APPELLATE TRIBUNAL INLAND REVENUE, DIVISION BENCH-I,
ISLAMABAD
ITA No.812/IB/2021
(Tax Year 2014)
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M/s
National Highway Authority, 28,
Mauve Area, Sector G-9/1, Islamabad. |
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Appellant |
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Vs |
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Commissioner
Inland Revenue, CTO, Islamabad. |
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Respondent
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Appellant
By: |
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Mr.
Mazhar Arshad, ACA. |
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Respondent
By: |
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Mr.
Hayat Khan, DR |
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Date
of Hearing: |
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17.02.2022 |
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Date
of Order: |
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17.02.2022 |
O R D E R
M.
M. AKRAM (Judicial Member): The titled appeal has
been filed by the appellant/taxpayer against an Order No.621 dated 04.06.2021 passed
by the learned Commissioner Inland Revenue (Appeals-IV), Islamabad for the tax
year 2014 on the grounds as set forth in the memo of appeal.
2. Brief facts
called out from the record are that the taxpayer filed an income tax return for
Tax Year 2014 declaring loss at Rs.21,785,436,089/-. The return so filed by the
appellant was treated to be an assessment order under section 120(1)(b) of the
Income Tax Ordinance, 2001 (hereinafter referred to as “the Ordinance”).
Subsequently, the Additional Commissioner Inland Revenue (Add CIR)
examined the income tax return and observed that the deemed assessment was
erroneous in so far as prejudicial to the interest of revenue. Resultantly, a
notice under section 122(5A) read with section 122(9) of the Ordinance was
issued on 22.12.2020 whereby the taxpayer was confronted with that the unpaid
finance cost and exchange loss on revaluation of loans and interest were not
added in the income as required under the law resulting into the determination
of loss which deprived the National Exchequer of the rightful revenue. The
Authorized Representative (AR) for the appellant taxpayer attended the proceedings
on 28.12.2020 and also furnished a reply to the notice whereby proceedings were
contested. In light of the reply of the taxpayer, the issues were reframed and the
amount of unpaid finance cost was computed at Rs.23,788,132,528/- from Rs.23,763,046,477/-
confronted with earlier. The taxpayer was confronted that unpaid finance cost
was to be added back under section 34(5) of the Ordinance and exchange loss on
revaluation of loans and interest was liable to be added as income under
section 34(3) of the Ordinance. The taxpayer did not furnish any reply to the
notice and proceedings were ultimately finalized whereby the assessment deemed
to be finalized under section 120 was amended vide order dated 31.12.2020. The
unpaid finance cost amounting to Rs.23,788,132,528/- and exchange loss on
revaluation of loans and interest amounting to Rs.12,154,825/- were added in
the declared loss and income was assessed at Rs.2,014,851,264/-. Being
aggrieved, the appellant filed an appeal before the learned Commissioner Inland
Revenue (Appeals) who decided the appeal of the taxpayer vide Order No.621
dated 04.06.2021 against them. Aggrieved with this order, the taxpayer has preferred
an appeal before this forum and assailed the impugned order on a number of
grounds.
3. The case was
heard on 17.02.2022. Learned AR at the very outset contended that the show
cause notice dated 22.12.2020 issued under section 122(5A) read with section
122(9) of the Ordinance and in consequence thereof the amended order passed by
the Add CIR under section 122(5A) of the Ordinance suffered from serious legal
and jurisdictional infirmities/flaws that go to the root of the case and must
be considered and settled first. He submits that undisputedly, before issuance
of show cause notice dated 22.12.2020, the proceedings in respect of the tax
years 2014 were neither pending nor sub-judice before any authority under the
law. Therefore, the order under section 122 of the Ordinance could have only
been passed within the stipulated time prescribed under the said section which
has expired on 30.06.2020. However, he contended that after the expiry of the
statutory period i.e 30.06.2020, the proceedings initiated by the Add CIR and
concluded by amending the deemed order on 31.12.2020 are void ab-initio,
illegal, and without jurisdiction. Therefore, it has been contended that the
basic order passed by the Add CIR is illegal and without jurisdiction, the
superstructure built thereon automatically falls to the ground. On the other
hand, learned DR opposed the contention of the AR on the ground that the
aforesaid plea was not raised before the lower authorities and therefore, he is
not entitled to raise this objection at this belated stage. Notwithstanding the
aforesaid, the learned DR apprised that due to the situation created by
COVID-19 across the country resulting in lockdowns and slowdown in the economy,
the Federal Board of Revenue (FBR) in the exercise of powers conferred
upon it under section 214A of the Ordinance had granted general condonation of
limitation up to 31.12.2020 for finalization of proceedings in respect of the tax
year 2014 vide letter C.No.3(22)S(IR-Operations)/2020 dated 30.06.2020. He,
therefore, vehemently asserted that the Add CIR had passed the amended order
well within the time allowed by the FBR under the aforesaid letter. Further
argued that the learned Commissioner (Appeals) has passed a speaking order and
there is no illegality or lacuna in his order. He, therefore, pleaded that the
appeal be dismissed.
4. Upon hearing the learned AR appearing for
the appellant taxpayer and the learned DR for the Department; the following pivotal questions arise for consideration: -
i. Whether any time limit specified for completion or compliance of the
action and where such completion and compliance had not been made within the
time then the time limit for such purpose notwithstanding anything contained in
the Income Tax Ordinance, 2001, Sales Tax
Act, 1990 and Federal Excise Act, 2005 could have only been extended through
proper legislation under “Relaxation Ordinance” or “Relaxation Act” by the
Government?
ii. Whether under the
purported exercise of the power conferred by section 214A of the Income Tax Ordinance,
2001, the Federal Board of Revenue has possessed the power to extend the
limitation prescribed in section 122 of the Ordinance?
The preliminary objection of the learned DR that the
appellant cannot take the jurisdictional issue before this tribunal first time
if the same has not earlier been taken before the lower authorities, is
misconceived and not tenable. Now, it is settled law that a plea regarding
assumption of jurisdiction can be taken at any stage even before appearing in
the highest Court in the Country. Reliance may be placed on the judgment of the
Hon’ble Supreme Court of Pakistan titled Shagufta Begum Vs The Income Tax Officer, Circle-XI,
Zone-B, Lahore (1989 PTD 544).
5. The admitted facts
are that the appellant filed its income tax return under section 114 of the
Ordinance on 17.04.2015 and such return was accepted by the fiction of law
under section 120(1)(b) of the Ordinance. To amend such deemed assessment for the tax year 2014, the Add CIR issued a show-cause notice on 22.12.2020 under section 122(5A) read with section 122(9) of the
Ordinance which was ultimately culminated by passing the amended order dated
31.12.2020. The case of
the appellant taxpayer is that the show cause notice and the amended
order which has been passed and issued under
provisions of section 122 of the Ordinance for amendment of assessment is void
ab-initio and without jurisdiction. According to the appellant, indisputably the initiation of proceedings and amended order was passed on after the
expiry of the statutory limitation prescribed in section 122(2) and 122(4) of
the Ordinance. Thus, the case of the appellant was barred by time after the
expiry of 30.06.2020. As an extension
of the limitation of time prescribed in the aforesaid
provisions of law, the appellant contends that the extension in time could not be extended through a letter issued by the FBR under the purported
exercise of the power conferred by section 214A of the
Ordinance.
6. As is well known, Chapter X of the Ordinance pertains to the procedure for
assessments. This Chapter also contains provisions for amendment of assessments which permits
the department to amend the deemed assessments under certain circumstances. As
per section 122, if the Commissioner Inland
Revenue had reason to
believe that any income chargeable to tax had escaped assessment, total income had under-assessed or assessed at a too low a rate or had
been subjected to excessive relief or refund, or any amount under a head of
income had been misclassified or any assessment had erroneous in so far as
prejudicial to the interest of revenue and for any tax year, he could subject to the provisions of sections 120 to 126 of the Ordinance assess or amend such income. Subsections (2) and (4) of section 122 of the Ordinance provide the time limit for the completion
of the amendment of assessments. This in
nutshell is the scheme of amendment of assessments under the Ordinance.
7. As apprised by the
department that around the second or third week of
March 2020 the country was hit by the spread of coronavirus which led to
nationwide strict lockdowns which put the lives of citizens and even the
Government machinery totally out of gear. It became virtually impossible for
individuals as well as Government authorities to adhere to several statutory
time limits which in many cases were inflexible. To overcome these difficulties
in the context of tax collections, the FBR under the purported exercise of the powers conferred by section 214A
of the Ordinance, section 74 of the Sales Tax Act, 1990, and section 43 of the
Federal Excise Act, 2005 had issued a letter/notification dated 30.06.2020
whereby the statutory limitation provided in these fiscal statutes were
generally condoned up to 31.12.2020 for finalization of proceedings in those
cases where the proceedings had to be concluded by 30.06.2020. This so-called
notification and the relevant provisions of law is reproduced hereunder:-
Government
of Pakistan
Revenue
Division
Federal
Board of Revenue
Inland
Revenue
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C.No. 3(22) S (IR-Operations)/2020 Islamabad, the 30th June, 2020
All
Chief Commissioners IR
LTUs/
CRTOs/ RTOs
Subject: General Condonation of
Limitation U/S 214A of Income Tax Ordinance, 2001 Section 74 of Sales Tax Act,
1990 and Section 43 of Federal Excise Act, 2005 – Amid Lockdowns And Rise in
Corona Virus Cases.
I
am directed to refer to the subject and to state that due to the situation
created by COVID-19 across the country resulting in lockdowns and slowdown in
the economy, the Competent Authority has been pleased to grant general
condonation of limitation U/S 214A of Income Tax Ordinance, 2001, section 74 of
Sales Tax Act, 1990 and section 43 of Federal Excise Act, 2005 up to 31-12-2020
for finalization of proceedings in cases involving matters such as:-
(i) Finalization
of issues pertaining to tax year 2014;
(ii) Cases
set aside by appellate fora;
(iii) Cases where notices in pursuance of section 122 of the Income
Tax Ordinance, 2001 were issued prior to 30-06-2019 and are to be hit by
limitation on 30-06-2020;
(iv) Sales Tax cases where the mandatory period for issuing notices
under
sub-section 11 of the Sales Tax Act, 1990 is also expiring on 30-06-2020.
(v) Finalization proceedings under Federal Excise Act, 2005 in
cases which are going to be hit by limitation on 30-06-2020.
Sd/-
(Tariq Javed)
Secretary
(IR-Operations)
214A.
Condonation of time limit.— Where any time or period has been specified
under any of the provisions of the Ordinance or rules made there-under within
which any application is to be made or any act or thing is to be done, the
Board may, in any case or class of cases, permit such application to be made or
such act or thing to be done within such time or period as it may consider
appropriate.
Explanation,—
For the purpose of this section, the expression “any act or thing is to be
done” includes any act or thing to be done by the taxpayer or by the
authorities specified in section 207.
Provided
that the Board may, by notification in the Official Gazette, and subject to
such limitations or conditions as may be specified therein, empower any
Commissioner or Chief Commissioner under this Ordinance to exercise the powers
under this section in any case or class of cases.
8. In the background of such facts and
statutory provisions applicable, we now turn to the questions. At the outset, we may note how the higher Courts have viewed such like situation. In the case titled Sobho
Gyanchandani v. Crown,[1]
the Federal Court of Pakistan considered the scope and validity of subsection
(3) of section 1 of the Pakistan Public Safety Ordinance No.XIV of 1949 by
which the Ordinance was to remain in force for a period of one year. However,
the Central Government was empowered, to direct, from time to time, that the
Ordinance would remain in force for such further period specified in a
Notification. On 16th October 1950, the Central Government issued a
notification extending the operation of the Ordinance for a further period of
one year i.e. from 8th October 1950 to 8th October 1951. Yet another
notification was issued on 1st October 1951, extending the operation of the
Ordinance, for a further period of one year from 8th October 1951. Late Sir
Abdur Rashid, former Chief Justice of Pakistan, observed that:--
"It is necessary to determine what constitutes conditional
legislation. When a law is made to take effect on the happening of a certain
event, the Legislature in effect declares the law but leaves it to an external
agency to bring it into force, whenever it considers it expedient to do so. A
law may be regarded as inexpedient in certain events but expedient if certain
events should take place. In passing conditional legislation, the Legislature
completely performs the duties which are imposed by the Constitution upon it.
That is, it places legislation on the Statute Book, and the only function that
it delegates to an external authority is to bring the legislation into force if
certain events should happen and the enforcement of the legislation should be
considered necessary. The Federal Court of India in the case of Jatindra Nath
Gupta v. The Province of Bihar and others AIR 1949 FC 175 also held that the
power to extend the operation of the Bihar Maintenance of Public Order Act, for
a further period of one year with such modifications, if any, as may be
specified was a legislative power; and that the proviso to section 1(3) which
delegated such power to an authority other than the Provincial Legislature was
not a conditional legislation and such a delegation of the legislative power
was ultra vires. It was further observed that "a Legislature could
not delegate its powers of making modifying or repealing any law to an external
authority. If it did so it would be creating a parallel Legislature. The power
of extending the duration of an enactment, which would have terminated but for
the interference of the external authority, was invalid. Extension of
the life of an act was tantamount to re-enactment ... It was not a correct
proposition that the delegation of legislative powers by a Legislature to an
external authority was invalid or ultra vires only if it amounted to
self-effacement and abdication. If any Legislature delegated legislative functions
to an external authority such delegation would be invalid." (Emphasis
supplied)
9. The Supreme Court of India gave its
advisory opinion to the President in Delhi Laws Act[2], on
the scope of adaptation of the statutes by the executive. Late Fazal Ali, J.,
observed that:-
"the power of introducing necessary
restrictions and modifications in the provisions in question was incidental to
the power to apply or adapt the law. The modifications were to be made within
the framework of the Act and they could not be such as to affect its identity
or structure of the essential purpose to be served by it. The discretion given
to modify a statute was by no means absolute or irrevocable in the strict legal
sense. The Legislature could not abdicate its legislative functions, and
therefore, while entrusting power to an outside agency, it must see that such
agency acted as a subordinate authority and did not become a parallel
Legislature."
Similarly, in the case of Commissioner
of Income Tax, Zone-C, Lahore and others Vs M/s Kashmir Edible Oils Ltd and
others,[3] whereby the
Hon'ble Supreme Court observed that even the Federal Government under the
delegated legislation cannot amend the statutory provisions of the Ordinance.
10. Moreover, in the case of Additional Commissioner Inland
Revenue, Audit Range, Zone-I and others versus Messrs Eden Builders Limited and
others,[4]
the Hon'ble Supreme Court of Pakistan held that:-
"law of limitation in so far as it
regulated the period in which one party could avail a remedy against another
was not to be lightly disturbed as the certainty created by limitation was
necessary for the success of trade and business, more so when such limitation
governed tax matters Learned counsel, lastly, argued that the matter belongs to
a past and closed transaction which cannot be agitated at this stage.”
In the judgment
titled Federal Board of Revenue through its Chairman, Islamabad and
others Vs Abdul Ghani and another,[5] the Hon'ble
Supreme Court while interpreting the provision of section 74 of the Sales Tax
Act, 1990 which is the pari materia provisions of section 214A of the
Ordinance observed that:-
“It is also noted that Section 74 of the Act
neither specifically envisages nor provides guidance, criteria or parameters
for overriding any limitation period prescribed by the Act for initiating
action against a taxpayer. Consequently, on the facts of the present case, we
are not inclined to interpret the said provision as authorizing the unchecked
reversal of a statutory limitation period and consequential legal rights
created by it. In the circumstances, the show-cause notice issued by the
petitioner department suffers from fatal defects that float on the face of the
record. Accordingly, we are not inclined to interfere with the impugned judgment.”
(Emphasis supplied)
11. To our mind, the sentence "No
order under sub-section (1) shall be amended” used in subsection (2) of
section 122 of the Ordinance is of broad significance and cannot be lost sight.
Negative language has been used which itself provides that the said provision
is mandatory. It imposes an embargo upon the tax authorities that the order has
to be passed within the stipulated time. This is the contrast to the language
used in section 214A of the Ordinance. We may also observe that the letter/notification
dated 30.06.2020 issued by the Board cannot co-exist with the original
provisions of the Ordinance which were sought to be amended. The Federal Board
of revenue exceeded its powers of delegated legislation as contemplated by
section 214A of the Ordinance. The extension in time is beyond the
power delegated to the FBR, as the Ordinance does not give power to FBR to extend the statuary time limit provided in section 122 of the Ordinance. After all, it is settled law that the Executive
cannot make or change law of the land without specific Authority from
Parliament to do so.
12. A taxing statute must be interpreted strictly. Equity
has no place in taxation nor while interpreting taxing statute intendment would
have any place. In the case of Engineer Iqbal Zafar Jhagra and another
Vs Federation of Pakistan and others[6] referring to Article 77 of the Constitution which provides that no
tax shall be levied or collected except by authority of law, it was observed
that in interpreting a taxing statute, equitable considerations are entirely
out of place. Taxing statutes cannot be interpreted by any presumption or
assumption. A taxing statute has to be interpreted in light of what is clearly
expressed; it cannot imply anything which is not expressed; it cannot import
provisions in the statute to supply any deficiency. Before taxing any person it
must be shown that he falls within the ambit of charging section by clear words
used in the section and if the words are ambiguous and open to two
interpretations, the benefit of interpretation is given to the subject. There
is nothing unjust in the taxpayer escaping if the letter of the law fails to
catch him on account of the legislature's failure to express itself clearly.
13. In the case of St. Johns Teachers Training
Institute Vs. Regional Director, National Council For Teachers Education and
Another[7],
it was observed that it is well settled in considering the vires of subordinate
legislation one should start with the presumption that it is intra vires and if
it is open to two constructions, one of which would make it valid and another
invalid, the courts must adopt that construction which makes it valid. However, it is equally
well settled that the subordinate legislation does not enjoy the same
level of immunity as the law framed by the Parliament or the State Legislature. The law framed by the Parliament or the State
Legislature can be challenged only on the grounds of being beyond the
legislative competence or being contrary to the fundamental rights or any other
constitutional provisions. The third ground of challenge which is now
recognized in the judgment in the case of Shayara Bano Vs Union of
India[8] is of
legislation being manifestly arbitrary. Subordinate legislation can be
challenged on all these grounds as well as on the grounds that it does not
conform to the statute under which it is made or that it is inconsistent with
the provisions of the Act or it is contrary to some of the statutes applicable
on the subject matter.
14. With
this background of the matter and keeping in view the judgments of the Apex
Courts cited supra it clearly establishes that the amendment in the statute is
the only prerogative of the Legislature and it cannot delegate its legislative
functions to the sub-ordinate authority. By applying the settled principle
cited supra, it can easily be held that where any time limit had provided in the
specified Acts or Ordinance for completion or compliance of the action and
where such completion and compliance had not been made within the time then the
time limit for such purpose notwithstanding anything contained in the specified
Act or Ordinance would stand extended through “Relaxation Ordinance” or “Relaxation Act” and not by the
executive authority. Such extension
would operate notwithstanding anything contained in the specified Acts or Ordinance. Thus, the only mechanism available with the Government was to frame the
Relaxation Ordinance or Relaxation Act for giving an extension
of time limits for taking actions and making compliances. These extensions were to be benefited for both,
actions that had to be taken by the revenue as well as compliances which had to
be made by the taxpayers. Issuing any letter or notification touching the
provisions of the Income Tax Ordinance, 2001 was not part of the delegation at
all. The subordinate legislation could not have travelled beyond the powers
vested in the Government of Pakistan by the parent Act or Ordinance. Even
otherwise it is extremely doubtful whether the extension in time in the guise of
letter/notification can change the very basis of the statutory
provisions. The subordinate legislature cannot be permitted to
amend the provisions of the parent Act or Ordinance. Accordingly, the letter/notification dated 30.06.2020 issued by the FBR is contradictory
to the statutory provisions of law and the principle laid down by the Apex
Court. As a result, the answer to question No. (i) is in the affirmative and
against the revenue department. The answer to question No. (ii) is in the
negative.
15. Notwithstanding
the aforesaid, in the instant case, undisputedly the proceedings were initiated
on 22.12.2020 after the expiry of the statutory time contemplated in section
122(2) of the Ordinance. Therefore, the case of the appellant even otherwise
does not cover in the letter/notification dated 30.06.2020 issued by the FBR as
there were no proceedings pending before the assessing officer when the
aforesaid notification was issued. Further, a
vested right has been created in favour of the appellant with the deemed order
passed under section 120(1)(b) of the Ordinance in respect of the tax year 2014
which admittedly has attained finality after the expiry of the statutory time provided
in section 122(2) ibid. Reliance may be placed on the judgment titled Nagina
Silk Mill, Lyallpur v. Income Tax Officer, A-Ward, Lyallpur,[9]
wherein it observed that:-
"The Courts
must lean against giving a statute retrospective operation on the presumption
that the Legislature does not intend what is unjust. It is chiefly where the
enactment would prejudicially affect vested rights, or the legality of past
transactions, or impair existing contracts, that the rule in question prevails
... Even if two interpretations are equally possible, the one that saves vested
rights would be adopted in the interest of justice, especially where we are
dealing with a taxing statute."
16. Further, we
have noted that the Legislature has used the expressions “extension of
time limit” and “condonation of time limit” under a
different context in the Ordinance. Therefore, it cannot be said or called that
these are synonymous expressions. For instance, section 108(5) of the Ordinance
expressly uses the expression “extension of time limit” that gives power to the
Commissioner IR to grant the taxpayer an extension of time for furnishing documents
or information. Similarly, section 119 of the Ordinance confers power to the
Commissioner IR and the Chief Commissioner for extension of time for furnishing
of the income tax return. The expression “condonation of time limit” has only
been used in section 214A of the Ordinance. Thus, the intent of the legislature
is clear that wherever it requires the extension of time in a particular
situation the legislature has specifically used the expression “extension of
time limit” and where any act or thing is to be done in a particular time that
has been lapsed then the statute has used the expression “condonation of time
limit”. Further, the event of condonation of delay incurs after the lapse of
the specified period whereas, on the other hand, the provisions of extension of
time are triggered before the expiry of the statutory time. Hence, both the
expressions are used in the statute in a different way and intent. Further, we
have observed that such provisions, as the case may be, are pressed into
service when a person applies to the competent authority. The competent
authority cannot suo moto extend the time limit or condone the delay without an
application by any person. The language of the letter/notification dated 30.06.2020
shows that the Board has condoned the delay suo moto.
17. For what has been discussed above, the
appeal of the appellant is accepted and the orders passed by the lower
authorities are annulled. Let this order be sent to the learned Chairman and
Member (Legal), Federal Board of Revenue, Islamabad for information.
18. This order consists of (14) pages and each
page bears my signature.
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| -SD-(M. M.
AKRAM)
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d/- |
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[1] PLD 1952 FC 29
[9] PLD 1963 SC 322
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