Full Judgment Text & Judicial Ruling

2025 S C M R 1521 [Supreme Court of Pakistan] Present: Munib Akhtar, Ayesha A. Malik and Shahid Waheed, JJ COMMISSIONER INLAND REVENUE, ZONE-I, REGIONAL TAX OFFICE, SIALKOT and others ---Appellants/Petitioners Versus Messrs WHITE GOLD STEEL MILLS, S.I.E. DASKA and others ---Respondents Civil Appeals Nos. 2026, 2027, 2028, 2029, 2030, 2031, 2032, 2034 of 2022, Civil Appeals Nos. 308, 503 of 2023, Civil Petitions for Leave to Appeal Nos. 3468-L, 3477-L, 1917-L, 1918-L, 2149-L, 2150-L, 2607-L, 2608-L, 2788-L, 2789-L, 2790-L of 2022, Civil Petitions for Leave to Appeals Nos. 905-L, 1463-L, 1464-L, 1465-L of 2023, 3665-L of 2022, Civil Petitions for Leave to Appeal Nos. 2352-L, 2353-L, 2354-L, 3177-L, 3399-L, 3400-L of 2023, Civil Petitions for Leave to Appeal Nos.106-L, 1155-L, 1268-L, 1450-L of 2024, Civil Petitions for Leave to Appeal Nos. 216-L of 2025, Civil Petitions for Leave to Appeals Nos. 156-L of 2024, Civil Petitions for Leave to Appeal No. 2627-L of 2023, Civil Petitions for Leave to Appeals Nos. 3659-L, 3660-L, 3661-L, 3662-L of 2022, Civil Petitions for Leave to Appeals Nos. 3327-L, 3328-L, 3329-L, 3330-L, 431-L, 3014-L of 2023, Civil Petitions for Leave to Appeal No. 2340 of 2024, Civil Petitions for Leave to Appeals Nos. 4583,.4584, 4585 of 2023, Civil Petition for Leave to Appeals Nos. 5359 and 531-L of 2024, decided on 5th June, 2025. (On appeal against judgments dated 27.04.2022, 17.05.2022, 15.06.2022, 23.02.2023, 03.04.2023, 04.04.2023, 07.03.2022, 25.05.2022, 18.10.2022, 09.05.2023, 12.10.2023, 30.10.2023, 30.11.2023, 12.12.2023, 20.05.2024, 08.05.2024, 13.05.2024, 14.01.2025, 30.11.2023, 12.06.2023, 19.10.2022, 18.09.2023, 22.11.2022, 26.06.2023, 11.03.2024, 20.09.2023 passed by the Lahore High Court, Lahore and Islamabad High Court, Islamabad in PTRs Nos. 334/2013, 335/2013, 336/2013, 333/2013, 337/2013, 286/2014, ITRs Nos. 55/2016, 04/2016, 34473/2022, 29379/2022, PTR No. 121/2014, ITRs Nos. 65930/2022, 65929/2022, 18361/2022, 18366/2022, 475/2015, 476/2015, PTRs Nos. 208/2011, 209/2011, 255/2014, 256/2014, 257/2014, ITRs Nos. 10198/2023, 21986/2023, 21979/2023, 21991/2023, 224/2015, 225/2015, 226/2015, 227/2015, 228/2015, 229/2015, 63076/2022, 30039/2023, 30071/2023, 30135/2023, 66961/2023, 71684/2023, 78778/2023, 81673/2023, 31022/2024, 28057/2024, 29173/2024, 1542/2025, 78977/2023, 38844/2023 PTRs Nos. 237/2012, 238/2012, 239/2012, 240/2012, ITRs Nos. 58743/2023, 58757/2023, 58760/2023, 58768/2023, 567/2010, 43943/2023, 01/2021, 44/2012, 43/2012 and 42/2012.) (a) Income Tax Ordinance (XLIX of 2001)--- ----S. 221(1)---Deemed assessment---Scope---Deemed assessment order is nothing other than the transmutation by legal fiction of the return created as a matter of fact by taxpayer into assessment order of Commissioner as a matter of law---Very use of deeming provision meant ipso facto that it does not fall in the category of orders that are both as a matter of fact and of law the creation of Commissioner---Any mistake in return, made as a matter of fact by taxpayer, cannot become [at any rate for purposes of section 221(1)] as a matter of law, the mistake of the Commissioner such that he can amend the deemed assessment order by rectifying it---Between taxpayer and Commissioner the mistake always lays where, and by whom, in fact it was made, i.e., the taxpayer. (b) Income Tax Ordinance (XLIX of 2001)--- ----S. 120(1)(a) & 120(1)(b)---Deeming provision---Effect---Two distinct deeming provisions are contained in sections 120(1)(a) and 120(1)(b) of Income Tax Ordinance, 2001---Two provisions are directly, and intimately, linked and occur with an immediateness that is instantaneous but such immediacy is not simultaneity---Two clauses apply consecutively, the one following the other in the sequence set out in the provision---Word "and" which links the two must be understood in such sense---It does not only mean that both clauses apply to the return---It establishes also the order in which they occur---That is the very (and only) basis for the "imagining" required by section 120(1)(a) of Income Tax Ordinance, 2001 and having so imagined, the subsection moves immediately to section 120(1)(b) of Income Tax Ordinance, 2001---Return is deemed to be an assessment order issued to taxpayer on the date the return is filed---Again, there is as a matter of fact no such thing---Yet, by alchemy of the deeming provision, it must be imagined to be so and this second deeming is then bolstered by the words "for all purposes of this Ordinance"---Provision of section 120 (1) of Income Tax Ordinance, 2001, requires first that it be imagined that the Commissioner did something that in fact he did not do, i.e., "made" an assessment and then, him having so acted, requires secondly that the return be imagined to be an order on the assessment so made and issued to the taxpayer on the very date it was filed. (c) Income Tax Ordinance (XLIX of 2001)--- ----Ss. 120(1) & 221(1)---Rectification of mistake apparent on the face of record---Deemed assessment---Amendment---Jurisdiction of Commissioner---Authorities contended that deeming assessment order issued under section 120(1) of Income Tax Ordinance, 2001, was within the jurisdiction of Commissioner under section 221(1) of Income Tax Ordinance, 2001---Validity---Inevitable corollary of the "state of affairs" brought about by the first deeming, i.e., the making of an assessment of taxable income and the tax due, was that the Commissioner was to be deemed to have applied his mind to the material before him, which was nothing other than the return---To conclude otherwise would be to impermissibly "cause or permit your imagination to boggle"---Such assessment (and that could be regarded as another inevitable corollary of the "state of affairs" required to be imagined) would be whatever was contained in the return, i.e., mistakes and all---Return having passed through sieve of first deeming then became, in terms of the second deeming, an assessment order deemed to have been issued by the Commissioner to the taxpayer---It followed that the two deeming provisions, when were taken together and properly applied, would result in an assessment order "passed" by the Commissioner within the meaning, and for purposes, of section 221(1) of Income Tax Ordinance, 2001---Supreme Court set aside the order passed by High Courts as determination made by High Courts on the question of jurisdiction was not correct---Supreme Court remanded the tax references to High Court which would be deemed pending in respective High Courts and questions of law raised therein would be decided in accordance with law---Appeal was disposed of. Mehreen Zaibun Nisa v. Land Commissioner Multan and others PLD 1975 SC 397; Pak Leather Crafts Limited v. Al-Baraka Bank Pakistan Limited 2022 SCMR 1868 and Dr. Abdul Nabi v. Executive Officer, Cantonment Board, Quetta 2023 SCMR 1267 rel. FOR APPELLANTS/PETITIONERS Ahmad Pervaiz, Advocate Supreme Court (via video link, Lahore in CAs Nos. 2026-2028/2022, CAs. 2034/2022, 308/2023, 503/2023, CPLAs Nos. 1917-L/2022, 1918-L/2022, 2788-L to 2790-L/2022, 2352-L to 2354-L, 156-L/2024 and 2627-L of 2023). Syed Rifaqat Hussain Shah, Advocate-on-Record. Ibrar Ahmad, Advocate Supreme Court for Petitioners (in C.As. Nos. 2029 to 2031, 2033 of 2022, CPLAs. Nos. 3468-L, 3477-L, 2149-L, 2150-L of 2022, 905-L/2023, 1463-L to 1465-L/2023, 3177-L, 3399-L, 3400-L of 2023, 106-L/2024, 1155-L/2024, 531-L/2024, 1268-L of 2024 and 216-L of 2015). Shahbaz Butt, Advocate Supreme Court (via video link, Lahore in CPLAs Nos. 2326-L to 2331-L of 2022). M. Yahya, Advocate Supreme Court (via video link, Lahore in CPLAs. Nos. 3665-L, 3659-L to 3662-L of 2022, 3327-L to 3330-L of 2023). Mian Yousaf Umar, Advocate Supreme Court (via video link, Lahore in CPLA No. 1450-L of 2024). Amir Wakeel Butt, Advocate Supreme Court (via video link, Lahore in CPLA No. 431-L of 2023). Babar Bilal, Advocate Supreme Court (in CPLAs Nos. 4583 to 4585 of 2023). Malik Qamar Afzal, Advocate Supreme Court (in CPLA. No. 5359 of 2024). FOR THE RESPONDENTS Shahbaz Butt, Advocate Supreme Court (via video link, Lahore in CAs Nos. 2031/2022, 2034/2022 and 503 of 2023). Khurram Shahbaz Butt, Advocate Supreme Court (in CPLA No. 106-L of 2024). Muhammad Amjad Khan, Advocate Supreme Court (via video link, Lahore in C.A. No. 308-L of 2023). Ms. Asma Hamid, Advocate Supreme Court (via video link, Lahore in CPLAs Nos. 2326-L to 2331-L of 2022). Wasif Majeed, Advocate Supreme Court (via video link, Lahore in CPLAs Nos. 3659-L to 3662-L of 2022). Manzoor Hussain, Advocate Supreme Court (in CPLA No. 2340 of 2024). FOR THE FEDERATION Munawar Iqbal Duggal, Addl. AGP. FOR THE DEPARTMENT Dr. Ishtiaq, D.G. (Law) FBR, Ms. Sobia Mazhar, Additional Commissioner and Hassan, Additional Commissioner. Date of hearing: 8th April, 2025. JUDGMENT MUNIB AKHTAR, J.---These matters arise under the Income Tax Ordinance, 2001 ("2001 Ordinance") in relation to the jurisdiction, under subsection (1) of section 221, of the Commissioner to rectify any mistake apparent on the face of the record and thereby amend what is known as a deemed assessment order under section 120. Most of these matters come from the Lahore High Court, where the principal judgment is dated 27.04.2022 (now reported as Commissioner Inland Revenue v. Chaudhry Steel Mills 2025 PTD 101 and herein after referred to as the "principal LHC judgment"). That decision disposed of eight tax references that had been filed by the Commissioner (herein after referred to, in the context of being the appellant/leave petitioner, as the "Department") and was followed in all the other matters in the said High Court by various orders of different dates (again, all on tax references filed by the Department). There are also a few matters that come from the Islamabad High Court, where the principal judgment is dated 20.09.2023 (herein after referred to as the "principal IHC judgment") which disposed of tax references filed by the Department. Both High Courts reached the same conclusion on the question now before the Court and therefore all these matters were heard together and are being decided by this judgment. 2. The tax year involved in the principal LHC judgment was 2011 while in the principal IHC judgment it was 2007. A number of the matters involved other tax years as well, both before and after the ones just noted, ranging from 2005 to 2021. However, the relevant provisions of the 2001 Ordinance, and in particular those of section 221, remained in the main the same throughout, except where otherwise noted in the judgment. 3. The question that requires determination can be stated as follows: "Whether the Commissioner has jurisdiction under subsection (1) of section 221 of the 2001 Ordinance to amend, in exercise of the power thereby conferred and in the manner and to the extent therein stated, what is known as a deemed assessment order under section 120 to rectify a mistake apparent from the record?" The High Courts answered the question in the negative. The Department urges that both Courts erred materially in this regard. The taxpayers pray that the impugned judgments be upheld as having reached the correct conclusion in law. There is no dispute as to the scope of the jurisdiction, i.e., as to what are the mistakes that are apparent from the record as would allow for rectification under this provision. That is not the question before the Court. It is the anterior, or precedent, question, i.e., as to whether the jurisdiction itself exists at all with which alone we are concerned. 4. In the principal LHC judgment the reasons why the learned High Court concluded that there was no such jurisdiction were set out in the following paragraph (pp. 109-110): "10. A careful reading of sections 120, 122 and 221 of the Ordinance makes it very clear that the powers under these provisions are not overlapping rather independently clearly intended to operate within their respective compass. Section 221 of the Ordinance relates to the rectification of mistakes which are apparent from the face of record. The words used in the said provision are very specific and purposeful "any order passed by him" and does not include an order which is deemed to have been issued by the Commissioner by fiction of law which is the case for assessment orders under section 120 of the Ordinance. The words "an assessment order treated as issued under section 120" used in section 122(1) of the Ordinance are clearly distinguishable from the words used in section 221 of the Ordinance which says "any order passed by him". The act of passing of formal order by any Officer of Inland Revenue presupposes an application of mind and in most cases adjudication on merits after hearing the parties. Thus, there is a marked distinction between the deemed order and the order passed by the authority after fully applying his mind and giving proper opportunity of being heard to the person. As per well-established principle of interpretation of statutes, every word used in a statute has to be given effect to and no word or provisions of a statute is to be treated as surplus and redundant. Reference can be made to East and West Steambship Co. v. Queensland Insurance Co. Ltd. (PLD 1963 SC 395) and Jalal Muhammad Shah v. Federation of Pakistan (PLD 1999 SC 395). Thus, rectification is permissible only to "amend any order passed by him" and not the order treated to have been issued under section 120 of the Ordinance because the deemed order did not amount to an order passed by the authority. Had it been the intention of the legislature, it become necessary to introduce the specific provisions or amendment with certain words to cater the eventuality of deemed order in section 221 that a deemed order under section 120 can be amended in case of a mistake apparent from record. The expression "subject to this section" used in subsection (1) of section 122 ibid further restrict that the deemed order treated to have been issued under section 120 can only be amended under the said section." 5. The Islamabad High Court came to the same conclusion for the following reasons (emphasis in original): "6. This question came before the Lahore High Court in Messrs Ibrahim Fibers Limited v. Federation of Pakistan and others (Writ Petition No. 13284/2012) dated 19.09.2017 in which the Lahore High Court held the following after discussing the statutory scheme of the Ordinance: "If an order is not passed by the Commissioner, no question of rectification of mistake committed by the Commissioner arises which can only be the case if there is an order passed by an officer and in which a mistake has crept which is sought to be rectified at a later stage. The mistake if at all in the assessment order is that of the taxpayer and not that of the Commissioner and thus, the powers under Section 221 cannot be exercised in respect of an assessment order issued under section 120 of the Ordinance. If at all the Commissioner deems it necessary to make an alteration or addition to the assessment order, this may be done by the exercise of powers under section 122 and the invoking of the powers under section 221 for the purpose are out with the authority of the Commissioner and are not sustainable." 7. We are in agreement with the findings of the Lahore High Court. No intendment can be presumed when it comes to a fiscal statute and words are to be given their plain meaning. The question of rectification of a mistake by the Commissioner can only arise where the Commissioner has applied his mind and passed an assessment order whether under section 121 of the Ordinance or an amended assessment order under section 122 of the Ordinance. Such orders are those passed by the Commissioner himself as opposed to deemed order passed by the Commissioner. The language of section 221 of the Ordinance is explicit. It authorizes the Commissioner to amend any order passed by him to rectify any mistake apparent from the record. If the legislature had intended to include within such authority the power to rectify deemed assessment orders pursuant to section 120 of the Ordinance, it could have used appropriate language as used in section 122 of the Ordinance where it is provided that, "the Commissioner may amend an assessment order treated as issued under section 120 .". The language in section 221 of the Ordinance is specific. A literal interpretation of the language of section 221 of the Ordinance upon comparison with that in section 122 of the Ordinance leaves little doubt that the legislature had intended that the Commissioner would exercise the power of rectification only to rectify such mistake as made by him while passing an order which is apparent from the record and needed to be correct." 6. We may note that the decision of the Lahore High Court relied upon in para 6 extracted above was sought to be challenged in this Court by the Department in terms of a leave petition (C.P.L.A. No. 36-L/2018) which was however dismissed as being time barred on 01.10.2020. Therefore, the substantive question was not reached. Furthermore, the principal LHC judgment does not notice, and therefore did not rely upon, its earlier decision. That decision is therefore of relevance only to the extent relied upon and followed in the principal IHC judgment. 7. Learned counsel for the Department appearing in C.A. No. 2026/2022 and other cases set out the legal and factual position as noted above and submitted that the deeming assessment order issued under section 120(1) was very much within the jurisdiction of the Commissioner under section 221(1). In this regard the words for "all purposes of this Ordinance", appearing in clause (b) of the former provision, were emphasized. It was submitted that the only question before the Court was jurisdictional; there was no issue with regard to the scope of the jurisdiction itself. Learned counsel emphasized that the impugned judgments had a much broader application inasmuch as the conclusion that there was no jurisdiction at all was of particular concern to the Department. It was submitted that the learned High Courts had erred materially, and the appeals be allowed. Learned counsel appearing for the Department respectively in C.A. No. 2029/2022 and other cases, C.P.L.A. No. 4583/2023 and other cases, C.P.L.A. No. 2340/2023 and C.P.L.A. No. 3327-L/2023 adopted these submissions. 8. Learned counsel appearing for the Department in a bunch of cases which were ultimately delinked from the matters now being decided (in terms of the order of 08.04.2025 when judgment was reserved) sought, and was granted, permission to the address the Court on the question noted above. Learned counsel referred to section 120 and submitted that it had to be applied in its own terms and the result, namely the deemed assessment order, was clearly intended to be within the scope of section 221. Learned counsel appearing in C.P.L.A. No. 5359/2024 submitted that the words "amend" and "rectify" appearing in section 221 were the key to answering the question before the Court. It was submitted that the High Court (being the Islamabad High Court in this case) did not reach the merits but simply decided the jurisdictional issue essentially in the abstract. It was submitted that the question of jurisdiction could not be so separated from the substantive issues and both had to be decided together. The Director General (Law), FBR, sought, and was granted, permission to address the Court. The learned Director General also emphasized the words "amend" and "rectify" used in section 221 and referring to subsection (2A) of section 120 (added in 2020) submitted that on account thereof there was an application of mind by the Commissioner. It was respectfully submitted that the very basis of the reasoning adopted by the learned High Courts was therefore devoid of merit. 9. The case for the taxpayers was opened by learned counsel who appeared in that bunch of cases which were ultimately delinked from the matters now being decided (in terms of the order of 08.04.2025 when judgment was reserved). Learned counsel sought, and was granted, permission to address the Court on the question raised in these matters. Learned counsel compared the position under the 2001 Ordinance with the corresponding sections of the predecessor legislation, the Income Tax Ordinance, 1979. Referring to section 122 of the present statute, learned counsel drew attention to subsection (3) thereof which deals with the matter of a revised return. It was prayed that the learned High Courts had reached the correct conclusion in law and their judgments ought to be upheld. Learned counsel appearing in C.A. No. 308/2023 submitted that section 122 applied only to orders that emerged from sections 120 and 121. It was emphasized that the use of the term "passed" in section 221(1) established that there had to be an application of mind by the Commissioner, which was ipso facto absent in the case of a deemed assessment order under section 120. The distinction between an order "passed" (the term used in section 221(1)) and an order "issued" (the term used in section 120(1) was highlighted. Learned counsel appearing for the taxpayers in C.P.L.A. No. 3659-L/2022 and other matters adopted the submissions already made and further submitted that under the 2001 Ordinance, an "amendment" of an assessment order was limited to the framework of section 122 and a deemed assessment order could not therefore be "amended" by rectification under section 221(1). In this regard, section 177(6) was also referred to. Learned counsel submitted that an "amendment" under section 122 resulted in a new (amended) assessment order that was the result of an application of mind by the Commissioner. However, an order to "amend" in terms of section 221(1) to rectify a mistake left the order on which it operated intact, save only to the extent of the rectification. It was submitted that this was a fundamental difference between the regime established by the 2001 Ordinance as compared with the predecessor legislation, in terms of which all orders, including assessments howsoever made, were the result of an application of mind by the Commissioner. It was prayed that the appeals and the leave petitions be dismissed. Learned counsel for both sides also referred to certain case law. 10. We have heard learned counsel as above, considered the statutory provisions involved and seen the case law relied upon, and begin by setting out section 221 to the extent presently relevant: "221. Rectification of mistakes.- (1) The Commissioner, the Commissioner (Appeals) or the Appellate Tribunal may, by an order in writing, amend any order passed by him to rectify any mistake apparent from the record on his or its own motion or any mistake brought to his or its notice by a taxpayer or, in the case of the Commissioner (Appeals) or the Appellate Tribunal, the Commissioner.

(2) No order under subsection (1) which has the effect of increasing an assessment, reducing a refund or otherwise applying adversely to the taxpayer shall be made unless the taxpayer has been given a reasonable opportunity of being heard. (3) Where a mistake apparent on the record is brought to the notice of the Commissioner or Commissioner (Appeals), as the case may be, and no order has been made under subsection (1) before the expiration of the financial year next following the date on which the mistake was brought to their notice, the mistake shall be treated as rectified and all the provisions of this Ordinance shall have effect accordingly. (4) No order under subsection (1) may be made after five years from the date of the order sought to be rectified." The section remained in this form throughout the tax years relevant for the present matters. 11. Three points may be made with regard to subsection (1). Firstly, it confers jurisdiction on three different authorities/forums to do exactly the same thing in relation to any order passed by the authority, viz., to amend the order in order to rectify a mistake apparent from the record. The jurisdiction for two of the authorities, i.e., the Commissioner (Appeals) and the Appellate Tribunal, is limited to an order passed in exercise of appellate jurisdiction, since that is the only jurisdiction conferred on them by the statute. In the case of the Commissioner there is a range of orders that can come within the scope of the jurisdiction. For example, it could be an order of assessment made under section 121, known as best judgment assessment, and also an amended assessment order under section 122. The crucial question of course is whether the Commissioner's orders that come within the scope of section 221(1) include also a deemed assessment order under 120. Secondly, what constitutes the record for purposes of rectifying a mistake will vary from authority to authority, and in the case of the Commissioner may be different depending on the…

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