APPELLATE TRIBUNAL INLAND REVENUE, DIVISION BENCH-I,
ISLAMABAD
ITA No.404/IB/2016
(Tax
Year, 2010)
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M/s Al-Wahab Flour Mills, 7 Wetridge Industrial
Area, Rawalpindi. NTN: 1253139-1 |
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Appellant |
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Vs |
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Commissioner Inland Revenue, RTO, Rawalpindi |
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Respondent |
Appellant By: Mr.
Abdul Hafeez, Advocate
Respondent BY: Ms.
Romana Alam, DR
Date of Hearing: 07.03.2024
Date of Order: 07.03.2024
ORDER
M. M.
AKRAM (Judicial Member): The titled appeal has been
filed by the appellant taxpayer against the Appeal Order No.898/2015 dated 05.01.2016
passed by the learned Commissioner Inland Revenue (Appeals-II), Islamabad for
the tax year 2010 on the grounds as set forth in the memo of appeal.
2. Brief
facts culled out from the record are that the appellant is an AOP, and derives
income from running a flour mill. The appellant filed its income tax return for
the tax year 2010 by declaring net sales/turnover at Rs.230,791,440/- and net
profit declared at Rs.925,210/-. 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 (“the Ordinance”). Thereafter it was observed by the
Additional Commissioner Inland Revenue (hereinafter referred to as the “Assessing
Officer”) that the deemed order was erroneious insofar as prejudicial to
the interest of revenue as the taxpayer was liable to pay minimum tax @ 1% of
the gross turnover which the taxpayer failed to pay the same. Accordingly,
notices under section 122(5A) read with section 122(9) of the Ordinance confronting
the taxpayer with this issue were issued, and after considering the reply, an impugned
amended order dated 12.01.2015 was passed by the Assessing Officer under
section 122(5A) of the Ordinance. Felt aggrieved, the appellant preferred the appeal before the learned CIR(A)
who vide Appeal Order No.898/2015 dated 05.01.2016 confirmed the order
passed by the Assessing Officer. Still feeling aggrieved by this order, the appellant has now come up
before this Tribunal and has assailed the impugned appellate order on a number
of grounds.
3. This
case came up for hearing on 07.03.2024. Learned AR vehemently argued that both
the authorities below had not properly appreciated the legal stance of the
appellant as the appellant being a status of an AOP was not required to pay the
minimum tax under section 113 of the Ordinance till the tax year 2010 for the
reason that the words “association of persons” were inserted in
subsection (1) of section 113 ibid through the Finance Act, 2010 w.e.f
01.07.2010 by virtue of which the appellant was required to pay the minimum tax
for the tax year 2011 and onwards. He, therefore, contended that the
proceedings initiated by the Assessing Officer are illegal, void ab-initio and
without jurisdiction. In support, reliance is placed on 2020 PTD 679 and 2022
PTD 1226. On the contrary, the learned DR has supported the orders of the lower
authorities and contended that the order passed by the learned CIR(A) is a
speaking order, and there is no infirmity in the impugned order. She,
therefore, pleaded that the appeal be dismissed.
4. We have heard
the parties and perused the record. The following
core issue emerges from the record, arguments advanced by the parties, and the
grounds of appeal for our consideration:-
i. Whether under the facts and in the
circumstances of the case, the words inter alia “an association of
persons” inserted in subsection (1) of section 113 of the Ordinance through
the Finance Act, 2010 has a retrospective effect and the appellant being an AOP
was required to pay minimum tax under section 113 for the tax year 2010 and
onwards?
The stance of the appellant is that the words “an association of
persons” were inserted through the Finance Act, 2010 in subsection (1) of
section 113 of the Ordinance by virtue of which the appellant for the first
time was required to pay the minimum tax under section 113 ibid for the tax
year 2011 and onwards. Therefore, according to him, section 113 is a charging
provision, the amendments therein would apply prospectively w.e.f 01.07.2010
applicable for the tax year 2011 and onwards. After insertion of the aforesaid
words, subsection (1) of section 113 at the relevant time read as under:-
“113. Minimum tax on the income of
certain persons.- (1) This section shall apply to a
resident company, an individual (having turnover of fifty million rupees or
above in the tax year 2009 or in any subsequent tax year) and an
association of persons (having turnover of fifty million rupees or
above in the tax year 2007 or in any subsequent tax year) where for any reason
whatsoever allowed under this Ordinance, including any other law or for the
time being in force-
…………………………………
…………………………………”
(Emphasis supplied)
It can be seen from the plain reading of the
above provisions of law that after the insertion of the above words through the
Finance Act, 2010, the association of persons is required to pay the minimum
tax having turnover of fifty million rupees or above in the tax year 2007 or
any subsequent tax year. It is quite significant to note that before the said
amendments the AOP was not required to pay minimum tax under section 113 ibid
till the tax year 2010.
5. Now
we turn to the core issue. The Assessing Officer observed that the appellant
being an AOP was required to pay minimum tax under section 113 of the Ordinance
for the tax year under consideration and it failed to pay the same. The crucial
point of divergence between the parties is the applicability of section 113
after the insertion of the words inter alia “an association of persons” inserted
through the Finance Act, 2010, and in simple terms, the contest is as to
whether the same would apply to the case of the appellant for the tax year 2010
or tax year 2011 onwards.
6. It is a settled
principle of statutory interpretation that the applicability of enactment can
best be adjudged from its expressed content and implied intent. When the
enactment itself provides for the same to have effect from a particular point
in time, the express command of the legislature is to be abided by,
interpreted, and applied accordingly. In the present case, the Finance Act, 2010
provides:
"1. Short title,
extent and commencement:- (1) This Act may be called the Finance Act, 2010.
(2) It extends to the whole of Pakistan.
(3) It shall,
unless otherwise provided, come into force on the first day of July, 2010."
(Emphasis supplied)
Sub-section (3) of section 1 of
the Finance Act, 2010, highlighted above, clearly and expressly provides for
its provisions to take effect from 1st July 2010. This being so, there can be
no cavil to its applicability commencing from 1st July 2010 and not for any
period prior thereto.
7. With
regards to the contention of the learned DR that the amendments related to the
procedure, and would thus have a retrospective effect on the case of the
Appellant, we are afraid this line of argument, though attractive, is not
applicable to the facts of the present case. Like any other fiscal enactment,
the Ordinance provides for three distinct types of provisions. The charging
provisions, which relate to the levy or charge of the tax, which usually state
that tax is to be levied and on what matters, or goods or income and in which
manner and at what rate and matters relevant thereto. The assessment
provisions, deal with the assessment, calculation, or quantification of the tax
for the purposes of determining the amount of tax due and payable or which has
escaped collection or has been under-assessed or assessed at a lower rate or on
which excessive relief or refund has been allowed. The collection provisions
relate to the mode and manner of receipt or collection of the tax. The charging
sections have to be strictly construed and any benefit found therein has to be
given to the taxpayer. However, the assessment and collection provisions are
merely the machinery sections and they can be liberally construed. The
aforesaid categorization of provisions of fiscal statutes has been very aptly
explained in detail by His Lordship Mr. Justice. Rustam S. Sidhwa, in M/s
Friends Sons and Partnership Concern v. The Deputy Collector Central Excise and
Sales Tax, Lahore and others, (PLD 1989 Lahore 337).
8. Now,
to the crucial issue of the applicability of amendments introduced in fiscal
statutes. It was in 1905, when Lord Macnaghten, in The Colonial Sugar Refining
Company v. Irving (1905 AC 369) case, speaking for the Privy
Council, opined that:
"As regards the general principles applicable to the case
there was no controversy. On the one hand, it was not disputed that if the
matter in question is a matter of procedure only, the petition is well-founded.
On the other hand, if it be more than a matter of procedure, if it touches a
right in existence at the passing of the Act, it was conceded that, in
accordance with a long line of authorities extending from the time of Lord Coke
to the present day, the appellants would be entitled to succeed. The Judiciary
Act is not retrospective by express enactment or by necessary intendment. And
therefore the only question is, was the appeal to His Majesty in Council a
right vested in the appellants at the date of the passing of the Act, or was it
a mere matter of procedure? It seems to their Lordships that the question does
not admit doubt. To deprive a suitor in a pending action of an appeal to a
superior tribunal which belonged to him as of right is a very different thing
from regulating procedure. In principle, their Lordships see no difference
between abolishing an appeal altogether and transferring the appeal to a new
tribunal. In either case, there is an interference with existing rights
contrary to the well-known general principle that statutes are not to be held
to act retrospectively unless a clear intention to that effect is
manifested."
The above principle of interpretation of
statutes was followed and further developed by the Hon’ble Supreme Court of
Pakistan. Some of the leading cases are Muhammad Ishaq v. State (PLD
1956 SC 256), Nagina Silk Mill, Lyallpur v. Income Tax Officer, A-Ward, Lyallpur
(PLD 1963 SC 322), The State v. Muhammad Jamel (PLD 1965 SC 681) and Abdul
Rehman v. Settlement Commissioner (PLD 1966 SC 362). It was the
case of Adnan Afzal v. Capt. Sher Afzal (PLD 1969 SC 187) that
the said principle was articulated by the Hon’ble Supreme Court in terms that:
"Nevertheless, it must be pointed out that if in this case process any existing rights are affected or the giving of retroactive operation cause inconvenience or injustice, then the Courts will not even in the case of a procedural statute, favour an interpretation giving retrospective effect to the statute. On the other hand, if the new procedural statute is of such a character that its retroactive application will tend to promote justice without any consequential embarrassment or detriment to any of the parties concerned, the Courts would favourably incline towards giving effect to such procedural statutes retroactively."
The opinion of the Apex Court, rendered in the above-referred
cases, has remained un-wavered, as can clearly be seen from decisions that
followed, in particular Ch. Safdar Ali v. Malik Ikram Elahi and
another (1969
"……….. was
not permissible as certain rights had already come to vest in the respondents
on the date on which they had filed their tax returns under the original
section…..."
The Hon’ble Supreme Court also went on to
reiterate the view taken earlier in the Nagina Silk Mill case
(supra):
"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, 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."
Thus, the judicial consensus, as
it stands today, are that firstly, unless the statute expressly provides
otherwise, charging provisions are to be applied prospectively. Secondly, the
assessment and recovery provisions are to be considered retrospectively unless
the enactment expressly or impliedly provides otherwise.
9. When
we revisit the provisions contained in subsection (1) of section 113 in the
light of the above-discussed settled principles of interpretation, it prima
facie established that section 113 being a charging provision mandates that an
association of persons is required to pay the minimum tax having turnover of
fifty million rupees or above in the tax year 2007 or any subsequent tax year. In
the present case, the amendment had enhanced the appellant’s tax liability, resulting
in burdening the appellant to pay the minimum tax. Any other interpretation
will violate sub-section (3) of section 1 of the Finance Act, 2010, and the law
laid down by the Apex Court cited supra.
10. In view of the above
deliberation, the answer to the issue is in negative against the department,
the words inter alia “an association of persons” inserted through the Finance
Act, 2010 would not apply retrospectively for the tax year 2010. As a result,
the amended order passed by the Assessing Officer is annulled and the impugned
order passed by the learned CIR(A) is vacated.
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Sd/- |
-Sd- (M. M. AKRAM)
JUDICIAL MEMBER |
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(NASIR
IQBAL) ACCOUNTANT
MEMBER |
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