provisions, have been interpreted by the Courts. A provision for a 
reference to the High Court in income tax matters has been in existence in 
the sub-continent since at least 1918. Section 51 of the Indian Income 
Tax Act, 1918 (the Act, 1918) provided for a statement of case by the Chief 
Revenue Authority to the High Court. It read as under: 
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(1) 
If, in the course of any assessment under this Act or 
any proceeding in connection therewith other than a 
proceeding under Chapter VII, a question has arisen with 
reference to the interpretation of any of the provisions of 
this Act or of any rule thereunder, the Chief Revenue-
authority may, either on its own motion or on reference 
from any Revenue-officer subordinate to it, draw up a 
statement of the case, and refer it, with its own opinion 
thereon, to the High Court, and shall so refer any such 
question on the application of the assessee, unless it is 
satisfied that the application is frivolous or that a reference 
is unnecessary.  
 
(2) 
If the High Court is not satisfied that the statements 
contained in the case are sufficient to enable it to determine 
the questions raised thereby, the Court may refer the case 
back to the Revenue-authority by which it was stated, to 
make such additions thereto, or alterations therein, as the 
Court may direct in that behalf. 
 
(3) 
The High Court upon hearing of any such case shall 
decide the questions raised thereby, and shall deliver its 
judgment thereon containing the grounds on which such 
decision is founded, and shall send to the Revenue-
authority by which the case was stated, a copy of such 
judgment under the seal of the Court and the signature of 
the Registrar, and the Revenue-authority shall dispose of 
the case accordingly, or, if the case arose on reference 
from any Revenue-officer subordinate to it, shall forward a 
copy of such judgment to such officer who shall dispose of 
the case conformably to such judgment.   
 
(4) 
Where a reference is made to the High Court on the 
application of an assessee, costs shall be in the discretion 
of the Court. 
 
Under Section 51 of the Act, 1918, in brief, if in the course of assessment 
or any connected proceedings, a question of interpretation of any 
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provision of the Act or rule made thereunder arose, the Chief Revenue 
Authority was empowered, on its own motion or on reference from any 
subordinate officer or on the application of an assessee, unless the 
application to its satisfaction was frivolous, to draw up a statement of the 
case including its own opinion and refer it to the High Court. The High 
Court, if dissatisfied with the statement of the case to the extent that it did 
not enable it to answer the questions referred, could refer the matter back 
to the Authority to make such additions and alterations as desired by the 
High Court. Upon hearing the case, the High Court was bound to answer 
the questions referred and deliver its judgment thereon containing the 
grounds for the decision, and send it to the Revenue Authority to dispose 
of the matter accordingly. Thus the dispositive power remained with the 
Revenue Authority, although only in accordance with the opinion of the 
High Court. 
9. 
 
Under the Act, 1918, the jurisdiction of the High Court in 
income tax matters was very restrictive. There was no right of any kind, 
either by way of appeal or revision or review or reference, to challenge 
before the High Court any order passed by the revenue authorities. The 
legal remedy which was made available related to the stage prior to 
passing of an order. A power was conferred on the Chief Revenue 
Authority either on his own or on the request of the assessee to refer any 
questions of interpretation of the Act or the Rules to the High Court and 
the High Court simply gave its legal opinion, which was applied by the 
Revenue Authority in the course of assessment or related proceedings. As 
observed earlier, this power was to be exercised prior to the passing of an 
order.  
10. 
 
The scope of the High Court jurisdiction in a reference under 
Section 51 of the Act, 1918 came under consideration before the Privy 
Council in the case of Tata Iron and Steel Company Ltd. Vs. The Chief 
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Revenue Authority of Bombay (AIR 1923 PC 148). In this case, the 
High Court had passed a judgment in a reference under Section 51 of the 
Act, 1918 against which an appeal was filed before the Privy Council with 
the leave of the High Court of Bombay. A preliminary objection was raised 
by the respondent to the effect that no appeal lay against the judgment 
under Section 51 ibid as the same was merely advisory in nature. The 
Privy Council observed that there was no express right of appeal provided 
anywhere against a judgment under Section 51 ibid but a general right of 
appeal existed under Clause 39 of the Letters Patent of the High Court of 
Bombay to challenge any “final” judgment, decree or order passed by the 
High Court in exercise of its original jurisdiction. The Privy Council then 
went on to examine whether a judgment passed under Section 51 ibid 
qualified as a “final” judgment. The Privy Council held that the judgment 
under Section 51 ibid was not a judgment as understood by Clause 39 of 
the Letter Patent as it was not a decision obtained in an “action”. The 
Privy Council observed that the judgment under Section 51 ibid could at 
best be an order and went on to examine whether it could be said to be a 
“final” order or only advisory. Certain observations of the Privy Council 
and its finding in this regard are reproduced below: 
 
“One must therefore ask oneself what is the nature and 
character of the acts which Section 51 of the Income Tax 
Act authorises and empowers the High Court to do…The 
opinion of the Revenue Authority thus dominates and 
conditions the right of the assessee. 
 
Again it is the duty of the Revenue Officer to make the 
assessment, and it is in the “course” of making it the 
question which may be referred must arise… 
 
This last provision merely means that the Revenue Officer, 
in proceeding with the work in the course of which he was 
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engaged when the question referred arose, shall be guided 
by the decision given, and shall make his assessment 
accordingly - the ultimate result being that he assesses the 
taxpayer at an amount which in his instructed opinion he 
judges to be right. No suit can be brought to set-aside or 
modify the assessment when so made. The amount of the 
taxpayers’ liability is thus definitely fixed, but nothing more 
is done. The decision of the High Court does not in any way 
enforce the discharge of that liability. It would appear 
clear to their Lordships that the word “judgment” is not 
here used in its strict legal and proper sense.  
 
It is not an executive document directing something to be 
done or not to be done, but is merely the expression of the 
opinions of the majority of the judges who heard the case, 
together with a statement of the grounds upon which those 
opinions are based… 
 
It does not appear to their Lordships that the fact that the 
functionary who states a special case for the opinion of the 
Court is or is not bound to act upon it necessarily 
determines whether the order and decision of the Court is 
or is not merely advisory. In order to determine whether an 
order made by a Court on a case stated is final or merely 
advisory it is necessary to examine closely the language of 
the enactment, whether statute, rule or order, giving the 
power to state a case.  
 
When a case is stated for the “opinion” of the Court, that 
word would serve prima facie to indicate that the order 
made by the Court was only advisory. Where the case is 
referred for the “decision” or “determination” of a 
question, there is a prima facie difficulty in holding that the 
order embodying this determination or decision is advisory, 
but the use of these words or one of them is not decisive…  
 
It would appear to their Lordships that having regard to 
the authorities cited, and for the reasons already stated the 
decision, judgment or order made by the Court under 
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Section 51 of the Income Tax Act in this case, was merely 
advisory, and not in the proper and legal sense of the term 
final, and thus so far as these considerations are concerned 
that the appeal is incompetent.”    
 
11. 
 
From the above reproduced extracts, it is clear that the 
structure of the reference provision as it stood at the time was the 
determinative factor in the case. The Privy Council found support for its 
finding that the jurisdiction was “advisory” from the fact that questions 
which were to be referred under Section 51 ibid were those which arose in 
the “course” of assessment or related proceedings and the High Court 
merely gave its opinion which the Revenue Officer simply relied upon to 
finalize the assessment or related proceedings. A careful perusal of the 
Privy Council’s judgment shows that the underlying reasoning behind its 
findings was that since the questions were not arising from an operative 
order but at a prior stage, the opinion thereon was not a final order in the 
nature of being determinative of the rights and liabilities of the parties. 
The reasons behind the Privy Council’s decision thus only have a limited 
relevance today as the subsequent evolution of the law makes clear.  
12. 
 
The provision for a reference to the High Court underwent 
substantial changes with the passing of the Indian Income Tax Act, 1922 
(the Act, 1922). Section 51 of the Act, 1918 was succeeded by Section 66 of 
the Act, 1922, which is reproduced below:- 
 
(1)  
If, in the course of any assessment under this Act or 
any proceeding in connection therewith other than a 
proceeding under Chapter VIII, a question of law arises, 
the Commissioner may, either on his own motion or on 
reference from any Income-tax authority subordinate to 
him, draw up a statement of the case and refer it with his 
own opinion thereon to the High Court. 
 
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(2) 
Within one month of the passing of an order under 
section 31 or section 32, the assessee in respect of whom 
the order was passed may, by application accompanied by 
a fee of one hundred rupees or such lesser sum as may be 
prescribed, require the Commissioner to refer to the High 
Court any question of law arising out of such order, and 
the Commissioner shall, within one month of the receipt of 
such application, draw up a statement of the case and refer 
it with his own opinion thereon to the High Court: 
 
Provided that, if, in exercise of his power of review 
under section 33, the Commissioner decides the question, 
the assessee may withdraw his application, and if he does 
so, the fee paid shall be refunded. 
 
(3)  
If, on any application being made under sub-section 
(2), the Commissioner refuses to state the case on the 
ground that no question of law arises, the assessee may 
apply to the High Court, and the High Court if it is not 
satisfied of the correctness of the Commissioner's decision, 
may require the Commissioner to state the case and to refer 
it, and, on receipt of any such requisition, the 
Commissioner shall state and refer the case accordingly. 
 
(4)  
If the High Court is not satisfied that the statements 
in a case referred under this section are sufficient to enable 
it to determine the question raised thereby, the Court may 
refer the case back to the Commissioner by whom it was 
stated to make such additions thereto or alterations therein 
as the Court may direct in that behalf. 
 
(5) 
The High Court upon the hearing of any such case 
shall decide the questions of law raised thereby, and shall 
deliver its judgment thereon containing the grounds on 
which such decision is founded, and shall send to the 
Commissioner by whom the case was stated a copy of such 
judgment under the seal of the Court and the signature of 
the Registrar, and the Commissioner shall dispose of the 
case accordingly, or, if the case arose on a reference from 
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any Income-tax authority subordinate to him, shall forward 
a copy of such judgment to such authority who shall 
dispose of the case conformably to such judgment. 
 
(6)  
Where a reference is made to the High Court on the 
application of an assessee, the costs shall be in the 
discretion of the Court. 
 
(7)  
Notwithstanding that a reference has been made 
under this section to the High Court, income-tax shall be 
payable in accordance with the assessment made in the 
case: 
 
Provided that, if the amount of an assessment is 
reduced as a result of such reference, the amount overpaid 
shall be refunded with such interest as the Commissioner 
may allow. 
 
Section 66 ibid retained the power of the Authority, now the 
Commissioner, to refer, on his own motion or on a reference from a 
subordinate officer, any question which arose in the course of an 
assessment or related proceedings to the High Court through a statement 
of the case with his opinion thereon. However, the remedy available to an 
assessee was widened decisively in terms of sub-section (2) whereby 
assessees were given the right to require the Commissioner to refer to the 
High Court, any questions of law arising out of the appellate orders passed 
by the revenue authorities. Thus, in addition to seeking advice prior to 
passing an order, the decision could itself be challenged. However, the 
assessee was limited to questions arising out of the order of the Revenue 
Authority, which meant that it could only refer those questions which 
were apparent from the record of the case and the facts as stated in the 
order of the Authority. In case the Commissioner refused to refer the case 
to the High Court, assessees could apply to the High Court and the High 
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
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Court, if dissatisfied with the Commissioner’s decision, could require the 
Commissioner to draw up a statement of the case and refer it to the High 
Court. There was a clear widening of the power of the High Court and the 
remedies available to assessees in relation to income tax disputes under 
Section 66 of the Act, 1922 as compared to its predecessor provision.  
13. 
 
Following the decision of the Privy Council in the case of Tata 
Iron and Steel Co. (supra), it is clear that the jurisdiction exercised by the 
High Court in a reference under sub-section (1) of Section 66 ibid was 
considered “advisory”, although that word does not appear in the law. 
However, it is clear that the same reasoning cannot be extended to 
references made to the High Court under sub-section (2). It will be noted 
that the scope of the reference under sub-section (1) was fundamentally 
different from the scope of a reference under sub-section (2). Under sub-
section (1), the reference was made by the Commissioner, of his own 
volition or on a reference from a subordinate officer, in relation to 
questions arising during the course of assessment which had not yet been 
decided whereas under sub-section (2) the reference was made by the 
Commissioner at the behest of an assessee on questions arising out of a 
final order passed under Sections 31 or 32 of the Act, 1922 by the 
Department. In substance, a right was conferred on the assessee to 
challenge the final orders passed by the Department, albeit to the extent 
of legal issues arising out of such orders. This was akin to a second 
appeal. Under sub-section (5), the High Court upon hearing a case under 
sub-sections (1) or (2) was obligated to answer the questions referred 
supported by a judgment containing the grounds of the decision and 
forward the same to the Revenue Authority for disposing of the case 
accordingly. In so far as references under sub-section (1) were concerned, 
sub-section (5) applied appropriately as the matter remained pending with 
the Revenue Authority which then finalized it in accordance with the 
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
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decision of the High Court. However, to the extent of references under 
sub-section (2), since they arose against final orders, there were no 
proceedings as such pending before the Revenue Authority which could be 
finalized. The Revenue Authority was simply bound to apply the High 
Court’s decision by way of implementing its orders subject to the 
modifications necessitated by the High Court’s decision. This made a 
critical difference. 
14. 
 
There was also a practical difference between the two different 
kinds of references, i.e. under sub-sections (1) and (2), which shows the 
difference in the nature of the jurisdictions. Under sub-section (1), the 
reference was prepared by the Commissioner who presumably either 
framed the questions himself or adopted questions framed by a 
subordinate officer. By contrast, the reference application under sub-
section (2) was essentially prepared by the assessees who also framed and 
proposed the questions for the Commissioner to refer to the High Court. 
The procedure of filing the application under sub-section (2), in a similar 
manner as one under sub-section (1) through the Commissioner seems to 
have been retained as a matter of convenience and convention and 
appears not to have a great deal of significance, especially in view of the 
fact that the Commissioner’s refusal to forward a reference to the High 
Court could be challenged directly by the assessee before the High Court 
under sub-section (3). The same issues as identified in the application 
under sub-section (2) were argued in applications under sub-section (3) 
and if the High Court saw a prima facie case, the matter was entertained 
by way of directing the Commissioner to make the reference as a matter of 
sheer formality. The assessee was thus allowed a full and proper remedy 
against final orders passed by the Revenue Authority to the extent of legal 
issues. It thus seems clear that whether or not the jurisdiction of the High 
Court is termed advisory is a matter of nominal terminology, there being 
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little doubt that the jurisdiction exercised under sub-section (2) read with 
sub-section (3) was basically appellate/final in nature, though limited only 
to questions of law, and not interim/advisory.  
15. 
 
Since this point was never brought before the courts, it is 
therefore not surprising that it was ignored and thus the significance of 
this development remained unexplored, with a consequential failure to 
draw a distinction between the two obviously different kinds of domain. 
The High Courts imposed the same restrictive interpretation on 
applications under sub-section (2) as applications under sub-section (1). 
The seemingly unfounded self-imposed limitations placed by the Courts 
on their jurisdiction shaped the narrow scope of the reference jurisdiction 
of the High Courts in the years to come. The restrictive interpretation of 
the High Courts was also later on supported by the Privy Council, without 
any analysis or discussion, in the case of Raja Bahadur Sir Rajendra 
narain Bhanj Deo Vs. Commissioner of Income-Tax, Bihar and Orissa 
(AIR 1940 PC 158). While refusing to answer a purely academic question, 
the Privy Council observed as under:- 
 
“The function of the High Court in cases referred to it under 
S. 66 of the Act is advisory only, and is confined to 
considering and answering the actual question referred to 
it…” 
 
16. 
 
Notwithstanding the generally restrictive approach developed 
by the Courts towards reference applications of any kind, there was 
clearly an abridgement of the absolute powers of the tax department when 
Section 66 of the Act, 1922 replaced Section 51 of the Act, 1918. The 
broadening of the remedies available to the assessee continued in the 
years to come through various amendments, one of the major ones being 
through the Indian Income Tax (Amendment) Act, 1939 (Act VII of 1939), 
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which effected major changes in the law. By way of this amendment, the 
Income Tax Appellate Tribunal was formed, to which assessees were 
provided a direct right to appeal against orders passed by the Revenue 
Authority. Essentially a further forum was provided to assessees between 
the Revenue Authority and the High Court. Chief Justice Muhammad 
Munir was the architect of this amendment and went on to become the 
first President of the Tribunal in the year 1940. This was a clear 
broadening of the remedies available to assessees as it provided for a full 
time arbiter for legal disputes between the department and assessees. 
Section 66 of the Act, 1922 after the 1939 amendment read as under:- 
 
“66. Statement of case by Appellate Tribunal to High 
Court.- [(1) Within sixty days of the date upon which he is 
served with notice of an order under sub-section (4) of 
section 33, the assessee or the Commissioner may, by 
application in the prescribed form, accompanied where 
application is made by the assessee by a fee of one hundred 
rupees, require the Appellate Tribunal to refer to the High 
Court any question of law arising out of such order, and 
the Appellate Tribunal shall within ninety days of the 
receipt of such application draw up a statement of the case 
and refer it to the High Court:  
 
Provided that, if, in the exercise of its powers under sub-
section (2), the Appellate Tribunal refuses to state a case 
which it has been required by the assessee to state, the 
assessee may, within thirty days from the date on which he 
receives notice of the refusal to state the case, withdraw his 
application and, if he does so, the fee paid shall be 
refunded. 
 
(2) 
If on any application being made under sub-section 
(1) the Appellate Tribunal refuses to state the case on the 
ground that no question of law arises, the assessee or the 
Commissioner, as the case may be, may, within six months 
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from the date on which he is served with notice of the 
refusal, apply to the High Court, and the High Court may, 
if it is not satisfied of the correctness of the decision of the 
Appellate Tribunal, require the Appellate Tribunal to state 
the case and to refer it, and on receipt of any such 
requisition the Appellate Tribunal shall state the case and 
refer it accordingly.  
 
(3) 
If on any application being made under sub-section 
(1) the Appellate Tribunal rejects it on the ground that it is 
time-barred, the assessee or the Commissioner, as the case 
may be, may, within two months from the date on which he 
is served with notice of the rejection, apply to the High 
Court, and the High Court, if it is not satisfied of the 
correctness of the Appellate Tribunal’s decision, may 
require the Appellate Tribunal to treat the application as 
made within the time allowed under sub-section (1).  
 
(4) 
If the High Court is not satisfied that the statements 
in a case referred under this section are sufficient to enable 
it to determine the question raised thereby, the Court may 
refer the case back to the Appellate Tribunal to make such 
additions thereto or alterations therein as the Court may 
direct in that behalf.  
  
(5) 
The High Court upon the hearing of any such case 
shall decide the questions of law raised thereby and shall 
deliver its judgment thereon containing the grounds on 
which such decision is founded and shall send a copy of 
such judgment under the seal of the Court and the 
signature of the Registrar to the Appellate Tribunal which 
shall pass such orders as are necessary to dispose of the 
case conformably to such judgment.1] 
 
(6)  
Where a reference is made to the High Court […2] 
the costs shall be in the discretion of the Court. 
 
                                       
1 Inserted in place of the old sub-sections (1) – (5) by Section 92 of the Indian Income Tax (Amendment) 
Act, 1939 (Act VII of 1939). 
2 The words “on the application of an assessee” were omitted by Section 92 of the Act ibid. 
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
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(7)  
Notwithstanding that a reference has been made 
under this section to the High Court, income-tax shall be 
payable in accordance with the assessment made in the 
case: 
 
Provided that, if the amount of an assessment is reduced as 
a result of such reference, the amount overpaid shall be 
refunded with such interest as the Commissioner may allow 
[unless the High Court, on intimation given by the 
Commissioner within thirty days of the receipt of the result 
of such reference that he intends to ask for leave to appeal 
to his Majesty in Council, makes an order authorising the 
Commissioner to postpone payment of such refund until the 
disposal of the appeal to His Majesty in Council.3] 
 
[(7A)  Section 5 of the Indian Limitation Act, 1908 (IX of 
1908), shall apply to an application to the High Court by 
an assessee [under sub-section (2) or sub-section (3)4].5] 
 
(8) 
For the purposes of this section “the High Court” 
means— 
 
 
(a) 
in relation to [……6] British Baluchistan, the High 
Court of Judicature at Lahore; 
(b) 
in relation to the province of Ajmer-Merwara, the 
High Court of Judicature at Allahabad; and 
(c) 
in relation to the province of Coorg, the High Court 
of Judicature at Madras.” 
 
17. 
 
Under the amended Section 66 of the Act, 1922, both the 
department and the assessee were given the right to require the Tribunal 
to draw up a statement of the case and refer any questions of law arising 
out of the order of the Tribunal to the High Court and in case the Tribunal 
refused to do so, both sides had the opportunity to challenge the 
                                       
3 Inserted by Section 82 of the Act ibid. 
4 Inserted in place of the words “under sub-section (3) or sub-section (3A)” by Section 92 of the Act ibid. 
5 Section 7A inserted by Section 28 of the Income Tax (Second Amendment) Act 1933 (Act XVIII of 1933). 
6 The words “the North West Frontier Province” were omitted by Section 82 of Act VII supra. 
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Tribunal’s refusal before the High Court, which could then require the 
Tribunal to refer questions of law arising out of its order to the High 
Court. This procedure was basically the same as the procedure under the 
unamended Section 66(2) and (3) of the Act, 1922 with the difference that 
instead of the Commissioner, references were to be made through the 
Tribunal as it was the Tribunal’s orders which could now be challenged in 
a reference. The rights of assessees increased as they were given an 
additional appellate forum, which could be termed quasi-independent and 
could determine legal-cum-factual disputes between the department and 
the assessee. The High Courts continued to hold a restrictive view of their 
jurisdiction under the amended Section 66 of the Act, 1922 since, in so far 
as the Courts were concerned, the only difference was that the application 
was now being made through the Tribunal rather than the Commissioner. 
It will however be noted that the discussion in the preceding paragraphs 
in support of a wider reading of the jurisdiction under Section 66(2) of the 
Act, 1922 prior to the 1939 amendment applies equally to Section 66 
thereof as amended in 1939 since the basic features of the High Court’s 
jurisdiction remained the same. The only notable difference is that the 
true advisory jurisdiction under Section 66(1) of the Act, 1922 was 
altogether done away with and instead the department was given a similar 
right as the assessee to challenge any order passed by the Tribunal. In so 
far as Pakistan is concerned, the law remained almost the same till at 
least 1971, when, as explained later, a crucial amendment was brought 
about in Section 66 supra.  
18. 
 
Before examining the change in the law in 1971, it may be 
pertinent to examine some of the leading cases prior to the said change, 
which have been relied upon in later pronouncements of the High Courts 
and the Supreme Court. Although Courts were settled on the possibly 
incorrect position that the nature of the jurisdiction under Section 66 
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supra was advisory, there was a great deal of debate in relation to the 
exact scope of the reference jurisdiction and conflicting judgments started 
coming in, in relation to different issues. In most of the leading judgments 
of the High Court and the Privy Council from the pre-partition era, the 
issues involved were either:- (1) whether questions not agitated in the 
application to the Tribunal to refer the case, and hence not so referred, 
could be raised in the High Court either at the time of challenging the 
Tribunal’s refusal to refer the case or at the time of arguments in a 
reference and/or (2) whether the High Court could itself formulate new 
questions of law which were not referred to it. 
19. 
 
There were conflicting judgments from different High Courts 
on these issues but by and large, most agreed, rightly or wrongly, that 
questions not raised by the assessee in the application to the Tribunal to 
refer the case (even if they could be said to have arisen out of the order of the Tribunal) and 
hence not referred to the High Court, could not be raised in a reference by 
the assessee or by the High Court of its own motion. It also came to be 
settled, again, rightly or wrongly, that the High Court could not frame new 
questions on its own and was restricted to the questions referred to it but 
it could reformulate existing questions if necessary. Reference in this 
regard may be made to the following:- 
 
(i) 
Ishar Das Dharamchand – In the matter of (AIR 1926 Lah 
168), in which it was held that the Commissioner is not 
obligated to refer questions not pressed/agitated by the 
assessee. 
 
(ii) 
In the matter of P. Thiruvengada Mudaliar (AIR 1928 
Madras 889) in which it was held that if a point is not raised 
before the Commissioner within the time prescribed for 
making an application under Section 66(2) of the Act, 1922 to 
require the Commissioner to state the case, he cannot be later 
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
-: 25 :-
required, by the High Court or the assessee, to refer that point 
to the High Court. 
 
(iii) 
A.K.A.C.T.V. Chettyar Firm Vs. Commissioner of Income-
Tax, Burma (AIR 1928 Rangoon 281) in which the Rangoon 
High Court refused to consider two questions of law raised by 
the assessee in the application under Section 66(2) of the Act, 
1922 against the Commissioner’s refusal to state the case 
since those questions were not raised in the preceding 
application to the Commissioner requiring him to state the 
case.  
 
(iv) 
S.A. Subbiah Iyer Vs. Commissioner of Income-Tax, 
Madras (AIR 1930 Mad 449), in which a five member bench 
of the Madras High Court, while approving the cases of P. 
Thiruvengada Mudaliar and ACACTV Chettyar Farm 
(discussed above) held that questions not proposed before the 
Commissioner for referring to the High Court within the time 
prescribed by Section 66(2) ibid cannot be subsequently 
raised before the High Court.  
 
(v) 
Commissioner of Income-Tax, Burma Vs. P.K.N.P.R. 
Chettyar Firm (AIR 1930 Rangoon 78), in which it was held 
that the High Court cannot consider questions which the 
assessee did not require the Commissioner to state to the 
High Court under Section 66(2) ibid. 
 
(vi) 
Gurmukh Singh Vs. Commissioner of Income-Tax, Lahore 
[AIR 1944 Lah 353 (2)] in which, after considering conflicting 
judgments, the Lahore High Court held that the High Court is 
only bound to refer those questions arising out of the order 
which are referred to it at the behest of the assessee and the 
High Court is bound by those questions and cannot formulate 
new questions not referred to it. The High Court, however, can 
reformulate existing questions. 
 
20. 
 
It will be noted that the above judgments deal with the issue 
of whether questions not agitated by the assessee in the application made 
under Section 66(2) ibid requiring the Commissioner to state the case can 
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
-: 26 :-
be raised subsequently before the High Court. There is nothing specifically 
in these judgments on the issue of whether questions of law arising out of 
the order under challenge, but not expressly raised before the lower 
forums, can be required by the assessee to be referred to the High Court. 
The distinction between these two categories is significant. Keeping aside 
the issue of the scope of the questions which may be proposed for 
reference by the assessee, it is clear that the courts had developed the 
view (which was perhaps not as well-founded as it was considered to be) that the powers of 
the High Courts in references were strictly limited. 
21. 
 
In the case of The Commissioner of Income-Tax, Bihar and 
Orissa Vs. Maharajadhiraja Kameshwar Singh of Barbhanga ([1933] 1 
ITR 94) before the Privy Council, the Commissioner, while stating a case, 
failed to formulate an apparent question arising out of a particular 
transaction. The High Court formulated the question itself in the reference 
and proceeded to answer it. The Privy Council, sitting in appeal against 
the judgment of the High Court noted this act of the High Court and 
criticized the departure from the regular procedure. However, in the 
circumstances of the case, the Privy Council did go on to express its view 
on the question. It may be noted that although this case supports the view 
developed by the courts at the time that the High Court’s powers in 
references are limited, it clearly shows that the limits were not as absolute 
as they had been made to seem. The Privy Council may not have approved 
of the practice, but it did not hold it to be illegal and in fact did entertain 
the question itself as well.  
22. 
 
Another decision of the Privy Council which has been relied 
upon extensively in later decisions of the High Courts is the case of 
National 
Mutual 
Life 
Association 
of 
Australasia, 
Ltd. 
Vs. 
Commissioner of Income-Tax, Bombay Presidency and Aden (AIR 
1936 PC 55) wherein the High Court had decided a particular point 
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
-: 27 :-
against the assessee solely on the basis of an argument presented by the 
Advocate-General for the first time during the hearing of the case. The 
Privy Council while noting this observed that the argument presented by 
the Advocate-General was irrelevant as it was beyond the scope of the 
letter of reference. This case again leaned towards a restrictive reading of 
the High Court’s powers.  
23. 
 
It can be seen from the pre-partition judgments discussed 
hereinabove that the Courts had developed the view that the High Courts’ 
jurisdiction and powers in references were restricted. However, as has 
been discussed above, the foundations of this view are quite shaky. This 
generally restrictive interpretation of the reference jurisdiction, from the 
very beginning, played a significant role in the Courts’ determination of 
the issue of whether assessees are entitled to raise questions in references 
which were not raised before the lower forums. This issue became more 
controversial post partition and before we examine the law as it developed 
in Pakistan in this regard, it may be pertinent to review the position in 
India after partition.  
24. 
 
In India, the issue of the scope of the questions which may be 
proposed to the Tribunal for referring to the High Court became 
controversial very quickly and there came a time when there were multiple 
conflicting judgments in the field. The right conferred under Section 66 of 
the Act, 1922 on the assessee or the Commissioner was to require the 
Tribunal to refer any questions of law arising out of its order. The issue 
was whether the words “questions arising out of the order” included a 
question which was not argued before the Tribunal and/or dealt with by it 
in its order even though it be one of law and arising from the facts 
contained in the order.  
25. 
 
The Madras High Court in the cases of Messrs A. Abboy 
Chetty & others Vs. Commissioner of Income-Tax, Madras (AIR 1948 
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Mad 181) and Commissioner of Income-Tax, Excess Profits Tax, 
Madras Vs. Modern Theatres Ltd. (AIR 1952 Mad 255) took the view 
that a question of law not raised before the Tribunal and not dealt with in 
its order could not be said to be arising out of the order even if on the 
facts stated that question fairly arises. The same view was taken by the 
Calcutta High Court in the cases of Commissioner of Excess Profits Tax, 
West Bengal Vs. Jewanlal Ltd., Calcutta ([1951] 20 ITR 39) and 
Chainrup Sampatram Vs. Commissioner of Income Tax, West Bengal 
[(1951) 20 ITR 484] and by the Patna High Court in the cases of Maharaj 
Kumar Kamal Singh Vs. Commissioner of Income-Tax ([1954] 26 ITR 
79) and Commissioner of Income-Tax, B and O. Vs. Ranchi Electric 
Supply Co. Ltd., Ranchi (AIR 1955 Pat 151). At the same time the 
Bombay High Court in the case of Madanlal Dharnidharka Vs. The 
Commissioner of Income-Tax, Bombay City (AIR 1949 Bom 24) held 
that questions not dealt with by the Tribunal could arise out of its order if 
the necessary facts were recorded. Chagla, CJ persuasively argued that:- 
 
“…Now, looking at the plain language of the section apart 
from any authority, I should have stated that a question of 
law arose out of the order of the Tribunal if such a question 
was apparent on the order itself or it could be raised on the 
facts found by the Tribunal and which were stated in the 
order. I see no reason to confine the jurisdiction of this 
Court to such questions of law as have been argued 
before the Tribunal or are dealt with by the Tribunal. The 
section does not say so and there is no reason why we 
should construe the expression ‘arising out of such order’ 
in a manner unwarranted by the ordinary grammatical 
construction of that expression.” 
[Emphasis supplied] 
 
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
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26. 
 
It will be noted that the view of the Bombay High Court was 
on the plane of legal interpretation of the words used and was unfettered 
by the restraints imposed by importing the phrase “advisory jurisdiction” 
which does not appear in the law at all. This view found favour with the 
Punjab High Court in the case of Commissioner of Income Tax, Delhi 
Vs. Punjab National Bank, Ltd., Delhi ([1952] 21 ITR 526) and the 
Nagpur High Court in the case of Mohanlal Harilal Vs. Commissioner of 
Income-Tax, C. P. and Berar, Nagpur ([1952] 22 ITR 448). The Supreme 
Court of India left the issue open in the case of Ogale Glass Works (supra) 
but then went on to tilt in the opposite direction in the Scindia Steam 
case (supra) in which it (the Supreme Court of India) concluded as follows (at page 
1645):- 
 
“31. The result of the above discussion may thus be 
summed up: 
 
(1) 
When a question is raised before the Tribunal and 
is dealt with by it, it is clearly one arising out of its order.  
 
(2) 
When a question of law is raised before the 
Tribunal but the Tribunal fails to deal with it, it must be 
deemed to have been dealt with by it, and is therefore one 
arising out of its order. 
 
(3) 
When a question is not raised before the Tribunal 
but the Tribunal deals with it, that will also be a question 
arising out of its order. 
 
(4) 
When a question of law is neither raised before the 
Tribunal nor considered by it, it will not be a question 
arising out of its order notwithstanding that it may arise on 
the findings given by it. 
 
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Stating the position compendiously, it is only a question 
that has been raised before or decided by the Tribunal that 
could be held to arise out of its order.” 
 
With regard to proposition (4) reproduced above, certain observations of 
the India Supreme Court (at pages 1643-1644), as will be seen later, are 
critical. It was expressly conceded by the Supreme Court of India:- 
 
“26. But the main contention still remains that the 
language of S. 66(1) is wide enough to admit of questions 
of law which arise on the facts found by the Tribunal and 
that there is no justification for cutting down its 
amplitude by importing in effect words into it which are 
not there. There is considerable force in this argument.”  
[Emphasis supplied] 
 
The Indian Supreme Court however then proceeded to argue as follows:- 
 
“But then there are certain features, which distinguish the 
jurisdiction under S. 66, and they have to be taken into 
consideration in ascertaining the true import of the words, 
“any question of law arising out of such order.” The 
jurisdiction of a court in a reference under S. 66 is a 
special one, different from its ordinary jurisdiction as a 
civil court. The High Court, hearing a reference under that 
section, does not exercise any appellate or revisional or 
supervisory jurisdiction over the Tribunal. It acts purely in 
an advisory capacity, on a reference which properly comes 
before it under S. 66(1) and (2). It gives the Tribunals 
advice, but ultimately it is for them to give effect to that 
advice. It is of the essence of such a jurisdiction that the 
court can decide only questions which are referred to it and 
not any other question…If the true scope of the jurisdiction 
of the High Court is to give advice when it is sought by the 
Tribunal, it stands to reason that the Tribunal should have 
had an occasion to consider the question so that it may 
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
-: 31 :-
decide whether it should refer it for the decision of the 
court. How can it be said that the Tribunal should seek for 
advice on a question which it was not called upon to 
consider and in respect of which it had no opportunity of 
deciding whether the decision of the court should be 
sought?” 
[Emphasis supplied] 
 
27. 
 
It will be seen from the above reproduced extracts that 
although the Supreme Court of India agreed that the scope of the words 
“arising out of such order” was wide enough to include questions of law 
which had not been argued before the Tribunal, it held that they must be 
construed narrowly by reason of the “special” nature of the jurisdiction of 
the High Court and because firstly, it was for the Tribunal “to give effect to 
the advice” and secondly because the advice was being “sought by the 
Tribunal”. In this manner the Supreme Court narrowly construed the 
words “arising out of the order” on the basis of the unnecessarily 
restrictive view of the reference jurisdiction developed by the courts over 
the years. On the face of it these reasons are not persuasive since the 
Tribunal was not seeking advice voluntarily, or on a suo motu basis, but 
because it was obligated to do so under the law at the behest of an 
aggrieved party, which is the essence of a judicial process before a 
court of law. Furthermore, it was also not within the discretion of the 
tribunal to give effect, or not give effect, to the advice. It was binding on it 
and the mandate of the law required it to give effect to it. 
Unfortunately, this judgment, although clearly flawed, has had an 
enormous effect on the subsequent case law both in India as well as in 
Pakistan. The question of the difference between an advisory jurisdiction 
and an appellate one, briefly discussed earlier, is one that we will revert to 
below. 
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
-: 32 :-
28. 
 
In Pakistan, in the case of R. S. Munshi Gulab Singh and 
Sons Vs. Commissioner of Income-Tax, Punjab (PLD 1950 Lah 476) 
the assessee initially proposed two questions on 12.05.1945 which the 
Tribunal referred to the High Court. The High Court delivered a verdict on 
19.10.1945 against the assessee whereafter on 28.02.1946 the assessee 
made a fresh application to the Tribunal to refer a completely different 
question. The Tribunal’s refusal to do so was challenged before the Lahore 
High Court. The matter could very simply have been decided solely on the 
basis of the fact that the second application filed by the assessee was 
hopelessly time-barred. The Division Bench did in fact hold as much in 
this case. However, it went further in its judgment by finding as under: 
 
“There can be no doubt that in the course of assessment 
proceedings for the year 1942-43 the assessee never raised 
the question which he now requires the Appellate Tribunal 
to state. In fact the position taken up by him was wholly 
inconsistent with the position that he has now adopted after 
the decision of the High Court…The Tribunal were, 
therefore, right in refusing to state the case. The law is 
clear on the point that it is only a question raised before the 
Appellate Tribunal that can be referred to the High Court 
under section 66.”  
 
29. 
 
The Lahore High Court then went on to rely on, inter alia, the 
judgment of the Madras High Court in the case of A. Abboy Chetty (supra) 
which was approved by the Supreme Court of India in the following year in 
Scindia Steam’s case (supra). Perhaps its inclination to discuss the 
assessee’s contradictory positions, which led it into the domain of the 
issue whether new questions could be raised, can be attributed to the fact 
that the assessee in this case was blatantly trying to evade tax and kept 
taking conflicting positions. In any event, the Lahore High Court adopted 
the same restrictive approach post partition as was prevalent prior to it.  
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
-: 33 :-
30. 
 
In the case of The Scindia Steam Navigation Co. Ltd. Vs. 
The Commissioner of Income-Tax (PLD 1959 Kar 527) a Division 
Bench of the High Court of Sindh held that although new questions could 
not be raised before the High Court, there was no restriction on new 
arguments being canvassed in support of the stated questions. This is an 
interesting 
case 
as 
it, 
while 
adopting 
the 
prevalent 
restrictive 
interpretation of the High Court’s powers in reference, expanded the scope 
for assessees by finding that new submissions, as long as in the form of 
arguments in support of existing questions and not new questions 
themselves, could be raised before the High Court in a reference.  
31. 
 
Around the same time as the Sindh High Court judgment 
discussed above, Section 66 came under consideration before a four 
member bench of the Supreme Court in the case of M. Idrees Barry 
(supra). The Supreme Court in this case took a restrictive view of the High 
Court’s jurisdiction under Section 66 of the Act, 1922. The facts of the 
case were that a dispute arose as to whether the assessee was properly 
served notices in the case. The Tribunal held that the service of notice was 
valid which led the assessee to propose a question for reference to the 
High Court. The department opposed the reference but the Tribunal 
accepted it and referred the question, the form of which was approved by 
the assessee. The High Court held that although the question as framed 
would go against the department, the “real” question involved would lead 
to a decision against the assessee. It then proceeded to ‘reformulate’ the 
question and answer it against the assessee. The Supreme Court pointed 
out that the question referred to the High Court was whether service of 
notice was “valid” while the High Court reframed the question to make it 
as to whether service of notice on the assessee was “effective”. The 
Supreme Court went on to hold that the substance of the question 
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
-: 34 :-
referred was not preserved by the High Court and therefore the 
reformulation was not valid. It further held that:- 
 
“Further what is provided for in S. 66(1) is not a reference 
of any question arising on the facts of the case but only a 
reference of a question or questions which arise out of the 
order of the Appellate Tribunal. This is clear from the 
language of the section as well as from the decisions on 
which the learned Judges have relied. The extract from the 
above-mentioned Full Bench judgment incorporated in the 
judgment under appeal is to the effect that the Tribunal 
cannot travel beyond the question originally indicated by 
the assessee and the High Court cannot raise any question 
suo motu which is not covered by the reference. The 
learned Judges recognised this limitation…”  
 
The Supreme Court then went on to examine the judgment of the High 
Court which had decided the matter on the basis of the conduct of the 
assessee after finding that it was one of the issues referred to in the 
Tribunal’s order. The Supreme Court disagreed with this observation and 
after examining the Tribunal’s order found that the conduct of the 
assessee was never challenged by the department before the lower forums. 
The Supreme Court observed that the only point raised was whether the 
service was valid, as the person who received the notice was empowered 
by the assessee and the High Court’s finding on effectiveness of service 
was not valid. The Supreme Court went on to discuss the Privy Council 
decision in National Mutual Life Association’s case (supra) in which the 
High Court had decided a point on the basis of a new argument raised 
before it but the Privy Council observed that the argument was outside the 
scope of the reference. The Supreme Court finally went on to conclude as 
follows:- 
 
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-: 35 :-
“It may well be that when the question referred is 
considered some point may emerge with regard to the 
assessee’s liability which should have been raised before 
the Tribunal and dealt by it, but as long as that matter is 
not covered by the reference, the High Court cannot 
formulate a new question and deal with it, for, as pointed 
out by their Lordships of the Privy Council in Raja 
Bahadur 
Sir 
Rajendra 
Narayan 
Bhanj 
Deo 
v. 
Commissioner of Income-Tax, Bihar and Orissa [AIR 1940 
PC 158 at 159] “the function of the High Court in cases 
referred to it under S. 66 of the Act is advisory only and is 
confined to considering and answering the actual question 
referred to it”. The learned Judge should therefore have 
answered the question referred by the Income-tax Appellate 
Tribunal instead of formulating a different question and 
answering it.” 
 
It is obvious from a perusal of the above judgment that the Supreme Court 
of Pakistan adopted a restrictive view of the High Court’s jurisdiction and 
powers under Section 66 of the Act, 1922 on the basis of decisions of the 
Privy Council and other courts, which are based on certain fundamental 
misconceptions discussed earlier. Although the Supreme Court in M. 
Idrees Barry (supra) indicated that new issues cannot be raised in a 
reference, the point it actually decided was only that the High Court did 
not have any suo motu powers to frame new questions and answer them. 
The Supreme Court stated that only questions arising out of the order 
could be referred but did not expressly deal with the scope of the 
significant phrase “arising out of the order” or the issue of whether the 
assessee has the right to propose new questions while making a reference 
which are apparent from the facts as recorded in the Tribunal’s order and 
fall within the ambit of that phrase. 
32. 
 
The view of the Lahore High Court in the R. S. Munshi Gulab 
Singh’s case (supra) was followed by the Sindh High Court in the case of 
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
-: 36 :-
Abdul Ghani & Co. Vs. Commissioner of Income-Tax (PLD 1962 Kar 
635) wherein it was held that only questions raised before and dealt with 
by the Tribunal could be referred to the High Court at the behest of the 
assessee. However, subsequently in 1965, a five member bench of the 
Supreme Court of Pakistan showed a strong inclination to depart from the 
narrow construction of the reference jurisdiction of the High Court in one 
case and then went on to assign a more liberal construction to the same 
in another case. In the case of Pakistan, through the Commissioner of 
Income-Tax, Karachi Vs. Messrs Majestic Cinema, Karachi (PLD 1965 
SC 379) the Supreme Court of Pakistan observed as under:- 
 
“The second observation which we have to make is of a 
general nature. It is that consideration should be given to 
the question whether the procedure of ascertainment of the 
proper law applying to cases arising out of imposition of 
the income-tax, by the method of reference under section 66 
of that Act is, in actual practice, entirely apt for the 
resolution of the questions of law arising, owing to the 
danger which appears in a fairly considerable number of 
cases, of there being produced through this process a 
distortion of the case both as to facts and law in its 
presentation to the High Court. It is in our view a matter 
for serious consideration whether a truer interpretation of 
the legal provisions could not be achieved by a process of 
direct appeal to the High Court from the decisions of the 
Tribunal, so limited however, that the determination of 
questions of fact is left within the exclusive responsibility of 
the Tribunal, subject to directions by the High Court, as to 
error of law or material error of procedure in such 
determination. We observe that in nearly all cases the 
question referred is prefaced by the expression “in the facts 
and circumstances of the case”, and on occasions, these 
words seem to convey a request for a final ascertainment of 
the ‘facts and circumstances’. Cases are not infrequent 
where the presentation of ‘facts and circumstances’ in the 
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
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‘statement of facts’ appears in the course of the argument 
before the High Court and the Supreme Court, not to be 
entirely consistent from those appearing on the record. The 
Courts are then faced with a difficulty in formulating an 
answer to the question of law which would not operate a 
distortion in the imposition of the tax.  
 
In the present case, the facts are certainly clear, and the 
indefiniteness appeared in the question as referred to the 
High Court, but that is without effect on the observation 
that a direct appeal from the decisions of the Income-tax 
Tribunal in the two appeals before it, might have led to a 
more consistent decision in the present case, on the basis of 
the settled facts as they appeared. The procedure of 
reference 
is 
cumbersome 
and 
experience 
shows 
increasingly that it lends itself to possibilities of distortion 
not only in the presentation of facts relevant to the question 
of law referred, but even to distortion of the question of law 
itself. We think it is a matter for serious consideration by 
the authorities concerned whether the present procedure 
should not be replaced by a direct appeal, limited as to 
facts, to a Superior Court. A further clear advantage from a 
direct appeal would be a considerable saving of time in the 
finalisation of taxation matters.”  
[Emphasis supplied] 
 
The point is well taken. What is the object of the entire exercise? Is it to 
provide a discourse on the technical competence of the counsel appearing 
before the Tribunal in relation to the points actually raised or which ought 
to have been raised, or is it to answer the substantive issues in relation to 
the levy of fiscal law? 
33. 
 
Only a few months after the passing of the above judgment, 
the same five member bench of the Supreme Court of Pakistan was once 
again faced with a difficult question in relation to the scope of references. 
In the case of Messrs Sutlej Cotton Mills Ltd., Okara Vs. The 
Commissioner of Income-Tax, North Zone (West Pakistan), Lahore 
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
-: 38 :-
(PLD 1965 SC 443) during the course of the hearing a question was 
raised as to the period of limitation which had not been properly raised or 
considered in the lower forums, although a generalized objection had been 
raised. In this regard, the Supreme Court held as under:- 
 
“The question of violation of natural justice, as has been 
seen, was raised in bar of the jurisdiction of the Income-tax 
Officer to make the order of re-assessment which he made, 
and a point of jurisdiction is one which is not barred even 
at the ultimate stage before this Court…It is open to a 
Court before which a point of jurisdiction is raised, to 
deal with it at the very last stage, even if the point was not 
raised at any earlier stage, provided that all the evidence 
necessary for the determination of the point is available on 
the record so that no further evidence is required for 
reaching a satisfactory conclusion.” 
[Emphasis supplied] 
 
    
The Supreme Court carved out this exception but went on to state in its 
conclusion that:- 
 
“…in arriving at this conclusion, it has not been necessary 
in any way, to go outside the four corners of the question 
referred, or subject it to modification in any sense. The 
“facts and circumstances” have been accepted as they 
appear on the record, for the examination of the question.” 
 
Put differently, the Supreme Court construed the question before it so 
widely, as to allow the jurisdictional point to be decided although it was 
neither raised, nor discussed, earlier. This was an original approach and 
the ends of justice were therefore served.     
34. 
 
That despite a move towards a liberal interpretation of the 
reference jurisdiction of the High Courts, the Lahore High Court in the 
case of Odeon Cinema (supra) reverted to the earlier view relying on, inter 
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
-: 39 :-
alia, the Sindh High Court judgment in the Scindia Steam case (supra) and 
the Supreme Court judgment in the M. Idrees Barry case (supra), and went 
on to hold that questions not raised before the Tribunal could not be 
agitated before the High Court in a reference. It may be noted that the 
Lahore High Court did not refer to the Supreme Court’s latest judgment in 
the Sutlej Cotton Mills case (supra) and relied on the M. Idrees Barry 
judgment (supra), without analysis of its exact scope.  
35. 
 
Up until 1971, the position in Pakistan was that the Courts 
were supportive of the view that the reference jurisdiction of the High 
Court was limited to answering the questions referred to it and it could 
not enlarge this scope. The Supreme Court in the Majestic Cinema case 
(supra) recognized the need for an enlargement of the High Court’s 
jurisdiction by providing a direct appeal on the questions of law and urged 
for a reconsideration of the law in this regard. Whilst dealing with the 
issue of whether questions not raised before or dealt with by the Tribunal, 
the High Courts had held that such questions could not be raised in a 
reference but in this regard a comprehensive and authoritative 
pronouncement of the Supreme Court of Pakistan was lacking. The High 
Courts found support from the case of M. Idrees Barry (supra), but a close 
analysis of that decision shows that the Supreme Court while obviously 
taking a very restrictive view of the overall jurisdiction and powers of the 
High Courts in references did not expressly deal with the issue of whether 
new questions falling within the ambit of the phrase “arising out of the 
order” could be referred by assessees in reference applications. The 
Supreme Court of Pakistan in Sutlej Cotton Mills case (supra) noted that, 
if the relevant facts were on the record, a question of jurisdiction could be 
raised at any time before the Courts in tax matters, regardless of whether 
it was raised before the lower forums, but it did not say whether questions 
of law, other than jurisdictional questions, could also be raised at any 
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
-: 40 :-
time in a similar manner. However, to the extent of jurisdictional issues, 
the Supreme Court can be said to have carved out an exception to the 
general rule laid down in the decisions of the High Courts.  
36. 
 
Section 66 of the Act, 1922 was significantly amended by way 
of the Finance Ordinance, 1971 (Ordinance XIV of 1971). For the first time 
since the introduction of the provision for references in the tax laws of the 
sub-continent, litigants were given the right to directly refer questions of 
law arising out of the Tribunal’s order to the High Court. This was an 
extremely important change, although its importance was not fully 
grasped at the time. It is vitally important to note that the argument for a 
restricted interpretation of the law, in as much as it was based on the view 
that since the High Court only gave its opinion to the Tribunal which was 
responsible for finalizing proceedings, the jurisdiction of the High Court 
was limited, was now being fatally undercut. A direct right had now been 
conferred on an assessee to invoke the jurisdiction of the High Court. The 
Tribunal itself did not need to seek any advice. It was not authorised to 
seek any advice. How then could the operative order of the High Court be 
termed as advice? The procedural formality of the past, which was given 
far more significance by the Courts than it deserved, was now removed 
thereby rendering the remedy available to the assessees more clearly 
appellate in nature. Thus, both the legal entitlement of the assessee and 
the jurisdiction of the High Court were enlarged. In practice also, the view 
of the Indian Supreme Court in the Scindia Steam case (supra) was now no 
longer applicable in any view of the matter. This change in the law may 
perhaps have been prompted by the Supreme Court’s plea in the Majestic 
Cinema case (supra). As amended in 1971, Section 66 of the Act, 1922 read 
as under:- 
 
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-: 41 :-
(1) 
Within sixty days of the date upon which he is 
served with notice of an order under sub-section (4) of 
section 33 the assessee or the Commissioner may, by 
application in the prescribed form, accompanied where 
application is made by the assessee by a fee of one hundred 
rupees, [refer to the High Court any question of law arising 
out of such order7].  
 
 
[……8] 
 
[(2) 
An application under sub-section (1) shall be in 
triplicate and shall be accompanied by the following 
documents, and where any such document is in any 
language other than English, also by translation thereof in 
English, namely :-- 
 
(a) 
Certified Copy, in triplicate, of the order of the 
Appellate Tribunal out of which the question of law has 
arisen; 
 
(b) 
Certified Copy, in triplicate, of the order of the 
Income-tax 
Officer 
or 
the 
Inspecting 
Assistant 
Commissioner, as the case may be, which was the subject-
matter of appeal before the Appellate Tribunal; and  
 
(c) 
Certified Copy, in triplicate, of any other document 
the contents of which are relevant to the question of law 
formulated in the application and which was produced 
before the Income-tax Officer, the Inspecting Assistant 
Commissioner or the Appellate Tribunal, as the case may 
be, in the course of any proceedings relating to any order 
referred to in clause (a) or clause (b). 
 
(3) 
Where 
the 
assessee 
is 
the 
applicant, 
the 
Commissioner shall be made a respondent; and where the 
                                       
7 Inserted for the words “require the Appellate Tribunal to refer to the High Court any question of law arising 
out of such order, and the Appellate Tribunal shall within ninety days of the receipt of such application draw 
up a statement of the case and refer it to the High Court” by Section 4 of the Finance Ordinance, 1971 
(Ordinance XIV of 1971). 
8 Proviso omitted by Section 4 of the Ordinance ibid. 
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
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Commissioner is the applicant the assessee shall be made a 
respondent: 
 
Provided that where an assessee dies or is 
adjudicated insolvent or is succeeded by another person or 
is a company which is being wound up, the application 
shall not abate and may, if the assessee was the applicant, 
be continued by, and if he was the respondent, be continued 
against, the executor, administrator or successor or other 
legal representative of the assessee, or by or against the 
liquidator or receiver, as the case may be. 
 
(4) 
In respect of cases referred to in sub-section (5) of 
section 5 where the Inspecting Assistant Commissioner 
performs the functions of an Income-tax Officer, reference 
in this section to Commissioner shall be construed as 
reference to the Central Board of Revenue. 
 
(4-A) On receipt of the notice of the date of hearing of the 
application, the respondent shall, at least seven days before 
the date of hearing, submit in writing a reply to the 
application; and he shall therein specifically admit or deny 
whether the question of law formulated by the applicant 
arises out of the order of the Appellate Tribunal. If the 
question formulated by the applicant is, in the opinion of 
the respondent, defective, the reply shall state in what 
particular the question is defective and what is the exact 
question of law, if any, which arises out of the said order; 
and the reply shall be in triplicate and be accompanied by 
any documents (alongwith a translation in English of those 
of such documents as are not in English) which are 
relevant to the question of law formulated in the 
application and which were produced before the Income-
tax Officer, the Inspecting Assistant Commissioner or the 
Appellate Tribunal, as the case may be, in the course of any 
proceedings relating to any order referred to in clause (a) 
or clause (b) of sub-section (1).9]   
                                       
9 Sub-sections (2), (3), (4) & (4A) inserted in place of sub-sections (2), (3), (3-A) & (4) by Section 4 of the 
Ordinance ibid. 
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
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(5) 
The High Court upon the hearing of any [such 
application10] shall decide the questions of law raised 
thereby and shall deliver its judgment thereon containing 
the grounds on which such decision is founded and shall 
send a copy of such judgment under the seal of the Court 
and the signature of the Registrar to the Appellate Tribunal 
which shall pass such orders as are necessary to dispose of 
the case conformably to such judgment. 
 
(6)  
Where a reference is made to the High Court the 
costs shall be in the discretion of the Court. 
 
(7)  
Notwithstanding that a reference has been made 
under this section to the High Court, income-tax shall be 
payable in accordance with the assessment made in the 
case: 
 
Provided that, if the amount of an assessment is 
reduced as a result of such reference, the amount overpaid 
shall be refunded with such interest as the Commissioner 
may allow unless the High Court, on intimation given by 
the Commissioner within thirty days of the receipt of the 
result of such reference that he intends to ask for leave to 
appeal to the Supreme Court, makes an order authorising 
the Commissioner to postpone payment of such refund until 
the disposal of the appeal to the Supreme Court. 
 
(7A)  Section 5 of the Limitation Act, 1908 (IX of 1908), 
shall apply to an application under sub-section (1)  
 
[……11]. 
 
[(8) 
Any application made to the Appellate Tribunal or 
any question of law referred to the High Court by the 
Appellate Tribunal before the first day of July 1971, shall 
be disposed of by the Appellate Tribunal or the High Court, 
                                       
10 Inserted in place of the words “such case” by Section 4 of the Ordinance ibid. 
11 The words “or sub-section (2) or sub-section (3)” omitted by Section 4 of the Ordinance ibid. 
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
-: 44 :-
as the case may be, as if the Finance Ordinance, 1971, had 
not come into force.12] 
 
37. 
 
This enlightened and progressive change in the law did not, 
however, last for long as the law reverted back to its original position with 
the passing of the Finance Act, 1974 (Act XL of 1974) (it may be noted in passing 
that this somewhat erratic behaviour of the Finance Ministry in proposing and getting amendments 
passed without any proper application of mind is hardly commendable for the reason that Finance 
Acts do not travel to the Senate for debate and discussion and they are often passed by the National 
Assembly in routine without rigorous debate. This adds to the responsibility of the Finance 
Division to ensure a proper application of mind prior to proposing an amendment. The will of the 
legislature is certainly to be respected but the rapidly changing whims of the draftsmen of the 
Federal Board of Revenue are not to be encouraged. Perhaps the conclusion is that a greater 
vigilance is required by the superior courts in interpreting fiscal laws). However, the 
interpretation of Section 66 of the Act, 1922 as it stood between 1971 and 
1974 is extremely important for the purposes of the present discussion 
since the current state of the law is materially similar. Although there is 
no authoritative pronouncement of the Supreme Court of Pakistan on the 
law from this period, there is a judgment of the Lahore High Court which 
sheds considerable light on the interpretation of Section 66 ibid as it stood 
after the 1971 amendment. In the case of Messrs Hunza Asian Textile 
and Woolen Mills Ltd. Vs. Commissioner of Sales Tax, Rawalpindi 
Zone, Rawalpindi (1973 PTD 544 = [1974] 29 Taxation 1) while 
examining the jurisdiction of the High Court under Section 17 of the Sales 
Tax Act, 1951, in order to answer questions apparent from the face of the 
record in a reference even though the questions were not urged before the 
Tribunal, the Lahore High Court had the occasion to examine the similar 
Section 66 of the Act, 1922. The Lahore High Court examined the 
conflicting case law on the scope of Section 66 ibid and relied on the 
                                       
12 Inserted by Section 4 of the Ordinance ibid. 
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Supreme Court judgment in the Sutlej Cotton Mills case (supra) to rightly 
note that there was a move towards a broadening of the jurisdiction of the 
High Courts in references even prior to the 1971 amendment. It then went 
on to hold (at page 15) as under:- 
 
“15. On a careful consideration of the law we find that 
these amendments introduced in section 66 of the 
Income-tax Act and section 17 of the Sales Tax Act are 
fundamental in character and go to the very root of this 
jurisdiction exercised by the High Court under the law. 
There is no gainsaying that essentially this jurisdiction, 
vested in the High Court, is advisory only. But then under 
these two amended sections a right is conferred on the 
assessee or the Commissioner by an application to directly 
refer to the High Court any question of law "arising out" of 
the appellate order passed by the Appellate Tribunal. As a 
matter of strict interpretation, on the language of the 
section, the word "arising" out of the order of the 
Tribunal in the context has a wider import and 
connotation than the word "raised" before the Tribunal. 
A question of law may still "arise" out of the order of the 
Tribunal although it was not actually raised before it. In 
this connection it would be pertinent to reiterate the 
observations made by the Supreme Court of India in the 
Commissioner of Income-tax, Bombay v. Scindia Steam 
Navigation Co. Ltd. In interpreting the old section 66(1) of 
the Act the Court remarked that the language of section 
was wide enough to admit of questions of law on the facts 
found by the Tribunal and that there was no justification 
for ousting down its amplitude. We find that these remarks 
are all the more pertinent now after these amendments 
introduced in section 66(1) of the Act in this country by the 
Finance Ordinance, 1971. In these circumstances it calls 
for a more liberal interpretation to be placed on the 
amended provision for a direct reference of a question of 
law arising out of the appellate order passed by the 
Tribunal. Indeed it seems to us that the power of High 
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
-: 46 :-
Court on reference after these amendments is now more 
akin and similar to that vested in it in a second appeal. 
… 
17. …there is nothing inherent in the nature of this 
jurisdiction to debar the Court, in a proper case, from 
entertaining a new question of law patent on the face of the 
reference made to it by the Tribunal. 
… 
19. To sum up our above discussion we find that the 
jurisdiction vested in the High Court is a controlled one. It 
must act upon a reference by the assessee or the 
Commissioner and not without it. It is not a Court of facts 
but will decide questions of law only. In this connection 
under the amended law the processing of the reference 
application through the Appellate Tribunal was dispensed 
with. The idea behind this amendment was to liberalize 
this procedure and to free it from the old process, 
shackles and hurdles. The dialogue now is between the 
assessee or the Commissioner and the Court directly. On 
principle we cannot but hold that the Court is competent to 
entertain a pure question of law floating on the surface, 
patent on the face of the record, and going to the root of the 
case, merely because it escaped the notice of the party and 
was not raised before the Tribunal in appeal in the first 
instance. The progress in the law has been to march 
forward from procedure to substance and to break down 
the rigours and formalities of the past in the larger 
interest of justice…” 
[Emphasis supplied] 
 
38. 
 
The Lahore High Court essentially held that the jurisdiction 
under Section 66 ibid was essentially now appellate in nature, although 
restricted to only questions of law i.e. similar to a second appeal. On this 
view, it held that the phrase “arising out of the order” must now be 
assigned its natural meaning to include any questions which are apparent 
from the order. The Lahore High Court drew support from the decision of 
the Supreme Court of India in Scindia Steam (supra) wherein the court, 
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
-: 47 :-
while agreeing that the natural meaning of the words “arising out of the 
order” could include new questions if they are apparent from the order, 
had gone on to adopt a narrow interpretation only because it felt 
constrained by the restrictive advisory jurisdiction of the High Court. The 
Lahore High Court correctly held that since that restrictive aspect of the 
law had been done away with and the jurisdiction was now practically 
appellate in nature, there was no reason why the words “arising out of the 
order” could not be assigned their natural meaning to include any 
questions which are apparent from the face of the record, regardless of 
whether they were raised before the Tribunal or not. There is an obvious 
distinction between “arising out of” and “argued before”. The Lahore High 
Court correctly noted that if the questions to be referred were to be 
restricted to the questions dealt with by the Tribunal, the language of the 
law would have been “refer questions of law ‘raised’ before the Tribunal” 
and not “arising” out of its order. This clearly is a powerful argument. 
39. 
 
The view of the Lahore High Court is good authority for the 
scope of a reference under Section 133 of the Ordinance, 2001 as it stands 
today, due to the similarity in the law. However, some later judgments of 
the superior courts have made matters slightly more complicated than 
that. As noted earlier, the law reverted back to the pre-1971 position with 
an amendment in Section 66 ibid by way of the Finance Act, 1974. 
Subsequently, Section 66 supra was replaced by Section 136 of the 
Ordinance, 1979, which also retained the formal procedure of referring 
questions through the Tribunal and read as under:- 
 
136. Reference to High Court.- (1) Within ninety days of 
the date upon which he is served with notice of an order 
under section 135, the assessee or the Commissioner may, 
by application in such form and accompanied by such 
documents as may be prescribed, require the Appellate 
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
-: 48 :-
Tribunal to refer to the High Court any question of law 
arising out of such order, and the Appellate Tribunal shall, 
within ninety days of the receipt of such application, draw 
up a statement of the case and refer it to the High Court.  
 
(2) 
If, on an application made under sub-section (1), 
the Appellate Tribunal refuses to state the case on the 
ground that no question of law arises, the assessee or the 
Commissioner, as the case may be, may within one hundred 
and twenty days from the date on which he is served with 
notice of the refusal, apply to the High Court, and the High 
Court may, if it is not satisfied with the correctness of the 
decision of the Appellate Tribunal, frame a question of law 
and the provisions of sub-sections (4), (5), (6) and (7) shall 
so far as may be, apply as they apply to a reference made 
under subsection (1).  
 
(3) 
If the High Court is not satisfied that the statement 
in a case referred under sub-section (1) is sufficient to 
enable it to determine the question raised thereby, the 
Court may refer the case back to the Appellate Tribunal to 
make such modifications therein as the Court may direct. 
 
(4) 
When any case has been referred to the High Court 
under this section, it shall be heard by a Bench of not less 
than two Judges of the High Court, and in respect of such 
case the provision of section 98 of the Code of Civil 
Procedure, 1908 (V of 1908) shall, so far [as] may be, 
apply notwithstanding anything contained in the Letters 
Patent applicable to any High Court or in any other law for 
the time being in force.  
 
(5) 
The High Court upon the hearing of any such case, 
shall decide the questions of law raised thereby and shall 
deliver its judgment thereon containing the grounds on 
which such decision is founded and shall send a copy of 
such judgment under the seal of the Court and the 
signature of the Registrar to the Appellate Tribunal, which 
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
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shall pass such orders as are necessary to dispose of the 
case conformably to such judgment. 
 
(6)  
Where a reference is made to the High Court under 
this section, the costs shall be in the discretion of the Court. 
 
(7)  
Notwithstanding that a reference has been made 
under this section to the High Court, tax shall, unless the 
recovery thereof has been stayed by the High Court, be 
payable in accordance with the assessment made in the 
case. 
 
(8)  
Section 5 of the Limitation Act, 1908 (IX of 1908), 
shall apply to an application under subsection (1) or 
subsection (2). 
 
 
(9) 
When an application is made under subsection (1) 
by the assessee, it shall be accompanied by a fee of one 
hundred rupees. 
 
40. 
 
In the case of Ahmad Karachi Halva (supra), a three member 
bench of the Supreme Court was called upon to decide the question 
whether a question of law raised in the memorandum of appeal but not 
argued before the Tribunal can be said to be arising out of the order of the 
Tribunal. The counsel for the appellant relied on the case of Hunza Asian 
Textile and Woollen Mills (supra) and Walayat Flour Mills, Lyallpur Vs. 
Commissioner of Income-Tax, Rawalpindi ([1974] 29 Taxation 31). The 
Supreme Court first examined the judgment in Hunza Asian Textile and 
Woollen Mills (supra) and noted the discussion in relation to the decision 
of the Indian Supreme Court in Scindia Steam (supra) therein. It then went 
on to find in paragraph 8, as under:- 
 
“The Division Bench, however, went further and held that a 
liberal meaning should be given to the expression “arising 
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out of the order of such Court” in agreement with the 
minority opinion in that case. Accordingly, it was of the 
opinion that a new plea could be allowed to be raised if it 
was implicit in or covered by the question of law referred 
to it for its opinion and no additional facts were necessary 
for its disposal.” 
 
The Supreme Court then went on to examine the judgment in the case of 
Walayat Flour Mills (supra) and while noting that the Division Bench relied 
on the minority view in the Indian Supreme Court judgment of Scindia 
Steam (supra), the Supreme Court observed that the Lahore High Court 
had failed to rely on the cases of Abdul Ghani, (supra) Odeon Cinema 
(supra) and M. Idrees Barry (supra). Thereafter the Supreme Court made a 
passing reference to some decisions from the Indian jurisdiction post the 
Scindia Steam case (supra) and went on to hold as under:- 
 
“11. There is, therefore, a preponderance of view as held 
by the High Court in favour of the proposition that 
expression “arising out of such order” in section 66(1) of 
the Income-tax Act does not include within its concept a 
question of law which was not raised, argued or decided by 
the Tribunal. This Court in PLD 1959 SC (Pak.) 202 has 
not given any wider import to the expression and has 
confined it to a question of law which is dealt with by the 
Tribunal. This in our view would not include a question of 
law which was neither raised nor dealt with by the 
Tribunal. 
 
12. Concluding thus, we are not inclined to agree with the 
opinion of the Division Bench in (1974) 29 Taxation 31 
which has followed the minority view of the Supreme Court 
of India in the case of Scindia Steam Navigation Co. Ltd. 
which itself did not find favour in the subsequent cases 
decided by the Supreme Court of India…”  
 
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
-: 51 :-
41. 
 
It may be noted that there are multiple aspects of the 
Supreme Court’s decision which require a closer examination. Firstly, it 
will be noted that although in Walayat Flour Mills case (supra) express 
reliance was placed on the minority view in the Indian Scindia Steam 
case (supra), the same is not true for the case of Hunza Asian Textile and 
Woollen Mills (supra). The Hunza Asian Textile and Woollen Mills case 
(supra) did not rely on the minority view in the Indian Scindia Steam case 
(supra). What it did was to refer to the majority view in the Indian Scindia 
Steam case (supra) but read with the change in the law, which was the 
significant and determinative factor. Furthermore, it should be noted that 
the Lahore High Court had not advocated a liberal/wide reading of the 
phrase “arising out of such order” but instead had simply assigned the 
natural meaning of the words to the said phrase. Thus the essential point 
was the change in the law on which the case of Hunza Asian Textile and 
Woollen Mills (supra) rests. The case related to the tax year 1957-1958 and 
a reference was filed in 1964. The matter was decided by the Supreme 
Court in 1981. At all these material times, the law was different from the 
law interpreted by the Lahore High Court in the case of Hunza Asian 
Textile and Woollen Mills (supra). Finally, in so far as the subsequent 
cases of the Indian Courts are concerned, they are hardly relevant since 
they were bound by the majority view in the Indian Scindia Steam case 
(supra) and obviously could not follow the minority view. 
42. 
 
Essentially, the Supreme Court followed the majority view of 
the Indian Supreme Court decision in the Scindia Steam case (supra) 
because the intervening change in the law in Pakistan was not brought to 
its notice. If it had, perhaps the verdict may not have been the same. We 
have already pointed out the flaws in the reasoning in that case, and the 
earlier cases on which it relied. The Indian Supreme Court had proceeded 
on the unfounded assumption that the jurisdiction was advisory in the 
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narrow sense. On the contrary, the Tribunal was bound by the law to refer 
the matter to the High Court at the insistence of an aggrieved party and 
the Tribunal had no discretion to disregard the High Court’s “advice”. 
There is a clear cut conceptual distinction between binding and non-
binding advice, especially when emanating from a court of law. An 
illustration of advisory jurisdiction is provided by Article 186 of the 
Constitution in terms of which the President, of his own volition, seeks 
the advice of the Supreme Court. The mere fact that a judicially binding 
verdict is given in the format of a question and answer does not change or 
alter its judicial character, especially when it is given in relation to a final 
order passed by a lower forum. It is a judicial verdict in every sense of the 
word and the Court exercises its normal judicial powers for this purpose. 
To conclude, the law does not use the phrase “advisory jurisdiction” and 
the use of this nomenclature cannot alter the plain meaning of the words 
used in the statute. 
43. 
 
The view of the Courts of Pakistan has subsequently been 
coloured by the observations in the Ahmad Karachi Halva case (supra). A 
major change to Section 136 of the Ordinance, 1979 came in 1997 when it 
was amended to provide for an “appeal” to the High Court instead of a 
“reference”. Thus the earlier suggestion of the Supreme Court was 
belatedly acted upon by the legislature. Unfortunately, there was another 
reversion through the Finance Ordinance, 2000. Although the intention of 
the 1997 amendment was manifestly to broaden the jurisdiction of the 
High Court by explicitly making it an appellate jurisdiction, the High 
Court surprisingly failed to pick up this obvious point. In the case of Hong 
Kong Chinese Restaurant (supra), the Lahore High Court held that since 
the jurisdiction was still limited to questions of law arising out of the order 
of the Tribunal, there was no difference between the scope of the 
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-: 53 :-
jurisdiction prior to and post the 1997 Amendment. This was a clear 
misreading of the law.  
44. 
 
Thereafter followed yet another zig zag in the law. Section 136 
of the Ordinance, 1979 was succeeded by Section 133 of the Ordinance, 
2001, which, as amended up to the year 2004, read as under:- 
 
(1) 
Where the Appellate Tribunal has made an order on 
an appeal under section 132, the [taxpayer13] or 
Commissioner may, by application in such form and 
accompanied by such documents as may be prescribed, 
require the Appellate Tribunal to refer any question of law 
arising out of such order to the High Court.  
 
(2) 
An application under sub-section (1) shall be made 
within ninety days of the date on which the [taxpayer14] or 
Commissioner, as the case may be, was served [……15] 
with the Appellate Tribunal’s order.  
 
(3) 
Where, on an application under sub-section (1), the 
Appellate Tribunal is satisfied that a question of law arises 
out of its order, it shall, within ninety days of receipt of the 
application, draw up a statement of the case and refer it to 
the High Court. 
 
(4) 
Where, on an application under sub-section (1), the 
Appellate Tribunal refuses to state the case on the ground 
that no question of law arises, the [taxpayer16] or the 
Commissioner, as the case may be, may apply to the High 
Court and the High Court may, if it is not satisfied with the 
correctness of the decision of the Appellate Tribunal, frame 
a question of law for its consideration.  
 
(5) 
An application under sub-section (4) shall be made 
within one-hundred and twenty days from the date on 
                                       
13 Inserted in place of the word “appellant” by the Finance Ordinance, 2002. 
14 Inserted in place of the word “appellant” by the Finance Ordinance, 2002. 
15 The words “notice of” omitted by the Finance Act, 2003. 
16 Inserted in place of the word “appellant” by the Finance Ordinance, 2002. 
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
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which the [taxpayer17] or Commissioner, as the case may 
be, was served with [order18] of the refusal.  
 
(6) 
Sub-sections (10) through (14) shall apply to a 
question of law framed by the High Court in the same 
manner as they apply to a reference made under sub-
section (1). 
 
(7) 
If, on an application under sub-section (1), the 
Appellate Tribunal rejects the application on the ground 
that it is time-barred, the [taxpayer19] or Commissioner 
may apply to the High Court and, if the High Court is not 
satisfied with the correctness of the Appellate Tribunal’s 
decision, the Court may require the Appellate Tribunal to 
treat the application as made within the time allowed under 
sub-section [(2)20]. 
 
(8) 
An application under sub-section (7) shall be made 
within [ninety days21] from the date on which the 
[taxpayer22] or Commissioner, as the case may be, was 
served with [order23] of the rejection.  
 
(9) 
If the High Court is not satisfied that the statement 
in a case referred under sub-section (3) is sufficient to 
enable it to determine the question raised thereby, the 
Court may refer the case back to the Appellate Tribunal to 
make such modification therein as the Court may direct. 
 
(10) 
A reference to the High Court under this section 
shall be heard by a Bench of not less than two Judges of the 
High Court and, in respect of the reference, the provisions 
of section 98 of the Code of Civil Procedure, 1908 (V of 
1908) shall apply, so far as may be, notwithstanding 
anything contained in any other law for the time being in 
force. 
                                       
17 Inserted in place of the word “appellant” by the Finance Ordinance, 2002. 
18 Inserted in place of the word “notice” by the Finance Act, 2003. 
19 Inserted in place of the word “appellant” by the Finance Ordinance, 2002. 
20 Inserted in place of the brackets and figure “(1)” by the Finance Act, 2003. 
21 Inserted in place of the words “three months” by the Finance Ordinance, 2002. 
22 Inserted in place of the word “appellant” by the Finance Ordinance, 2002. 
23 Inserted in place of the word “notice” by the Finance Act, 2003. 
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
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(11) 
The High Court upon hearing a reference under this 
section shall decide the questions of law raised by the 
reference and deliver judgment thereon containing the 
grounds on which such decision is founded. 
 
(12) 
A copy of the judgment of the High Court shall be 
sent under the seal of the Court and the signature of the 
Registrar to the Appellate Tribunal which shall pass such 
orders as are necessary to dispose of the case conformably 
to such judgment. 
 
(13) 
The costs of a reference to the High Court under 
this section shall be at the discretion of the Court. 
 
(14) 
Where a reference relates to an assessment, the tax 
due under the assessment shall be payable in accordance 
with the assessment, unless recovery of the tax has been 
stayed by the High Court. 
 
(15) 
Section 5 of the Limitation Act, 1908 (IX of 1908) 
shall apply to an application under sub-section (1). 
 
(16) 
An application under sub-section (1) by a person 
other than the Commissioner shall be accompanied by a fee 
of one hundred rupees.       
 
The provisions of Section 133 of the Ordinance, 2001, being similar to 
Section 136 of the Ordinance, 1979 were also interpreted by the Courts in 
a similar restrictive manner. Even the provisions for a reference under the 
Sales Tax Act, 1990 (the Act, 1990) and the Customs Act, 1969 were 
interpreted in an identical restrictive manner [reference may be made to Collector 
of Customs E & S. T. and Sales Tax Vs. Pakistan State Oil Company Ltd. (2005 SCMR 1636) 
and Towellers Ltd. through Chief Operating Officer Vs. Government of Pakistan Represented by 
Member Sales Tax Central Board of Revenue, Islamabad and another (2006 PTD 310)]. 
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
-: 56 :-
45. 
 
Thereafter followed yet another major alteration in the law. 
Section 133 of the Ordinance, 2001 underwent two crucial changes in the 
year 2005 when it was amended once again, firstly, to provide the right to 
litigants to directly refer questions of law arising out of the Tribunal’s 
order to the High Court, and, secondly, what is even more important, to 
explicitly state that the effect of the opinion of the High Court would 
automatically translate into a modification of the Tribunal’s order. In brief, 
the High Court’s judgment had now become self-executory. The concept 
of “advice” being given to the Tribunal to alter its erroneous views 
has now totally disappeared, beyond any doubt. The order of the 
Tribunal is altered by the opinion of the High Court, by operation of law. 
In other words the legal right and entitlement of the Tribunal to refer 
questions of law to the High Court for “advice” was taken away. This 
obviously makes an enormous difference. The earlier limitation which was 
supposedly because the reference was being made by the Tribunal and the 
answer was being given to the Tribunal has now disappeared. The litigant 
has been conferred a direct right to take his grievance to the High Court. 
The Tribunal’s views or formulations are no longer necessary or 
relevant. They are besides the point. Section 133 of the Ordinance, 
2001 as amended by the Finance Act, 2005 reads as under:- 
 
[133. Reference to High Court.- (1) Within ninety days of 
the communication of the order of the Appellate Tribunal 
under sub-section (7) of section 132, the aggrieved person 
or the Commissioner may prefer an application, in the 
prescribed form along with a statement of the case, to the 
High Court, stating any question of law arising out of such 
order. 
 
(2)  
The statement to the High Court referred to in sub-
section (1), shall set out the facts, the determination of the 
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Appellate Tribunal and the question of law which arises out 
of its order. 
 
(3)  
Where, on an application made under sub-section 
(1), the High Court is satisfied that a question of law arises 
out of the order referred to in sub-section (1), it may 
proceed to hear the case. 
 
(4)  
A reference to the High Court under this section 
shall be heard by a Bench of not less than two judges of the 
High Court and, in respect of the reference, the provisions 
of section 98 of the Code of Civil Procedure, 1908 (Act V of 
1908), shall apply, so far as may be, notwithstanding 
anything contained in any other law for the time being in 
force. 
 
(5)  
The High Court upon hearing a reference under this 
section shall decide the question of law raised by the 
reference and pass judgment thereon specifying the 
grounds on which such judgment is based and the 
Tribunal’s order shall stand modified accordingly. The 
Court shall send a copy of the judgment under the seal of 
the Court to the Appellate Tribunal. 
 
(6)  
Notwithstanding that a reference has been made to 
the High Court, the tax shall be payable in accordance with 
the order of the Appellate Tribunal: 
 
 
Provided that, if the amount of tax is reduced as a 
result of the judgment in the reference by the High Court 
and the amount of tax found refundable, the High Court 
may, on application by the Commissioner within thirty days 
of the receipt of the judgment of the High Court that he 
wants to prefer petition for leave to appeal to the Supreme 
Court, make an order authorizing the Commissioner to 
postpone the refund until the disposal of the appeal by the 
Supreme Court. 
 
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
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(7)  
Where recovery of tax has been stayed by the High 
Court by an order, such order shall cease to have effect on 
the expiration of a period of six months following the day 
on which it was made unless the appeal is decided or such 
order is withdrawn by the High Court earlier. 
 
(8)  
Section 5 of the Limitation Act, 1908 (IX of 1908), 
shall apply to an application made to the High Court under 
sub-section (1). 
 
(9)  
An application under sub-section (1) by a person 
other than the Commissioner shall be accompanied by a fee 
of one hundred rupees.24] 
 
46. 
 
Despite the legislature’s clear intention to liberalize the law by 
way of the 2005 amendment, the High Courts have unfortunately 
continued to interpret the scope of the reference jurisdiction in the same 
restrictive manner as before. Reference in this regard may be made to the 
case of Haseeb Waqas Sugar Mills Ltd. Vs. Government of Pakistan and 
others (2015 PTD 1665), wherein the Lahore High Court while 
interpreting the scope of Section 47 of the Act, 1990 (which is similar to Section 
133 of the Ordinance, 2001) held that new questions could not be raised in a 
reference if they had not been urged before the lower forums. In reaching 
this conclusion, the Lahore High Court relied on, inter alia, the judgment 
in the Ahmad Karachi Halva case (supra) without realizing that in the 
intervening period the law had undergone a radical change. Other 
judgments also superficially followed cases decided under the old regime 
of law [for example Director, Intelligence and Investigation (Customs and Excise), Faisalabad 
and another Vs. Bagh Ali (2010 PTD 1024) and Mountain States Mineral Enterprises (supra)]. 
The case of Ghulam Mustafa Jatoi (supra), wherein the Sindh High Court, 
after examining a large number of cases, set out the principles governing 
                                       
24 Inserted in place of sub-sections (1) to (16) by the Finance Act, 2005. 
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
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references under Section 133 of the Ordinance, 2001, suffers from the 
same flawed analysis. The problem with all the above decisions is that 
they fail to appreciate the significance of the amendments in the law in 
2005 and thus failed to draw any distinction on that basis. The principles 
laid down in these cases may, at best, have been valid for the period prior 
to 2005. However, thereafter, the position of the law is different and 
warrants an independent examination. Judgments such as Ahmad 
Karachi Halva (supra), Abdul Ghani (supra), Odeon Cinema (supra) relied 
upon in these cases are also distinguishable as they relate to a period 
when the legal provision was different. Some other judgments relied upon 
do not expressly lay down the principle that new questions cannot be 
referred by the assessee if they were not taken up before the lower forums. 
The generally restrictive view adopted in these judgments is also open to 
the objection, as discussed earlier, that the language of Section 66 since 
its enactment, and the language of its successor provisions, is wide and 
confers broad powers, jurisdiction and rights upon the parties and the 
High Court, which the courts have not appreciated.   
47. 
 
There is also a recent judgment of the Supreme Court in the 
case of F. M. Y. Industries Limited (supra) which also adopted the same 
restrictive view of the High Court’s jurisdiction. However, the provision 
under consideration was Section 136 of the Ordinance, 1979 and not 
Section 133 of the Ordinance, 2001 as it stands today. Thus this decision 
is distinguishable. Furthermore, it is obviously not applicable for the 
purposes of interpreting the current provision of law as the same is 
significantly different. In a recent judgment reported as Army Welfare 
Trust (Nizampur Cement Project), Rawalpindi and another Vs. 
Collector of Sales Tax (Now Commissioner Inland Revenue), Peshawar 
(2017 SCMR 9), this Court relied upon the case of F. M. Y. Industries 
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
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Limited (supra) however that was in the context of Section 47 of the Act, 
1990 therefore this decision is also distinguishable.   
48. 
 
To recapitulate, the problem all along has been the 
unfortunate legacy of the Act, 1918. This provided a true illustration of 
advisory jurisdiction, since advice was to be rendered to the Revenue 
Authority prior to its having passed an order. In 1922, this advisory 
jurisdiction was retained under Section 66(1) of the Act, 1922 which was 
similarly framed. However, this sub-section had, in sum and substance, 
lost its importance because of sub-section (2), which conferred the right to 
challenge the decision of the Tribunal on questions of law. It was this 
remedy which was followed thereafter. Section 66(1) ibid thereafter became 
redundant for all practical purposes and was eventually deleted through a 
subsequent amendment in 1939 and the same position continued under 
the Ordinance, 1979 and succeeding law. Thereafter, no advisory 
jurisdiction remained in any shape or form. But since the significance of 
the change was not appreciated, the concept of advisory jurisdiction 
continued to confuse the courts – the corpus had disappeared, but the 
shadow remained. The law as it stands after the 2005 amendment is now 
clear beyond any conceptual doubt. There is no question of advisory 
jurisdiction (which phrase was never used in the law at any stage) and the plain words 
of the section must now be given their ordinary meaning. No hyper-
technicalities now stand as barriers in the way of substantive justice. 
49. 
 
An independent interpretation of Section 133 of the 
Ordinance, 2001, as it stands today, on the plain language of the law, 
liberated from the burden or benefit of earlier judgments, would make the 
position very clear. Sub-section (1) confers a right on any person or the 
Commissioner aggrieved by a final order of the Appellate Tribunal to file 
an application before the High Court along with a statement of the case 
stating any questions of law arising out of the Tribunal’s order. There is a 
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direct right to approach the High Court in a similar manner as in appeals, 
revisions, reviews etc. The order being challenged is the final order but the 
challenge is limited to questions of law only. The statement must set out 
the facts, the Tribunal’s determination and the questions of law which 
arise out of its order in terms of sub-section (3). The questions of law 
which may be referred are only those which “arise” out of the order of the 
Tribunal. On the plain language of the law, this would include any 
question which can be made out from the order of the Tribunal. There is 
nothing in the scheme of the section to impute any extraordinary 
limitations on the type of questions which may be posed. The facts as 
stated in the Tribunal’s order have to be taken as recorded and any 
question which can be made out from those facts may be raised in an 
application under Section 133 ibid, regardless of whether it was previously 
urged or not. There is absolutely no reason for confining the questions 
which may be referred to only those which were argued before the 
Tribunal on the hypothesis that this is an advisory jurisdiction as that is 
not what the language of the law contemplates. The law, as it stands, 
allows all questions “arising” out of the order to be referred and not just 
questions “argued” or “raised” before the Tribunal. 
50. 
 
Section 133 ibid clearly states that upon hearing a case, the 
High Court is obligated to decide the question of law raised by the 
reference and pass judgment thereon and the Tribunal’s order 
automatically stands modified by the order of the High Court. This is an 
extremely significant aspect as it is the essence of an appellate order that 
it per se modifies the order of the lower forum, or, in other words, merges 
into it. As pointed out above, this particular aspect of Section 133 ibid was 
introduced for the first time by way of the 2005 amendment and was not 
present in Section 66 of the Act, 1922 during the brief period between 
1971 and 1974 when the law was similar to the present one. It is therefore 
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
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clear beyond any doubt that the remedy under Section 133 ibid is 
appellate in nature and must be construed and applied as such. The 
language of the law must be given effect to, rather than unnecessarily 
restricting the scope of the jurisdiction on the basis of judgments from an 
era when the law and circumstances were completely different. The 
civilized world, including our own country, has been moving towards 
greater rights for citizens over the last century to the extent that the 
privilege of a fair trial has now become a constitutional right. In these 
circumstances, it is not appropriate to restrict the scope of a legal remedy 
available to citizens on the basis of old decision, especially when the 
language of the law is clearly pointing in the opposite direction.  
51. 
 
Before parting with the subject, a brief reference to the law in 
England may also be useful for purposes of comparison. A provision for 
statement of a case for the opinion of the High Court in tax matters has 
been in existence in English law since at least 1890. Section 59 of the 
Taxes Management Act, 1880 (the Act, 1880), on which Section 66 of the Act, 
1922 was presumably based, read as under:- 
 
“59. Commissioners may be required to state a case for 
opinion of High Court. 
 
(1.) Immediately upon the determination of any appeal 
under the Income Tax Acts by the General Commissioners, 
or by the Special Commissioners, or any appeal under the 
Acts relating to the inhabited house duties by the General 
Commissioners, the appellant or the surveyor may, if 
dissatisfied with the determination as being erroneous in 
point 
of 
law, 
declare 
his 
dissatisfaction 
to 
the 
Commissioners who heard the appeal, and having so done 
may, within twenty-one days after the determination, 
require the Commissioners, by notice in writing addressed 
to their clerk, to state and sign a case for the opinion of the 
High Court thereon. The case shall set forth the facts and 
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the determination, and the party requiring the same shall 
transmit the case, when so stated and signed, to the High 
Court within seven days after receiving the same, and shall 
previously to or at the same time give notice in writing of 
the fact of the case having been stated on his application, 
together with a copy of the case to the other party, being 
the surveyor, or the appellant, as the case may be. 
 
(2.) In relation to cases to be so stated, and the hearing 
thereof, the following provisions shall have effect: 
 
(a.) The party requiring the case shall, before he shall be 
entitled to have the case stated, pay to the clerk to the 
Commissioners a fee of twenty shillings for and in respect 
of the case: 
 
(b.) The High Court shall hear and determine the question 
‘or questions of law arising on a case transmitted under 
this Act, and shall thereupon reverse, affirm, or amend the 
determination in respect of which the case has been stated, 
or remit the matter to the Commissioners with the opinion 
of the High Court thereon, or may make such other order in 
relation to the matter, and may make such order as to costs 
as to the High Court may seem fit, and all such orders shall 
be final and conclusive on all parties : 
 
(c.) The High Court shall have power, if they think fit, to 
cause the case to be sent back for amendment, and 
thereupon the same shall be amended accordingly, and 
judgment shall be delivered after it shall have been 
amended: 
 
(d.) The authority and jurisdiction hereby vested in the 
High Court shall and may (subject to any rules and orders 
of the High Court in relation thereto) be exercised by a 
judge of the High Court sitting in chambers, and as well in 
vacation as in term time: 
 
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-: 64 :-
(e.) The High Court may from time to time, and as often as 
they shall see occasion, make and alter rules and orders to 
regulate the practice and proceedings in reference to cases 
stated under this Act. 
 
(3.) An appeal shall lie from the decision of the High Court, 
or of any judge thereof, upon any case stated under the 
above provisions to Her Majesty's Court of Appeal, and 
from thence to the House of Lords, and from the decision of 
the Court of Session, as the Court of Exchequer in 
Scotland, upon any case so stated to the House of Lords. 
 
(4.) The fact that a case so stated is pending before the 
High Court therein referred to shall not in any way 
interfere with the payment of the income tax or inhabited 
house 
duty 
according 
to 
the 
assessment 
of 
the 
Commissioners by whom the case was stated, but the 
income tax or inhabited house duty shall be paid according 
to such assessment, as if the case had not been required to 
be stated, and in the event of the amount of assessment 
being altered by the order or judgment of the High Court 
the difference in amount, if too much has been paid, shall 
be repaid with such interest (if any) as the High Court may 
allow, and if too little, shall be deemed to be arrears 
(except so far as any penalty is incurred on account of 
arrears), and shall be paid and recovered accordingly.” 
 
As stated earlier, Section 59 of the Act, 1880 was similar, but not 
identical, to Section 66 of the Act, 1922. One of the obvious differences 
was that under Section 59 supra, the statement of the case for the opinion 
of the High Court was not just limited to questions of law but covered any 
questions arising out of the determination. A provision similar to Section 
59 of the Act, 1880 remained in the English Statute books till 01.04.2009 
when Section 707 of the Income Tax Act, 2007 (statement of case by Tribunal for 
opinion of High Court or Court of Session) was repealed to provide for a direct 
appeal to an upper tier tribunal.  
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
-: 65 :-
52. 
 
The position in England was settled very early in the case of 
Attorney General Vs. Avelino Aramayo and Company ([1925] 1 KB 86) 
wherein Lord Atkin held at pages 108-109 as under:- 
 
“…..As I read the statutory procedure, which at that time 
depended on s. 59 of the Taxes Management Act, 1880, the 
Court is not limited to particular questions raised by the 
Commissioners in the form of questions on the case. All 
that the section provides is that if the appellant is 
dissatisfied with the determination as being erroneous in 
point of law he may require the Commissioners to state and 
sign a case, and the case shall set forth the facts and the 
determination, and upon that being done the Court has to 
decide whether or not the determination was or was not 
erroneous in point of law, and any point of law that can be 
raised properly upon the facts found by the Commissioners 
the Court can decide. No doubt there may be a point of law 
in respect of which the facts have not been sufficiently 
found, and if that point of law was not raised below at all 
and cannot be raised without further facts on either side, 
the Court may very well refuse to give effect to it, and 
Either (sic) party may have precluded themselves by their 
conduct from raising in the Court of Appeal the point of 
law which they deliberately refrained from raising down 
below. Those questions, of course, have to be considered. 
But apart from that, if the point of law or the erroneous 
nature of the determination of the point of law is apparent 
upon the case as stated, and there are no further facts to be 
found, the Court can give effect to the law.” 
 
The Judgment of the Court of Appeals was upheld by the House of Lords 
in Aramayo Francke Mines, Limited Vs. Eccott ([1925] A.C. 634) and 
was consistently followed by the Courts in England. The proposition is 
that if a question arose from the facts as stated and no new facts were 
necessary for determination of the same, there is no reason why it should 
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
-: 66 :-
not be entertained by the High Court regardless of whether it was raised 
before the lower forum.  
53. 
 
The above is a brief conspectus of the law as it originally 
stood, as it has evolved over the years and as it stands today.  
54. 
 
We now advert to an analysis of Section 79 of the Ordinance, 
1979 which read as under:- 
 
79. 
Income from transactions with non-residents.- 
Where business is carried on between a resident and a non-
resident and it appears to the Income-tax Officer that, 
owing to the close connection between them, the course of 
business is so arranged that the business transacted 
between them produces to the resident either no profits or 
less than the ordinary profits which might be expected to 
arise in that business, the Income-tax Officer shall 
determine the amount of profits which may reasonably be 
deemed to have accrued to the resident and include such 
amount in the total income of the resident. 
 
Section 79 ibid pertained to the concept of transfer pricing which is the 
pricing of a transaction between related parties. While transfer pricing in 
itself is not illegal or unlawful, transfer mispricing, also known as abusive 
transfer pricing or transfer pricing manipulation is. When two unrelated 
companies transact with each other, the transaction generates a market 
price based on the forces of demand and supply. This is called arm’s 
length trading. However, when two related companies enter into a 
transaction with each other, the price in such transaction may be 
distorted due to various factors. Sometimes the prices are distorted in 
order to minimize the overall tax bill of the corporate group. For example, 
one company (in a jurisdiction with higher tax rates) may pay a higher price for a 
good from its associated company (in a jurisdiction with zero/low tax rates) so that 
most of the profit of the corporate group is recorded in the country with 
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
-: 67 :-
zero/low tax rates. In such situations, companies are not dealing with 
each other at arm’s length. This principle entails that transfer prices must 
be comparable to the prices that unrelated parties would have charged in 
the same or similar circumstances. It requires a comparability analysis, 
whereby transactions between unrelated parties are identified which may 
be compared to the transactions between related parties in order to 
determine whether transfer mispricing has taken place. For this exercise, 
transfer pricing documentation is required which is the information and 
documents relied upon by taxpayers while determining the transfer price 
of their transaction. 
55. 
 
This is the menace that Section 79 of the Ordinance, 1979 
was meant to curb. According to Section 79 ibid, the Income Tax Officer 
was to determine the amount of profits which may reasonably be deemed 
to have accrued to the resident and include such amount in the total 
income of the resident if the following elements were present in a 
transaction:- 
i. 
There was a resident and a non-resident; 
ii. 
There was a close connection between them;  
iii. 
Business was carried on between them; and 
iv. 
The course of business was so arranged that the 
business transacted between them produced to the 
resident either:- 
(a) 
no profits; or 
(b) 
less than the ordinary profits which might be 
expected to arise in that business. 
For the Income Tax Officer to exercise powers under Section 79 of the 
Ordinance, 1979, all the above elements were required to be present. The 
absence of any one of them rendered the section inapplicable to a case. As 
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
-: 68 :-
regards the first element, “resident” was defined in Section 2(40) of the 
Ordinance, 1979 as follows:- 
 
(40) "resident", in relation to any income year, means- 
(a)  
an individual, who- 
(i)  
is in Pakistan in that year for a period of, or 
for periods amounting in all to, one hundred 
and eighty two days or more; or 
 
(ii)  
is in Pakistan for a period of, or periods 
amounting in all to, ninety days or more in 
that year and who, within the four years 
preceding that year, has been in Pakistan 
for a period of, or periods amounting in all 
to, three hundred and sixty-five days or 
more; or 
 
(b)  
a Hindu undivided family, firm or other association 
of persons, the control and management of whose 
affairs is situated wholly or partly in Pakistan in 
that year; or 
 
(c) 
a Pakistani company or any other company, the 
control and management of whose affairs is situated 
wholly in Pakistan in that year; 
 
Section 2(30) of the Ordinance, 1979 defined “non-resident” as “a person who 
is not resident”, i.e. a person who did not fall within the definition of resident 
given in Section 2(40) supra. The second element, “close connection” was 
not defined in the Ordinance, 1979 and has to be understood in the 
context of the concept of transfer pricing. Residents and non-residents 
could be related or closely connected in various ways:- (i) the resident 
could be directly or indirectly controlled by the non-resident, for example, 
the resident may be a subsidiary and the non-resident the parent/holding 
company; (ii) the non-resident may be directly or indirectly controlled by 
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
-: 69 :-
the resident, for example, the non-resident may be a subsidiary and the 
resident the parent/holding company; or (iii) the resident and non-
resident were directly or indirectly controlled by a common person, for 
example, the resident and non-resident were both subsidiaries while the 
common person was the parent/holding company. Coming to the third 
element, “business” was defined in Section 2(11) of the Ordinance, 1979 
thus “includes any trade, commerce or manufacture, or any adventure or concern in the nature 
of trade, commerce or manufacture.” The use of the word “trade” was wide enough 
to cover any buying and selling of goods and services. Since certain facts 
are undisputed and therefore the first three elements stand proved, we 
deem it expedient to discuss the same before moving onto the fourth 
element which is contentious. First, Squibb Pakistan and Syngenta 
Pakistan fall within Section 2(40)(c) of the Ordinance, 1979 and are/were 
therefore residents. This fact is recorded in their respective assessment 
orders, which they do not dispute. It is also undisputed that Squibb 
International and Ciba Geigy are non-residents. Secondly, there is a close 
connection between each resident and non-resident; Squibb International 
and Ciba Geigy are the parent companies of Squibb Pakistan and 
Syngenta Pakistan respectively. This fact was mentioned in the 
assessment orders and not controverted by the assessees. The resident 
assessees also accept that they purchased various pharmaceutical raw 
materials from the non-residents for a certain amount of consideration 
which constitutes “trade” and therefore fell within the definition of 
“business”, ergo business was carried on between the residents and non-
residents. Thus the sole issue that remains is whether the course of 
business was so arranged that the business transacted between the 
resident and non-resident produced to the resident less than the ordinary 
profits which might be expected to arise in that business (note:- the issue of no 
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
-: 70 :-
profits does not arise in these cases as it is undisputed that the resident companies did earn profits 
for the assessment years in question).  
56. 
 
It is this fourth element that clinches the issue of transfer 
pricing. Where the pricing of transactions between closely connected 
parties is not at arm’s length, this may result in reduced (or no) profit for 
the resident taxpayer, thus the tax authorities are empowered under 
Section 79 of the Ordinance, 1979 to adjust the profit upwards and 
impose tax accordingly. Section 79 ibid provides “Where business is carried on 
between a resident and a non-resident and it appears to the Income-tax Officer that...” 
[emphasis supplied]. In other words, in order to invoke Section 79 ibid, the 
Income Tax Officer had to see whether prima facie, the course of business 
was so arranged between the closely connected resident and non-resident 
that the business transacted between them produced to the resident less 
than the ordinary profits which might be expected to arise in that 
business. For this purpose the Income Tax Officer needs to base such 
prima facie opinion upon evidence gathered in a reasonable investigation 
showing that his proposed method of pricing was the most appropriate for 
determining the arm’s length transfer price. The burden would then shift 
to the taxpayer to establish that the transfer price of the transaction with 
its closely connected non-resident was indeed at arm’s length based upon 
another pricing method which was more appropriate in the facts and 
circumstances of the case. This is to be proven from inter alia the transfer 
pricing documentation.  
57. 
 
Coming to the facts of the cases; the Income Tax Officers 
relied upon the accounts provided by the resident companies compared to 
their previous years and the details of import(s) of ingredients for its 
pharmaceuticals from the non-resident associate concerns as furnished 
by the assessees compared with the prices of imports of parallel 
companies from other sources, duly certified by the Assistant Drugs 
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
-: 71 :-
Controller, and concluded that the raw material ingredient was imported 
by Squibb Pakistan and Syngenta Pakistan at a higher price, thereby 
reducing the profits that would have otherwise accrued to them and have 
adjusted the tax payable accordingly. What the Income Tax Officer(s) failed 
to show was that the course of business was so arranged between the 
closely connected resident and non-resident that the business transacted 
between them produced to the resident less than the ordinary profits 
which might have been expected to arise in that business. The Officer(s) 
merely tabulated the differences in the import prices without giving any 
precise details regarding the parallel cases upon which he placed reliance 
nor did he provide any prima facie justification that the pricing method 
adopted (if any) by him was the most apt in the peculiar facts and 
circumstances of the case. The reason cited by the Income Tax Officer that 
the raw materials imported by parallel companies from other sources 
fulfill the requirements, as laid down in the Drugs Act, 1976 and cleared 
by the Assistant Drugs Controller, is not to our mind sufficient to 
establish prima facie transfer mispricing. Various factors affect the price of 
a good and mere approval of some authority may mean that it (the good) has 
met the minimum specifications for the ingredient laid down in law but 
does not necessarily mean that the said goods can be treated at par with 
the goods imported by the resident companies for the purposes of pricing. 
Therefore we do not find that the Income Tax Officer had conducted a 
reasonable investigation or offered prima facie evidence based on an 
appropriate pricing method adopted by him, thereby showing transfer 
mispricing and resultant depletion in profits of the resident companies. 
Hence the burden never shifted to the resident taxpayers to prove that the 
pricing method adopted by the Income Tax Officer was not appropriate in 
the circumstances and that they (the residents) had duly conducted a 
comparability analysis of the pharmaceutical ingredients in question in 
Civil Appeals No.622 & 623/2008 and 1403 & 1404/2009  
-: 72 :-
the light of which their transfer price was at arm’s length. Therefore the 
Income Tax Officer erred in invoking Section 79 of the Ordinance, 1979 
and adjusting the profit of the resident companies. 
58. 
 
In light of the above, we find that Section 79 of the Ordinance, 
1979 was not attracted to the case of Squibb Pakistan and Syngenta 
Pakistan, therefore, Civil Appeal Nos.622 and 623 of 2008 are allowed and 
the impugned judgements are set aside while Civil Appeal Nos.1403 and 
1404 of 2009 are dismissed. 
 
 
CHIEF JUSTICE 
 
 
  
 
JUDGE 
 
 
 
 
JUDGE 
Announced in open court 
on 26.4.2017 at Islamabad 
Approved For Reporting 
Waqas Naseer/*