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Petitioner: Pakistan Telecommunication Company Limited. VS Respondent: Federation of Pakistan
Court Name: Islamabad High Court Judge(s): Athar Minallah, Aamer Farooq, Noor-Ul-Haq N. Qureshi Title:Pakistan Telecommunication Company Limited. vs Federation of Pakistan,
JUDGMENT
Reported As: PTCL 2016 CL. 302 Result: Appeal is-allowed. Judgment JUDGMENT ' MR. JUSTICE ATHAR MINALLAH.--(1). Through this consolidated judgment we shall decide the Intra Court Appeals listed in Annexure-A, Annexure-B and Annexure-C attached hereto. Annexure-A relates to the Intra Court Appeals wherein petitions were filed challenging notices issued under section 177 of the Income Tax Ordinance, 2001 (hereinafter referred to as the `Ordinance of 2001), while Annexure-B lists the appeals arising from petitions wherein notices under section 25 of the Sales Tax Act, 1990 (hereinafter referred to as the 'Act of 1990) read with section 46 of the Federal Excise Act, 2005 (hereinafter referred to as the 'Act of 2005) had been assailed. Annexure-C includes appeals which were heard only to the extent of deciding the question of maintainability of the Intra Court appeals and not on merits. MAINTAINABILITY OF THE INTRA COURT APPEALS: The Intra Court Appeals in the appended Annexures have arisen from petitions wherein notices/show cause notices were challenged and pursuant thereto Orders-in-Original had not been passed. The learned counsels appearing on behalf of the respondent Department had raised a preliminary objection regarding the maintainability of the Intra Court Appeals on the ground of the proviso to sub section 2 of section 3 of the Law Reforms Ordinance, 1972 (hereinafter referred to as the 'Ordinance of 1972 ). The respective appellants had invoked the Jurisdiction of this Court under Article 199 of the Constitution of the Islamic Republic of Pakistan, 1973 (hereinafter referred to as the `Constitution) challenging the issuance of Notices/Show Cause Notices. Admittedly, 'original orders' had not been passed. It is in this context that a question has arisen i,e, whether the proviso to sub
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section 2 of section 3 of the Ordinance of 1972 will be attracted if the appeal arises from a constitutional petition wherein a notice/show cause notice issued prior to passing an original order, wherein the relevant law provides for a right of appeal, review or revision against such order, has been challenged. A notice issued under section 177 of the Ordinance of 2001 is not an `original order', nor does the Ordinance of 2001 provide a right of appeal or review against the said notice. After issuance of the notice, audit is conducted. On completion of the audit, if the appropriate officer is satisfied that material exists for amending an assessment order then under section 122(9) a show cause notice is issued, which may result in passing an amended assessment order. The amended assessm ent order in the proceedings is, therefore, an 'original order' in the context of the said expression used in the proviso to section 3(2) of the Ordinance of 1972. The right of appeal or review under the Ordinance of 2001 is provided against the original order and not the notice or show cause notice issued prior thereto. As already noted above, Annexure-A and Annexure-relate to appeals wherein notices had been issued either under Section 177 of the Ordinance of 2001 or under section 25 of the Act of 1990, read with section 46 of the Act of 2005. 4. The learned counsels appearing on behalf of the appellants have strenuously argued in favour of the maintainability of the Intra Court Appeals. They have contended that similar notices had been assailed before the Lahore High Court wherein the Judgment titled Chenone Stores Limited through Executive Director (Finance Accounts) v. Federal Board of Revenue through Chairman and 2 others' [PTCL 2013 CL. 1] had been rendered. The judgement in the Chenone Stores Limited supra was assailed before the august Supreme Court in C.As. No, 1032 to 1082 of 2012 and the said petitions were disposed of by the Apex Court vide judgment dated 03-01-2013. The petitions were sent back to the Lahore High Court to be heard as Intra Court Appeals. The learned counsel appearing before the august Supreme Court in the aforesaid case on behalf of the Department i,e, the Federal Board of Revenue had conceded that the Intra Court Appeals were competent. The learned counsels have further brought to our attention the order dated 08-11-2013 passed by the august Supreme Court in C.P. No's. 1002, 1009 etc. of 2013. In the later proceedings it was argued before the august Supreme Court that when a show cause notice, and not an original order or otherwise, has been passed by the Income Tax authorities, the remedy of appeal, revision or review does not arise and, therefore, an Intra Court Appeal in such an eventually would be competent. It is manifest from perusal of the order that the learned counsel appearing on behalf of the Department before the august Supreme Court had conceded to this legal proposition. In these circumstances the august Supreme Court had expunged that part of the judgment impugned before it wherein it was held that Intra Court Appeals were not competent. Some of the learned counsels appearing in the instant appeals, as well as on behalf of the Department, had also appeared before the august Supreme Court in the proceedings wherein order dated 08-11-2013 had been passed. We inquired from the learned counsels as to whether in the light of the aforementioned two orders passed by the august Supreme Court, particularly when the Intra Court Appeals preferred against the judgment in the Chenone Stores Limited supra are pending before a Division Bench of the Lahore High Court pursuant to having been sent back by the august Supreme Court, the instant Intra Court Appeals would also be maintainable? The learned counsels candidly conceded that on the same analogy and in the light of the orders passed by the august Supreme Court in the above referred two cases, the instant Intra Court Appeals are also to be treated as being maintainable. The august Supreme Court in `Pakistan Oilfields Ltd., Rawalpindi versus Province of Punjab, through Secretary Finance Department, Lahore and others' [2010 SCMR 3281, while interpreting the proviso to section 3(2) of the Law Reforms Ordinance, 1972, has observed and held that an Intra Court Appeal would be maintainable if at the time of filing the constitutional petition under Article 199 of the Constitution the remedy of appeal etc was not available. It was further held that `Another reason which makes the proviso to sub section 2 of section 3 of the Law
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Reforms Ordinance, 1972 inapplicable to the instant matter is that there had not yet been passed any 'original order' which could be made basis for filing of departmental appeal.' Reference may also be made to "Secretary to the Government of Punjab Revenue Department and others versus Sajjad Ahmad and another" [2012 SCMR 1141], "Iftikhar Hussain and others versus Government of Pakistan and others" [2001 P.Cr.LJ 146] and "Chief Commissioner Income Tax, Lahore and 02 others versus Waseem Yaqoob" [2013 PTD 1114]. We, therefore, hold the Intra Court Appeals before us to be maintainable since they are at par with the appeals pending before the Lahore High Court, arising from the Judgment in the Chenone Stores Limited supra pursuant to the order of the august Supreme Court dated 03-01-2013, and for the reason that at the time of filing the petitions no appeal etc was provided against the impugned notices nor an 'original order' had been passed. The set of appeals listed in Annexure-C, however, have not been heard on merits; therefore, we direct the office to place the same before the Chief Justice for appropriate orders. These appeals arise out of petitions wherein show cause notices had been assailed and the matter has remained pending since more than four years. The Hon'ble Chief Justice may, therefore, consider placing the appeals before a Bench to be heard on merits. We would now take up the appeals listed in Annexure-A & Annexure-B attached hereto. Mr. Makhdoom Ali Khan, Sr. ASC has contended that there is no factual or legal basis for the impugned audit notices; even otherwise, the provisions of the respective statutes i,e, the Ordinance of 2001, the Act of 1990 or the Act of 2005 does not empower the Commissioner to select a taxpayer for audit; the power to select a person for audit lies with the Federal Board of Revenue under section 214C of the Ordinance of 2001, section 72 B of the Act of 1990 and section 42-B of the Act of 2005; once a person is selected for audit by the Board, only then the Commissioner may conduct the audit in accordance with the procedure laid down in the respective provisions; an objective criteria is a precondition for selection for audit; if the aforementioned provisions are interpreted in a manner which empower the Commissioner to select a person for audit, the concept of self assessm ent will be impaired; the Commissioner cannot pick and choose persons for audit in an arbitrary manner; the audit cannot take place on the whims and caprice of the Officer of the Inland Revenue; such unfettered, unbridled and absolute powers are bound to be used to hold fishing expeditions into tax affairs of a taxpayer; reliance has been placed on the cases of `Chenone Stores Limited through Executive Director (Finance Accounts) v. Federal Board of Revenue through Chairman and 2 others' [PTCL 2013 CL. 1] and 'Northern Bottling Company Limited v. Federation of Pakistan' [PTCL 2013 CL. 671] ; that pursuant to the said judgments, the legislature in order to further clarify the matter, inserted an explanation in the respective provisions; a bare reading of the respective explanations makes it obvious that the Commissioner Inland Revenue is not vested with the power to select a person for audit, and the same remains with the Federal Board of Revenue; section 25 of the Act of 1990, section 177 of the Ordinance of 2001 or section 46 of the Act of 2005 only empowers the Commissioner to conduct the audit of a person after having been selected by the Board and, therefore, the explanation cannot provide to the contrary; it is trite law that an `Explanation' cannot invalidate the provision; the object of adding the explanation to a statutory provision is only to facilitate proper interpretation and to remove any possible confusion or misunderstanding; reliance has been placed on 'Colony ,Sarhad Textile Mills Ltd., v. Collector, Central Excise and Land Customs' [PLD 1969 Lahore 228] , 'Muhammad Hussain Patel v. Habib Wali Muhammad' [PLD 1981 SC 1] , 'Chief Administrator Auqaf v. Koura' [PLD 1991 SC 596] ; it is for this Court to look at the intention of the legislature; the legislature, having not used the word "select" has made it obvious that the said power is not conferred or vested on or in the Commissioner; it is not permissible to supply a cassus omissus in the facts and circumstances of the instant appeal; reliance has been placed on 'Muhammad Ismail v.The State' [PLD 1969 SC 241], 'Amanullah Khan v.
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Chief Secretory NWFP' [1996 PLC (C.S.) 81] , 'State Cement Corporation v. Collector of Customs' [PTCL 1999 CL. 1], Zain Yar Khan v. The Chief Engineer' [1998 SCMR 2419], Wadeem Ahmed Advocate v. Federation of Pakistan' [2013 SCMR 1062] ; that a harmonious reading of section 25 and 72-B of the Act of 1990, section 46 and 42B of the Act of 2005 and section 177 and 214C of the Ordinance of 2001 clearly shows that the power to select for audit is with the Federal Board of Revenue, while the subsequent act of conducting it is with the Commissioner Inland Revenue; it is a settled principle of law that a harmonious interpretation must be given to statutory provisions; reliance has been placed on the cases of 'East and West Steamship Co. v. Queensland Insurance' [PLD 1963 SC 664], Wazir Ali Industries v. ATIR' [PTCL 2012 CL. 528], `Qazi Hussain Ahmed v. General Pervaiz Musharraf' [PLD 2002 SC 853] ; there is no doubt that the Commissioner has no power to select a person for audit, especially in the light of the judgments of the Lahore High Court in Chenone Stores Limited supra and the Peshawar High Court in the case of Northern Bottling Company supra. However, if there is any doubt, it must be resolved in favour of the assessee; reliance has been placed on the cases of `B.P. Biscuit Factory v. Wealth Tax Officer' [1996 SCMR 1470], 'Bisvil Spinners v. Superintendent Central Excise' [PLD 1988 SC 370], `Sohail Jute Mills v. Federation of Pakistan' [PLD 1991 SC 329], Mehran Associates v. Commissioner of Income Tax' [1993 SCMR 274], 'Pakistan through Secretary Finance and others V. Messrs Lucky Cement and others' [2007 SCMR 1367] , 'Collector of Customs, Lahore v. S.M. Ahmed & Company' [1999 SCMR 138] ; it is settled law that when interpreting a taxing statute the Court has to merely examine the language of the law and give it a plain meaning. There is no room for intendment; there is no equity about a tax; there is no presumption as to tax; reliance has been placed on the cases of 'Government of Pakistan v. Hashwani Hotels Limited' [PTCL 1990 CL. 427], `A&B Food Industries Limited v. Commissioner of Income Tax' [1992 SCMR 663], B.P. Biscuit Factory v. Wealth Tax Officer' [1996 SCMR 1470] ; illustrating the arbitrariness of the Commissioner, the learned counsel has referred to the intimation notices dated 23-04-2013 which had been assailed by invoking the jurisdiction of this Court under Article 199 of the Constitution, and is the matter for consideration in the Intra Court Appeal No, 529/2014; it has been stressed that the Order-in Original dated 13-04-2013, the appeal before the learned Appellate Tribunal establish that the reasons stated for conducting an audit has no basis rather in the impugned notice is in the nature of a fishing expedition. Mr. Ali Sibtain Fazil, ASC, Hafiz Muhammad Idrees, ASC, Ch. Naeem Ul Haq, ASC, adopted the arguments advanced by Mr. Makhdoom Ali Khan, Sr. ASC and have urged for allowing the appeals and setting aside the impugned Judgment. On the other hand Hafiz Munawar Iqbal, Dr. Farhat Zafar, Sheikh Anwar Ul Haq and Saeed Ahmed Zaidi Advocates appeared on behalf of the respondent Department and have controverted the contentions advanced on behalf of the appellants and have argued that; there is no ambiguity regarding the language used in the three statutes; the provisions being considered are not in the nature of charging sections, rather they are machinery provisions and prescribing the procedure for effectuating the charging provisions; the learned counsels appearing on behalf of the appellants are reading into the statute something not provided therein; the judgments rendered by the Lahore High Court and the Peshawar High Court in the Chenone Stores Limited supra and Northern Bottling Company Limited supra respectively have not appreciated the statutory provisions in their correct perspective; the judgments relied upon in the Chenone Stores Limited supra are distinguishable. The learned counsels have been heard and the record perused with their able assistance. The questions raised involve the interpretation of three distinct statutes, i,e,, the Ordinance of 2001, the Act of 1990 and the Act of 2005. The august Supreme Court in the case of `Federation of Pakistan through Secretary Ministry of Finance and others v. Haji Muhammad Sadiq and others' [PTCL 2007 CL. 114] has observed and held that every statute has to be examined independently,
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though some features may be similar, it is for this reason that we will examine the provisions of the Ordinance of 2001, the Act of 1990 and the Act of 2005 separately, it may be pointed out that the Ordinance of 2001 relates to Income Tax affairs, which is a direct tax. On the other hand, the Act of 1990 and the Act of 2005 are independent fiscal statues dealing with Sales Tax and the Federal Excise respectively. Both the latter taxes fall within the ambit of indirect taxation and, therefore, each statute necessarily has to be examined independently. We will, therefore, discuss the appeals separately. APPEALS LISTED IN ANNEXURE-A' These appeals arise from the respective judgments of this Court passed by the learned Single Judge in Chambers, whereby the petitions assailing notices issued under Section 177 of the Ordinance of 2001 were dismissed. The learned counsels appearing on behalf of the appellants have wholly placed reliance on the Judgments delivered by the Lahore High Court and the Peshawar High Court in the cases of Chenone Stores Limited supra and Northern Bottling Company Limited supra respectively. Before we advert to the arguments advanced by the learned counsels, it would be beneficial to examine the scheme of the Ordinance of 2001 in the context of section 177 and section 214C ibid. The Ordinance of 2001 is a self contained comprehensive fiscal statute, which was published in the Gazette of Pakistan on 13th September 2001 and the notification under sub-section (3) of section 1 was issued by the Federal Government for its enforcement on 01-07-2002. Through section 238 the Income Tax Ordinance, 1979 (hereinafter referred to as the 'Ordinance of 1979) was repealed with effect from the date on which the Ordinance of 2001 was enforced. The provisions of the Ordinance of 2001 had introduced some significant changes, particularly by introducing the universal self assessm ent scheme. The procedure for passing assessment orders after a detailed scrutiny made by the assessing officer was done away with, and instead a return filed by a tax payer was treated as an assessm ent order in the context of the questions raised by the learned counsels for the appellants it would also be pertinent to examine the various Income Tax authorities and their respective functions and roles attributed by the legislature within the realm of tax administration. This is crucial to appreciate the role attributed by the legislature to the Federal Board of Revenue (hereinafter referred to as the 'Board') and the other authorities, particularly the Commissioner. 14. Section 207 enumerates the Income Tax authorities for the purposes of the Ordinance of 2001 and the rules made there under. The 'Board', as defined in sub-section (a) of section 2, means the Central Board of Revenue established under the Central Board of Revenue Act, 1924 (IV of 1924), and on the commencement of the Federal Board of Revenue Act, 2007, the Federal Board of Revenue established under section 3 thereof. Pursuant to the notification dated 01-11-2007, the Federal Board of Revenue Act, 2007 (hereinafter referred to as the RBR Act') came into force with effect from the said date. The Board has been established under section 3, while the powers and functions thereof are enumerated in section 1 of the FBR Act. The powers of the Board relating to human resource management have been provided under section 5 ibid. Besides the power and functions as described in the FBR Act, the Board is vested with powers under the respective fiscal statutes. Sub-section (2) of section 207 of the Ordinance of 2001 provides that the Board shall 'examine, supervise and oversee the general administration of the Ordinance'. The remaining authorities, as enumerated in clauses (b) to (1) of sub-section (1) of section 207, have been declared to be subordinate to the Board. Sub-section (3A) to sub-section (5) of section 207 are in respect of the Income Tax authorities subordinate to the Board and involved in the administration of the Income Tax. The appointment of the Income Tax authorities is vested in the Board, as provided under section 208, while their respective jurisdiction and the manner in which they are assigned functions and powers are provided in section 209, Section 212 empowers the Board by a general or special order, to authorise the Regional Commissioner or the Commissioner to grant
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approval in any case where such approval is required from the Board under any provision of the Ordinance. Sub-section (1) of section 214 mandates that the Income Tax authorities and other persons employed in execution of the Ordinance shall observe and follow the orders, instructions and directions issued by the Board. The exclusion has been provided in sub-section (2) to the extent that no order, instruction or direction shall be given by the Board which will interfere with the discretion of the Commissioner (Appeals) in the exercise of the appellate functions. Section 214-B inserted vide the Finance Act, 2009 vests revisional powers in the Board, Section 214-C, inserted through the Finance Act, 2010, it relates to the power of the Board in the context of selection of persons or classes of persons for audit of Income Tax affairs. The latter provision vests the Board with the power to select persons or classes of persons for audit through computer ballot which may be random or parametric. Subsection (1A) starts with a non-obstante clause and provides that the Board shall keep the parameters confidential. Sub-section (2) prescribes that the audit of Income Tax affairs of persons selected under sub section (1) i,e, by the Board shall be conducted as per procedure given in section 177. Through the Finance Act, 2013 an Explanation was inserted, whereby it has been declared by the legislature that the powers of the Commissioner under section 177 are independent of the powers of the Board under section 214C, and that nothing contained in the said section restricts the power of the Commissioner to call for record or documents, including the books of accounts of the taxpayer, for audit and to conduct audit under section 177, Section 214-D, inserted vide the Finance Act, 2015, provides for the eventualities whereby a person shall be automatically selected for audit of its Income Tax affairs for a tax year. 15. When the provisions of the FBR Act are read in conjunction with the provisions of the Ordinance of 2001 it becomes obvious that, as declared under sub-section (2) of section 207 of the Ordinance of 2001, the role of the Board is to examine, supervise and oversee the general administration of the Ordinance. The Board, therefore, has a Supervisory role and to oversee the general administration under the Ordinance, unless some other power has been expressly specified in a particular provision of the Ordinance of 2001. It is, therefore, obvious that the functions, role and powers of the Board and other authorities, enumerated in sub section 1 of section 207, are distinct and separate, and the same have been expressly specified in the relevant provisions as shall be adverted to. 16. The other relevant provisions of the Ordinance of 2001 in the context of deciding the appeals before us are provided, inter alia, in Chapter X of the Ordinance of 2001, Part-I of chapter X prescribes the procedure in respect of filing a Return and describes the categories of persons liable to furnish the Return. Part-II is in respect of assessments and amended assessments. Section 120 declares that when the Return filed by a taxpayer is a complete return of income, other than a revised Return under sub-section (6) of section 114, then the 'Commissioner shall be taken to have made an assessm ent of taxable income for that tax year and that the Return shall be taken for all purposes of the Ordinance to be an assessment order issued to the tax payer by the Commissioner on the day the Return is furnished'. Sub-section (1A) of section 120 starts with a non-obstante clause and provides that the Commissioner, notwithstanding the deemed assessment under sub - section (2), is empowered to conduct audit of all the Income Tax affairs of the person under section 177 and in such an eventuality all the provisions of the said section shall apply. Sub-section (2) to sub-section (6) prescribes the procedure and powers of the Commissioner when a Return is found not to be complete. Sub section (1) of section 121 empowers the Commissioner to make a best judgment assessm ent in the circumstances, which have been specified therein. The introduction of the self assessm ent scheme through the deemed assessment order- under section 120 of the Ordinance of 2001 was a significant change from the earlier repealed provisions of the Ordinance of 1979. The concept and purpose of the self assessment scheme has been eloquently stated by the Hon'ble Justice Muhammad Afzal Zulla Chief Justice, as he was then, in the judgment titled 'Income Tax Officer and another v. M/s. Chappal Builders' [1993 SCMR 11081 as follows.--
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"The matter has arisen out of the well-known self-assessment scheme introduced in the Income Tax Law of Pakistan so as to encourage the taxpayers to make contribution towards the State effort in running the Government and the other related State machinery more willingly than it used to be under the normal assessment scheme. One purpose was to…
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