1996 P T D (Trib.) 1144
[Income-tax Appellate Tribunal Pakistan]
Before Muhammad Mujibullah Siddiqui, Chairman, Khawaja Farooq Saeed, Judicial Member and S.M. Sibtain, Accountant Member
I.T.As. Nos. 2934/KB to 2936/KB of 1987-88 and 2263/KB of 1985-86, decided on 13/05/1996.
(a) Interpretation of statutes---
---- Court cannot extend the scope of a provision of law by way of interpretation.
PTD 1995 (Trib.) 624 ref.
(b) Income Tax Ordinance (XXXI of 1979)---
----S.12(13) & (17)---Scope and object of. S.12(13) & (17) of the Income Tax Ordinance, 1979.
Provisions of sections 12(13) and 12(17), they emphasize on following:
(1) To charge to tax unadjustable advances which an assessee receives on and after 1-7-1980, as is obtaining in section 12(13).
(2) To extend this charge on the advance which such assessee has already 'received' in the income year relevant to assessment year starting from 1-7-1980 meaning thereby on and after 1-7-1979 as is obtaining in section 12(17).
(3) To charge to tax in the assessment year 1980-81 and onwards the advances received prior to 1-7-1979 which is intended by the use of words: "or in any earlier income year so, " these words are qualified with other words in the following manner:
"The provisions of subsections (13) to (16) shall also apply to an assessee who has received the amount referred to in subsections (13), (15) and (16) ..... ... or in any earlier income year
These words are again qualified with the sentence regarding charging tax on such earlier received advances ' in the income year relevant to assessment year 1980-81 or any assessment year thereafter.
The effect of the use of this language is that the advances received prior 1-7-1979 shall also be distributed into 10(ten) years and the years which have passed till 30--6-1979 from the date of receipt shall be reduced from the 10(ten) years. In the remaining years the assessee shall include 1/10th of such amount as part of his income under section 19.
The legislature clearly intended to charge to tax in the assessment year 1980-81 and onwards the advance received by an assessee earlier up to the balance of the 10 (ten) years which have not expired by 30-6-1979.
If there was no intention of charging earlier advances then the provisions of section 12(13) alone was enough. The addition of section 12(17) is therefore for enlarging the scope of its application beyond section 12(13) otherwise it becomes redundant and Legislature never creates a redundant or superfluous provision.
(c) Income Tax Ordinance (XXXI of 1979)---
----S.12(13)(17)---Expression "let out on rent" is truly the condition of application of provision of S. 12(13)(17), Income Tax Ordinance, 1979.
Legal Thesaurus by Illiam C. Burton published by Mechillan Publishing Co. Inc. 1866, Third Avenue New York, N.Y. 100022, Collier Machillan Canada Ltd. and Chamber's Concise Dictionary Published in 1990 by W&R Chambers Limited 43-45 Amandal St. Edinburgh EH 74 AZ, p.554 ref.
(d) Words and phrases---
Lease"---Meaning.
(e) Income Tax Ordinance (XXXI of 1979)---
----5.12(13)(17)---Income from property ---Unadjustable deposit amount received by landlord from tenant---Transfer of possession on a subsequent date--?Taxability---Application of S.12(13)(17) of the Income Tax Ordinance, 1979 is not intended to be applied from transfer of the possession of property---1/10th of deposit amount shall be calculated as income from house property in the income year in which it is "received" but then there shall be no tax thereon in the first year or in the subsequent year until physical possession of the lease property is transferred to the tenant---Ten years shall start running from the income year in which the amount is received.
(f) Income Tax Ordinance (XXXI of 1979)---
----S. 12(13)---Scope and application of S.12(13), Income Tax Ordinance, 1979.
Section 12(13) of the Income Tax Ordinance, 1979 creates charge on a receipt treating the same as deemed income. The provision also includes procedure of charging this income. It has charged those advances, which were presumably not covered under the other provisions of the Income Ordinance, 1979. The provision is independent in all respects. Its relationship with section 19 is only to tile extent that the legislature has brought non-adjustable advance within the definition of income from house property in addition to the ALV of a property. In this way even if there is no rent receivable or received during the year the charge by way of deemed income, as income from hour.,: property, is there.
The Legislature intended to charge an amount, which apparently was not previously taxed. If some of the earlier years are allowed to escape taxation for the reason that assessee got the possession in some later year, the purpose of this legislation would fail to the extent of those earlier years.
(1985) 153 ITR 1 (Punj. & Haryana) ref.
(g) Interpretation of statutes---
---- Deemed provision-7Concept---Deemed provision being a fiction of law is tc~ be strictly interpreted and be applied in its true spirit.
Deemed provision is a well-known legislative device it treats something to be, which otherwise may not exist such provision is intended to enlarge tile meaning of a particular word or include matters which otherwise may or may n of fall within the main provisions. The word 'deemed' means supposes construct thought taken to be or presumed. The word 'deemed' refers to what is suppose d to be and what actually is. This word is used a great deal in modern Legislature Sometimes it is used to impose for the purposes of a statute an artificial construction of a word or phrase that would not otherwise be uncertain Sometimes it is used to give a comprehensive description that is obvious what in the ordinary sense impossible.
The deemed provision as such being a fiction of law is to be strict interpreted and should also be applied in its true spirit. In its application the spirit behind its legislation and legislative history should never be ignore.
(h) Income Tax Ordinance (XXXI of 1979)---
----S.12(13)(17)----Scope and application of Ss.12(13) & 12(17), Income Tax Ordinance, 1979---Distinction and illustration.
Section 12(13), Income Tax Ordinance, 1979 relates to those advance, which are received after introduction of the provision while section 12(17) ?charges those un-adjustable advances also which have been received earlier However, only those earlier amounts shall be subjected to tax where 10years have not lapsed up to 30-6-1979, from the date of its receipt, in the assessment year 1980-81 and in such subsequent years. Such finding can he spelled out from the following example:
An amount received as unadjustable advance on 30-4-1971 would be distributed into 10( ten) years while first 8 (eight) years up to 30-6-1979 shall come exempt and in the balance two years 1/10th sum shall be added separately in the each year and shall be charged to tax only for balance two years i.e. assessment years 1980-81 and 1981-82.
(i) Interpretation of statutes---
---- Interpretation of law which would render any provision ineffective to be avoided.---[I.T.A.T. No.651/KB of 1982-83 overruled].
LT.A.T. No.651/KB of 1982-83 overruled.
PTD 1986 (Trib.) 373 fol.
PTD 1991 (Trib.) 758 ref.
I.T.As. Nos. 2934/KB to 2936/KB of 1987-88.
Muhammad Ishaque Memon, D.R. for Appellant
Siraj-ul-Haq Memon for Respondent.
I.T.A. No. 2263/KB of 1985-86).
Siraj-ul-Haq Memon for Appellant
Muhammad Ishaque Memon, D.R. for Respondent.
Date of hearing: 17th September, 1995.
ORDER
The department has filed this appeal against the Order No. CIT(A)Z?IV/1827 & 328/1980-81, dated 18-5-1987. The issue involved is that from what date unadjustable advance received by the landlord is chargeable under the provisions of sections 12(13) and 12(17). The learned C.I.T.(A) while deciding this issue relied upon the judgment of I.T.A.T. No.651/KB of 1982-83 (Assessment year 1980-81), wherein a Division Bench of the Tribunal held the provision to be applicable on deposits received after 1-7-1979. The other arguments advanced by the A.R., that the provision would attract only the deposits received from the tenants to whom possession of the property has been passed has also been allowed.
2. The Authorised Representative claimed that the deposits received at the time of booking of flats and shops etc. cannot be subjected to tax under subsection (13) of section 12, as in such case the possession of the property has not been passed on to such prospective tenants for the purpose of receiving rent. The learned CIT(A) accepted both the arguments and allowed assessee's appeal.
3. The Departmental representative supporting the order of the Income-tax Officer argued that sections 12(13) and 12(17) are to be read jointly and first impression of their plain reading clearly goes in favour of the Department. For ready reference the relevant provision is reproduced:--
"S.12(13). Where an assessee being the owner of a building receives from any person to whom such building or any part there of is let out on rent any amount which is not adjustable against the rent payable by such person such amount shall be deemed to be the income of the assessee and chargeable to tax under the head 'Income from House property' in the income year in which such amount is received and the nine income years next following the said income year in equal proportion: and the amount so allocated to each income year shall be deemed to be the rent received in respect of such building or a part thereof."
"S.12(17). The provisions of subsections (13) to (16) shall also apply to an assessee who has received the amount referred to in subsections (13), (15) or (16) in the income year relevant to the assessment year commencing on the first day of July, 1980, or in any earlier income so, however, that income chargeable to tax in the manner laid down in the said subsections shall be charged to tax only in respect of the income year relevant to the assessment year commencing on the first day. of July, 1980 or any assessment Near thereafter."
The Departmental representative contended that if the legislature intended not to charge the deposit received prior to introduction of subsection (13) of section 12, the purpose of enacting subsection(17) would become redundant. In his opinion section 12(17) has only been brought to enlarge the scope of section 12(13) and the amount received within 10 years prior to 30th of June, 1980, are taxable for balance of the 10 years @1/10th of the amount per year.
5. The learned Authorised representative started his arguments by stating that the charging provisions being substantive law are validated from the date of their inception and are not retrospective. He argued that in the absence of clear intention and necessary intendment retrospectively cannot be construed in a manner that leads to reopening of a past and closed transaction. The language of sections 12(13) and 12(17), he argued clearly envisages its intention to charge the amount received on and after 30th of June, 1980. The learned A.R. also argued that vested right cannot be taken away except by express words. He argued that even if a liability is fixed by making some legislation as retrospective, it cannot be applied on past and closed transaction and presumption of law is that the same was never intended by law makers. The learned counsel submitted that section 12(13) has been introduced by the Finance Ordinance, 1980 and the same cannot be under any circumstances be stretched to any event prior to July 1,1980. Mr Siraj-ul-Haq Memon, learned counsel of the assessee produced before us judgment reported as 1993 SCMR 1905 decided by the Hon'ble Supreme Court of Pakistan that the past and closed transaction cannot be made alive and also that except with the express words or necessary intendments retrospective legislation cannot be construed so as to lead to reopening of a past and closed transaction.
6. The learned A.R. also argued that the above statement of law has been so frequently quoted with approval that it now itself enjoys judicial authority. One of the most well-known statements of this rule is contained in the judgment of Mr. R.S. Wright, J. In Re Athalumnev which says:--
"Perhaps no rule of construction is more firmly established than that a retrospective operation is not to be given to a statute so as to empower an existing right or obligation otherwise then as regards matter of procedure only effect cannot be avoided without doing violence to the language of the enactment. If the enactment has expressed any language which is firmly capable of either interpretation it ought to be construed as prospective only."
7. The learned counsel relying on the referred judgments argued that the charge of tax created under section 12(13) is through the Finance Ordinance, 1980, a~ such the advances received on and after this legislation would come within the ambit of the impugned provisions. He further argued that the use of words "receives from any person" speaks of future and does not apply on any previous transaction. The purpose of this new enactment is to tax under the table transaction, which were popularly known as "Pugree" by including the same in the definition of? ?income house property?.
8. While advancing his contention further, he argued that sections 12(13) and 12 (17) at best can be stretched upto the amount received on and after 1-7-197, being the income year relevant to assessment year commencing on the 1st day of July 1980. It is in this provision that the connotation used by the Legislature "who has received the amount" enlarge the scope of the advances received under section .12(13) but again restrict the same in the following words:-?
"in the income year relevant to assessment year commencing on this 1st day of July , 1980. "??????
9. The learned A.R. also argued that the requirement of section 12(13) is that:-?
The recipient should be an assessee, he should be owner of the property, and the property should be let out on rent.
??????????? 10. While advancing his arguments for this limb he said that in certain cases ?????? prospective tenants were neither given possession nor a formal tenancy??????????? agreement was signed. In his opinion the relationship of tenancy starts after ?????? a formal agreement has been arrived at and that the tenant has taken-over the possession of the property. The operation of section 12(13) he argued starts only after the abovementioned formal relationship is established between the Landlord and tenant. This way he has tried to distinguish the advances received by the Landlord from the 'tenant' and the 'prospective tenant'. This argument in his opinion derives source from the use of the words "let out on rent" as used in section 12(13).
11. We have considered all the arguments of the learned A.R. and D.R. The arguments regarding the scope of application of fiscal statutes in the light of above referred judgments are exercising almost judicial authority. We are in full agreement that Courts cannot extend the scope of a provision of Law by way of interpretation as this would amount to entering in legislation, which is beyond the jurisdiction of judiciary.
12. In support of our observation we shall cite the latest Full Bench Judgment of the I.T.A.T. reported as PTD 1995 (Trib.) 624. The relevant para therefrom is as follows:--
"If under the specified provisions of legislation or subordinate legislation a particular procedure is required to be observed then an authority saddled with the responsibility of executing the law is bound to observe the procedure as contained in the main statute or rules. However, if no specific procedure is enacted in an act of Parliament or in exercise of delegated legislation then no Court or Tribunal is authorised to prescribe a procedure and then give it the force of statutory law or rule. If any such attempt is made it would amount to travelling beyond the realm of interpretation and discerning the intention of legislation and would tantamount to entering into the realm of legislation which is beyond the pale of authority vested in a Court. It is well-known principle of the interpretation of statutes that the machinery section is to be interpreted in such a way that it is made to work. The technicalities relating to procedure should not be taken to the extent where law is made unworkable. Any interpretation of any procedural law whereby the very intent and purpose of the legislation is negated or the working is made so complicated and confused that the very purpose of the law is throttled is not permissible. "
13. Keeping above discussion in view if we scrutinize the impugned provisions i.e. sections 12(13) and 12(17), they emphasize on following:---
(1) To charge to tax un-adjustable advances which an assessee receives on and after 1-7-1980, as is obtaining in section 12(13).
(2) To extend this charge on the advance which such assessee has already 'received' in the income-year relevant to assessment year starting from 1-7-1980 meaning thereby on and after 1-7-1979 as is obtaining in section 12(17).
(3) To charge to tax in the assessment year 1980-81 and onwards the advances received prior to 1-7-1979 which is intended by the use of words:- "or in any earlier income year so," these words are qualified with other words in the following manner:---
"The provisions of subsections (13) to (16) shall also apply to an assessee who has received the amount referred to in subsections (13) (15) and (16)?????..or in any earlier income years.???? (underlined for emphasis)
14. These words are again qualified with the sentence regarding charging tax on such earlier received advances ' in the income year relevant to assessment year 1980-81 or any assessment year thereafter'.
15. The effect of the use of this language is that the advances receive prior to 1-7-1979 shall also be distributed into 10(ten) years and the years which have passed till 30-6-1979 from the date of receipt shall be reduced from the 10(ten) years. In the remaining years the assessee shall include 1/10th of such amount as part of his income under section 19. ,
16. In view of above discussion we have no doubt in our mind that the legislature clearly intended to charge to tax in the assessment year 1980-81 and onwards the advance received by an assessee earlier upto the balance of the 10 (ten) years which have not expired by 30-6-1979.
17. We may further add here that if there was no intention of charging earlier advances then the provisions of section 12(13) alone was enough. The addition of section 12(17) is, therefore, for enlarging the scope of its application beyond section 12(13) otherwise it becomes redundant and legislature never creates a redundant or superfluous provision.
18. The other limb of arguments regarding its application for start of relationship between Landlord and the tenant, the arguments of the A.R. have already been mentioned supra. The words 'let out on rent' is truly the condition of application of the impugned provision 'let' in ordinary English means. To allow'. The same as explained in Legal Thesaurus by "illiam C. Burton published by Mechillan Publishing Co. In. 1866 Third Avenue New York, N.Y. 100022 Collier Machillan Canada Ltd., means:---
"Let :(lease) verb, allow the use of charter contract, convey demise, grant of occurancy of hire, hire out, lend, make available, rent, rent out. "
19. Similarly the word 'let out' as explained n ed in Chambers Concise Dictionary Published 1990 by the W&R Chambers Limited 43-45-Amandal st. Edinburgh EH 74 AZ? means:--
"to allow to get free, or to become known, to enlarge,, to put our; hire; to leak out words."
20. In addition to above if we go through the meanings of the word 'Lease', the same also does not give any impression that immediate transfer of physical possession is a condition for lease. The word has elaborately been defined in the Transfer of Property Act, 1882 as follows:---
"Section 105. Lease defined. A lease of immovable property is a transfer of a right to enjoy such property made for a certain time, express or implied or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value to be rendered periodically or on specified occasion to the transferor by the transferee, who accepts the transfer on such terms. "
21. Having gone through the language of section 12(13) and the Dictionaries and section 105 of Transfer of Property Act, 1882, we do not find any reason to agree with the teamed A.R. There is no impression to the section to hold that the legislature intended to start application of the provision from transfer of the possession. If the interpretation of learned A.R. is considered to be as correct then the use of the words:---
Such amount shall be deemed to be the income of the assessee chargeable to tax under the head 'income from house property' in the income year such amount is 'received' (underlined for emphasis) shall become superfluous.
??????????? 22. Such an interpretation in view of above language would lead to the conclusion that 1/10th of such amount shall be calculated as income from house property in the income year in which it is received but then there shall be no tax thereon to the first year or in the subsequent year until physical possession of the lease property is transferred to the tenant. While on the other hand the 10(ten) years shall start running, front the income year in which the amount is received.
23. In fact when the landlord receives this amount, it is always in pursuance to an agreement of lease. None would give an advance chargeable under this head without formally having some agreement before handing-over such advance. This agreement may be an oral one but the concept of such an un-adjustable advance including "Pugree" etc. arises only with an agreement of letting out of the property either immediately or where the same is under construction on its completion.
24. Another fact which support our interpretation is the use of word ' is before' let out on rent. The legislature could always use the word 'has been' in place of 'is'. We need not add here that the legislature always use the words advisedly. The use of word, is, here is not without purpose. Here it widens the scope and shall include those agreements also where the possession is to be transferred on a subsequent date.
25. Lastly section 12(13) creates charge on a receipt treating the same as deemed income. The provision also includes procedure of charging this income. It has charged those advances, which were presumably not covered under the other provisions of the Income Tax Ordinance, 1979. The provision is independent in all respects. Its relationship with section 19 is only to the extent that the legislature has brought un adjustable advance within the definition of income from house property, in addition to the ALV of a property. In this way even if there is no rent receivable or received during the year the charge by way of deemed income as income from house property, is there.
26. Deemed provision is a well-known legislative device. It treats something to be which otherwise may not exist such provision is intended to charge the meaning of a particular word or include matters which otherwise may or may not fall within the main provisions. The word, 'deemed; means supposes construed through taken to be or presumed The word 'deemed' refers to what is supposed to be and what actually is This word is used a great deal in modern legislature. Sometimes it is used to impose for the purposes of a statute. an artificial construction of a word or phrase that would not otherwise be uncertain. Sometimes it is used to give a comprehensive description that is obvious what is in the ordinary sense impossible.
27. The deemed provision as such being a fiction of law is to be strictly I interpreted and should also be applied in its true spirit. In its application the spirit behind its legislation and legislative history should never be ignored. The legislature intended to charge an amount, which apparently was not previously taxed. If some of the earlier years are allowed to escape taxation for the reason that assessee got the possession in some later year the purpose of this legislation would fail to the extent those earlier years. The judgments that favour our observations is (1985)-153-ITR-1-(Punj & Hu) which says:---
"While interpretating a deeming provision in a statute, the Court has to give full effect to it by taking it to it logical conclusion by imagining as real and natural even the consequences following from the assumed situation or fact unless an interpretation would lead to absurd results."
28 An interesting observation in respect of a deeming provisions given in the above noted judgment is based on a well known saying regarding authority of the legislature. It says:---
"The legislature is entitled to engraft a deeming provision in a certain statute. It may even say that a man shall be deemed to be a woman or a woman shall be deemed to be a man for certain purposes and when it is so enacted, it is not open to the Courts to start looking for various attributes of a man or a woman to se whether one is man or a woman. The Court must accept the verdict of the Legislature fair the give purpose Biological or physical realities may be any. "
29. In view thereof the summary of above discussion is that section 12(13) relates to those advances which are received after introduction of the provision while section 12(17) charges those unajustable advances also which have been received earlier. However, only those earlier amounts shall be subjected to tax where 10(ten) years have not lapsed up to 30-6-1979, from the date of its receipt, in the Assessment years 1980-81 and in such subsequent years. Our finding can be spelled out from the following example:
"An amount received as unadjustable advance on 30-4-1971 would be distributed into 10(ten) years while first 8 (eight) years upto 30-6-1979 shall become exempt and in the balance two years 1/10th sum shall be added separately in the each year and shall be charged to tax only for balance two years i.e. Assessment years 1980-81 and 1981-82."
30. While giving our above finding we have yet another famous principle of interpretation of statutes in our mind which is:---
"Interpretation of law should always be avoided which would make any provision of law as ineffective. "
PTD 1991 (Trib) 758 (773)
31. In view there of the action of the learned C.I.T.(A) to accept assessee's appeal is not maintainable. The same is hereby vacated and the order of the Income tax Officer is restored. This judgment shall supersede the earlier judgment given by Income Tax Appellate Tribunal (I.T.A.T.) on this issue contrary to the view expressed supra which has been cited as:---
PTD 1986 (Trib.) 373
The appeals in all the four years are accordingly disposed off in favour of the department.
M.B.A./220/Trib. ??????????????????????????????????????????????????????? Order accordingly.