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Petitioner: LONE COLD STORAGE, LAHORE VS Respondent: REVENUE' OFFICERS, LAHORE ELECTRIC JUDGMENT
Court Name: Lahore High Court Judge(s): Syed Mansoor Ali Shah Title:LONE COLD STORAGE, LAHORE vs REVENUE' OFFICERS, LAHORE ELECTRIC
JUDGMENT
Reported As: 2010 PTD 2502 Result: Petitions allowed Judgment JUDGMENT SYED MANSOOR ALI SHAH, J.--- This consolidated judgment shall also decide writ petitions mentioned in Schedule A to this Judgment as common questions of law and facts arise in these cases. 2. Brief facts are that the petitioners are taxpayers under the Income Tax Ordinance, 2001 ("the Ordinance") and are also liable to pay advance tax under section 147 of the Ordinance. They are also subject to transitional advance tax under section 235 of the Ordinance, being commercial or industrial consumers of electricity. 3. The main controversy in these cases revolves around the conflict between sections 147 and 235 of the Ordinance. The precise grievance is that when the taxpayers (petitioners) have paid advance tax for the Tax Year under section 147 of the Ordinance, can they be subjected to pay transitional advance tax under section 235 of the Ordinance, over and above, the advance tax paid under section 147 during the currency of the same Tax Year. 4. Messrs Ch. Anwaar-ul-Haq, Siraj-ud-Din Khalil, Javed Iqbal Qazi and Shahzad Ahmad Durrani Advocates appeared for the petitioners. It has been vehemently argued that the petitioners in some cases have paid their advance tax for the Tax Year, in others they have no liability of advance tax to start with at the beginning of the Tax Year and finally in some cases refund is outstanding in their favour. Therefore, further charge of advance tax under section 235 is confiscatory besides being against the legislative scheme and intent of the Ordinance.
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5. Dr. Ikram-ul-Haq, Advocate Supreme Court of Pakistan and Asim Zulfiqar, Chartered Accountant and adjunct faculty in tax laws at the School of Law and Policy, Lahore University of Management and Sciences (LUMS) were appointed as amici curiae to assist the court. Notice under Order XXVII- A of the C.P.C., was also issued on 5-4-2010 to the Attorney General of Pakistan as question involving interpretation of constitutional law was involved. 6. Dr. Ikram-ul-Haq, amicus curiae, argued that there are three regimes running through the Ordinance namely; tax on total income (direct tax); presumptive tax and minimum tax. He further submitted that under section 147 of the Ordinance a formula is provided and on the basis of said formula advance tax has to be worked out at the end of the quarter (first quarter starting from July till September and ending on 15 October, 2010). He then referred to sections 147 (4)(A) and 147 (4) (AA) of the Ordinance and submitted that 'advance tax is based on the concept of "pay as you earn." 7. The learned amicus curiae argued that the Ordinance already provides a mechanism to ensure that if advance tax is paid under section 147 of the Ordinance, the taxpayer is not saddled with additional advance tax under section 235 of the Ordinance. 8. Explaining the legislative scheme of the Ordinance that provides a solution to the current impasse, he submitted that the first component for such adjustment is provided in the formula itself as component "D" provided in section 147(4) i.e., (A x B/C)-D. All the tax paid during the quarter is deducted from rest of the formula thereby reducing the amount of tax to be paid. He then submitted that in case "D" is equal or more than the. remaining part of the formula, assessee can approach the Commissioner concerned under section. 159(1) of the Ordinance for the issuance of a nil rate certificate. He also referred to Rule 40 and the form of the application for the certificate under section 159(1) of the Ordinance as specified in part VI of the First. Schedule to the Rules, to contend that the said form clearly provides for such a situation. 9. It is submitted that subsequently the order of the Commissioner can be challenged before .the Regional Commissioner/Chief Commissioner Inland Revenue under section 122(B) of Income Tax Ordinance, however, against the said order assessee can either approach the FTO or invoke the jurisdiction of this Court. 10. The learned amicus curiae submitted that efforts should be made to harmonize the provisions of the Ordinance. He further submitted that at best section 235 can be read down in order to resolve the conflict created by the two provisions. Learned amicus also argued that exemption provided under section 235(3) does not come to the rescue of the petitioners as exemption is a concept juxtaposed to income. In the present case the issue does not pertain to income but to advance tax, which is an estimated deposit made by the taxpayer. Exemption certificate will mean that the income of the taxpayer is not liable to tax which is not the case here. In the present case-- - the learned amicus reiterated that the issuance of lower or nil tax rate certificate is the answer. 11. Mr. Asim Zulifqar, Chartered Accountant amicus curiae submitted that the other mechanism provided, under the law is under section 159(3) of the Ordinance, where the Federal Board of Revenue can grant exemption. Thereafter, the parties can recourse to section 159(1) and obtain an exemption certificate. He also supported the contention of Dr. Ikram-ul-Haq, regarding issuance of nil rate certificate under section 159(1) of the Ordinance. 12. He further submitted that any payment under section 235 after the advance tax has been paid for the Tax Year is actually a refund, standing in favour of the taxpayer. To keep taxpayers' money for almost a year (from the date of collection till refund) is confiscatory and unconstitutional. It burdens the taxpayers with additional cost as the companies do business on borrowed finance and the financial cost of borrowing is to be paid by the taxpayer. He argued that advance tax charged under section 235, knowing well that it has to be refunded, amounts to double taxation and is therefore, patently confiscatory.
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13. Mr. Muhammad Ilyas Khan, Advocate appearing for respondents submitted that the question raised in this petition has already been settled in an unreported case of Messrs Riaz Bottlers (Pvt.) Ltd. case (Writ Petition 38 of 2010) decided by this Court on 4-2-2010. He also placed reliance on Indus Jute Mills Ltd v. Federation of Pakistan (2009 PTD 1473) and the leave granting order dated 1- 3-2010 of the august Supreme Court of` Pakistan passed in C.P. 149 to 154 of 2010 arising out of I.C.A. 462 of 2009 [reported as "Messrs Al-Khalil Cold Storage v. Federation of Pakistan through Secretary Finance, Islamabad and 3 others" (2010 PTD 1260)] arising out of the above mentioned Indus Jute Mills case. He also referred to an order of learned Single Judge, of this court passed in Writ Petition No.1583 of 2010 dated 4-3-2010 and contended that the present question cannot be re-agitated or re-opened by the petitioners in the light of the above judgments and order. 14. He, however, supported the submissions made by Dr. Ikram-ul-Haq, amicus curiae that 'under section 159(1) read with Rule 40, a nil tax certificate can be obtained by the petitioners and submitted that law should be protected as laid down in Elahi Cotton Mills Ltd. (PLD 1997 SC 582): He further submitted that section 159(3) is not applicable to the present case. 15. Mr. Asif Hashmi, advocate for the respondent department also relied on the judgment of the unreported case of Messrs Riaz Bottlers (Pvt.) Ltd. (ibid). He pointed out that section 236A(2) provides that the said transitional advance tax at the time of sale by auction is subject tosection 147 but sections 235 and 236 are not subject to section 147. His argument was that petitioner can always get refund and placed reliance on the judgment of this court given in Messrs Riaz Bottlers case (supra). 16. Arguments heard. Record perused. 17. The question that requires determination in this case is whether a taxpayer who has discharged his ,liability of advance tax under section 147 of the Ordinance can be subjected to transitional advance tax under section 235 of the Ordinance during the currency of the same Tax Year? 18. Before reviewing the legislative lay out of the Ordinance regarding advance tax and the scope of its chargeability sections 147 and 235 of the Ordinance, I would first like to address the preliminary objections of the respondents. 19. It has been argued by the respondents that the present issue has already been decided in Indus Jute Mills case (ibid). The issues for consideration before this Court in the aforesaid case are set out in paras.4 to 9 of the said judgment in the following manner:-- "(4) It was contended on behalf of the petitioners that section 235 of the-Income Tax Ordinance, 2001 as amended offends 'against Article, 142(c) of the Constitution of Islamic Republic of Pakistan, 1973. It is the case of the petitioners that by virtue of the impugned provision purportedly the tax, which is levied and is being collected on electricity bills of the assessee in pith and substance is a tax imposed upon the consumption of electricity which is an expenditure incurred by the assesses for carrying on business, and such tax on expenditure does not fall within the pale of any of the items of the Federal Legislative List of the Constitution. Hence, Majlis-e-Shoora was not vested with the legislative competence to impose the said tax in view of Article 142(c) of the Constitution of Islamic Republic of Pakistan, 1973. It contended that legislative competence in this behalf at best would vest in the Provincial Legislature subject to the other contentions raised on behalf of the petitioners. It is added that the said tax does not come within the parameters of item 47 of the Federal Legislative List of the Constitution, hence, cannot be levied thereunder or in lieu thereof under item 52 of the said Legislative List. In this behalf, it is further contended that it is not the nomenclature employed which is relevant but rather the pith and substance of the tax. (5) In the alternative it was further contended that any expenditure incurred may at best be used as a measure for determining the capacity of an assessee to pay the income tax. However, in such circumstances there must necessarily be a direct nexus between the subject-matter of tax, (in the instant case income) and the levy. And by virtue of section 235 of the Ordinance, the collection is
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effected in respect of the electricity consumption bill from a great variety of business concerns including both commercial and industrial (other than those exempted therefrom) and the cost of electricity as a proportion of the cost of production in case of industrial units and cost of business in case of commercial units is of incredible variation ranging from negligible to overwhelming, hence, no logical and rational nexus can be drawn between the cost of consumption of electricity and the income generated by consumers thereof. (6) It is next contended on behalf of several of the petitioners that the cost of electricity consumption as a total cost of production is extremely high if industrial activity being undertaken is power intensive as for example foundries. While in other cases, the cost of electricity consumption as a total cost of business may be very low say for commercial activities, and the same rate of tax has been levied' on both sets of consumers/assesses. Two assesses in an unequal situation have been treated equally which is the worst form of discrimination. Hence, section 235 of the Ordinance under challenge offends against Article 25 of the Constitution of Islamic Republic of Pakistan, 1973. Furthermore, the said provision is also discriminatory inasmuch as the collection .made from companies is refundable while in respect of persons other than companies, the same is only adjustable but not refundable. There is no rationale basis for such discrimination. It is added that there is no intelligible differentia to 'sustain the claim of valid classification in this behalf. (7) It is also the case of the petitioners that in fact provision of section 235 of the Income Tax Ordinance, 2001 is confiscatory in nature, hence--- offend against Article 24 of the Constitution of Islamic Republic of Pakistan, 1973. In this behalf it is contended that with reference to power intensive industrial concerns the tax levied and collected under section 235 of the Ordinance is in fact more than the normal profit/income that can be earned from such business, as a consequence whereof such business have not only become uneconomical, but also it is impossible to pay the tax liability from the income of the business necessitating disposal of its capital 'to pay such liability, hence the impugned levy is confiscatory and expropriatory, and thus, violative of Article 24 of the Constitution of Islamic Republic of Pakistan, 1973. (8) It is further added that tax under Ordinance, 2001 can only be levied on income and not expenditures, in the instant case the cost of power or energy cannot be treated as income especially in the absence of any deeming clause or a charging section. It is further contended that even otherwise section 235 is vague and ambiguous. (9) It is also contended that several of the petitioners are-also being dealt with under various other presumptive tax regimes and deductions effected thereunder are a final discharge of their tax liability, hence provision of section 235 of the Ordinance cannot be pressed into service as it would constitute double taxation." 20. The question in hand is the constitutionality, legality, utility and equity of charging transitional advance tax under section 235 of the Ordinance when taxpayer has fully paid advance tax under section 147 of the Ordinance for the Tax Year. This question has not been dealt with in the above cited judgment of this Court. It is pointed out that para. 9 of Indus Jute Mills Case raises an issue regarding final discharge of tax under the presumptive tax regime under the Ordinance but does not take into account the question raised in this petition i.e., the effect of continued and constant chargeability under section 235 irrespective of the final discharge of liability of advance tax under section 147 of the Ordinance. 21. The counsel for the respondents also placed on record leave granting order of the august Supreme Court of Pakistan dated 1-3-2010 passed in C.P. Nos. 149 to 154 of 2010 which arises out of the order of the Intra Court appeal reported as "Messrs Al-Khalil Cold Storage v. Federation of Pakistan through Secretary Finance, Islamabad and 3 others" (2010 PTD 1260), which arises out of the Indus Jute Mills case (supra). Therefore, for the reasons given above, the matter pending before the august Supreme Court of Pakistan is not the one raised here.
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22. Reference was made to another unreported Order dated 4-3-2010 passed in Writ Petition No.1583 of 2010 titled Flying Paper Industries v. Lesco. Similar question was raised in the said petition. From the Order it appears that the Court was not properly assisted as this was also noted in the said order:-- Learned counsel for the petitioners have been unable to point out any Article of the Constitution or any principle of law, whereby, if Advance Tax required to be collected under a particular provision of the Income Tax Ordinance, the Legislature is barred or estopped from directing the collection of advance tax or levy withholding tax a different transaction under any other provision and that too through a latter section of the same statute." (emphasis supplied) 23. I am of the, view that real gravity of the legal proposition advanced before this Court was neither canvassed before the learned Judge in Chambers nor was the Court properly assisted besides the legal question was not considered in the said brief order., The present case pertains to fundamental rights of the petitioners pertaining to property and to carrying out a lawful business and requires deeper probe into the tax legislation. An order where the court has not been properly assisted and the main legal questions have not been raised, deliberated or A discussed does not constitute a binding precedent. . 24. My judgment in Messrs Riaz Bottlers (Pvt.) Ltd v. Lesco (Writ Petition No. 38 of 2010) was also referred and submission made by the counsel for the respondents was that the instant issue has already been decided in the said case. The said case was an offshoot of an earlier litigation where during the pendency of the writ petitions interim relief was granted and recovery of advance tax under section 235 of the Ordinance was stayed. The said interim orders continued for a little more than a year and during the currency of the stay orders, the taxpayers paid their income tax for the tax year. The petitions were finally dismissed vide judgment reported as Indus Jute Mills Ltd., (supra), as a result LESCO billed the petitioners with the entire advance tax, accumulated due to the interim orders passed in the said case, for the period October, 2008 till December, 2009, Messrs Riaz Bottlers case (supra) allowed relief to the taxpayers against the advance tax for year ending 30th June, 2009. As the tax year ending 30th June, 2010 was still running it was held that the tax paid for the two quarters of the new tax year could be easily adjusted under sections 147 and 168, of the Ordinance against payments to be made against the next two quarters. The issue was about adjustment of advance tax paid in the first two quarters of the tax year and not about the continuous charge of advance tax under section 235 if the advance tax for the tax year stood paid. The issue in hand is therefore totally different. 25. For the above reasons, the judgments and order cited by the respondents above does not address the question raised in the instant petition. The preliminary objection of the respondents is therefore rejected. 26. Now coming to the main question raised in this petition. Survey of sections 147, 159, 235 of the Ordinance (reproduced in Schedule B to this judgment for ready reference) reveals that section 147 provides the main scheme of advance tax under the Ordinance. The concept of advance tax has been explained in my judgment in Mrs. Riaz Bottlers (supra) dated 4-2-2010 as hereunder: (18)---..The concept of "advance tax" and the mechanism of its payment need to be understood before the issue in hand can be adjudicated. Advance tax as a concept has been explained in Kanga, Palkhivala and Vyas's, The Law and Practice of Income Tax (Ninth Edition Volume-II page 2135) in the following manner: - "Under the basic scheme of this Act, the subject of charge is the income of the previous year and not the income of the assessm ent year; in other words, the tax is assessed and paid in the next succeeding year upon the results of the year before. These sections mark a departure from that basic scheme. They rest on the principle of 'pay as you earn', i.e. paying tax by installments in
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respect of the income of the very year in which the tax is paid." (Reliance Purshottamdas v. CIT 48 ITR (SC) 206, 211). (emphasis supplied) (19) Provisions dealing with advance tax under the Ordinance are sections 4, 147, 168, 170, and 231A to 236 (relevant provisions are reproduced in Schedule A to this judgment for ready reference). Section 4 is the charging section which imposes income tax, for each tax year, on every person who has a taxable income for the year. Section 4(6) provides that where by virtue of any provision of the Ordinance income tax has to be paid in advance, it shall as the case may be paid accordingly. (20) Advance Tax is primarily a procedure of collection of tax. Under section 147 the amount of advance tax to be paid in four quarters is an estimated amount determined by the tax payer himself for the tax year. As held in Call Tell and another v. Federation of Pakistan and. others (2005 PTD 833) "the collection of advance tax does not amount to levy of tax. Advance tax is payment made merely on account to be adjusted against the charge of income tax as finally ascertained. It is not a tax but merely a provisional payment on an amount towards tax due. The said amount does not become the property of the Central Government but remains vested in the assessee." While hearing the appeal in the same case the august Supreme Court of Pakistan held that: "Advance tax collected from buyers shall be merely credited with the Government which can be utilized and adjusted to the extent found necessary towards the ultimate liability of income tax due, after it has been determined and excess amount, if any, is to be refunded to the purchasers of the pre-paid telephone cards." Call Tell (Pvt.) Limited v. Federation of Pakistan (2004 PTD 3032). . (21) Advance tax due is to be computed by a tax payer according to the formula provided in section 147(4) of the Ordinance. Thereafter the tax payer is to estimate the tax payable for the relevant tax year at any time before the last installment of advance tax is due. After determining whether the estimated amount of tax payable by the taxpayer is more or less than the advance tax collected, the taxpayer is to move the Commissioner concerned with the estimated amount of the tax payable and pay such amount after making adjustment for the amount (if any) already paid under section 147(4). The payment of advance tax is split into four quarters and deposited by the tax payer accordingly as mentioned in section 147(5). Under section 147(8) tax payer paying advance tax during the year is allowed tax credit in computing the tax due. Under section 147(10) in case advance tax is not able to be credited the taxpayer is entitled to refund in accordance with section 170. This shows that advance tax is a computed amount, which is paid through running installments in the current tax year and before its last installment is due the taxpayer has the facility to adjust it against the estimated amount of tax due and pay the balance amount. Advance tax, therefore, is a supplementary collection system, which is finally adjusted in the tax payable by the taxpayer. (22) Advance tax is also collected through Chapter XII of the Ordinance which provides for Transitional Advance Tax, wherein advance tax is collected on the basis of the cash withdrawal from a bank (section 231A), purchase of motor cars and jeeps (section 231B), brokerage and commission (section 233), collection of tax by a stock exchange registered in Pakistan (section 233A), tax on motor vehicles (section 234), CNG Stations (section 234A), Electricity consumption (section 235) and Telephone users (section 235). Under section 168 an amount of advance tax paid under the above provisions including section 235 is allowed tax credit in computing the tax due by the taxpayer on the taxable income for the tax year in which the tax was collected or deducted. (23) The scheme of advance tax under sections 147 and under Chapter XII of the Ordinance clearly shows that the intention of the legislature is to ensure that a computed amount of advance tax [as per formula given in section 147(4)] is collected from the taxpayer during the subsistence of tax year. Payment of advance tax under the Ordinance is so scheduled that the last installment is to be paid on 15th June of the Tax Year which precedes the filing of the tax return for the same tax year. Advance Tax, therefore, has a specific stage and timing in the tax year and is no more than a
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quarterly contribution towards the final payment of tax due/payable by the taxpayer. For the sake of argument, if for some reason the advance tax is not paid and the tax due/payable is duly paid by the taxpayer at the end of the Tax Year, the taxpayer and the collection agent may be penalized for the act of not paying or collecting the tax but are not bound under the law to pay advance tax for the tax year that has come to a close (reference section 161(1B) and 205 of the Ordinance). Obligation to pay advance tax, therefore, can survive only till the payment of the tax due, for the tax year and not beyond. After the tax due has been paid, the provision of advance tax loses its purpose and legal force. In fact, advance tax has to be paid contemporaneously with the running tax year and cannot be demanded if tax due or tax payable for the tax year has been duly paid. The liability of advance tax, therefore, ceases once the tax due has been paid. An irresistible conclusion is that if no tax is payable for the tax year it is but obvious that no advance tax for the that tax year is payable. It might be handy to refer to Union Bank Ltd. v. Federation of Pakistan (1998 PTD 2116) wherein it was held: "if a person is not liable to pay a certain kind of tax he cannot be assessed to pay that tax in advance." In Elahi Cotton Mills v. Federation…
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