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Petitioner: COMMISSIONER OF INCOME TAX VS Respondent: Messrs ELI LILLY PAKISTAN (PVT.) LTD.
Court Name: Supreme Court of Pakistan Judge(s): Iftikhar Muhammad Chaudhry, Chaudhry Ijaz Ahmed, Raja Fayyaz Ahmad Title: COMMISSIONER OF INCOME TAX vs Messrs ELI LILLY PAKISTAN (PVT.) LTD. Case No.:Civil Appeal No.778 of 2005Civil Petition No.1245 of 2008Civil Petitions Nos.
JUDGMENT
Reported As: 2009 PTD 1392 Result: Order accordingly Judgment JUDGMENT IFTIKHAR MUHAMMAD CHAUDHRY, C.J.--- In Civil Appeals Nos. 876 to 879/2005, leave to appeal was granted, inter alia, to examine whether the provision contained in subsection (5A) of A section 122 of the Income Tax Ordinance, 2001, (hereinafter referred to as the Ordinance) inserted w.e.f. 1st July 2003 was procedural in nature and was retrospective in operation or otherwise. 2. The above four appeals arise out of a judgment of the Sindh High Court passed in Constitutional Petitions Nos. D-643 to D-646 of 2004. The respondent Messrs Honda Shahra-e-Faisal, an association of persons, namely, Shaikh Afzal Maqbool, Shaikh Mubashir Maqbool and Shaikh Amjad Maqbool, respondents in Civil Appeals Nos. 877, 878 and 879 of 2005 derived income from sale of spare parts and workshop receipts. The assessments in respect of the aforesaid respondents pertaining to the assessm ent year 2002-2003 were finalized on 20-5-2003 under section 59(1) of the Income Tax Ordinance, 1979 (hereinafter referred to as the repealed Ordinance). The Additional Commissioner of Income Tax, Range-II, Companies Zone-I, Karachi initiated proceedings under section 122 (5A) of the Ordinance calling upon the respondents to show cause.As to why the above finalized assessm ents be not amended. Aggrieved thereof, the respondents filed Constitution Petitions before the High Court of Sindh taking the plea that since subsection (5A) of section 122
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was inserted by the Finance Act, 2003 dated 17-6-2003, effective from 1-7-2003, therefore, the same could not be given retrospective effect and consequently it would not be applicable to the assessm ents finalized before 1-7-2003. The learned High Court, vide its judgment dated 2-3-2005 (hereinafter to be referred to as the Honda Shahra-e-Faisal) allowed the petitions and held that the provision contained in subsection (5A) of section 122 of the Ordinance, inserted with effect from 1-7-2003 was not retrospective in operation. It was held that the assessments finalized before the said date could not be reopened/revised/amended in exercise of the jurisdiction conferred upon the income tax authorities under the above provision. Thus, the impugned notices were declared to be without jurisdiction, illegal and void ab initio and were quashed along with the relevant proceedings, hence the above appeals by the department by leave of this Court. 3. The Constitutional Petitions, which are the subject-matter of C.As. Nos. 1601 to 1603 of 2006 were also filed in the High Court of Sindh against the issuance of show cause notices in more or less similar circumstances and were decided on the basis of Honda Shahra-e-Faisal. 4. Civil Appeals Nos. 1604 to 1625, 2670 to 2683 and 2685 to 2687 of 2006; 585 to 595, 706, 707, 1369 to 1404 and 1984 to 2046 of 2007; 291, 292, 459 to 499, 870 and 1847 to 1849 of 2008, 30 to 32 of 2009 also arise out of judgments of the High Court of Sindh passed in the tax references filed by the appellants. Here too, the judgment in Honda Shahra-e-Faisal was followed. 5. Civil Appeals Nos. 803 to 839 of 2008 arise out of judgments of the Lahore High Court, Multan Bench delivered in the tax references filed before it on the following question of law:-- "Whether on the facts and circumstances of the case, the learned ITAT was justified in holding that section 122(5) of the Income Tax Ordinance, 2001 brought into statute through Finance Act, 2003 is not applicable to the assessm ents completed before the promulgation of the Income Tax Ordinance, 2001, whereas the amendment brought in through Finance Ordinance, 2002 in subsection (1) of section 122 extends the applicability of section 122 to the assessments completed under the provisions of the Income Tax Ordinance, 1979 as well." 6. Vide judgment dated 2-4-2008, a learned Division Bench of the Lahore High Court at Multan, following the law laid down in Honda Shahra-e-Faisal answered the aforesaid question in the affirmative and held that section 122(5A) did not have retrospective effect qua the assessments finalized before 1-7-2002, and as such could not be reopened/revised or amended in the exercise of jurisdiction under section 122(5A) of the Ordinance. Resultantly, the tax references were rejected. 7. Civil Appeals Nos. 840 to 1039, 1104 to 1127, 1491 to 1513, 2257 to 2311 of 2008, 7 to 9, 33 to 57 of 2009 arise out of judgments of the Lahore High Court, Lahore delivered in the tax references filed before it wherein it was held that the assessm ent orders framed by the Deputy Commissioner of Income Tax could not be amended or modified under any of the two subsections, namely (5) and (5A) of section 122 of the Ordinance. It was further held that the language of section 122 applied only to assessm ent orders finalized by the Commissioner in respect of the taxpayers for the tax year and not to the assessm ent orders made by the DCIT for the assessment years 2002-2003 and earlier. All the tax references were rejected. 8. Civil Appeal No. 1322 of 2007 arises out of judgment of the Lahore High Court, Lahore passed in Writ Petition filed against the show cause notice issued to the respondent. In this case, the Lahore High Court held that the impugned show cause notice, which was issued under the Ordinance as amended by S.R.O. No.633(I)/2002 dated 14-9-2002 was not sustainable in law after the above SRO was declared ultra vires the Ordinance by this- Court in the case of Commissioner of Income Tax v. Kashmir Edible Oils Ltd. (2006 SCM R 109). It was also held that the subsequent insertion of these amendments through the Finance Act, 2003 also did not cure the illegality of the amendments made in the Ordinance through the said SRO. It was noted that the impugned show cause notice could not be issued under the Ordinance as it existed at the time of its enforcement, i.e., prior to
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any amendments whether made under the SRO or the Finance Act, 2003. As such, the impugned show cause notice was declared to be illegal and of no legal effect. 9. Civil Appeals Nos. 1148 to 1150 and 1245 of 2008 arise out of judgments of the Lahore High Court, Rawalpindi Bench delivered in the tax references filed before it wherein it was held that the Ordinance applied to the tax year commencing from 1-7-2002. The provisions of section 122(5) as on that date neither covered the assessments finalized under the, repealed Ordinance nor the operation of law was made retrospective in various corresponding provisions. The new law was more favourable to the taxpayers as against the revenue department terms, which was apparent from the terms, such as 'taxpayer' vis-a-vis assessee. 10. Civil Appeals Nos. 500, 501 and 783 to 791 of 2008, and 163 and 164 of 2009 arise out of judgments of the Islamabad High Court, delivered in the tax references filed before it. The learned Islamabad High Court disposed of the tax references in the light of the law laid down in Honda Shahra-e- Faisal. 11. Civil Appeals Nos. 115 to 118 of 2008, 112, 113, 122, 123 and 281 to 283 of 2009 and Civil Petitions Nos. 12 and 13 of 2009 arise out of judgments of the Peshawar High Court, delivered in the tax references filed before it The learned Peshawar High Court adhered to the exposition of law made by the Sindh and the Lahore High Courts and held that subsection (5A) of section 122 of the Ordinance inserted with effect from 1-7-2003 was not applicable to the assessments finalized before 1-7-2003 because subsection (5A) had no retrospective effect and, therefore, the assessments finalized before 1-7- 2003 could not be reopened/revised/amended in exercise of jurisdiction under section 122(5A) of the Ordinance. 12. In the appeals arising out of the judgments of the High Courts (Lahore High Court, Lahore, Multan, Rawalpindi & Bahawalpur Benches, Islamabad High Court and the Peshawar High Court) leave was granted by this Court to examine, inter alia, the scope, effect and validity of subsections (1), (5), (5A) of section 122 of the Ordinance inserted w.e.f. 1-7-2003 by the Finance Act, 2003. 13. To illustrate the factual mattress upon which the tax references were founded, we narrate here the facts of one case from the Multan Bench. The assessments in respect of Khalid Javaid, respondent in C.A. No. 803/2008 relating to years 1998-1999, 1999-2000 and 2002-2003, completed on 30-10-2000, 29-9-1999 and 15-1-2003 respectively, were framed and finalized under section 62 of the repealed Ordinance before 1-7-2002, i.e. The date on which the Ordinance was enforced. The IAC concerned issued show cause notice dated 19-6-2004 to the respondent for imposition of correct amount of tax for the aforesaid years under section 122(5) of the Ordinance. The respondent challenged the show cause notice in appeal before the Commissioner of Income Tax (Appeals), Multan. In his order dated 29-3-2005, the Commissioner, placed reliance on the judgment of the High Court of Sindh in Honda Shahra-e-Faisal, allowed the appeal of the respondent and cancelled the amended assessment orders passed under section 122 of the Ordinance. Thus, the original assessment orders finalized under section 59 of the repealed Ordinance were restored. The Commissioner decided the issue on the legal plane and gave no finding on other grounds of appeal. The CIT Multan Zone then agitated the matter before the Income Tax Appellate Tribunal, Lahore Bench, but without any success and the order of the Commisioner was upheld. The CIT Multan Zone thereafter filed tax reference (T.R. No. 10/2007) before the Lahore High Court, Multan Bench with the following question of law for determination by the said Court: - "Whether on the facts and circumstances of the case, the learned ITAT was justified in holding that section 122(5) of the. Income Tax Ordinance, 2001 brought into statute through Finance Act, 2003 is not applicable to the assessm ents completed before the promulgation of the Income Tax Ordinance, 2001, whereas the amendment brought in through Finance Ordinance, 2002 in
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subsection (1) of section 122 extends the applicability of section 122 to the assessments completed under the provisions of the Income Tax Ordinance, 1979 as well." 14. Vide judgment dated 2-4-2008, a learned Division Bench of the Lahore High Court, Multan Bench, following the law laid down in Honda Shahra-e-Faisal answered the aforesaid question in the affirmative and held that section 122(5A) had no retrospective effect qua the assessments finalized before 1-7-2002 and as such could not be reopened/revised or amended in the exercise of jurisdiction under section 122(5A) of the Ordinance. Resultantly, the tax references were rejected. It is noteworthy that all the cases were decided on the legal issue and not a single case was decided on merits. 15. The moot point in these appeals is the retrospective application or otherwise of the provisions of section 122(1), (5) & (5A) of the Ordinance. A common contention of the learned counsel for the appellants was that the High Courts were not right in holding that the said provisions had no retrospective effect. According to the learned counsel, the said provisions were procedural in nature, they did not create any charge or levy any tax and merely dealt with the machinery of assessm ent, therefore, as held in Commissioner of Income Tax v. Mahaliram Ramjidas (AIR 1940 Privy Council 124), in interpreting provisions of this kind the rule was that such construction should be preferred which made the machinery workable. 16. Mr. M. Ilyas Khan, learned counsel for the appellants in C.A. No. 803/2008 contended that section 122(1) as amended by the Finance Ordinance, 2002 was part of the Ordinance from the very date of enforcement, i.e. 1-7-2002. He submitted that subsection (1) was an enabling provision and the power of amendment conferred therein was to be exercised subject to other provisions of section 122 while subsections (5) & (5A) were procedural in nature and non-charging provisions but were to be read in conjunction with subsection (1), which explicitly provided for the amendment of assessm ent already finalized under the repealed Ordinance. He submitted that reference to various sections of the repealed Ordinance in subsection (1) of section 122 of the Ordinance clearly showed the intention of the legislature to apply the provision relating to amendment of assessm ent retrospectively with the rider that an assessment could be amended subject to time- limits provided in subsections (2) & (4A). Subsection (5A) of section 122 would be attracted on fulfillment of the twin conditions, namely, the erroneousness of the assessment and its being prejudicial to the interest of revenue to the assessments relating to the income year ending on or before 30-6-2002 finalized before 1-7-2003 under the repealed Ordinance, the date of insertion of the above subsection. On the other hand, if the applicability of subsection (5A) were restricted to the orders treated to be issued under the Ordinance alone, it would render the words 'erroneous in so far it is prejudicial to the interest of revenue' a surplusage against the legislative intent. Subsections (5) and (5A) were procedural provisions as the same fell in Chapter X of the Ordinance, which related to procedure. It was well-settled principle of interpretation of fiscal statutes that only charging provisions would not be given retrospective effect but the procedural provisions could well be applied retrospectively. The retrospectivity of a statute was either expressly conferred or could be inferred by necessary implication therein. The charging provisions were to be construed strictly, whereas the procedural provisions were to be interpreted liberally. He also pressed into service other principles of interpretation of statutes, namely, every word in a statute to be given a meaning, a statute to be read as a whole, words to be construed in accordance with the intention, a law should be interpreted in such a manner that it should be saved rather than destroyed, the courts lean in favour of upholding constitutionality of legislation and would be extremely reluctant to strike down laws as unconstitutional, enactments dealing with procedure are always retrospective in the sense that they apply to the pending proceedings, the rule that fiscal statutes should be construed strictly was applicable only to a charging provision or a provision imposing penalty, scheme of the law is to be examined in its totality in order to arrive at
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a correct conclusion, no provision is to be considered in isolation, court may modify language of statute to give effect to manifest and undoubted intention of the legislature, procedural matters would not operate' retrospectively if they touch a right in existence at the time of passing of the legislation, where retrospective effect to a statute is not given expressly, one must, apart from the language employed, look to the general scope and purview of the statute and at the remedy sought to be applied and consider what was the former state of the' law, and what was that the legislature contemplated, etc. He referred to Halsbury's Laws of England, Vol. 36, 3rd Edition, p.. 423, Craies on Statute Law, fifth edition, p. 370, 371, Maxwell's Interpretation of Statutes, p. 228, Hakim Khan v. Government of Pakistan (PLD 1992 SC 595) etc. He further argued that with the repeal of the Ordinance (XXXI of 1979), no right was accrued to or conferred upon the assessees nor had they acquired any right inasmuch as section 122(1) clearly provided that the assessments made or deemed to have been made were open to amendment within a specified time-limit. Erroneous assessm ent prejudicial to the interest of revenue could not be termed a past and closed transaction. He submitted that the Commissioner was the authority empowered to amend or further amend an assessm ent, and though he was empowered to delegate his powers or functions under section 210, but by virtue of amendment made in the said section by insertion of subsection (1A), he was debarred from delegating his powers of amendment of assessment contained in subsection (5A) of section 122 to a taxation officer below the rank of Additional Commissioner of Income Tax. He further submitted that the power of amendment envisaged under subsection (5) was original in nature while the one under subsection (5A) was revisional in nature. He adopted the reasoning of a learned Single Judge of the High Court of Sindh in the case of Fauji Oil Terminal and Distribution Co. Ltd. Karachi v. Additional Commissioner/Taxation Officer (2006 PTD 734) that once an assessm ent order was treated as issued under section 120 or was actually issued under section 121, then the same could be amended or further amended on fulfillment of conditions specified in sub-section (5) only and on no other ground, and that subsections (1), (3) and (5) were to be read together and not in isolation. He lastly submitted that the assessees or the taxpayers were not fair in disclosing their true incomes. There were countless cases of concealed income, etc. The assessees were not prepared to face the realities and instead of approaching the department, they filed writ petitions in the High Courts against the law laid down in Pak Arab Fertilizers (Pvt.) Ltd. v. Deputy Commissioner Income Tax (2000 PTD 263). 17. Mr. Akhtar Ali Mehmood, Advocate Supreme Court, learned counsel for the appellant in C.A. No. 876/2005 submitted that retrospectivity of the provisions of the Ordinance was evident from the actions being taken according to the scheme of the said Ordinance. In support of his submission, the learned counsel placed reliance on an order of the Commissioner of Income Tax whereby he delegated powers to the Taxation Officers (Additional Commissioner, etc.) passed after the enforcement of the Ordinance. He further referred to the case of Commissioner of Income Tax, Multan v. Munazza Iqbal, the subject-matter of C.As. Nos. 805 and 806 of 2008 in which relief was allowed to the respondent, though the case was not covered by S.R.O. No.633(I)/2002 dated 14-9- 2002. He also placed on record a copy of the order dated 13-1-2009 passed by this Court in the case of Commissioner (Legal Division), Large Taxpayer Unit v. Messrs Shaheen Air International (C.Ps. Nos. 511-K to 513-K of 2008 decided on 13-1-2009). This case related to rectification of assessm ent orders under section 221 of the Ordinance, passed on 25-10-1999 in respect of assessm ent years 1997-98 and 1998-99 as well as the assessment order dated 25-5-2000, in respect of assessm ent year 1999-00. In this case, the appellate authority as well as the Income Tax Appellate Tribunal had taken the view that the provisions of section 221 were applicable to assessm ents made after the enforcement of the Ordinance and therefore the power of rectification could only be exercised within the time-limit of four years laid down in section 156 of the repealed Ordinance.
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18. Mr. Shahid Jamil Khan, Advocate Supreme Court, learned counsel for the appellant submitted that under sections 65 and 66A of the repealed Ordinance read with section 6 of the General Clauses Act, 1897 an assessm ent could be amended, revised or reassessed subject to the provisions of law where it was found that the exact or proper tax, levied under the charging section, was not assessed, and no sanctity was attached to the assessment orders. The taxpayer did not have any vested right in a case of escaped income, or an erroneous assessment, etc. The power of the State to levy tax was protected by virtue of section 6 of the General Clauses Act, 1897. Section 122 provided machinery for the enforcement of charging provisions, therefore, the same were not debarred from being applied retrospectively. He relied upon the case of Nawabzada Muhammad Amir Khan (PLD 1961 SC 119) to emphasize that it was the duty of the Court to protect the right of the State by having recourse to the principles of harmonious construction and reconciling the conflicting provisions, or by .Curing the flaws in the language employed by the lawmaker. He referred to Salmon v. Duncombe (11 AC 634) where it was held that the machinery sections were to be liberally construed and if the incidence of tax was clear, the machinery sections should be so construed as to make the realization of the proper tax possible. He submitted that the defects in the language of the law could not be made a basis to defeat the intention of the legislature or to prevent the realization of tax that was in fact due. 19. Mr. M. Bilal, Sr. Advocate Supreme Court for the appellants in C.As. Nos. 163-164/2009 and Raja Abdul Ghafoor, Advocate Supreme Court/Advocate-on-Record for the petitioner in C.P. No.1245/2008 and appellants in C.As. No. 1322/2007 and 115-118 & 1491-1513/2008 adopted the arguments advanced by Messrs M. Ilyas Khan and Akhtar Ali Mehmood, Advocates Supreme Court. 20. Syed Naveed Andrabi, Advocate Supreme Court for the respondent in C.A. No. 778 of 2005 made the following submissions:-- (1) At the time of promulgation of the Ordinance, about 1000 amendments were made to make the new law in line with the repealed Ordinance. The entire complexion of the law was changed. (2) Subsection (1) of section 122 of the Ordinance was an independent provision which had no nexus with subsection (5-A). (3) The pending proceedings initiated under the provisions of the repealed Ordinance were saved under subsection (4) of section 239 of the Ordinance; and (4) Vested rights had accrued to the assessees before the enforcement of the Ordinance, 2001, hence, the income tax authorities, under the Ordinance, 2001 did not have any lawful authority to reopen the assessm ent orders passed in favour of the assessees by the authorities under the repealed Ordinance. Reference was made to the cases of Kashmir Edible Oil Ltd v. ' Federation of Pakistan 2005 PTD 1621 and United Builders Corporation, Mirpur v. Commissioner Income-tax, Govt. Of Azad J & K (1984 PTD 137). 21. Mr. Mansoorul 'Arifin, Advocate Supreme Court, learned counsel for the respondent in C.As. Nos. 876 to 879 of 2005, supporting the impugned judgment of the High Court of Sindh in Honda Shahra-eFaisal, made the following submissions:-- (1) The Ordinance, as originally promulgated, brought about change in its approach towards and treatment of the taxpayers by introducing a liberal tax regime, e.g., under section 120 of the Ordinance, where a taxpayer furnished a return of income, the Commissioner shall be taken to have made an assessm ent of the taxable income. This changed approach lay at the foundation of the Ordinance and was the touchstone to judge the validity of the subsequent actions; (2) The provisions of section 122 clearly showed that the legislature, through a conscious application of mind, kept outside the ambit of the provisions of the Ordinance the assessments of the period ending on 30-6-2002. It was only through an arbitrary amendment process, undertaken through the Finance Ordinance, 2002, the S.R.O. Dated 14-9-2002 and the Finance Act, 2003 that the
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assessm ents of the period preceding the enforcement of the Ordinance were brought within its pale; (3) Subsection (5A) was applicable to the tax year 2003 and onward because the Ordinance was operative from 1-7-2002, therefore, the same could not be applied to the assessments of the period preceding its enforcement unless the law specifically so provided. Reference was made to the cases of Calcutta Discount Co. v. Income-Tax Officer [(1952) 21 ITR 579 (Calcutta)], Niranjanlal Ramballabh v. Commissioner of Income-Tax, Madhya Pradesh [(1953) 23 131)], Commissioner of Income-Tax v. Maharaja Pratap Singh Bahadur [(1956) 30 ITR 484 (Patna)], 'Chairman, Central Board of Direct Taxes v. V.S. Malhotra [(1981) 129 ITR 543 (Delhi)] and N.S. Bindra's Interpretation of Statutes, Eighth Edition 1997, p. 628; (4) The Commissioner was empowered to amend an assessment by insertion of subsection (5) by means of S.R.O. No.633(I)/2002 dated 14-9-2002, but the same ceased to have effect after the said S.R.O. Was rescinded by S.R.O. No.608(I)/2003 dated 24-6-2003 in pursuance of the judgment of this Court in the case of Kashmir Edible Oils Ltd. (supra); (5) There was nothing in section 239, which indicated that the legislature intended to revive section 66A of the repealed Ordinance, hence the subsequent amendments introduced in section 122 with a view to achieving the same object were of no legal effect, hence proceedings initiated under…
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