Legal Principle & Question Decided

Ruling Summary: This decision was rendered by the Supreme Court of Pakistan on 2024-12-31, officially reported as 2025 PTD 101. In this matter between Commissioner Inland Revenue, Zone-I, Regional Tax Office, Sialkot and JUDGMENT and the Respondent, the court adjudicated key questions of statutory construction, procedural regularity, and legal precedent under Pakistani law.

Core Holding: The honorable bench evaluated governing statutory provisions and judicial authorities to establish the rights of the parties, delivering the binding reasoning set out below.

Full Judgment Text & Judicial Ruling

Court Name: Supreme Court of Pakistan Judge(s): Ayesha A. Malik, Shahid Waheed, Munib Akhtar Title:Commissioner Inland Revenue, Zone-I, Regional Tax Office, Sialkot and

JUDGMENT

Reported As: 2025 SCP 217 Result: Order Accordingly Judgment

JUDGMENT Munib Akhtar, J.: These matters arise under the Income Tax Ordinance, 2001 ("2001 Ordinance") in relation to the jurisdiction, under subsection (1) of s. 221, of the Commissioner to rectify any mistake apparent on the face of the record and thereby amend what is known as a deemed assessment order under s. 120. Most of these matters come from the Lahore High Court, where the principal judgment is dated 27.04.2022 (now reported as Commissioner Inland Revenue v Chaudhry Steel Mills 2025 PTD 101 and herein after referred to as the "principal LHC judgment"). That decision

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disposed of eight tax references that had been filed by the Commissioner (herein after referred to, in the context of being the appellant/leave petitioner, as the "Department") and was followed in all the other matters in the said High Court by various orders of different dates (again, all on tax references filed by the Department). There are also a few matters that come from the Islamabad High Court, where the principal judgment is dated 20.09.2023 (herein after referred to as the "principal IHC judgment") which disposed of tax references filed by the Department. Both High Courts reached the same conclusion on the question now before the Court and therefore all these matters were heard together and are being decided by this judgment. 2. The tax year involved in the principal LHC judgment was 2011 while in the principal IHC judgment it was 2007. A number of the matters involved other tax years as well, both before and after the ones just noted, ranging from 2005 to 2021. However, the relevant provisions of the 2001 Ordinance, and in particular those of s. 221, remained in the main the same throughout, except where otherwise noted in the judgment. 3. The question that requires determination can be stated as follows: "Whether the Commissioner has jurisdiction under subsection (1) of s. 221 of the 2001 Ordinance to amend, in exercise of the power thereby conferred and in the manner and to the extent therein stated, what is known as a deemed assessment order under s. 120 to rectify a mistake apparent from the record?" The High Courts answered the question in the negative. The Department urges that both Courts erred materially in this regard. The taxpayers pray that the impugned judgments be upheld as having reached the correct conclusion in law. There is no dispute as to the scope of the jurisdiction, i.e., as to what are the mistakes that are apparent from the record as would allow for rectification under this provision. That is not the question before the Court. It is the anterior, or precedent, question, i.e., as to whether the jurisdiction itself exists at all with which alone we are concerned. 4. In the principal LHC judgment the reasons why the learned High Court concluded that there was no such jurisdiction were set out in the following paragraph (pp. 109-110): "10. A careful reading of sections 120, 122 and 221 of the Ordinance makes it very clear that the powers under these provisions are not overlapping rather independently clearly intended to operate within their respective compass. Section 221 of the Ordinance relates to the rectification of mistakes which are apparent from the face of record. The words used in the said provision are very specific and purposeful "any order passed by him" and does not include an order which is deemed to have been issued by the Commissioner by fiction of law which is the case for assessment orders under section 120 of the Ordinance. The words "an assessment order treated as issued under section 120" used in section 122(1) of the Ordinance are clearly distinguishable from the words used in section 221 of the Ordinance which says "any order passed by him". The act of passing of formal order by any Officer of Inland Revenue presupposes an application of mind and in most cases adjudication on merits after hearing the parties. Thus, there is a marked distinction between the deemed order and the order passed by the authority after fully applying his mind and giving proper opportunity of being heard to the person. As per well-established principle of interpretation of statutes, every word used in a statute has to be given effect to and no word or provisions of a statute is to be treated as surplus and redundant. Reference can be made to East and West Steambship Co. v. Queensland Insurance Co. Ltd. (PLD 1963 SC 395) and Jalal Muhammad Shah v. Federation of Pakistan (PLD 1999 SC 395). Thus, rectification is permissible only to "amend any order passed by him" and not the order treated to have been issued under section 120 of the Ordinance because the deemed order did not amount to an order passed by the authority. Had it been the intention of the legislature, it become necessary to introduce the specific provisions or amendment with certain words to cater the eventuality of deemed order in section 221 that a deemed order under section 120 can be

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amended in case of a mistake apparent from record. The expression "subject to this section" used in subsection (1) of section 122 ibid further restrict that the deemed order treated to have been issued under section 120 can only be amended under the said section." 5. The Islamabad High Court came to the same conclusion for the following reasons (emphasis in original): "6. This question came before the Lahore High Court in M/s Ibrahim Fibers Limited Vs. Federation of Pakistan and others (Writ Petition No. 13284/2012) dated 19.09.2017 in which the Lahore High Court held the following after discussing the statutory scheme of the Ordinance: "If an order is not passed by the Commissioner, no question of rectification of mistake committed by the Commissioner arises which can only be the case if there is an order passed by an officer and in which a mistake has crept which is sought to be rectified at a later stage. The mistake if at all in the assessment order is that of the taxpayer and not that of the Commissioner and thus, the powers under Section 221 cannot be exercised in respect of an assessment order issued under section 120 of the Ordinance. If at all the Commissioner deems it necessary to make an alteration or addition to the assessment order, this may be done by the exercise of powers under section 122 and the invoking of the powers under section 221 for the purpose are out with the authority of the Commissioner and are not sustainable." 7. We are in agreement with the findings of the Lahore High Court. No intendment can be presumed when it comes to a fiscal statute and words are to be given their plain meaning. The question of rectification of a mistake by the Commissioner can only arise where the Commissioner has applied his mind and passed an assessme nt order whether under section 121 of the Ordinance or an amended assessm ent order under section 122 of the Ordinance. Such orders are those passed by the Commissioner himself as opposed to deemed order passed by the Commissioner. The language of section 221 of the Ordinance is explicit. It authorizes the Commissioner to amend any order passed by him to rectify any mistake apparent from the record. If the legislature had intended to include within such authority the power to rectify deemed assessment orders pursuant to section 120 of the Ordinance, it could have used appropriate language as used in section 122 of the Ordinance where it is provided that, "the Commissioner may amend an assessment order treated as issued under section 120....". The language in section 221 of the Ordinance is specific. A literal interpretation of the language of section 221 of the Ordinance upon comparison with that in section 122 of the Ordinance leaves little doubt that the legislature had intended that the Commissioner would exercise the power of rectification only to rectify such mistake as made by him while passing an order which is apparent from the record and needed to be correct." 6. We may note that the decision of the Lahore High Court relied upon in para 6 extracted above was sought to be challenged in this Court by the Department in terms of a leave petition (CPLA 36- L/2018) which was however dismissed as being time barred on 01.10.2020. Therefore, the substantive question was not reached. Furthermore, the principal LHC judgment does not notice, and therefore did not rely upon, its earlier decision. That decision is therefore of relevance only to the extent relied upon and followed in the principal IHC judgment. 7. Learned counsel for the Department appearing in CA 2026/2022 and other cases set out the legal and factual position as noted above and submitted that the deeming assessment order issued under s. 120(1) was very much within the jurisdiction of the Commissioner under s. 221(1). In this regard the words for "all purposes of this Ordinance", appearing in clause (b) of the former provision, were emphasized. It was submitted that the only question before the Court was jurisdictional; there was no issue with regard to the scope of the jurisdiction itself. Learned counsel emphasized that the impugned judgments had a much broader application inasmuch as the conclusion that there was no jurisdiction at all was of particular concern to the Department. It was submitted that the learned High Courts had erred materially, and the appeals be allowed. Learned

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counsel appearing for the Department respectively in CA 2029/2022 and other cases, CPLA 4583/2023 and other cases, CPLA 2340/2023 and CPLA 3327-L/2023 adopted these submissions. 8. Learned counsel appearing for the Department in a bunch of cases which were ultimately delinked from the matters now being decided (in terms of the order of 08.04.2025 when judgment was reserved) sought, and was granted, permission to the address the Court on the question noted above. Learned counsel referred to s. 120 and submitted that it had to be applied in its own terms and the result, namely the deemed assessment order, was clearly intended to be within the scope of s. 221. Learned counsel appearing in CPLA 5359/2024 submitted that the words "amend" and "rectify" appearing in s. 221 were the key to answering the question before the Court. It was submitted that the High Court (being the Islamabad High Court in this case) did not reach the merits but simply decided the jurisdictional issue essentially in the abstract. It was submitted that the question of jurisdiction could not be so separated from the substantive issues and both had to be decided together. The Director General (Law), FBR, sought, and was granted, permission to address the Court. The learned Director General also emphasized the words "amend" and "rectify" used in s. 221 and referring to subsection (2A) of s. 120 (added in 2020) submitted that on account thereof there was an application of mind by the Commissioner. It was respectfully submitted that the very basis of the reasoning adopted by the learned High Courts was therefore devoid of merit. 9. The case for the taxpayers was opened by learned counsel who appeared in that bunch of cases which were ultimately delinked from the matters now being decided (in terms of the order of 08.04.2025 when judgment was reserved). Learned counsel sought, and was granted, permission to address the Court on the question raised in these matters. Learned counsel compared the position under the 2001 Ordinance with the corresponding sections of the predecessor legislation, the Income Tax Ordinance, 1979. Referring to s. 122 of the present statute, learned counsel drew attention to subsection (3) thereof which deals with the matter of a revised return. It was prayed that the learned High Courts had reached the correct conclusion in law and their judgments ought to be upheld. Learned counsel appearing in CA 308/2023 submitted that s. 122 applied only to orders that emerged from ss. 120 and 121. It was emphasized that the use of the term "passed" in s. 221(1) established that there had to be an application of mind by the Commissioner, which was ipso facto absent in the case of a deemed assessment order under s. 120. The distinction between an order "passed" (the term used in s. 221(1)) and an order "issued" (the term used in s. 120(1) was highlighted. Learned counsel appearing for the taxpayers in CPLA 3659-L/2022 and other matters adopted the submissions already made and further submitted that under the 2001 Ordinance, an "amendment" of an assessm ent order was limited to the framework of s. 122 and a deemed assessm ent order could not therefore be "amended" by rectification under s. 221(1). In this regard, s. 177(6) was also referred to. Learned counsel submitted that an "amendment" under s. 122 resulted in a new (amended) assessm ent order that was the result of an application of mind by the Commissioner. However, an order to "amend" in terms of s. 221(1) to rectify a mistake left the order on which it operated intact, save only to the extent of the rectification. It was submitted that this was a fundamental difference between the regime established by the 2001 Ordinance as compared with the predecessor legislation, in terms of which all orders, including assessments howsoever made, were the result of an application of mind by the Commissioner. It was prayed that the appeals and the leave petitions be dismissed. Learned counsel for both sides also referred to certain case law. 10. We have heard learned counsel as above, considered the statutory provisions involved and seen the case law relied upon, and begin by setting out s. 221 to the extent presently relevant: "221. Rectification of mistakes.-- (1) The Commissioner, the Commissioner (Appeals) or the Appellate Tribunal may, by an order in writing, amend any order passed by him to rectify any mistake apparent from the record on his or its own motion or any mistake brought to his or its

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notice by a taxpayer or, in the case of the Commissioner (Appeals) or the Appellate Tribunal, the Commissioner. ... (2) No order under sub-section (1) which has the effect of increasing an assessment, reducing a refund or otherwise applying adversely to the taxpayer shall be made unless the taxpayer has been given a reasonable opportunity of being heard. (3) Where a mistake apparent on the record is brought to the notice of the Commissioner or Commissioner (Appeals), as the case may be, and no order has been made under sub-section (1) before the expiration of the financial year next following the date on which the mistake was brought to their notice, the mistake shall be treated as rectified and all the provisions of this Ordinance shall have effect accordingly. (4) No order under sub-section (1) may be made after five years from the date of the order sought to be rectified." The section remained in this form throughout the tax years relevant for the present matters. 11. Three points may be made with regard to subsection (1). Firstly, it confers jurisdiction on three different authorities/forums to do exactly the same thing in relation to any order passed by the authority, viz., to amend the order in order to rectify a mistake apparent from the record. The jurisdiction for two of the authorities, i.e., the Commissioner (Appeals) and the Appellate Tribunal, is limited to an order passed in exercise of appellate jurisdiction, since that is the only jurisdiction conferred on them by the statute. In the case of the Commissioner there is a range of orders that can come within the scope of the jurisdiction. For example, it could be an order of assessment made under s. 121, known as best judgment assessment, and also an amended assessment order under s. 122. The crucial question of course is whether the Commissioner's orders that come within the scope of s. 221(1) include also a deemed assessment order under 120. Secondly, what constitutes the record for purposes of rectifying a mistake will vary from authority to authority, and in the case of the Commissioner may be different depending on the particular statutory power exercised by him, in passing the order sought to be subjected to the provision. 12. Thirdly, and this is, as will be seen, an important aspect of subsection (1) for present purposes, it can be invoked by the authority itself on its own motion or to rectify any mistake brought to its attention by the taxpayer (or, in the case of orders of the Commissioner (Appeals) and the Appellate Tribunal by the Commissioner as well). In the cases before us, the subsection was invoked by the Commissioner on his own motion in respect of the deemed assessment order. But equally, if the jurisdiction exists, the taxpayer can bring a mistake in relation to such an order before the Commissioner and seek its rectification. Put differently, if there is no jurisdiction vesting in the Commissioner in regard to deemed assessment orders then a mistake therein apparent from the record cannot be rectified even at the instance of the taxpayer, which correction may have accrued to the latter's benefit. (It is of course difficult to contemplate the taxpayer bringing a mistake for rectification before the relevant authority if it did not result in some benefit to him by, e.g., (to track the language of subsection (2)) reducing the assessment or increasing a refund or being otherwise advantageous to him.) 13. With this examination of s. 221(1), we turn to consider assessment orders under s. 120. Subsection (1) of this section, from 2003 up to 2020, stood as follows: "120. Assessments.--(1) Where a taxpayer has furnished a complete return of income (other than a revised return under sub-section (6) of section 114) for a tax year ending on or after the 1st day of July, 2002,-- (a) the Commissioner shall be taken to have made an assessment of taxable income for that tax year, and the tax due thereon, equal to those respective amounts specified in the return; and

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(b) the return shall be taken for all purposes of this Ordinance to be an assessment order issued to the taxpayer by the Commissioner on the day the return was furnished." Before proceeding further we may note that this provision applies, as is clear from the opening words, only to a "complete tax return", subject to an important exclusion to which we will return later. A return that is not complete is dealt with in later subsections of s. 120. In some of the matters it appears that the taxpayers had, at an earlier stage of the proceedings, sought to argue that the return filed was not complete, with the result that subsection (1) did not apply (and therefore, there being no deemed assessm ent order, there was nothing to amend by rectification in terms of s. 221(1)). No such plea was raised before us and all the matters were argued on the basis that s. 120(1) did apply to the returns in question. Furthermore, the subsection speaks of the return being "furnished". In this judgment the "furnishing" or "filing" of a return are used interchangeably and in the sense as required by the subsection. 14. The first, and most important, point to note is that there is no dispute that the term "taken", as used in the phrase "shall be taken" appearing in both clauses of the subsection, is to be understood as meaning "deemed". In other words, there is no question that the subsection creates legal fiction. In this judgment the two terms, "taken" and "deemed", are used interchangeably. What requires determination is the nature and extent of the deeming, when viewed in the perspective of s. 221(1). 15. Essentially, the case put forward on behalf of the Department was that the deeming provisions of s.120(1) turned, at the very moment of the filing (and indeed, by virtue of it being furnished) what in fact was the taxpayer's document, i.e., the return into, as a matter of law, an assessment order made and issued by the Commissioner. Learned counsel emphasized the phrase "for all purposes" in clause (b) to contend that those words meant exactly what they said and had to be applied as such. One of those purposes was s. 221(1). Therefore, there could be no cavil with the jurisdiction conferred on the Commissioner in relation to deemed assessment orders. The learned High Courts on the other hand, though starting from the same premise reached the opposite conclusion. The document in question, i.e., the return was, in fact, the creation of the taxpayer. That this document was, as a result of the deeming provisions (and by and for that reason alone) changed as a matter of law into a deemed assessm ent order did not, as between the Commissioner and the taxpayer, alter anything in the context of s. 221(1). That provision only applied to an order "passed" by the Commissioner, i.e., to one that came into existence on an application of mind by him. In other words, the said provision applied only to an order that was the creation of the Commissioner both as a matter of fact and of law. A deemed assessment order was nothing other than the transmutation by legal fiction of the return created as a matter of fact by the taxpayer into an assessm ent order of the Commissioner as a matter of law. The very use of the deeming provision meant ipso facto that it did not fall in the category of orders that were both as a matter of fact and of law the creation of the Commissioner. Therefore, any mistake in the return, made as a matter of fact by the taxpayer, could not become (at any rate for purposes of s. 221(1)) as a matter of law the mistake of the Commissioner such that he could amend the deemed assessment order by rectifying it. Between the taxpayer and the Commissioner the mistake always lay where, and by whom, in fact made, i.e., the taxpayer. 16. Now, deeming provisions are well known to the law. They have been used in innumerable statutes and in many different contexts. Their interpretation has come up many times before the courts, including this Court. The leading case in this regard is Mehreen Zaibun Nisa v Land Commissioner Multan and others PLD 1975 SC 397 ("Mehreen Zaibun Nisa"). The principles set out in that judgment, as to the correct approach to take when considering a deeming provision, have never been doubted. They have been followed in many decisions of which two recent examples are Pak Leather Crafts Limited vs. Al-Baraka Bank Pakistan Limited 2022 SCMR 1868 and Dr. Abdul

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Nabi vs. Executive Officer, Cantonment Board, Quetta 2023 SCMR 1267. The principles laid down are as under (pp. 433-4): "When a statute contemplates that a state of affairs should be deemed to have existed, it clearly proceeds on the assumption that in fact it did not exist at the relevant time but by a legal fiction we are to assume as if it did exist. The classic statement as to the effect of a deeming clause is to be found in the observations of Lord Asquith in East End Dwelling Company Ltd. v. Finsbury Borough Council [[1951] 2 All ER 587, [1952] AC 109] namely: "Where the statute says that you must imagine the state of affairs, it does not say that having done so you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs." This observation has been referred to with approval in a large number of cases decided by the Courts in this sub-continent, as mentioned by the learned Judges in the High Court.... At the same time, it cannot be denied that the Court has to determine the limits within which and the purposes for which the Legislature has created the fiction. As stated by James, L.J. in Levy Ex parte Walton [(1881) 17 Ch. D 756, [1881-5] All ER Rep 548], a statement approved by this Court in Begum B.H. Sayed v. Mst. Afzal Jahan Begum [PLD 1970 SC 29] when a statute enacts that something shall be deemed to have been done which in fact and in truth was not done, the Court is entitled and bound to ascertain for what purposes and between what persons the statutory fiction is to be resorted to." 17. In our view, it can be stated without loss of accuracy that the submissions by learned counsel for the Department fall in the first part of the principles formulated in Mehreen Zaibun Nisa. Their case essentially is that one "inevitable corollary" of the "state of affairs" brought about by the deeming required by the two clauses of s. 120(1) is that the deemed assessment order does come within the scope of s. 221(1), and hence of the jurisdiction conferred thereby on the Commissioner. On the other hand, the reasoning and conclusions of the learned High Courts fall within the latter part of the principles formulated. A deeming provision is not without limit. The court is entitled, and indeed bound, to ascertain between whom and what purposes the deeming creates the "state of affairs" which does…

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