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Petitioner: COMMISSIONER INLAND REVENUE VS Respondent: SHER AKBAR KHAN
Court Name: Peshawar High Court Judge(s): Yahya Afridi, Irshad Qaiser Title: COMMISSIONER INLAND REVENUE vs SHER AKBAR KHAN Case No.: Tax Reference No.46 of 2010 Date of Judgment:2015-06-23 Reported As: 2016 PTD 325 Result: Order accordingly
JUDGMENT
JUDGMENT YAHYA APRIDI, J...-.Through this single judgment, this Court shall render its opinion on the three References, as common questions of law have been raised therein. The particulars of which are as under: (1) Tax Reference No.46/2010. (Commissioner of Inland Revenue (legal) Regional Tax Office, Peshawar v. M/S Sher Akbar Khan Work Force Contractor, Par Hoti, Mardan). (Tax Year 2004) (2) Tax Reference No.47/2010. (Commissioner of Inland Revenue (legal) Regional Tax Office, Peshawar v. Messrs Sher Akbar Khan Work Force Contractor, Par Hoti, Mardan. (Tax Year 2003) (3) Tax Reference No: 48/2010. (Commissioner of Inland Revenue (legal) Regional Tax Office, Peshawar v. M/S Sher Akbar Khan Work Force Contractor, Par Hoti, Mardan. (Tax Year 2005) Questions of law. 2. The common questions of law raised in all the three References are as under:-- (i) "Whether on the facts and circumstances of the case the learned Tribunal was justified in holding that the receipts from labour contract do not fall within the ambit of section 153(1)(c) without taking cognizance of the fact that the definition of services as provided in section 159(9) only includes services of skilled/professional persons i.e. Accountants, architects, dentists, doctors, engineers, interior decorators and lawyers and that too otherwise than as an employee? (ii) Whether on the facts and circumstances of the case the Tribunal was justified in holding that the receipts from labour contract fall within the ambit of section 153(1)(b) when the legislature has intentionally included the services of only skilled/professional persons in the definition of services as provided in section 159(9) of the Income Tax Ordinance, 2001?
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(iii) Whether on the facts and circumstances of the case the Tribunal was justified in holding that the receipts from labour contract do not relate to contractual receipts falling within the ambit of section 153(1)(c) of Income Tax Ordinance, 2001 ? (iv) Whether on the facts and circumstances of the case the Tribunal was justified to ignore the explanation of the word "services" in pursuance of section 153(9) that services includes the services of accountants, architects, dentists, doctors, engineers, interior decorators and lawyers, otherwise than as an employee? (v) Whether on the facts and circumstances of the case the Tribunal was justified to classify providing of labour force under the contract as services and holding that providing labour force is the same as rendering of services whereas the words "rendered" and "provided" connote two different meanings?". FACTS 3. The brief and essential facts, which are relevant for rendering our opinion on the questions of law raised herein have been appropriately recapitulated in the decision of the First Appellate Authority in terms that:-- "These appeals have been filed by an individual, deriving income as Labour Contractor provided services to Pakistan Tobacco Company Limited. Brief facts leading to these appeals are that Returns/Statement under section 115(4) for Tax years 2003 to 2005 were filed and claimed refund of Rs.33,276/-, Rs. 420,078/- and Rs. 352,408/ respectively and the declared versions were accepted under section 120(1) of the Income Tax Ordinance, 2001. Subsequently, the Additional Commissioner (Audit) observed that the appellant has wrongly filed Statement under section 115(4) under normal law, as the payment received by the appellant on account of Labour contract is a final tax liability. According, Assessments were amended under section 122(5A) of the Income Tax Ordinance, 2001 and the appellant was assessed under Presumptive Tax Regime and tax deducted was treated as Final Tax liability." "Call notice was issued to response AR of the appellant attended the office and pleaded the case as per grounds of appeal. The main issue in the case is that the appellant is a Labour Contractor providing labours under a contract to Pakistan Tobacco Company. The appellant filed his Returns/Statement under section 115(4) under normal law and claiming Refund of Rs.334,276/-, Rs.420,078/- and Rs. 352,408/- for Tax Years 2003, 2004 and 2005 respectively. The assessing officer has rejected this arrangement with his findings that It was only through Finance Act, 2005 that "providing of services" was made a subject of clause (b) of subsection (1) of Section 153, which is effective for the tax year 2006 onwards, while the relevant period being earlier to this amendment, does not suffer this change of law. That "Services" have been defined in subsection (9) of Section 153, as follows: "Services" includes the services of accountants, architects, dentists, doctors, engineers, interior decorators and lawyers, otherwise than as an employee." I have examined the case in detail and I feel no hesitation to endorse the findings of the assessing officer as he has rightly amended the order under section 122(5A) of the Income Tax Ordinance, 2001, to retrieve the loss of revenue." The present respondent being aggrieved challenged the decisions of the Commissioner (Appeals) before the learned Appellate Tribunal, which was accepted. Hence, the present References moved by the Revenue. SUBMISSIONS 4. The worthy counsel for the Revenue-iihemently argued that the case of M/s. Sher Akbar Khan, came within the purview of clause (c) and not (b) of subsection (1) of Section 153 and thus the tax deducted shall be the final tax as envisaged under subsection (6) of section 153. He further argued that the services provided by M/s. Sher Akbar Khan were not professional hence, did not come
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within the purview of clause (b) of subsection (1) of Section 153 and thus the decision of the worthy Tribunal warranted to be corrected. In this regard, reliance was sought on Messrs Premier Mercantile Services (Pvt.) Ltd's case (2007 PTD 2521). 5. In rebuttal, the worthy counsel for Messrs Sher Akbar Khan contended that the decision of the worthy Tribunal was in accordance with law, as amendments introduced in section 153 were explanatory in nature. The same were to have retrospective effect. In particular, he emphasized that the amendments introduced vide Finance Act, 2005, finally introduced the term providing of which catered for the services rendered by Messrs Sher Akbar Khan. Thus, the amendments introduced in 2005 were to have retrospective effect and would apply to the case of Messrs Sher Akbar Khan for the Tax Years 2003 to 2005, which was the subject of consideration of the present references. In this regard, the worthy counsel sought reliance upon Messrs Ever Green Trading Company's case (2011 PTD 549), Messrs Rehman Enterprises case (2008 PTD 1897), Messrs Criss Gas' case (2010 PTD 2349), Khurshid Ahmed's case (2008 PTD 1243), and Mehboob Ali's case (PLD 1976 SC 483). OPINION. 6. The questions of law raised in the instant references revolve around the scope, extent and the true import of the amendments introduced in section 153 of the Ordinance. In order to appreciate the implication of the amendments introduced in the said provision, it would be appropriate to trace the stages through which the provisions of section 153 supra have evolved, the same are reproduced as under: STAGE-I, Income Tax Ordinance, 2001, as originally enacted (1st July 2001-till 30th June, 2002). 153. Payments for goods and services.---(1) Every prescribed person making a payment in full or part including a payment by way of advance to a resident person or permanent establishment in Pakistan of a non-resident person- (a) for the sale of goods; (b) for the rendering of professional services; (c) on the execution of a contract, other than a contract for the supply of goods or the rendering of professional services, shall at the time of making the payment, deduct tax from the gross amount payable at the rate specified in Division III of Part III of the First Schedule. (emphasis provided) STAGE-II Finance Act, 2002 (1st July 2002-till 30th June 2005). 153. Payments for goods and services.---(1) Every prescribed person making a payment in full or part including a payment by way of advance to a resident person or permanent establishment in Pakistan of a non-resident person- (a) for the sale of goods; (b) for the rendering of services; (The word 'Professional' was omitted) (c) on the execution of a contract, other than a contract for the supply of goods or the rendering of professional services, shall at the time of making the payment, deduct tax from the gross amount payable at the rate specified in Division III of Part III of the First Schedule. (6) The Tax deducted under this section shall be a final tax on the income of a resident person arising from transactions referred to in clause (a) or (c) of subsection (1). (9) In this section, "prescribed person" means "Professional Services" includes the services of accountants, architects, dentists, doctors, engineers, interior decorators and lawyers, otherwise than as an employee. "Sale of goods" includes a sale of goods for cash or on credit, whether under written contract or not. (emphasis provided)
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STAGE-III Finance Act, 2005 (1st July 2005-onwards). 153. Payments for goods and services.---(1) Every prescribed person making a payment in full or part including a payment by way of advance to a resident person or permanent establishment in Pakistan of a non-resident person--- (a) for the sale of goods; (b) for the rendering of or providing of services; (The word 'providing of' was inserted) (c) on the execution of a contract, other than a contract for the sale of goods or the rendering of or providing of services, shall, at the time of making the payment, deduct tax from the gross amount payable at the rate specified in Division III of Part III of the First Schedule. (6) The Tax deducted under this section shall be a final tax on the income of a resident person arising from transactions referred to in clause (a) or (c) of subsection (1). (9) In this section, "prescribed person" means (a) The Federal Government; (b) A company other than a small company, as defined in clause (59A) of Section 2; (c) An association of persons constituted by, or under, law; (d) A foreign contractor or consultant; or (e) A consortium or joint venture; or (f) An exporter or an export house for the purpose of subsection (1A), "Services" includes the services of accountants, architects, dentists, doctors, engineers, interior decorators and lawyers, otherwise than as an employee. (emphasis provided) 7. Before this Court passes any findings' on the scope and extent of the legislative amendments introduced in section 153 of the Ordinance, it would be pertinent to consider the admitted factual aspects of the present references. The same are as follows:-- (I) The period under consideration of the present references is Tax Years 2003 to 2005; 1st July 2003 till 30th June 2005. (II) The applicable provisions of section 153 of the Ordinance, would be, as stated hereinabove in Stage-II; i.e. After the amendment introduced in section 153 by Finance Act, 2002, till the amendment introduced therein vide Finance Act, 2005 (1st July 2002 till 30th June 2005); (III) The provision of section 153 supra, as it stood after the amendment introduced therein vide Finance Act, 2005, would only take legal effect from 1st July 2005, which prima facie is not relevant to the Tax Years in issue in the instant references. 8. In this background, this Court is to consider the nature, scope and the legal effect of the amendments introduced in section 153 of the Ordinance, to determine as to whether the same are to have prospective or retrospective effect. 9. Reviewing the stages through which the provisions of section 153 have transformed through legislative amendments, it is but A clear that the true intent of the legislature was to expand the scope of the term "services" provided under clause (a) of subsection (1) of Section 153 of the Ordinance. It is noted that initially, vide Finance Act, 2002, the word, "professional" was omitted from the said subsection and finally vide Finance Act, 2005, in order to achieve the true intent of the legislature, the words "providing of' were inserted therein. It appears that, initially after the amendment introduced vide Finance Act, 2002, the intent of the legislature to expand the term of services was not appreciated in its true sense and thus the need arose to further clarify the intent, by inserting the words "providing of vide Finance Act, 2005. At this stage, it would be very pertinent to note that even Federal Board of Revenue made clear its position vide FBR Circular No.1 of 2005 (Income Tax) dated 5.5.2005, inter alia, which provided that:--
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"Under section 153, withholding tax on payment to a resident person or a permanent establishment in Pakistan of a nonresident person, for rendering of services is adjustable. However, similar payments or on the execution of contract attract a withholding tax which is the final tax on the income from such transactions. Prior to 2002, this provision applied to "Professional services" only. The term "professional services" was defined to include the services of accountants, architects, dentists, doctors, engineers, interior decorators and lawyers other than an employee. However, with the omission of the word "professional" from the law in 2002, an erroneous impression was created that the meaning of term "services" had been restricted. In order to dispel this impression, a clarifcatory amendment has been made and in sections 153(1)(b) and 153(1)(c) the word "or providing of" have been inserted. The effect of this amendment shall be to make withhold in tax on all services adjustable. (emphasis provided) 10. Legislative measures introduced to clarify a position or remedy any defects in the pre-existing law are known as declaratory or remedial legislation. The amendments introduced in section 153 of the Ordinance, vide Finance Act, 2002, and Finance Act, 2005, can surely be termed as declaratory and remedial legislation, as the sole intent was to clarify the confusion caused in the pre-existing provisions of section 153. 11. It is by now well settled principle of interpretation of statutes that, remedial or declaratory legislation has to be rendered retrospective effect unless a contrary intention was clearly intended by the legislature and thus expressly or impliedly provided therein. 12. The meaning, scope and effect of declaratory and remedial legislation has been very aptly described by the Sindh High Court in Reckit and Colman 's case (2001 PLC 245), wherein the worthy Court seeking reliance upon renowned treatises on interpretation of statutes; Crawfords Interpretation of law, Craies on Statute Law and various judgments of the Superior Courts of our jurisdiction and that of India, has explained the principle in terms that:-- "Thus, the declaratory Acts and the remedial Acts are in fact similar in nature, but are differentiated with reference to the system of law prevailing in U.K., where common law is also practiced and recognized along with the statute law. The removal of any doubt pertaining to common law is categorized as a declaratory Act and when any doubt is removed or any explanation is added to statute law it is called remedial Act. Thus, with reference to the system of law prevailing in Pakistan, the declaratory Acts and the remedial Acts are in fact, of the same nature and the two expressions are loosely used to describe the same nature of enactment. With reference to the system of law in Pakistan, any amendment or enactment of law primary purpose of rthoving the doubt, clearing an ambiguity or adding an explanation would in fact be a remedial Act As already held by the Hon'ble Supreme Court of Pakistan in the judgments cited above, the entire law contained in the Ordinance is beneficial in nature, therefore, the provision under consideration is also a beneficial and welfare legislation and thus, is required to be interpreted liberally and in a way which has the effect of advancing the relief and suppressing the mischief. It is further held that the provisions contained in proviso are explanatory in nature and an explanation added by the legislature is deemed to be a note of caution indicating the real intention of the legislature and purpose of the enactment as well as removal of any doubt. Thus, the provision is clarificatory as well. The presumption is that the legislature while enacting any law or making any amendment is conscious of the circumstances prevailing at the time of enactment/ amendment/substitution, and therefore, it is held that the legislature was aware that questions were being raised about the exclusion of a worker from the purview of the terms employee used in the Ordinance as defined in section 2(8)(f) and a view was prevailing which was prejudicial to the interest of worker and was
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not in consonance with the avowed object and purpose of legislation, therefore, an amendment was inserted whereby it was clearly provided without any ambiguity that once a person/worker is included, within the definition of employee under the Ordinance, he shall continue to be so, notwithstanding crossing the ceiling of wages. Thus, the law curative in nature as well. Thus the proviso to section 2(8)(f) of the Ordinance being a part of definition section is declaratory and at the same time it is beneficial, curative, remedial and welfare legislation and has to be given retroactive effect." (emphasis provided) In another case, M/S Dewan Cement's case (2010 PTD 1717), the Sindh High Court refused to render retrospective effect to an amendment declaring the same not declaratory or remedial in nature. The worthy Court seeking reliance upon various pronouncements of the superior Courts, came to the conclusion that:-- "The overall view of above cited judgments on the point of beneficial legislation, being give retrospective effect, is that it should be remedial and curative and that its purpose should be to correct the existing law, redressing an existing grievance or introducing regulations conducive to public good and remedies defect in the preexisting law. The remedial statutes are usually looked upon with favour by the Courts and liberally construed. The law is to be given retrospective operation if such operation does not destroy or disturb the vested right, impair the obligations of contract create new liabilities, violate due process of law or contravene some other constitutional provisions. Thus, it has to be seen for application of beneficial notification being given retrospective effect that it should not disturb vested right, impair obligations of contract, create new liabilities, violate due process of law or contravene some other constitutional provisions. If these, rights/obligations, liabilities and law are not disturbed or violated, the notification can be given retrospective effect. In order to consider this notification as a beneficial and remedial and given retrospective effect, In the first place Court will have to come to conclusion that previous notification which was rescinded by this notification was not correct law or was not conducive to public good." (emphasis provided) More recently, the Islamabad High Court in MIS Travel Waljis's case (2015 PTD 550) has very eloquently after reviewing the relevant case law and various commentaries on interpretation of statutes concluded in terms that:-- "7. There is consensus that a remedial enactment is intended to provide relief which was not already provided for. The remedy is to obviate a defect, anomaly or hardship, and is designed to bring the existing law in line with the intention of the legislature. Such enactments may also be explanatory in nature or may intend to clarify an existing enactment. 8. The other principles enunciated in relation to a remedial enactment are briefly mentioned as follows: (i) Remedial enactments are liberally construed in favour of the asse Hee. (ii) As a general rule, enactments operate prospectively and 'retrospective legislation is looked upon with disfavour', unless the language explicitly indicates the intention of the legislature to be otherwise. (iii) In case of a declaratory or clarificatory, or remedial enactment any doubt is to be resolved in favour of retrospective operation. Retrospectively cannot operate to destroy, affect or disturb vested rights or if it will cause to create new liabilities. (iv) The enactment, though remedial in nature, will not apply retrospectively to alter or effect proceedings and orders which have been determined by having attaining finality. (v) Unless otherwise provided explicitly, the 'remedial' enactment will operate retrospectively in those cases wherein proceedings are pending at the time of the amendment e.g. If an appeal is
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pending before the Tribunal or a Reference before a High Court under Sections 131 and 133 respectively. In the absence of express words, passed and closed transactions cannot be reopened by the operation of an amendment which is of a 'remedial' nature." As pointed out by the worthy counsel for Messrs Sher Akbar Khan, it is noted that the issue in hand in the present references was considered and decided by this Court in Messrs Ever Green Trading Company's case (2011 PTD 549). The assessee in the said case was deriving income as a carriage contractor and the income related to Tax Year, 2005 (1st July 2004 till 30th June 2005). This Court, while deciding the scope and extent of amendment introduced in the provision of section 153 of the Ordinance, reiterated that:-- "8. Retrospective of amendment brought about through Finance Act of 2005, however, requires some consideration. Before year 2002 clauses (b) and (c) of subsection (1), section 153 of Income Tax Ordinance, 2001 read as under: "(b) for the rendering of professional services; (c) on the execution of a contract, other-than contract for the supply of goods or the rendering of professional services." Through Finance Ordinance, 2002 word "Professional" was omitted. The purpose behind such omission appeared to be to enlarge the scope of word "services" and not to curtail the same. However, such deletion/omission had the opposite effect and was interpreted as If the meaning of term "services" had been restricted. To remove such erroneous impression, an amendment was brought inserted. After such amendment, clauses (b) and (c) aforesaid read as under: "(b) for the rendering of or providing of services; (c) on the execution of a contract other-than a contract for the sale of goods or the rendering of or providing of services." The stance of the Department itself is that it was a clarificatory amendment and that the purpose of the same was to remove an erroneous impression, meaning thereby, that it was always meant to be as such but due to erroneous interpretation, created by deletion/omission of word "professional", the provisions were being given a restrictive meaning. A clarificatory amendment in a fiscal Statute by very definition operates retrospectively because it clarifies ambiguity. The Courts have always treated clarificatory amendments as retrospective amendments even in cases where the purpose behind such amendment was to nullify earlier judgments. The sole purpose behind such clarificatroy amendment is to change the legal position after an inconvenient, improper or uncalled for interpretation is put on such provision. Unless it is a mere clan ication and not a than e in substance retrospectivity of such amendment cannot be questioned. 9. In this view of the matter, learned Commissioner Income Tax (Appeals) was justified in observing that "the amendment of 2005 dated 5.7.2005 does not mean that such cases are excluded because they are previous to the amendment. Even in the previous period since 2002, the scope of services had been broadened to encompass these realities than mere professional reality in section, which had been amended in 2005". (Emphasis provided) It is also worthwhile to note that the opinion rendered by this Court in Messrs Ever Green Trading Company's case was based on a decision of a Division Bench of Lahore High Court in Messrs Rehman Enterprises case (2008 PTD 1897). Now, referring to Messrs Premier Mercantile Services (Pvt.) Ltd's. Case (2007 PTD 2521), the case referred to by the worthy counsel for the Revenue, it is noted that, the worthy Court, while considering the withholding income tax of a stevedoring services paid by the said company in the Tax Year, 2003, was declared to fall under clause (c) of subsection (1) of Section 153 and thus under
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subsection (6) of Section…
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