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Petitioner: PAKISTAN INDUSTRIAL DEVELOPMENT CORPORATION VS Respondent: PAKISTAN THROUGH JUDGMENT
Court Name: Sindh High Court Judge(s): Saeeduzzaman Siddiqui, Fakhruddin H. Shaikh Title:PAKISTAN INDUSTRIAL DEVELOPMENT CORPORATION vs PAKISTAN THROUGH
JUDGMENT
Reported As: PLD 1984 Karachi 1 Result: Petition dismissed. Judgment JUDGMENT ' SAEEDUZZAMAN SIDDIQUI, J.-The petitioner which is a statutory corporation created under Provincial Industrial Development Corporation West Pakistan) Ordinance No, XXVIII' 91 1962 has challenged in this petition the income-tax assessment orders for the years 1968-69 and 1969-70 on the ground that the legislation providing for levy of income-tax on "free reserves" of the Corporation is ultra vires of the Constitution. It is contended by the petitioner that the power to levy tax on income was derived from Entry No, 43(c) to the III Schedule of the late Constitution of 1962 which provided for levy of Corporation taxes and taxes on income other than agricultural income and since the "free reserves" of the petitioner did not come within the ordinary dictionary meaning of the word 'income' it could not be taxed as income by the Legislature. The petition is contested by the Government of Pakistan as well as Income-tax Department who are respondents in this petition and have raised objections both on the merits and as well as on technical grounds. However, before examining the contentions raised by the parties we would like to state here in short some facts which formed the background for filing of the above petition. 2. The Government proposed to levy income-tax for the first time in the budget of 1967 on 'free reserves' of Companies and Corporations and accordingly the then Minister of Finance in his budget speech of 1967 proposed income-tax at the rate of 10% on so much amount of 'free reserves' of a Company which was found in excess of 100% of the paid up capital excluding preference and deferred shares of the Company. The object of levying this tax on the 'free reserves' was described as a measure to curb the tendency of holding excessive reserve and to encouraee the distribution of dividends by the Company amongst its shareholders. In order to give effect to
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the above proposals necessary changes were made in the relevant laws. The Income-tax Officer concerned accordingly computed the tax on the "free reserves" of the petitioner as follows :- {{TABLE}} Year of assessm ent .Amount of taxable Tax payable free reserves. 1967.68 5,57,43,051 55,74,305 1968-69 6,54,61,541 65,46,154 1969-70 11,90,960 10,10,996 {{TABLE}} ' The petitioner challenged the above assessments made by the Income-tax Officer before the Income-tax Appellate Tribunal by way of appeals which were rejected and it is stated in paragraph 8 of the petition that against the order passed by the Income-tax Appellate Tribunal the petitioner filed reference application under section 66(1) of the Income-tax Act which are still pending in this Court. Since the tax assessed by the Income-tax Officer on the "free reserves" of the petitioner was not paid, the Income-tax Officer in or about 30-5-1970 further levied penalty for non-payment of income-tax in respect of assessm ent years 1968-69 and 1969-70 and also issued notices under section 46(5-A) of the Income-tax Act to various Banks freezing operation of account by the petitioner. At that stage the petitioner filed C. P. No, 981/79 challenging the aforesaid orders but it is alleged that during the pendency of the above petition an 'agreement was arrived at between the petitioner and the Income-tax Authorities where-under the Income-tax Authorities agreed to withdraw the attachment order on condition of withdrawal of Petition No, 981/79 by the petitioner. It is accordingly alleged by the petitioner that the aforesaid petition was withdrawn by then in the above circumstances with permission to file a fresh petition. This allegation of the petitioner is however not accepted by the respondents who have stated in their counter-affidavit that while Petition No, 981/79 was pending in this Court a meeting took place at the request of the petitioner between officials of the petitioner and the Income-tax Authorities Zone B, Karachi and, therefore, the proposed action under section 46(5-A) of the Income-tax Act by the respondents was not pressed during such negotiation. It is denied by the respondents that the right to file 'a fresh petition was reserved or that the present petition could be filed 'again after withdrawal of the earlier petition. Whatever may be the true 'position it is quite clear from the subsequent event that after withdrawal of ?Above petition the appeal of petitioner against the assessment order for year 1967-68 came up for hearing before the Income-tax Appellate Assistant Commissioner, 'B' Range, Karachi, who allowed the same on the ground that the petitioner was not a Company within the meaning of section 2(5-A) of the Income-tax Act. It appears that no relief however, was granted to petitioner in respect of assessm ent years 1968-69 and 1969-70 and, therefore, they filed the present petition on or. About 10-1-1980 challenging the assessment orders for the years 1968-69 and 1969-70. In the above-stated background the learned counsel for the respondents have raised the following preliminary objections :- "(1) That the petition suffers from ].Aches. (2) That the petitioner having availed of the alternate remedy by way of reference under section 66(1) of the Income-tax Act which is pending before this Court, the present petition is not maintainable. (3) That the previous Petition No, 981/79 filed by the petitioner on identical ground having been withdrawn by them unconditionally the present petition is barred under Order XXIII, rule 1(3), C. P. C. As well as on the principle of res judicata. ' Before dealing with the petition on merits we would like to deal with the above-noted three technical objections raised by the learned counsel for the respondents as to the maintainability of the above petition.
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3. It is an admitted position that prior to the filing of the present petition the petitioner had challenged the orders of Income-tax Authorities in Petition No, 981/79 which was admitted to regular bearing by this Court but before its disposal on merit it was disposed of by the following consent order which was passed in presence of counsel for the parties "Mr. Kbalid Anwar, Advocate for the Petitioners. Mr. A. A. Fazeel, Advocate for Respondent No, 1. ' Mr. Mansoor Ahmed Khan, Advocate for Respondent No, 2. ' Parties state that they have agreed upon the following formula : ' The Commissioner of Income-tax has agreed to withdraw the attachment after the petitioner has withdrawn the petition. ' Mr. Kbalid Anwar states that in view of the above formula be begs to withdraw this petition with a right to file a fresh petition if the matter is not settled. ' The petition is allowed to be withdrawn and is dismissed." 4. Mr. A. A. Fazeel, the learned counsel for respondent No, 1 contends that although Mr. Khalid Anwar at the time of withdrawal of earlier Petition No, 981/79 had prayed before the Court that he was withdrawing the petition with liberty to bring another petition if the matter was not settled. But the Court did not grant him permission while dismissing the petition as withdrawn. It is accordingly contended by Mr. Fazeel that in these circumstances the withdrawal of petition may be construed as unconditional which barred the filing of fresh petition on the same cause of action. In support of his contention the learned counsel for the petitioner relied on the cases of Karim Bakhsh v. Jan Muhmmad (1) and Karim Gul v. Shahzad Gul (2). The first cited case is quite distinguishable on facts as in that case the learned Single Judge of the Lahore High Court after having gone through the record came to the conclusion that there was nothing on record to show that the previous suit was withdrawn with permission to file a fresh suit. In fact it was found that the record did not show that any such permission was even applied for. The earlier suit in that case was dismissed with the following orders :- {{URDU TEXT}} ' Therefore, the above case is of no assistance to the learned counsel. In the second cited case of Karim Gul the facts were that the respondent in that case had filed a suit before the Senior Civil Judge, Mardan in which he applied for withdrawal of suit with permission to bring a fresh suit on the same cause of action. The Senior Civil Judge, allowed the withdrawal of the suit but refused to grant the permission. When a second suit was filed by the respondent it was resisted on the ground that the earlier withdrawal of the suit being one without permission of the Court the subsequent suit was barred. The Trial Court dismissed the suit as barred under section XXIII, rule 1, sub-rule (3) of C. P. C. But on appeal the decision of the lower Court was reversed by the Additional District Judge, Mardan, and on a further appeal the High Court of Lahore also took the view that either the application for withdrawal of suit with permission to bring a fresh suit could be granted or refused as a whole. The Court could not allow withdrawal of suit and refused to grant permission at the same time. In petition for leave to appeal against the judgment of High Court of Lahore the Supreme Court while refusing leave held as follows :- "The defendants in the suit now seek special leave to appeal and it is contended on their behalf that a question of law of some general importance has been raised which should be examined by this Court. Learned , counsel also urges that there is some conflict of decisions on this point in the High Court but it appears to us that the view taken by the High Court finds support from a decision of this Court in the case of HO Abdur Rashid Sowdagar v. S. M. Lotia Roy where Munir, C. J. Pointed out the differences between sub-rules (1) and (2) of rule 1 of Order XXIII of the Code of Civil Procedure, and opined that under sub-rule (2) 'the withdrawal is complete the moment the order to that effect is recorded and the right to bring a fresh suit follows from the withdrawal so
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permitted.' To such an order of withdrawal the provisions of sub-rule (3), it-was further pointed out, do not apply they being restricted to a withdrawal under sub-rule (1) of rule 1 of Order XXIII." ' above observations of the Supreme Court on the contrary support the contention of petitioner in the present case as it is an admitted position {{FOOT NOTE}} (1) PLD 1977 Lah. 1033 (2) 1978 SCMR 141 {{FOOT NOTE}} ' that the petitioner specifically prayed before the Court while withdrawing the earlier petition that he reserves the right to bring fresh petition on the same cause of action and the Court allowed withdrawal of the earlier petition but did not specifically grant permission to bring the fresh petition. Mr. Fazeel, contended that in view of the fact that the Court did not specifically grant the permission it should be presumed that the permission to bring a fresh petition asked for was declined. We are unable to accept this contention. In our view in the absence of an express order by the Court granting permission to file a fresh proceedings while allowing with drawal under sub- rule (2) of rule 1 of Order XXIII, C. P. C. It will necessarily follow that such a permission has been granted by the Court o otherwise the Court while allowing withdrawal in such a case cannot refuse to grant permission. We may also mention here that Mr. Khalid Anwar the learned counsel for the petitioner also referred us to the case o Durvas and others v. State of U. P. (1), in which the Supreme Court of Indi considered the scope of applicability of principles of res judicata and constructive res judicata to constitutional petition. The following observations were made by the Indian Supreme Court at page 1465 of the report with which we fully agree :- "(19) We must now proceed to state our conclusion on the preliminary objection raised by the respondents. We hold that if a writ petition filed by a party under Article 226 is considered on the merits as contested matter and is dismissed the decision thus pronounced would continue to bind the parties unless it is otherwise modified o reversed by appeal or other appropriate proceedings permissible under the Constitution. It would not be open to a party to ignore the said judgment and move this Court under Article 32 by an original petition made on the same facts and' for obtaining the same or similar orders or writs. If the petition filed in the High Court under Article 226 is dismissed not on the merits but because of the lathe of the party applying for the writ because it is held that the part had an alternative available to it, then the dismissal of the writ petition would not constitute a bar to a subsequent petition under Article 32 except in cases where and if the facts thus found by the High Court may themselves be relevant even under Article 32. If writ petition is dismissed in limine and an order is pronounced in that behalf, whether or not the dismissal would constitute a bar would depend upon the nature of the order. If the order is on the merit it would be a bar ; if the order shows that the dismissal was for the reason that the petitioner was guilty of laches or that he had an alternative remedy it would not be a bar, except in cases which we have already indicated. If the petition is dismissed in limine without passing a speaking order then such dismissal cannot be treated as creating a bar of res judicata. It is true, that prima facie, dismissal in limine even without passing a speaking order in that behalf ma strongly suggest that the Court took the view that there was n substance in the petition at all ; but in the absence of a speaking order it would not be easy to decide what factors weighed in the mind of the Court and that makes it difficult and unsafe to hold that such a summary dismissal is a dismissal on merits and as such constitutes a bar of res judicata against a similar petition filed under Article 32 If the petition is dismissed as withdrawn it cannot be a bar to {{FOOT NOTE}} (1) AIR 1%1.SC 1457 {{FOOT NOTE}}
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' subsequent petition under Article 32 because in such a case there has been no decision on the merits by the Court. We wish to make is clear that the conclusions thus reached by us are confined only to the point of res judicata which has been argued as a preliminary issue in these writ petitions and no other. It is in the light of this decision that we will now proceed to examine the position in the six petitions before us." ##T## ' We, therefore, overrule the 3rd objection raised by the respondents. The other objection of the learned counsel for the respondents is that alternate remedy by way of reference under section 66(1) of the Income-tax Act has already been availed by the petitioner which was against the order of assessment for the years 1968-69 and 1969-70 and which is pending in this Court and, therefore, the present petition is not maintainable. The petitioner has challenged in this petition the vires of the Jaw taxing the 'free reserves' to income-tax. The relief claimed in this petition, it is conceded by Mr. A. A. Fazeel the learned counsel for respondent No, 1 cannot be granted in the case referred to this Court under section 66(1) of the Income-tax Act. We are accordingly of the view that the pendency of reference under section 66(1) of Income-tax Act is no bar to the maintainability of the present petition in the circumstances of the case. ' The last objection as to the competency of petition raised by the learned counsel for the respondents is with regard to delay in filing the petition by the petitioner. In their counter-affidavit the respondent No, 2 has alleged in paragraph 7 as follows : "7. That the contents of paras. 6 and 7 are substantially correct. It may be noted that the tax dues relate to years which date back to 10/12 years and the tax as determined should have been paid much earlier and in the ordinary course. The said tax, however, remains unpaid. The discretionary remedy in the constitutional jurisdiction of this Hon'ble Court is liable to be denied on account of delay and laches." ' The, petitioner in reply to the above allegation of respondent No, 2 has stated in their rejoinder in paragraph 7 as under : "7. That with regard to the contents of para. 7, it is submitted that the respondent is trying to create confusion by stating that the tax dues relate to years which are 10 to 1.2 years old. It is submitted that the respondent is trying to create the impression that the impugned liabilities were created 10 to 12 years ago whereas in fact the assessment orders were passed much later and in fact the final orders imposing penalties were passed as recently, as 30th May, 1979. In any event thereafter Petition No, 981 of 1979 was filed and disposed of after the respondents agreed to withdraw the attachment orders and reconsider the matter on merits which automatically gave rise to a fresh cause of action." ' From the statement made in the counter-affidavit it appears that the objection regarding delay is founded on the ground that the impugned orders are challenged after about 10/12 years of the creation of liability against the petitioner. We may mention here that the respondents did not mention in their counter-affidavit the dates of orders impugned in the petition and from the certified copies of the orders produced in the petition we were unable to ascertain their dates. We, therefore, enquired from the learned counsel for the respondents about the dates of these orders but they were unable to give the same. The petitioner in its rejoinder has denied to at 10/12 years period had passed when the liability was created against them and it is claimed 'that the final order imposing penalty was passed against them only, on 30th May, 1979 and immediately thereafter Petition No, 981/79 was filed by them challenging the action of respondents and the vires of legislation but the petition was subsequently withdrawn in the circumstances stated above and as the matter was not settled amicably the present petition was filed in this Court on 10-1-1980. It is therefore, contended that there was no delay at all in filing the present petition. Keeping in view the nature of relief claimed in the petition and the circumstances stated above we are satisfied that the present petition cannot be dismissed on the ground of laches alone.
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' Having dealt with the technical/preliminary objections of the respondents we will now consider the main contentions of the petitioner in the case. Mr. Khalid Anwar, the learned counsel for the petitioner has pressed this petition on two fold grounds. It is firstly contended that the legislation imposing income-tax on 'free reserves' is ultra vires of the Constitution of 1962 and secondly it is contended that the petitioner could not be treated as a Company within the meaning of section 2(5-A) of the Income-tax Act for the assessment years 1967-68 and 1968-69 and, therefore, the assessm ent made against the petitioner on that basis was wholly without jurisdiction. We will first deal with the second contention of Mr. Khalid Anwar. It is contended by the learned counsel that the petitioner came into existence by Ordinance XXXVIII of 1962 known as Provincial Industrial Development Corporation (West Pakistan) Ordinance, 1962 and therefore it did not fail in the category of a body corporate formed in pursuance of an Act of Parliament and, therefore, it could not be assessed as such for the assessment years 1967-68 and 1968-69, This objection is not presed in respect of the assessm ent year 1969-70 as for that year Mr. Khalid Anwar strtes that after the amendment in the definition clause 2(5-A) of the Act in 1968 by Finance Act, 1968 the petitioner came within the meaning of Company as defined in section 2(5-A) of the Act. The definition of Company in the income-tax Act was amended by Finance Act of 1968 and following words were substituted in place of "formed in pursuance of an Act of Parliament" in clause 2(5-A) of Income- tax Act :-- "Formed by or under any law for the time being in force. In so far the assessment order for the year 1967-68 is concerned the petitioner in fact raised the above contention before the Appellate Assistant Income-tax Commissioner in appeal against that order and succeeded there. However, we are informed that the Department has filed an appeal before the Income-tax Appellate Tribunal against the above order which is pending. In so far the order relating to assessment year 1968-69 is concerned both by Messrs Khalid Anwar and A. A. Fazeel agreed that this contention of the petitioner can be effectively decided in the pending reference under section 66(1) of the Income- tax Act filed by the petitioner in this Court against the order of Income-tax Act Appellate Tribunal. We, therefore, refrain from expressing any opinion on contention of Mr. Kbalid Anwar and leave it to be decided in the first instance in the pending proceedings." ' The only other contention now remains to be decided in this petition is that whether the Income- tax on the 'free reserves' could be competently ' levied by the Government. The contention of the petitioner before us is that the 'free reserves' of the petitioner did not fall within the meaning of `income' and, therefore, no income-tax could be levied thereon. The power to tax the income was derived from Entry No, 43(c) in the III Schedule of late Constitution of 1962 which reads as follows : "43. Duties and taxes, as follows : (a) .. 11. 00 . I 0.0 (b) corporation taxes and taxes on income other than agricultural income;". ' From the above entry in the late Constitution of 1962, it is quite clear that the Legislature could levy taxes on income. The word 'income' has not been defined in the Constitution and, therefore, in order to interpret the same we will refer to the dictionary meaning of the word. In the Shorter Oxford English Dictionary the word 'income' is defined as follows : "Income : Coming in, entrance, arrival, advent : beginning. 2. AD free paid on coming in ; entrance-money. 3. A new-comer immigrant. 4. Something added or incidental. 5. That which comes in as the periodical produce of one' work, business, lands, or investments (commonly expressed in terms of money) ; annual or periodical receipts accruing to a person or
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corporation ; revenue. National income, the income of a nation as a whole.". ' In Webster's Third New International Dictionary 'income' is defined as under : "1. Archaic : an act or an instance of coming in Entrance Advent influx 2. Dial Brit a : a place of entry b : incomes 3: something that comes in as an increment or addition use by chance 4. a: a gain or recurrent benefit that is usu. Measured in money and for a given period of time, dervives from capita!, labour, or a combination of both, includes gains from transactions in capital assets, but excludes unrealized advances in value : commercial revenue of receipts of any kind except receipts or returns of capital. b : the value of goods and services received by an individual is a given period of time." ' Similarly in Black's Law Dictionary the word "income" is defined as under "Income" The return in money from one's business, labour, or capital invested ; gains, profits, or private revenue. ' The gain drived from capital, from labour or effort, or both combined, including profit or gain through sale or conversion of capital : income is not a gain accruing to capital or a growth in the value of the investment, but is a gain, a profit something of exchangeable value, proceeding from the property, secured from the capital, however invested or employed: and coming in, being derived, that is, received or drawn by the recipient for his separate use, benefit, and disposal. The true increase in the amount of wealth which comes to a person during a stated period of time. Commissioner of Corporations and Taxation v. Filoon, 910 Mass. 374 N E 2nd 693, 700." ' The cardinal rule of interpretation is that the words should be read in their ordinary, natural and grammatical meaning. However, where Courts are called upon to interpret a word occurring in a Constitutional provision relating to legislative power, then the words are to be liberally construed so as to give it widest connotation. Income therefore, in the light of above , dictionary meanings would include all moneys or other gains periodically received by an. Individual, corpotation etc. For labour, service or from property, investments, operations etc. Income denotes a thing that comes in. Therefore, in its natural meaning the word income will embrace any profit or gain which is actually received. The petitioner in paragraph 20 of the petition has stated those reasons for which they claim that 'free reserves'…
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