1996 P T D (Trib.) 610
[Income-tax Appellate Tribunal Pakistan]
Before Muhammad Mushtaq, Accountant Member, Nasim Sikandar and
Muhammad Tauqir Afzal Malik, Judicial Members
I.T.A. No. 1760/LB of 1992-53, decided on 05/09/1995.
Per Muhammad Tauqir Afzal Malik, Judicial Member; Nasim Sikandar, Judicial Member, agreeing; Muhammad Mushtaq, Accountant Member, Contra---
(a) Income Tax Ordinance (XXXI of 1979)---
----S.12(18) [as incorporated by Finance Act (VI of 1987), operation of which was suspended by S.R.O. 838(1)/87, dated 26-10-1987 and revived by Finance Act (VII of 1990)] & Second Sched., Part IV, Cl., (7) [as introduced by S.R.0.838(1)/87, dated 26-10-1987]---C.B.R. Circular No.6 of 1990, dated 15-7-1990---Income deems to accrue or arise in Pakistan---Provisions of S.12(18), Income Tax Ordinance, 1979 were incorporated in the Ordinance by Finance Act, 1987; were held in abeyance by introducing Cl.(7) of Part IV of Second Sched. of the Income Tax Ordinance, 1979 and were again made operative with effect from 1-7-1990 vide Finance Act, 1990---Where the loans were advanced to the assessee on 1-9-1989 (during the suspension of S.12(18) of the Ordinance) provisions of S.12(18), Income Tax Ordinance, 1979 were not applicable to assessee's case for provision of S. 12(18) of the Ordinance were made operative with effect from 1-7-1990 vide Finance Act, 1990.
(b) Interpretation of statutes---
---- Fiscal statute---Charging section is to operate prospectively until the Legislature has deemed fit to give it retrospective effect by clear and unambiguous legislation.
Per Muhammad Mushtaq, Accountant Member, Contra---
Per Nasim Sikandar, Judicial Member---
(c) Legislation---
----Legislature can legislate prospectively as well as retrospectively and in doing that it can also take away even accrued vested rights.
Province of West Pakistan through Advocate General v. Manzoor Qadir Advocate and another PLD 1969 SC 623 ref.
(d) Interpretation of statutes---
--- Retrospectivity in respect of a statute cannot be presumed.
Interpretation of Statutes by Maxwell, 12th Edn., p.216 and Nabi Ahmed and another v. Home Secretary, Government of West Pakistan PLD 1969 SC 599 ref.
(e) Interpretation of statutes---
----Procedural amendment---Effect---If a procedural amendment causes inconvenience or injustice, the Court will not favour an interpretation giving retrospective effect to the statute---Past and closed transactions in matters of procedure cannot be re-opened and decided in accordance with amended law.
Adnan Afzal v. Capt. Sher Afzal PLD 1969 ~C 187; Abdul Kalam v. Bashir Ahmed Rana PLD 1981 Kar. 473 and Interpretation of Statutes by Maxwell, 1969 (Indian Edn.), p.222 ref.
(f) Interpretation of statutes---
---- Penal provisions---Such provisions cannot be applied retrospectively unless, the Legislature has made them so either expressly or by necessary implication.
I.T.O. (Investigation), Dacca v. Suleman Bhai Jiwa PLD 1970 SC 80 and Statute Law by Craies, 4th Edn., p.334 ref.
(g) Income Tax Ordinance (XXXI of 1979)---
----S.12(18) [as incorporated by Finance Act (VI of 1987) operation of which was suspended by S.R.O. 838(1)/87, dated 26-10-1987 and revised by Finance Act (VII of 1990)]---Second Sched., Part IV, Cl. (7) [as inserted by S.R.O. 838(1)/87, dated 26-10-1987)]---C.B.R. Circular No. 6 of 1990, dated 15-7-1990---Exemption from operation of the deeming provision contained in S. 12(18), Income Tax Ordinance, 1979 by S.R.O. 838(1)/87, dated 26-10-1987 and its revival on 1-7-1990 through Finance Act, 1990 cannot strictly be equated with repeal and then re-enactment.
C.I.T. v. Kishorsingh Kalyansingh Solanki (1960) 39 ITR 522; Dulip Kumar v. The State of Madhya Pradesh AIR 1976 SC 133; Interpretation of Statutes by Maxwell, 3rd Edn., p.319; Sarfraz Khan v. Crown PLD 1950 Lah. 384; Muhammad Shaft v. Deputy Superintendent of Police, Narowal PLD 1992 Lah. 178 and Central Insurance Company and others v. C.B.R., Islamabad 1993 PTD 766 ref.
(h) C.B.R. Circular---
----Value---Interpretation placed by C.B.R. though not binding, can always be taken into account by Courts and judicial forums while interpreting a particular provision.
Bashir Ahmed Khan v.' Muhammad Ali Khan Chaudhry PLD 1960 SC 195 and 1986 PTD 828 ref.
(i) Income Tax Ordinance (XXXI of 1979)---
----S.12(18) [as incorporated by Finance Act (VI of 1987), operation of which was suspended by S.R.O. 838(1)/87, dated 26-10-1987 and revived by Finance Act (VII of 1990)]---Provision of S.12(18) remained inoperative in spite of its being a part of the statute by a process visualized by law itself---All transactions which were past and closed could not, therefore, be interfered with without an express legislative authority and thus remained exempted and free from the mischief of operation of deeming clause of S.12(18) of the Ordinance from 26-10-1987 to 30-6-1990.
A deeming provision has to be construed strictly and extended only to cases where no element of doubt to their application exists. The legal notion that certain kinds of loan transactions otherwise than in the prescribed method, shall be taken as income, falls heavily on the pocket of a tax-payer. An interregnum in application of such presumption duly allowed by law is as good a vested right as to be taxed strictly in accordance with the words of a statute. Transactions which are past and closed, cannot be interfered with without an express legislative authority. Where no legislative intention even by implication is expressed to touch in any manner the loans transacted during the eventful period, the judicial bias against retrospectivity of legislative instruments is open and obviously well reasoned. The provisions of section 12(18) remained inoperative in spite of their being a part of the statute book. This happened by a process visualized by law itself. Therefore, all transactions of the kind remained exempted and free from the mischief or operation of deeming clause from 26-10-1987 to 30-6-1990.
The suspension of provision was ordered through an executive notification under section 14(2) by adding a clause in the Schedule while such insertion was omitted through an Act of the Parliament, the Finance Act, 1990. Insertion or addition of section 12(18) in the said Schedule in any way did not amount to an exemption.
Exemption of income from levy of tax and exemption of an assessee or class of assessees from the operation of certain provisions of Ordinance may agree in result but their legal implications are totally different. Most important distinction being that claim of exemption of income presupposes the accrual of income though the levy is disputed on account of some concession allowed by law.
Army Welfare Sugar Mills Limited v. Federation of Pakistan 1992 SCMR 1652 distinguished.
(j) Income-tax---
--Exemption---"Exemption of income from levy of tax" and exemption of an assessee or class of assessees from operation of certain provision of statute-- Legal implications totally different.
Mian Ashiq Hussain for Appellant.
Shahbaz Butt, L.A. and Mrs. Sabiha Mujahid, D.R. for Respondent.
Date of hearing: 4th September, 1995.
ORDER
MUHAMMAD TAUQIR AFZAL MALIK (JUDICIAL MEMBER). -- This is an appeal which has been entrusted to this Bench by the orders of the Honourable High Court in Writ Petition No.13647/94, dated 14-6-1995 whereby the order, dated 23-8-1994 of the Income Tax Appellate Tribunal has been set aside and the case is remanded for decision afresh after dealing with the question of effectiveness of the Notification No.SR0.838(1)87, dated 26-10-1987 and the Finance Act, 1990 by which the earlier notification was done away.
2. This appeal has been filed on behalf of M/s. Ashlers Private Limited Company (hereinafter also referred to as the assessee) challenging the order of the leaned CIT(A) vide A.O. No. 05/CC-29, dated 31-8-1992
3. The brief facts leading to this appeal are that the assessee in this case a Private Limited Company earning its income from construction business well as plying of motor taxies. For the assessment year under consideration assessee's balance sheet disclosed loan of Rs.375.000 obtained by the assesses company from its directors. The ITO observed that this loan was a cash loan a provisions of section 12(18) of the Income Tax Ordinance were attracted in this case. The relevant portion of the assessment order is reproduced as under:
"In the balance-sheet the assessee-company has declared directors loans at Rs.375,000. Perusal of the cash book and ledger shows that the loans were received 'in cash. The assessee-company was confronted to why addition under section 12(18) should not be made. In response: to this show-cause notice reply, dated 25-5-1992 was submitted by A.R. of the assessee-company in which the following arguments we advanced: --
In response to the point raised by you about source of directors loan a intention to make addition under provisions of section 12(18), we are pleased to explain that:
The Circular 3 of January 27, 1992 clearly explains that addition under section 12(18) should not be made in respect of genuine loans and where the authority is satisfied about source of loan. Moreover, the "NEWS" dated May 21, 1992 published a news that CBR has issued instruction that if the source is verifiable and genuine, receipts through cash shall be accepted and no addition will be made under section 12(18) of Income Tax Ordinance, 1979.
It is prayed that the addition under section 12(18) should not be made as it is bad in law and against the facts of the case and declared loan may kindly be accepted."
The plea of the assessee-company has been considered and found unsatisfactory. The source from which the directors have claimed to have made loans are encashment of FEBCs. It is interesting to note that as per copies of encashment of FEBCs the dates are 1anuary, 1987 whereas cash loans in the books are claimed on the following dates:
| S. No. | Date | Name | Cash Loan |
| 1. | 1-9-1989 | Abu Nasr Faizi Khan | Rs.125,000 |
| 2. | 1-9-1989 | Mr. Taqir Wasey Khan | Rs.125,000 |
| 3 | -do- | Mrs. Yasmeen Faizi | Rs.125,000 |
It is clear from above that cash loans have been introduced in the books after two years of encashment of FEBCs by the abovementioned persons. All the three persons who have allegedly advanced loans are not existing assessee. In view of this fact, the claim of the assessee-company cannot be considered valid that loans were advanced from encashment of FEBCs as no reliable evidence is available. Further there is considerable time lag between encashment of FEBCs and date on which cash loan of Rs.375,000 was introduced in the books. As regards reliance on Circular No. 3 of 1992 issued by the CBR is concerned that too is out of place. The assessee-company has misinterpreted the said circular. In the said circular in para. 2 following instructions were given:
" ....assessing officer should not invoke provisions of section 12(18) in respect of genuine loans received by way of cross cheques, pay orders, demand drafts or telegraphs, transfers etc., through the banking channels."
As evident from the above language of the circular concession is given only in respect of genuine loans received through banking channels whereas this is not the case here. In the present case no banking channels are involved in the loans claimed in the books which are by way of cash. The assessee-company has failed to establish any link between encashment of FEBCs and subsequent deposits in the books of accounts under the circumstances and in the light of facts narrated above, addition under section 12(18) at Rs.375,000 is fully justified.
In the light of the facts discussed above, income of assessee-company is computed as under:
| Addition in yellow cabs section as discussed above. | Rs.102,267 |
| Addition under section 12(18) as discussed above. | Rs.375.000 |
| Total additions | Rs. 477.267 |
| | |
4. Aggrieved by this treatment the assessee went into appeal. The learned CIT(A) rejected the appeal of the assessee with the following observations:
"The learned counsel's case is the prohibition of such addition contained in the Board's Circular, dated 3-6-1992 addressed to Officers of Zone B, Lahore in continuation of the Board's Circular No. 11 of 1992, dated 2-5-1992 the relevant extracts of which make the following reading:
....It has been represented that cash deposits in the accounts to be maintained in the names of directors of the company or partners of the firm, which are otherwise genuine and verifiable, should not be treated as income of the assessee under subsection (18) of section 12 of the Income Tax Ordinance, 1979. Similarly cash transaction/cash flow between sister concerns and firm having common directors and partners should not fall within the ambit of section 12(18) of the Ordinance because these accounts are for self-utilization of funds always available in the possession of sister concerns.
The matter has been considered in the Board and it has been decided that although such amounts attract the provisions of section 12(18) yet in view of the general lack of awareness of this provision on the part of the tax payers, the provisions of section 12(18) shall not be invoked for the assessment year 1991-92 in respect of cash deposits and transactions, referred to in paragraph above .. ... ... ... ..
It is noticeable that the subject-matter of the prohibition is cash deposits in accounts of directors and cash transactions between sister companies and firm having common directors and partners.
The subject-matter of the addition in this case is entirely different namely cash deposits in the accounts of the company by the directors and not cash deposits in the accounts of the directors themselves. Hence the learned counsel's reliance on the particular circular is misplaced.
The fact that transactions themselves were in cash makes them exigible to tax under section 12(18) and that their sources need no enquiry. The impugned addition of Rs.375,000 is confirmed.
The disallowance of interest on loan to directors- of Rs.120,000 has also been made on solid grounds firstly of non-payment and secondly on the fiction of loan and not on their actuality. Consequently this addition-is also confirmed. "
5. The assessee still felt aggrieved and as per grounds of appeal it has been contended that the I.T.O. was not justified in making addition of Rs.375,000 on account of cash loan received by the assessee from its directors under section 12(18) of the Income Tax Ordinance, 1979. Mr. Kamran Fateh FCA, the A.R. of the assessee has assailed the orders of the authorities below on the following grounds:
(i) That the assessee-company obtained loan from three of its directors as under:
| Name of the Directors | Amount | Dated |
| 1. Abu Nasr Faizi Khan | Rs.125,000 | 1-9-1989 |
| 2. Mr. Taqir Wasey Khan | Rs.125,000 | 1-9-1989 |
| 3. Mrs. Yasmin Faizi | Rs.125,000 | 1-9-1989 |
The learned counsel of the assessee has contended that this company was incorporated on 19-9-1989 whereas loans were obtained from the directors on 1-9-1989. It was explained by the learned A.R. of the assessee that these loans were obtained in cash because bank account of the assessee-company could not be opened prior to its incorporation.
(ii) That it was explained to the I.T.O. that these amounts were provided by the Directors by encashment of FEBC in 1987. The directors own these loans hence these loans were genuine because directors did not deny having advanced these loans to the company.
(iii) That the provision of section 12(18) of the Income Tax Ordinance, 1979 which were originally introduced in Finance Ordinance, 1979 indicated that these provisions will be applicable on loans advanced after 1-7-1990 but in this case loan were given by the directors to the assessee-company on .1-9-1989. Thus provisions of section 12(18) are not applicable in this case.
(iv) That in view of CBR Circular No. 12 of 1992 provisions of section 12(18) are not, applicable in this case.
6. The learned D.R. on the other hand, supported the orders of the authorities below.
7. We have carefully examined the record and listened to the arguments advanced from both the sides. The provisions of section 12(18) of Income Tax Ordinance, 1979 were incorporated in the Income Tax Ordinance, 1979 by Finance Act, 1987, however, these provisions were held in abeyance by introducing Clause 7 of Part 4 of the Second Schedule. The relevant provision of section 12(18) as well as Clause 7 as originally available before amendment by Finance Act, 1990 are reproduced as under:
Section 12(18)
"Where any sum, of the aggregate of sums, claimed, or shown, to have been _ received as loan by, an assessee during any income year commencing on or after the first day of July, 1987, from any person, not being a banking company, or a financial institution notified by the Central Board of Revenue for this purpose, otherwise than by a cross cheque drawn on a bank, exceeds (one hundred) thousand rupees, the said sum or the aggregate of sums shall be deemed to be the income of the assessee for the said income year chargeable to tax under this Ordinance:
Provided that, where the said loan is claimed, or shown, by way of the explanation, referred in subsection (1) of section 13, in a case to which the first proviso to the said subsection applies, the income under this subsection shall relate to the assessment year referred to in the said proviso:"
Clause 7 of Part IV of Second Schedule:
"The provisions of (subsection (18) of section 12) the first proviso to subsection (1) of section 13 and section 62-A shall not apply in respect of any person."
8. Originally the provisions of clause 7 of Part IV of Second Schedule were not same as these are available at present. The original clause also contained the words "subsection (18) of section 12". But these words were deleted by Finance Act, 1990.
9. From the above facts it is quite evident that subsection (18) of section 12 of the Income Tax Ordinance, 1979 was introduced vide Finance Act, 1987 but soon after vide SRO. No. 838(1)/87, dated 26-10-190 Clause 7 of Part IV of the Second Schedule was introduced and operation of section 12(18) was suspended. But again vide Finance Act, 1990 the provisions of section 12(18) were made operative. The learned counsel of the assessee has contended that these provisions of section 12(18) are operative w.e.f. 1-7-1990 whereas the loans were advanced to the assessee on 1-9-1989 thus the provisions of section 12(18) are not applicable in this case. We are in respectful agreement with this contention of the learned counsel that the charging section/legislation is to ye prospective and not retrospective until and unless the Legislature has deemed fit to give it retrospective effect by clear and unambiguous legislation. There is nothing to show that the Legislature had any intention to give the retrospective effect to the amendment. This view is supported by CBR Circular No.6 of 1990, dated 15-7-1990 which reads as follows:
"This subsection which was initially inserted by Finance Act, 1987 where the limit was Rs.50,000 (which was subsequently raised to Rs.1,00,000) was held in abeyance by virtue of clause (7) of Part IV of the Second Schedule to the Ordinance. The said clause (7) has also been amended so as to make the provisions of section 12(18) operative for cash loans received on or after July 1, 1990. "
10.In view of above legal proposition the amendment in the Finance Act of 1990 whereby the provisions of section 12(18) of the Income Tax Ordinance, 1979 were made operative w.e.f. 1-7-1990. As the appeal is decided on this issue as ordered by the Honourable High Court we are not touching the remaining two grounds. The appeal is accepted to this extent and orders of both the Courts below are annulled.
(Sd.)
(MUHAMMAD TAUQIR AFZAL MALIK),
JUDICIAL MEMBER
(Sd.)
(MUHAMMAD MUSHTAQ),
ACCOUNTANT MEMBER.
11. MUHAMMAD MUSHTAQ (ACCOUNTANT MEMBER). ---I have gone through the order of my learned brother Mr. Muhammad Tauqir Afzal Malik, Judicial Member. However, I am unable to agree with his views. I have carefully examined again the provisions of section 12(18) of the Ordinance, Clause (7) of Second Schedule to the Ordinance and S.R.O. 838(1)/87, dated 26-10-1987. The provisions of section 12(18) of Income Tax Ordinance, 1979 were incorporated in the Income Tax Ordinance, 1979 by Finance Act, 1987, however, these provisions were held in abeyance by introducing Clause 7 of Part 4 of the Second Schedule. The relevant provision of section 12(18) as well as Clause 7 as originally available before amendment by Finance Act, 1990 are reproduced as under: ---
"Section 12(18)
Where any sum, or the aggregate of sums, claimed; or shown, to have been received as loan by an assessee during any income year commencing on or after the first day of July 1987, from any person, not being a banking company, or a financial institution notified by the Central Board of Revenue for this purpose, otherwise than by a crossed cheque drawn on a bank exceeds (one hundred) thousand rupees, the said sum or the aggregate of sums shall be deemed to be the income of the assessee for the said income year chargeable to tax under this Ordinance. Provided that, where the said loan is claimed, or shown, by way of the explanation, referred in subsection (1) of section 13, in a case to which the first proviso to the said subsection applies, the income under this subsection shall relate to the assessment year referred to in the said proviso. "
Clause 7 of Part IV of Second Schedule
"The provisions of subsection 18 of section 12 the first proviso to subsection (1) of section 13 and section 62-A shall not apply in respect of any person."
12. Originally the provisions of clause 7 of Part IV of Second Schedule were not same as these are available, at present. The original clause also contained the words "subsection (18) of section 12" . But these words-were deleted by Finance Act, 1990.
13. From the above facts -it is quite evident that subsection (18) of section 12 of the-Income Tax Ordinance, 1979 was introduced vide Finance Act, 1987 but soon after vide SRO No. 838(1)/87, dated 26-10-1987 Clause 7 of Part IV of the Second Schedule was introduced and operation of section 12(18) was suspended. But again vide Finance Act, 1990 the provisions of section 12(18) were made operative. The learned counsel of the assessee has contended that these provisions of section 12(18) are operative with effect from 1-7-1990 whereas the loans were advanced to the assessee on 1-9-1989 thus the provisions of section 12(18) are not applicable in this case but I do not agree with this Interpretation because the effect of amendment made by Finance Act, 1990 is that the original provisions of section 12(18) have been restored. 'In section 12(18) it is provided that these provisions will be applicable on all cash loans received after 1-7-1987.
14. The learned A.R. of the assessee has relied on CBR Circular No.6 of 1990 but this Circular in my view is against the relevant provisions of section 12(18) of the Income Tax Ordinance and need not be followed.
(Sd.)
(MUHAMMAD MUSHTAQ),
ACCOUNTANT MEMBER.
15. Since a difference of opinion has arisen between the undersigned and the learned Accountant Member, the Chairman, ITAT is requested to refer the case to a Third Member for resolving the difference of opinion on the following question;
Whether in the circumstances and facts of the case the provisions of section 12(18) of the Income Tax Ordinance, 1979 are applicable in this case or not?"
(Sd. )
(MUHAMMAD TAUQIR AFZAL MALIK),
JUDICIAL MEMBER.
(Sd.).
(MUHAMMAD MUSTHAQ),
ACCOUNTANT MEMBER.
16. NASIM SIKANDAR (JUDICIAL MEMBER). --The above question has been referred to me under section 133(7) of the Income Tax Ordinance on account of difference of opinion between the learned Division Bench.
17. The provisions of section 12(18) as already reproduced in paras. 7 and 11 ante were added in Income Tax Ordinance by Finance Act, 1987. The deeming clause contained in this newly-inserted subsection was made enforceable from 1-7-1987 and therefore the words used "on or after the first day of July, 1987". However, soon thereafter the Federal Government in exercise of its powers under section 14(2) of the Ordinance added clause (7) in Part IV of the Second Schedule to the Ordinance through SRO No.838 (1)/87, dated 26-10-1987. This part of the Second Schedule provides for exemption from operation of specific provisions of the Ordinance with respect to incomes, or classes of incomes, persons or classes of persons enumerated therein. The amendment in the Second Schedule inter alia resulted into freezing of the provisions of section .12(18). These continued to remain in abeyance till 1-7-1990 when the said suspending provisions contained in clause (7), Part IV of the Second Schedule to the Ordinance were deleted/omitted by the Finance Act, 1990. Therefore, it became operative as the necessary energy was re-in-forced which was earlier withdrawn on 26-10-1987. It sounds simple like anything. Providing for a charge, levy or even procedure and then its suspension or mitigation wholly or partly through the aforesaid method is not unknown to Income Tax Laws. We have similar instances in abundance. In fact whole of the Second Schedule to the Ordinance manifests providing by one hand and its taking back by another or making by one hand and unmaking by another. That is not in issue before us as the Legislature conceded this authority to the executive under section 14 of the Ordinance which the later has been using with proverbial impunity.
18. The difficulty arose in face of the fact that by withdrawing the suspending amendment in the Second Schedule the original provisions of section 12(18) became alive with full' text which included the appointing day of enforcement of the provision i.e. "on or after the first day of July, 1987". This is where the learned Division Bench has differed. Learned Accountant Member is of the view that with the omission or withdrawal of suspending clause the original provision got re-instated including the appointed day of first day of July, 1987. Therefore in his opinion all loans contemplated therein will be hit by mischief of that section which were taken on or after the first day of July, 1987. To him the law, the date of enforcement of the provision being clear and certain, on revival effect must be given to it irrespective of any inconvenience or, seeming contradiction in its application. Learned Judicial Member on the other hand is of the opinion that the provisions of section 12(18) having come out of the deep sleep on 1-7-1990 when the suspension plug was taken out these shall be enforceable prospectively and mere presence of original date of enforcement will not permit its retrospective application. In other words he maintains that the period from 26-10-1987 to 1-7-1990, the days between issuance of notification amending the Second Schedule and its withdrawal by the Finance Act, 1990 must be excluded from the application period of section 12(18).
19. Mian Ashiq Hussain, learned counsel for the assessee, and Mr. Shahbaz Butt, learned Legal Advisor for the Revenue have been heard. For the assessee it is submitted that the impugned loans having been taken during the period of suspension of provisions of section 12(18), no adverse inference could be drawn to deem them to be income of the assessee. It is further contended that the Revenue itself having adopted the same interpretation through Circular No.6 o1 1990, dated 15-7-1990 (as detailed in para. 9 ante) the learned Accountant Member was not justified to hold a view against the assessee. On the ratio of a reported decision cited as 1992 SCMR 1652: Army Welfare Sugar. Mills Limited and others v. Federation of Pakistan it is stated that the concession allowed to all tax payers generally could not be withdrawn in respect of the assessee. Also submits that even if two interpretations of the deeming clause in the circumstances were justified then the one favourable to the assessee ought to have been adopted. This submission is supported by citing a reported decision from this Tribunal 1996 PTD, (Trib.) 100. Mian Ashiq Hussain also claims that even after revival of provisions of section 12(18) these cannot be interpreted without taken into consideration the fact of intervening suspension. Learned Legal Advisor admits that presence of a specific date of enforcement in the provision and its complete revival has created a doubt as to the fate of transactions occurring during the suspension period.
20. That the Legislature can legislate prospectively as well as retrospectively is established without any doubt. In doing that it can take away even accrued vested rights. In PLD 1969 SC 623 re: Province of West Pakistan through Advocate-General v. Manzoor Qadir, Advocate and another Mr. Hamood-ur-Rehman, C.J. observed: ---
"The Legislature, however, which is competent to make a law, has full and plenary powers in that behalf and can even legislate retrospectively or retroactively. There is no such rule that even if the Legislature has, by the use of clear and unambiguous language, sought to take away a vested right yet the Courts, must hold that such a legislation is ineffective or strike down that Legislation on the ground that it has retrospectively taken away a vested right. "
It is equally established that retrospectivity in respect of a Statute cannot bepresumed. Maxwell on, Interpretation of Statutes 12th Edition at page 216 contains one of the most well known statement of the rule regarding retrospectivity as expounded by R.S. Wright J. in Re: Athlumney:
"Perhaps no rule of construction is more firmly established than this - that a retrospective operation is not to be given to a statute so as to impair an existing right or obligation, otherwise than as regards matter of procedure, unless that effect cannot be avoided without doing violence to the language of the enactment. If the enactment is expressed in language which is fairly capable of either interpretation, it ought, to be construed as prospective only. The rule has, in fact, two aspects for it "involves another and subordinate rule, to the effect that a statute is not to be construed so as to have a greater retrospective operation than its language renders necessary."
21. Mr. Qadeer-ud-Din Ahmed, J. in PLD 1969 SC 599 re: Nabi. Ahmed and another v. Home Secretary, Government of West Pakistan examined the reasons for such presumption against retrospectivity. His Lordship remarked: ---
"Rights of the parties arising from facts which come into existence before the passing of a statute, should be- presumed to be unaffected by it, unless it is expressly or by necessary implication made retrospective. The full significance, and implications of the protection cannot be fully appreciated, unless we discover its reasons. This is not a statutory protection, yet the principle has by virtue of a presumption, of fair-play effectively checked encroachments on existing rights by the all powerful British Parliament, unless they were found to have been clearly and unambiguously so intended. The origin of this presumption is to be found in the conscientious abhorrence that all just men have for the injustice that is inherent in changing the legal implications of a situation to the disadvantage of those who would otherwise benefit by a right witch existed at the time of the change. As a manifestation of more or less, a natural or instinctive sense of justice, perhaps an instinctive repugnance to what one feels to be injustice, the Courts have held that laws do not impose new liabilities in respect of events taking place before their commencement'. "
22. With reference to retrospectivity a distinction is sometimes made between substantive laws and procedural laws. It is said that no one having right to a particular forum or procedure, amendment in laws touching these aspects are generally retrospective. Here again if even a procedural amendment causes inconvenience or injustice, the Courts will not favour an interpretation giving retrospective effect to the Statute. This approach was adopted in PLD 1969 SC 187 re: Adrian Afzal v. Capt. Sher Afzal. In this case their Lordships examined at length the guiding principles so far as the retrospectivity of a Statute (or a statutory provision) were concerned and also examined as to what were matters of procedure. It was held:
"Nevertheless, it must be pointed out that if in this process any existing rights are affected or the giving of retroactive operation causes inconvenience or injustice, then the Courts will not even in the case of a procedural statute, favour an interpretation giving retrospective effect to the statute. On the other hand, if the new procedural statute is of such a character that its retroactive application will tend to promote justice without any consequential embarrassment or detriment to any of the parties concerned, the Courts would favourably incline towards giving effect to such procedural statutes retroactively."
23. It is therefore clear that even in matters of procedure past and closed transactions cannot be reopened and decided in accordance with amended law In PLD 1981 Kar. 473 re: Abdul Kalam v. Bashir Ahmad Rana, Saiduzzaman Siddiqui, J. rejected the reliance of the learned counsel for the plaintiff on Maxwell Interpretation of Statutes 1969 (Indian Edition), page 222 wherein it was opined that amendments in procedural laws were generally operative retrospectively.
24. The nature of change in law before us is however not exactly an "amendment" in law. It is revival of a law through an amendment by Finance Act, 1990 whereby a part of the clause inserted on 26-10-1987 was deleted. The nature of the provision is without doubt substantive inasmuch as it allows "deeming" and then "charging" of certain kinds of 'loans as income of the assessee. The deeming provisions though not "penal" as we understand them in legal phraseology yet these partake a number of its characteristics and therefore it would not be improper to apply the principles of interpretation which are generally invoked for penal provisions. And, the law is more than declared that penal provisions, like rest of them, cannot be applied retrospectively unless the Legislature had made them so either expressly or by necessary implication In PLD 1970 SC 80 re: The ITO (Investigation), Dacca, v. Suleman Bhai Jiwa the Supreme Court 'was considering some amendments having retrospective effect made in Income-tax Act, 1922 through Finance Act, 1967 and 1968 Their Lordships quoted with favour the Treatise on Statute Law by Craies, 4th Edition, page 334 to say "When retrospective effect to a statute is not given by express words, one must, apart 'from the language employed, "look to the general scope and purview of the statute, and at the remedy sought to be applied, and consider what was the former state of the law and what it was that the Legislature contemplated".
25. The deeming provision in question before us was suspended, as said above, under subsection (2) of section 14 of the Ordinance. The closing part of this subsection authorises the Federal Government to make amendments in Second Schedule, "and all such amendments shall have effect in respect of any assessment year, as may be specified in this behalf including any such year beginning on or any day before or after the commencement of the financial year in which the said notification is issued". We find that no condition or other qualification was made in the Notification by which the provisions of section 12(18) were inserted/included in the Second Schedule to make them passive or inapplicable. In absence of any such qualification in the notification or the Second Schedule itself, it would not be just and proper to hold that on revival the provision became living even during the intervening period of suspension.
26. The exemption from operation of the deeming provision contained in section 12(18) by Notification, dated 26-10-1987 and their revival on 1-7-1990 through Finance Act, 1990 cannot strictly be equated with their repeal and then re-enactment. However, this is the closest parallel one can draw in the circumstances before us. Looking at the revived provision or presumed re enacted provision on 1-7-1990 we find that existence of words "on or from the first day of July 1987" are necessarily of academic interest only if not redundant so far as the intervening period is concerned. Because giving effect to these words, the day, month and the year, would amount to allow blind retrospectivity without considering the intervening notification and then its withdrawal by the Finance Act, 1990. The approach so adopted would be literal interpretation and the first casualty would be the past and closed transactions. The adoption of such approach in such condition is likely to result in a chaos. As observed earlier the intention of Legislature to apply these provisions on revival on 1-7-1990 on and from the original date is neither express nor it can reasonably be inferred from the Finance Act, 1990 whereby the suspending provision, part of clause (7) in Part IV of the Second Schedule was omitted. The literal approach in this situation is likely to result in absurd and irrational conclusions. In fact the very object of suspension of the provision will be defeated and beneficial legislation would turn into a trap in which a number of unwary tax payers will be caught. I will not be surprised if the Revenue is tempted to invoke revisional powers under section 66-A of the Ordinance for such past and closed transactions. This was never the intention of the Legislature at the time of revival of the provision. "As a general rule" observed their Lordships of the Supreme Court of India in C.I.T. v. Kishorsingh Kalyansingh Solanki (1960) 39 ITR 522 at page 523, "interpretation must depend on the language of the section and not upon the consequence that may follow upon it. But this rule of interpretation of literal construction cannot be rigidly adhered to if it leads to manifest absurdity. In such a case the Court acts, under the influence of an irresistible conclusion that the Legislature could not possibly have intended what its words may signify. The cardinal rule of literal construction and linguistic clearness must not be pushed so far as to result in irrational or absurd conclusion".
27. The same Court in AIR 1976 SC 133 re: Dulip Kumar v. The State of Madhya Pardesh in such case favoured one of the two possible interpretations. It said "if two constructions are possible upon the language of the Statute the Court must chose the one which is consistent with good sense and fairness and eschew the other which makes its operation oppressive, unjust or unreasonable or which would lead to strange in-consistent results or otherwise introduces an element of bewildering uncertainty and practical inconvenience in the working of the Statute". The Lahore High Court quoted with favour the following passage from Maxwell on Interpretation of Statutes 3rd Edition, page 319 in PLD 1950 Lah. 384 re: Sarfraz Khan v. Crown; "where the language of statute, in its ordinary meaning and grammatical construction, leads to a manifest contradiction of the apparent purpose of the enactment, or to some inconvenience or absurdity, hardship, or injustice, presumably not intended, a construction may be put upon it which modifies the meaning of the words, and even the structure of the sentence "
28. Mr. Fazal Karim, J. in PLD 1992 Lah. 178 re: Muhammad Shafi v. Deputy Superintendent of Police, Narowal and others observed that "in recent years the modern Jurists and the Courts, are outgrowing the superstitious awe of the printed word and its magic potency and the literal approach has been gradually eroded and replaced by the purposive approach to statutory interpretation". His Lordship was comparing the "literal" and the "purposive" approaches in interpretation of statutes.
29. The submission made for the assessee that instructions contained in Circular No.6 of 1990 were binding upon the Revenue Authorities also bears weight. It is correct that the Supreme Court of Pakistan in 1993 PTD 766 re: Central Insurance Company and others v. CBR, Islamabad and another held the interpretation placed by CBR on various provisions of the Ordinance as administrative and not judicial interpretation. The interpretation so placed though not binding can always be taken into account by Courts and judicial forums while interpreting a particular provision. This is how the Supreme Court looked at departmental interpretation in PLD 1960 SC 195 re: Bashir Ahmed Khan v. Muhammad Ali Khan Chaudhry. A similar view was adopted by this Tribunal in respect of the instructions issued by CBR in 1986 PTD 828. The Circular in question to my mind does not contain anything which could be described as offensive to the words of Statute nor it expressed any negation of an established rule of interpretation. Taken simply as departmental view of the issue, I find it to be closer to justice fair play and neat administrative of fiscal matters.
30. A deeming provision has to be construed strictly and extended only to cases where no element of doubt to their application exists. The legal notion that certain kinds of loan transactions otherwise than in the prescribed method shall be taken as income falls heavily on the pocket of a tax-payer. An interregnum in application of such presumption duly allowed by law is as good as vested right as to be taxed strictly in accordance with the words of a statute. Transactions which are past and closed, cannot be interfered without an express legislative authority. In the case before us no legislative intention even by implication is expressed to touch in any manner the loans transacted during the eventful period. The judicial bias against restrospectivity of legislative instruments is open and obviously well-reasoned. The provisions of section 12(18) remained inoperative in spite of their being a part of the statute book. This happened by a process visualised by law itself. Therefore, all transactions of the kind remained exempted and free from the mischief or operation of deeming clause from 26-10-1987.to 30-6-1990. The parties are not at variance as to the date of the three transactions in question or the fact that all of these occurred after 26-10-1987 and before 30-6-1990 i.e. the period during which the deeming provisions were made dormant by act of law.
31. The contention of the learned counsel for the assessee that insertion of clause (7) in Part IV to the Second Schedule amounted to allowing of an exemption which could not have been taken away retrospectively is however not well placed. In the case relied upon 1992 SCMR 1652 re: Army Welfare Sugar Mills Limited v. Federation of Pakistan the Supreme Court of Pakistan found that a notification purporting to impair an existing or vested right or imposing a new liability or obligation cannot operate retrospectively in the absence of legal sanction. In that case exemption from Excise Duty was withdrawn before the period for which it was allowed. The contentions before the Court were based upon the principle of promissory estoppel to say that these could not be withdrawn before the expiry of specified period. The Court agreed that withdrawal of concession by a notification or executive instruction was not legal. However, at the same time it was observed that even such vested right could be denied by a legislative provision. The case before us is rather converse. The suspension of provision was ordered through an executive notification under section 14(2) by adding a clause in the Schedule while such insertion was omitted through an Act of the Parliament, the Finance Act, 1990. Therefore, the ratio of this case does not support the assessee nor will I agree that insertion or addition of section 12(18) in the said Schedule in any way amounted to an exemption. Exemption of income from levy of tax and exemption of an assessee or class of assessees from the operation of certain provisions of Ordinance may agree in result but their legal implications are totally different. Most important distinction being that claim of exemption of income presupposes the accrual of income though the levy is disputed on account of some concession allowed by law. It is not the case of the assessee before us as it challenges the applicability of deeming clause during the period of its suspension or, as described by tits title of Part IV of the Second Schedule, "exemption from specific provisions".
32. Since my learned brother the Judicial Member has arrived at the same conclusion, I will reply the question in negative. Therefore, the appeal shall succeed to the extent and in the manner directed in para. 10 above.
(Sd.)
(NASIM SIKANDAR),
JUDICIAL MEMBER.
M. B. A./199/Trib.Order accordingly.