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Official Citation: 2025 LHC 6423
Court / Jurisdiction: Supreme Court / High Court of Pakistan
This judicial decision was delivered by the Supreme Court / High Court of Pakistan. The matter involves proceedings between Petitioner and Respondent, officially reported as 2025 LHC 6423. The court reviewed applicable Pakistani statutes, procedural requirements, and governing case-law authorities. The full text below contains the complete facts, arguments, and legal reasoning rendered by the honorable bench.
Case cited as 2025LHC6423
Stereo.HCJDA 38. JUDGMENT SHEET. LAHORE HIGH COURT, LAHORE JUDICIAL DEPARTMENT ITR No.68485 of 2024 Khawaja Muhammad Siddique Vs. The commissioner Inland Revenue, Lahore, etc. JUDGMENT Date of hearing: 17.09.2025 Applicant-taxpayer by: M/s. Shahbaz Butt, Khurram Shahbaz Butt and Ch. Muhammad Ishfaq, Advocates. Respondent-department by M/s. Mahum Shahzad and Abdul Qayyum, Advocates. MALIK JAVID IQBAL WAINS, J. This judgment shall also govern ITR No. 11512 of 2025, as both reference applications involve common questions of law and fact. 2. The instant Reference Application, filed under Section 133 of the Income Tax Ordinance, 2001 (The Ordinance), raises the following question of law for the opinion of this Court, arising out of the impugned order dated 01.10.2024 passed by the learned Appellate Tribunal Inland Revenue, Lahore (The Tribunal). “Whether on the facts and in the circumstances of the case, the finding of the Tribunal that the appellant/petitioner was not entitled to benefit of reduced rate of minimum tax under clause (24D) of Part-II of 2nd Schedule to the Ordinance is based on incorrect construction and interpretation of first proviso to the aforesaid clause of 2nd Schedule of the Income tax Ordinance, 2001?” 3. Briefly, the facts gathered from the record indicate that the applicant-taxpayer filed a return for the Tax Year 2022, which was deemed to be an assessment order under Section 120 of the Ordinance. The Additional Commissioner Inland Revenue subsequently found the return to be erroneous and prejudicial to the interest of revenue on the
ITR. No.68485 of 2024. 2 ground that the applicant-taxpayer had charged turnover tax at the reduced rate of 0.25% instead of the standard rate of 1.25%. Consequently, an amended assessment order under Section 122(5A) of the Ordinance was issued, applying turnover tax at the rate of 1.25%. Aggrieved by this action, the applicant-taxpayer preferred an appeal before the Appellate Tribunal, which was dismissed vide order dated 01.10.2024. 4. Learned counsel for the applicant-taxpayer submits that the authorities below committed a legal error in rejecting the applicant's claim by misinterpreting Clause 24D of Part-II of the Second Schedule to the Ordinance. It is contended that the applicant was incorrectly treated as a Tier-I retailer, despite the fact that the applicant’s business activities did not fall within any of the categories enumerated under Section 2(43A) of the Sales Tax Act, 1990. It is further argued that the applicant is a dealer in fertilizer items, which squarely falls within the scope of Clause 24D, entitling him to the reduced turnover tax rate of 0.25%. The Additional Commissioner Inland Revenue is said to have finalized proceedings in a harsh and ex parte manner. Moreover, the Tribunal failed to appreciate the applicable legal provisions, rendering the impugned order unsustainable in law. 5. Conversely, learned Legal Advisors for the respondent- department contend that the applicant's claim of being solely a dealer or distributor of fertilizers is not legally tenable. She submits that under the Punjab Fertilizer (Control) Order, 1973, the term "dealer" includes both wholesalers and retailers. Since the taxpayer is engaged in the direct supply of fertilizers to end consumers, it is evident that he operates as a retailer. she further argued that the benefit of Clause 24D of Part-II of the Second Schedule to the Ordinance is available only to retailers registered as Tier-I with the FBR. As the applicant tax payer does not fall within that category, therefore, he is not entitled to the reduced tax rate.
ITR. No.68485 of 2024. 3 6. We have heard the learned counsel for the parties at considerable length and have carefully examined the record. 7. From a perusal of the impugned judgment, it appears that the Tribunal, while interpreting Clause 24D of the Second Schedule, Part-II of the Ordinance and the proviso appended thereto, formulated the following three conditions for a taxpayer to qualify for the benefit under the said clause: - i. The taxpayer should be a distributor, dealer, sub-dealer, wholesaler, or retailer; ii. He should deal in fast-moving consumer goods, fertilizers, local manufactured mobile phones, sugar, or electronics; iii. He should be registered as a Tier-1 retailer, integrated and configured with the Board or its computerized system for real-time reporting of sales or receipts. 8. Applying the above criteria, the Tribunal concluded that the applicant taxpayer had fulfilled the first two conditions, but failed to satisfy the third. Consequently, the Tribunal held that the taxpayer did not meet the complete criteria for entitlement to the benefit under clause 24D and accordingly upheld the assessment order passed by the Additional Commissioner under Section 122(5A) of the Ordinance. 9. In our considered opinion, the Tribunal has erred in law while interpreting Clause 24D of the Second Schedule, Part-II to the Ordinance and the proviso appended thereto. To appreciate the legal context and for the sake of convenience, the relevant provision is reproduced below: “(24D) The rate of minimum tax under sub-section (1) of section 113 in the case of distributors, dealers, sub-dealers, wholesalers and retailers of fast-moving consumer goods, fertilizer, locally manufactured mobile phones, sugar, electronics (excluding imported mobile phones), cement,
ITR. No.68485 of 2024. 4 steel and edible oil shall be 0.25%, subject to the condition that beneficiaries of reduced rate are appearing on the Active Taxpayers' Lists issued under the provisions of the Sales Tax Act, 1990 and the Income Tax Ordinance, 2001. Provided that the benefit under this clause shall be available only to those Tier-1 retailers as defined under the Sales Tax Act, 1990 who are integrated and configured with the Board or its computerized system for real-time reporting of sales or receipts." 10. A plain reading of the above clause reveals that it covers a broad category of businesses including distributors, dealers, sub-dealers, wholesalers, and retailers dealing in specific goods such as fast-moving consumer goods, fertilizer, locally manufactured mobile phones, sugar, electronics (excluding imported mobile phones), cement, steel, and edible oil. The concessional minimum tax rate of 0.25% was extended to all such business categories, provided they are appearing on the Active Taxpayers’ Lists under the Ordinance and the Sales Tax Act, 1990. 11. The proviso, however, is specifically limited in its scope. It states that only Tier-1 retailers, as defined under the Sales Tax Act, 1990, who are integrated and configured with the Board’s computerized system for real-time reporting, are eligible to avail the benefit under the clause. Importantly, the proviso qualifies only Tier-1 retailers, and does not extend its applicability to other business categories listed in the main clause, such as distributors, wholesalers, dealers, or sub-dealers. 12. It is a settled principle of statutory interpretation that a proviso carves out an exception or qualification to the main provision but cannot be read in a manner that overrides or restricts the substantive part of the provision beyond what is explicitly stated. The scope of a proviso must be confined to its plain language and cannot be interpreted to control the entire clause unless clearly intended by the legislature. 13. In the present case, the Tribunal has misapplied the law by extending the applicability of the proviso to all categories of taxpayers
ITR. No.68485 of 2024. 5 listed in clause 24D, whereas the proviso exclusively applies to Tier-1 retailers. This interpretive error has led to the wrongful denial of the benefit of the reduced minimum tax rate to the applicant taxpayer, who does not fall within the definition of Tier-1 retailer but otherwise fulfills the criteria under the main clause. 14. In order to address the argument of learned counsel for the respondent-department, we have gone through the statutory language contained in Section 2(43A) of the Sales Tax Act, 1990 (STA, 1990), it is evident that the said provision is specifically confined to the categorization and scope of Tier-1 retailers. The clause exclusively delineates the characteristics and qualifying criteria of such retailers, including but not limited to, retailers operating as part of national or international chain stores, those situated in air-conditioned shopping malls or plazas (excluding kiosks), retailers whose aggregate electricity consumption exceeds the prescribed threshold, wholesalers-cum- retailers engaged in bulk import and supply, and those who have adopted digital payment infrastructure or have withholding tax deductions exceeding a specified limit. for clarity and reference the relevant portion of Section 2(43A) STA, 1990, is reproduced below: Section 2(43A) of the STA, 1990 [(43A) ["Tier-1 retailer" means a retailer falling in any one or more of the following categories, namely:- (a) a retailer operating as a unit of a national or international chain of stores; (b) a retailer operating in an air-conditioned shopping mall, plaza or center, excluding kiosks; (c) a retailer whose cumulative electricity bill during the immediately preceding twelve consecutive months exceeds rupees '[twelve] hundred thousand; [* * *] (d) a wholesaler-cum-retailer, engaged in bulk import and supply of consumer goods on wholesale basis to the retailers as well as on retail basis to the general body of the consumers; '[2/***/] [(e) a retailer who has acquired point of sale for accepting payment through debit or credit cards from banking companies
ITR. No.68485 of 2024. 6 or any other digital payment service provider authorized by State Bank of Pakistan; '[* * *] [(f) a retailer whose deductible withholding tax under sections 236G or 236H of the Income Tax Ordinance, 2001 (XLIX of 2001) during immediately preceding consecutive months has exceeded the threshold as may be specified by the Board through notification in the official Gazette; and] [(ga)***] [[(h)] any other person or class of persons as prescribed by the Board.]” 15. It is imperative to note that a plain reading of above categories indicates their exclusive applicability to retailers, and it does not extend to or encompass other categories of businesses falling under clause 24D. The legislative intent, as discerned from the language employed, is to regulate and define Tier-1 retailers for the purposes of tax compliance and enforcement under the STA, 1990. Therefore, any attempt to extend the applicability of Section 2(43A) of Act, to other business categories not expressly mentioned therein would be beyond the scope of the law and contrary to the principles of statutory interpretation. 16. Accordingly, for a comprehensive and accurate understanding of the legal framework, it is concluded that Section 2(43A) pertains solely to specific retail operations and cannot be invoked in relation to business entities falling outside the defined retail scope, such as those contemplated under clause 24D of Part-II of the Second Schedule of the Ordinance. 17. Where the words used in Clause 24D by the legislature encompass distinct categories of business, the Tribunal is not at liberty to adopt any alternative or hypothetical interpretation, Reliance is placed on a recent judgment delivered by the Hon’ble Supreme Court of Pakistan, wherein it was held in Civil Petition No. 339-L of 2023 (Commissioner Inland Revenue (Legal Zone), Large Taxpayers’ Office, Lahore v. M/s Seven Star Sugar Mills (Private) Limited, Karachi.) as under
ITR. No.68485 of 2024. 7 “13. The well recognized rule of construction or interpretation of any fiscal statute or its particular provision is that the intention of the legislature must be discovered from the words used. If the words used are capable of one construction only, then it would not be open to the courts to adopt any other hypothetical construction. If the words of a statute or its any provision are readily understood without any ambiguity, then obviously, it is not for the court to raise any doubt as to what they mean for any contrary view, rather than implementing the same without any hesitation. A statute or any enacting provision must be so construed as to make it effectual and operational.1 “ 18. Furthermore, the Hon’ble Supreme Court of Pakistan in Commissioner Inland Revenue (Legal) Islamabad v. Messrs WI-Tribe Pakistan Ltd., Islamabad (2020 SCMR 420) has categorically held that respondent cannot be allowed to be deprived of the statutory benefit through misinterpretation and misreading, as attempted by the department. Even in case of any ambiguity regarding any exemption or concession, the same is to be resolved in a manner beneficial to the tax payer. Relevant extract from the judgment is produced as under: - “5. …... Nothing extraneous can be read into the relevant entry to qualify or restrict such exemption. The respondent cannot be allowed to be deprived of the statutory benefit through misinterpretation and misreading, as attempted by the department. Even in case of any ambiguity regarding any exemption or concession, the same is to be resolved in a manner beneficial to the tax payer and not in the manner that would lead to obliteration of his rights and liabilities.” 19. Similar view has been taken by the Hon’ble Supreme Court of Pakistan, holding that where a charging or taxing provision is reasonably open to more than one interpretation, the interpretation more favourable to the putative taxpayer is to be preferred in case reported as GOVERNMENT OF PUNJAB through Secretary Irrigation and Power and another vs. KUNJAH TEXTILE MILLS LTD and others (2025 SCMR 239), wherein the apex Court has held as under:- “10. ……It is a cardinal principle of taxing statutes that if more than one reasonable interpretation is possible of the charging, or taxing, provision, then the one more favourable to the putative
ITR. No.68485 of 2024. 8 taxpayer is to be adopted, i.e. the one that either takes him out of the charge altogether or (if such be the case) results in a reduced or lessened burden……” 20. In view of above foregoing reasons, we hold that the interpretation adopted by the Tribunal is legally untenable and contrary to established principles of statutory interpretation. The Tribunal’s approach, which grants undue preference to the proviso over the main clause, particularly in the context of different categories of business and the special concessions or benefits extended thereto, is misplaced. In construing the scope and application of the proviso, the Tribunal has erred in law by extending it an unwarranted and overriding effect the main clause, thereby distorting the legislative intent. Such a construction not only misinterprets the proviso but also undermines the main clause, resulting in a legally flawed decision.Accordingly, the impugned order is set aside. 21. In view of above, the proposed question is answered in affirmative i.e. in favour of the applicant taxpayer and against the respondent-department. The reference application is decided against the respondent-department. 22. In view of discussion above, connected reference application 11512 of 2025 filed by the department stands dismissed. 23. Office to transmit copy of this order under the seal of the Court to the Appellate Tribunal in terms of Section 133(8) of the Ordinance. (ABID AZIZ SHEIKH) (MALIK JAVID IQBAL WAINS) JUDGE JUDGE APPROVED FOR REPORTING JUDGE JUDGE *SHARIF*