Pakistan has inherited its legal system from the Laws of Indian Sub-Continent on 14th of August 1947. Income Tax Act of India 1860 was introduced by the British rulers to collect revenues from the peoples of sub-continent. Assessment framed under the said Act could be challenged before the Collector of the district and his order was final. The Act of 1868 replaced act of 1860 which provided for a further objection on the order of the Collector before the Commissioner of Revenue as a Second Appeal. As a consequence of this amendment, the order of the Commissioner was final. No reference or appeal was available against these two orders. This position continued in the successor Acts of 1869, 1870, 1872, 1886, 1916 and 1917.
In 1918 Income Tax Act, it was for the first time that the High Courts were brought into picture. Under this new Act first appeal lay to the Commissioner against an assessment and from the order of the Commissioner, a revision petition lay to the Revenue Authority.
However, it was succeeded by Income Tax Act, 1922. In 1938 a select committee was appointed for Income Tax amendments. This committee proposed amendments to the Income Tax Act 1922 which among other amendments proposed that a further appellate authority of independent nature should be appointed for hearing of appeals from the decisions of the appellate Assistant Commissioner. The report reads:
“We are of the opinion, that the Bill should contain provisions for the introduction of a further appellate authority of an independent nature for the hearing of appeals from the decisions of the Appellate Assistant Commissioner.
For all practical purposes this report is the base of formation of this august forum. Among other proposals it was also recommended that powers to regulate the procedure of the Appellate Tribunal should be vested in them and selection panel for the Members should include the President or Chairman of the said Tribunal:-
“In pursuance of the recommendations made by the Select Committee, the legislature introduced Chapter II-A (Section 5A) in the Income-tax Act, 1922 dealing with the constitution and appointment of the Appellate Tribunal. It provided that the Tribunal shall consist of not more than ten persons, made up of an equal number of judicial and accountant members with one of the judicial members as its President. Under sub-section (3):
“A judicial member shall be a person who has exercised the powers of a district Judge or who possesses such qualifications as are normally required for appointment to the post of a District Judge; and an accountant member shall be a person who has, for a period of not less than six years, practiced professionally as a Registered Accountant enrolled on the Register of Accountants maintained by the Central Government under the Auditors Certificate Rules, 1932:
Provided that the Central Government may appoint as an accountant member of the Tribunal any person not possessing the qualifications required by this sub-section, if it is satisfied that he has qualifications and has had adequate experience of a character which render him suitable for appointment to the Tribunal.”
Through this amendment in section 5-A the Income Tax Appellate Tribunal came into existence through the Indian Income Tax Amendment Act, 1939. The Income Tax (Amendment Act 1939) (Act No.7 of 1939). The press reported the formation of the Income Tax Appellate Tribunal in the following words:-
On the historic day of 25th of January, the Tribunal was constituted in 1941. This date was notified as the appointed date on which Chapter II-A in the Indian Income-tax Act, 1922 was to come into force. In 1941 ITR, on page 1, the following words aptly marked the enthusiasm of setting up
of the Tribunal:
“The New Year opens with an important event in the history of the administration of Income-tax law in India, namely, the constitution of the Income Tax Appellate Tribunal. A Tribunal consisting of a body of persons independent of the executive, to whom appeals may be preferred from the decisions of the officers of the Department, is sure to be welcomed by the public.”
The Central Government in the first instance, appointed four members, on a tenure basis, on five year contracts. The members to be appointed met initially in New Delhi under the designation of special officers for a period of one month, during which the rules of the Tribunal were framed and the places of sitting decided upon. The rules were promulgated on 1st February, 1941”.
After independence of Pakistan, the Income Tax Act, 1922 was adopted as it is. The Income Tax Appellate Tribunal Rules were also adopted accordingly. The appeal before Tribunal lay under section 33 of the Income Tax Act, 1922. However, through Finance Ordinance, 1971, section 31 was deleted as a result of which the first stage of appeal i.e. the Appellate Assistant Commissioner was abolished and the Tribunal was made as the First Appellate Forum after the order of the Commissioner. This step was considered as ineffective and the tier of first Appeal before Appellate Additional Commissioner in departmental hierarchy was restored later.
Income Tax Ordinance 1969 (XXXI of 1979)though came out with a number of changes. However, the first tier of appeal before AAC and second ITAT both remained intact. Similarly the Income Tax Act 2001 replaced earlier Ordinance but the system of first appeal before CIT(A) and second appeal before Income Tax Appellate Tribunal u/s 127 and 131 respectively remained the same. A material change, however, has been brought in the working of this Appellate forum later. The recommendation of sending reference to High Court by the Tribunal u/s 133(1) has been substituted in 2005. As a result now the order of the Tribunal u/s 132(7) can be challenged directly before the High Court on point of law u/s 133 through filing a reference application.
The other change in fact is very material. The designation of Income Tax Appellate Tribunal has been changed to Appellate Tribunal Inland Revenues through Finance (Amendment) Ordinance, 2009 dated 28th October 2009.
The change in nomenclature has resulted in Additional responsibilities and all pending and future appeals of Sales Tax and Central Excise have been assigned to this institution in addition to Income Tax cases already pending. Meaning thereby, except Customs the entire Federal Taxes are being dealt by the Appellate Tribunal. In this regard Appellate Tribunal Inland Revenue Rules have been appropriately amended in 2010 and are in vogue. Few amendments in it proposed by the tribunal after 2010 are pending approval of the Ministry Incharge.