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Petitioner: M/S Happy Manufacturing Company (Pvt.) Ltd VS Respondent: Federal Board of Revenue etc
Court Name: Lahore High Court Judge(s): Abid Aziz Sheikh Title:M/S Happy Manufacturing Company (Pvt.) Ltd vs Federal Board of
Revenue etc Case No.: W.P.No.10035/2017 Date of Judgment:2019-06-27 Reported As: 2020 PCTLR 198, 2019 PTD 1922, 2019 LHC 2056 Result: N/A Judgment Abid Aziz Sheikh, J.- This judgment will also decide writ petitions mentioned in Appendix-A, as common questions of law and facts are involved in all these petitions. Through these constitutional petitions, the petitioners have inter-alia challenged the vires of subsection (1A) of section 214C of the Income Tax Ordinance, 2001 (Ordinance) being ultra vires of the Constitution of Islamic Republic of Pakistan, 1973 (Constitution). Petitioners in these constitutional petitions though have sought multiple prayers, but at the time of arguments, the impugned challenge has been confined to only vires of section 214C(1A) of the Ordinance, however, petitioners have reserved their right to agitate other issues through separate constitutional petitions, if need be. 2. Due to commonality of questions of law and facts involved in these petitions, it is not necessary to narrate or advert to the facts in each one of the case separately . However , to illustrate the factual background upon which, these constitutional petitions are founded, it is convenient to narrate the facts in the instant matter i.e. writ petition No.10035/2017. The provision of section 214C of the Ordinance for selection of Audit by Board was introduced through Finance Act, 2010. Consequently , the Federal Board of Revenue (Board) issued Audit Policy , 2016 to conduct parametric selection of audit in terms of section 214C of the Ordinance. The petitioner was informed through notice dated 19.1.2017, that petitioner 's case has been selected for audit and that said audit would be held in terms of section 214C of the Ordinance. The petitioner requested for audit param eters on the basis of which, the petitioner was selected for audit through its representation on 20.2.2017 under section 7 of the Federal Board of Revenue Act, 2007 (FBR Act). However , the said representation was declined on 29.3.2017 on the ground that in view of section 214C(1A) of the Ordinance, the audit parameters could not be communicated to the petitioner . The similar response was also given to other petitioners who were selected for audit under parametric selection. All these petitioners being aggrieved have filed these constitutional petitions challenging the vires of subsection (1A) of section 214C of the Ordinance (herein after referred to as impugned provision ).
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3. Mr. Muhammad Ajmal Khan, Advocate, one of the learned counsel for the petitioners argued that impugned provision of section 214C(1A) of the Ordinance, which required the Board to keep the parameters for selection of case for audit confidential is ultra vires of provision of Articles 4,8,10-A,19 and 19-A of the Constitution. Further submits that decision of Board to keep the parameters for selection of audit confidential is also against the law settled by this Court in Messrs Premier Industrial Chemical Manufacturing Co. vs. Commissioner Inland Revenue etc (2013 PTD 398 ) and Messrs Ittefaq Rice Mills vs. Federation of Pakistan and others (2013 PTD 1274 ). 4. Mr. Naveed A. Andrabi, Advocate for petitioners submits that provision of section 214C(1A) does not specifically restrain the Board after selection, from disclosing the specific parameter on the basis of which, the petitioners are selected for audit and therefore, Board is mis-constructing the impugned provisio n of section 214C(1A). Further submits that impugned provision is violative of petitioner 's fundamental right of fair trial and due process guaranteed under Article 10-A of the Constitution. Submits that even petitioner 's right of business under Article 18 of the Constitution has been infringed as petitioners have unnecessarily been involved in giving details of their accounts, during audit without any specific allegation. He submits that judgment of CIT vs. Media Network etc (2006 PTD 2502 ) referred to in replies filed by respondent department relates to pre-filing of return period under Income Tax Ordinance, 1979 (Repealed Ordinance) and not to post filing of return situation, under present Ordinance. He therefore, submits that observations made in said judgment cannot be made basis to impose restrictions on petitioner 's fundamental right of information through impugned provision. He submits that judgment of CIR vs. Allah Din Steel (2018 SCMR 1328 ) is also based on audit through computer balloting and not on parametric selection of audit which is on different footing. He therefore, argued that law settled by this Court in DHA vs. CIR (2015 PTD 2538 ) regarding parametric audit shall remain applicable. 5. Mr. Abad-ur-Rehman, Advocate for petitioners argued that risk parameters are negative indicators and alleged violation of law, therefore, non-disclosure of said parameters amounts to violation of due process of law under Article 10-A of the Constitution. He submits that without confronting any allegation, petitioner cannot be asked to produce books of accounts as it will amount to self incrimination, not permissible under Article 13(b) of the Constitution. He submits that audit by Commissioner under section 177 of the Ordinance is a structured discretion, whereas impugned provision rendered audit under section 214C of the Ordinance as unstructured and granted arbitrary discretionary power to Board, which is not permissible under law. He submits that right of information is guaranteed under Article 19 and 19-A of the Constitution and the impugned provision is not only violative of said Articles and but also does not fall in the exceptions provided in the said Articles or Right of Access to Information Act, 2017. He submits that no similar confidentiality is attached to the audit parame ters for sales tax or excise duty audit, which also result in discrimination with the petitioner , regarding income tax audit. He finally submits that even if the impugned provision is not to be strike down, it can be read down so as to bring it inconsonance with the other similar tax provisions and the constitution. Mr. Shahbaz Butt, Advocate and other learned counsel for the petitioners reiterated and adopted the same arguments on behalf of the petitioners. 6. Mr. Liaquat Ali Ch., learned counsel for the respondent FBR on the other hand argued that mere selection for audit does not cause any actionable injury to tax payers. Submits that guidelines for selection of audit are administrative in nature and meant only for internal consumption of tax authorities, therefore, no fundamental right of petitioners has been infringed for not disclosing said guidelines. He placed reliance on cases of Messrs Allah Din Steel and Messrs Media Network and others supra. Submits that restriction through impugned provision on right of information, is reasonable to avoid tax evasion as also observed by Hon'ble Supreme Court in M/S Media Network case supra. Submits that Article 10-A of the Constitution is not applicable because due process is only required, where person is condemned but in the present cases, mere selection of audit does not amount to an assessment order or impose any tax liability . Submits that selection of audit being not a matter of public importance, the Article 19-A of the Constitution is also not attracted. He submits that where legislation has in clear terms kept parameters confidential, the Court cannot look into the wisdom of legislation to strike down the law. Submits that even principle of reading down is not attracted in the present cases. He placed reliance on Fauji Foundation and another vs. Shamimur Rehman (PLD 1983 Supreme Court 457), Province of Sindh through Chief Secretary and others vs. M.Q.M. through Deputy Convener and others (PLD 2014 Supreme Court 531), Syed
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Mukhtar Hussain Shah vs. Mst. Saba Imtiaz and others (PLD 2011 Supreme Court 260), The Punjab Province vs. Malik Khizar Hayat Khan Tiwana (PLD 1956 F.C 200), Lahore Development Authority through D.G and others vs. Ms. Imrana T iwana and others (2015 SCMR 1739 ). 7. Mr. Muhammad Asif, learned counsel for the respondent department argued that section 214C of the Ordinance has to be read holistically to interpret the impugned provision. He submits that reading of above provision as a whole, shows that said parameters are to be kept confidential from persons or class of persons who are selected for audit. Submits that impugned provision is a non-obstante and mandatory clause, hence binding on the FBR. Submits that learned Sindh High Court in Suit No.1277/2018 titled Azee Securities (Pvt.) Limited vs. Federation of Pakistan etc has already upheld the vires of section 214C(1A) of the Ordinance. 8. Malik Abdullah Raza, Advocate also representing the respondent department argued that the impugned provision should be given its literal meaning and there is no scope for reading-in or reading out words from the said provision. He submits that in case, the legislation intended that parameters be disclosed to the assessee, the said exception could be provided in section 214C of the Ordinance, in same manner as exceptions have been provided in section 216 of the Ordinance. He placed reliance on The Collector of Sales Tax, Gujranwala and others vs. Messrs Super Asia Mohamma d Din and Sons and others (2017 SCMR 1427 ), Khan Gul Khan and others vs. Daraz Khan (2010 SCMR 539), Federation of Pakistan and others vs. Ammar Textile Mills (Pvt.) Limited and others (2002 SCMR 510), Star Textile Ltd and 5 others vs. Governm ent of Sindh etc (2002 SCMR 356) and Messrs MKB Spinning Mills (Pvt.) Ltd vs. Federation of Pakistan and others (2018 PTD 2364 ). He further submits that the FBR has already introduced rule 231-F of the Income Tax Rules, 2002 (Rules) to disclose the general principles on the basis of which, the audit parameters are framed, hence, there is no need to disclose entire audit parameters. 9. Mr. Zafar Iqbal Ch., Advocate on behalf of respondent department submits that under Article 19-A of the Constitution, the right of information, is for matter of public importance subject to reasonable restrictions. He submits that neither petitioner claim for disclosure of parameters is a matter of public importance nor it can be argued that confidentiality through impugned provision is not a reasonable restriction. Submits that Hon'ble Supreme Court in Messrs Media Network case already observed that prior disclosure of parameters may result in massive evasion and mis-use of audit policy . He also placed reliance on Kohinoor Sugar Mills vs. Federation of Pakistan and others (2018 PTD 821) to argue that petitioner will have no caus e of action, if parameters are not disclosed, as proper notice and hearing be given to assessee under section 177(6) of the Ordinance after selection for audit. 10. Mr. Azmat Hayat Khan Lodhi, Assistant Attorney General appeared on behalf of Federation and also in pursuant to notice under Order XXVII-A CPC. He submits that reply filed by FBR may be treated as reply of the Federation. He submits that petitioners have no locus-standi to challenge the vires of section 214C(1A) of the Ordinance as mere selection for audit does not amount to actionable claim. He submits that no discrimination has been made with the petitioners as audit policy is applicable across the board in the country. He placed reliance on Messrs Allah Din Steel case supra to submit that no vested right has been taken away as selection of audit is not an adverse order. He also supported the arguments of learned counsel for the respondent department and FBR to submit that disclosure parameters will cause mis-use of audit policy as held by Hon'ble Supreme Court in Media Network case supra. Learned Assistant Attorney General submits that matter pertaining to parameters for selection of Audit, throughout the country , is indeed a matter of public importance and Article 19-A of the Constitution is attracted. He however , submits that impugned provision is a reasonable restriction on right of information under Article 19-A of the Constitution and also covered under the exceptions provided under section 16(1)(d)(i) of the Right of Access to Information Act, 2017 (Act of 2017) . 11. I have heard the arguments of learned counsel for the parties and perused the record with their able assistance. 12. Section 214C of the Ordinance was promulgated through Finance Act, 2010 which was further amended through Finance Act, 2013. For ready reference, provision of section 214C of the Ordinance is reproduced hereunder:-
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214C. Selection for audit by the Board .---(1) The Board may select persons or classes of persons for audit of Income T ax affairs through computer ballot which may be random or parametric as the Board may deem fit. (1A) Notwithstanding anything contained in this Ordinance or any other law, for the time being in force, the Board shall keep the parameters confidential. (2) Audit of Income Tax affairs of persons selected under sub-section (1) shall be conducted as per procedure given in section 177 and all the provision s of the Ordinance, except the first proviso to sub-section (1) of Section 177, shall apply accordingly . (3) For the removal of doubt, it is hereby declared that Board shall be deemed always to have had the power to select any persons or classes of persons for audit of Income T ax Affairs. [Explanation.---For the removal of doubt, it is declared that the powers of the Commissioner under section 177 are independent of the powers of the Board under this section and nothing contained in this section restricts the powers of the Commissioner to call for the record or documents including books of accounts of a taxpayer for audit and to conduct audit under section 177]. Under the above section 214C of the Ordinance, the Board may select persons or classes of persons for audit of income tax through computer balloting which may be random or parametric as the Board may deem fit. 13. The selection of cases in the past was mostly through random ballot, however , the Audit Policy , 2016 (Policy , 2016) proposed paradigm shift from past and focus has been realigned from random to parametric selection and from general to risk based approach. As per Policy 2016, this approach was to minimize the chances of selection of compliant tax payer and to focus on high risk areas. Simultaneously in year 2016, through SRO 131(I)/2016 dated 18.2.2016, the Federal Board of Revenue inserted rule "231F" in the Income Tax Rules, 2002 (Rules) for selection of audit under section 214C of the Ordinance. The relevant clauses of said rules relating to risk parameters is reproduced hereunder:- 231F.-Selection and conduct of audit.-(1) This rule shall apply to section of cases for audit by the FBR under section 214C of the Income Tax Ordinance, 2001 (XLIX of 2001). (2) The following steps shall be followed for selection of cases for audit through a computer ballot on random and parametric selection basis for tax years mentioned therein, namely:- (i) for the purpose of selection of cases on parametric basis, risk parameters for persons or classes or persons to be used for balloting, wherever necessary , shall be determined by the Board, as under:- (A) risk parameters for persons or classes of persons to be used for balloting shall be determined by the Board; (B) audit selection parameters may be based upon the following:- (I) financial ratios for the year viz a viz the history of the case; (II) financial ratios viz a viz industrial, sectoral or national ratios; (III) Industrial comparisons or bench marks; (IV) quantum of losses or refunds beyond certain thresholds: or (V) compliance history; and (j) computer balloting process in both categories of selection for audit shall be held in the presence of representatives from Chambers of Commerce and Industries and representatives of T ax Bar Associations. The rule 231F ibid provides that for the purpose of selection of cases for audit on parametric basis, the risk parameters for persons or classes of persons to be used by balloting, shall be determined by Board and they may be based upon financial ratio for the year viz-a-viz history of the case, industrial sectorial or national ratios, industrial comparison or bench marks or quantum of losses or refund beyond certain thresholds or compliance history of the persons or classes of persons. 14. Though the audit policy proposed the shift from random to parameter selection and FBR has also given guidelines to determine parameters under rules, however , despite demand, the said parameters determine by the Board are not disclosed to persons or classes of persons who were hit by those parameters and selected for audit due to confidentiality clause under impugned subsection (1A) of section 214C of the Ordinance. The main argument of the petitioners is that impugned provision of 214C(1A) of the Ordinance is ultra vires of their fundamental right to information under Article 19 and 19-A and fair trial under Article 10-A of the Constitution. On
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the other hand, respondent department and Federal Government stance is that impugned section 214C(1A) of the Ordinance is a reasonable restriction and same does not impinge upon any of the fundamental rights of the petitioners. 15. In view of above respective stance of the parties, the moot legal question require determination in these constitutional petitions is that whether impugned provision of 214C(1A) of the Ordinance impinge upon any of the fundamental right of the petitioners under Article 19, 19-A and 10-A of the Constitution. For ready reference, Articles 19, 19-A and 10-A of the Constitution are reproduced hereunder:- Art. 19. Freedom of speech, etc.-Every citizen shall have the right to freedom of speech and expression, and there shall be freedom of the press, subject to any reasonable restrictions imposed by law in the interest of the glory of Islam or the integrity , security or defence of Pakistan or any part thereo f, friendly relations with foreign States, public order , decency or morality , or in relation to contempt of court, commission of or incitement to an offence. Art. 19A. Right to information .--Every citizen shall have the right to have access to information in all matters of public importance subject to regulation and reasonable restrictions imposed by law . 10A. Right to fair trial.--For the determination of his civil rights and obligations or in any criminal charge against him a person shall be entitled to a fair trial and due process. 16. The right of information under Articles 19 and 19-A of the Constitution is well entrenched fundamental right of every citizen. The people of Pakistan have right to know every public act and every thing that is done in the public way by public functionaries. Before 18 amendment in the Constitution in year 2010, Article 19 of the Constitution guaranteed every citizen "freedom of speech and expression". The august Supreme Court in (PLD 1993 Supreme Court 473) titled Mian Muhammad Nawaz Sharif vs. President of Pakistan etc held that "freedom of speech and expression" includes right to receive information. However, in year 2010, Article 19-A of the Constitution was inserted through 18 Amendment in the Constitution and right to have access to information in all matters of public importance was made independent fundamental right of very citizen. 17. The learned Full Bench of this Court in judgment reported Province of Punjab vs. Qaisar Iqbal etc (PLD 2018 Lahore 198), discussed the relevant case law and scope of right of information and access to information under Article 19 and 19-A of the Constitution as under:- Right to information and access to information in all matters of public importance is indisputably a fundamental right guaranteed under Article 19 and 19-A of the Constitution. The right of information stems from the requirement that members of a democratic society should be sufficiently informed that they may influence intelligently the decision which may affect themselves. The people of Pakistan have a right to know every public act, everything that is done in public way, by their public functionaries and chosen representatives. People are entitled to know the particulars of every public transaction, acquire information in all matters of public importance and to disseminate it. It enables people to contribute on debate on social and moral issues and matter of public importance. Without information, a democratic electorate cannot make responsible judgments about its representatives. Freedom of information is the only vehicle of political discourse so essential to democracy and it is equally important in facilitating artistic and scholarly endeavours of all sorts. In sum, the fundamental principle involved here is the people's right to know and freedom of information and freedom of speech and expression should therefore, receive a generous support from all those who believe in democracy and the participation of people in the administration and matters of public importance. In year 2010, Article 19-A was inserted in Part II Chapter one of the Constitution through Constitutional (Eighteenth Amendment) Act 2010 (Eighteenth Amendment) and right to have access to information in all matters of public importance was made independent fundamental right. Article 19-A of the Constitution empowers every citizen of Pakistan to seek information from public institutions in all matters of public importance and also hold them accountable and answerable. The august Supreme Court in Watan Party case supra, while discussing Article 19-A of the Constitution held that Article 19- A of the Constitution has empowered the citizens of Pakistan by making access to information a justiciable right of the people rather than being largesse bestowed by the state at its whim. Further held that in those petitions, petitioners only sought toth th
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enforce the peoples? right to know the truth about what their government and its functionaries were up to, and that was by no means, a political question and was fully justiciable fundamental right enumerated in the Constitution. The honourable Supreme Court also held that fundamental right under Article 19-A is much broader and more assertive than the statutory right under the "Freedom of Information Ordinance, 2002", which by its own terms was restricted to disclosure of official record only. In Hamid Mir and others vs. Federation of Pakistan and others (PLD 2013 SC 244), the honourable Supreme Court held that in view of provisions of Article 19-A of the Constitution, Ministry of Information and Broadcasting was obliged to disclose the nature and use of all funds allocated to it including the secret funds. Division Bench of Sindh High Court in Saifan uz Zaman Khan vs. Federation of Pakistan through Secretary , Ministry of Finance, Government of Pakistan, Islamabad and seven others (PLD 2017 Sindh 559) held that right to information under Article 19-A of the Constitution was of immense value in promoting transparency by ensuring that citizens had knowledge of matters concerning public administration. In Shabbir Hussain vs. Executive District Officer (Education) Larkana and 5 others (2012 CLC 16) and Muhammad Ismail and others vs. Province of Sindh through Secretary , Education and Literacy Department, Karachi and others (2012 PLC (CS) 620), it is reiterated that under Article 19-A, access to information in matters of public importance would be right of every citizen. 18. In Indian Constitution, there is no specific and separate provision like Article 19-A of the Constitution for right to information. However , Indian Courts have liberally interpreted right of freedom of expression, under Article 19 of Indian Constitution to include right of information. Some of the case law on right of information from Indian Jurisdiction (also discussed in Qaisar Iqbal case supra) are as under:- (i). In case Indian Express Newspaper (Bombay) Private Ltd. & others etc vs. Union of India etc (1985 (1) SCC 641), Court held that:- ? "Freedom of expression has four broad social purpose to serve: (i) it helps an individual to attain self fulfilment, (ii) it assists in the discovery of truth, (iii) participating in decision making, and (iv) it provides a mechanism by which it would be possible to establish a reasonable balance between stability and social change. All members of society should be able to form their own beliefs and communicate them freely to others. In sum, the fundamental principle is the people's right to know ." (ii). In case the Secretary , Ministry of Information & Broad casting vs. Cricket Association of Benga l etc (AIR 1995 SC 1236) , it is held:- ? "For ensuring the free speech right of the citizens of this…
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